This KPI class is an indicator of customer value and customer satisfaction

Business Objective behind this KPI-Class:

Maximize the repeat purchase by the customer to drive the higher customer value

Definition and Calculation formulae

Customer repeat purchase value= the sum of the sales value of all purchases or usage done by a customer within a given period of time. For example:

• A corporate customer gives repeat order for desktop to a hardware vendor.
• A customer buying his second car from the same dealer or manufacturer.
• A customer doing high use of a credit card.
• Bank balance maintained by the customer.
• High mobile usage by the customer.

Explanation & Specification

Repeat Purchase Value KPI class is an important component in terms of how an organization retains the customer and maximizes the customer value. Here is how this KPI could be linked to the organization performance, and how it can be interpreted in different ways given the organization context:

• Higher repeat purchase value means that a customer is well-retained and is satisfied customer.
• Higher repeat purchase value drives higher customer value, which means better top-line.
• Higher repeat purchase value can mean higher profitability, as it does not include new customer acquisition cost.

Type of KPI

• Leading: A good customer repeat purchase pattern is an indicator of higher overall customer lifetime value and potential of retaining the customer.
• For a period activity- This KPI will measure the activity (purchases) done with in a period of time.

Examples of KPIs in the customer repeat purchase KPI class

• Average customer repeat purchase value for customer doing the repeat purchases.
• Average customer repeat purchase value on the overall customer base (and not only those customers, who are going repeat purchases)
• Customers repeat purchase value as % of the total revenue. In other words, the value of sales revenue from existing customers.
• Average usage value (for ongoing usage product like credit card, utilities, bank balance..) per customer

Specifications

Segregate the repeat purchases related to the existing product vis-a-vis those related to a new product: For example, if your customer is upgrading the laptop with additional memory vs. an existing customer who is buying a new laptop. This segregation essentially points to the sales effort. It is easier to sell add-ons to an existing product, than selling a whole new product to an existing customer. Another example is a customer buying a new mobile connection from you vs. a customer doing good usage of existing connection.

Exclude or at least segregate the purchases which are linked to long term contracts. For example- you may have a 5 year maintenance contract on the industrial air conditioning in a large factory. The payments made every year for this maintenance contract are predictable especially, when the exit clauses for these contracts are stringent. These kind of repeat purchases are easier to do. One example is in the markets where there is a lack of number portability (you cannot switch your telecom operator without changing your number).

Clarity is needed on:

• When you calculate the average usage or repeat purchase value per customer, the question is on what denominator will you use? There will be a segment of customers who have not been doing any activity with you for X months or years.

One way to do is - segregate the customers as (like a dead bank balance not been used for last 3 years), in-active(a customer not doing any purchase through your credit card, but is paying the annual credit card fee) and active (customer doing activity on your product). This approach is applicable on the product, where there is an ongoing usage. On the basis of this classification, one can use different denominators depending upon which of the above three categories you include. All the three categories have got their own significance. For example, a dead customer account means customer attrition, in-active customer means that customer has a potential to be revived and active customer means that customer has a potential for further increase in value.

• What should be your benchmark or standard for repeat purchase or usage value?

How do you define, if your are doing good, bad or ugly on this KPI? As a telecom company, how do you judge on what is good mobile usage for a certain segment of customer or for a product. Following are the methods which can be utilized:

• Refer to the assumptions made during product and pricing. Assumptions of usage and margins are made at this stage.
• Refer to industry experience- There are industry reports on customer segment or product based average usage.
• Competition Data.

Challenges

Tracking the customer repeat purchase or usage value

Customer repeat purchase or usage value is easy to manage in the scenario of:

• Institutional Customers
• Retail customer, where you have a customer account- For example mobile connection, bank account
• Retail customer, where you have some kind of tracking for example loyalty cards. However, it may not be certain if a customer will provide the loyalty card at every purchase or usage.

Customer repeat purchase is difficult to manage where:

• You do not have a customer account or tracking mechanism. For example a customer buying apparel from a store.
• You capture customer details but you do not have an effective search mechanism in your system. In certain cases, you may capture the name, address or telephone number of your customer. However, if your system does have effective searching and matching capability, you will miss out on identifying if it is a repeat purchase.

TIP- A good way to track a customer, is to go heavy on loyalty cards, and make the use of loyalty card compelling enough. This will ensure that customer will use the loyalty card for all the transactions he does with you, which will give you a good track on repeat purchases. This does not mean that you need to give heavy discounts on the loyalty card usage. You may provide better support services, free magazines or publications related to your product, free tips on better usage of your product etc.

TIP- Ask for the information like telephone number or pin code along with name etc. Implement customer searching and matching software to identify the existing customer. There are many tools which enable this capability.

To identify if the customer is eligible for your product

Sometimes the repeat purchase of a customer reduces because customer is no longer applicable for your product. In other words, customer is no longer using the product, not even from your competitors. For example-

• A customer, who is traveling extensively, may stop flying because he does not have a traveling job.
• Similarly a customer may no longer use your home broad-band connection as he has moved to an apartment where he is using a shared broad-band.
• A customer may no longer buy your food testing equipment as he has moved out of food processing business.

It is difficult to do this kind of analysis for retail or consumer products. For institutional customers, it is easy to do as one has a relationship management with those customers, and your relationship manager will be able to feed the details.

TIP- For consumer businesses, the only way to get some idea is to do a sample customer survey. You can pick up a sample of customer who are either attrited or are in-active and do the analysis on response.

Interpretation and Analysis

If you are under-performing on this KPI, you don't seem to be doing a good job on your customer satisfaction and retention OR your product proposition is no longer competitive. You may refer to Customer Management to get details on customer relationship and retention. Along with this you may look at the following influencing factors to get more insight behind this KPI performance:

• Environmental factors: Economic downturn or depression may lead to customer delaying their purchase.
• Product usage cycle: When you acquire a new customer, there is a specific purchasing pattern. The possible patterns are:
• High purchase activity in the beginning (like balance transfer for a new credit card, or high usage during period of a sales campaign, where new customer does more buying compared to post campaign period) followed by lull.
• Low activity in the beginning and higher activity at later stage- Life Insurance- A person start with a small policy and goes for a large policy as his income and responsibility grows
• Nearly constant activity

• Recent Sales Campaigns: This may boost your repeat purchase or usage value, even without any change in product design or customer satisfaction index.
• Competition campaigns
• Your level of focus on existing customer- Some sales staff is so busy acquiring new customers that they don't focus on value from existing customers. This is a question of organizational mind-set. If an organization is doing good sales revenue but having low customer repeat purchase and usage value, it points to following potential flaws, whereby
• Company is making revenue from high cost new customer acquisition process, leading to lower margins.
• In terms of product design, company is having an excellent product proposition for new customers, but does not have a repeat purchase proposition.
• A low repeat purchase or usage value customer is at high risk to attrite, leading to higher attrition figures.

Measures related to this KPI class

• Number of existing customers
• Number of purchases or usages made by the customers
• Value of purchases and usages made by the customer

Dimensions or attribute on which you can slice and dice this KPI class

• Customer Segment
• Location (KPI performance for London area)
• Product (KPI performance for specific set of products)
• Business Unit
• Time
• Tenure slab of sales staff
• Sales channel status
• Sales channel

Direction of improvement

Maximize

Industry Relevance

All

Functional Relevance

Sales & Distribution