Do Customers Bounce Back?

As you prepare for the intensive spring selling season, it’s a good idea to assess the early warning signs of customer loyalty you may have received from customers last year. After working with retailers and their sales data for many years, I have learned the previous year’s sales are a leading indicator of what a customers is likely to do the following year. In other words, 2009 sales with individual customers will predict their behavior this year.

One of our clients recently mentioned 2009 was a very good year for them. Sales were up and they acquired quite a few new customers. I guess some of their competitors didn’t have quite as good a year! Because this client has worked with us for many years, they know many new customers are actually vulnerable the following year. New customers tend to buy in one or two categories and often continue to do business with their former retailer as they evaluate their experiences with the new retailer. Like any relationship in trouble, the dissatisfied party doesn’t leave all at once. They tend to leave slowly. Our client will be monitoring these new customers this year to ensure he strengthens the relationship by deepening his category penetration and overall share of business.

Which brings back to our main topic: Do customers bounce back? Even though you might have increased your business last year, you likely did not achieve 100% loyalty with all customers. Consider this: Most ag retailers lose roughly 10% to 15% of their customers each year. Even more customers defect in one or two categories with their former retailer. This slow death of a customer is very insidious. Most retailers don’t notice the process of a customer leaving because they don’t have a proper customer radar in place.

So the question is what happens to these customers the year after they don’t buy their chemical, fertilizer, or seed from you? If most customers return the following year, then customer attrition in any particular year is not a big deal. But if customers tend to stay away the following year after not buying at least one category from a retailer, then it’s a very big deal indeed.

Looking At The Numbers

The chart shows the purchase behavior of approximately 20,000 growers from our database who dropped at least one category with their retailer in a recent year. What we wanted to know is this: “What happened the next year? Did these customers bounce back?”

The chart shows the last year of a three-year evaluation of customer loyalty. In year one, we measured the number of categories our clients sold to their customers. In year two, we identified customers who defected in one, two, or three categories with their retailer. Finally we measured what these same customers did in year three. This is the data shown on the graph. Of the customers who dropped one category, only 23.5% “bounced back” to their starting position (i.e., the retailer regained their business after the customer dropped a category the previous year).

Unfortunately, a full 76.5% of customers who dropped only a single category continued to decline as we tracked their sales between year one and year three. In these cases, the retailer did not recover the business. It was lost to a competitor for the foreseeable future. Remember: New customers leave their current retailer and try a new retailer in stages.

When customers dropped two (i.e., chemical and seed) or even three categories, the prognosis for the following year is much worse. For customers who dropped two categories, only 19.5% returned to their previous level the next year. More than 80% either stayed at the new low level or kept declining (i.e., they dropped additional categories the following year). As the graph shows, it just gets worse if a customer essentially defects (i.e., they drop three categories).

In my recent columns, I have been discussing how customer experiences impact a retailer’s market share. When a customer is lost (even in a single category), there is a tendency to look for “sound bite” type explanations, but these are often too simple to provide a satisfactory explanation. Pricing is one of the customer experiences that many retailers spend a lot of time thinking about. In work done by AgKnowlogy to quantify customer loyalty, pricing is rarely near the top of customer experiences that drive repeat business. Pricing needs to be competitive, of course, but it is not the driver many believe it is.

Quantifying how your customers perceive your performance on a range of experiences will give you insight into what drives loyalty for your business. This insight is critical because the cost of losing a customer, even in a single category, for the upcoming spring season is much larger than you might think.

I suggest you review last year’s sales to identify any customers that might have taken business to a competitor. Customers typically don’t bounce back on their own, so you need to work with these potentially lost customers to resolve differences and win back their business.

Leave a Reply

Management Stories

Crop InputsARA 2016: 5 Developments Worth Monitoring Into 2017
December 6, 2016
You can pretty much set your watch to it (do people even still wear watches? I know I do…but I’m Read More
ManagementCorn and soy planting update; Takeaways from Climate Corp. CEO interview
December 2, 2016
AgriBusiness Global Editor Dave Frabotta Joins Paul Schrimpf for a discussion of global corn and soybean planting trends, and a Read More
ManagementAg Industry Comes Together To Address Climate Change
December 1, 2016
Addressing climate change — and more specifically, decreasing greenhouse gas emissions from agriculture — can only be achieved through collective Read More
Key Cooperative Marcus Construction Steel Building
ManagementThe Value Of Cooperatives In Modern Agriculture
December 1, 2016
Editor’s Note: Jaxon Mullinnix of  Lone Tree, IA, was recently named the Iowa state winner of the 2017 GROWMARK essay Read More
Trending Articles
Mike Stern
Precision AgClimate Corp. CEO Talks Retailer Support For Digital Ag
December 1, 2016
CropLife Magazine’s sister publication, AgriBusiness Global, recently sat down with Mike Stern, CEO of The Climate Corp., following the Monsanto subsidiary’s Read More
Precision AgTrimble Debuts End-to-End FMIS Platform
November 28, 2016
October’s inaugural PrecisionAg Vision Conference left this author with many thoughts and things to ponder in the coming months. Probably Read More
CHS Primeland
CropLife 100The 2016 CropLife 100 Report: Reviewing The Many Bulls And Bears Impacting This Year’s Marketplace
November 28, 2016
For virtually all of 2016, the nation was wholly focused on the big Presidential election. Some folks aligned themselves with Read More
Monsanto sign
Crop InputsMissouri Governor Meets With Bayer CEO To Discuss Monsanto Merger
November 21, 2016
Missouri Gov. Jay Nixon visited Bayer AG global headquarters in Leverkusen, Germany, on November 18 to discuss the proposed Bayer-Monsanto Read More
STS16 2017
SprayersHagie Manufacturing Releases 2017 STS16 Sprayer To Market
November 16, 2016
Hagie Manufacturing LLC’s largest full season applicator is now available with enhancements for the 2017 model year. Hagie is officially Read More
Wilco
CropLife 100Valley Agronomics, Wilco-Winfield To Form New Agronomy Joint Venture
November 11, 2016
Valley Agronomics LLC, headquartered in Rupert, ID, is a joint venture between Valley Wide Cooperative and Winfield Solutions, LLC. Wilco-Winfield, Read More
Latest News
HerbicidesHerbicides 2017: New Cropping Systems Set For Debut
December 7, 2016
Herbicide-resistant weed are inching ever-closer to a potentially frightening saturation point here in the U.S. Heading into 2016, USDA planting Read More
CropLife 100Wilbur-Ellis Acquires Michigan Ag Retailer
December 7, 2016
Wilbur-Ellis’ Agribusiness, a recognized leader in precision agriculture technology and the distribution and marketing of plant protection, seed and nutritional Read More
Fertilizer storage The Andersons
CropLife 1002016 Fertilizer Report: Another Really Rough Year For A…
December 7, 2016
In many ways, the fertilizer category cannot seem to catch a break. During the early part of the 2010s decade, Read More
R4023 Sprayer, John Deere
CropLife 100Ag Retail Equipment Report: The Green Party Continues
December 7, 2016
In the annual race for sales in the ag retail equipment marketplace, the color schemes for participants are a little Read More
Winter wheat
HerbicidesTalinor Herbicide Approved For Wheat And Barley
December 7, 2016
Talinor herbicide from Syngenta has received federal registration from the U.S. EPA, giving wheat and barley growers a new option Read More
Forage Sorghum
UncategorizedMilestone Achievement Continues For Dow AgroSciences, A…
December 7, 2016
New and innovative forage products are on the horizon driven by continued collaboration between Dow AgroSciences, a wholly owned subsidiary Read More
Palmer pigweed seedhead in cotton
HerbicidesNew WSSA Factsheet Explores Weed Seeds And Their Longev…
December 7, 2016
Did you know some weed seeds can lie dormant in the soil for more than a century and then sprout Read More
Crop InputsARA 2016: 5 Developments Worth Monitoring Into 2017
December 6, 2016
You can pretty much set your watch to it (do people even still wear watches? I know I do…but I’m Read More
Tim McCardle, ARA Chairman
CropLife 100BRANDT COO Named ARA Chairman
December 5, 2016
BRANDT EVP and Chief Operating Officer Tim McArdle has been named chairman of the Agricultural Retailers Association (ARA) during a Read More
Crop InputsWilbur-Ellis Receives ResponsibleAg Certification At Mo…
December 5, 2016
Wilbur-Ellis Co., a recognized leader in precision agriculture technology and the distribution of crop protection products, announces the ResponsibleAg certification Read More
Young Corn Closeup
Eric SfiligojThe Read On 2017 For Agricultural Fortunes Is Anybody’s…
December 5, 2016
As I (and others) have written in recent months, the nation has just experienced one of the most offbeat election Read More
Acceleron B-300 seed coating
Crop InputsThe BioAg Alliance Launches New Yield-Boosting Microbia…
December 5, 2016
As part of their commitment to develop and commercialize innovative microbial solutions for farmers through The BioAg Alliance, Monsanto Co. Read More
ManagementCorn and soy planting update; Takeaways from Climate Co…
December 2, 2016
AgriBusiness Global Editor Dave Frabotta Joins Paul Schrimpf for a discussion of global corn and soybean planting trends, and a Read More
Radish cover crop taproot
Crop InputsSoil Health Institute, Datu Research Receive Grant To E…
December 1, 2016
The Soil Health Institute (SHI) and Datu Research have announced a $626,000 grant from the Walton Family Foundation to quantify the Read More
Mike Stern
Precision AgClimate Corp. CEO Talks Retailer Support For Digital Ag
December 1, 2016
CropLife Magazine’s sister publication, AgriBusiness Global, recently sat down with Mike Stern, CEO of The Climate Corp., following the Monsanto subsidiary’s Read More
ManagementAg Industry Comes Together To Address Climate Change
December 1, 2016
Addressing climate change — and more specifically, decreasing greenhouse gas emissions from agriculture — can only be achieved through collective Read More
Young soybean field
HerbicidesLiquid Formulation Valor EZ Herbicide Available For 201…
December 1, 2016
Valent U.S.A. Corp. has released Valor EZ; a liquid formulation of the company’s leading herbicide, Valor. Named Valor EZ Herbicide Read More
Key Cooperative Marcus Construction Steel Building
ManagementThe Value Of Cooperatives In Modern Agriculture
December 1, 2016
Editor’s Note: Jaxon Mullinnix of  Lone Tree, IA, was recently named the Iowa state winner of the 2017 GROWMARK essay Read More