How to Identify the Customers Worth Keeping #594

James Hurman, founder of Previously Unavailable and one of the sharpest marketing strategists in the region, analysed data across dozens of retail brands and billions of dollars in transactions. What he found flips the default ecommerce logic on its head. Growth didn’t come from retaining more customers. It came from retaining the customers who increased their spend over time.

That insight became the foundation for this Playbook.

In this Playbook:

• Why the brands retaining the most customers are often growing the slowest
• How to identify which retained customers actually increase lifetime value
• What Culture Kings learned about “toxic products” and one-and-done buyers
• Why Who Is Elijah stopped discounting its Discovery Set
• How Ryderwear protects margin by excluding high-propensity buyers from discounts
• The difference between retention volume and retention value
• How to rebalance loyalty and penetration for sustainable ecommerce growth

Connect with James
Explore Previously Unavailable
James’ main episode
Culture Kings’ main episode
Who Is Elijah’s main episode
Ryderwear’s main episode

Transcript

SPEAKER_01: 0:01

Furniture and shipping as a competitive advantage, they rarely go together. Bulky, costly, fragile, but it can be done. Just ask Freedom Furniture. Partnering with Shippit, they've saved a massive 20% on freight costs across Australia. And that's just the start. With Shippet's API integration, Freedom is easily managing multiple locations and saving big while doing it. They've automated fulfillment for over 50 stores and 100 dispatch points and streamlined their operations. Add expanded carrier options across Australia and New Zealand, essential during peak volumes, and it's no wonder that they've reduced cancellations and improved customer satisfaction. If you want to optimize your fulfillment and delivery operations, whether you're selling furniture or fashion, canoes or coffee cups, visit shipit.com to find out more and turn delivery into your competitive advantage during peak and beyond. If there was a word that we throw around in e-commerce that never gets questioned, it has to be the word retention. Everyone agrees it's important. Everyone says that they want more of it. And most brands measure success by how many customers they're retaining. But here's the uncomfortable bit. Not all retained customers are actually good customers. Stick with me here. Some might buy once on heavy discount and never come back. That's fine. We don't need them. Some come back, but only when you bribe them. Some create volume but quietly destroy margin. Not all customers are good customers. Today's playbook came together after a conversation with James Herman, founder of Previously Unavailable and one of the best thinkers we've had on Ad Descartes when it comes to customer strategy. Someone may have said man crush, but let's not take it too far. James kept pushing back on the idea that growth automatically comes from retaining more people. Instead, he reframed the question entirely. Not how do we retain more customers, but which customers are actually worth keeping. Because when you stop treating retention as a blanket goal and start treating it as a decision-making problem, everything changes. Where you spend, what you incentivize, and critically what you stop doing. So today we're revisiting a handful of past episodes that all land on the same underlying truth. We'll start with James because his episode set the foundation. Then we'll bring in Simon Beard from Culture Kings on toxic products, Adam Boris from Who is Elijah on the sample size fallacy, and Justin Bausch from Right Aware on Selective Discounting. They all come back to the same point. Different brands, same outcome. Let's get into it.

SPEAKER_00: 2:50

So anyway, when I looked in this data, one thing that was really super interesting was that the companies that were retaining the most customers were growing the slowest. The companies that are retaining the most customers are growing the slowest. Yeah. So the companies that were retaining like a lower percentage of their customers year to year were actually growing much faster. And that sort of it flies in the face of how we think things work, right? We've sort of been taught that retaining customers is one of the most important things we can do. You know, holding holding on onto those customers year to year is a really important underpinning of growing a healthy business. And so to sort of see that was, you know, at first sometimes when I do these, like I'll see, you know, I'll create a chart from the data, and then I'll go, I must have done something wrong because that chart just doesn't look like it should look and just completely breaks with, you know, what how we think things should work. And so I produced this chart and it was like this really kind of relatively, you know, linear correlation between a negative correlation between the amount of customers retained and the growth rate of the company. So where are you getting your data from? Sorry. So that's all coming from Clabio and Clabio's agency partners. Okay. So Clabio work with a number of agency partners around the world who have access to lots of kind of client data. So we studied sort of, can't remember exactly what the numbers were now, but it was sort of like dozens of different brands across a few markets, you know, millions of customers and billions of dollars of customer transactions. And so, you know, a relatively big data set. We're not sort of working with small numbers here. And so it was really, yeah, that was really interesting. And then when you kind of, when you go, well, hang on, this this chart looks completely wrong. What what on earth is going on here? And so digging into it, what we found was the companies that were, they might have been retaining fewer customers, but the customers they were retaining, they were growing the spend of over time. Sure. And so that's what sort of that's why the report's called, it's what you do with them. It's not the customers that you retain. Like just retaining lots of customers isn't the important thing. Retaining the ones that will spend more with you over time is the important thing. That's where the growth comes from. And so we then looked at kind of uh we looked at loyalty programs. So, you know, about half of the companies in in the set that we were using used a loyalty program. By the way, they're all e-commerce retailers, about half of them used a loyalty program. We found the growth rate of the companies using a loyalty program was much lower than the growth rate of the companies not using a loyalty program. Again, you kind of go, well, that's weird. You know, the loyalty program should help. James, are you sure you got the data right? Yeah, totally sure. Yeah. And when we looked into that, again, what we found is the companies that were using a loyalty program, yes, they retain more customers, but again, customer attention isn't the most important thing. And so loyalty programs do work in helping you retain customers. They don't work in terms of helping you grow the company. And actually, when we spend, you know, in marketing, we've got a finite amount of time and resources. If we spend too much of that time and resource trying to retain customers and drive loyalty, we spend too little of our time and resource growing the customer base by going out and driving penetration, doing the marketing that brings new customers into the brand. So it's all about like a, you know, again, we were talking before, it's all about a balance. We need to balance the stuff that we're doing in loyalty with the stuff that we're doing to grow the penetration of the brand over time. If we spend too much on loyalty and too little on penetration, we don't grow. If we spend a little bit on loyalty, which of course we should, we want to retain some customers and want to do the types of things that make customers happy and make them want to come back to us. Absolutely. It's not that we should abandon that altogether, but we should spend a small amount of our time on that and a much larger amount of our time getting the brand out into the world in big ways, bringing new customers into the brand, penetrating the market. That's how we grow.

SPEAKER_01: 6:43

All right, we've got a few lessons out of this to unpack. Number one, retention is a choice, not a virtue. James talks about this. He does brilliantly in removing the morality from retention, almost unpicking everything that we take to be true about loyalty. He doesn't talk about loyal customers as a badge of honor. He talks about customer behavior and economic contribution. Not bad for a marketer, right? His core point is simple but powerful. Retention only matters if the customers you're retaining actually increase long-term value. If someone requires constant discounting, constant support, incentives, or attention just to come back, they're not necessarily a win, even if your retention rate looks healthy. James pushes brands to ask harder questions. What behaviors do our best customers actually share? What do they buy first? How do they come back? And what are we unintentionally encouraging with our spend? The shift here is from counting customers to evaluating them. Because once you understand which behaviors correlate with real lifetime value, retention stops being about doing more and starts being about doing less but better. This takes us into lesson two, finding the customers you attract by product. Simon Beard from Culture Kings gave us one of the clearest examples we've seen of identifying bad customers early without even looking at a cohort report. At Culture Kings, his team mapped lifetime value and repeat purchase behavior back to the first product they purchased. And what they found was pretty confronting. Some products looked incredible on the front end. Strong row as big volume, cheap acquisition, but the customers they attracted were almost always one and done. They bought the product, they never came back, and they distorted growth metrics in the process. Simon's move wasn't to optimize harder, it was to reallocate budget towards products that attracted customers with higher repeat behavior and higher lifetime value. Sometimes the problem isn't in your retention strategy, it's the customers in your acquisition strategy that are coming in. Lesson three is beware the sample size trap. This one is a classic e-commerce assumption that rarely gets challenged. Low-cost sample packs are supposed to be the gateway drug. Easy entry, low friction, big upgrade potential. But Adam Boris, the founder of Who is Elijah, decided to actually test that assumption. They have a Discovery set, which is a selection of the best-selling fragrances bundled up together to help people commit to one longer term. When the brand analyzed upgrade behavior over time, they actually found that Discovery Set buyers had the lowest lifetime value across the entire customer base. Not just lower, but structurally worse customers. They were more price sensitive, less brand loyal, and far less likely to convert into meaningful repeat buyers. So Adam made a counterintuitive call. They stopped discounting the sample product, and acquisition focus shifted back to full-size products that required higher commitment and delivered better customers. So just because a product is easy to buy and feels like it's the gateway drug doesn't mean that it's going to acquire good customers. And the last one I've got for you, don't discount the people who buy anyway. Here's the last example. Justin Bausch from Riderware told us that customers are segmented by likelihood to convert. And the implication of that segmentation is where most brands go wrong. High propensity customers don't get discounts. Instead, they get early access, exclusives, first looks. Discounts are reserved for customers who genuinely need an incentive to convert. That one decision protects margin, reduces unnecessary discounting, and stops the brand from training its best customers to wait for sales. It's selective retention in action, and it reinforces the same idea James started with that retention isn't about generosity. It's about precision. So if there's one thing this playbook really drives home, it's this. Identifying the customers worth keeping isn't about retaining fewer people. It's about being intentional with your spend, your incentives, and your retention. James showed us that retention only matters when it's tied to real customer value. Simon showed us that some products quietly attract the wrong customers altogether. Adam showed that low friction entry doesn't always equal high value relationships. And Justin showed that indiscriminate discounting can punish your best customers while protecting the worst. Growth doesn't come from doing more retention, it comes from making better decisions about who you're retaining and why.