When 50% of Your Customers Abandon Your Product

Customer churn is unavoidable. I have written before the futility of chasing 100% loyalty from customers.  Simple reason is – change.  Customers change, their needs change, norms change, technologies change, and competitors change. When such changes happen some fraction of customers stop buying all together, switch to competition or your product becomes irrelevant.  Every business needs to build in a certain level of churn in its future growth and plan to continue to grow installed base of customers despite losing some.

But what do you do when,

50% of your customers stop using your product, close to 30% in the first 3 months?

Your whole valuation is based on growth,  showing triple digit user and revenue growth year over year for next several years?

When you have really just one product?

That is the case for Fitbit. First it is a product that customers should want to buy and not a necessity. Second customers lose interest so quickly. Third even among  those who want to buy the band it is facing competition from low and high ends.

Just a few weeks ago Fitbit’s stock hit highs of $50, 250% over its IPO price, and now trading 30% below IPO. Today Fitbit will announce its fiscal Q4 2015 earnings. It may very well post its best quarter yet in terms of number of bands sold and revenue. Its stock will see movement in the near term to levels above its IPO price. But is there long term value in this? Take a look at this chart below on what it means to its growth when 50% of customers drop out

fitbit-growth

If it has to show even a modest 40% growth over next five years it has to get that all from acquiring new customers. Think of the effect of this on its marketing dollars.

How many more campaigns it needs to run?

How many new markets it needs to break into and the cost of market entry?

How many promotions it needs to run? (Costco is running a promotion on bundle and today BestBuy is running a $30 off promotion)

What is the ROI on all these marketing dollars when only 50% return and spend less and less over lifetime.

This is not to repeat the fact the product itself does nothing really to fitness despite the name.  It will be interesting to see heart rate data of its shareholders over the next few months.

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