Verifying new customer identities

A common and effective way to acquire new customers is to offer them a discount on their first purchase. However, when doing so, it’s important to verify the identity of incoming customers who claim that they’re new to ensure that they actually are.

This is why using email addresses to verify new customer identities is suboptimal. Old customers who want to take advantage of the new customer discount can simply create new email addresses and sign up as new customers. There’s no cost to creating a new email address.

If your gross margin on each sale is large enough to cover the cost of the discount, this may not be a problem. But most discounts designed to attract new customers require repeat purchase behavior for the customer who uses the discount to become profitable over time.

A better approach to prevent abuse is to verify new customer identities using mobile phone numbers. Getting a new mobile phone number costs more than the value of the discount offered by companies in most product categories. As a result, old customers don’t have sufficient incentive to get a new mobile phone number to take advantage of the discount.

If your company operates in a product category where the value of the discount you’re willing to offer to acquire a new customer is larger than the cost of getting a new mobile phone number, you might want to use other ways to verify new customer identities. For example, you might want to verify them using a home address.

This will be much more costly for you and will likely detract genuine new customers who don’t want to jump over the hurdles necessary to prove their home address. But you’ll be pretty sure that your claimed new customer isn’t just an old customer who bought a new home to take advantage of your discount.

Also published on Medium.