Photo: RetailWire
Why do retailers practically ignore existing customers to go after new ones?
Through a special arrangement, presented here for discussion is a summary of a current article from the IMS Results Count blog.
Studies repeatedly show that second time buyers are more valuable and more profitable. So why do so many retailers focus heavily on sales transactions and fail to measure the KPIs of “the second sale”?
Rest assured, today’s e-commerce giants like Amazon understand the importance of leveraging second sales. Online systems track when you visit, what you view and what you purchase. AI then kicks in to repeat message first-time buyers for add-on sales and second purchases, while tracking all corresponding data from the messages, offers and future sales. Prime is the epitome of leveraging the second sale.
Unfortunately, many brick and mortar retailers’ marketing goals are rooted in historical models of reach and frequency, acquiring customers and getting them to the stores. When traditional retailers launch ecommerce, many still focus on metrics of acquiring customers, new page views, conversion and AOV (average order volume).
The second sale is often missed by many retailers because:
- Legacy systems are focused on sales transactions, not customers;
- Data resides in silos and is difficult to access;
- Metrics focus on transactions and year-over-year results, not relationships;
- Many lack integrated CRM systems to market and message to customers.
The future of retail and profitability lies in retention and optimizing relationships. In order to do that, retailers must think and analyze from a customer relationship perspective, not transaction sales. This will require CRM and customer tracking that enables retailers to analyze:
- What categories and products the customer shops;
- What category the customer makes the second purchase from;
- How long it was before they made the second purchase;
- What messages they received and what impact they had on conversion;
- How that compared to other customers purchasing similar products;
- What the “basket of core products” is that creates lifetime value for the customer.
The second sale is a critical, missing KPI in much of retail. Beyond the metrics, retailers must develop the ability to answer questions about individual customers that will create a path to retention and profitable lifetime value relationships.
Discussion Questions
DISCUSSION QUESTIONS: Do you agree that retailers’ measurement and metrics remain too focused on product sales instead of customer relationships? What metrics are most important in driving retention for physical stores?
Poll
BrainTrust
Ken Morris
Managing Partner Cambridge Retail Advisors
Georganne Bender
Principal, KIZER & BENDER Speaking
Totally. Focusing on the first time customer to the exclusion of the repeat customer is like a fisherman who catches a trophy fish, throwing it back in search of something bigger. Makes no sense in fishing, makes no sense in retail. Retailers should emulate the Amazon model. Repeat customers are revered.
Repeat customers are everything. And as retailers are looking for growth, it’s a natural tendency to look for something “new.” To want to attract “new” demographics and “new” customers. It’s easy to miss that growth is much more effective serving existing customers. When I was on the retail operations side, we used to watch month on month and year on year spending from our best customers. Having that metric front and center enabled us to focus on those best customers and as a result have them even happier, more engaged and spending more.
Retailers (and Wall Street) are far too focused on same-store sales followed closely by traffic counts. Unique product sales is an important metric as it establishes a foundation of relevance and value defined by the customer. Brands and retailers do in fact become too myopic in the individual transaction. The shopping experience starts before the store visit and goes well beyond the actual purchase. The objective for brands and retailers should be to establish a customer for life — following and maintaining a valued dialog with that customer well beyond the actual product purchase. If a young couple purchases their first stackable washer/dryer for their apartment from Maytag, it is Maytag’s fault if they ever purchase another washer/dryer brand in their lifetime. It is Maytag’s responsibility to maintain a valued relationship with those two people. If a brand is a promise kept, then that promise should be kept throughout a lifetime.
I don’t know for a fact that retailers’ “…metrics remains too focused on product sales…” but it is a fact that second-time purchasers have more potential to become life-time followers. As such, it is necessary to identify and track who these customers — with a probable higher life-time value — are, what (product categories, styles, price points) they buy and when they buy. There are many ways in which retailers need to understand the business; location, product, season, and customer. If the retail industry doesn’t spend the appropriate effort analyzing the behavior of the customer, it is missing the most financially efficient marketing opportunity: “market to those who already have demonstrated that they like me.”
This has been the trouble in retail for decades. Each week, retailers measure sales, projected GP, average sale and percentage of department penetration. They pay little attention to whether or not they have grown customers. This lack of focus has led to the “apocalypse” of retail closures we have seen over the years.
E-commerce brands measure the cost to acquire a new customer, long-term value of a customer, retention rate and unique site visits. The point is that these metrics are focused on customers. The cost to acquire and keep a customer and the cost of losing a customer.
Retailers need to change their metrics to understand how their decisions grow or lose customers. They need to understand long-term value and how to retain customers. A great example is Zappos. Almost 80 percent of Zappos’ billions in sales come from returning customers, who also become brand advocates.
Customer retention is the key to long-term survival.
First, I’m not sure the premise is true. As a shopper, I am in a number of loyalty programs and I get e-mails every week from probably 10 retailers. Beyond that, I cannot comment on the metrics. It is a retailer by retailer question. Now, one other element here…The Ehrenberg Bass Institute which has a number of followers in the marketing world, actually preaches that customer loyalty management is a bad idea and that building penetration is all that matters. This would legitimize NOT managing customer relationships. I have blogged many times and presented evidence as to what a dangerous idea this is but still, many, especially media companies who like to tell advertisers about their reach, find it appealing.
Are the metrics measuring second sale transactions really missing, or are they just not getting a lot of visibility? I can’t think of a retailer who hasn’t offered a discount if I would just please sign up for their credit card. If I visit a website just “shopping” or doing some research, that website almost invariably shows up in the ad boxes on other sites I later visit. Or I get an email the next day. “Hey, you were looking at blue widgets. C’mon back!” I seem to be leaving a very visible cookie trail wherever I navigate. And if a brand or retailer gets a bead on my preferences, are they going to broadcast that or share the info? I wouldn’t think so. And if my data gets sold along the way, my shopping habits are exactly missing. Feels to me like second sale data is being energetically pursued.
Most retailers have POS data and traffic counters, but little infrastructure and few metrics to build meaningful connection with customers. The ability to form the associate-customer bonds that translates into strong and even lifelong customer relationships are just not there anymore. For stores to fill a need reliably, and that’s where the retailer needs to be, the metrics are not as clear cut. However, loyalty is becoming more important to many retailers.
With years of “personalization” efforts, most retailers haven’t gotten beyond a recommendations engine. Retailers have mailing lists, email campaigns and third-party sources that are tied to demographics, but they miss the immediate, individual needs of the customer in the store. We hear all this talk about historical data, customer profiling, personas, segmentation and next best action — but a customer seeking children’s Tylenol could care less about the last three times they came into the store and purchased toiletries. Current motivation trounces historical data every time. Retailers need to find the intent and motivation of the customer to fill the customer’s specific need.
The metrics for this vary based on the retailer type, but bringing back customer experience indices, CSAT, NPS and more can be the catalyst in keeping your customer. Metrics that are critical for that second sale include CLV, wallet share, repeat purchases, customer loyalty indices and ad spend. Driving decisions with these metrics as a benchmark can influence repeat sales. As can the basics of store operations — clean store, reliable stock, friendly staff and easy checkout.
I fear that many times existing customers are taken for granted. It’s not right, but it does often happen. Retailers (and all businesses) are so focused on the vast opportunities that exist to collect new customers that their efforts of taking care of their core, loyal customers sometimes gets overlooked. With competitors constantly reaching out to everyone as well, that lack of closeness with their tribe members can many times be eroded. It becomes one of their competitors’ best opportunities!
Very basic measures, like average transaction size, transactions per month and year-to-year change in these and other measures can help build better pictures of shopper value to the business. I have said for years that taking care of the customers you have is easier that attracting new ones. Also, why do supermarkets focus on the small-order customers with express lanes, while full-size $150 orders wait forever to be checked out? Basic stuff. Plenty of room for growth here. Not rocket science.
Way too many retailers check the box on existing customer marketing (ECM) by launching “me too” loyalty programs and issuing private label and/or co-brand credit cards, the latter of which rely on their card issuing partners for ECM. In turn, many of those card issuers are similarly focused on acquisition in (an appropriate) effort to build their portfolio.
The opportunity is the mix of marketing investment against media versus customers. For most of my nearly 30-year career this has been an “opportunity” not just for retailers but for most consumer brands. Thus, it truly is an opportunity and those that are customer-centric, like the obvious ones, Amazon and Nordstrom, are the winners.
Aside from the pure analytics and KPI measurements, it is the ongoing, sustainable, fulfilling relationship between the retail brand’s store ambassadors (AKA “store associates”) and the customer that will keep them coming back for more. Customers will come back for more when they are engaged, have a personalized experience and the friction is removed from whatever channel they choose to browse and ultimately shop with.
Existing and repeat customers are the lifeblood to keep the ship afloat. Which will organically result in acquiring new customers, as the existing customers in our always-connected world become the retailer’s micro-influencers on social channels, and with their friends and family. Bottom-line, keep your existing customers happy and grow your relationships with them, along with their connections and family.
Are retailers’ measurement and metrics too focused on product sales instead of customer relationships? Yes. And here we go again on all the things technology should do for retailers but doesn’t because they fail to use it.
One of the things we do in our company is observe how shoppers behave on the sales floor. Want to cheese off a good customer? Tell her she can’t have the same deal/coupon offered to the new customer standing in line next to her.
According to which study you read it costs five to 25 times more to acquire a new customer than it does to keep an existing customer happy. Getting a customer to return to shop again should be the goal, yet the race to attract new shoppers is the most prevalent.
Retailers are either in the transaction business or the relationship business. Generally speaking, chains are the former and indies the latter. Now, I do know department store associates who keep in close contact with their customers, but those customers are rarely contacted by the store with anything other than a generic email or circular. The associate has a relationship with the customer, not the retailer.
An indie apparel retailer we work with thrives on frequently calling customers to recommend new product – and it works because these calls turn into big sales. That call – relationship – is a lot different than “Dear Bender” on a generic email.
I disagree with the fundamental premise of this article — that research shows there’s more money to be made grooming loyalists.
The excellent work of Byron Sharp (summarized in his book How Brands Grow) has shown that the law of double jeopardy dominates growth. Namely, the healthiest brands are those with the most overall consumers and when they have the largest market share, each of those consumers also spends more annually with the brand.
For retail, then, it’s most critical to be bringing “new” or “returning” customers back to the store. At the same time, the communication which achieves this also leads loyal customers to spend more.
Secondarily, some grooming of what are believed to be loyal customers can be useful as a tactical approach — but it should never be the primary effort.
There is no excuse for brick-and-mortar retailers failing to take steps to identify their customers. Unless of course they do not care about unique customer identification or lack the willpower or resources to put a solution into place. For that reason alone, I would not say that online retailers have a significant advantage in this area.
I’ve seen specialty retailers who are not ready or are not interested in a formalized “loyalty program” take an alternate step to request an email address from customers at the time of checkout. Using this basic tactic the door is cracked open to begin to know the customer, and some tracking can begin to see what categories are purchased, track frequency of visit and the other metrics mentioned in the article.
When under pressure, we humans tend to revert to familiar paths and methods that seem “easy” to execute. No one can argue the fact that retailers are under pressure and it seems the response by many is to revert to promotional approaches which focus on customer acquisition and price-related promotions.
There is definitely a better way, and not all of the related solutions are expensive or complicated to implement.
“Legacy systems are focused on sales transactions, not customers….”
This single, simple statement, summarizes a VAST unrecognized truth.
If only bricks retailers would understand that the assault of Amazon on their core business, is driven by Amazon’s focus on customers, not products. Amazon doesn’t give a fig about the products, of the millions they have on offer. All they want is THE sale, ANY sale, RIGHT NOW! Did you notice their “1-Click” ordering?
For Amazon, everything is now, Now, NOW! To confuse the issue by the incredibly superficial thinking of online vs. bricks is just that, incredibly superficial. And is leading to billions in investment that is totally missing the Amazon target, as they continue munch, Munch, MUNCHING on everyone else’s lunch, in their frenetic/leisurely fashion.
Wake up, Wake Up, WAKE UP!!! 😉
It’s not a secret that returning customers are better for your business than new customers. Studies have shown that a returning customer is less expensive to convert and has a higher average order value than a new customer. Many retailers are focused on measuring total sales and same-store sales, as this is what Wall Street focuses on to measure company performance. What they should really be focussed on is RFM (Recency of a purchase, Frequency of the purchase and the Monetary Value of the purchase). For many years this has been the mantra for successful omnichannel retailers, but it appears that the new economy has a different metric … maybe we need to go back to the future.
According to BRP’s research, most retailers have KPIs for sales, average order value, comparative sales and conversion rates; however, less than 50% of retailers have KPIs for the following metrics that measure customer loyalty: customer satisfaction (net promoter score), customer retention and post-purchase customer survey results.
Understanding the value of loyal customers and repeat purchases, retailers need to pay more attention to the lifetime customer value.
Many retailers lack the ability to target the “most valuable customers” due to the disparity in data, descriptive analytics and limited ability to hypertarget those customers with relevant offers and promotions to retain them as loyal customers. It’s easier to throw general promotions at the masses than to target those that retailers feel they have already “won.” Short-term thinking, I assure you. Retailers need to learn to measure advocacy versus simple loyalty and repeat transactions.
Retailers need to stay focused on profitability. We must stay focused on knowing what is going on around us and what trends are paving the roads into the future. Brick & Mortar retail is still reeling from the depression which is still closing businesses at a furious rate. Mountains of reports discussing the values of customer loyalty programs are drowned out by the customer search for reliable and pertinent product information and the decision criteria leader price. Stores are selling more by announcing and providing more for less dollars. If ther is no store/brand loyalty, and I don’t see where there is, then every sale is to a new transaction and no longer to the prospect. The new enemies are out-of-stocks, slow turn and high prices. Just as B&M is suffering from tax free ecommerce, so too is ecommerce suffering from shipping charges which are often more than taxes. It is a hardened market with no room for grandiose ideals.
Most retailers are focused on new customers because they believe that they are retaining their existing customers. This fallacy is driven by KPIs that include gross revenues as a measure of success rather than returning customer sales. This also minimizes customer satisfaction instead of focusing on it as a KPI for a company’s success.