BrainTrust Query: Driving Market Share
Through a special arrangement, presented here for discussion is a summary of a current article from Getting Personal About Business, the blog of Zahn Consulting, LLC.
When marketers look at how to drive business or volume to their business, they often consider two different paths. The first is to get someone to switch their purchases from a competitor. The second is to create a new customer or consumer.
When one looks at how those two intersect, you create four different scenarios.
Neither purchases product nor shops at the business
The worst case scenario — the shopper not only doesn’t shop the store but doesn’t shop the category. If the store is selling pet foods, toys, cages, or other pet items, those without pets will not be inclined to shop with the store. The likelihood of winning them over to shop at that store and to make specific purchases are limited. But shoppers can be encouraged to try new categories and experiences — even pet stores can promote adoptions. The next step is to convince the shopper to shop the specific store.
Shops at the business, but not the product
An office supply store, for example, may sell copy paper to many customers, but that does not mean that the same person is a viable customer for the other products in the store. Is the lack of a purchase due to the shopper not knowing that the products are available or maybe does not know how to use certain products? This requires more insight to identify whether or not consumers have the need or interest in the products that are available but not currently purchased. It may be a matter of better promotion, advertising, merchandising or customer education that is required.
Buys item, but buys elsewhere
When the shopper does buy the item, but chooses to buy it elsewhere, the focus has to be on identifying why the customer chooses to buy an item at a competitor:
- Is it due to assortment options?
- Is it due to pricing?
- Is it due to the way it is merchandised?
- Other?
This situation is most disturbing to the business in that the shopper may shop the store for other needs, but chooses to leave the store to make a purchase of a specific product because of the sense that the competition has something better to offer.
Shops with business and buys product with business
In this best-case scenario, the business gains from both securing the shopper as theirs (versus losing them to a competitor) and it gains the benefit of getting the sale of a product that is not going to the competition.
When looking at creating market share, the factors of creating a new customer versus just “stealing” some other competitor’s customers is going to create very different strategies. The best managed businesses work on both fronts — giving reasons to create switching behaviors, but also expanding the universe of customers by developing new shoppers who may not have known they could use a product, or need explanation as to how to use a product to improve their lives.
Discussion Questions
Discussion Questions: Are stores appropriately focusing on earning loyalty from existing customers versus going after new ones? Should retailers be more or less focused on competition in the marketplace?
Many stores don’t do a good enough job of either building sustainable relationships with existing customers (much different than “loyalty programs”) or thinking enough about how to attract new customers (other than through discounts).
Before you can “steal” or “retain” customers you have to understand what your value proposition is and what other value propositions there are out their for the consumer to choose from. The problem here is that most people give themselves too much credit and their competition too little.
There are really four strategies needed here–how do I get people to switch to my store, how do I get those who are already shopping here to buy a wider variety of products, how do I get my current shoppers to upscale what they buy now, and how do I keep my current customers. A successful retailer will play all four at once. Thinking Staples, for example, where they work hard to bring you into the store (usually with the promise of having everything at a low price. They keep you by these same factors. The loyalty program helps with expansion of variety and retention. And good sales people can give you options, hyping the better product a bit more.
With the exception of scenario #1, each of the other scenarios represent an opportunity to generate additional volume and profit from existing customers. While every business needs to attract new customers, the analogy of fishing applies to customers. Rarely will an angler throw back a big fish in an effort to catch another fish. Once we attract a customer we need to cultivate the relationship.
There are only a handful of sources of new business. Customers who don’t buy your category, begin to do so (scenario #1) – low probability. Customers to store/brand switch – still somewhat a challenge. Customers to buy more, more often or more effectively. This last scenario assumes a relationship and a strategy to achieve same and can be very cost effective and efficient.
Long live Newton! We seem to insist on a world of dualities. “There are two paths.” “We have to focus here or there.” “There are two types of customers.” “Customers buy this but not that.” The more we insist on treating customers and our businesses like a collection of distinct parts the more we become irrelevant.
Executive groups sit there with their “agenda,” a list of issues and problems. They tackle them one at a time never once stopping to realize they are not separate issues at all. Often, to my client’s annoyance, I keep repeating the mantra: “It’s all ONE thing!” When we finally get the power of that universal principle we become whole again. That certainly holds true in retail.
What we’re missing is ‘alignment’ in what we do. That’s the secret sauce of success. Stores are mostly a collection of parts. Until the “One Thing” is discovered and everything aligned to it, revenue will fall through the parts.
There is a “false choice” presented here. Obviously a new store needs to encourage trial in the first place, but an established store is smart to work on converting its “good” customers to “best” customers. If the retailer is successful earning higher share of wallet, it’s probably doing something right…and in today’s world of social networking and other reference groups, this sort of good execution is likely to drive new customers into the door.
One should always be focused on the competition within their marketplace while simultaneously focusing on their core customer and delivering on what brought them to the party in the first place.
While it is unquestionably true that in a dynamic retail environment it is important to change (remain relevant), it is equally important to ensure that change is within their core competency and aligned with their core customers needs (current and developing). The timing and extent of the change is as important as the quality of the change so a balanced approach is necessary to ensure that one doesn’t get ahead of the curve and change ahead of their customers needs. It is this approach that will ensure that one retains its current customer while seeking increased market share.
If one focuses solely on how to increase their market share (attracting new customers, decrease competitors marketshare) without appropriate attention to their core customer base, it can result in disaster.
Walmart is an example of just such a strategic miscalculation. Walmart was unable to balance the caretaking of their existing core customers needs while embarking on an extensive, multifaceted revamping of their marketing, operations and merchandising. In their program to improve their stores appearances, shopability, product mix and market share, they failed to take into account the needs or properly assess the impact of these changes to their core constituency.
In the process they failed to gain market share against a specifically targeted segment (upper income customer shopping at Target), over estimating the market share value of this niche and underestimating the market value of the potential market share loss should they be unsuccessful. As it turned out, they failed to gain appreciable market share at the high end and lost market share at their core to competitors such as the Dollar Stores.
In their defense, Walmart realized their miscalculation and are in the process recapturing their core customers through EDLP and expanded categories and assortments.
In my opinion, retailers should follow a diverse growth and maintenance strategy with equal attention and emphasis on each of the following:
a) Maintaining existing customers by doing better at what you already do.
b) Maintaining existing customers by keeping them out of your competition’s stores.
c) Gaining new customers by taking them away from your competitors.
d) Gaining new customers by bringing new customers into the marketplace.
Complex issues and complex answers. But most retailers could improve business markedly with one simple focus–retaining existing customers. This is particularly true with FMCG retailers, QSR and fast casual restaurants, etc.
Case in point: There has been a new Mariano’s under construction on the corner across from our neighborhood Jewel for 12 months. It opened yesterday to a predictably packed parking lot.
Last week we received a “we love our Libertyville customers” flyer from Jewel with lot’s of FREE coupons for maintaining purchase loyalty. Not a bad move in and of itself–but far too little too late to keep us from checking out Mariano’s.
I am cheered by the consideration given to this article by the colleagues on retailwire.com. Thank you for your well thought-out comments and contribution to the dialogue.
Have you looked at the survey results up to now? I can’t recall ever seeing two completely diverse opinions. This might be one of those discussions leading to more questions than answers.
Customer loyalty is the top strategic objective for 80% of retailers this year as reported in the NRF Retail Horizons study, up from 65% last year. By definition this is about growing share by marketing to existing customers. Growing customers, whether in size or shifting share (of wallet/of customer) is very much in focus, and now more than ever. More on this here.
Do you know which of your consumers are in each group? Do you know why they shop they way they do? If not, any plans you have for changing their behavior are just a guess. Unless you know more about your consumers than the group they fall into, you cannot plan a strategy. When you do know more about your consumers, then you will find that there are more than 4 strategies (one for each group) but you will be able to develop specific plans that will affect your consumers.
Over the past few years I have increasingly focused on exactly how stores service their existing customers, and have found that nearly uniformly they do an abysmal job in two crucial areas: the exact items that MOST shoppers want to buy MOSTLY; and the organization of those into a coherent SINGLE shopping trip–all the while keeping the supporting cast of tens of thousands of items from swamping the few–to be seen but not “heard.”
Stores that manage their “best” products, for their “best” customers, and the “best” shopping trip, will sell a LOT MORE of the best. And guess what? Other products, customers and trips will evolve to more efficient use of the store, too. The net result is massive increases in sales and profits–and not all built on paying customers to buy (cut pricing).
It’s all about focus on what works, instead of trying to solve problems, of which there is an endless and stultifying supply.
There are many outstanding points here about how to better convert shoppers in-store.
We also should consider the impact of cross-channel purchases. This category is an extension of “buys item, but buys elsewhere.” Here the issue is certainly around loyalty, but even a store that gets assortment and merchandising right can lose the business–later to an online web competitor or immediately to a mobile e-commerce alternative.
The latter is no longer theory. A March report by RSR suggests most retailers believe greater than a quarter of their revenue will soon come from online channels and half of that will be via mobile devices. And that’s the revenue they don’t lose to digital competitors.
Worrying about holding on to shoppers while they’re already in-store requires a new technology mindset from retailers. RSR finds 38% believe they will implement mobile coupons and offers, and another 31% say consumers will be able to redeem these offers and check loyalty status by the end of 2012. Another 31% place barcodes to check price or availability on the longer-term wish list.
All of these scenarios are affected by the presence or lack of compelling reasons to shop a store. Whether online or physical, a store attracts shoppers, customers and consumers in even more than the four scenarios described in the article. Retailers need to look at the compelling reasons people shop or do not shop their stores. They can be the traditional, obvious reasons, such as 1) location of the store, 2) Products selection, 3) Price, etc., etc. Or the reasons can be more evolutionary to include Brand loyalty, social connections, CSR activities, etc.
Retailers must continue to concentrate on competition, as they are considered to be competitors because they offer compelling reasons to shop their stores.
As to whether to focus upon existing or new shoppers, the answer is BOTH. Both can drive incremental revenue. Both can go to the competition.
“Growing & Protecting” the core customer base has to be priority one. Having those consistent transactions, and the cash flow that they deliver, create the cushion that firms need to add to their growth strategies.
In the grocery space, Kroger consistently outperforms by focusing on loyalty. In the airline space, Southwest makes their flyers feel at home. In department stores, Nordstrom is one of the best in staying in touch with the folks who “joined them at the dance.” And, the Ritz is an icon in the minds of guests who have stayed at their properties because that hotelier has taken expansive care of knowing about their needs.
However, growing a retail business takes a few other strategies, as well. That means finding new customer interactions, as well.
Winners who use a formula of C.R.A.F.T. permit themselves to establish wins on a variety of fronts. Conversion, Retention, Acquisition, Frequency (of visit), and Ticket–the C.R.A.F.T., focuses an organization on both building and executing successfully on the customer strategies.
Make new friends. And, keep the old ones. As the ditty goes–one is silver and the other is gold–both useful currencies.