BrainTrust Query: Forget New Shoppers. Talk to Best Customers
Through a special arrangement, presented here for discussion is a summary of a current article from the Mark Heckman Consulting blog.
I still maintain that retailers spend much too much time, money and newsprint chasing new and highly unsustainable shoppers. At the least, stores should make sure such efforts are not alienating their best existing customers. Let’s start with the weekly circular.
There are ways and means to use the circular to better understand who is using it and buying from it. More important is answering, "How are the best and most profitable customers using (or not using) the weekly ad"?
Here are five quick questions that can be answered through some pretty basic database queries:
- What percent of best shoppers purchase from the front page of the circular?
- How do VIP shopper basket sizes differ from best shoppers who do did not purchase from the front page? How do they differ from other shopper groups that did or did not make a purchase from the front page?
- Which items, over time, resonate best with top shoppers, more casual shoppers, and the ultra price sensitive that shop predominantly for specials and deals?
- For more advance applications and segmentation practices, which deals are more apt to be purchased by social media community shoppers?
- By store type or geographic segment, which items attract a larger percentage of shoppers and what are the associated weekly sales by store segment and geography with various combinations of front page items?
Armed with this basic intelligence, circular ads can be a great learning tool for making offers more efficient and strategic. Purchase indices can be quickly calculated to help merchandising understand which items and item combinations are more attractive to the each shopper segment.
Now, back to VIP shoppers. Most supermarket retailers report that even the very best shoppers are only sourcing about 65 percent of their grocery requirements from their favorite store.
If you happen to be that favorite store, you know two things for sure.
First, these shoppers like you better than anyone else (at least at this point) and are very familiar with your store(s).
Second, there is still much more potential business available from these households. Using circular ad analysis to better target VIP shopper segments is pretty basic stuff. But it works and allows you to draw even more ROI out of your ad program by using the data to refine future ad combinations and versions, designed to build basket size with your very best shoppers.
Discussion Questions
Discussion Questions: Do you think most retailers are currently aligning store circulars to their VIP shopper base? Where do you see opportunities to use analysis to improve the effectiveness of retail circulars?
I do understand the need for and the concept of creating benchmarks and metrics for evaluating circulars, and who is doing what. But I also think it misses the point and the opportunity. The weekly circular is maybe other than the cashier at the end of a transaction, the most visible and effective method to communicate to a retailer’s customer. Why take the position that it’s a vehicle to “tell things”… could it be a vehicle to “ask things”?
The technology exists with QR codes and tweets and blogs for retailers to engage with their customers. Recipes, pick a core item and be able to download a shopping list (in order of the aisles of their particular store), add coupons and rebates right in, tell them something about the staff member of the week, special parking spot, free delivery.
The circular should be a value for more than item and price.
Retailers definitely need to devote full attention to customer retention and loyal customer development far more than attracting new customers. Stores do not need to be more crowded. What they need is for loyal customers to spend on more profitable products while in the store.
Mark Heckman brings up some valid points that are fundamental to a sound CRM strategy. You can’t ignore the sales and profit potential from your “platinum” customers, and some solid data mining will help uncover ways to drive their loyalty.
But, as usual, it’s not an either/or choice between “best” customers” and new ones. It depends more than anything on the objectives of the business: Is trial more important than loyalty during a start-up phase, or when a retailer is trying to gain share in a new market? The trick is to use some of the strategies discussed in the article to convert the first-time consumer into a loyalist.
Completely agree with the philosophy in the article. dunnhumby is founded on the same “customer first” view.
Customer insights can really benefit the circular and how well it resonates with customers and performs for the business. Mark’s list of 5 is good and you can go even further too; by looking at household level engagement with individual product offers to understand the role each offer plays on the front page. Armed with these insights you can optimize the reach, balance, and return of the circular to ensure consistent and sustainable performance over time (using the right measures!).
The idea of focusing on your best customers is analogous to focusing personal time on best friends. I don’t spend most of my time and effort trying to find new “best friends”: likely I won’t find any and in the process I’ll lose all my current ones!
In business, the keys to winning with your best friends is a combination of great customer data insights, a customer first or loyalty philosophy, and an organization designed to be customer first (not product and/or shareholder first). Each one of these is tough to achieve, but only all 3 will deliver breakthrough!
Mark presents an excellent point-of-view. In my opinion, retailers definitely look at the total body of potential customers and do not spend enough time, energy and resources on learning more and addressing the their VIP shopper base. Reward and loyalty programs, as well as basic POS data should be investigated in order to determine who, what, where, when, how, and why these VIP shoppers interact and engage with your brand.
I believe that retailers should develop a specific team consisting of marketing, merchandising, research and operations expertise to focus on the VIP shopper base. Given the power, influence and tremendous use of social media channels, it would be in every retailer’s best interest to not only identify and understand this customer base, but proactively bring unique value to these folks by way of relevant and personal dialog.
Mark’s points about the relative ROI of chasing cherry pickers versus mining the “gold mine” of VIP customers make great sense, of course. Anything actionable retailers can do in that regard should pay off handsomely.
With regard to circulars in particular, I wonder just how much differentiation is possible/practical. The items that attract the cherry pickers are also the high volume items in the VIP shopper’s basket. Rewarding one is rewarding both. If retailers feature more obscure items or use a different pricing structure on the core items that make up the typical weekly circular, don’t they risk losing their VIP shoppers to more attractive deals on these core items at another retailer?
Again, no argument with the objectives — just thinking about the potential for unintended consequences of the tactic.
While it’s essential for retailers to focus and retain the “VIP” customer base, there is an additional area to consider that is often more incrementally profitable.
In our experience, it is not always the top tier “VIP” customers that present the most upside. Those are often the most loyal and give the most share of wallet. It’s the ones just below those and the ones in the middle that have the most potential to contribute incremental sales.
Great points in this discussion as this is such a case of “SSDD” on the part of retailers, most of which fail to align marketing spend (note we’re not calling it investment, because when they do this it’s not an investment, but just an expense!) to customer opportunity and value.
The bulk of marketing spend is still focused on untargeted media promoting the wrong things to the wrong customers.
A good frequent shopper program was supposed to save the weekly circular cost. I guess that did not happen. Retailers are at a crossroads with weekly circulars. With the rapid demise of newspapers, the execution cost could greatly increase. The majority of newspaper subscribers are in the over 45 set. Unless your target consumer is over 45, how effective is a weekly circular? Most retailers have good statistics on their circular performance, including seasonal influences. The greatest negative effect is when a new customer gets a better deal then the loyal ones. This just makes loyal customers mad and realize that the retailer does not care about them. Retailers should be sending customized e-mail specials to their loyal customers, assuming they have an email.
Mark raises some great examples of how circulars can be used more strategically and drive more profitability. I think there’s a more fundamental assumption here, though, that the key question is “how are best customers using the ad?” Understanding how it influences best customers is great, but the circular does play a key role in bringing in incremental and occasional shoppers that I feel Mark is too quick to dismiss.
Our path to purchase research identifies where and when shoppers (buyers and non-buyers) use the different media nodes and how they influence purchase. Armed with that information, a retailer can then start to understand the role of the circular more holistically as part of the marketing mix. Once a retailer knows for whom their ads are most important and when, they can get really granular and smart about what to advertise and when. Mark’s questions and analysis points are GREAT, but I wouldn’t focus exclusively on VIPs particularly with this vehicle, as I think it misses a lot of opportunity.
Not sure what’s worse … circulars that tout so many price changes that customers can’t absorb them all, or circulars that contain tiny coupons that aren’t reflected in signage in the aisles, which means that loyal customers will miss them. Who hasn’t felt like a chump because you paid more than you had to? Can’t we find a better way to do this?
The use of digital technology can create e-circulars that will align with a VIP shopper base. I’m more in favor of demographic marketing versus a specific customer.
For example, focus vertically on customers who like organic instead of focusing specifically on John Q Public, the person. Because John Q Public is more likely to spread the word to other organics lovers and refer more customers to the offer.
One really cool concept I’m thinking of with printed circulars is the use of augmented reality. Lay the circular down flat, use your mobile phone camera to see 3-D images of the products and allow the customer to “pick out” a virtual product and view more information and add it to a shopping list.
Insight from our friend at dunnhumby is most helpful to this discussion. One of their greatest contributions to effectively leveraging customer insight to then drive merchandising and marketing strategies is causing the buying/sourcing organization to apply different practices than traditionally applied. The circular strategy in terms of what is “communicated” or displayed has changed – for many of today’s leading grocery retailers. It employs buy/buy – get; threshold spend promotions and product/feature that generate incremental traffic/take rates in-store. Likewise, matching purchase behavior to print circulation/ penetration establishes cause/effect that is further refined over time.
VIP base serves several purposes and the most important of which is finding who is found in the next tier or decile below that level is. Pushing product/services to cause profitable migration in order to lift incremental spend is a solid best practice. In an undifferentiated, non-exclusive environment (grocery) it is a bigger challenge.
I will say having worked in an inner-city grocery store for 5 years and being a foodie in adult life that the shopping experience especially on the weekends at my local Kroger, Jewel, Dominick’s, Price Chopper, Giant Eagle is not the same as it used to be. Remember the days in the 70’s and 80’s where shopping on a Saturday morning or afternoon was a “big deal” and you ran into friends and neighbors? No longer. The total spend is heavily split – Costco, Sam’s Club and other big formats along with Wal-Mart, Target and Kmart selling consumables have cut into the traditional grocery share of spend – never to return to traditional levels.
I think the focus on “best shoppers” is overwrought. Better to address the “shopper crowd” whose purchase interests are not nearly as diverse as folks imagine. I know this is extreme, but everyone buys pretty much the same stuff, which is why, in a supermarket, half of everything sold comes from a short list of about 1000 items (out of maybe 40,000.)
The problem is that the retailers are trying to sell 40,000 items and the shopper is trying to buy 10. This disjoint massively suppresses sales and makes low level frustration a constant for shoppers. Truly SELLING 500 of the right items in the presence of the other 39,500 is the holy grail of retailing. Nobody does it, so maybe nobody ever will. (But all that lost profit!!!)
Mark brings out excellent points in his article. And it made for an interesting read.
It would be more beneficial if retailers actually studied the results of the store circulars rather than simply pasting items they want to move. Frequent shoppers are the best gauge of the validity of the circular results. Too often they are overlooked.
In a declining or stagnate market such as we have in the US the pursuit of market share increase is a must. The idea of “our good customer base” keeping a company’s earnings stable is not an option. Retail knows for sure that many customers have simply gone under over the last five + years. There is however a need to determine how to increase market share more successfully. This should start by learning where the best opportunities are and how to approach them. An example of companies not studying the market and taking a unique market approach is the company’s employees. This is a market that very few medium and large companies have success with and yet there is in many cases a large forsaken opportunity. Other opportunities include working within B2B organizations to attract both commercial accounts as well as individual customers. I am not so sure we should remove the old way of doing things until there is a proven new method. And I do agree that it is amazing how little is being done to be creative in our search for customers.
There is a lot of opportunity here. Pure-play online retailers do this everyday. Not via a circular of course but via what renders when the customer browses to their home page. With that competitive backdrop, tailoring the circular to VIP shoppers seems more like a competitive imperative for brick and mortar or multi-channel retailers.
Not enough retailers personalize or tailor their weekly email sends, let alone their circulars; so it would seem like there is a lot of low hanging fruit here for the industry as a whole.