Retail TouchPoints: Subtle Shifts in Customer Segmentation Strategies May Provide Shelter from the Economic Storm
Through a special arrangement, what follows is an excerpt of a current article from the Retail TouchPoints website, presented here for discussion.
As the economy continues to show lower growth rates, a strong argument could be made that some customer segments are changing. Are the most frequent customers maintaining an income level that allows them to be frequent? Are the "luxury" shoppers still in first class? Knowing the answers is essential.
Customer strategy experts suggest the following rules for re-evaluating and acting on customer segments.
- Clearly define the rules of engagement: Each customer segment should have a protocol for frequency and relevancy of communication. Just because that retailer needs to make up some ground in the fourth quarter doesn't mean that it should drop prices more frequently and then bombard the discount segment with emails. "You must decide before the fourth quarter gets very busy exactly how far you're willing to go to change pricing, marketing messaging, and tactics," said Nick Godfrey partner at Customer Portfolios. "To go beyond those agreed rules of engagement compromises your brand and customer relationships."
- Protect the Brand: Customer value is best increased by acting with the knowledge of sound segment valuation and analysis. Although the economy may have taken some segment metrics down (such as purchase frequency) they have not taken them out. "The brand does not evaporate on December 24th," Mr. Godfrey said. "The brand is made up of customers. Their motivations may change but they are still in a lifecycle with your company that should be followed."
- Understand segment changes: It is quite possible, and even probable, that the monetary value of key customer segments have changed. The "convenience oriented housewife" may still spend 90 percent of her grocery budget at your store. But what she can actually purchase for the same amount of revenue has dropped."
Ron Shevlin, senior analyst at the Aite Group, maintains that retailers do not execute against their segment work effectively. Therefore, when segment value changes they tend to overreact. They tend to reinvent campaigns based on segment value changes, and even reinvent their entire segment profile. In most cases it is not necessary.
"The smart market researcher knows that customer research needs to be analyzed," he said. "Do changes mean that actual spending plans are changing? Are they simple reflections of changing attitudes or are they hard and fast economic changes?"
Retailers that understand the importance of customer analysis will most likely plan for better real-time customer data, and update their segment strategy accordingly.
"The last place I want to panic is where I can be seen by my most valuable customers," said Mr. Godfrey. "The evidence of a downturn is still debatable. You can make it as bad as you want to. Don't risk panic on your valuable customer segments."
Discussion Questions: How (if at all) should retailers adjust their customer segmentation strategies during tougher times? In particular, how should segmentation change for a store's most frequent customers versus other customers? Do you agree that overreactions during more difficult times are all too common?