RSR Research: 2009 – The Year of the Existing Customer
By Nikki Baird, Managing Partner,
Retail Systems Research
Through
a special arrangement, presented here for discussion is an excerpt of a
current article from Retail Paradox, Retail Systems Research’s weekly
analysis on emerging issues facing retailers.
With uncertainty still
reigning supreme and words like “frugality” and
“austerity” coming into vogue, this year will be more about keeping
customers you already have – certainly making sure that you don’t lose
those customers – than about gaining new ones. New customers seem to
be a rare species these days.
So how does a focus on
existing customers change retailers’ priorities? I have a few thoughts:
Know your (existing) customers well. Just
as few things are more frustrating than entering all of your information
into an automated phone tree only to have to repeat it when you talk to
a customer service rep, consumers do and will take note when they loyally
provide a retailer with their shopping behavior, only to have that retailer
make offers that are completely irrelevant. You don’t need to provide customers
with an excuse to defect.
Online is no longer a salve for
sales. Early
results seem to indicate that online retail sales fell for the first
time ever this holiday season. For a lot of retailers, that means that
online no longer bolsters poor store sales. It also exposes a lot of
rocks under the water within online operations. While e-commerce operations
are long overdue for some streamlining, if you pursue cost savings there
without an eye for creating cross-channel processes, you’re setting yourself
up to fail the minute customers re-open their wallets.
Pay attention to customers wherever
they are. Customers
have more channels available to them to provide feedback about shopping
experiences than ever before, and if you’re not listening, you’ll only
give them an excuse never to come back. I had a close brush with
missing out on a hot gift item for my son, thanks to a snafu with Target’s
e-commerce operation. As an experiment, I joined an “I hate Target” fan
group on Facebook and told my story. I wanted
to see if someone from Target was paying attention. But I forgot that
my every action is broadcasted to all of my Facebook friends – which
span everyone from high school friends to business friends. I got a ton
of feedback from people who had no idea what I was up to
– offering sympathy and their own sordid tales of bad customer service.
The lesson? Just because a tree falls in the woods and nobody you know is
there to hear does not mean that it doesn’t make a sound.
It’s easy to forget about
sins of customer service to your existing customer base when hordes of
new (or unknown) customers are walking through your door every day. I
think it will be awhile before a time like that comes around again.Â
Discussion Questions:
Do you agree that these times call for retailers to renew their commitments
to existing customers? How does a focus on existing customers change
retailers’ priorities?
Nikki gets it and yet sadly, many companies–not just retailers–are still pretty clueless. The amount of marketing dollars invested in mass communications versus existing customers underscores this.
When times are challenging the gulf is widened between those companies that get it (e.g., Nordstrom, Best Buy, Tesco, Amazon) and those that don’t. Understanding customers and using data to drive communications, service and other offerings to them is not only measurable, it is long proven as profitable.
What is the most dependable thing a retailer or other business can have to support and sustain its business? Returning customers.
Today’s retail climate absolutely calls for a renewed commitment to customer centricity. Those who will survive, and thrive, will be the very brands making an investment into consistently delivering a differentiated customer experience–one that is both intentional and an authentic reflection of the brand’s core values. Measuring, understanding and optimizing the customer experience, while creating listening posts for voice of the customer feedback, are essential keys to outmaneuvering the competition and winning in the “year of the customer.”
While I absolutely agree with all the principles listed here, why is it now that we are deploying this? Why not at the dawn of retailing? These practices must be implemented every single day the store is open…good times or bad. For those that have forgone your customer during the ‘good times’, now would be the time to start committing to the customer.
I would like to say better late than never, but look what just happened to Circuit City. 60 years of business, gone in a flash because they lost focus (see my post about CC in today’s first discussion) on what is the most important aspect of retailing. Your customer.
All times call for a commitment to current customers. Whether the economy is strong, weak or in between, it is much more cost effective to maintain a customer than to find a new one.
Retailers have to strengthen their core stories: why they were founded, what they do and for whom, their core values and their goals. Those stories need to be communicated internally and manifest to consumers. The retailers that succeed will be those that tended to their stories over the years and did not constantly rush off on new tangents.
This is not rocket science. It’s Business 101.
Does it really take hard times to make some retailers recognize the obvious? When was it ever OK to take existing customers for granted, or to assume that there were so many of them out there that it didn’t matter if you lost some along the way?
Conversion rates are so low in most retail formats that it doesn’t take a rocket scientist to tell you that most consumers are unimpressed with the total offering of the majority of stores.
Want to ‘impress’ your customers? For starters, let’s fix your staff. Consider these simple steps:
1. Spend more time in the hiring process to ensure you hire staff that share your values, and can do the job.
2. Post, repost, talk about, talk about again, your goals and expectations for your staff. Financial and behaviours. Never, ever let them forget what success looks like.
3. Make sure your staff know at all times how they are performing.
4. Train and coach your staff every day (yes, every day).
5. Make winning important. Don’t tolerate poor performance.
6. Make winning worthwhile. If we want staff to try harder, give them a good reason to.
I go back to (and you probably do too) a lot of businesses purely because the staff are great. The problem is, I don’t go back to a lot because the staff were lousy.
Sales 101:
The easiest person to sell something too is your existing customers. Now more than ever you need to keep them either buying more on every trip or more importantly, making sure they keep coming back to you.
The second best source is your past customers and you need to remember that every time one of your customers walks out the door, they are not a present customer, they are a past customer. So what are you going to do to make sure they come back? One of the reasons the web has done so well is they have all of the contact information they need on all of what some people call their present customers but I say they are past customers.
The third best source is new customers–the hardest to get to walk in the door and the hardest to keep coming back.
You need to spend time and money where you will get the best results or the odds aren’t in your favor.
Perhaps we can all be glad about one thing with this recession; if you don’t focus on customer service–you’re pretty much done. And as we are all customers on some level, that’s welcome news. With shrinking foot traffic and pared down staff levels, retailers, specifically, will have to get back to some crucial fundamentals–the highest of which SHOULD be: taking care of customers, listening to them, going that extra mile to make sure they come back…you know, retail 101, the lost art.
It’s clearly time to get back to “blocking and tackling” in terms of what we all do, but for retailers, and especially fashion retailers, the customer has to be put back on the pedestal that got most of their brands where they are today.
Hallelujah, I say.
Actually, no, with many retail chains closing doors or reducing locations, I strongly believe this is an excellent occasion for existing retail stores to win over new consumers and new customers, as well as to keep their own loyal base.
Retailers have a tendency to follow each other and do exactly the same things, from product assortment to what color they paint the walls, to the look and shape of their logos. This is a time for differentiation. Not all retailers should approach the perceptions and issues of the economy the very same way. Consumers do not want fewer choices; they want more differentiation and greater choices. Excite them into spending more!
This is a terrific step in the right direction. Sorting out new from existing customers (and determining appropriate strategies–and marketing allocations–for each group) is a hugely important step forward for retailers. It’s not an easy task, but there are substantial payoffs to those who get it right (e.g., Tesco). I sincerely hope that many retailers will take this charge seriously and devote resources to it (no matter how tight their flow of resources might be).
No question that the customer in the hand is worth more than the phantom market share in the bush. In order to hold customers retailers are going to have to adopt a more service-oriented philosophy, a tall order in a recessionary economy.
The rules don’t change in bad times. They are they same, it is just in good times that those who don’t follow them don’t get hurt as bad. Current customers are always the best customers in terms of how much they buy and the cost of getting them into the store.
Any business that depends more on bringing new customers in to the fold than keeping them is merely trying to fill a leaking bucket. And in bad economic times, if you are not filling the bucket fast enough find all the customers have leaked out of the bucket. (See today’s and previous discussions on Circuit City.)
I have to echo Phil here as well as many of the other commentators. Nikki is absolutely 100% right and I’m not sure most retailers know how to take the long-term focus needed to take the medicine she prescribes. Retailers are notoriously willing to slit their own throats to make a sale and many of the pricing decisions I’ve seen show they’re at it again. (Parenthetically the pricey independent gourmet shop in my town now has a sign in the window; “come in and enjoy our lower prices” basically advertising what many of us have known forever–they were charging outrageous prices as long as the market bore it. Do I really want to shop there now any more than I did in the past?)
Truly distinctive retailers like Trader Joe’s & Costco will do fine without data and analytics–in fact those investments fight with their low cost/unique product strategy–for the others data is the differentiation strategy that will shake out those who survive the recession from those who don’t.
Interesting experience today in a Walmart. Couldn’t find products in two sections, asked employees and each carefully walked us to the product instead of just pointing out where it might be found.
So different from the experiences in many giant stores.
“It’s The Shopper, Stupid!” Seems the industry has gone way off track when we have to experience a recession before merchants remember to focus on their existing customers. That should always be a primary focus. Still, I can’t be too hard on RSR, especially given how quickly some merchants seem to forget that retailing is about selling product to people. No time like the present to issue a reminder.
But existing customers are only half the story. If merchants are to realize post-recession success, they need to start working toward that goal right now. The economy and changed shopping behaviors mean new shoppers are showing up in stores they didn’t shop when the economy was good, while former shoppers are leaving to give other nameplates a try. I’m not sure merchants are paying attention to this shopper migration. Even before 2008, shoppers were very willing to shop a variety of retail banners. That behavior continues now via trading down. And I expect that behavior will continue in the post-recession era. If merchants want to keep these new shoppers in the store, they need to work now to build loyalty and create a post-recession offering that resonates with both their existing and new-found shoppers.
I’m going to renew a rant I’ve ranted previously regarding customer attraction and retention in the supermarket bidness. Supermarket employees often shop in competitors’ stores, and research suggests that this purchase behavior influences the shopping habits of members of their extended families, friends, and neighbors. So, why don’t supermarkets take a page out of the operating manuals of other retailers and offer an employee discount? Yes, I know that the margins are razor-thin in the grocery bidness, I was raised in the industry. And yes, I realize that employees will try to use their discounts to feed half the neighborhood if their purchases aren’t controlled in some way.
But think of it this way: Merchants must first convince their own employees that their product or service is the best. Nothing is more demoralizing than learning your employees are shopping elsewhere, and it’s the most powerful anti-business testimony extant. This happens all the time among grocery employees, and their employers rarely if ever take steps to stop it. It would be so easy, simply providing employee discounts. So, it occurs to me that the first step in any successful customer retention effort should be reversing off-the-reservation purchase behavior among employees. Everything else flows from that. If your own employees can’t be counted on to be ambassadors for your stores, who can?
Nikki’s piece was very interesting. Question: how many retailers have a chief customer officer?
Yes! Customer service must make a comeback for retailers to survive. There is way too much competition and retailers need to make sure their customers keep coming back. Training employees will be the challenge but they now have an advantage with many employees being so thankful to have a job.
To designate a year as “the year of the existing customer” and suddenly pay more attention to those customers is either naive or the sign of a very unsuccessful retailer. Savvy retailers have always understood the value of an existing customer and have treated that customer accordingly.
For many, many years, retailing has been one of America’s most competitive businesses. Successful retailers know that building a larger and larger group of highly satisfied, loyal customers is the key to success in a competitive marketplace. It is only logical that having a large group of highly satisfied, loyal customers is also the key to success in a bad economy and down market.
In the present era, I’d like to declare success by headlong expansion to be discredited as a retail strategy. The same may be said of new customer “acquisition,” an unfortunate bit of terminology that ranks with customer “ownership” in its blithe misunderstanding of the dynamics of the shopper-retailer relationship.
Same-store, or same-customer, sales growth is way harder to achieve than boosting the top line by random expansion. Yet so many organizations measure their CRM success using RFM (recency, frequency, monetary) analysis that harbors a built-in bias favoring new customers over enduring relationships.
Where is the customer wallet-share analysis that would reveal true commitment and shopper trends? Where are the data models that seek understanding of existing customers in order to identify traits and behavior triggers that may be relevant to less-engaged or potential shoppers?
Retailers with rapid re-purchase cycles sit on a gold-mine of insights that is rarely used to advantage. Nikki is, as usual, on the mark here. My view is a bit more radical: Failure to manage this gold-mine as a strategic corporate asset is tantamount to a breach of fiduciary duty. By that standard, most top retail managers today should be on probation.
My first thoughts on this piece were along the lines of what Max said. I’d figure out why your customers chose to have a relationship with you in the first place (reasons for engagement by audience type, what’s the story that resonated with them) and then perhaps do a SWOT analysis for each of those engagement motive/audience segments, and figure out if who you are is what you need to be and if what you want to be is something your customers will accept.
Customer’s attitudes and beliefs regarding consumption may be changing, and if most firms fail to adjust for a variety of reasons, I wouldn’t look at this as the year to focus on your customers. I’d look at this as an cultural inflection point and since commerce reflects culture, then…well you know the rest.
For way too long, retailers have focused on acquiring new customers versus focusing on retaining those that they have. I always use the fishing analogy. How many fisherman would catch a big fish and then throw it back to try to catch another? Everyone knows the metric that it costs more to find a new customer than to keep an existing customer. Yet, finding new customers has always been the mantra.
How do you keep existing customers? Simple: focus on all the compromises that dealing with your retail store creates and then solve those compromises.
Most retailers should listen more to their current shoppers, letting shoppers help them define ways to make the shopping experiences better. Some retailers have, in today’s marketplace, a great opportunity to listen closely, as well, to new customers, as they try out new channels of trade and new stores that can help them manage to a tighter budget scenario. In these cases, retailers should be listening very closely, in an effort to retain an additional shopper base over the long haul.