They account for a large chunk of the store’s revenue, according to Michael Schiff of Partners in Loyalty Marketing. “What would happen if all those people went away? You wouldn’t have a business left.”
William Young of Concept Shopping advises retailers to spend the lion’s share of their time, effort and promotional dollars on their top-spending, loyal customers. “It costs about five times as much to win a new customer as to keep a current one,” he said.
Analysis of over 2 million grocery shoppers by Concept Shopping shows that the top 10% of store’s customers visit the store more than twice a week, spend over $39 per visit, and represent nearly 40% of the store’s total sales.
The study also found that these most valuable shoppers tend to remain very loyal to the store, with 95% continuing to shop there throughout the year. Conversely, only 34% of the store’s worst shoppers – those who visit the store less than once a month and spend only $9 per visit – remain customers.
“Shopper churn is a fact of life for every marketer,” said Young, vice president of sales and marketing for the in Lisle, Ill.-based firm. “Shopper loyalty continuously ebbs and flows through retail banners and store types, but sorting shoppers by their value helps identify which ones should be courted and which ones can be ignored.”
Most retailers have some form of segmentation or deciling, according to Schiff, managing partner of the Chicago-based consultancy. “CVS does the deciles and they are probably the savviest,” he said. “Kroger does some other segmentation. Wegmans is another good example of a retailer that’s segmenting and trying to make stores more about the experience than necessarily about shopping.of the Chicago-based consultancy. “CVS does the deciles and they are probably the savviest,” he said. “Kroger does some other segmentation. Wegmans is another good example of a retailer that’s segmenting and trying to make stores more about the experience than necessarily about shopping.
“Other retailers know about segmentation, but whether or not they really act on it is completely different. I think most of them don’t. If you look at any of the promotions or anything that
goes out to consumers, the vast majority of it is talking in the voice of that average shopper,” he said.
Concept Shopping’s analysis of the 2 million shoppers divided them into ten equal deciles based on their spending levels during a 12-week period. Only 11% of the dollars spent by the best shoppers were on markdowns, making these heaviest shoppers the most profitable as well. In contrast, over 35% of the dollars spent by the worst shoppers were on sales items, making them unprofitable, assuming a 33% profit margin.
“At the end of the day, there is only a small audience among all those shoppers who are really driving sales,” explained Young. “But most retailers continue to believe that to grow sales they need to attract more shoppers.
“The advanced grocers with loyalty card data that they analyze are beginning to realize that there is a lot of head room among their best customers,” he continued. “From what we have seen – even among the top decile shoppers – a grocer is only getting about 60 cents of every dollar spent on groceries. So there is still a lot of room to grow the business among the
best customers.”
Young explained that it wouldn’t be so bad if the lowest-spending customer shopped elsewhere because they tend to “cherry pick” and largely buy items on sale. But it would be a major concern when the best shoppers begin leaving.
“We help retailers look at their loyalty card data, identify top shoppers who are in decline, and more importantly identify what are the key categories that signal they are heading to the doors. What do you need to do to promote those key categories better to those shoppers,” he said.
That is where a retailer’s trading partners come in. Concept Shopping gets involved in targeted marketing and helping the CPG manufacturers reach shoppers with a branded message. Such efforts obviously help retailers as well. For example, say the frozen pizza category at a retailer is suffering particularly among top shoppers. Several of them who used to buy frozen pizza aren’t buying it anymore, or are buying less than before.
“We identify those shoppers,” said Young. “We work with the frozen pizza manufacturers to develop targeted offers like coupons that are either mailed to those shoppers or electronic coupons on the retailer’s website that are only valid for those shopper IDs. It gets them re-engaged in the category. They may have bought three units of frozen pizza and now they are only buying one. Give them an offer that gets them up to the multiple purchases they were
at previously.”
Schiff, whose firm also specializes in similar targeted marketing programs and has studied top shoppers, agrees that retailers should not take their best shoppers for granted. In other words, a retailer should be more concerned with their heavy buyers than their lighter ones.
“But a lot of retailers think that they’re got a lock on those top shoppers,” he said, “and that’s why you see the focus on the lighter buyers. They think, ‘What can I do to get somebody else? Wouldn’t it be great if I could move a light buyer up to heavy status, to that top decile?’
“And they’re not alone,” he goes on to say. “Manufacturers do this, too. But think how difficult that is. Those low-decile people are probably heavy shoppers somewhere. I would say 80% of retailers’ promotion dollars are trying to get them away from that store. But to me, wouldn’t you rather spend money on making sure that you don’t lose your heavy shopper first? Is there any way that you could increase their market basket? You may have a lot of their dollars, but you don’t have all of them.”
0 comments:
Post a Comment