In tough times, many retailers instinctively rush to what they know by unleashing a host of new programs and initiatives geared toward serving their most loyal customers. Though it seems sensible and
may have worked in the past, that instinct is more than likely a trap in today's economy.
Your most loyal customers are not your best source of revenue growth in a recession. Because you're
already collecting most of the money they're spending, any drop in spending will come primarily out of your revenue. At the same time, it will be difficult to attract customers who are fiercely loyal
to other retailers. So, what are retailers and marketers to do?
'Switch' to Success
Your best opportunity lies with "switchers" -- the people who spend
money both in your shops and elsewhere. If you can collect a higher share of spend from this group, you'll still realize a net gain even if their total spending is declining. And, you'll be well
positioned to build on those gains when the recession eases.
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Drawing on a study of more than 50 major U.S.-based retailers and over 20 years of global consulting experience, my colleagues Ken
Favaro, Tim Romberger [of Marakon] and I have identified five operating rules to help retail executives determine where to direct recession-squeezed resources for the biggest return.
These
rules boil down to:
(1) Identify the people who are shopping both in your stores and in others'.
(2) Discover what they're buying elsewhere (or want and can't find) and adjust your
offer to provide it to them.
(3) Analyze which of your costs contribute to producing the benefits the switchers want, then spend more on those activities and less on the ones that don't matter
to them.
(4) Organize your efforts efficiently by grouping your stores into clusters, based on different populations of switchers.
(5) Focus your customer research,
merchandise-planning, performance management and strategic-planning processes on the switchers.
By following these rules, struggling retailers will discover that they have a larger universe
of growth opportunities than they might think.
An E-Tailer's Advantage
I've been asked several times how these rules might apply to e-tailers. While that was not a
focus of our research and set of conclusions, there are some potential applications primarily focused on rules one and two:
- Online retailers can identify and target switchers more easily
than traditional retailers can. For instance, look for customers whose average spend is considerably lower than average for your site, especially if they also exhibit a pattern of visiting frequently
and not buying anything. These customers are probably also shopping around on competitive sites.
- Attempt to interview a sample of such visitors. Ask questions about what they are
trying to accomplish at your site (information gathering or looking for the best price on an item they've already decided on), what other online and offline shopping they are doing and what
merchandise they are seeking that might be missing or not easily accessible on your site.
- Develop programs and site experiences geared toward the needs of switchers based on what
you learn. Vary merchandise mix, landing pages and promotion offers. Be aware that different kinds of switchers might be visiting during different times or in different regions. Several treatments
might be required to capture the full potential of these programs.
This approach obviously can't make the challenges of the recession go away, but it can give savvy e-tailers a
competitive advantage and help them weather the tough times.