Find Your Best (Most Profitable) Customer.
Now, Find More of Them!
by Patricia M. Johnson, CMC and Richard F. Outcalt, CMC
What’s the best way to increase sales and profits? Sell more to your “best” types of customers!
Today, it is not enough to have profitable products. Instead, we must find—and nurture—our most profitable customers.
The eighty/twenty rule of thumb is no doubt at work in your store: eighty percent of the volume is generated by twenty percent of the customers. (Of course, these percentages are not exact, but you see the point.)
The more you know about that “twenty percent,” the better you will become at focusing your entire operation—buying, displays, advertising, special events, etc.—on your “Best Customer” and her preferences.
Your POS system may tell you "What's selling?"
Your Customer Relationship Program may tell you "Who's buying?"
And now, The ROI has developed a 3-step process you can readily use in your own stores to answer the essential question: "Who's buying what's selling?"
The goal here is to identify the general, overall characteristics of your Best Customer. Once you know these characteristics, you can seek out more like them. Think of it as cloning your Best Customer!
Step 1: What’s Selling Now?
Conducting an effective sales analysis can be very revealing. Looking at sales from a variety of productivity measures can provide new insights. Consider these:
• Total sales volume
• Total number of transactions (This is very important!)
• Volume and transactions by category
• Units per transaction
By displaying this information on a spreadsheet month by month, you will quickly see your store’s seasonality, and how those seasons might not all be the same for all product categories.
The sales analysis helps you to pinpoint opportunities—and weaknesses.
We think you will find this sales analysis step very fascinating. And, we are confident you will find some surprises!
For example, if your sales trend is up, is it because you are having more transactions? Or higher average sales?
If the average sale is higher, is that because customers are buying more expensive items? Or a greater number of items at each transaction?
Step 2: "Who’s Buying What’s Selling?"
The importance of this step cannot be emphasized enough: It’s not enough to know what’s selling; you must know who’s buying what you are selling!
The easiest way to do this is to capture customer information at the point of sale, so you can link customer data with transaction data (item purchased, price, SKU, date, time, etc.) And it doesn't take an elaborate "customer relationship management" program and staff to do this.
For example, by programming a seven-digit field into your register, you can collect three key pieces of non-invasive information about each customer: ZIP code (five digits), sex (one digit) and age category (one digit). (Instruct salespeople to “guesstimate” customer’s age as they ring up sales.)
This method of gathering information is low-cost and unobtrusive, and while designating age categories won’t be 100 percent accurate, they will usually balance out. . .and always be revealing!
Here are two examples of the types of findings you can develop through this point-of-sale data capture. Notice how readily this information can be put to effective, practical use. Very quickly, the “Best Customers” (that is, those customers you want more of) stand out from the rest of the pack. This enables you to focus scarce time and resources where they can serve you the most: on your Best Customers.
Example A: Age Groupings
In this example, the client wanted to know which of three particular age groups was buying full-price goods, and which age groups were “cherry picking” the clearance tables.
Table A shows generally what they found. The 35+ age group was predominately buying full-price and/or first mark down goods; the 18–24 year olds, however, were very price driven.
Knowing this (verifying your hunches, perhaps) leads to a whole series of management decisions and opportunities.
- Targeting your advertising at age 35+ households (reached via direct mail, zoned newspaper inserts, selected radio formats, selected TV shows, etc.)
- Not spending ad money on the younger “price hounds”
- Focusing your advertising message on benefits important to your Best Customers
- Influencing what music you play, what hours you are open, how you staff, etc.
- Choosing where and how to do “outreach” advertising—to appeal to and bring in more of your Best Customers.
Example B: ZIP Codes
This next example illustrates differences in shopping behaviors that can be linked to the customer’s ZIP code. That in turn allows you to learn even more about your customers through additional research (using free - yes free! - information at your public library).
Table B shows some major differences among shoppers when we analyze their transactions by ZIP codes.
A check of the census data suggests highly-educated, professional/managerial jobs, high incidence of early-30’s in age, and small household sizes.
- The folks who live in ZIP code XX212 produce the highest average sale, and the highest units per transaction. But these customers buy the fewest items at full price.
- A visit to the library to check out the census data on this XX212 ZIP code reveals these kinds of findings: this ZIP has fewer home owners and more renters than other ZIPs around here; more single people; and many elderly women (widows, perhaps, on fixed incomes?)
- But—look what we found about XX106. The average sale is close to the store overall, yet—these folks buy very few markdowns. Who are they, anyway?
These are the SINKs and DINKs, all right (Single-Income, No Kids, Dual-Income, No Kids)—pressed for time, with good incomes, and able to spend on themselves.
Step 3: Tying It All Together
There is enormous value in understanding your Best Customer categories, for it provides a fundamental framework for your management decisions.
It helps explain "Why?"
All these questions can be answered more consistently and efficiently using your Best Customer as a foundation.
- Why this merchandise?
- This price?
- This look to the store?
©Copyright, The Retail Owners Institute® and Outcalt & Johnson: Retail Strategists, LLC.
Pro-actively treat your Best Customer as the valuable asset she is to your store. Today, it is not enough to have profitable products. Instead, retailers must find—and nurture—your most profitable customers.