All customers are not created equal, and figuring out which customers matter is key to success - Lift361

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All customers are not created equal, and figuring out which customers matter is key to success

By Ed Higdon. Posted in Analytics

June 10, 2014

“How do I stop my customers from leaving?” is a common question asked by retailers. But a better question to ask is, “Which customers matter and who should I worry about losing?”

Some customers – the type that only visits once in a while to shop the clearance rack – may cost more than they are worth, so a retailer is wise not to worry about them. A successful company needs to focus on keeping valued customers; the kind that shop at the store frequently or have the potential to be big spenders. While this seems obvious, it is not always practiced. A lot of retail marketing programs are delivered en masse with a one-size-fits-all offer. This is a large expenditure with diminishing returns. But more target marketing will likely lead to a better return on investment.

Studies on consumer behavior show there is constant movement in the retail business. If a retailer looks at the top 20 percent of its customers based on annual spend, typically 60 percent of those customers will not be in the top 20 percent one year later. Additionally, those who drop from the top quintile will decrease their annual spending by more than 50 percent. This means it’s important for retailers to not take their best customers for granted. Efforts must be continuously made to retain the engagement level of these customers.

Those shoppers who leave that top-20-percent bracket may not leave the store altogether but are, more likely, just shopping at the store less. If this is the case, the retailer does not have to worry so much about attrition, but rather value degradation. The task then becomes to slow down or reverse the value degradation process and get those in the top-20-percent bracket to spend even more.

Take it a Step Further

After Lift361 helps you figure out which customers to keep, it’s time to segment them!

This is why it is important to collect and analyze consumer data. If a company identifies its most valuable customers and then works to understand their shopping behaviors, it can start testing programs designed to influence that behavior. The retailer may find that it can bring back customers – or accelerate the spending of already-strong customers – with a series of communications. The more targeted the communication, the better. Focus on targeting your message, offer and timing at an individual level to drive better results.

So how do retailers go about doing this? Most retailers are sitting on a mountain of big data that they know is valuable, but they rarely have the time or internal expertise to maximize its potential. The best solution for them is to partner with a data analytics firm that can organize, segment and mine insights from their data so it can be used to launch effective marketing campaigns. It all starts with knowing which customers matter and what actions impact their behavior.