In our post-recession economy, many retailers are still a bit gun shy when it comes to testing new strategies and ideas. When the financial crisis caused everyone to lock up their budgets, a test-and-learn mentality was a luxury that most companies abandoned in favor of tried-and-true approaches to marketing and consumer communications.
Test and learn, sometimes referred to as A/B testing, is a simple concept: test a strategy several different ways in real-world operations and see what works best. Abandon those methods that yield unsatisfactory results and stick with those that work. Testing also allows retailers to hedge their bets. A failed initiative will only impact one sub-segment of a customer base, not the entire customer base.
However, even now that budget money is flowing and the fight for share of wallet is fierce, many retailers trip over the test-and-learn concept on a regular basis. They may agree to the importance of gathering data around customer behavior, but resist the idea of leveraging that data in new communication strategies.
Are You Listening To Your Customers And Learning From Their Data?
The sticking point for marketers often comes when they must seek buy-in and approval from leadership. New ideas may cut in to top line sales if they fail, and no one is willing to risk a customer for the sake of testing a theory. The key to shifting leadership’s thinking is to frame test-and-learn thinking for what it truly is: a data-driven method for making decisions.
Leaders who have built long-term careers in retail typically believe in customer surveys and traditional market research. If you want to know what customers want, they reason, just ask them. The inherent flaw in these approaches is the same: customers say one thing and do another. They don’t always know what they want.
Think, for a moment, of all of the factors that influence a customer’s buying decision—factors of which customers themselves often are not consciously aware. If a retailer’s website is not mobile friendly, that site will be passed over. The layout of a product page or the position of the product’s price can influence a decision as well. In-store, everything from lighting to merchandising to the music played in the background can impact a sale. The truth is, customers don’t know themselves as well as they—or retailers—like to think. The only way to drill down true customer behavior and attitudes is with hard data; and test and learn allows retailers to cut through the ambiguity and see the facts.
Test and learn In Action
Customers do not always announce that they are leaving a retailer for competitors, and surveys aren’t helpful in identifying those customers. Many companies don’t know that a customer is gone until months after the fact, and they are left scrambling to win him or her back. A more effective approach? Use data to predict when a customer is about to attrite. Velocity modeling allows a retailer to identify customers who are slowing down, and then get in front of them with a rich offer to get them back into the store.
The goal of such a communication isn’t to simply get a one-off purchase from a customer whose velocity is slowing. Rather, it is to get them to kick back into their normal pattern of shopping behavior. What type of offer will do that? The only way to develop a strong strategy for identifying that is through testing and learning. An A/B test of two offers might be sent to a group of slowing customers. One offer may result in an average of a $40 lift per customer in one week, which might seem like small potatoes. Some retailers would see the offer as a failure. However, with patience, they may see that those customers each ended up spending an additional $400 over the next six months. Conversely, another offer may result in a $200 lift per customer over one week, and then a flat-line over the next six months. True success and failure can only be determined with a full picture.
In order to determine which strategies and approaches have the biggest impact, retailers must commit to a test-and-lean mentality. Customer relationships are fluid, and even the most successful organizations have to make several trips to the drawing board when developing communications and marketing strategies. With a cool head and an eye for the long haul, test and learn can lead to powerful long-term lifts in sales.