Executive Summary Reprint: R0904E In tough times, many retailers focus on their most loyal customers. Film Calatoria Crestinului. That seems sensible enough. But, paradoxically, your most loyal customers are not your best source of revenue growth in a recession. You’re already collecting most of the money they’re spending. If they suddenly spend 25% less, most of that will come out of what they spend in your stores. It’s not likely that you’ll pry away customers who are fiercely loyal to other retailers either. Your best opportunity lies with “switchers”—the people who spend money both in your shops and elsewhere.
If you collect, say, only 20% of what they’re spending today but can increase that to 30%, you’ll still realize a net gain even if their total spending drops by 25%. Drawing on a study of more than 50 major U.S.-based retailers and over 20 years of global consulting experience, consultants Favaro, Romberger, and Meer set out five operating rules to help retail executives determine where to direct recession-squeezed resources for the biggest return. These rules basically boil down to: (1) Identify the people who are shopping both in your stores and in others’.
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(2) Figure out what they’re buying elsewhere (or want and can’t find at all) and adjust your offer so you can give 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. And, finally, (5) focus your customer research, merchandise-planning, performance management, and strategic-planning processes on the switchers. By following those rules, struggling retailers will discover that they have a larger universe of growth opportunities than they might think. Consumers are tightening their belts, and retailers are feeling the pinch.
But even in these tough times, retailers can win new customers and gain customer loyalty by focusing on those who aren’t their best customers—and by making sure they only offer what customers really value. Apply these five rules to gain market share: 1. Focus on customers who are loyal neither to you nor your competitors. Close gaps between customers’ needs and your current offerings. Reduce “bad costs,” those producing benefits customers won’t pay for. Cluster your stores based on similarity of customers’ needs and purchase behaviors.
Retool processes—customer research, merchandise planning, performance management—to better position your company to apply rules 1–4. The Idea in Practice A closer look at the five rules: Focus on Disloyal Customers Loyal customers embody market share you already have.
Customers loyal to your competitors represent share you’re unlikely to get. To gain new market share, attract customers who switch between suppliers. Example: A specialty apparel retailer’s sales had shrunk. Its loyal customers were “fun and value shoppers.” But its real opportunity was with “everyday-trendy dressers.” These customers visited its stores but didn’t find what they wanted—so they spent more elsewhere. If the company could attract more everyday-trendy dressers, its market share would increase.
Close the Needs/Offer Gap To draw in “switchers,” don’t offer more of what’s already selling well. Instead, identify what these customers need, then alter your offerings to meet those needs.
Example: At a department store, apparel sales had declined. The company compared its assortment with attributes its customers most wanted but were going elsewhere to get; for example, lower-cost work clothes. It launched targeted merchandising initiatives, such as offering more wear-to-work styles at better prices. Within months, sales and profit per square foot of space devoted to apparel improved.
Reduce Bad Costs Don’t cut costs essential to producing what customers value and are willing to pay for—such as convenience or a better range of offerings than competitors provide. Instead, cut costs that add nothing to what customers value. Splinter Cell Blacklist Activation Code Keygenguru here. For example, Starbucks’ bad costs might include too much seating in stores used primarily by take-out customers. Cluster Your Stores Customers have varying needs, so standardizing all your stores can result in lost sales. But tailoring each individual store to its local market (by adjusting assortment and layout) can add costs and operational complexity that may overwhelm any benefits.