Despite massive investment in ‘customer understanding’ many retailers are still targeting customers that don’t really exist and missing out on the opportunity to build relationships with valuable customers. Sales figures can paint a positive picture that masks a painful truth: companies are losing as many customers as they are expensively gaining.

Yet the right analysis can reveal the true facts, from increasing customer acquisition costs to declining customer loyalty – and rapidly provide compelling options for boosting retention, up-selling and cross-selling to specifically identified customers. 

Insight gap

Given the huge amount of time and money being spent across multiple marketing channels in a bid to attain and retain customers, retailers will be shocked to learn that many of these customers are sheer figments of the imagination. A retailer may think the core customers for its accessories are 40-55yr old affluent women, only to find that 30% of sales are driven by men who are loyal buyers of gifts for their wives. Despite years of investment, many retailers still lack any real understanding of its customers.

The typical retail approach of breaking sales down into broad categories and applying that to the overall customer base simply does not hold up in practice because no individual customer demonstrates this type of behaviour. The fact is that customers in almost all customer groups will all occasionally buy from different categories – but it’s highly unlikely this is the thing that ultimately determines what makes them special. It is the understanding of that ‘something else’ that is key to gaining true customer insight.  

Three pitfalls

Given the significant investment made by so many retailers into complex data analytics, the question has to be, just what is going wrong? Why are retailers still chasing imaginary customers and failing to truly understand what makes customers unique? One of the biggest mistakes is to look at sales in total, rather than breaking the figure down between new and existing customers. Failing to distinguish between new and existing customer sales risks a significant problem in the business being masked by spending on acquisition.

Looking at customers on a like for like basis is, therefore, critical.  By viewing each customer sales, a retailer can begin to understand trends in retained customers, the type of customers that are being acquired – and gain an accurate measure of the long-term ROI of both acquisition and retention. Another mistake is to over simplify customer categorisation. It is a rare retail business that can neatly place customers into simple product categories. A retailer’s best customers will typically shop across multiple categories and the goal is to make sense of these combinations to identify true customer groups.

Furthermore, these cross-category customers will have different needs at different times of the year, and different lifecycles.  An approach to lifecycle management or retention that only reflects one aspect of this activity will completely miss the nuance of cross-category behaviour – from timing to spend value. It is essential to avoid a one size fits all approach.

Three steps

A deep understanding of a customer’s lifecycle is essential to understand the next stage of engagement: is this an individual a retailer needs to work hard to retain or someone ready for up- or cross-selling opportunities? The retention stage is simply about ensuring a business-as-usual spend from the customer.  The next stage is to understand opportunities for encouraging customers to buy more of the same – leveraging understanding of customers with similar buying patterns to ascertain whether some can be tempted to buy multiples, bigger packs, or more often.

With an in-depth understanding of true customer groups and the journey taken by those long term loyal customers, a retailer can begin to embark upon these three critical steps: take existing behaviours and try to protect them; achieve incremental growth to entice customers to buy a little more of the things they already value from the business; and then transform the customer by taking him or her on a journey towards the most valuable customer groups.

There is no doubt that retailers have invested heavily in gathering customer data in recent years. Sadly, simply placing a data analyst in front of a mass of data is not working. Not only is it expensive and time-consuming but analysts too often get lost in the data has and fail to see the woods for the trees.

The model has to change. Rather than spending a fortune on generating just another list of questions, tailored ‘data science as a service’ can deliver, within weeks, a list of actual customer opportunities that can be used to drive increased spending immediately. It is time to breach the insight gap and start working with the real, not imaginary, customer base to drive measurable incremental value.

 

By Ian Webster, chief customer officer at Big Data for Humans


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