Digital Perspectives
New views. Applied now.

Digital Perspectives

New Views. Applied Now.

June 22, 2018
From shopkeeper to customerkeeper
By: Suzy Ross

Everything you thought you knew about retail has changed forever.

Digital has done something truly extraordinary to retail. The once solid foundations of long-established principles have fallen away with remarkable speed. Empowered by near-unlimited digital choice, and accustomed to exceptional digital experiences, today’s consumers are so much more demanding. And with expectations skyrocketing, brand loyalty suffers. The result: more and more customers who are addicted to special offers, moving freely from retailer to retailer with the onset of each new sales promotion.

What’s more, the retailers who choose to chase these consumers are often sowing the seeds of their own demise. Sales targets are often overoptimistic and inventories often overstocked, resulting in short-term promotions which boost revenues but hit profits. That creates a serious risk of a ‘retail death spiral’, where long-term customer value deteriorates over time – and retailers compete in a zero-sum game for the attention of ever more fickle consumers.

The good news: the retail death spiral can be avoided. But it takes nothing short of a paradigm change in retail thinking. As the supremacy of the bricks-and-mortar store continues to be challenged by digital commerce, retailers must undergo a fundamental transformation from “shopkeeper” to “customer keeper”, placing customer-centricity right at the heart of the business.

In other words, it’s time to stop fixating on shops – and start fixating on customers.

It’s a land grab for the high-lifetime-value customer

In doing so, digital is the saviour for retailers. It unlocks a fundamental insight: not all customers are created equal. By linking up the vast datasets (e-commerce behaviour, in-store activity, loyalty programmes, etc.) a retailer acquires unprecedented visibility into how their customers actually behave – online and in-store – not only as demographic or behavioural cohorts but also as individual shoppers.

With detailed visibility into what those individuals are buying, and how often, a sophisticated picture emerges showing which customers are spending more, and which are spending less. That fundamentally changes how retailers measure success. They increasingly shift away from analysing metrics like store like-for-likes and move instead to customer like-for-likes.

For most, this process will reveal a significant profit concentration from a relatively small number of individual customers – typically, the top 5 or 10 per cent of regular brand-loyal customers pay full price, supplying around 50 per cent of the revenue and 80 per cent of the profit. Armed with insights into who they are as individuals, retailers can stake out a land grab for these high-value customers. And they can stop wasting time on low-profit, fickle customers who are simply waiting for the next product discount.

In fact, it means a far more sophisticated set of customer strategies can be developed:

  • Loyal. Keeping the loyal core of customers happy and nudging them into the next sale, or onto the next channel.

  • New. Quickly converting new customers into loyal customers by getting them addicted to the brand.

  • Lapsed. Prioritising the lapsed customers most likely to be profitable in the long run.

  • Prospects. Targeting the right prospects – those who look the same as loyal customers – with forensic precision and innovative, creative marketing.

Being customer-centric in everything you do

Customer-centricity is about far more than a refreshed CRM strategy. In truth, a retailer needs to take all their data and customer insights and change everything about how they operate – and build a genuinely effective customer-centric business plan.

The transformation must cut deep into the entire organisation, covering the retailer’s business model, the products they make, and the way they make them. For instance, product design teams should now be leveraging customer data as a matter of course, understanding who they’re actually designing for, and employing a strong sense of data-driven creativity throughout.

In doing so, it’s absolutely essential to get out of the trap of overstocking to meet overly ambitious revenue targets, then selling at margin-killing discounts to meet the plan, which then becomes the baseline for the following year, when it all starts again. Instead, retailers should be projecting revenues from their existing customer base, determining the number – and type – of new customers they need to acquire, and then aligning their category, channel, and marketing plans to do so.

This is how retail leaders reorient their organisations around the high-value, loyal customers who really count.

The customer is the thread that makes it all hang together

Sounds like a challenge? It is. The scale of the disruption that retail is facing cannot be understated. And there’s no escaping that changing a business from the ground up really is hard. But it all begins with the right mindset. By acquiring a truly customer-centric outlook, and weaving it throughout everything they do, retailers will develop the new ways of thinking that will be vital to thriving in future retail.

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