In the retail industry, it seems as though you are constantly faced with the issue of trying to find new customers. You can become obsessed with making sure your advertising, displays, and pricing all “scream out” to attract new business.
Pursuing new customers to increase sales is certainly prudent and necessary, but, at the same time, it can wind up hurting you. Instead, your focus should be on loyal customers—the 20% of your clients who currently are your best customers.
Understanding the Five Types
In retail, your best current customers should be seen as an ongoing opportunity. To better understand the rationale behind this theory and to face the challenge of building customer loyalty, you first need to understand the five main types of customers:
- Loyal: They represent no more than 20% of your customer base, but make up more than 50% of your sales.
- Discount: They shop your store frequently, but make their decisions based on the size of your markdowns.
- Impulse: They do not have to buy a particular item at the top of their list, but come into the store on a whim. They will purchase what seems good at the time.
- Need-based: They have a specific intention to buy a particular type of item.
- Wandering: They have no specific need or desire in mind when they come into the store. Rather, they want a sense of experience or community.
If you are serious about growing your business, you need to target the loyal customers and merchandise your store to leverage the impulse shoppers. The other three types of customers do represent a segment of your business, but they can also cause you to misdirect your resources if you put too much emphasis on them.
Here's a further description of each of the customer types and how to deal with them:
Naturally, you need to communicate with these customers regularly by telephone, mail, email, social media, and more. These people are the ones who can and should influence your buying and merchandising decisions. Nothing will make a loyal customer feel better than soliciting their input and showing them how much you value it. The truth is, you can never do enough for them. Often, the more you do, the more they will recommend you to others. And positive word of mouth is gold for business.
This category helps ensure your inventory is turning over and, as a result, it is a key contributor to cash flow. This same group, however, can often wind up costing you money because they are more inclined to return the product. Discount shoppers are not always easily turned into loyal customers, either.
This is the segment of clientele that we all like to serve. There is nothing more exciting than assisting an impulse shopper and having them respond favorably to your recommendations. You should target your displays toward this group because they will provide you with a significant amount of customer insight and knowledge. They are also often eager to make a purchase when nudged in the right direction.
People in this category are driven by a specific need. When they enter the store, they will look to see if they can have that need filled quickly. If not, they will leave right away. They buy for a variety of reasons, such as a specific occasion, a specific need, or an absolute price point. As difficult as it can be to satisfy these people, they can also become loyal customers if they are well taken care of. Salespeople may not find them to be a lot of fun to serve, but, in the end, they often represent your greatest source of long-term growth.
It is important to remember that need-based customers can easily be lost to Internet sales or a different retailer. To overcome this threat, positive personal interaction is required, and usually from one of your top salespeople. If they are treated to a level of service not available from the web or another retail location, you have a very strong chance of making them loyal customers.
For many stores, this is the largest segment in terms of traffic but the smallest in terms of sales percentage. There is not a whole lot you can do about this group because the number of wanderers you have is driven more by your store location than anything else.
Keep in mind, however, that although they may not represent a significant portion of your immediate sales, they are a real voice for you in the community. Many wanderers shop merely for the interaction and experience it provides them. Shopping is no different to them than it is for another person to go out to eat. Since they are merely looking for interaction, they are also very likely to tell others about the experience they had in store. Therefore, although the time spent with wandering customers should be minimized, they cannot be ignored.
Serving the Five Types of Customers
Retail is an art backed up by science. The science is the information you have from financials and research data (the "backroom stuff"). The art is in how you operate on the floor: your merchandising, your people, and, ultimately, your customers. For many in retail, the competitive pressure has never been greater, and it is only going to become more difficult. To be successful, it will require patience and understanding to know your customers and the behavior patterns that drive their decisions.
Using this understanding to help turn discount, impulse, need-based, and even wandering customers into loyal ones will help grow your business. At the same time, ensuring that your loyal customers have a positive experience each time they enter your store will only serve to increase your bottom-line profits.