When we walk into a store, we appreciate being welcomed by name and learning about products that we’re interested in and meet our needs. Store owners and employees who know us and know what we like make us feel important. As a result, we spend money more freely. Why? Because we have a mutually beneficial relationship that eliminates the postpartum guilt we often experience after having been separated from our hard earned cash.
Well stocked shelves and advertising help attract new customers. The trick to sustained growth and profitability, however, is repeat purchases from existing customers. The better you know your customers, the more likely you’ll meet their needs and the more likely they’ll return to your store. So how do businesses get to know their customers better?
Maintaining any kind of relationship takes work and a conscious effort. First, the owner needs to realize the importance of customer relations and make sure the store’s employees are aware of the importance too. Second, getting to know someone takes time. No one likes to be rushed in a relationship, and that goes for customers as well. Be discrete in how you gather information. Don’t approach your customers with a clipboard and begin an interrogation. Rather, learn about their likes, dislikes, family and career through casual conversation (again, over a period of time). The key is not letting the information you glean vaporize, which leads us to the third key element for good customer relations: a system.
Whether a simple paper-based filing system or sophisticated computerized database, a business needs a repository where it can input, update and analyze customer information. Simple information systems will keep track of a customer’s name, address, age, sex, profession, product preferences (such as color, style, favorite brand, or manufacturer) and buying behavior (last minute or early buyer, early adopter, price-conscious, etc.). Businesses should also try to find out other family names (spouse, kids) and birthday and anniversary dates. Obviously this kind of information is personal and customers need to be assured it will be protected and not sold to third parties. The best way to approach a customer for birthday and anniversary information is to ask if the customer would like to be informed of new products or sales prior to a family-member’s birthday or anniversary.
One of the biggest advantages of keeping detailed customer information is that stores can save on marketing expense. For example, a retailer might use its buyer behavior information to promote products in August to customers that are early Christmas shoppers. Because it is not advertising the sale to all its customers, the store saves on marketing cost and discount expense.
Stores with point-of-purchase systems have a treasure-trove of data they can use to boost customer sales and profits. For example, customer purchasing data can be used to determine the average number of days between customers’ first and second purchase, second and third purchase, and so-on. These subsequent purchase patterns vary greatly by industry (it might be four weeks for a book store or four years for a car dealership), but tend to be stable once enough data is collected and analyzed. Store owners can use this buying pattern information to determine when a customer is not acting “normal.” For example, suppose a store’s purchasing data indicates that more than one-half of its customers return for a subsequent purchase within 30 days. A customer who stays away more than 30 days is not acting “normal.” The retailer provides that customer an incentive to return to the store. This type of marketing is known as “tripwire” marketing. Again, the store is only spending marketing dollars on specific targets.
A more sophisticated analysis developed by the catalog sales industry uses customer buying behavior to predict future buying behavior. Under this type of system, customers are scored, or ranked, based on their last purchase date, how many items they bought and the amount of money they spent. The system is based on the theory (proven) that when comparing customers, those who have spent more recently are more likely to spend again. Also, customers who purchase more (items or dollar amount) are also more likely to purchase more again. Companies can use the customer scores to target their marketing dollars to only the mid-range customers on the assumption that their highest ranking customers are going to shop with them again without any marketing incentive, while their lowest ranking customers probably won’t shop again no matter what the incentive. Again, marketing dollars are conserved.
Whatever system a company uses to better understand and know its customers, that system should also provide the company a method to measure its return on investment in marketing.
Consultants at the Georgia Small Business Development Center can help clients develop customer relation systems as well as the methods for tracking and measuring marketing return on investment.
(Source: John Maynard, SBDC Athens Office)