A change of focus

In the past the formula for growing a retail business was a simple three step process - open more stores; widen and deepen the range of products; invest in advertising and promotions - the customers came to the stores and businesses grew year on year.

At the same time, significant improvements in efficiency were achieved by tuning product management, supply chain and logistics management. But today there is very little 'fat' remaining in the supply side of the business and there is little room for growth in what has become a highly competitive industry.

The strategic focus is moving from improving the supply side to improving the demand side of the business. Today's hot topics are customer specific marketing, relationship marketing, customer focused marketing, loyalty programmes, frequent shopper programmes, all driven by the pressing need to understand customer preferences and tune the retail offer to meet the needs of the most valuable customer groups. The message is simple, hold on to your own customers and attract customers from your competitors. But, how to do this?

Research

A number of useful insights into customer behaviour emerged from research undertaken in the USA by Brian Woolf, author of the book 'Customer Specific Marketing'. Brian investigated shopping habits in terms of customer spend, profitability, frequency of visits and loyalty. He dividied the customers into five groups, which he named to indicate the type of shopper.

• Lucy Loyal is a regular shopper who buys lots of items and is very loyal.
• Russell Regular is a regular shopper who buys less and whose loyalty is shorter.
• Stewart Split spreads his shopping over a number of stores.
• Sherry Cherry is the cherry picker whose 'loyalty' is determined by where the deals are.
• Carol Convenience shops wherever convenient to her.

It pays to know your customers

Brian Woolf's analysis showed that over a lifetime the Lucy Loyal customer is thousands of times more profitable than Carol Convenience. It pays to know your customers.

Other research from America and Europe indicates a 70/30 rule - thirty per cent of the customers contribute seventy per cent of the business. Another crucial finding is that the absence of a key item is enough to make 30% of shoppers to consider changing stores, and 10% to actually do it. If the customers you are losing are from your most profitable groups, the impact on the bottom line will be significant. Understanding the customers' shopping habits can help you prevent this happening.

What buys loyalty?

Shoppers are increasingly sophisticated. We are under greater time pressure, have more choice, are more price conscious and value aware. Over the past few years we have all experienced a plethora of promotions, largely based on price manipulation. The result is that we are a lot less loyal than before and are ready to be wooed by offers and deals. In scrambling for business, some retailers have encouraged their customers to become Sherry Cherrys.

Target key customers

At one level the marketing task is simply stated - identify and reward Lucy and Russell. Yet there is another dimension, that of changing lifestyle over time. Students with no money soon become young professionals with high expectations and freedom to spend. Later, with families they are financially stretched and appreciate easy shopping. With the family grown up, they have more money and more time, but are particularly conscious of quality and value. So in seeking out Lucy and Russell, it is vital to consider the lifetime value of particular individuals.