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Winning Over the Right Customers

Guest Blog By David King

Many retailers still rely on fairly simple rules to target merchandising offers to customers. Historically, the bulk of targeted customers are those who have either made purchases in the product category or within a specific brand in the category. Makes sense, right? It’s a tried and true formula that works because such customers are likely to repurchase in the same category or brand. Yet, this approach does little grow the category share; The traditionally targeted customers are already spending in the category and new customers aren’t being enticed to expand their spending habits within the category.

Recently, retailers have found success looking at “winnable share” at the product category level. With this approach, the potential of each customer to spend in a category is estimated and the more potential a customer has, the better the target.

For example, let’s say we have two customers: “Bob” who spends $60 per month on bread and “Mary” who spends $10 per month. The traditional approach would favor Bob for promotional offers, but that $60 might mean that his spending potential is maxed out. In other words, targeting Bob with a promotion will not increase his spending in the category because $60 represents the most that he would ever spend. By contrast, Mary might have the same $60 potential, but $50 is being spent at another store. She has a much higher winnable share than Bob. Naturally, this approach will also uncover some high-spending customers that have still more potential.

Here’s a quick chart of what we might see:

Customer             Current Spending                                Estimated Potential                         Winnable Share

Bob                          $60.00                                                        $60.00                                                $0.00

Mary                        $10.00                                                        $60.00                                                $50.00

Sharon                    $50.00                                                        $80.00                                                $30.00

An immediate question that we face is whether those customers with a higher winnable share will respond to promotions. In most cases, they do, which means that a category manager can both generate near-term sales and build higher share.

Having an understanding of customer potential at the category level also enables two additional merchandising activities.

First, it provides managers with an overall potential for the customer base by category. This allows them to work with vendors on designing merchandising programs that achieve the best sales outcomes, both for the vendor and for the store. On a macro level, it allows management to estimate whether their potential category share is growing or shrinking and why. For instance, perhaps winnable share is stable, but sales are struggling due to ineffective promotions. Management teams can use this information to fix the fundamental efficiency issues.

A second use is in designing cross-category promotions. Let’s say that a retailer is thinking about promoting denim to sweater buyers. We would want to use our intelligence about customers’ winnable share in denim to select customers. If we’re actually making an offer in both categories — “buy a sweater and jeans together and get 20% off both” — then winnable share in both categories is useful.

In short, retailers and merchandisers are accomplishing two primary objectives as a result of moving toward understanding each customer’s winnable share by category: driving sales for current promotions by selecting the customers that will respond; and building gains in category share by pulling in new customers that would be ignored by traditional targeting efforts.

David King is executive vice president at Fulcrum

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