Retail marketing strategies

Feb 01, 2009 10:30 PM  By

It’s been more than 20 years since the customer information revolution began, most visibly in retail loyalty programs — Neiman Marcus InCircle and American Airlines AAadvantage, to name just two. Now 80% of retailers operate customer loyalty programs, according to a recent report from the Aberdeen Group.

About the same time, some in-store retailers began benefitting from the superior direct mail segmenting strategies of their catalog marketing counterparts. They started mailing less to return a higher ROI on their direct mail marketing efforts. Now almost every store retailer has some type of direct mail program.

But few retailers have taken advantage of the lower cost of maintaining and manipulating data to develop customer information programs that pack greater power into building improved ROI and greater profitability.

Merchants and mass marketing

Brick-and-mortar retailers have traditionally relied on merchants whose knowledge of what’s new in clothing or home fashion has given them the edge over the competition.

Retailers have long viewed operations — including customer information — as an expense. Profit and loss has resided solely with the merchants, who would be happier if the “expense” side of the business would disappear.

What’s more, store retailers have until recently used mass media — newspapers, TV and some radio — to deliver their advertising and promotional messages. Even those retailers who built direct mail files had little knowledge of or access to customer segmentation strategies until the late 1970s and early 80s.

Only recently have retailers started looking at customers at the individual customer level. And they’re just now measuring media on a more granular basis than sales response — plus-or-minus over plan — at the end of a designated promotion period.

The benefits of CIM

When retailers have implemented a segmented direct mail program and established a loyalty program, they probably have enough information to begin building a robust customer marketing database. Only by doing so will retailers move beyond direct mail and loyalty into customer information management.

And with CIM, retailers can truly realize how they can apply buyer data for greater profitability, more effective and productive store operations and, most important, better, more relevant communications and promotions to their customers.

The customer marketing database lies at the core of CIM. In-store, multichannel retailers need to expand their data files to include behavioral, transactional and multichannel preference data. The benefits of CIM are far ranging, including:

  • Improved management of marketing decisions

  • Better operations management

  • Fact-based customer data to support customer interactions.

A few examples — better merchandising/smarter markdowns, store openings/closings, and customer migration — show just how powerful CIM can be in the hands of brick-and-mortar retailers.

Move it at first markdown

A national department store in the early ’90s did an analysis of customer purchasing. The study showed that customers buying expensive men’s suits often left the store without purchasing the appropriate shirts, ties and socks to complement the suit. These additional sales would result in an increase of $200 to $300 for each suit sale.

This store was organized, as were other traditional department stores, around “departments” — suits, dress shirts and ties sold separately in different areas. The store merchandise layout was rearranged to integrate dress shirts and accessories into the suit area, and salespeople were trained to upsell dress shirts and accessories with each suit sale.

What had been so-so sales in the retailer’s traditional men’s suits department now skyrocketed in the newly restructured, remerchandised “men’s department.”

Here’s another example of the power of retail data. All merchants would prefer to sell merchandise at full markup, but there will always be some merchandise that has not sold after 30 days.

These goods need to be moved to a markdown or sale rack. Those retailers who can move unsold merchandise the fastest at first markdown are in a much better financial position than those who have to go to a second or deeper markdown.

Closing in

By analyzing transaction data, some retailers have become quite brilliant at targeting their customer marketing files to move all sale items at first markdown.

Separating those customers who buy only “on markdown” from those who only pay full retail makes it possible to design a program aimed at markdown buyers. Add in the types of merchandise they purchase — by department, designer, season or other significant, actionable data — to add even greater punch.

If you can encourage the bargain hunter to get the jump on other customers and buy at first markdown, you can clear stocks earlier and faster. And you won’t need to dig deeper into the bottom line.

Just as markdowns are a fact of life in retailing, so are store closings. Customer information is just as valuable in managing a store opening process as it is in limiting the loss of sales due to store closings.

One national retailer, for example, was forced to close a location. Even though the retailer had two other locations within a 15-mile radius of the about-to-be closed store, management knew that substantial revenue from the closing store was at risk.

Trending data over time

The company conducted an analysis of the customer file for the closing store to develop a campaign to protect the at-risk revenue. The retailer sent a promotion to affected customers informing them of the closing. It explained how convenient it is to shop at the remaining two stores by providing maps and limited promotional incentives (such as a discount for a nearby restaurant).

Sent out in three waves, the promotions helped to transfer store loyalty. In the first 30 days after the store closed, up to 50% of the targeted customers began shopping at the two remaining stores.

After a year, revenue from that customer segment was also substantially higher than it had been prior to their changing store locations. The retailer realized its primary goal — to change a shopping habit while maintaining company (not store) loyalty

Trending data over time

Most brick-and-mortar retail managers were schooled in “instant gratification” — conditioned to look for a blip in sales in the daily flash report following an ad or promotion. The use of CIM demands looking at data over time.

Take the process of moving customers up the loyalty chain. Loyalty programs that recognize how to move customers along the loyalty chain employ data in a much more sophisticated manner than those retailers who have set up simple frequent purchaser or best customer programs.

Without using any incentives, you can increase customer purchasing by communicating on a regular basis to finer buyer segments. By sending out a welcome letter to new customers and reminding them of the benefits of shopping with you, for instance, you can nudge them along the loyalty chain into becoming repeat buyers.

Keep in mind that you must carefully define the customer segments while communicating with them at key junctures and following their behavior over time.

Brick-and-mortar retailers who were thrust rather suddenly into CIM through the Internet portal are now recognizing that customer data, when applied systematically to their stores, can have profit-raising impact. And if you haven’t yet tapped into the promise that CIM holds, you should.

Francey Smith (francey@franceysmith.com) is president of retail marketing consulting firm Francey Smith & Associates.

Customer information management for brick-and-mortar retailers: DATA REQUIREMENTS

Direct mail

• Name • Postal address • Store of purchase

Customer marketing database

(including both customers and, when possible, prospective customers)

  • Unique ID for each customer/prospect
  • Customer name and postal address
  • Customer purchasing record that includes store of purchase and department, class and, when appropriate, SKU
  • Promotion/advertising history and event tracking code
  • Link to loyalty program where applicable
  • Other desirable — but not necessary — data elements would include landline and cell phone number, as well as e-mail address

Marketing decision making

  1. Create a market definition by geography at the zip code or zip-plus-4 level

  2. Media expense management

    a. Select media resource

    b. Track response by media source

    c. Measure response by media source

    i. Easier to track and measure — postal mail, e-mail, newspaper, other print

    ii. More complicated to track/measure — TV and radio

  3. Determine if customer has a preferred store location or channel for shopping

  4. Telemarketing support for both inbound and outbound calls to customers and prospective customers

    a. Outbound calls effective for all channels

  5. Metrics, analytics and promotion tracking

    a. Which customers should be targeted?

    b. Which customers responded?

    c. Which customers didn’t respond? Do we know why they didn’t respond?

    d. Which promotion message worked good, better, best?

  6. Market research:

    a. Access customers and/or prospects for both qualitative and quantitative research

    b. Track primary research results

  7. Link to loyalty program where applicable

Store/multichannel operations management

  1. Provide fact-based customer data to support:

    a. Brick-and-mortar site selection and real estate management

    b. Planning merchandise adjacencies for all channels

    c. Proprietary credit customer acquisition and retention programs

    d. Gift registries, such as bridal, baby

    e. Support for store associates “clienteling” programs

    f. Store opening campaigns (store closings, too)

Improved customer interactions

  1. Analyze advertising content and results by item and media source
  2. Cross-selling and upselling strategies
  3. Vendor co-op development
  4. Seasonality planning for merchandise by region or geography