Transactional Data: The Missing Ingredient in Your Retail Marketing Strategy

Oct 11, 2006 8:26 PM  By

To acquire and retain customers, savvy retailers cannot simply say, “We have a nice product” or “We have lovely salespeople” or “We’re on the sunny side of the street.” It’s hard work to constantly motivate customers to choose your store over the thousands of other choices out there. So unless you know whom those customers are, you will not experience continued success.

Your database of customer information provides a myriad of enhancements to the “product salesperson location” ethic of retailing. If you use that database properly in conjunction with customer relationship management (CRM), you can far surpass your competition. Once you know whom your customer is and, even better, whom the best customer is, you can use that information to market more effectively to that customer. Therefore, you want to know everything you can possibly know about that customer.

Most retailers are very quick to let the customer know that private customer information will never be used outside of the company. The problem, however, is that sometimes the information isn’t even used inside the company. Often the most important steps in the process are omitted: data capture, interpretation, analysis, and action.

After the customer’s name and address, the most important information a retailer can gather is the customer’s purchase history–also known as transaction analysis.

Transaction analysis 101
Transaction analysis allows you to be selective in your marketing efforts. By targeting only those who are more likely to respond to marketing efforts, you can ensure maximum return on investment with a smaller investment. It is important to remember that you cannot effectively market in the same manner to every customer in your database—a tough concept for management to understand. It took years to convince one of my chief financial officers, for instance, that investing in a database was the right thing to do so that we could identify our best customers and reward them.

Transaction analysis tells us what, when, where, and how much a customer bought. With that information, you can develop a marketing campaign around the customer’s purchase pattern. Marketing decisions are then “fact based” and can be supported by the resulting transactions in the marketing event.
CRM via database maintenance allows you to know your customer. You know his likes. You know if he is one of your best customers. You know how to market to that customer. You can be very smug in the knowledge that you know more about your customer than your competitor does.

Or do you?
Maybe you aren’t top dog. Maybe that particular customer, who spends hundreds of dollars in your store, spends thousands at your competitor’s.
This is the point where most retailers lose their grip on CRM. They seem to think that discovering information about their customers is good enough in itself. In retail CRM, knowledge without action is akin to an army not knowing how to use its weapons.

In the days before transaction analysis, a retailer could not identify his best or worst customers except by seeing them face to face every day. Without transaction analysis, a direct mail campaign’s effectiveness could never be determined. Without the postevent analysis of the transactions, you couldn’t determine if the event succeeded or failed or where it might have succeeded or failed.

With transaction analysis, you can measure a campaign’s success and then refine the campaign so that further marketing can be targeted to the right customer. You can use transaction data to identify who might be a probably buyer of a new product, incent the customer by providing a targeted offer, and determine how your program worked.

Still a retailer can measure only his corner of the market. He has information about his customers in his store, but…..

What if we could see the whole neighborhood?
The good news is, you can. There are now analytics services that allow a retailer to look at the competitor universe. Through products such as a cooperative database, retailers can be informed if their customer is buying similar merchandise from competitors.

Over the years, with several retailers, I have been able to discover customers who have seemingly been lost. Through the use of a cooperative database, we found that they weren’t lost or deceased or bankrupt after all. They had simply been purchasing in competitors’ stores. They were buying; they just weren’t buying from us.

Fortunately, winning back these lost customers is easier than ever. With the knowledge from the co-op database that the customer is still a category buyer, you know you don’t have to overcome his reluctance to buy the category again. You simply have to overcome his reluctance to buy from you—which for a good retailer should not be a problem. A properly constructed message that says, “Please come back to visit us. We value your business,” works wonders.

In addition to finding lost customers, co-op databases can also help you identify prospects, who are not yet buying from you. A cooperative database can provide the names and addresses of these very high-value prospects buying in your category around your store. With this knowledge, you can send them the marketing collateral to draw them to your store instead of the competition’s.

Now let’s talk about something that is unique to brick-and-mortar retailers: customer location. Where do your customers live? And how many of them live there? With transaction tracking, you can not only get the customer count by zip code, but you can also identify them by name/address and by which of those many customers are profitable and should be nurtured.

It seems rather intuitive that your marketing strategy should be targeted to the zip codes that provide you with the most customers and, in turn, the most sales (a byproduct of transaction analysis). You will find that the closer the store to the customer, the higher the response rate for direct marketing efforts. In fact, the second most important metric in measuring response is proximity to the store.

In addition to finding out where your customers are living, you can compare those records against the competitive universe toidentify consumers who live near enough to your store to be your customers and who are category buyers. This will help you to identify new prospects and reach out to them appropriately.

Knowing the total category sales of the competitive universe, and additionally your market share in different neighborhoods, can open your eyes and help focus your marketing efforts. It allows you to put your money where your market is.

Claude Johnson is a consultant specializing in CRM for retailers.