THE TOP 3 PROBLEMS RETAILERS FACE
- The first problem is that you start the wrong way by looking at the wrong set of data. Opens and clicks are not customers. You’ve got to find the most valuable customers and the keyword here is not valuable, but the customers, you have to define the customer first.
- If you treat everybody the same, by definition nobody is special, even your special customers.
- Identify the buyers on their first purchase, that have very high potential value. These buyers have differentiated themselves in some way that you can see from your customer database and treat them special very quickly.
- Customer acquisition is almost always an extremely costly endeavor, and when 80 percent of your customer base never buys again, it can become a wealth destroyer this is why you need to acquire better buyers from the start.
- Every single day, if you’re not being proactive about it, your customer base is decaying. You need to use your customer insights to deliver the right message to the right person to prevent them from becoming dormant/inactive.
Below is a lightly edited transcript of Episode 30 of the Inevitable Success Podcast.
Damian: If you’re in business and you sell things retail, you have these three problems. So what are they? The three comments that basically every retailer has. Today we’re going to talk about each of those three problems, and one tip to address it.
Stephen: I’m doing good. I believe in simplification. In other words, all these problems are rather complex but I think we all have to start at the right place. So let’s simplify it, let’s identify those problems, and yeah I want to start there because it’s a good starter. Of course, you will face other things but start there.
Damian: All right. So before I get into the three problems, how is it that you uncovered that every retailer has these three problems?
Stephen: There’s the basic one, two, three’s of consulting work which is, listen to your customers first. Secondly, we look at numbers a lot. When we look at these numbers and go, oh gee that’s a problem. So defining the problem statement, by the way, is the number one rule in consulting where any solution in that if you do not know what the real problem is, you’re going to do a lot of things that will not help you. So that’s why we just look at a lot of numbers here.
Damian: Yeah, and you know if you could say like how many databases you think you’ve you’ve actually looked at and in –
Stephen: In my lifetime?
Damian: In your lifetime.
Stephen: Oh geez. During my first –
Damian: I think Stephen started looking at databases when he was four or five years old.
Stephen: No not really, I’m pretty old now, but yeah I’ve been doing this for 33 years and during the startup days, there was a time that I looked at 70 to 100 model documents every day for seven years. So that’s a lot. And so you get to know, okay so what kind of problems are we solving here and over the top, of course, the acquisition problem, retention, and all that. But today we’re going to specifically talk about problems, common problems that the retailers do face.
Damian: So would it be fair to say that you’ve looked at hundreds?
Damian: Hundreds of databases and maybe even thousands?
Stephen: Uh I couldn’t go that far.
Damian: All right, so hundreds of databases – three common problems. Let’s just jump into it. What’s the first biggest problem that retailers, that you see in retailer databases.
Stephen: The first common problem is that people get wrong sets of numbers and really what they call CRM is really necessary. And people will talk about Customer 360, “What is your Customer 360?” It talks about pretty much everything that they browse or everything that they touch and that type of thing. But the real intel comes from the fact that no, no, no, I’m not talking about transaction value or what they did last time or last click. No that’s not CRM, it’s the beginning of it, but it’s not the whole thing. Do you even know how many customers you really have? Now here are the wrong answers. How many emails you have or how many visits you have and all those answers are wrong, wrong, wrong. They will not tell you the real customer value. So the first problem is that you start the wrong way by looking at the wrong set of data. Opens and clicks are not customers.
Damian: How does that manifest in revenue though? How is that a revenue problem for a retailer?
Stephen: It all leads to who you should be talking to – remember a few episodes ago we talked about what is really the pinnacle of one to one marketing is knowing who to talk to. You don’t get to one premise. Let’s not talk to everybody the same way. I think that’s pretty much established that that’s a bad thing. That even if you’re running a corner store somewhere or a coffee shop, wouldn’t you be nicer to regular customers who come in every day versus I mean nicer meaning that you want to develop a relationship. Why is any CRM, because you deal with millions of people, is that any different? No. You want to have the country store mindset where “I’m going to value the frequent visitors and high spenders because you know why? He’s going to come back.” That’s the mentality. Now if you don’t know who they are, then how do you start doing that for millions of people, even thousands of people? So problem number one: you’ve got to find the most valuable guys and the keyword here is not valuable, but the guys, the customers, you have to define the customer first.
The Customer 360 is not about just putting all the data together in one place, it’s about building the information around that person. So if I ask at any given time that, “Do you know the customer value of your average customer value?” Or forget that – what is Damien’s value for last year, two years ago, three years ago? So that is he buying more? Was he a good customer three years ago but not anymore? All those things are the things that you must know on an individual level. So good giveaway. I asked them, one do you know how many customers you have? “Eh, we have 100,000-ish.” Wrong answer. Do you know the average customer value? “Yeah, we sell thousand dollar items all the time.” The wrong answer again because if you look at the average value, maybe you have, you know multiple universes the way we talk about a few episodes ago, your customer value average could be only like three hundred dollars, and by knowing these things is the first step.
Then what do you do, how do you turn that into money? Well, we typically find that valuable customers are accounted for more than half the revenue, even the top 10 or 10 top 15 percent of the customers may account for 50 to 60 percent of their revenue. Do you really believe that batching and blasting really works? You are either turning them off or by just putting effort on everybody the same way, you’re wasting your energy with not so increasing click-through rate or the open rate whatever the rate you’re following because you’re treating everybody the same. So knowing who to talk to is system number one. So that’s why this is where all it all starts this problem.
Damian: So to summarize, problem one, nearly all retailers faces is they’re not approaching their customer base with a 360-degree view of each customer.
Damian: Right. And that manifests itself in, well if you can’t do that well then you are by, default you have to treat everybody the same.
Stephen: That’s right. You don’t know who’s valuable.
Damian: And if you treat everybody the same, by definition nobody special, even your special customers.
Stephen: And then you end up desperate, being desperate and sending email after email.
Damian: Don’t be desperate. Yeah, you don’t want to do that.
Stephen: Well people think that, when I send emails, I get money, so this is my return. So, therefore, I’ll keep doing that. I’m like no you’re really turning a lot of people off.
Damian: Right, play it cool brands.
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Damian: All right, so problem number two.
Stephen: Number two. Okay so you do what is really the backbone of the beginning and the end of the whole business is that – we talked about this actually last time – we talked about one-time buyer problem and why is that a problem. And we have a lot of clients and a lot of customers have a lot of high percentages of say one time buy ratio. Sometimes it’s over 80 percent which is scary, even when you look at multi-years 80 percent. So they never come back. The lowest number I’ve seen is around 60, the high 60s. Hey, that’s still more than half, and that’s a good number actually.
Now, why is that a problem? Let’s say you have 75 percent of people who never come back. Now you all know as a marketer how much you spent in customer acquisition. Every channel, mailing, emailing, banner, all channel ads, whatever, search – you spend a lot of money bringing the customer into your store or website wherever, right? Imagine all of them just buy once and never come back. Now if you’re lucky enough to recover all the marketing costs in the first purchase, you’re in a very lucky group of retailers. Most people don’t. Those are the analogies, and I think I’ve used it before. Imagine you have a barrel that’s your business, and the barrel has a lot of holes, in fact, 80 percent holes, and you keep pouring water into it.
Damian: It’s almost not a barrel at that point.
Stephen: It’s more like a net. So what do you call it a spaghetti?
Damian: Like a colander.
Stephen: Yeah, yeah there you go. You keep spending money on acquisition, and by the way, all of the marketers have two different teams. You have an acquisition team and you have a retention team right? Well, both have to work extra, extra hard if you do not retain the guys. So what is the value of the second purchase and when you have all these one-time buyer problems? I mean we talked about it at length so I’ll just keep it short – secure the second purchase. By understanding the first time buyer, if the value is high let’s graduate them into VIP clubs fast. Don’t wait until he becomes a multichannel buyer because you know why? If you just insist on oh yeah he has to be a two-plus buyer and have the recency of fewer than 6 months and should have spent like this spending level and all that right? Well, do you have time to wait? Because your money is bleeding through the net because you spend a lot of time and energy to bring those guys in and you let them slip by.
Damian: Yeah, this kind of ties into the first one a little bit.
Stephen: It is a but –
Damian: But it’s very specific from the first purchaser.
Stephen: Secure the second purchase. Now how do we do that? Through the welcome series. If they spent a lot of money in the first try, don’t wait until they buy it again. Treat them as a VIP right now.
Damian: Right, so you have to identify the buyers on their first purchase, that have very high potential right? That have differentiated themselves in some way that you can see from your customer database and treat them special very quickly.
Stephen: Like a welcome letter from the founder of a special invitation to some kind of new product release or some kind of exclusivity. Build some urgency like, “Hey you’ve got to do this now because this is all just for you guys and you know it will expire in two days” or whatever. Whatever it is, just secure the second purchase. Now of course without the problem number one solved, you don’t even know who are the one time buyers because again the keyword is buyer. Not one time, so that means you have to be tracking the number of purchases for everybody.
Damian: Right. So to summarize customer acquisition is almost always an extremely costly endeavor, and when you are literally leaking 80 percent of your customer base that never buys again, that is you know a wealth destroyer.
Stephen: It is also another thing, this just reminded me of something that you said here. 80 percent leak away not just because of what they do, but maybe you attracted a bargain seeker, maybe you attracted somebody, “Yeah sure, well I’ll just try this once because he’s giving away like 30 percent discount so why not. So when you do the targeting for acquisition this profile of the valuable customer and the problem number one, if you target those guys, whatever you do in acquisition mode – for example, a lot of people use Facebook, right? What does Facebook do? They get the samples from you and then say well I have a vast world of Facebook subscribers, so let me build models and mission build but it’s still modeling.
The model is only as good as the target that you’re mimicking. Then you know what, maybe the targeting should be starting right then and there. Even when you create a model target with Facebook target or whatever – give them the high-value customer to mimic, not just a sample of any customer to model. Now that changes a lot of things. Then, of course, you have to talk about what is of value, is that multi-buying, recent buyers, or high dollar value? Hey, guess what? Facebook doesn’t care how many models that they build, the machine’s building it anyway. Give them all samples. The other day we shared about 20 samples with one of our clients just to try on Facebook. Twenty. You know I literally took about – what an hour or two to create those things, upload it to Facebook, done and done. And then we find out who becomes more valuable later, and then you just reinforce the good behavior later on. It’s a game. It’s will not stop the bleeding but starts from the acquisition too.
Damian: So number three. What is the third?
Stephen: The third one is even the best customers do fade away. I mean it could be multiple reasons. Well, people don’t stay your customer forever. So this is a timing issue there. So how do we catch them at the right moment and catch them before they become completely dormant? Dormant or inactive or whatever. Now we’re told we divide them into multiple groups. There’s a prospect, the prospect becomes a customer, those are active customers. Those are the guys who we talked about just now, do the welcome series to make them feel special, secure the second purchase, all that. And then even those guys don’t buy 100 percent. So they become, eh they bought something, they’re in market sort of, you didn’t give up on them yet, but they’re market. Now for them, you have to send them some timely messages that, “Hey you bought something, or you want to buy this again? There’s a new line of product, or let’s give you a special discount” or whatever it is.
In other words, don’t give away discount first. Think about who you’re dealing with first and then give a discount, right? But even so, they graduate into, we call them faders. They’re fading away. They’re not gone yet, fading away. Those are the guys, we calculated automatically actually the way we do it is, how many missed opportunities? It’s all mathematically based. How many missed opportunities did that person have? Now if you know what kind of a cadence score then we can say, you know what, this guy should have bought at least twice more because we know oh average days between transaction, number of transactions, last transaction, a week from the last transaction, we know all these things. We can calculate those things.
Before they become completely gone, you have to hold them back. This is what we call a retention program commonly. But in a traditional CRM sense retention means let’s just deal with everybody, that’s just the customer care right, customer relationship management. But no we have to divide them into groups now. People who are about to go fade away should be treated first because once they move away and far away enough, it is then much harder to bring them back. It is almost as hard as like reactivating a non-customer. I mean reactivating a dormant customer is as hard as new customer acquisition.
Damian: Right, so basically it sounds like there are not just three stages of a customer. It’s not just a prospect, customer, and active. It’s kind of a continuum right? So basically every single day, if you’re not being proactive about it, your customer base is decaying.
Stephen: That’s right.
Damian: Right? And you need a way to identify when is the time that they’re fading, so you can rescue your most valuable customers or any customer really.
Stephen: That’s exactly right, rescue is a word or a gentle nudge at that point and then they become at risk, by the way. If you try, they fail become at risk, we call them at risk. Then at risk, you try again, maybe fatter discount or more reason to come back, or whatever it is. And also you look at the last purchase and say, “Hmm the guy just bought like three years ago, very expensive products, so he’s not gonna buy that every year, but three years have gone by, we call them at risk, but maybe could come back right? So we do that. Now, even then those guys could become completely dormant, then only then, we call it a complete reactivation which is a difficult thing to do.
Damian: So we covered all three problems.
Stephen: You could write a dissertation on each but we went fast today.
Damian: Well, thanks I hope everybody, I’m sure they’ll get at least, I think you gave more than one tip for some of them. But –
Stephen: Of course.
Damian: there’s definitely is something to – we all stuff to work on.
Stephen: Absolutely and also I write all these things down on my blog and through all these papers that we write on our website. So please look for it, and also another thing, we’re here all the time. Call us, ask any questions please. We live for that kind of stuff.
Damian: Sounds great. All right thanks, Stephen.
Stephen: Thank you.
Damian: If you enjoy today’s episode we ask that you please leave a rating and write a review. Or better yet share it with another marketer. Be sure to subscribe to the podcast for new episodes. Also, check out the show description for complete show notes and links to all resources covered in today’s episode. If you’d like to speak to someone about any topics covered in today’s episode please visit BuyerGenomics.com and start a chat with the BG team today.