While marketing budgets are decreasing as a result of the recession, it is more important than ever to use those budgets wisely, according to Andy Wood, managing director for GI Insight, who suggests that one of the best ways for marketers to spend their reduced budgets is on customer retention and development.
The key, Woods argues, is to focus mainly on marketing to key customers (i.e. the top 10% that typically provide some 50% of turnover), and the discount end of High Street retail is where this strategy is most likely to pay off.
With more and more people turning to value retailers, marketers will need to think about how they will encourage shoppers to stay with them when the economy is looking up. These new customers might very well return to their usual shops, so the key action for value retailers is to develop customer relationships in order to keep customers after the recession. In order to do so, a mechanism needs to be put in place to help them understand who their new recruits are and to encourage similar prospects to join them.
If there is already a loyalty scheme in operation, new customers should be incentivised to sign up. The aim is to identify new customers, and make them available for immediate analysis. There are two areas that are critical to successful customer development and retention:
- When new customers join the programme, the retailer can examine who they are, what they are like, and where they are from. This in turn will allow the retailer to more easily find 'look-alikes' for acquisition campaigns.
- Retailers can also more easily understand the newer customers in order to develop strategies for retention when the recession fades away. This strategy could be as simple as adding new product lines or creating incentive barriers to keep customers loyal.
At the other end of the scale, premium retailers are suffering from customer defection and, unless they fundamentally change their pricing structures, customers will continue defecting in large numbers. Evidence of a move to prevent loyal customers seeking out cheaper alternatives has already started to emerge. For example, in 2008, the UK supermarket chain Tesco introduced a range of discount brands to help discourage shoppers from defecting to value-based alternatives (such as Lidl or Aldi). Also, in the run-up to Christmas 2008, Marks & Spencer held two one-day sales in which prices in-store were cut by 20%, while Waitrose has initiated a direct mail campaign to promote its latest round of in-store promotions.
Premium retailers must also seek to identify, through transactional analysis, customers whose spending is not decreasing. This information can be used to drive campaigns to help recruit similar kinds of shoppers, in a bid to replace those who have already defected to value-based competitors.
Finally, Wood suggests that all retailers should keep in touch with lapsed customers throughout this difficult period in a bid to draw them back again when consumer confidence in the economy returns to more normal levels.
"Both ends of the retail spectrum have their work cut out for them as both value and premium retailers fight for customer share and try to keep or win back customers when the recession is over. But, most importantly, the customer should not be neglected during this period of financial instability, and transactional analysis is the key," concluded Woods.