A Changing Customer Base Means Changing Customer Tastes
No exceptions. Take a retailer with a long-standing base of loyal, but maturing, customers. Recognizing the lifetime limitations of its market, the merchant launched an energetic strategy focused on marketing to new customers. And it worked.
By: Jenn McMillen
It worked so well, in fact, that the merchant’s fast-expanding segment of younger shoppers were schooling it on how out-of-step some of its other operations were. Notably, its rewards program. While the company had altered its overall marketing strategy, it had not changed its fee-based loyalty program in years, and the offering was not tempting these new shoppers.
Considering the success rate of selling to a new customer is 5% to 20%, compared with 60% to 70% for existing customers, the merchant had too much to lose by not changing its program. It in fact had to rip up the floorboards altogether, phasing out the old program, and building a new one while at the same time serving all members without interruption.
In the process, it picked up on a few precautionary steps, such as the watch-outs of a significant customer shift and the foundational practices that would ensure a seamless recovery.
Based on this experience, here is a three-step guide to what we learned.
Step 1: Know How to Recognize a Customer Shift
To spot a change in its customer base, an organization first must understand the customers it has, through a combination of qualitative and quantitative research.
First, it gathers all its structured and unstructured data, from in-store purchases to social media interactions, and uses the findings to segment its customers by similarities. For example, morning shoppers versus evening shoppers, customers who only buy all-natural goods, their geographic variables, and the technologies they use.
Once the base is segmented, the company can communicate with each group separately to further specify preferences and anticipate needs. This applies to new customers as well. It can deepen this understanding through web surveys, focus groups, or through complex inquiries that score shopper preferences. These latter efforts will help an organization identify how at risk it is of losing certain customers, as well.
Pulled together, the integrated data and segmented feedback establish a baseline from which the organization can interpret change. Significant, unpredicted fluctuations in category spending or time-of-day purchases, for example, likely signal new customer groups.
Step 2: Ensure all Operations Support Existing and New Shoppers
If new shopper activity is detected, continued analysis and segmentation will help determine their preferences. However, an organization should live every day ready for such change. New customers, like new neighbors, shouldn’t present a “be careful what you wish for” scenario.
Preparing for unexpected (or even expected) guests takes planning. Through process of elimination, an organization can identify underserved markets, and set about learning how and what to serve them.
The company in this story, for instance, had deliberately targeted younger consumers with a marketing strategy that underscored how it could support their needs and aspirations. But an organization also should ask: Beyond the merchandise and services we offer, how else will we talk to these customers every day? How do we want to talk to them? Do customers want to hear from us every day?
In this company’s case, that other way was the loyalty program, which had not changed in years. Sure, long-standing customers were accustomed to the fee-based model, but if the company had looked at its program through the eyes of young shoppers, it could have better anticipated what they had expected it to bring to the table.
Fortunately, this realization didn’t arrive too late.
Step 3: Make the Most of the New and Target the Best in the Existing
The company derived a “have it all” method for enrolling new loyalty members from its pool of younger customers, while deepening engagement among its most valuable existing shoppers. This plan hinged on treating both groups as VIPs.
Treating existing members as appreciated investments: All members of the former reward program were automatically re-enrolled in the new program; they didn’t have to lift a finger. As an enticement, each was given a $5 certificate to reimburse members who had paid the old program’s annual fee, which the new program removed. Further, the company rewarded their ongoing loyalty by surprising them with a set number of “starter” points based on past activity.
Treating new members as welcomed stakeholders: All customers who enrolled in the new program, meaning all new members, automatically received $5 “welcome aboard” gift certificates. This encouraged immediate activity. Ongoing, members (old and new) earned $5 certificates for every $50 spent, as well as double points on their entire birthday months, to stimulate engagement for an extended period.
To ensure it could more accurately anticipate new and existing customer needs going forward, the new program was designed to collect more detailed purchase data — such as the preferred color or size of repeat purchases. With this information, it could send right-timed bonuses and exclusive, personalized perks.
When Courting Change, Profit Follows
By talking more closely with its existing and new members throughout its operations, the retailer affordably took advantage of other sales opportunities, such as cross-selling goods via rewards. These efforts contributed to a 15% increase in transaction value as members used their reward certificates. Meantime, reward redemption rates doubled to 20%, meaning that members understood the benefits of the new program.
The retailer continued to benefit, as well, because it recognized that when the customer mix changes, it doesn’t diminish the value of the existing base. A successful marketing strategy is measured in how well it sees and maximizes the unrealized value of all its customers, across operations.
That lesson is ageless.
Jenn McMillen is Founder and Chief Accelerant of Incendio, a firm specializing in customer-facing initiatives, whether it’s marketing or technology. Incendio builds and fixes marketing, consumer engagement, loyalty and CRM programs, providing a big-agency approach to marketing needs without the big-agency cost structure, and is a trusted partner of some of the biggest U.S. brands.