Top 10% of customers account for 40% of sales
The top 10% of the average North American retail store's customers visit the store more than twice a week, spend more than US$39 per visit, and represent nearly 40% of the store's total sales, according to an analysis of over 2 million grocery shoppers by Concept Shopping Inc.
The study also found that these most valuable shoppers tend to remain very loyal to the store, with 95% continuing to shop there throughout the year. Conversely, only 34% of the store's worst shoppers, those who visit the store less than once a month and spend only US$9 per visit, remain customers.
"Shopper churn is a fact of life for every marketer," said William Young, vice president of sales and marketing for Concept Shopping. "Shopper loyalty continuously ebbs and flows through retail banners and store types, but sorting shoppers by their value helps identify which ones should be courted and which ones can be ignored."
The study divided the 2 million shoppers into ten equal deciles based on their spending levels during a 12 week period, and detailed the total amount spent and the number of trips, as well as the percentage of spending on products which were on sale (i.e. promotional spending).
Only 11% of the money spent by the best shoppers (those in decile number 10) were on promotional items, making these heavy shoppers the most profitable as well. By contrast, more than 35% of spending by the worst shoppers (those in decile number 1) were on promotional items, making them positively unprofitable (assuming a 33% profit margin).
The study also tracked shoppers as they moved across spending levels from year to year, and examined overall shopper retention and defection rates. In one example, a retailer retained 70% of its customers while 30% defected to other retailers, with only 5% of the highest spending group leaving. More than half (57%) of the top spenders from the previous year remained in the top decile, with only 21% declining to the second decile.
"As these charts indicate, retailers should spend the lion's share of their time, effort and promotional dollars on their top-spending, loyal customers," concluded Young. "Moreover, other studies have shown that it costs about five times as much to win a new customer as to keep a current one."
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