Studying Spending Changes May Prevent Customer Loss

Apr 29, 2002

According to an article in The McKinsey Quarterly, “better appreciation of the underlying forces that influence customer loyalty, particularly attitudes and changing needs, can help companies develop targeted efforts to correct any downward migration in their spending habits long before it leads them to defect. Such an appreciation also helps companies improve their current efforts to encourage other customers to spend more.”

Analysis of a recent two-year study of the attitudes of 1,200 households found that businesses should not limit their evaluations to defections alone. The article claims that, “smaller changes in customer spending can have as much as ten times more value than preventing defections alone.” Companies taking this approach have cut downward migration and defection by as much as 30 percent, McKinsey reports.

Managing migration, from the satisfied customers who spend more to the downward migrators who spend less, is a crucial step in differentiating and measuring degrees of loyalty. This step is especially important because large amounts of value are at stake. Many more customers change spending behavior than defect, so the former accounts for larger changes in value. In industries like retailing and credit cards, whose customers generally deal with more than one company, managing migration is vital.

Moderator Comment: How can retailers better identify consumer migration trends? What tactics should retailers be using to reduce migration to other stores/channels?

According to the McKinsey article, there are three basic
shopper types.

  1. Emotive.

  2. Inertial.

  3. Deliberative.

The deliberative group represents 40 percent of all customers.
Deliberative consumers or deliberators are said to take an objective approach
to shopping. Criteria such as price, product performance and the ease of doing
business with a company are primary considerations in a deliberator’s purchasing
hierarchy. For example, “Deliberators who value convenience and quality in a
grocery store, for example, would likely choose a nearby grocer with a gourmet
deli. A more value-conscious customer might well choose a more distant store
offering better prices. Still, both of those customers would constantly reevaluate
their decisions by considering the specific purpose of a trip or new information.”
Anderson – Moderator

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