The importance of prioritizing high(er)-value customers

Photo: RetailWire
May 11, 2018

Josh Meyer, LoyaltyOne Global Solutions

Through a special arrangement, what follows is a summary of an article from COLLOQUY, provider of loyalty-marketing publishing, education and research since 1990.

As with most industries, the 80-20 rule applies to the world of retail; high-value customers make up a large percentage of most brands’ sales.

Your customer base should be analyzed for not only your best customers but those with potential to become a best customer in the future. As you look to shift your investments to better serve your current and potential best customers, here are a few best practices to keep in mind:

  • Solve pain points that have the highest impact: Pairing analytical techniques such as potential value models with customer experience solutions will allow you reach future best customers and not just the ones spending the most today. For example, if your data shows a pain point affecting only 20 percent of customers, you would need to look at the composition of this customer group (with specific attention to best and potential best customers) to understand the impact of solving this pain point.
  • Foster loyalty of your best and next-best customers through personalization: LoyaltyOne’s new “CX: Intention vs. Impact” report found that 76 percent of customers felt that receiving personalized discount offers based on their purchase history was important. Unfortunately, just 38 percent of companies said they currently give customers personalized offers or promotions via their mobile app, and less than half (48 percent) engage with customers via e-mail during the pre-purchase phase.
  • Continue the relationship post-purchase: Customer listening is crucial to improving the shopper experience, but just 42 percent of retailers reported that they collect customer feedback based on the shopper experience. Loyalty programs offer an excellent chance to solicit feedback and gain insight on the areas that can benefit most from improvements.
  • Don’t forget to measure: Your survey data and other metrics from your loyalty program should be used to measure the impact of your personalized offers. Introduce personalization into your post-purchase interactions with your highest potential customers for the best results and maximum ROI.

DISCUSSION QUESTIONS: What advice do you have for retailers targeting current and potential best customers? Are there aspects of the customer prioritization process that retailers continually shortchange?

Please practice The RetailWire Golden Rule when submitting your comments.
"There is a sea of data out there that retailers can use to understand their most loyal customers’ preferences and shopping habits. Use it!"
"Modeling customers on potential value can provide lists of qualifying customers, but you must break down those groups through thoughtful analysis..."
"Not all customers are created equal and “best customer” does not mean the same thing to all retailers."

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16 Comments on "The importance of prioritizing high(er)-value customers"

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Lyle Bunn (Ph.D. Hon)

All customers are not created equal and these points are excellent for providing that special attention. Frequent shoppers can easily become known to staff who should be encouraged to foster the relationship. Digital is not always the answer.

Charles Dimov

By a retailer’s definition, lets say that “best” customers are those that spend the most with them. Loyalty card programs have worked well, but many retailer are already doing this. Most seem to focus on discounting, or dollars back. Good but … your “BEST” customers deserve an experience.

More retailers need to create an experience that customers want to earn. In DSW’s case with a new loyalty program — perhaps earning points to a pedicure (they sell shoes after all), or to an exclusive champagne cocktail – with a discussion about how well their shoes are made — by a well known shoe designer.

To truly engage the higher value shopper, you want to focus on brand intimacy. That comes from creating an experience with your brand that they truly cherish, and that associates your retail name with that exceptional experience.

Dick Seesel

There is a sea of data out there that retailers can use to understand their most loyal customers’ preferences and shopping habits. Use it! Without an action-oriented approach to data science, stores may identify “best customers” but may not customize product offerings or targeted marketing to appeal to them.

As far as customer priorities are concerned, part of the point of customization is to recognize that one shopper may be more focused on personalized service, another on new product offerings, and so on. One size doesn’t fit all — making it all the more critical to put data to good use.

Gabriela Baiter

Agree with your point here.

On the data front, retailers have to stop using their own data to identify “potential” high value customers based on past purchase behavior alone. Machine learning and artificial intelligence can now predict with more than 90% certainty who is willing to buy more from you using a combination of rich mobile data (i.e. social habits, apps, purchasing behavior).

Retailers should also consider basic logic in their approach. For instance, college students will never be your highest value customers based on spending behavior, but by nurturing them early on (via lower priced products / targeted experiences), brands are making a critical investment for the future.

Art Suriano
My advice is simple: “listen to your customers.” Most retailers today are spending dollars on data taken from all types of surveys and what do they do with it? Most do very little. Retailers need to listen to their customers! Look up a retailer on social media sites, and most often you will find the same complaints, such as poor service, rude employees or no service. Can it be fixed? YES — with more staff and better training. Stores have the one advantage the Internet does not, which is human interaction. So, make the in-store experience as great as it can be by hiring enough associates and give them the tools to “wow” their customers. Then and only then should the retailer look at all the data to see what else they can do to improve their in-store experience. Unfortunately, too many retailers think that technology is going to solve all their problems. As fabulous as technology is, it can’t and it won’t. Not addressing the needs of the customers today with more and better-trained… Read more »
Ian Percy

My thoughts are much in keeping with yours, Art. I’d add “Listen to ALL your customers.” The tendency is to assume the occasional customer isn’t worth listening to while we drool over the frequent customer. Both deserve a “wow.”

Phil Masiello
Customer retention is the key to long-term success in any business, whether it is online or brick and mortar. Your best customers are the brands retained customers. These are the customers who are going to refer the brand to their friend and family and help acquire new customers. Over 80% of Zappos sales, for example, come from retained customers. Rather than spending the bulk of their marketing dollars on trying to get new customers, Zappos focused on building retention. This effort helped them grow from $1 million to $1 billion in sales in 7 years. Retailers need to take a page out of that book and focus on how to retain their customers and turn them into advocates by finding out what they love and hate about the retailers brand. Fix what they hate and build on what they love. Retailers think in a transactional paradigm. They do not think in a customer service paradigm and that is the root of all of their present problems. The brands that continue to thrive are customer focused… Read more »
Peter Fader

Yes, yes, yes! This is the key to sustainable growth in today’s highly competitive (and data-driven) era.

Let’s all celebrate CLV day next Monday. (Get it? CLV=155 in Roman numerals, and Monday is the 15th day of the 5th month….)

All the other stuff we chatter about (e.g., customer experience, in-store technology, personalization, and branding) follows after you get good at customer valuation. But too many retailers are getting the cart before the horse by jumping into those tactics without a clear understanding of how their customers differ and which ones are likely to be the best in the future.

Ian Percy
While working with a bank as they laid out a customer ranking/prioritizing strategy, my one ignored piece of advice was: “Never let your customer’s see your prioritizing strategy.” It’s the old watching the sausage-maker story. Even with this perfectly reasonable article I doubt anyone reading it felt misty with the love being shown. As usual, the story ends with “…and maximum ROI.” There’s a TV commercial that says “First Class exists to remind you you’re not in First Class.” Of course every retailer wants to make as much money as possible by serving its customers well. The quicksand lies in the word “prioritize.” When you start to differentiate your customer by “precedence in right or rank” as the word is defined, you end up on a slippery slope. My pet peeve, as an example, are airlines who stupidly have two carpet runners heading into the gate. One has a sign for “Priority” customers and the other for riffraff. Both are made from the same material, both are filthy … and they are right beside each… Read more »
Kenneth Leung

The best customer is also different by retail category. For mass/discount, the best customer can be the largest total revenue or largest number of purchases per visit. In luxury segments it maybe different depending on the product line and also other context like cross sell, personal networking to bring in other clients etc. Retailers need to define that well and then apply the right rewards. For some it is discount, but for others it is experience. Not all rewards are created equal….

Ken Morris
It is great to see that many retailers are focused on analyzing and identifying the needs for their most valuable customers. The key is to modify your programs and services to the preferences of your most valuable customers. It is also imperative that you let your associates know who these customers are so that they provide them enhanced, personalized services when they visit your store. They typically leave because of bad customer moments (return hassles, rude associates, etc.) but few retailers focus on the why to lure them back into the fold. Winners focus on the why! According to our “BRP 2018 Special Report: Personalization is Key to Customer Loyalty,” while many retailers can identify their most valuable customers, only 53% have a process in place to communicate this information to an associate, and of that 89% feel that the process needs improvement. What is even more telling is that 47% of retailers do not currently have any process in place to communicate most valuable customer status to their associates before the point of checkout.… Read more »
Camille P. Schuster, PhD.

Not all customers are created equal and “best customer” does not mean the same thing to all retailers. Are best customers the ones who purchase the most per year? Or the most per shopping trip? Or the ones who purchase the highest number of items? Or the ones who return the last number of items? Or the ones who purchase at full price? Or the ones who influence the most other customers to purchase a particular item?

Define what “best” means for your company. Monitor what the best customers as well as what other customers buy. Listen to what all customers are saying, find the patterns, and associate the patterns with different groups of customers. This all boils down to knowing your customers and listening to them. Listening needs to occur all the time because customers change their preferences, interests, and tastes.

Patricia Vekich Waldron

My advice is to first make sure you define what constitutes your “best” customer before designing your programs and measurements.

Mark Price

Josh’s piece is a wonderful, clear description of an approach to identifying and understanding best and potentially best customers in a retail customer base. He is also correct that a retailer must evaluate and prioritize initiatives by how they impact those two customer segments in particular.

Modeling customers on potential value can provide lists of qualifying customers; however, you must break down those groups through thoughtful analysis to better understand who they are and how they interact with your retail or ecommerce environment. What products do they prefer? Which of those products tend to skew to those valuable customers? Analysis such as this will provide the insight to ensure that you build your marketing, as well as product assortment, merchandising and promotions, to benefit those customers in particular.

Ralph Jacobson

Yet another topic that has plagued the industry since I started in it in 1976. In the supermarket biz, we’ve had low-tech “Express Lanes” forever, yet those customers are small average transactions and often low-margin, “cherry pickers.” I remember when my store implemented a large order, premium customer lane with three associates staffed on each terminal to move the large orders faster.

Fast forward to 2018 … we now have technologies that can capture the meaningful insights from all the data, and most often, “dark” data that systems don’t even “see,” to identify those most profitable customers. I am seeing only a few examples of retailers truly leveraging these capabilities, both in-store and online. I believe the opportunity is virtually limitless. Retailers must take a new look at the tools available today to start taking better care of their best shoppers.

Kevin Simonson

Great article and discussion. Here are my ideas:

No matter which business you’re in, it’s important to understand the total value a customer brings you in perpetuity. While marketers may be focused on the revenue brought in immediately after customer acquisition, the finance teams should be able to paint a fuller picture of the customer’s true value. For example, if the average customer makes 10 purchases in their lifetime, then a new customer acquisition would be 10x more valuable than a marketer may see. Being on the same page here allows the team to build a more robust and accurate ROI model.

"There is a sea of data out there that retailers can use to understand their most loyal customers’ preferences and shopping habits. Use it!"
"Modeling customers on potential value can provide lists of qualifying customers, but you must break down those groups through thoughtful analysis..."
"Not all customers are created equal and “best customer” does not mean the same thing to all retailers."

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