Retailers: Time to re-think your ‘best customers’

By David King,

For many retailers, the “best customer” search has been an ineffective venture where the results haven’t warranted the time or expense, despite a host of different efforts. But this tantalizing target keeps pulling dollars out of budgets, dollars that could be spent on creating a more realistic and profitable approach to customers -- one that considers customers’ shifting behaviors and value.

Given the great difficulty in defining what a best customer is, why does this notion have such staying power? I believe that the desire is rooted in an unrealistic hope that we all share as marketers: that through our cleverness and industry, we can lift the entire customer base to the level of the theoretical best customer. In other words, if I can find the 10% of my customers that truly are best, I can transform the other 90% into them. Think of it as marketing alchemy disguised as marketing science.

A great example of this thinking took hold in retailing in the early- to mid-2000s. One interesting phenomenon at the time was that multichannel customers, those who purchased in stores and online, were more valuable. The goal of many retail marketers therefore became to get customers to shop through multiple channels. Some retailers -- Circuit City is an example -- even bucked the trend of retailers shutting down their catalog operation, perhaps in the belief that adding channels inherently increased customer value. And quite a few catalogers began opening retail stores.

It’s easy to look back and shake our heads at the naiveté of this approach. Clearly, multichannel buying did make some relationships more valuable, by giving already good customers a way to shop more often. But getting a store-only customer online also made it easier for him to shop competitive brands, and even if they remained loyal, the online shopping might only be a substitution for physical shopping. Moreover, the diffusion process of online shopping was still very much underway; today, we have reached more equilibrium between in-store and online shopping. We also have the verdict of history: Circuit City went bankrupt, while Amazon continues to grow.

Again, it is easy to look back and believe that this notion of best customer was hopelessly simplistic. Yet, go to any marketing conference today and you will find the same concept in new clothing: today’s holy grail is the “engaged customer.” I think history will likely have a similar verdict about the dream of a fully engaged customer base.

Instead of focusing on these elusive profiles, we need to consider our customer base  more like a financial portfolio in which some customers are like bonds, yielding lower, dependable rates over time, while some customers are more like stocks, more valuable at times, but also more volatile.  We need to investigate and discover these differences in customer value and profiles and keep them balanced in our customer base, rather than chasing an idealized customer profile that just doesn’t exist.

David King is CEO of Fulcrum,( a leader in advanced analytics, technology and multichannel program solutions for marketing.

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