Why You Might Not Recognize Your Best Customers


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A while ago, I read an interesting case study about product sales at Walmart. The study shared how Walmart had discontinued carrying several SKUs that weren’t performing as well as it liked, and the result was a disproportionately large drop in sales.

Why? They found that while those products did not drive significant revenue on their own, those were products that shoppers came to Walmart specifically to buy—and while there, those shoppers often made enough other purchases to justify keeping those products on the shelf, even though they were not exceptionally profitable on their own. 

There are two key takeaways here. The first is obvious—it’s easy for product decisions to have unintended consequences, and it’s worth thinking carefully before removing a product from your shelves. The second lesson is less obvious, and requires really looking at the bigger picture. 

In a nutshell, Walmart focused on the wrong detail, and it cost them big.


WHO IS YOUR BEST CUSTOMER?
Most retailers likely make the same mistake when it comes to identifying their best customers. They may think they know who their best customers are—when asked, they picture the faces of customers they see week after week. 

But which of the following is actually a better customer?

• Customer A comes in each week and buys exactly 5 cans of cat food, at about $1 a can. 

• Customer B comes in only once every other month (or just 6 times a year!) but buys 3 big bags of dog food, each $46, and the last time he came in also bought a new crate ($100) and a new collar for each of his 3 large dogs ($16 each). 

Over the course of a year, Customer A will spend $260, while Customer B will spend $976 over that same period. 

All of the staff will likely know Customer A by name, but no one is likely to recognize Customer B. Still, I think most retailers would much rather have Customer B than Customer A. 

It boils down to this: Most retailers (and their staff) are likely focusing on the wrong details when it comes to identifying their best customers.


WHO ARE YOUR BEST CUSTOMERS, REALLY?
If you’ve never taken the time to crunch the data, it’s worth spending some time with your POS system to look up the answers to the following questions:

• Which customers spent the most money at your store in the last week?

• Which customers spent the most money at your store in the last month?

• Which customers spent the most money at your store in the last year?

• Which brands did those customers buy? Which products? 

Your choice of software will determine how easy or how difficult it is to pull this data — and you may be limited to looking at just those customers who have opted into your loyalty program. That’s okay, as long as you remember that, when using your data to make decisions, you may be missing a handful of customers.

The answers to the questions above can help you make smarter decisions about everything from product selection (so you don’t make the same mistake Walmart did) to marketing… after all, you don’t really want to give a coupon to the customer who is there every week anyway; you’re much better off trying to get your occasionally 

 

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