Retailers today often overlook one of the best tools they have available to them when it comes to choosing new products and restocking old ones: data from their customer loyalty programs.
Most retailers these days offer customer loyalty programs. And while the key idea behind a loyalty program is right there in the name—to increase customer loyalty, better known as repeat purchases—there’s a lot of ambiguity as to whether these programs work as intended.
They do offer retailers another option that can be just as profitable as repeat business: information.
A good customer loyalty program doesn’t simply encourage customers to come to your store for their purchases; it also offers you, as a retailer, a way to collect information about their purchase history and demographics.
What B&M Stores Can Learn From the Internet
In some ways online retailers have it much easier than brick-and-mortar stores. They can track their customers by forcing them to log in; those logins allow them to see not just what the customer buys, but also what she looks at.
Then those stores can make tailored suggestions, either on page or via email, for other products that those shoppers might also love.
(Want an example of this? Go to Amazon. They include a “frequently bought together” and a “Customers who bought this item also bought” sections on each product page.)
While this is simply an digital adaptation of up selling—the classic example being McDonald’s “Want fries with that” catchphrase—it’s nonetheless extremely effective.
Retailers operating primarily from a storefront may not have the advantage of knowing every single product their customers consider. However, by carefully reviewing their shoppers purchase history, they may be able to find trends that can help them better upsell to customers.
While there are some connections that may be obvious—for example, a customer that purchases natural products for themselves is highly likely to purchase natural products for their children or pets as well—other trends may be less so.
Broken down, evaluating these trends looks a little like this:
Customer A regularly comes into the story to buy product X. Customer B also regularly buys product X, but each time he does he also picks up product Y. Perhaps customer A would also like product Y?
Of course, that’s pretty simplified, but it should give you an idea how it works.
And think beyond simply upselling—this information can also help you decide what items to cross promote, offer up in displays and partner in nearby endcaps. In fact, it can even help you choose what new products to stock.
Why You Need to Keep That Slow Moving Product
Not too long ago Walmart saw a huge drop in sales after removing a number of slow-moving products from their shelves. The reason?
Despite the company’s legendary ability to track sales data, they had overlooked something very important. In most stores, approximately 30% of customers bring in between 70 and 80% of the store’s annual revenue.
And it’s often this 30% that provides the turnover for those slow moving products.
For example, say a grocery store had a pet shampoo that they stocked but it sold really slowly and they decided to stop carrying based on that poor turnover.
Unfortunately, the customers who did buy that product were largely customers who also purchase other pet products in that store. They are some of that 30% minority who provide the store with it’s 70-80% of annual revenue.
Yet now that they can’t find the shampoo they are used to using they have to make a decision: switch products or look in another store to see if they can find the product they’re used to using. If the store has opted out of carrying any pet shampoos at all, then the customer doesn’t even have the option of continuing to buy their pets shampoo at that location—an even worse situation.
Now that customer is likely to go to a pet specialty store or another store, looking for the item they need—even though it’s an item they don’t buy often.
Since they are in that other store anyway, they are much more likely to simply make all of their pet-related purchases from this new
supplier. If that new supplier also offers other categories that the customer frequently buys, that customer may convert entirely; they’ll no longer have a need to purchase anything from the store they originally shopped at and will rely on this new place for all future purchases.
So, how do you avoid making that mistake?
When you review shopper loyalty data, isolate your best customers. Figure out which customers are providing the majority of your income. Then, before discontinuing an item or line, review the items these customers tend to purchase.
If the item is something that a significant segment of VIP customers buys regularly—even if it’s not regularly enough to provide frequent turnover—the store should seriously reconsider discontinuing the product.
By using loyalty programs in this way, they not only help build loyalty—they also ensure that already-loyal customers don’t find themselves searching for a new place to love.