The missing links in customer loyalty Print
Written by by Mike Guido, owner, Majesty Bibles and Books, Revelation Retail   
Monday, 30 March 2009 10:59 AM America/New_York
Some routine data analysis can help stores identify their most important relationships

altFalling customer traffic is widely recognized as a problem for Christian retailers, but it’s an area rather like the Bermuda Triangle, the region of the Atlantic Ocean long associated with mysterious disappearances of ships and aircraft.

In our stores, everyone acknowledges that many shoppers do not come back, but no one really seems to know why—or what draws those who do return. However, after more than a decade involved in both Christian retailing and P.O.S. (point-of-sale) software development, I am convinced that we can, and need to, find out.

Do you know how many of your customers stay with you and for how long? Do they have buying habits that can help you serve them better and improve your store operations? Are book customers more loyal than music customers?

Answers to such questions are to be discovered, I believe, in the Customer Retention Triangles that can be explored from good customer data. That means placing a greater emphasis on creating and maintaining a solid database.

Unfortunately, my experience is that while many retailers agree that customer loyalty is a major issue, they often feel they are too busy to commit the small amount of time needed to ensure they have information to work with in helping them do all they can to connect with those shoppers.

It’s all too easy, especially in busy selling times and seasons, to miss capturing customer information at checkout. But it does not need to take a long time to confirm the correct identity of a returning shopper or collect information from a new visitor.

Customer loyalty programs and key tags can encourage shoppers to provide their information, and we have found at our store that a simple, standard script ensures frontliners request and handle customer data requests smoothly and efficiently. Accurate customer information capture rates of at least 85% should not be difficult.

Some retailers seem to think that collecting customer information is simply to be able to add them to a mailing list, but there is so much more that can be done. Having solid data to work with is vital, though.

With business so tight for many, it’s scary to consider throwing advertising dollars at a campaign without really knowing the target. As has been said, “If you can’t measure it, you can’t manage it.”

Pulling a list of the most recent top-spending customers is only one way of looking at customer data. With this in mind, I have spent part of the last several years of my time involved in running Revelation Retail, working on developing other customer analysis techniques with Kevin Meade, an information technology professional of 25 years.

Using the store my wife, Louise, and I run—Majesty Bibles and Books in Manchester, Conn.—as a guinea pig, we recently modified a technique used by insurance companies to analyze claims data and determine premium rates.

By posting customer activity on two axes—calendar year down the left side and purchase year (dating from their first transaction) across the top—we created our first customer triangle.

Our base column included the total number of unique customers for the year (1999), while subsequent columns identified the percentage of that figure that bought something in the store in each of the following eight full years.

Among our findings:

58.8% of those who shopped in 1999 also shopped in 2000

55.2% of those who shopped in 2000 also shopped in 2001

55.4% of those who shopped in 2001 also shopped in 2002

55.1% of those who shopped in 2002 also shopped in 2003

54.9% of those who shopped in 2003 also shopped in 2004

51.1% of those who shopped in 2004 also shopped in 2005

50.7% of those who shopped in 2005 also shopped in 2006

50.4% of those who shopped in 2006 also shopped in 2007.

That was helpful, as far as it went. For example, it seemed to confirm our concerns about the closure of a major retail neighbor, in 2004, that led to a noticeable drop in casual traffic. But that high-level information was not enough, it was only a starting point.

Next we divided our customers into “new customers” and “existing customers,” then added triangles for “original purchase department” and “re-visit purchase department.” Now we could determine shopper loyalty by the types of products they purchased.

Among the lessons we learned:

Our “existing customer” base is strong. Those customers return at a high rate from year to year, and our existing customer counts have been steady.

Our Bible buyers are very loyal customers. When someone purchases a Bible in their first year as a customer, they are highly likely to return to our store to make other purchases.

Additionally, they are more likely to be return buyers after five years than any other first-time product category purchaser.

As a result, we recognize that an inquiry about a Bible purchase by a new visitor is not only a one-ticket sale, but also a potential long-term relationship.

More than 65% of customers who made an initial purchase of a greeting card returned the next year to buy something from our store, making that category an important “introduction” area for our store.

Music continues to be significant, despite ongoing concerns about the impact of digital sales. Our first-year return purchase rate for music buyers is 65%, and while that drops off in subsequent years, they are still visiting the store and buying other products.

Perhaps the biggest surprise came in apparel, where we found a 75% first-year return rate for new shoppers. As a result, we have significantly increased the display space given to the category, which adjoins our music department.

We have also developed triangles that help us understand more about the impact of discounts, sales prices and margin.

This kind of information is helping us to be more focused in our marketing and merchandising. It is enabling us to think strategically, rather than just operationally.

Oftentimes when money is tight, it is tempting to cut back on marketing expenditure, but this only makes things worse.

The answer is not to market less, but to market more smartly, to maximize our connections with our most loyal customers. Knowing more about them and their habits helps us to do that.