Customer-Centric Approach Focuses on the Data

With the holiday shopping season upon us, many multichannel retailers are scrambling to find a new marketing approach to salvage something positive out of this troublesome year. Enter customer-centric retailing, the enterprise-wide use of customer data to establish a comprehensive understanding of customer behavior as a foundation for maximizing the relevance of cross-functional retail strategies.

In a webinar from the Direct Marketing Association last week, Customer Centric Retailing — Making the Shift to a New Paradigm, presenters Miguel Pereira, director of consulting and analytical services at the customer retail strategies firm Precima, and Nicolle Scavuzzo, director of client services at Precima, outlined how customer-centric retailing can optimize the profitability of your business. Here’s a rundown of what they had to say.

To build customer centricity, follow this three-step process: analysis, strategy and execution. This represents a departure from most marketing plans, said Scavuzzo, because typically the strategy of a marketing campaign is discussed prior to analysis. But doing the analysis first can save time and money. “It’s a shortcut, and you can find hit and miss strategies by doing the analysis first,” Scavuzzo said.

Your analysis should consist of identifying segments based on current and potential value, categories/products, and profitability drivers. At the strategy level, prioritize your customer segments, develop functional customer plans/tactics and align the organization so that it’s presenting one consistent view across all channels. When it comes to execution, it’s about determining the right price points, promotions, assortment of products, among other factors.

Customer Identification
A simple way to identify your best customers is by how much they spend, typically grouped into four categories: nonshopper, low, mid, high. But this doesn’t take account potential value. “You need to understand not only your customers current value, but also their potential value to quantify share of wallet,” said Pereira. This includes understanding customer dynamics to be able to predict where that customer will be in the future. A combination of transactional and demographic data provides the clearest picture of customers.

Pereira cited the example of a young couple who are loyal customers to a supermarket. While they might not currently represent a tremendous value to the supermarket as far as spend, their potential spend stands to increase if the couple has children. By knowing this and basing marketing plans around this data, the retailer can optimize the spend of that couple.

It’s also important to identify and segment your customers based on loyalty, again grouping them into four categories: nonshopper, occasional, secondary, loyal. The use of loyalty cards are a good way to capture transaction history, helping you to better segment your customers.

Sometimes it’s necessary to go outside of your existing product assortment and pricing to obtain new segments, Pereira advised. He cited the example of a catalog company whose secondary and loyal customers were established, but were aging. In order to grow the brand, the cataloger needed to capture a new customer segment. By developing a new product line and adjusting price points, the cataloger was able to attract a younger customer segment, and thus grow the brand.

5 Strategic Pricing Areas
Pereira listed five key areas to align your strategies in a customer-centric marketing approach regarding pricing:

* customer segmentation — identify, quantify and understand your customers;

* customer strategy — priority segments, top opportunities, segment goals;

* customer plans and tactics — pricing strategy aligned to key segments (product categories, key value indicators (KVIs), price position);

* optimize and execute — reset prices in key product categories, optimize for customer segments; and

* measure and refine — measure the impact of customer-centric pricing on product categories and customers, and refine them over time. Constantly update your pricing model for life events — move, birth of a child, wedding, etc. — and how that affects purchasing behavior.

“Optimize profitability by strategically setting prices that are aligned to priority customers in key categories,” Pereira said.