Built for me (Part 3): The promiscuous shopper

You may know the old joke that ends: ”We have established what you are, madam. We are now merely haggling over the price.” Now apply that in the retail context.

I introduced the notion of the promiscuous shopper nearly 3 years ago. This special, but hardly rare, breed of consumer is always on the hunt for the best deal and completely devoid of any potential to be loyal.

When you choose to anchor your marketing strategy on relentless un-targeted promotions, and then layer on extra coupons and rewards points, it’s the promiscuous shopper who is the first to bite, and who then spikes as a percentage of your business.

To be fair, most businesses need some of these consumers from time to time. There is clearance product to be sold and any sensible marketing and merchandising strategy will reflect a natural demand curve.

An unusually high level of discounting may also be necessary to drive initial trial, so long as you are confident that repeat business has the potential to be loyal and profitable.

And certainly promiscuous shoppers are not always immediately apparent. Time and solid analysis are needed to separate them out and start to chase them away.

But always bear this in mind: when the promiscuous shopper feels that your business is built for them, it’s the first sign of trouble. Big trouble.

Profitless prosperity

Ah, the era of “profitless prosperity” is back. I still have my Pets.com sock puppet to remind me of those once glorious times.

Barely a day goes by now that we don’t hear about a stratospheric valuation (actual or rumored) for some digital darling. From Facebook to Twitter to Groupon, it seems that unless your EBITDA multiple is either quadruple digits or infinite, you’re barely worth paying attention to.

To be fair, plenty of highly valued, enduring brands have gone through periods of losses ultimately to emerge with a dominant position and boatloads of cash generation. And there are perfectly good reasons a company might decide to pursue low or no profit sales for a period of time, in targeted circumstances or with certain consumer segments, including:

• Generating trial among prospects with high potential lifetime value
• Driving traffic to a store or website for consumers with a high propensity to cross shop or be up-sold
• Creating positive word of mouth among highly influential persons (“You get a sock puppet! And you get a sock puppet!”)
• Securing valuable customer relationships in a maturing market.

The companies that do this well have a clear understanding of customer economics by segment, a clear vision for how profits will develop over time and a disciplined process for measuring progress.

The brands that do this poorly are typically focused on revenue for revenue’s sake or obsessed with new customer acquisition with no way to tell whether those new customers can be profitable.

More dangerous still is falling in love with the “promiscuous consumer”–that customer that only goes for the best deal. They are often expensive to activate, they have little propensity for loyalty and you rarely break-even with them.

If your customer portfolio is comprised (littered?) with too many of these types, expect it to end badly. It always does.

Discount Nation and the sucker price

When was the last time you went to Macy’s or Bed, Bath & Beyond or any furniture store and paid full-price?  Did you actually pay for shipping on any e-commerce purchases during the holiday?

At most retailers, regular price is the sucker price. You only pay it out of desperation or ignorance.

Walk through any mall and you are inundated with sales signs, with coupons and with triple rewards points.  Buy one sports coat at regular price and get a second one at half-off?  Yes, please.

One retailer–I’m looking at you Gap–even put their whole store on sales for several hours during the run up to Christmas.

It makes perfect sense that product gets marked down as the season draws to a close.  It makes sense that your best customers get rewarded for concentrating their share of wallet with you. And faced with an intensely competitive market, one must certainly be mindful of maintaining market share.

But at what price comes the glory of same-store sales growth?

For years we have been teaching consumers that there is no integrity in our pricing. We have become a “discount nation”, bribing the promiscuous shopper to choose us over the competition while needlessly giving away margin to potentially loyal and profitable customers.

I don’t believe for a second that we are going to see an end to rampant discounting and blanket promotions any time soon. After all, it was just a few weeks ago that Target announced a new credit card that offers a straight 5% off all purchases.

I do believe that companies that deliver truly compelling value propositions and experiences based on a deep understanding of customers needs, wants and long-term profitability will win over the long-term.   I do believe that the best brands–think Apple, Nordstrom and Coach–know how to drive their business at regular price.

Those brands do the work of customer-centricity.

Those other brands?  We know what you are.  All we are doing is negotiating.

 

 

Prospects, Not Suspects

The notion that a smart sales and marketing strategy distinguishes between suspects–consumers who MIGHT turn out to become profitable customers–and prospects–consumers who are highly likely to turn into valuable clients–is an old idea. Great sales people possess this intuition.  Great marketers use customer insight, robust analytics and customer segmentation to do this more scientifically.

If you are anything like me, you may have noticed a lot of attention being given to companies that are posting seemingly impressive customer statistics.

The hot social media sites–from FourSquare to Yelp to Twitter to Facebook–have signed up millions of users (in the case of Facebook reportedly over 500 million!). But how many of these folks are actually buying anything?

Members-only “flash-sales” sites use free-shipping and high value gift cards to coax existing members to refer a friend.  Are these newly acquired members turning out to be customers with a positive lifetime value, or is this mostly a land-grab to keep private equity money flowing and high-end vendors interested?

Groupon recently executed a promotion with Gap during which a reported 441,000 customers spent $11MM in just one day. That particular promotion offered $50 in merchandise for just $25.  Most press reports deemed it “successful.”  Really?

Successful in generating awareness?  Apparently.  Successful in acquiring a significant number of marketable e-mail addresses?  Most likely.  Successful in driving short-term revenue?  Clearly.  Successful in creating buzz about Groupon? You betcha.

But how many of these consumers were promiscuous shoppers, only enticed by the deep discount?  And let’s face it, just about any reasonably desirable brand could generate an impressive incremental sales lift by cutting their prices in half.

Most of these hot brands are still dealing in the world of suspects.   Only through time and more rigorous customer analysis will they know they are gaining prospects.

In the meantime, I remain suspicious.