Inventrak Blog

Given the short-term market uncertainty, growth investments are still going to be difficult to justify. Here are some tips for retailers to drive profitability and cost efficiency:

1. Customer Centric Merchandising:

• The key to driving profitability as well as minimizing cost is to invest in products that would be of most interest to your customers.  Here are the steps for accomplishing this goal: read your customers’ recent buying history, find out what products or what attributes of products are popular, assort your merchandise based on these trends.  Remember, always start with low inventory, and adjust the quantity based on your short-term sales.

2. Dynamic Pricing:

• You should look at your most profitable products. What was the initial retail price? How much was the markdown percentage or discount rate that increased the margin earned? Why not try to use a similar pricing strategy for other products?
• Every customer’s sensitivity to pricing is different. Some people are willing to pay more than others for the same product. If you own stores at different locations, you can set up different pricing for the same products to maximize your profit. 

3. Store Workforce Management:

• Planning your workforce based on your sales by hour or by day is cost effective and efficient. You should schedule more people during the peak time and less in other time. In order to continue labor cost minimization, you should adjust your workforce based on your daily or weekly sales reports.

Careful planning and swift adjustments to changes are very important to your business. In this dynamic economic environment, they can help you sustain and ultimately thrive.

The top priority for small businesses over the next six months is maintaining current sources of revenue, i.e., keeping their customers, according to American Express Open.  Actually, customer retention is a challenge that retailers have been facing for years. Moreover, every customer is so different that it is hard for a retailer with limited resources to create a unique experience for every customer. This is why many retailers still rely heavily on pricing competition, even though they know the importance of optimizing the customer’s experience.

A solution: customer segmentation

Currently, the most effective and cost efficient solution for optimizing the customer experience is to group similar customers together, and create experiences that are relevant and work for those segments. This is called customer segmentation. When you segment your customers, you identify groups of customers that have similar needs, wants, and demographics. In response, you create environments, services, price strategies, and product groups especially for the customers in each segment.

A good example: Best Buy

In 2003, Best Buy determined that they should adopt a customer centric strategy instead of sticking with a pricing strategy. They identified their customer groups by learning customer transaction history and asking customers what they would like to see Best Buy offers. They also identified their profitable and unprofitable customer segments. 

Their key profitable customer segments are: "Barrys," high-end customers who spend to get the best; "Jills," busy moms who want a kid-friendly store environment and often purchase based on staff recommendations; and "Buzzs," tech-savvy early adopters who enjoy the latest in gadgets, often buying after carefully reviewing specifications.

Then, Best Buy adapted their store environments, products, services and pricing to target each segment.This strategy of Best Buy paid off. The company posted an incredible 85 percent profit gain in its fiscal first quarter of 2005. Best Buy attributed the profit growth partly to this customer segmentation strategy.

In Tips for Retaining Customers, we discussed this fundamental challenge for retail business and several ways to solve this problem.  However, getting customers in your store is just the first step. Now you must sell to them. The effort includes both boosting your store's selling potential and reducing missed sales opportunities from such mistakes as forgetting to reorder a popular item. Below are some tips for increasing customer spending:

Expand the Variety of Top-Selling Items

Good business people know their businesses. For retailing, that means you must know what product lines sell and what lines don't. Focus your efforts on expanding top-selling product lines while shrinking or even dropping poor sellers. That way you boost shelf space for hot sellers and increase the products customers will buy.

The point is, with good product data, you can maximize your business's profits.

Experiment with New Product Lines

The retail business, like fashion, evolves over time. The products you sell successfully today may not match customer wants or desires tomorrow. Considering that fact, smart retailers constantly experiment with new product lines to see what sticks. Most times a new product won't affect revenue much- it's best to drop those lines. Once in a while, however, experimentation pays off with a new product that customers love. Such hit products practically sell themselves- a big sales boost from both impulse and destination buyers.

The best advice for any experimentation in business: start small. Avoid big bets until your business data proves success, then keep moving up until you reach the optimal price/product mix. Regardless of whether a particular new product succeeds, you'll learn more about your customers by experimenting.

Drive Extra Purchases with Promotions

Why not reward customers with an in-store promotion?

For example, a store that lets customers purchase two cups of ice cream for $5 total instead of the normal $6? By doing so, you prompt customers to spend more money during each visit than typical and boost customer satisfaction, not to mention spread word-of-mouth to potential customers.

By keeping good customer records, such promotion methods become a snap.

Build Customer Lists

By checking each customer's previous transactions, a retail store owner is able to inform customers about sale items they might find interesting.

In the old days before computers entered the retail business, to personalize retailing for specific customers meant keep track in your head what they last purchased, how much they spent and what they like.

Thanks to POS systems, today retailers of all sizes quickly access customer information - information used for personalized offers or services.

Always be Sure that Your Store is Stocked with Hot Items

Customers do not like to be told that your store do not have his size of a shirt or shoes. Be sure that you do not lose any sales or customers because of this kind of mistakes.

You can boost sales at your store with the right IT tools which help you know your customers' needs and wants. Choose the right IT tool, make your customers happy and they will spend more in your store.

Much has been made of the recent changes in the competitive environment for retailers.

Despite today's complexities, however, the fundamental challenge for retailers remains the same-retaining customers.

Below are some tips to increase customer satisfaction and keep them coming back:

Synchronize stock with demand

Customers don't like to be told that you don't have the right size of the shirt or shoes they want. Avoiding this scenario requires real-time stock report solutions. Up-to-the-second stock tracking information is taking the concept of perpetual inventory from dream to reality. This is the basic step to satisfy your customers and keep them coming back to your stores.

Create specific promotion for customer segmentation

From historical transaction data or customer buying habit information, you are able to segment your customers. Based on customer segmentation, you can reach various customers with a promotion specific for their needs.

For example, if you are a boutique clothing retailer, to increase customer visits you can segment your customers into top customers, ones with potential and low-end customers, then create promotions specific for each.

• For top customers, you may offer a private sale.
• For customers with potential, you may offer a promotion to reward them for increasing their visits.
• Low-end customers may receive a simple discount in hopes of prompting a visit.

Create loyalty programs that work

Retailers realize that most their sales are from a small group of customers. These customers are the most important customers, and retailers want to do the best they can to retain them. Keeping track of what loyalty programs work the best, as well as individual loyal customers' buying trends and habits, a retailer can use their loyalty programs do the best to boost their best customers' satisfaction.

All these tips to retain customers can be realized with the right retail IT tools: you can know more about your customers and know what they like the most about you-you can keep your customers happy and coming back.

The main idea of category management is a consistent orientation to the customer in product assortment and tender. The benefits of category management to retailers are intuitively obvious.

Below are the steps for developing category strategies:

Business Strategy Analysis

The first step of the category management planning process entails a strategy analysis of the retail organization. Essential is an understanding of the company objectives, its niche in the marketplace, and its image in the eyes of consumers. From that, strategies can be derived for a successful penetration and loyalty. Particularly important for the strategy analysis is the identification of the retailer target group.

Category Definition and Segmentation

This step is the process where we take any category and break it down based on the consumer decision process.

The deciding factor for success here is the most accurate possible reflection of how the target customer makes his purchase decisions in each of the categories.

The Role of the Category

This third step is the core of category management, as it is here that the desired high-level corporate and marketing goals, such as market image of a company, can be achieved. The determination of individual category roles offers the best approach to the differentiation from competitors.

The development of category roles is also of special significance in that it determines the priority of categories in the retailer's entire organization and its resource allocation.

With the assistance of adequate resource allocation, the retailer optimizes his return on investment.

Category Assessment

Category evaluation entails an analysis of the relevant data on the category with a view toward the market and the customer. The goal is, on the one hand, to gain a clear understanding of the current potential of the category (strengths and weaknesses) and, on the other, to identify the corresponding revenue and profit potential of the category.

Category Strategies

In this stage, strategies are developed.

For example, a high-profile category may offer the retailer the opportunity to aggressively position herself against competitors.  A seasonal or impulse category supports a strategy of building traffic.

Finally, a supplementary category may support image building in that a broader assortment allows an easier and a more complete shopping experience.

Generally, there are three data sources for retailers:

Transactions and Tenders - point of sale information. Access to basket contents and associated tenders is vital to the customer-centric data warehouse. By recording each transaction of a customer who signed up into the database, a retailer collects every detail about the historical buying habit of the customer.  Moreover, if an item is promoted, it is nearly impossible to understand the true effectiveness of a promotion unless it is possible to understand whether that item sold more, the impact of the promotion on the typical basket contents and who responded to the promotion. Recording customer information to transactions and their line items constitute the basics. 

Call Center, Surveys, Internet Postings - real customer feedback. Call center data contains notes fields where customer service representatives can document the qualitative nature of calls and richer content regarding how often customers call, their moods and other information that can hint at systemic problems that make customers unhappy. Along with survey data, this is "trusted" data, meaning that there is some fidelity to the relevance of the source and that is from actual customers or prospects. Internet feedback, now much more common, can be a way to augment these data sources. It is not quite as "trusted," because of the anonymous nature of the Internet, but can still be influential in a customer's perception of or reaction to a retail brand and shopping experience. 

Loyalty Accounts -feedbacks from loyalty program such as gift registries. These data are obviously very helpful in attribution of characteristics to these customers.

These are the three general sources to obtain data for customer-centric database.  It is true that there are more sources, for examples, retailers can study the characteristics of a selling geography from the Census Bureau and estimate the customer behavior in the region.  However, retailers can directly communicate with customers at these three touch points other than through a third party.  Data from these resources enable retailers to build a reliable customer-centric database with accuracy.

The retailers that strive to understand their customers are likely to be more responsive to customer demand, spend marketing dollars more wisely, leverage their multiple sales channels more effectively and ultimately drive more loyal behavior from their customers.  

Thus, constructing a customer-centric database from which customer behaviors can be tracked and analyzed is vital to retailers.

A customer-centric database should have at least four subjects listed below:

Customer quality

Retailers want to know who are their best/worst customers. Analysis of frequency and monetary of a customer is always central. By analyzing certain aspects such as time of last visit, sales/margin of his baskets and frequency of visits, retailers can get an idea of the overall quality of a customer.   

Customer Satisfaction

Retailers need to know what customers think and feel about them. Analyzing the feedback from in-store customer service, surveys and call centers helps retailers understand the issues that positively or negatively affect brand impression, shopping experience and overall satisfaction. These data are consisted of structured data (customer attributes) and unstructured data (call notes) that customer service representatives can be mined for insight.

Promotion Impact on Customers

Retailers wish to know what kinds of offers are most interesting to customers and which promotion campaign is most effective. By looking back of the historical data about promotion campaigns, retailers are able to see the campaigns that would mostly interest customers. With modern information technology, retailers can even develop marketing strategy target certain customers.

Loyalty Program

Retailers always do their best to retain customers. They are also eager to know if their effort on these loyalty programs really works. Most retailers are lack of enough customer-specific information to do anything meaningful. For those that have these programs, it is vital to tie transactions and other customer interactions to the customer's identifier. In this way, a retailer is able to tell a loyalty program customer's response to certain loyalty benefits. Comparing customers who are part of a program versus those who are not is a basic analysis to determine the value of the program itself.