Careful with "Customer is King"

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Careful with "Customer is King"

By Sumeet Kanwar - 09/11/2018

Is it heretical in retail to say that all customers are NOT king?

If not heretical, it goes against the grain of what we have been taught. But in a world where margins are becoming thinner, we think we have permission to posit: All customers are not king . . . and this article explains why. We also need to go beyond talking about ‘75% of our revenue and profits come from only 30% of customers’ and make that kind of statistic actionable. One way of doing that is to limit the negative contributions from some of the bottom 70% of customers.

It is useful not to think of customers only in the third person and consider some of our own behaviors as ‘customers’ – here are three kinds you know from your own experience of very innovative customers:

  • GAMERS: Customers who join you through introductory pricing offers, hop off when the deal is over and then hop back on through another introductory offer. And then rinse and repeat! Ouch!

  • RETURN MAVENS: Customers with disproportionate return volume not only in your store but across stores (a firm called Retail Equation is working across the category)

  • UNDUE MAXIMIZERS: Customers who seek to combine non-combinable offers and choke up your retail registers and call centers? (A recent study from payment platform Adyen reports that retailers are losing a collective $37.7 billion in potential sales due to long checkout lines.)

And we are being polite here . . . as anyone in retail knows, there’s also an (un)reasonable amount of blatant fraud that must be dealt with!

If it is apparent that some customers are ‘gaming’ (aka abusing) your policies, it is also apparent that responding to such actions is not easy. Does it bother you that when you tighten your policies to avoid such ‘gaming’, you get quite the blowback? And worse, it could unintentionally offend some of your "good" customers.

So, if we concede that the problem exists and broad answers like segmentation don’t respond well . . . then how is a responsible marketer supposed to behave? We have also heard "our reporting systems don’t solve for this and we can’t possibly train our point of sale people to deal with this" – exactly! That’s where custom analytics can come in to support and complement what your internal analytics teams do. The task is simply to:

  1. Define the scale of the problem (is this a 5% hit to Gross Margin or 15%? Both sound offensive to me!)
  2. Identify which channels or data attributes see a preponderance of this behavior (geography, website, site referrers, call centers)
  3. Identify the idiosyncratic behaviors (time of day, specific payment choices, specific products)
  4. Use the data to create a customized response plan that minimizes collateral damage

That said, teasing out behavior changes from a messy, longitudinal data-set is not always easy; and not using a longitudinal data-set will lead to an overload of false positives. Doing the work should lead to three important questions. First, can marketing truly effect such behaviors? Second, what is the downside of taking any action? Third, what is the downside of not taking any action – see (a) above.

So, if this is important and can be done in a finite (8-12-weeks?) time frame, what comes in the way? Data nirvana is a great ideal but is often the unnecessary bottleneck. The principles to apply are straight-forward . . . don’t just treat math and analytics as computational systems . . . use them as thinking mechanisms. The answers are in the house! As someone more proficient with words has said "the writing was always on the wall – we just didn’t know how to make the ink visible."

Sumeet Kanwar is CEO and Founder of Hexagon, Business Analytics and Customer Strategy consultancy. He previously was Managing Director at Omnicom Media Group and Vice President of Global Digital Strategy at Leo Burnett.

 

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