Shifting from channel profitability to customer profitability

Channel has been the big buzzword in retail for the past four or five years – multichannel, omnichannel, cross-channel – as retailers strive to optimize their digital and physical presence for the ‘always on’ consumer.

However, channel is not a word that the customer is familiar with.

The average shopper doesn’t consciously select the platform through which they interact; they pick touchpoints based on convenience. They don’t think about the complexities of meeting their expectations; they want what they want, when and where they want it. And they certainly don’t treat each channel individually; they want to be seen as the sum of their parts, with their overall value recognized by the retailer.

Perhaps, then, it’s time we stopped looking at retail from an organizational perspective, and started basing around what the customer wants – and what they give in return.

I’ve previously written about the concept of Total Retail, moving beyond channel to focus on giving the customer what they need. But what about the shopper at the center of this model?

Retaining customers and nurturing their loyalty is at the forefront of retailers’ minds in the current climate. For most, margins are low, competition is fierce, and the audience they are targeting is spoilt for choice about where (and with whom) to shop.

However, it’s all too easy to throw a lot of effort into attracting customers who bring relatively little revenue to a business. Giving customers who abandon their online basket a discount code for example; there is a value to this exercise, but does it have an impact on whether that shopper returns again? And if they do come back, do they abandon their purchase once more in hope of another discount voucher?

There’s a definite trend within retail to chase the ‘hard to get’ customer, or to increase the value of the offer to an infrequent shopper, in the hope of luring them back. Retailers are constantly trying to widen the net, and are putting huge resources into engaging consumers who may only make a single purchase as the result of their efforts.

At the same time, most retail loyalty schemes offer limited value to those who choose to shop with a brand regularly. It’s not uncommon for customers to collect points online and in-store separately, or to find that they are offered much more relevant ecommerce offers than in their bricks-and-mortar encounters.

Maybe it’s time to recalibrate profitability around customer value, and to start putting greater resources behind regular or loyal customers. These are the shoppers who are ultimate going to deliver greater lifetime value to a retailer – and it’s much cheaper to increase the volume of existing customer transactions than to convert a new (or lapsed) customer.

Achieving this is going to mean a change of mindset for many retailers. Instead of looking at each channel’s profitability, they will need to segment customers by frequency and spend, and use data analytics to look at how each segment shops as the basis of their strategy.

Then they will need to address whether their current loyalty programs deliver real value across these segments, particularly to high value customers. If their offering falls short, they will need to find ways to show personal understanding of how this customer group likes to shop, what incentives they believe shows that the retailer cares, and which through which loyalty channels they prefer to be rewarded.

By concentrating on customer profitability first and foremost, retailers can cement the long-term loyalty of their core customer base, nurturing their spend at a fraction of the cost of attracting a new audience. And in return, those shoppers will act as brand advocates, promoting the retailer on their behalf.