For many retailers, as with businesses in a number of other industries, a disproportionately large amount of revenues comes from a small number of customers. The Pareto Principle, more commonly referred to as the 80/20 rule, tells us that as many as 80% of a business’ sales are frequently derived from as few as 20% of its customers. This means that neglecting that small group of key customers can have catastrophic consequences for the business. It also means that having a narrow focus on the right customers can yield great results will well-focused efforts.
What’s a top customer, anyway?
How, then, can retailers ensure that they’re taking good care of the top 20% of their customers? The first step is to identify those customers. There is no one standard definition for a “top customer”: for some retailers, it may be important to focus on those who spend the most in a given calendar year. That rule may be overly simplistic for some retailers. I once asked a CIO at a tea retailer how they defined their top customers. That retailer considered their most valuable customers to be those who shopped the most frequently, spent moderately, and who were engaged with the brand by subscribing to its newsletter. While a customer who shopped once a year to stock up on Christmas gifts might actually spend more per annum (in a single visit, no less), those weren’t the most valuable customers to that brand.
For another retailer, their most valuable customers might behave quite differently: for example, in the menswear industry, it’s not uncommon for men to refresh their customers once per season. In that case, less frequent, larger ticket sales may, in fact, be more important than in the previous example.
RFM, or Recency, Frequency, and Money, is another model that can be used to define and segment top customers. Another dimension retailers may want to consider is reach: in today’s social world, having high-spending customers who love your brand and who have a large social network can be important in influencing incremental sales.
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Make Every Interaction Matter
Once you’ve defined your top customers, it’s time to strategize around how to make every interaction they have with your brand a memorable one. Whether they’re shopping in physical stores, browsing online, or are in-between purchases, it’s important to take great care of these customers and make sure that they know the brand appreciates them.
What that doesn’t mean is bombarding them with loads of marketing messages. Customers these days receive so many promotional emails. Sending them communications that aren’t relevant to their tastes and interests can backfire, causing them to disengage and avoid future brand interactions. Instead, make every interaction matter by tailoring message content and delivery method to the recipient. For instance, some customers may respond more positively to SMS or phone calls than to emails. An integrated CRM system can help you use your data wisely to communicate more effectively with your top customers.
Rethink Your Loyalty Program
Do you have a points-based loyalty program? That’s a great start! Now consider whether your current program does enough to reward your best customers. A tiers-based program, where your top customers may benefit from special points programs or unique rewards, can be an effective way of showing your appreciation.
Experiential rewards are becoming a hot trend in the retail industry and can be a great way to thank your top customers and provide a sense of exclusivity and belonging. The hospitality industry offers some great examples of experiential rewards: VIP lounges, access to concierge services, and amenity upgrades, to name a few. These types of rewards are now becoming more mainstream in the retail industry. Aside from making customers feel special, experiential rewards can provide a good reason for them to talk about your brand on social media, with check-ins, Tweets, and sharing pictures and stories on Instagram or Snapchat. This is a great example of how brands can sell not only to their top customers but also through them.
Clienteling, a relationship selling technique that is often assisted with clienteling software, is a great approach that can be used with top customers. Not only can clienteling software be used to enhance the shopping experience by equipping the sales associate with data about the customer’s omni-channel shopping behaviors, likes and dislikes, wished items, and more, but it also can be used to collect relevant information in-store to enhance the profile. What’s more, clienteling software can be used to build contact lists to help associates communicate better and more frequently with their most valuable customers. Proactive outreach from associates can be used to foster a sense of exclusivity: for example, by inviting top customers to VIP sales events or trunk shows.