Are you running a healthy retail business?
Measure the health of a retail business with the reason for its existence, its customers!
Are you a retailer? Do you run an online store or have brick and mortar retail shops and believe that your success depends on your customers?
Keep on reading…
Why does a retail business exist?
A retail business’ function is to offer products or services to an individual or another business in exchange for money.
It offers products or services because a customer demands it.
The more demand there is (meaning more customers looking for the products the retailer is selling), the more revenue there will be. This revenue is used by the retail business to improve its products and services (best case scenario), so it can attract more customers and thus be able to grow.
“Demand”, one of the greatest economic forces.
“Demand in economics is the consumer’s desire and ability to purchase a good or service. It’s the underlying force that drives economic growth and expansion. Without demand, no business would ever bother producing anything.”
As stated, demand comes from the customer. If there is no demand there will be no point in running any business as it will have nobody to sell to and serve.
What is a healthy retail business?
A healthy retailer is one that manages to accumulate demand (customers), then improve its products and services with the revenue from those customers.
This in turn accumulates even more demand (more customers), because of its improved (better) products or services.
Summing all that up: customers are the essence of every retailer. They make the business alive and are the reason for its existence.
Customers create the demand, the driving force behind retailer’s growth.
Measuring the health of a retail business.
Why then measure the health and success a business has by its results and means of its improvement (its revenue) rather than by the reason for its existence, its customers?
Why the majority of businesses around the world make strategic decisions based on revenue spreadsheets?
The answer: because it is easy and because “that is the way we have been doing it so far”.
Measuring by revenue streams.
Change in revenue shows whether a retailer is managing to utilize its resources and attempts in a direction that they create value.
However, analyzing streams of revenue does not tell us whether we’ve gathered more customers or not. It only tells whether we are selling more or less products and services.
The reasons for selling more might be that a retailer has a larger flow of new customers, which accumulate more revenue.
At the same time the retailer might lose valuable loyal customers the reason being, for example, poorer customer service, because of more incoming orders.
This is a recipe for a long term disaster a revenue analysis cannot predict, but rather contribute to in the process.
The best a revenue stream analysis can do…
The deepest a retailer can go with analyzing revenue is by doing so by department or product category.
This can tell which products and services are selling better and can drive the business into product oriented strategy.
This strategy can lead to changing other products and services, so they accompany better the products and services that sell best.
…is to destroy your retail business.
Let’s go again to the same example with the larger flow of new customers into retailer’s business.
It might be that they liked specific products and services for specific reasons (cheap price, for example) and they will never come back shopping with us. At the same time our most loyal customers are being with us because of other products or services.
If we stick to a product oriented strategy which is an inevitable result from analyzing revenue streams, we might, “by accident”, change the products and services we keep our loyal customers with and at the end lose them because of our new retail direction.
This is one of the worst case scenarios, you do not want your retail business to get into.
The pitfalls one might fall in analyzing his retail business by revenue streams are numerous.
The specter starts from losing your most loyal and highest spending customers because of product or service change due to a large group of new customers demand (as described above) to making your retail business dependent on ongoing advertising spending to “keep it running”.
The last, most often, being the result of not being able to maintain a loyal group of customers and needing fresh new customers to keep the business running.
If you do not use customer asses analysis, you will not be able to detect such dangerous trends and results might be fatal.
Measuring a retail business’ health by “counting” customers, not revenue.
As discussed above, the customer is the most important stakeholder of your retail business.
The more customers the business has, the more demand there is for its products and services and ultimately this is the reason for the existence of every business.
So why then measure business health by counting revenue, rather than customers?
Does not make sense right? The answer however is very simple.
Back in the days
Before the digital revolution, to know your customers you needed to be a small retailer that served a small area of a neighborhood. And that was the case for most retailers in fact back in the days.
They knew every customer by name, the products that they usually buy, the day of the week they like to shop, etc. They certainly noticed when some customers stopped shopping with them and they were looking for the reasons.
They also noticed the new customers that were coming to their store and were trying to get to know them better.
If the store owner (and in most of the cases he was behind the counter as well) was smart enough, he was able to use that information to boost his sales and know whether he is doing a good job with his retail business or not.
The problem began when that same small retailer started to grow.
He opened another shop in another neighborhood, then another and another. He was no longer knowing who his customers were. So to measure his retail business’ health he started looking at revenue and product categories sales.
This was the only way a retailer with multiple stores to control his business.
He, no longer had any information on his customers (that was the point in history when surveys and market researches became very useful). And that is the reason retailers have been relying on revenue analysis to take strategic decisions for running their business and to check if they are doing good or not.
Until the digital revolution
“The adoption and proliferation of digital computers and digital record keeping”
In the early 90s of the twentieth century the larger retailers in the US started to implement loyalty programs in their stores.
Their goal was not to give any discounts or any other benefits to their most regular customers, but to know who they were, learn more about their purchasing behavior, the products they bought, etc., etc.
The sole purpose the benefits the loyalty program gave to the customers was to make them identify themselves at the counter or present their loyalty card. By doing so they enabled the retailer to know that they shopped, what they bought and when they bought it every time.
Back to the present
Now every web-based store needs either a registration with personal details or any personal information that is unique to the customer (such as email address or phone number) to let customers buy anything.
This means that every transaction made at the store is related to the customer that has made it.
Going back to the brick and mortar store example, nowadays more and more retailers employ a loyalty program, so they can identify their best customers.
Most of the retail businesses now identify their customers during transaction.
They no longer have the excuse to measure the health and the success of their business by counting revenue, rather than counting customers.
By “counting customers” every retail business is able to see its real health state for the first time.
You can measure your new customers and your loyal (repeated) customers flow into your retail business.
You can identify who your best customers are and who are the customers that have potential and need to be further stimulated to start buying more.
You can detect which customers stop shopping with you and start looking for the reasons they do it.
Measuring all that data through time gives you a true view of your retail business and lets you make strategic decision both for the short and long term.
It can even change the perspective you have on your retail business by showing you where it performs great and where it needs improvement.
As a summary
A retail business exists because of its customers and its purpose is to serve them.
A healthy retail business is one that manages to accumulate enough new customers and keep enough loyal customers so it can improve its services even more. The result of which is even more new and loyal customer in its basket, thus more growth and expansion.
Every retailer must know how many new customers it accumulates on a periodical basis as well as how many of those has managed to make loyal and how many of those it has “managed” to lose.
Measuring only those three on a periodical basis will change forever the way you look on your retail business and the way you make decisions for its and your customers’ future.
Not to mention all the other customer asset metrics and the opportunities that come with them.
Got your attention?
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