Retailers and Customers

Edge Perspectives writes on Retailers and Customers

Let’s take a simple, yet very revealing, indicator of business focus. What are the relevant metrics of profitability? Most retailers focus relentlessly on profitability by store and, even more granularly, profitability per foot of shelf – these are facilities-based measures of profitability. True customer relationship businesses focus on profitability by customer, yet few retailers (with the possible exception of some direct marketers) even have a clue of their profitability by customer. Ask them which 20% of their customers generate 80% of their profitability and you get a blank stare. Ask them about customer churn rates and they start looking for a way to change the subject.

Or, take a stroll down the aisles of your nearest “big box” retailer. Try to find someone to talk to in order to get a suggestion for a product you need or to get a question about a product answered. Good luck. It is pretty hard to talk about being in a customer relationship business when you are not available to talk to a customer. Big box retailers are the epitome of an infrastructure management business – reducing operations to high volume, routine processing activities with as few people as possible. They dream of even eliminating the cashiers and automating the check-out process.

Of course, merchandisers live or die based on their ability to anticipate the evolving needs of the market. Some retailers have become very sophisticated in understanding certain customer segments – teens, techies, suburban soccer Moms, etc. In this sense, they are very customer focused. But that’s a pretty shallow notion of customer relationship – all businesses have to do that to stay in business.

True customer relationship businesses set a much higher bar. Deep, lasting, trust-based relationships with customers – the hallmark of a customer relationship business – are generally built one customer at a time. They require the investment to learn about each customer’s needs and then they require the skills to take that understanding and turn it around into relevant, timely suggestions regarding products and services that might be most meaningful for that customer. Think of a good Mom and Pop retailer where the clerk knows you by name and greets you with a suggestion about an interesting new product when you walk in the door.

Ah, but that’s not scalable, the skeptic will say. Ever heard of Amazon? They do something pretty much like that for millions of customers. Ah, but that’s on the Internet and not in a physical store, the skeptic responds. True, but that’s one of the problems – with few exceptions, we still draw hard lines between physical facilities and virtual services.

Now, this is not just an opportunity; it is rapidly becoming a necessity, shaped by the shift from shelf space scarcity to attention scarcity, something I have written about frequently. In the face of this shift, retailers have two choices. They can become vast, automated warehouses with a high return on assets – in other words, infrastructure management businesses. Or they can find creative ways to build real relationships with customers in ways that significantly increase the return on attention for their customers – in other words, customer relationship businesses.