Is every customer valuable? Truth is, there are some who cost you profit. Free shipping and pre-paid return options make it easier than ever for shoppers to take advantage of customer-friendly return policies. Loyalty programs and minimum order thresholds inadvertently incentivize customers to buy more than they plan to keep. After analyzing $15B every year in consumer transactions, we’ve learned how to effectively manage these costly customers.
First, identify the customers that have a negative impact on profit. You’ll need deep visibility into the customers’ purchases, frequency, promotional use and returns across all selling channels.
The Most Common Negative Profit Customer Behaviors:
Promo Profiteers: These customers benefit from an ability to stack promotions at a retailer, only to keep the free gifts and return the product purchased. Customers of this nature shed a lot of light on where there might be opportunity to refine policies on returns and prevent fraudulent activity at checkout.
Trier Buyers/Serial Returners: The Trier Buyers may seem like a great customer segment at first. They are typically high frequency, high volume purchasers, but don’t let them fool you. These customers are purchasing products in a range of sizes and colors in order to create their very own at-home dressing room…at the retailer’s expense. Free shipping and easy returns tempt shoppers to buy more than they plan to keep.
Low-Profit Leaders: These customers lead the way…in terms of poor profitability. Sure, they may help the business by clearing you out of merchandise, but their ability to identify bargain basement items on promotion only leads to low or negative profits for the business.
Second, choose your methods to manage the negative profit customer problem:
- Do not market low-margin items to negative profit customers.
- Exclude negative profit customers from the promotions, gifts, sales, VIP programs, email lists, retargeting efforts, advertising campaigns, etc. that make sense for your unique business.
- Close the loopholes or refine the programs that negative profit customers are using to eat away at your profits.
- As every retailer is different, there are more methods to consider. Use your data to help determine what they should be.
Third, ensure the customers who truly generate sales and profit for your business are retained, and replace the churning customers in this segment. Create strategies to acquire new profitable customers, and continually analyze and refine these acquisition programs. Taking action to identify and manage negative profit customers will support revealing the true value of the profitable customers. It’s imperative to develop a deep understanding for who your profitable customers are.
For most retailers, the data to conduct the analysis to identify negative profit customers and their behaviors is available, but often tying it together in a way that surfaces clear opportunity for action seems impossible. For DynamicAction customers, not only is retail data connected, transformed and pre-analyzed, but new metrics, deep visualizations and alerts for opportunities are readily available to the entire organization.
Don’t inadvertently nurture and market to customers who are negatively impacting profit. Use your data to generate clear opportunities to retain the right kind of customer that will help, not hurt, your business.Read more about how your existing retailing platforms such as email, paid search, promotions, digital content, display, affiliate programs, pricing, inventory and many others can be optimized to increase profit.