How Much are Your Customers Really Worth?

Much as been written about the monetary value of each customer.  What are they worth and how much should I invest in each one to retain them and grow their share of requirements are logical follow up questions to be answered.  Theories and white papers have chronicled some very compelling reasons to understand “customer value”.   But despite these revelations,  many retailers simply do not measure their business by individual shopper metrics, but rather the more traditional sales, customer count and aggregate profitability.   So when you ask one of these retailers how much their customers, and more specifically, their best customers are worth to their business, you get a blank stare.

I agree that ultimately customer value metrics must be linked to the more traditional metrics of accountants rely on to measure the business.  Wall Street is not going to change their yardsticks of success overnight.  But it is also no accident that retailer leaders like Dave Dillon of Kroger and Steven Burd of Safeway are quick to credit their customer relationship initiatives as the single most important driver of their financial success.  One must assume that leaders with their level of business acumen are not just guessing about the nexus between traditional metrics and customer-specific metrics.  What do they know that others do not?

  • First, they likely know what the value of each of the key shopper segments represents to their business.  With their massive databases loaded with customer shopping history, they know precisely what each key shopper segment brings to their enterprise and how important the retention of these shoppers is to a vibrate business.  There are a number of techniques to calculate the value of the shopper, but at its most rudimentary level, annualizing the amount of spending and resulting profit each shopper segment represents is a great start.
  • Secondly, because of their ability to understand the value of the shopper, it is not difficult to extrapolate this “monetization” to the capital assets necessary to deliver the necessary targeting and content needed to maintain or improve upon shopper value.  With this approach, capital investments can be made in the context of cogent ROI models, putting smiles on the faces of both marketers and accountants.
  • And finally, armed with shopper value data, these retailers can and have made intelligent decisions on the best and most efficient way to spend limited marketing dollars.  As retailers advance their shopper evaluation process we are beginning to see fewer dollars spent on mass communications such as weekly circulars, television and radio, and more dollars being focused on targeted media such as SMS texting, email programs, and periodic direct mail.
While there is nothing new or truly exciting about any of the aforementioned steps, other than it all begins with understanding the value of each customer that comes through the retailer’s door or logs on to the retailer’s website.  Despite good progress, still, far too few retailers are unable to answer the question, “How much are my customers worth?”

 

 

 

 

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