Look at the Whole Picture in Profitability

The consumer behavior study was carefully done. But the recommendations to the retailer don’t make sense. Can you figure out why I say that? Here are the details:
     Ryerson University researchers developed a mathematical model to assess the ongoing effectiveness of customer loyalty programs—-sometimes called frequent shopper programs—-which reward customers for their continuing business. Retailers assume that, when well-designed, loyalty programs motivate customers to keep coming back. The Ryerson researchers believed their mathematical model would refine this assumption and suggest how to maximize the monetary return from loyalty programs.
     To generate data for the mathematical model, it was postulated that loyalty program members who purchased an item were given a coupon for a 15% discount on a subsequent purchase to be made within two months. I see this as a good example, since prior research has shown that, overall, the loyalty program reward most popular with customers is a percentage discount on future purchases of items selected by the customer and a 15% discount is usually sufficient to motivate a shopper.
     The resulting mathematical model reflected how loyalty programs do indeed influence consumers to become repeat customers. Then further analysis showed how once the habit is developed, there is no evidence of further gain from continuing the loyalty program. In fact, the model indicated that, in order to compensate for the revenue lost from the 15% discount, it would be necessary to raise the price on that item or on other merchandise.
     Therefore, concluded the Ryerson researchers, you should discontinue the loyalty program once you’ve established the initial habit.
     What’s wrong with this conclusion? Well, here are two flaws:

• If the program is effective, the retailer should continue using it to build loyalty in more shoppers, including those coming into the store after the program began.
• A frequent shopper program has objectives other than building a general tendency to return. For instance, it also allows you to track each customer’s purchase history in ways you can use to target sales promotions.

     The mathematical model was overly limited in scope. It didn’t match real retailing life. Maybe I should have spotted that immediately when I saw that the article about the research was published not in a retailing or marketing journal, but in Computers & Industrial Engineering.
     When someone suggests a profitability tactic to you, take care that they’re not basing the suggestion on an unrealistically limited perspective.

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Give Loyalty Program Members Prestige
Offer Frequent Shopper Benefits Beyond Discounts
Thank Shoppers Freely

Convince Shoppers to Reach for the Stars

Help your shoppers reach for the stars. To achieve more than they thought realistic before they saw the products and services your store makes it possible for them to possess. To go beyond what is in their grasp to realize what is within their reach.
     However, before we get too mushy about this, let’s recognize that a primary motivation for you doing this is to increase your sales.
     Researchers at University of Texas-Austin and Switzerland’s University of Bern looked at the emotional attachment of a total of more than 2,300 consumers to a total of 167 brands retailers carry. They found that consumers are more likely to form an emotional attachment to an item at retail if the consumer sees the item as fitting their image of their current self rather than of the person they aspire to be. Shoppers hesitate reaching out too far.
     But maintaining the status quo will result in smaller shopping basket totals. We’d prefer our shoppers to aspire. Consumer psychologists use the term “aspirational group” to refer to a cultural group that a consumer wants to join but believes they do not belong to yet. Newly minted MBAs may aspire to become part of a business professionals’ culture. Hispanic youth attending a U.S. university might aspire to view themselves as mainstream American college kids.
     To trigger aspiration, build self-esteem.

• Flatter expertise. Researchers at Duke University saw that a motivator for many experts is showing off their knowledge, even when that knowledge is out-of-date.
• For the best long-term results, give genuine praise. But researchers at Hong Kong University of Science and Technology find that even insincere flattery can be effective.
• Each time you personalize the selling message by referring to a characteristic of the shopper, you’re delivering a compliment. Even the smallest things can give you a retailer’s edge. For example, researchers at Universiteit Leuven in Belgium find that across languages and cultures, people’s self-esteem is heightened if their name is used.
• When the customer is completing their purchase, they are more interested in reassurance than in benefits statements. This is a prime opportunity for praise. Compliment them on the good decisions they made. Invite them to return to tell you how their purchases worked out for them.

     In building self-esteem, stop before it’s too late, though. The Austin/Bern researchers found that when self-esteem was extraordinarily high, consumers went back to aiming for the status quo, at least in the short-term.

For your profitability: Sell Well: What Really Moves Your Shoppers

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Praise Your Customers
Notice Customers’ Cultural Aspirations

Monitor Your Thanks to Customers

Is it possible to thank your customers too much? Yes, according to researchers at University of California-Riverside, Boston College, and Southern Methodist University. In the Journal of Marketing, an article titled “Enough is Enough!” describes their findings. The research findings also suggest how to avoid the risks of excess.
     Before I reveal those ways to you, let me say that as a consumer, I love being thanked by a retailer. And as a consumer psychologist, I recommend retailers thank their customers profusely and repeatedly. One of the many reasons for repeated thanks is to stay in touch with the customer.
     Jen Kubala, co-owner of Ritzy Ragz & Thingz, sets the benchmark at sending out five handwritten thank you notes each week. Jean Chai, an Ameriprise financial advisor, sends a handwritten thank you to every new customer. A while back, she wrote me, “I am well aware of the trust and confidence you have placed in me. I take this responsibility very seriously…. Thank you for making me your financial advisor.”
     So what might go wrong with these initiatives? The Riverside/Boston/Southern Methodist study assessed the repurchase behavior over a three year period by customers who were thanked repeatedly by the retailer. The researchers found that when there were too many thanks, the recipient began to see it as more of a sales pitch than as genuine appreciation. There were fewer repurchases from customers who indicated to the researchers that this tipping point had been exceeded.
     How to avoid the risks?

• Find out which channels each consumer prefers for messages. Repurchasing dropped faster when a customer liked a personal telephone call, but was getting thanked via e-mail. For most consumers, a grammatically correct handwritten note is a welcome break from text messages. However, some prefer quick and dirty.
• Add unpredictability. A surprise thanks comes across as more genuine than an obviously scheduled one. Researchers at Yale University and Carnegie Mellon University found that a surprise gift to commercial bank customers resulted in significantly higher deposit account balances.
• Thank valued customers in a range of ways. Ms. Chai sends birthday greetings to her clients via e-mail or a phone call. Ms. Kubala sent me a card noting how I’d consulted with her about a “Profitability Tactics for Small Retailers” seminar I’m presenting in Turlock, California July 19.

Oh, one more thing: Have I thanked you lately for your interest in RIMtailing?

For your profitability: Sell Well: What Really Moves Your Shoppers

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Say Thank You, Dear
Dazzle Customers with Surprise Gifts

Describe Products to Fit Shopper Objectives

Want to sell one of the 350 variants of toothpaste to a shopper looking for teeth whitening? Well, find a formula that does whiten teeth and say to the shopper, “This toothpaste could be nicknamed White Right Now.”
     Want to sell some exercise equipment to an aspiring Iron Man? Then call the item a muscle builder. Want to sell the same exercise equipment to a shopper who says they’re on a weight loss diet? Instead of calling it a muscle builder, call it a fat burner.
     The name does the trick. Researchers at University of South Carolina and Loyola University offered study participants a mix of vegetables, pasta, salami, and cheese, all arranged on a bed of fresh romaine lettuce. Some of the participants identified themselves as dieters, and some said they were not on a weight loss diet. To some of each of these groups, the concoction was described as a salad, and to the rest, it was described as pasta.
     Not surprisingly, the dieters who heard the name “pasta” rated the offering as less healthy than the dieters who heard the name “salad.” But the name made no real difference in ratings of healthfulness to the non-dieters.
     In another study by the same researchers, some participants were presented an item described as fruit chews, while others were presented the same item, but it was described as candy chews. Among this latter group, the dieters rated the treat as less healthful than did the non-dieters.
     In the marketplace, colored potato chips might be called veggie chips, milkshakes might masquerade as smoothies, and sugar water is called flavored water. The research indicates this strategy works significantly better with dieters than with non-dieters. In fact, there are consumers not on a diet who would consider veggie chips to be less tasty than the identical item referred to as potato chips.
     Describe products in ways which fit what you’ve identified as the shopper’s objectives. Be truthful, of course. Don’t describe a toothpaste as whitening if that isn’t included in its skill set, and think about the negative impressions the shopper will build if they discover the only veggie in the veggie chips is potatoes.

For your profitability: Sell Well: What Really Moves Your Shoppers

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Overcome Weaknesses in Business Name
Make Your Business Name Easy to Say

Beef Up Promotions with Wardrobe Incentives

Selected a distinctive name for your sales promotion? Ordered up the balloons or other special decorations? Laid in enough merchandise—both the high value items you’ll discount and the regularly priced merchandise you’ll surround them with? Advertised the dates for your sales promotion? Included clear instructions in those ads that the customers need to come in dressed like cows?
     Huh? Dressed like cows? That’s what Chick-fil-A restaurants are ordering for “Cow Appreciation Day,” to be celebrated July 8. Come fully dressed as a cow and you get a meal for free. To build interest in the promotion, the event website features a downloadable cow costume kit, a photo contest, and “Running of the Cows” events.
     RestaurantNews.com credits past “Cow Appreciation Day” promotions and an associated “Eat Mor Chikin” marketing campaign with giving sales a lasting boost.
     What makes it work so well, and how can you best use wardrobe incentives?

• The silly look. If your wardrobe requirements are outlandish, you’ll draw the sort of media attention that we call free publicity.
• The naughtiness. More common than the cow look are promotions giving incentives to shoppers for coming in dressed in their pajamas. People associate wearing pajamas with relaxing their inhibitions. Actually, almost any costume can work. Think about adult Halloween parties! And when consumers relax their inhibitions in your store, they buy more.
• The opportunity to express store loyalty. Contented customers will actually pay for T-shirts bearing the name of your store. Contented Chick-fil-A customers dressed like cows are witnessing to each other and those taking photos their faith in the retailer.
• The celebration. E-commerce retailers could have fans post photos or videos of themselves in costume in order to earn a price discount. Those are fine techniques. However, it’s certainly more fun to wear your crazy costume to a store where you can bask in the reactions of others to you and express your reactions to the others there.
• Compliance. This one gets deeper into consumer psychology. When the customer agrees to dress up, they are changing their behavior to follow the directions of the retailer. This is a type of foot-in-the-door technique, in which the customer becomes more willing to follow subsequent directions the retailer will give. Such as the counterperson or the store signage steering the Chick-fil-A customer in the direction of buying an extra-cost dessert treat or coming back again soon for a regular-cost meal.

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Tie In Promotions to What Folks Care About
Make the Sale a Slice at a Time

Selectively Neglect Interactive Marketing

The successful retailer engages in skillful selective neglect. You can’t do it all—at least not all simultaneously.

• Prioritize. Keep your eye on many important tasks at once. But allow some of those tasks to be in your peripheral vision. The central focus should be on tactics and measures that, if they fall too far short, substantially impact your profitability.
• Satisfice. To avoid bias, gather ample information before making decisions. At the same time, accept less than absolutely comprehensive information. In the 1950s, psychologist/economist Herbert Simon coined the term “satisficing” to refer to his finding that successful people accept less-than-perfect alternatives so they can move on to the next choices they want to make.

     Prioritizing and satisficing are especially valuable when you are deciding what resources to devote to gee-whiz technologies like interactive marketing—using e-mail, blogs, websites, social media, and mobile device services to interact with your shoppers. The objectives include building enthusiasm for your current products and services and co-creating new offerings and marketing messages.
     Findings in a June 2011 Forrester Consulting report, commissioned by interactive marketing vendor ExactTarget, indicate that small to midsize retailers should embrace these technologies in cycles. Not everything at once. (The full report can be downloaded after free registration.)
     However, don’t implement interactive marketing in isolated pieces either. To achieve an acceptable payback, analyze how these newer types of customer interactions reinforce or interfere with each other and with the older communication channels—face-to-face customer contact and advertising in traditional media. In the Forrester survey, about 48% of respondents said this was one of the top three challenges facing the business wanting to use interactive marketing. About 40% said that staffing programs sufficiently—such as to achieve synergy—was among the top three.
     It’s not surprising, then, that one in five respondents said that the single greatest challenge was putting numbers on the degree of effectiveness of these programs.
     Are users achieving their objectives? About 35% of respondents said they use interactive marketing to co-create products and marketing messages with their customers, so the potential is there. However, about 45% said they are not gaining that benefit. About 28% use the technologies for testing product and marketing ideas, but about 37% do not.
     The recommendation: Implement in an integrated way the elements of interactive marketing which allow you to dialogue rather than only broadcast, and for now, selectively neglect the rest.

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Distinguish Customers from Friends
Stamp Out Bias in Your Decision Making
Plan for Customers to Satisfice