Retailers: ‘Build It and They Will Come’ Is Broken
As traffic continues to fall, retailers must develop and measure strategies for understanding their markets and customers. The question of how to attract new customers is foundational for most brands. Retailers have historically used stores as the primary vehicle for discovery and thus customer acquisition. But with traffic falling, there is opportunity to be more proactive about how consumers are discovering brands. Aligning your brand with the right customer groups and market characteristics for success can have a meaningful impact on performance and returns. Data, measurement, and analysis is crucial to being more targeted about customer acquisition.
Digitally native retailers are methodical about customer acquisition.Customer acquisition for companies that sell online is achieved through marketing and in some cases through well-orchestrated, viral content strategies. These businesses follow a build-measure-learn process for each tactic they put in place to drive customer acquisition. They start with a forecast and measure results against the plan then adjust to optimize results. They repeat this process, usually multiple times, for every strategy they put in place. Strategies to drive customer acquisition are quantifiable in terms of cost, expected results and ultimate value. If customer acquisition costs are less than lifetime customer value, the business model is working.
‘Build it and they will come’ is a passive customer acquisition strategy. Traditional retailers use retail locations as the primary customer acquisition strategy. Having physical locations does raise brand awareness and help attract new customers to a brand or concept. However, in an environment with declining traffic like the last several years, it is simply not enough to build it and expect that they will come. They are coming in fewer numbers each year. Therefore, retailers need to develop strategies to understand which markets have the right elements for success and measure market data on an ongoing basis to capitalize on opportunity and mitigate risk. Analyzing extensive market data along side financial performance and factors like store size, staffing levels, merchandising changes, and store format can help retailers optimize performance and understand how variations can impact sales trends and investment returns.
Marketing can amplify the impact of the primary investment in stores. Marketing is a secondary customer acquisition strategy for physical retailers. Most profitable specialty retailers spend 8%-11% of sales on rent and 2-3% on marketing. Retailers without the cash flow to support marketing either run losses or struggle with low awareness. Digital marketing and PR is more accessible for smaller brands, but the approach needs to be targeted, creative and iterative. Marketing can be used to amplify investments in stores with careful planning and measurement.
Measurement is critical to support retail business strategies. If stores are your company’s primary customer acquisition strategy, they should be measured as such. It is risky to take a ‘let’s see what happens’ approach followed by a ‘well that didn’t work’ conclusion. A data-driven framework requires tools to create detailed forecasts by store, measure performance of KPIs against expectations, test and iterate. The building blocks for retail sales are unchanged – traffic, conversion, price and units per transaction. But strategies can be employed to impact each metric and performance by store should be analyzed carefully. It is easier to see what is working and what is not when you have a handful of stores, but precision forecasting and analysis for a fleet of stores can be difficult as the number of stores increases. Pro4ma can help. Let’s continue the conversation. Please subscribe to receive future blog posts and contact [email protected] if you’d like to learn more about how Pro4ma can help your company forecast more efficiently.