Published in ‘NZ Retail’ magazine, 2001
Should I be on radio, in magazines, in the press, on TV or do a letterbox drop? Perhaps billboards or maybe paint a bus? What about being in that phonebook wraparound I was recently offered? Should I increase the size of my Yellow Pages advert?
How do you make this decision? With so many options - and more being offered everyday - its simply too confusing. I’d like to offer a 4-step plan for making these decisions. Working through these four steps results in the question above almost answering itself.
The four steps are:
- WHO are my customers?
- WHY do they buy from me?
- WHERE do I find more?
- WHAT do I use to tell them about me?
Step Four is where we started. To tell my customers about me, I should do some sort of advertising - but what sort? Short-circuiting this plan could result in wrong and expensive decisions. You must answer Steps one to three before looking at Step Four.
STEP ONE - WHO ARE MY CUSTOMERS?
No they are not ‘everyone over 10′ as some media will lead you to believe. Your target market will be surprisingly narrow - and you must know exactly who is in it.
I know a retail operation that advertises on seven radio stations, as it has no idea just who its customers are. Are they old, young, male, female, live just around the corner, passing tourists, working for neighbouring businesses? Who are they?
There is a reasonable amount of work in Step One of the plan, but it pays dividends many times over. It may take a few weeks to gather the information, but once gathered it will only require small regular updates and it will be the guide for all your future marketing activity.
There are three things to know about your customers: where are they from; what characteristics do they share; and, which ones actually make me money? While you do not need to know full demographic and psychographic profiles of your customers (this would be nice, but not necessary), you do need to know these three important characteristics.You can answer the first questions using a simple tool - a competition.
Step One a - Where are they from?
Action steps:
1. Run an in-store competition to find out who your customers are. This could be as simple as the form in Figure One (page 30). Offer any sort of prize, as the value is not important. From this you will get the information you need.
Note that you and your staff will have to invite customers to enter and will have to gather the completed entries while customers are in-store. The record for customers simply grabbing the form and entering by themselves is not good.
This sort of form will give you the answers to the next parts of this information gathering as well, such as age and gender and whether where they work is important. While some will object to filling it out in its entirety, enough will to give you what you need.
Enter the information collected into a spreadsheet or database.
2. Get a map of your immediate area or town and put a dot on every entrant’s address. When you put the dots on the map, what you will find is that there is a pattern to where your customers live. A density of dots will develop in specific parts of your town.
You will be able to identify your ‘core’ customers (in the heavy dotted circle) and then a larger area (the lighter dotted circle) that encompasses the more remote customers. Invariably, retailers are surprised by how tightly confined their core customers are.
Simply knowing where your customers live makes marketing decisions a whole lot easier. For example, why would you broadcast your message across the entire city when you could confine it to a specific suburb?
This can be slightly different if your store is in the CBD of a large city. In this case where your customers work is more important than where they live. It may well be that a large proportion of your customers work in the CBD.
Step One b - What characteristics do they share?
Almost all media is purchased and sold on the basis of the three customer characteristics of location, age and gender. Radio and press representatives will say that they dominate a specific segment. For example, “Our station dominates the 25 to 39 year old, female skew market segment in the greater Hamilton area”. So if you don’t know the characteristics of your customers, you cannot make an informed decision regarding media.
This information will all be gained from the simple competition form.
Action step:
3. Use the age and gender information from the spreadsheet to generate graphs of the age and gender groups.
Step One c - which customers actually make me money?
This is a more difficult one, but critical to know.
The best way to illustrate this is to consider Figure Two (p 32). It shows a store with a turnover of $610,000. The way to read this chart is:
- The top row is the amount spent per customer in a year.
- The second row is the number of customers spending that amount annually.
- The third line is the total revenue from those customers.
Example - 1000 customers spent $200 each during the year, generating a total of $200,000 in revenue.
The second set of figures shows what happens if the store attracts more big spenders. Look at the changes to the number of customers spending the most. If the number spending $1000 pa can be increased from 100 to 200 and the number spending $5000 can increase from 2 to 22, then turnover goes to $810,000. That’s a $200,000 increase from just 120 customers.
The third set of figures show what happens if the store attracts lots of small spenders. Consider the effect of 1000 extra customers spending $100 in the store in a year. Amazingly this only adds $100,000 to the turnover - and probably requires more staff to cope with the numbers.
The bottom line here is that it’s not the number of customers that matter, but the value of each customer. Aiming for quality rather than quantity will have the biggest effect on your business. You already know that you can attract a few high value customers and that means you can attract many more.
It’s too easy to generate store traffic - you just cut your price to a level that few can resist. Every newspaper carries examples of price-reduction advertising to generate store traffic. The problems with this approach are that discounting is not too profitable, and it attracts price-driven customers. The more you know about your top-end customers - the big spenders - the more targeted your marketing activities can be and the more profitable your store will be.
Action steps:
4. Who are your most important customers - the ones who make you money? List the three best customers you have on an annual basis. How much do they spend, what are their names (if you know them), what are their ages, are they male or female, and where do they live? Your marketing activity should be skewed towards these types of people.
5. Have your staff understand the difference between a good customer and an average customer. Have them consciously spot the good customers and start acknowledging them by name. Loyalty is usually driven by how the customer is treated, rarely by the price and product.
STEP 2 - WHY DO THEY BUY FROM ME?
You have worked out who your customers are. Now you must work out WHY they are your customers. Why have they chosen you over your competitors? There is some simple market research you can do.
Competitor analysis
Figure Three is a table that lists factors that effect patronage in the first column. These factors are different for each store and should reflect the values you and your staff believe bring customers and their loyalty. Add whatever factors you see as important. How important are such factors as parking, location, price, opening hours etc?
Make four columns - one for your business and one each for your three closest competitors. Now for each factor mark them ‘BEST’ and ‘WORST’. For example, your store might be best for parking, but worst for stock range.
The point of this exercise is to determine what truly drives customers into your store. It will define your point of difference
It might also be a good idea to dig out your business plan to ensure you are checking for the values you hope the business represents.
Get your staff to complete the table (before seeing yours and without you looking over their shoulder) and see where they match and differ.
This is basic research and you can go further just by asking customers why they visit you. This can be done through conversation with them when they are in store -”tell me, why did you choose us?” - or through formal research such as focus groups and telephone surveys.
Never do your own formal research. Engage a professional to do this for you. You cannot possibly be objective if you do this yourself and the information you gather yourself will be misleading. Professional researchers are not as expensive as you might think.
People buy because they need or want an item, not just because it exists. Don’t just advertise WHAT they can buy, advertise WHY they should buy it. For example, for mid-size 51cm TVs for $499, adverts explaining product features and highlighting the price will only get a response from those who have already decided to buy a TV.
But if your advert gives them a motive to buy, then people who wouldn’t have otherwise considered buying a TV will also respond. In this case the TVs would be ideal for the kids. So the motive could be to get rid of the kids while Dad watches sport. Run the headline to reflect this - “Watching the NPC? Or do the kids have other ideas?” The rest of the advertisement can talk about the TV, highlighting select features and the price.
Action steps:
6. Fill in the competitor analysis chart. Get your staff to do the same chart and compare results. Turn this into a discussion. This process will help you determine the ‘why’ part of the marketing plan.
7. Start asking customers WHY they have chosen you. Determine the cost of formal research from an independent researcher.
STEP 3 - WHERE DO I FIND MORE CUSTOMERS?
The answer to this question is based on the fact that potential customers have similar characteristics to existing customers. The two places your future customers will come from are:
- The same area as existing customers
Having entered your customers’ addresses into your database, and mapped their locations, you can now fill in the gaps. If you already have customers at 9 Smith Street and 22 Smith Street in a 30-house street, then it stands to reason that you can probably get those at numbers 1 through 30 as well.From a marketing perspective, it is a fortunate fact that people generally live in suburbs surrounded by people of a similar socio-economic level. So if you already have some customers in an area, then you should be able to get some more.
- Your database
The easiest people to sell to are those who have already bought something from you. As you collect customer names and addresses (and get their permission to send them promotional material), work out how you will stay in touch with them.It is very expensive to get a new customer. If you ran $2000 worth of advertising in a month and gained 50 new customers, that’s $40 per customer. Existing customers don’t count.
Now at $40, it’s questionable that you will make any money out of them at the first sale. It’s only at subsequent visits that you really make any profit from them.
Action steps:
8. Look at the map and your database and make a note of where more customers could come from.
9. The competition has generated a database of some of your customers, but there may be other sources of information that can expand the database. Look for ways to use information you already have about customers, eg, from guarantee, lay-by or credit records.
STEP 4 - WHAT DO I DO TO TELL THEM ABOUT ME?
What marketing activity do I engage in to drive new and repeat business? Step Four involves finding the right advertising media to match what you have discovered about your customers.
By now you will have discovered the geographical, gender and age distribution of your customers. Advertising sales reps will be able to tell you who reads, watches or listens to their medium. Ask them to demonstrate this before you tell them who your customers are.
Selecting the right media will depend on your customers. If you attract male and female customers from all ages but only from a small geographical area, then you will have different options to stores that attract largely males or females, or target specific age groups.
The answer is very much based on the answers to the first three steps. This is not a finite list. New options are being created every day, so rather than go through them all, it is probably easier to take you through an example. Let’s say that you run furniture store.
Step 1 - Who are my customers?
Putting dots on a map, you determine that the pattern looks like the one in the map below. (It will never be a perfect circle).
Step 2 - Why do they buy from me?
A competitor analysis and talking to a selection of customers reveals that it is not price or any unique product but your location and the range of stock that appears to attract customers.
This stage may take some time, as the level of research required may be considerable. Take the time necessary - it will be worth it. If you take short cuts you may base your strategy on the wrong conclusions.
| Acme | Pinnacle | Peak | High Point | |
| Location | worst | best | ||
| Price | worst | best | ||
| Product range | ||||
| Service | best | High Point | ||
| Hours | worst | best | ||
| Parking | best | worst | ||
| Brands | best | worst | ||
| Atmosphere | worst | best | ||
| Product knowledge | best | worst |
STEP 3 - Where do I find more?
The map has shown that customers are concentrated in three regions. The decision is then made to do a monthly letterbox drop in the core areas.
However, if the map showed that customers were scattered across a wide area, but the gender and age characteristics were strongly concentrated, then it would be useful to consider different advertising media. For example, a business selling after-market car accessories has a customer base strongly biased towards males aged 20 to 30, and chooses to advertise in a magazine and a rock-format radio station. Another business sells motorised wheel chairs and aids for the elderly, and chooses to advertise in community newspapers.
This is why it is important to do Steps One and Two thoroughly, as the information they gather will help you choose the appropriate media.
In our furniture store example, the name and address of everyone who buys furniture is kept for guarantee reasons, so the basis of a database exists.
STEP 4 - What do I do to tell them about me?
In this example, the broad strategy is to saturate the geographical areas that customers are known to come from, while mailing regular updates to existing customers to maintain and increase their loyalty.
Our fictional retailer chooses to cancel radio advertising as the research revealed customers were coming from a small tight geographical area, so general broadcast advertising is of limited value. Press will be a major full-colour quarterly feature in the form of a complete wrap-around of the community newspaper.
One way to saturate an area is with letterbox drops. These can be very effective if they are done right. They can also be a complete waste of time, particularly when they are just a product catalogue.
Continuing with the example, this store is middle-of-the-road in quality and price, stocking a good range of bedding and furniture. So the direct mail item will be a folded brochure featuring a picture of a room setting for each room - one on each panel - and highlighting just two items of furniture on each page.
The brochure will have a fashion magazine look and feel. It will highlight the competitive advantages identified in the analysis - location and range of stock. It will use wording like “just around the corner” and “very near you, so drop in this weekend” and others of this nature.
For the existing customers, the staff will be trained to do a ‘needs-analysis’ to determine why the customer is after the item they are looking at. Have they just built a new house? Are they renovating? Are they simply replacing a single item of furniture? It is very important to future sales that the answer to these types of questions is known.
Fields are then added to the database that allow the answers to be included. Two such fields could be Reason and Next purchase. This allows for highly targeted future mail-based contact.
A series of mailers will be arranged for the existing customers. There is a magic 90-day rule for customer contact to maintain and increase their loyalty. This could be in the form of postcards to let them know about new stock just arrived eg. for those that purchased a lounge suite, the postcard would highlight coffee tables and lamps. For those who purchased dining room furniture, the postcard would feature lounge furniture and so on.
SUMMARY
Spend considerable time on the first two steps of the marketing plan, ie, who and why. The answers to these make the rest of the puzzle easy to solve. Otherwise you are in danger of making arbitrary marketing decisions.
Spread the word: 
