I’m not sure who said it first, but it’s certainly true that great brands don’t chase customers, they attract customers to them. But I think it goes deeper than that.
This week, as many retailers close their books for the fiscal year, those that remain stuck in the boring middle are very likely to experience weakening margins–or margins that remain materially below industry averages. And when some of the faster growing public “digitally-native” brands share their quarterly numbers, there is a good chance that their margins will be poor as well. The relentless, expensive and mostly futile pursuit of the promiscuous shopper deserves much of the blame.
By promiscuous shopper I don’t simply mean those folks that are value conscious or use technology to be sure they aren’t getting ripped off. Many people do that. What I’m referring to are those shoppers that have virtually zero propensity to remain loyal within a particular category and are constantly searching for the best deal. Clearly having too many of these customers in a retailer’s portfolio can make it impossible to grow enterprise value if they don’t spend at all without receiving a big fat discount. In some cases (as Peter Fader and Dan McCarthy’s work has illuminated) many of these customers may actually have negative marginal value. So the more a brand grows, the worse it gets. But enough about Wayfair.
Of course plenty of this is self-inflicted and hardly new. Over multiple decades the retail industry has done a great (and by “great” I mean “lousy”) job teaching customers to wait for a deal and that regular price is not only mostly meaningless but is often “the sucker price.” The long-suffering department store sector is perhaps the poster-child for this behavior, with constant promotions and the layering on of “friends & family” and private label credit card discounts. That doesn’t seem to be working out all that well. But we also have Bed, Bath & Beyond with their ubiquitous coupons, as well as plenty of other retailers offering a litany of buy 1, get 2 (or 3!) free promotions that obliterate any concept of regular price.
Despite a long-history of “promotional retail”, in recent years this chasing of the promiscuous shopper has gotten worse and now makes it imperative for retailers to get their acts together. Pricing information used to be relatively scarce (or hard to come by). Today, not so much. As the power has shifted to the customer it’s next to impossible for any retailer to get away with having uncompetitive pricing. More pernicious, though, is the heavy discounting on the part of venture capital funded “disruptive” brands. As these companies seek to maintain their growth trajectory and/or seek to be the last brand standing in a rapidly maturing segment (think flash-sales 5 years ago and subscription meal kits today), massive discounts are being thrown at new customers, many of whom will simply go back and forth from one largely interchangeable brand to the next. This will end badly.
So what’s the solution? First of all, if the underlying business model is unremarkable, a more sensible promotional strategy is necessary, but not sufficient. To be sure, JC Penney spends way too much time and energy chasing promiscuous shoppers. So does Macy’s. But their issues go beyond a lack of more sophisticated target marketing. There are always better ways to chase customers, but it’s the chasing that is the core issue.
Nevertheless, all brands need to understand both their marginal customer economics and lifetime value at a detailed level. They need to find more ways to treat different customers differently. In some cases that means stop pursuing customers that can never be profitable. But in most cases it will mean a much more finely honed and personalized set of customer-focused strategies informed by deep customer insight.
The fact is very few brands can ever “own” discount–and those retailers that try to compete with them are merely engaging in a race to the bottom. If your brand only gets love when you pay for it, aside from the not so nice metaphor, you might want to get to work on the underlying reasons.
A version of this story appeared at Forbes, where I am a retail contributor. You can check out more of my posts and follow me here.