Unformatted text preview: the customers in four distinct segments.
It now uses trends in these four customer segments to track the "health"
of the business over time.
In addition, while year-to-year attrition rates among these customers
were relatively low, the real challenge was to prevent these customers
from shopping and spending less. The retailer was able to capture over
$100 million in sales and $20 million in profits through tailored
year-long relationship programs that prevented top customers from
migrating downward (Exhibit 2).
Exhibit 2 Preventing Downward Migration in Top Segments To Create Value
Segments Percent of accounts, multi-category retailer
spenders 20 Migrate up to more
profitable segment 1 25 Remain in
own segment 2 30 40 10 30 50 15 Category
spenders 6 40 10 Retail
lovers 28 10 By reducing
top 4 segments,
over $100 million
in sales across
formats 20 Migrate down to less
profitable segment Attrite completely See article The Power of Loyalty: Creating Winning Retail Loyalty Programs, by Jim Cigliano,
Margo Georgiadis, Darren Pleasance, and Sue Whalley. ©McKinsey & Company 2000 MCKI29 - Ret. Smart Des.7 8/9/00 11:08 AM Page 7 Influencing cross-channel buying patterns to increase sales Internet retail sales in the United States are expected to exceed 7 percent
of retail sales and $184 billion by 2004, and Internet retail sales in the
U.K. should reach $5.9 billion in 2004. These figures underestimate the
strong indirect impact of e-commerce on shopping decisions in other
channels. In many cases, consumers order or research goods on-line, then
pay for and pick them up in person. By 2003, 20 to 25 percent of all
buying decisions will be made or influenced on-line.
To cope with the Internet’s influence, retailers will need to understand
how customers are making cross-channel shopping decisions. The
insights can cause retailers to reshape their merchandising, service,
pricing, and promotions within and across channels.
One company’s analysis of customer data is influencing its approach to
the evolving shopping patterns of its rapidly growing share of customers
that purchase on-line. Over half of the company’s Internet shoppers
make purchases through the company's catalog and retail operations.
They are using the Internet to both purchase and research products
they plan to buy through other channels. Furthermore, multi-channel
customers are more valuable than single-channel shoppers for the
company, since their annual spending across Internet, retail, and catalog
channels is more than double that of consumers shopping through
only one channel (Exhibit 3). This customer knowledge enables the
company to tailor programs to optimize the spending patterns of these
customers across channels by expanding occasions and tailoring service
levels to increase sales. Smart data, smart decisions, smart profits 7 MCKI29 - Ret. Smart Des.7 8/9/00 11:08 AM Page 8 Exhibit 3 Benefitting From Connected Consumer Experiences
Average annual spend per customer, index 3...
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