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Smart Data Smart Decisions Smart Profits

It now uses trends in these four customer segments to

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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 Customer Segments Percent of accounts, multi-category retailer 70 Whole-house lovers Revolving focused 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 downward migration across top 4 segments, retailer captured 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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