Retailers rate their performance from an abundance of reports that showcase year over year or week over week numbers from digital, direct mail, in-store, and e-commerce channels. These reports are often provided by siloed teams looking at data from one channel at a time. From these disparate reports, retail marketers are expected to measure core KPIs like "new customers," "average order value," "cost per acquisition," "transaction value," and more — and make critical decisions based on the numbers presented.
However, there is a critical component missing from this process — the customer. To ensure long-term success, retailers need to rethink the traditional reporting model and instead build a reporting structure that is centered on the customer. One that moves from transactional data at the channel level to behavioral, historical, and transactional data at a segment or, even better yet, an individual level across all channels.
This strategic approach shifts the organization from an isolated "search strategy" or "display strategy" to a "segment strategy" that markets to the individual instead of selling to the masses. The ability to measure, report, and understand customers by segment ultimately drives more integrated and effective marketing strategies. With this approach, KPIs evolve from simply an increase in numbers to a focus on customer value and lifecycle management.
Who do you want to acquire?
One important KPI that can evolve with this methodology is acquisition. Acquisition is a critical component of most retailers' marketing strategy. It is easy to measure by focusing on a straightforward increase in transactions. While acquisition is an extremely important building block of any retail establishment, retailers can now be more strategic on the kind of customer that is being targeted.
Let’s be honest, it is easier to acquire low-value customers than high-value customers. Low-value customers are not as selective or loyal. From our experience, we know that that low value customers often buy less (i.e., just the product advertised) and often do not return to the retailer with any regularity. When acquisition becomes the primary goal of the marketing team, marketers tend to use a "spray and pray" approach to advertising. With this approach, online advertising platform algorithms fill top of funnel with these lower value customers. At this point, we should start asking the hard questions, "What if we can hit the revenue target with fewer but a lot more valuable customers?" or, "Would you rather hit the acquisition number or a profit goal?" These questions are never easily answered. At the end of the day, we all have revenue goals, acquisition goals, and need to make a profit.
By utilizing a CRM database, best-in-class retailers can easily identify the different segments that buy from them, determine a lifetime value for each segment, and even understand when, how, and why they are buying the products that they just purchased. They can then continue to build much more relevant messaging streams across all channels to increase loyalty and advocacy and make it possible to deliver a customer-centric experience.
To create real competitive advantage, retailers must rethink their traditional KPIs and explore new performance indicators, such as cost per acquisition by segment (CPA for moms, CPA for students, CPA for professionals), as well as revenue and transaction volume by each segment, that will bring higher short-term and long-term benefits to the business while improving ROI on marketing’s top-of-funnel investments.