Per Akerberg is CEO of customer experience cloud, Voyado.
Fortunately, the worst predictions for the retail industry have not become a reality. While the U.K.’s Office for National Statistics (ONS) forecasted retail growth of just 0.2%, they reported that the figure ended up being closer to 1.2%. This is welcome news, but I don’t think this means the retail sector is in for plain sailing for the rest of the year.
The cost-of-living crisis continues, and people are changing their shopping habits. For example, where they may once have bought multiple items from a single place, many now hunt for bargains, making smaller purchases across multiple brands and channels. The ONS data supports this, suggesting that discount department stores were one driver of increased sales volume.
However, relying solely on low-margin items with small purchase receipts is not usually a sustainable strategy for success. To survive, retailers must identify their most profitable customers and protect their margins. So, what can businesses do?
Identify your most profitable customers.
To thrive in today’s economy, I believe it is important for retailers to devise short-term and long-term plans to help boost revenue and sustain profitability. While discounts and promotions may bring in more money in the short run, depending on them can be precarious as it can discourage loyal customers from shopping outside of those deals.
To gain insight into customer profitability, you can examine their purchase frequency, recency and monetary value. Understanding consumer patterns allows you to use the right incentives at the right time and prevent churning customers. A strong CRM strategy can be crucial to secure long-term profitability and protect bottom-line results.
Get an omnichannel edge.
Data shows that omnichannel customers—people who shop online and in-store—spend more on average than those who shop using just one channel. Although the online-only brand approach may appear cost-effective for those starting out, it can make it challenging to establish customer loyalty, brand ambassadors and long-term profitable customers.
For established retailers, I recommend prioritizing a strategy to get in-store customers to shop online and vice versa. To succeed here, brands need to break down some of the barriers between the online and offline worlds. Making the experiences more similar in marketing, sales and customer service gives people a consistent experience across platforms and makes them more likely to become omnichannel customers.
Rethink free delivery and returns.
I believe that it’s time to reassess some basic assumptions about online shopping. For example, free shipping on every order may have made sense in a more robust economy, but it now threatens profitability. Many leading retailers are ending the era of free returns, and those who haven’t must now adopt a data-led approach to returns.
Increasingly, we see that returns are less about sizing and more about seeing how a customer feels about that product. Therefore, you should assess whether a free returns policy makes economic and environmental sense. Instead, consider offering free returns exclusively to select groups who otherwise display favorable behavior. The key to achieving that is consolidating data at a customer level and analyzing cohorts in addition to the global view of your customer data and trends.
To do this, you can take advantage of modern technology to prevent problems with sizing, fit, quality and customer satisfaction when shopping online. For example, AI-powered product recommendations, customer ratings and virtual try-on technology can all be valuable for decreasing return rates.
Make it personal.
Consumers today expect tailored and personalized experiences, and there are several ways to do it. Once again, getting the technology stack right and gaining a 360 view of your customers in a scalable manner can help in this highly competitive and customer-focused market.
The important thing is to find your own unique approach when it comes to personalization. Multibrand e-commerce stores with diverse customer profiles and large product ranges should start by predicting customer preferences and intent to enhance the personalized experience.
If you’re a merchant selling one brand or a less complex product line, I find that the best starting point is to personalize the customer journey. For high-traffic e-commerce sites, prioritizing convenience personalization, such as prefilled shipping addresses and preferred delivery methods, might drive quicker results.
Making personalization effective can be challenging, and it usually involves multiple teams working in tandem. The CRM and marketing teams impact the customer journey, while the e-commerce team focuses on implementing personalized convenience on the website. To accurately predict customer preferences, all teams must collaborate and work together.
Overcome industry challenges.
Ultimately, retailers must provide customers with the best possible value to succeed in today’s ultra-competitive market. I find that this requires a thorough understanding of your customer base, overcoming internal challenges, offering appropriate incentives and prioritizing long-term profitability. The key is identifying loyal and profitable customers and prioritizing their needs over everything.
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