Customer-centric retailers roll the dice


December 4, 2009

Reported by Diwakar Kumar
4 December 2009

"Rather than trying to fit the world to our business model, we need to fit the business model to the real world that exists," comments Devangshu Dutta, chief executive of Third Eyesight. At present, in the midst of a tough (but recovering) economic climate, when shoppers appear to have become even more conscious of value for their money, retailers need to re-engineer marketing strategies to trigger growth. Some analysts believe that the focus should be directed on retention of existing shoppers rather than tapping new shoppers who may or may not stay with them in these fickle times.

All retailers spend a significant percentage of their business outlays in engaging shoppers (consumer engagement programs in support of sales promotions, discount schemes, contests and raffles, product bundling and promo items and such). So the adoption of a strategy to repose on existing shoppers – during a slowdown – reduces the risk of drop in revenues in case a plan to attract new shoppers fails.

Additionally, existing customers don’t need to be educated for product offerings and the cost of marketing to them (existing shoppers) is even lower. Hence, at least on paper, it looks less burdensome for a retailer to rest on its existing shoppers until such time the market looks up.

However, depending entirely on existing shoppers does also reek of complacence. While customer retention is critical to any business, all retailers and brands constantly look for ways to appeal to a wider demographic and broaden a potential consumption base. But, where should energies – and monies — be directed during a crunch?

We found some answers through an open poll question we threw out some weeks ago on the website.The question: It’s easier — and cheaper — for a retailer to build on existing customer relationships than to attract new shoppers; The answer: 80.95 per cent of the respondents supported – while 19.05 per cent of them negated – the question.

Responding to the question, S. Sivakumar, chief executive, Agri Businesses, ITC Limited, says, "Insights on existing customers are deeper, leading to superior and personalised offers that deliver greater value to those customers, in turn bringing higher margins. Cost of engagement with the existing customers is also lower than connecting with new consumers. Any retailer`s portfolio, however, has to be a mix of existing and new customers."

Echoing this view, Ravi Pahuja, VP – Operations, Odyssey India Ltd. says, "It`s certainly easier and cheaper for a retailer to build on existing customer relationships than to attract new shoppers. For new customers a retailer has to first attract them to come to the store and then build on the relationship. Having said that, it is important to build relationships with old as well as new customers to run the show."

"Retailers who work on their existing customer relationships also draw in new customers because of the positive word-of-mouth publicity by these customers, so it’s building relationships with old and new customers at single cost," he adds.

"In this era of high customer churn, what is essential is brand loyalty. Once a brand has cemented its relationship with its customers, there is immense opportunity to communicate with this loyal base – allowing for value-adds like customisation and on a one-to-one dialogue basis, which makes the experience much more personal and interactive," comments Manjula Tiwari, chief operating officer, Esprit.

She further opines, "It stands to reason that this method is also cost-friendly as it involves direct communication as opposed to mass media. That being said, one cannot dismiss the signifance of attracting a newer customer base, without which the brand begins to stagnate."

"It is of paramount importance for retailers to build on existing customer relationships (though it is not necessarily easier or cheaper). A positive word from one customer can get you 10 new customers while a negative word can cost you an even larger number of customers," concludes Viney Singh, MD, Max Hypermarket India Private Limited.