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The Importance of Being a Destination Store: Understanding Individual Customers and Creating Relationships

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To be a destination store for customers--that is every retail business owner's wish. A destination store is the retail store that a person thinks of first when he or she wants to buy something. The same definition applies to products. Manufacturers want their products to be those that customers think of first. To be customers' "destination" means that the store or product has customers' support, and sales depend on how many such customers a business has. (From Chisounomori, an information magazine published by Fujitsu Research Institute)

Author Profile
Takeshi Imamura

Corporate Executive Officer, Fujitsu Research Institute

After working for a department store, he entered Fujitsu as a consultant and joined Fujitsu Research Institute in 2008. He has mainly engaged in consulting with retailer customers in areas such as business process reform, digitization planning, and customer information analysis. In recent years, to cope with changes in the businesses environment, he has been working on new business planning and consulting from consumers' viewpoints.

* This article was published in Chisounomori 2016, volume 11 (pages 4-8). Chisounomori is an information magazine published by Fujitsu Research Institute (FRI).
* The author's title is as of Chisounomori's publication.

The Key to Cultivating Customers Is to Understand Current Customers

Businesses implement various marketing measures to increase the number of new customers and to develop deeper relationships with existing ones. Lately, an increasing number of companies have adopted customer participation marketing, in which a company runs a customer community or co-develops a product with customers. However, these efforts are not necessarily sufficient to increase the number of loyal customers (*). If a company actually undertakes efforts to cultivate customers in order to become their destination, it notices that something fundamental is missing.

What is missing is the viewpoint of understanding current customers--the people who patronize the company now. Understanding what type of customers patronize the company and what value attracts them is the starting point for increasing not only the number of loyal customers but also the number of new customers. You may think that companies learn about their customers through their daily operations, but the fact of the matter is that few can do so.

Let me give you an example.

Retail Company A, which operates chain stores across Japan, also runs an e-commerce (EC) website to offer customers convenience through omnichannel retailing. The company told us that a wide range of customers patronized their stores, but the main customers of the EC website were women in their 20s. We wondered why there was such a huge gap between the two customer bases. When we looked into their website visitors, we found that many were actually middle-aged and older men. Since the purchasers were mainly young women, Company A had created a website that appealed to that demographic. The middle-aged and older men thought that the website was targeting for a different customer type, and they often hesitate before purchasing anything from the website.

Company A's data alone did not reveal the differences in characteristics between visitors to the store/website who did not make a purchase and those who did. We used third-party data (**) to analyze these differences. If you do not correctly understand your customers, you may lose potential sales from website visitors.

How do you understand your customers?

The rule that "80% of your sales come from 20% of your customers" offers a hint. There may not be a way to be liked by all customers, but if you want to win the patronage of your current customers, you can find a way.

Previously, the only means to understand customers was by analyzing questionnaires, focus groups, and purchasing histories kept by a company (ID-POS (***)). However, as ICT advances and IoT is fast becoming a reality, a new approach to understanding customers has emerged. Analysis based on company-owned data (first-party data) is limited in scope. First-party data may provide demographic information (e.g., age and gender), but it may not reveal preferences unless the company is a department store. Today, a wealth of third-party data can facilitate better understanding. In particular, to start a company uses first-party data to classify customers by their purchasing tendencies. Next, by determining what type of information each classified group views on the Internet, the company can determine their interests. Some companies have store purchasing membership information among their first-party data. By combining such membership information with third-party data, they can develop a better understanding of customer preferences in addition to demographic information.

Enhance the Odds of Winning by Approaching New Customers

Once you understand the key customers you should cultivate, you can approach new customers. Figure 1 shows that extracting "look-alikes" (those who share similar demographic traits and preferences with your key customers) enhances your odds of winning new customers. By starting from first-party data, you can eliminate website visitors who are merely fond of the products (e.g., those who love to browse imported luxury cars on the Internet but who will not purchase one), thus achieving an effective approach that differs from conventional retargeting (an advertising method for targeting visitors to a company's website).

Figure 1: Approaching New Customers

There are two points you must keep in mind here. First, even if you find look-alikes for your key customers, unless you provide what they want, it is highly unlikely that repeatedly announcing your company and product names will make them into customers. Figure 2 shows consumer needs for a popular convection oven that are classified using FRI's Do-Cube(R) (a service for analyzing customer behavior from the customer's blog to provide insights). As you can see, customers have many different needs for the same product.

Figure 2: Different Customer Needs for a Convection Oven

Once you can group needs, you will know how to correctly identify look-alikes. By delivering the right content to the right people, you can push products and services that customers want.

Second, you should lead customers who become interested in your product on the Internet into actual stores. To convey the attractive qualities of your product to customers and compel them to make a purchase, you need the customers to actually feel the product in their own hands and to hear an explanation from a sales representative so that the customers convince themselves that they have chosen the correct product. To forge long-lasting relationships, customers must experience the product before purchase and try it for themselves to build up customer experience.

Products and customer service have long been thought to be inseparable. Today, in the age of PCs and smartphones, Internet-based promotional education (content marketing (****), which differs from advertising) has also become an integral element.

Cultivating a Greater Number of Loyal Customers

The average number of spectators per game is about the same for Japanese Professional Baseball (NPB) and Major League Baseball (MLB). However, their revenue growth rates differ significantly. Why? (Figure 3) For the past 10 years, instead of serving all customers equally, MLB has provided a superior experience to those who are willing to pay extra. For example, a customer who purchases a premium ticket, which costs several times more than a regular one, for several consecutive games receives an autographed ball.

Figure 3: Difference between NPB and MLB

Moreover, after a game, the customer receives an email from his or her favorite player such as the following: "Mr./Ms. XX, Thank you for coming to the game today. Your great support helped me hit a double and help the team win. I look forward to seeing you at the next game." Customers who have such an experience become more eager to cheer on the team and visit the stadium more often.

MLB has increased its earning power by providing loyal customers with premium services and increasing the amount of sales per customer. In other words, MLB makes efforts to be liked more by customers who feel its appeal. It obtains better business results by cultivating many loyal customers rather than increasing the number of regular ones.

Are Japanese businesses unable to cultivate customers? No, that is not the case. A wine shop in a department store in Japan recommends low-priced, easy-to-drink wine to beginners. Customers' knowledge of wine increases every time they visit the shop. This is how the shop educates and cultivates customers. Customers find value in the knowledge they obtain from reliable sales representatives. Eventually, they come to feel that expensive wine is worth more than its price.

When people find the value of a product to be greater than its price, they recognize its worth and purchase it. As you have seen, customers want to learn. Gaining knowledge satisfies an intellectual need and makes people want to learn more.

One feature of digital retailing is its ability to provide finely-tuned services tailored to different people or needs. Customers may not respond to cookie-cutter email newsletters. Worse, such an approach may even give recipients a bad impression of the company. Businesses should make efforts that take advantage of digital media's features rather than aim for mass appeal.

Create Relationships First to Become Customers' Destination

For any B2C business, it is essential to have a clear idea about what value it wants to provide to which customer segment. I often hear that in blue-chip companies, one criterion for product development or service implementation is "whether it quintessentially represents the company." It is difficult to describe "a company's quintessence" in words. Nevertheless, to become customers' destination, companies should understand the individual customers who are attracted to their quintessence and then create relationships. Today, technological advancements have made such an approach possible. There is no reason not to try it.

*: Loyal customer: A customer who continuously makes purchases because of a psychological factor that causes him or her to favor the product or company.

**: Third-party data: Data that can be purchased from a third party (not the company itself or its partners). A data provider obtains permission from users in advance and provides the collected data to other companies for marketing purposes. The data to be provided includes demographic information such as gender and age group, browsing histories of frequently visited websites, searched keywords, and so forth. First-party data refers to data owned by the company itself, while second-party data is data provided by users and business partners.

***: ID-POS: Point-of-sale data with IDs. While POS data shows "what" sold "when," "how many" and for "how much," ID-POS data also includes information on "who" (made the purchase).

****: Content marketing: A marketing strategy that keeps providing prospective and current customers with valuable content (information) to stimulate interest and deepen their understanding of the company's services or products for the purpose of winning a lead and patronage.