In simple terms, retail success is dependant on the retailer's ability to separate the consumer from his money for the products and services the retailer is selling. If a retailer is to be successful he/she must meet critical mass in order to provide sales and profits sufficient to ensure ongoing growth of the business. Critical mass is the number of customers required on a continuing basis, allowing for buying cycles, to support sales and business goals.

Key elements that effect 'critical mass' are:
Size of customer base
Mortality rate, and;
Acquisition rate

The elements that will effect a retailer meeting his/her goals are:
critical mass variation
number of visits per customer
dollars spent for customer per visit

In an ideal world a retailer would have a large base of loyal customers that shops once a week, spending maximum dollars each visit and the base grows each day. All this without having to invest in advertising and marketing. In the real world, obtaining and retaining clients is a combination of art, science and gut feel.

Retail is a war, the spoils of which are customers and profits. However, the battle field is loaded with obstacles:
competitive retailers
pricing
marketing and advertising challenges
consumer preferences

All retailers realize that their customer base is not consistent, and the 'level' or 'quality' of each customer is different, depending on the amount of 'spend' in their store. As in all business, a typical retailer will realize around 80% of their sales from 20% of the customer base. (This varies from retailer to retailer, store to store). We will also find that within the best '20%', a precious few will be providing lion's share of sales and profits.

This 'precious few' are the customers at the high end of the customer pyramid, at the other end are the large 80% of the customer base that produce much less sales, albeit they have large potential.

The marketing pyramid below indicated the relationship of the 'universe', the 'customer base' and sales. The yellow base area is our universe for potential customers. The blue area is our 80% that is producing 20% of sales and the read peak is the 20% of our customer base that is producing 80% of the sales. The purple triangle indicates the inverse relationship of sales to the size of the customer groups.





A retailer is dependent on all three of these groups. Customers by nature are fickle characters (to be discussed later) due to the fact that each are driven to shop a retailer for different reasons. Due to 'customer' attitudes and 'market conditions' (to be discussed later) customers are continually moving from one cluster to another. Customers in our 80% (middle) cluster can very easily move up to cluster one or down to cluster three, the universe, depending on his attitude, competition, pricing, in-store service, etc.






It's as if the top two groups are leaky buckets sitting over a universal sea of consumers. In order for the buckets to be full, they need constant filling.

Re-examining the customer pyramid the huge base is the 'universal sea' of consumers. These are potential customers that may or may not have shopped at your store. These are they many thousands of consumers we wish would shop and against which a retailer spends larger amounts of money advertising in broad reach media like newspaper ROP, radio, television etc.

Group two, orange area, are consumers with whom a retailer has had some sales success. This is a group that, at some point recently, has been a customer at some level. They have been touched by the shopping experience of the retailer. Good, bad or indifferent.

Group three, red area, are the customers who have shopped the retailer, enjoyed the experience and decided to be a continual repeat customer.

To make it simple the groups can be identified, from the top down, as:
Good customers
Potential good customers
Potential customers

The funny thing about retail marketing is that in general, a retailer gets most of his sales from the top group and spends most of his advertising dollars and efforts on the bottom group. How smart is that?

Typically the above groups combined, can be defined further into more specific groups:



As you can see, there are certain groups that have a high return and some have longevity. Together, those items create a customer value and each customer will have a 'Lifetime Value' (LTV), depending on the length of time he/she remains a customer and where he/she fits in the customer hierarchy. i.e. How much they spend (ROI) money

But 'Customer Value' is linked to 'Return-On-Investment' the time and money invested in the customer acquisition and retention. The longer a customer remains loyal to a retailer, the higher the ROI and lower the relative costs.


You can see, in the above chart, they all have distinct 'zones':
Conquest or Acquisition (prospecting)
Retention (maximizing present customers)
Marketing Introduction and Lifetime Value

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