INCREASING THE AMOUNT BOUGHT PER PURCHASE IS 3.5 TIMES MORE IMPORTANT THAN THE NUMBER OF TIMES A CUSTOMER PURCHASES
As stated before, increasing your number of customers is the MOST IMPORTANT strategic area for growth. However, that alone will not ensure success. In addition to bringing in new customers, you must be sure to keep current ones. You must ALSO build and maintain loyalty. Obviously, the most effective way to generate loyalty is to offer a GREAT SERVICE OR PRODUCT.
Annual purchase volume is made up of the amount of times customers buy and the amount they buy at each purchase. In the marketplace both strategies are pursued with brands offering frequent-buyer clubs as well as supersizes. But from a marketing strategy standpoint, it’s most important to increase the amount bought per purchase.
Statistical modeling of household purchasing data from more than 9,000 consumer products found that volume per purchase is 3.5 times more important than frequency of purchase in explaining the total amount that a customer purchases each year.
Conceptually this makes sense. Competition is not static. Your competitors are perpetually making offers to entice your most loyal customers to experience what they have to offer.
Think of customer loyalty as a giant roulette wheel. With more loyal customers, you have a larger proportion of the wheel dedicated to your brand. When customers make purchase decisions, they spin the wheel. With each spin of the wheel, there is a defined opportunity to win or lose your customer’s next purchase. When a customer purchases twice as much as normal, you receive 100 percent of both the current purchase and the next purchase.
PRACTICAL IDEAS
Design Tangible Incentives for Volume Purchasing: When customers are prepared to purchase, give them overt incentives to purchase more. Don’t harass buyers. Rather, delight them with a tangible opportunity to make a larger investment in your brand through a discount on larger-volume purchases.
Repackage—Supersize!: Repackage your product or service into larger sizes. If you market services, offer long-term contracts. If you sell products, create supersized versions. Increasing product package size increases both customer value and your profitability, as it rarely causes a proportional increase in your costs. The same is true for services.
Use Customer Service to Rewrite Purchase Orders: Use customer-service visits, calls, e-mail, or direct mail to upsell. Give customers a special opportunity to “rewrite the purchase order” and extend their product or service usage. This has multiple benefits to you: 1.) It provides you with direct customer feedback on quality; 2.) it enhances customer perception of your commitment to them; and 3.) it offers the opportunity to expand the customer’s initial purchase.
Design Complete Solutions: Think hard about what else a customer needs to purchase in order to more fully experience and enjoy your product or service. Challenge yourself to create a complete-solution package so customers don’t have to make a separate purchase.
Bundle Your Company’s Brands: Bundle a collection of your company’s products and/or services to increase your share of the customer spending. This is a way to realize genuine synergy from owning multiple brands.
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SCIENTIFIC
ADVICE
THE SIMPLEST WAY FOR YOU TO GROW TOP-LINE SALES IS TO CUT YOUR NUMBER OF VARIATIONS
The easiest way to increase sales and profits may be to discontinue 50 percent of your variations. Classic thinking is that offering a multitude of product and service options will help you increase sales because you’ll reach a broader range of customers. (As mentioned earlier, variations and extensions are not the same. This strategy applies to variations of the same concept—extra service plans, flavors, or sizes. Concept Extensions grow the brand in a different product class or category.)
Three separate studies indicate that reducing the number of variations you offer can have a dramatic positive impact on sales. It appears that more variations result in more customer uncertainty and consequential delay of decision making and purchasing.
Study 1: Retail stores eliminated 10 percent of the least popular items in eight categories from their shelves. This alone resulted in a 4 percent increase in category sales.
Study 2: The bottom 54 percent of products were discontinued across forty-two categories of an Internet-based retailer. This resulted in an average 11 percent increase in sales.
Study 3: Consumers were offered samples of twenty-four or six flavors of jam to taste and purchase. When twenty-four flavors of jam were offered, 2 percent of customers purchased. When six flavors of jam were offered, 12 percent of customers purchased.
Basic production economics tells us that low-selling variations are often a drain on profitability. Yet often we fall into the temptation of offering something for everyone.
PRACTICAL IDEAS
Get the Real Numbers: Assess your business situation with mathematical honesty. What are the real sales and real net profit of each and every product variation you offer? Look at the long-term trends and identify those offerings in long-term decline. Examine the bottom 50 percent of your offerings. If you were to eliminate them, what percentage of the volume would shift to other offerings? What cost savings could you realize? Tom Monaghan, founder of Domino’s Pizza, simplified his menu by limiting the number of sizes and toppings—and enabled consistent thirty-minute delivery by doing so.
Evaluate for Meaningful Differences: Review your brand’s offerings and classify them according to their Meaningful benefit difference to customers. Challenge yourself to document the tangible differences between products. Review your marketing materials for the clarity of your differences. Ask your customers for their understanding of the differences. Having made your evaluations, make courageous cuts in the variations and permutations you offer. Items that offer the same basic benefits are excellent candidates for elimination.
Focus on an Area Where You Can Be Excellent: Leslie Wexner was running a moderately successful women’s clothing store. After noticing that sportswear was his biggest seller, he opened THE LIMITED (so named because he had a limited selection of sportswear only). As Wexner explained, “[Sportswear] was our most profitable line, and my feeling was that if you made money in chocolate ice cream, why sell other flavors?”
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SCIENTIFIC
ADVICE
WHEN YOU PURSUE INNOVATIONS THAT CREATE NEW MARKETS YOU REALIZE 9.6 TIMES MORE PROFITS THAN WHEN YOU TRY TO “PLAY IT SAFE” WITH INCRMENTAL INNOVATIONS
Success in sales and marketing is a relative concept. It’s relative to how much you’ve sold versus a predetermined objective. Most managers have an intense personal interest in results relative to the objective because that’s usually the basis for personal commissions and bonuses.
Sadly, sales usually fall short of forecasts. A study of fifty-three new products found that the average sales forecasting error was 65 percent and that the median error (middle value) of sales forecasts was a 26 percent shortfall. In effect, if you miss your objective by less than 26 percent, you’re doing better than half of the researched companies.
A study involving 103 computer software firms was conducted to determine what traits influenced companies’ sales forecasting accuracy. The companies with more reliable forecasts conducted more customer interviews before creating their forecasts. The data clearly showed that conducting interviews with a few potential buyers produced better forecasts (a 91 percent confidence level), and interviews with fifty or more potential buyers produced even greater improvement (97 percent confidence level).
Many factors classically assumed to impact forecast