March 08, 2007

Virtual CEO: How Best To Increase Net Sales?

Let's assume that your e-commerce website enjoyed another year of rampant, unfettered growth. Kudos to you!

From a customer standpoint, do you know why your business grew last year?

There are dozens of scenarios where a business could enjoy a significant sales increase over the prior year. Let's explore four scenarios.

Example #1: The business achieves increases by increasing the number of new customers.

Example #2: The business achieves increases by increasing the rate with which last year's loyal customers repurchase this year.

Example #3: The business achieves increases by increasing prices. As a result, fewer customers purchase, but a smaller number of affluent customers spend more.

Example #4: The business achieves increases by getting customers to purchase more times per year, and by getting customers to purchase more items per purchase.


Ok, time for you to be Virtual CEO for the day. Which of the four examples would you want to happen in the business you are running?

To me, Example #1 helps fuel future growth, because there are more customers willing to purchase next year. Example #2 is very, very hard to accomplish, but again, fuels future growth by yielding more customers for subsequent years. Example #3 is risky. Short-term growth that comes at the expense of growing loyal customers is dangerous. Example #4 might be the hardest to accomplish.

5 comments:

  1. Two questions for you:

    1) What about an Example #5: Customers shifted their buying behavior from purchasing offline to purchasing online.

    2) Why do you pose your question as an either/or question? Why do I have to pick between the examples, and not choose some combination of them?

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  2. Hello Ron --- example number five happens all the time, I'll write about that one in the near future.

    You're absolutely allowed to pick combinations, in the real world, things are seldom as cut-and-dried as in this simplistic example.

    Ok folks, which example, or combination of examples, cause you to think that your business is most healthy?

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  3. Anonymous8:40 AM

    Kevin,
    Actually if you segment your business right, you go after all 4. For example, in number 3, have a separate "luxury line" that is for the more affluent. As your younger customers become more affluent themselves it would be a natural progression for them. Too many retailers allow themselves to be tagged as discount, midpriced, upscale, etc.
    As for growing customers and keeping existing ones returning, is natural state of business. Unless your business is Maytag and you have but one or two items someone purchases once every 10 years, then it's common sense to go after customers.
    I think what you are trying to say is with limited budget/resources, what do you go after? Again, perhaps more weight put on any one of the 4 areas, but obviously a smart CEO tries for all 4.
    K

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  4. I've yet to work for a company that can increase all four simultaneously.

    Great merchandise can drive all four issues.

    But from a strategic standpoint, you invest money in acquiring new customers.

    Or you invest money getting your loyal customers to come back.

    Or you invest money getting your loyal customers who chose to come back to buy more frequently.

    Separately, you can determine your item pricing strategy, and that strategy can impact Examples (1), (2) and (4).

    So, strategically, the leader has to pick one place to invest money. And as you can tell by the comments, when the rubber meets the road, making that choice is hard.

    I would always, ALWAYS, error on the side of having more customers.

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