June 03, 2019

Chasing Customers Further Into The Death Spiral

In retail, the "services" channel is viewed as a secret weapon. Buy online, pickup in store ... buy in store and ship to store ... buy in a store and ship home ... visit a store with no merchandise ... curbside pickup ... these concepts are viewed as "solutions".

They are solutions.

They are not solutions to the death spiral.

Getting a customer to buy online and pickup in a store is hard ... you are asking the customer to execute multiple steps ... in other words, you are creating a "friction-filled" experience.

The more friction you add to a transaction, the more you push existing customers toward that style of transaction. In other words, you are trying to squeeze more money out of existing customers. Squeezing more money out of existing customers traps you deeper in the death spiral, because you don't solve the biggest problem ... that being "how are we going to find new customers??"

If you don't believe me (and you work in retail), divide your business into three channels.
  • Pure E-Commerce.
  • Pure In-Store Purchases.
  • Service-Related Purchases (like Buy Online, Pickup In A Store).
Once you have the three channels, compare the following.
  1. New customer counts by channel.
  2. Source of existing customers by channel ... in other words, are your Service-Related buyers prior in-store buyers??
  3. Future value based on last year's channel preference (i.e. does the Service-Related customer spend more in-store next year after a Service-Related purchase, after controlling for historical spend - and spend more everywhere??).
  4. Future channel preference - does the Service-Related purchaser ever go back into the store and buy at the same rates as prior years?
If you take a customer who would have bought 3x a year in a store and turn the customer into a customer buying 2x a year via Service-Related purchases, you've just accelerated the death spiral. 

If you take a customer who used to buy in a store and turn the customer into a Service-Related customer, you are in the process of turning your store into a distribution center ... and you have a lot of long-term thinking to do to evaluate the long-term consequences of your decision.

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