Do you know your customer? (Part 2)

As we discussed a while ago in part 1 – it’s critical for all businesses to work out who their target customers are. It’s even more critical for retailers so they can work out what products these customers want in order for them to buy in the right stock.

We often see retailers failing to satisfy their customers by buying products that they like and not what their customers want. Or alternatively retailers failing the business because they don’t understand who the customer is and try to buy for everyone. This results in a poor, unfocused retail experience attracting customers that are just looking for a bargain.

Now, I want to take a look at a couple of retailers and discuss how successful they are at targeting their customers.

During my visit to Orlando earlier this year I spent some time talking to golf retailers to see how they did things. Just a few minutes up the road from the Orange County convention centre – home of the annual PGA merchandising show –  is one of the biggest golf shops in the world.

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45,000 sq feet of every bit of golf kit you could think of all rammed in to one huge store. With a bigger indoor putting green than most UK shops, 9 indoor teaching booths and thousands of clubs – it’s a very impressive site. You pity any other golf shop within a hundred miles – how could they possible compete? The answer lies with the target customer. I don’t believe the superstore has one. They think they can appeal to all customers. Their plan is to have every bit of kit under one roof and provide a destination that everyone will go to. I don’t think they have more choice than many other smaller stores. They just have more of each choice but finding it could be quite a task. Sometimes too much choice can be a problem. I actually found the store quite intimidating – where should you start? Speaking with one of the shop managers I discovered that this store wasn’t the biggest. They had one nearly twice the size with a full size tennis court inside. WOW.IMG_5654

Who is the target customer here? The scary thing for me was that even with all its size and product there was barely a handful of customers in it. How could this business succeed with all this stock – conservatively, a few million dollars worth. It will be interesting to see how these stores get on over time. The issue with this kind of approach is that it is basically unrepeatable unless you have bottomless pockets. The venue, the stock, the staff and the upkeep must be enormous. So what can we learn from this? Well I think the key thing is that unless you have bottomless pockets – which leaves out 99.9999% of all golf retailers – you need to find another way to compete. Remember the goal is to have a sustainable and profitable business and not the biggest shop in the world.

To get an alternative perspective I went looking for a different type of store. A visit to a local pro shop was in order. The one I chose was a popular green fee facility open to all and about 20 minutes down the road from the mega store. This was a very different outlet with a very different proposition. The shop was the same size as the average UK pro shop, with classic fittings and a limited range. How could this try and compete with the megastore?

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Answer – it wasn’t. The pro had identified that it couldn’t sell everything to everyone. They had a focus and they were targeting the tourists. Shirts, caps, balls, gloves and some accessories with the odd putter to remind customers it was a golf shop. Speaking to the pro there he said that tourists made up the bulk of the customers and they wanted logo shirts and distress products – balls, hats, gloves etc. There was little point in stocking anything else as it didn’t make money. They had a different proposition for the small number of members at the course: anything that you want we can order in at the best prices. They didn’t stock it so they only ordered it when they needed and made a small mark up on the product to cover the service, delivery and a bit of profit. Members were happy, visitors were happy and the shop made a good margin and a high stock turn – what’s not to like?

The key thing was that they had identified who their customer was and had a sustainable and profitable business as a result.

So how does this apply to the UK? Well for starters I am not suggesting that everyone should stop selling golf equipment and move to shirts. But what I am saying is that it’s critical to understand you target customer. If the focus of your business is to identify them and what they want, you can achieve great results.

As I go around pro shops in the UK I realise that this lack of focus on the target customer leads to poor product selection. This is the key issue for smaller retailers. Most pros are trying really hard to satisfy their customers but are often failing. They think that buying lots of everything will make their customers happy. However this isn’t always the case. Just because you buy lots doesn’t mean that you are buying what the customer wants.

Having lots of stock may provide choice but if it’s a selection of products that aren’t of interest to many of your customers, it’s no choice. Often customers have an idea of what they want and aren’t as influenced by the options in front of them as you might think.

Having too much of the wrong stock then leads to problems for the business. Stock that doesn’t move sits in the shop, taking up space gathering dust and using up valuable cash. If it’s left there for too long, customers get bored with seeing it and start to think that there isn’t much choice of products. This leaves the retailer at the start of a vicious circle. In order for the retailer to get in some stuff that sells – they buy more stock. Without understanding what their customers want they do the same thing all over again and the problem just gets bigger. Many retailers only address the problem when the overdraft grows too big or they just run out of cash and get to a point where they can’t buy any more.

So how do retailers avoid this? Well in my opinion the key is to be focused and work out who your target customer is. The target customer isn’t always the customer that you want to have but maybe that group of customers that you can identify provide you with 80% of your margin. This is likely to be a group that is about 20% of your customer base. Having identified who they are the real job is working out exactly what they want. How do you do this? Well the easiest way is to ask them! You can try face-to-face or if you feel comfortable, why not send out a questionnaire? If you tell them why you are doing it – to serve them better – they should be keen to help. During the process you want to understand what categories they want to buy, what brands they are interested in and when they might want to purchase. For some retailers this will be tricky as they deal with visitors that just fly in. So perhaps try a different way and incentivise your staff to collect some information or alternatively, study your EPOS data to see what the visitors tend to buy in your current mix. That may point the way.

If you follow this process you will have a better plan for what you need to stock and inevitably you will end up dropping some categories of product and will definitely have to drop some suppliers – that’s ok. It may also mean that you need to take on some suppliers or categories instead – that’s ok too. You are doing this to make money – you don’t have to be right about your current or past selection – but you do want to be right about your future selections. The net results should show in higher stock turns and higher margins.

Just one further thought on product selection. Don’t be fooled in to thinking that what your customers want is always the cheap stuff. Especially with all the clearance that is around at the moment. Products are usually on clearance from the brands because not enough people wanted them! Chances are its not what your target customer wants. If that’s the case then forget about them! It doesn’t matter how cheap you buy it for, if you can’t sell it then you will make a loss.

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