Gary Faitler, Pitney Bowes Business Insight
In the arena of retail site selection research, we have been a vigorous proponent of the need for customer profiling via segmentation. Our approach has emphasized the bucketing of customers into distinct segments, reflective of differing levels of customer engagement and spend. This segmentation, based on variable demographic, behavioral and psychographic characteristics, ferrets out your most productive customers (i.e. the 10% that generate 40% of sales) and equally important, identifies your least productive. Understanding who these customers are, and where they are concentrated geographically is one of the pillars supporting an effective retail business, as it contributes to critical decisions ranging from store site location (or retrenchment) to the prioritization of investment in marketing dollars.
Pitney Bowes Business Insight has also pioneered the concept of “effective population” in which the segmentation profile becomes the means of adjusting actual population to create a foundational construct, influenced by shopping behavior. This allows us, in one quantitative statistic, to wed the variables of mass and profile. The approach has been extremely useful in rationalizing distance decay patterns across divergent segments.
We have noted recently, however, that a number of our clients are pursuing a “silver bullet” in their approach to customer profiling. We suspect that, as a result of the difficult times confronting retail generally, decision makers have turned to new market research professionals, hoping to ensure the best approach for optimizing sales in a climate of “down” markets. For some of our clients, these professionals, who tend not to think spatially, may, at times, be fostering an inflated view of customer profile – possibly to the exclusion of other real estate fundamentals. As noted above, we view segmentation as one of the pillars supporting effective retail execution and site selection, but others are equally critical.
As champions of the concept of segmentation and customer profiling, we must also emphasize its appropriate use. The importance of customer profiling is variable based on the level of differentiation of the customer. For example, a high-end purveyor of fitness and athletic equipment would represent an extremely segmented profile, while a ubiquitous quick service restaurant would represent an equally extreme non-segmented profile. Both concepts, in the end, would be highly dependant on what we call the fundamentals of sound real estate site selection: convenience to critical population mass, retail synergy and visibility/market exposure. However, for the highly segmented concept, any application would additionally be extremely sensitized to store positioning vis-à-vis the most in-profile customer base.
For some of our retail and restaurant clients that have mass appeal (i.e. minimal differentiation within the customer base), we have recently observed exaggerated expectations from the customer profile. They appear fixated on deriving some insight into their customer base that will drive a deeper penetration than realized to date. As much as we’d like to glean from their customer data some new profile-driven formula for uncovering optimal store placement, in these instances, it is primarily the real estate fundamentals, on which we have traditionally focused, that remain the best predictors of sales potential.
It may be helpful for marketers to think of the brick and mortar unit as a “touch point” itself, with physical convenience and outstanding execution the unique features driving customer response.
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