how much are your customers worth?

Most florists would agree that their customer database is their most valuable asset.  However, how does one determine its true worth?  Wouldn’t knowing the value of each customer enhance how you treat that customer at each of your touch points?  You can start to determine your customer database’s overall value by applying three key measures of customer value:

 Current Value

Current value is typically the profit generated from current customers.  Every florist needs to know: what each customer purchased, when they placed the order, whom did they send the product to and how did they pay.  Only after you have complied this data by customer can you begin to influence the profit from your customer database by matching pricing and level of service to the needs and value of individual customers.  Current value is an ideal example of actual customer value.

 Future Value

Future value is also known as potential customer value.  Future value estimates the profit (sales from your customers) that can be captured in future periods from the same set of customers --- of course discounted to reflect time value of money discounted to reflect the time-value of money.  (Your costs go up and the purchasing value of money may go up or down depending on the economy.)  By more deeply understanding customer needs, companies can increase future value by increasing customer share for those needs you are currently serving and also expanding the set of needs addressed.

 Defection

Once current and future value has been determined, they can be represented as a series of discounted cash flows.  Not even the best companies retain 100% of their customer base.  So the defection rate is important in establishing your customer focused business strategy.  It is also important in establishing long term cash flows that allow you to understand what is happening in your business even before any sales transaction occurs.

 Having defined these measures you can segment your customers in tiers.  This allows you to begin practicing the very basis of customer –focused strategy – treating different customers differently.  Ranking your customers by value will entail some data mining and qualitative measurements.  Most companies disguise overall customer value with measures of pure customer revenue.  In the business-to-business industry, sales reps can readily list their “top 100 accounts”, but that ranking is almost purely based on revenue or sales.  In the business-to-consumers industry, “top” customers often are viewed in a similar light, or even based on the number of transactions.  How many times have we heard “she’s one of my best customers.  She buys flowers every week.”   But without a complete understanding of all customer-value measures, this approach can lead to missed opportunities and costly customer initiatives.

 It’s important to consider, first, what other measures of actual value can be accounted for besides revenue.  Understanding costs, customer referrals or how influential a customer might be can provide important insights into your customer’s actual value to your business.

 Potential value includes unrealized customer value, or the share that is currently taken by your competitors.  These two measures --- actual and potential can be used independently or together to aid in the development of customer focused strategies.  Marrying the two results in the value-tier designations, where every customer is ranked relative to other customers to determine who the best customers are. 

 Once a customer’s overall strategic value (the sum of actual and potential value) is defined at the customer level, florists can then identify their Most Valuable Customers, Most Growable Customers and even unprofitable customers.

 How will I acquire this data?

If your shop is like most shops, it does not have a central repository of all the data needed to even begin this process.  But many florists are beginning this process at rapid rates.  It is one of the most important ways to combat the market forces (partners selling direct, Order Gatherers, Farm direct entities) and to improve and grow your customer share and customer retention rate. 

 To create a profile of your “ideal” customer --the one that will make you profitable and will benefit from your products and services --- make a list of their demographics, behaviour and preferences.  The list of variables can serve as a shortcut for building a customer database and will help capture, prioritize and clean the data you will use in your analysis.

 Perhaps you conclude that “influential” customers who have purchased something from you within the past year valuable.  The goal would be capture and evaluate both these measures at the customer level.  Revenue is a discrete measure that can mostly likely be captured from an existing database: influence can be proxied based on elements like the customer’s market share.  You can now proceed to your analysis.

 Scoring your customers?

Suppose a very influential customer does not purchase a lot form you, but in directly accounts for a number of references.  Her revenue measure might be a 2 out of 5, but her influence proxy measure might be 5 out of 5.  Add the two totals and her total score would be 7.  A customer with a 5 revenue measure but a 0 influence measure scores 5.  Thus, if you looked at just revenue, the customer with lowest revenue would be lost even though they are more valuable to your company.

 This is a simple approach is called proxy-based evaluations.  The financial and lifetime value (LYV) approaches are better but require you having a database for data mining.  It is the first step when florists begin customer initiatives based on certain valued customers rather than blindly treating everyone the same way.

'why customers buy' is more important than 'what they buy'

 Knowing why your customer buys (needs segmentation) can do more to help increase your sales than knowing what your customer buys (behaviour segmentation).  The motivation to purchase may be distinct for different customers who are buying the same product.

 Fore example, consider that three customers purchased the same “Premium Red Rose Vase Arrangement” for Valentine’s Day.  . Let’s call them Bob, Larry and Frank.  All three men purchased the same arrangement, but each of them made the purchase for different reasons.  Bob loves flowers and delights in giving floral gifts when he can.  Larry rarely buys floral gifts but he knows his wife likes flowers and he needed something for Valentine’s Day last minute.  Frank likes to appear “in-the-know”, especially to impress his wife and her co-workers.  Consequently, he is willing to purchase almost any arrangement that the sales person recommends as a “high-end” and “exclusive” arrangement.

 These are three purchase of the same product – all motivated by different needs.  If you understand the different needs of Bob, Larry and Frank, you can use this insight to develop different communications that would be relevant and motivate each one to make a purchase.

 Understanding customer needs

To begin understanding and recognizing customer differences, florists must understand how their customers can be grouped by similar needs.  Simply put, what are the motivating factors that a group of customers have in common.  This commonality allows customers to be put in groups – or portfolios – to be examines and managed by the florist shop. These portfolio’s become the basis for a florist to make effective decisions and customize the handling and treatment of their customers.  Without this step, all customers are treated the same, as if they are motivated by the same universal need.

 Through your database segmentation (and analysis) you can uncover the common needs your customer groups.  You will be able to reveal your customers individual needs that drive towards greater profit in your business.  Once individual needs are known, then business processes determine the appropriate treatment, and subsequently each customer is treated according to his/her needs.  The increased profitability is derived from increased sales and efficiency.

 Ultimately your business will increase its profitability and enhance the experience it provides to your customers by ensuring that the treatment customers receive across different touchpoints matches their individual needs.  For example, if certain customers prefer email-based communications, there is no need to waste money sending expensive direct mail brochures.  And the experience is enhanced since the communication becomes more relevant to them as individuals.  Not only are the messages in the communications focused on their primary areas of interest and concern, but they are communicated in a way that best addresses their needs and preferences.

Don’t just follow the demographic path

Demographic information often correlates with customers’ needs and is an effective tool to begin a review of your customer needs but it is not the end goal.  Consider the example of I&F Florist, a florist in Canada.  The florist had been sending out mass brochures provided by various marketing arms in our industry, typically generating a response rate of 3.5 percent.  Then the florist implemented some database management methods to send more targeted, less costly mailing to customers who fit the demographic profiles.  I&F Florist now generates a response rate of 7.2 percent, a significant improvement achieved at a lower cost.

 However, demographic information cannot be used only to determine customer needs.  Consider the ground breaking marketing article published in the early 1970’s that’s asked: “Are Grace Slick and Tricia Nixon Cox the same person?”  Grace Slick was the lead singer of the band Jefferson Airplane and Tricia Nixon Cox, the preppy daughter of Former US President Richard Nixon who married President Dwight Eisenhower’s grandson, were demographically indistinguishable,  They were both urban, working women, graduated from College, age 25 to 35, at similar income levels, household of three, including one child.  Demographics could not explain the distinct non-demographic difference between Grace and Tricia.

 Demographic information should be viewed as a building block and not as the end of the information required to understand customer needs. It is important to remember that needs are defined by demographics, although similar demographic profiles may have some needs in common.  But this is not always the case, and there are many situations in which needs extend beyond traditional demographics boundaries.

 The key is to combine the two – distinguish your customers based on needs and overlay this information with the relevant demographic information you have.  This powerful combination is the key to understanding why your customers buy your products and services.  Once you have that knowledge, you are on the path to unlocking higher sales and improving customer value and profitability.

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NO drop, no shop: rising fuel prices rein in spending

About two-thirds, or 63 percent, of consumers are cutting spending due to rising gas prices, up 18 percentage points from a year ago, according to a new report by market research company Nielsen Co.

According to the study of nearly 50,000 consumers conducted during the first week of June, 78 percent of them are combining shopping trips and nearly one-third (32 percent) are clipping more coupons — that's up from 25 percent in December 2007.

"Consumers are altering their driving and spending habits at dramatic levels," says Todd Hale, the company's senior vice president of Consumer & Shopper Insights, adding that "even affluent consumers are looking for ways to make their dollars go further."

And they'll be on the bargain hunt for a while, according to a study released in February by Yankelovich, Inc., on purchasing behavior. The study found that 58 percent of consumers report cuts ranging from a little to a lot, and a much larger percentage are planning further reductions over the coming year. The Dollars & Consumer Sense report revealed that 14 percent of American consumers felt "severe anxiety" about their personal economic and financial situations.

"We are getting squeezed on both ends," florist Gary Barnett told the Kansas City Star in an article about how small businesses are adapting. Barnett, who co-owns The Flower Man in Olathe, Kan., said he's recently changed delivery vehicles to control fuel costs and expanded store hours.

Not all florists are feeling the pressure of bargain-basement shoppers. In an e-mail survey of 318 SAF members, about 37 percent said the average price per order had gone up compared to this same time last year; 36 percent said prices are about the same, while 21 percent reported price points were "down a bit."  

Help cost-conscious customers by promoting your in-store specials, offering coupons and frequent-buyer programs. Put your design ingenuity to use for corporate customers by showing them how you can help them stretch that event budget. Let brides know which varieties lend themselves to lower price points, like carnations, without sacrificing the "wow" effect. (Get some carnation inspiration in Floral Management's August issue, in your mailboxes soon.)

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