Sure, you want more loyal customers. But are you building the right kind of loyalty?
Just ask grocer Green Hills Farms (GHF) of Syracuse, New York. This family-owned store of 22,000 square feet has a heritage of more than 75 years of outperforming the competition and earning weekly sales of $16 per square foot. The industry average is roughly $8-10.
The company categorizes its customers into four buyer groups: Diamond, at the top of the spending scale, followed in descending order by Ruby, Pearl and Opal. Roughly 300 customers qualify as Diamonds, regularly spending $100 or more weekly. About 1,000 customers are Rubies, spending $50-99 on average each week.
Although some customers consistently shop the store every two months or so, some top spenders visit three to five times a week.
When the store first started categorizing customers, management was convinced that lots of customers could be graduated to a higher level, but experience proved otherwise. The gap proved too wide, and trying to get lower-spending households—many of them price shoppers—to spend more was ultimately self-defeating.
So the company works hard to make sure that the big spenders get lavish attention. For example, it hosted a black-tie party in the store to get better acquainted with more Diamonds and Rubies. More than 200 customers attended.
GHF does ongoing tracking of whether best customers are truly getting their fair share of discounts. If they are not, the grocer simply devises a new promotion to make sure they do.
Conventional wisdom teaches us that customer acquisition is typically far more costly than customer retention, and, therefore, we must strive to make customers loyal. But not all customers are actually beneficial to the business.
Jill Griffin (firstname.lastname@example.org) is president of Griffin Group (www.loyaltysolutions.com), a loyalty research, seminar, and consulting firm founded in 1988. She is author of Customer Loyalty: How to Earn It, How to Keep It and co-author of Customer Winback: How to Recapture Lost Customers and Keep Them Loyal.