You're hot and you're cold ...

Feb. 28, 2012 | by Jeff Weidauer

American retailers have been accused of being obsessively consumed with acquiring new customers, but negligent when it comes to retaining existing customers. It's easy to see where this accusation comes from, and it's a hard one to argue with.

Retail marketers spend hundreds of millions of dollars trying to get new customers; we're like the insurance company commercials that all promise to save you $400 with only 15 minutes online. But once we have that new customer, we do our very best to ignore them, and even drive them away.

A case in point: Research from last year shows that 80 percent of retail loyalty card holders have no idea what the benefits are for carrying that card (other than the "card prices" they get). Few have received any sort of offer based on that membership, and of those who did, nearly half received an offer that was irrelevant or even insulting in its lack of value.

Here's more fuel for that fire: the out of stock percentage for U.S. food retailers is, and has been, about eight percent for years. Decades even. Astonishingly, all the technology that we've brought to bear in the retail environment has had no impact on the level of out of stocks. Even worse, that eight percent equates to about four percent of lost sales per year for a typical store.

The problem is this: when an item is out of stock, the shopper has to make a decision to either substitute, go elsewhere, or just not buy the item. About half the time they substitute, and about half the time they go somewhere else or just don't buy it. When the shopper substitutes, it's generally with a lower-priced item (the sub is an unknown, so she's mitigating her risk).

When she buys elsewhere, she cuts her trip short, and the retailer typically loses about half of the potential transaction. For example, I want spaghetti sauce, but the store is out of what I want. I have to go elsewhere (I don't want to substitute in this case), so I forgo the meat, bread, spaghetti and wine I would have purchased and wait to get it all at once—at another store.

If that happens enough times, the shopper stops coming back. On average, stores lose about 25 shoppers each month due to out of stocks. The scary part is that 75 percent of out of stock problems are caused at the store. Warehouse shortages are only the culprit a quarter of the time. Why can't we fix this?

Well ...we can, but that's another story. The point here is that retailers spend $10 million or more annually running loyalty programs that do nothing to drive loyalty, while we all ignore the out of stock elephant in the room that would save some of those lost customers.

It's time to stop playing "hot and cold" with our customers and get serious about fixing the out of stock problem.

Topics: Consumer Behavior , Loyalty Programs , Merchandising

Jeff Weidauer / Jeff Weidauer is vice president of marketing and strategy for Vestcom, a provider of integrated shopper marketing solutions. With over 30 years of retail experience, Jeff is a prominent speaker, writer and expert source to retailers, brands and media on shopper marketing and the evolving retail industry.
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