Recent Articles From My Weekly Column, “Front Lines with Larry Galler”

Published in the Business Section of The Northwest Indiana Times every Sunday since November 2001

Front Lines 406  September 4, 2009

Recession over?

Depending upon what you read and who you listen to, the economic recession is over or close to over or on the upswing. I am certainly no economic guru so I'll stay out of the debate but my observations and the businesspeople I talk to regularly tell me that the landscape is far different today from what it was a year ago. Many people have told me that they have had to change quickly to meet the needs of their marketplace and, in many instances, it has worked.

These days many businesses are reporting lower customer counts, lower average sales, or both. So the challenge is to discover ways of attracting more people by offering more of what they want. After typing that last sentence, I realized that is always the challenge – in good times and bad, but today it is even more critical. Doing the same old thing just doesn't cut it.

Some are offering less expensive products and services. A wine merchant has adjusted the inventory mix with a greater selection of lower priced wines with less space devoted to high priced bottles on the shelves. Seems the vintage wines are gathering dust while having greater variety and deeper inventory of lower priced bottles is actually increasing sales.

A custom jeweler known for beautiful gold and platinum designs has introduced silver into her creations, lowering the price points yet keeping customers who desire her level of design creativity and craftsmanship.

A restaurant offers customers a choice of lower priced “for the not-so-hungry” portions at a reduced price rather than encouraging larger portions that end up in “doggie bags” as they previously had. These lower-cost options keep customers coming instead of staying away.

A distributor has lowered the minimum order requirement and is offering free freight on larger orders. They are finding that many customers who start with small minimum orders are increasing their purchases to take advantage of the freight promotion.

Whether the recession is over or not, don't wait. Change to become more attractive now!

Front Lines 407- September 13, 2009

Are loyal customers profitable customers?

A few months ago I took a new view of Customer Loyalty when I was working on a project to look at data that showed how profitable each customer was to a company. I was amazed to discover that the most loyal customers were not the most profitable. This flies in the face of one of my core beliefs that states loyal customers are the most profitable. What was this new data telling me?

In looking more deeply at the data I discovered that a large percentage of seemingly “loyal” customers were really bargain hunters. Whenever the company ran a low price promotion on a popular product these people bought heavily and loaded up. But, for the most part, that's all they bought. This pattern repeated itself many times in the past few years. We found that many of these bargain basement “loyal” customers were barely profitable and that it was necessary to change the manner in which we view customer loyalty and we needed to create a new strategy to turn these bargain hunters into profitable customers.

We changed the way the database segments customers. Previously the database put all frequent customers into one group. Now it ranks them based upon profitability and puts them into two groups: bargain loyalists and profitable loyalists. We also changed the promotions from a “buy any quantity of these heavily discounted (and thereby unprofitable) products” to “if you buy something at full price you can then buy a limited quantity of a heavily discounted item.

In the limited amount of time since these changes were instituted, it looks like the bargain loyalists are, in fact, becoming more profitable and so are the profitable loyalists. It looks like the change in tactics is working. But the real lesson is to look as carefully as possible at the data to try and see what it is telling us. Don't look only at the obvious assumptions (“loyal customers are the most profitable”), look deeper (“are our loyal customers profitable?”). Look behind and beneath the obvious and you might find critical information lurking there.

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