Full-Price Customers: How to Get, Keep Them

The refrain from retail CMOs has been consistent and almost deafening. They say:

“We don’t just need more customers, but the right customers.”

“We need to grow margins.”

“We need to reduce our dependency on discounts.”

Even during this year of economic recovery, luxury brands in particular have been seeking to improve margins and sales by selling more full-price purchases — all while retail, at large, has been crushed.

But the high-end isn’t the only one that desires full-price sales. Remember not too long ago, JCPenney infamously tried to eliminate discounting and offer a fair, low price every day? We know how that worked out.

Starting shortly after the Great Recession in 2008, as both business and consumer spending dried up, marketers were forced to adopt traditional strategies for creating incremental revenue in a difficult environment. The range of tactics deployed was extensive; yet, pricing became more important and varied than ever before.

This phenomenon, you remember, was so widespread, that an entire category was born — “flash sale” websites like Totsy, Groupon, Gilt, Rue La La and Zulily. eCommerce juggernaut Amazon came out its their “Golden Box” and more recently, ushered in PrimeDay.

The Customer Is in Control

While price cadences, markdowns and closeouts are not new, something more fundamental began happening among consumers. It was the confluence of accelerating globalization, mass adoption of the Web and the deep scarring from the recession — that began driving up savings rates and reducing debt, which appears to have infused a new ethos among consumers and their perception of bargains.

Millennials today refer to saving money as a sort of “hack.” The Internet is filled with “life hacks” and more relevantly: “savings hacks.” Even if they are spending that savings on going out at night — that, too, has spawned what may be a generational interest in getting more for their money. It’s a badge among them to find the cleverest ways to pay less and get more.

While walking to a meeting, I realized I had not put collar stays in my shirt collar. I was going to stop at a retail store on the way, and instead of Googling where to buy them as I did (I’m a Gen Xer, and that’s what I would do) a Millennial did a different search, and we stopped at Starbucks. He came out with a wooden stirrer, and snapped off a piece to fit each side. Then he started on where I could buy custom dress shirts for 30 percent less than what I was likely paying. (He was right.)

This anecdote isn’t intended to communicate how clever this was. It’s intended to illustrate a new consumer behavior, born of the intersection of rising influences of “digital natives,” mobile tech, cloud computing, and the impossible rate of change that comes with it.

If you don’t sell to Millennials today, odds are you will be targeting them soon. Today, the oldest Millennials are entering the accessible- and luxury-buying brackets, and they will take their toll on them. I’ve already worked with clients who are offering products designed to entice new buyers of their brands into trial, they are not discounted products, but new products designed to appeal to the more price-conscious Millennial. These new offerings are changing the way brands market and sell.

Existing Full-Price Buyers

Our recent internal study looked at the impact of eliminating sale items for a brand that typically sells to more affluent customers. A few things happened almost immediately:

  • With sale items gone, on-site searches skyrocketed, as the price-conscious consumer hunted for the sale
  • The conversion rate plummeted for consumers who looked for and could not find a sale
  • Full-price purchases went up as a percentage of sales — yet revenue declined

The short-term effect was that revenue dropped materially at the outset. It was essentially the same behavior of discount buyers at other organizations that abruptly “eliminated” sale pricing. The longer-term impact is still unfolding, but surely not every customer is a full-price buyer, and some will never return — unless the sale returns.
Further analysis illustrates there are at least three types of buyers when it comes to price:

  • Full-Price Buyers (price inelastic)
  • Discount Buyers (price elastic)
  • Both (buyers who consume incentives and buy at full price)

Strategies for these different types of customers range from simple to exhaustive. In short, our goal is to understand the elasticity of demand associated with each customer and the goods she purchases. The best place to start is with a simple segmentation of each of the types of buyers based on their consumption of discount promotions.When we do so, we see that full-price-only buyers are, overwhelmingly, the best predictors of future sales at full price. Identifying the best selling SKUs is the next step, as these buyers are more likely to buy the similar category, trend or style. Most predictive methods focus on these targets.

Those who bought either way are perhaps the most challenging. Maximizing sales to this group requires systematic testing to identify a customer’s price elasticity with different product categories.

Lastly the discount-only buyer is a challenge. Many will readily trade brands — up, down or laterally. These buyers aren’t buying the brand so much as the “experience” of getting a bargain. Not surprisingly, those most experienced and habituated in holding out for big discounts become unlikely buyers at full price. Shifting the focus slightly to limited editions and leveraging scarcity in marketing messages and introducing new products may serve to improve performance; but on balance, these are not the best sources of revenue.

All of which brings us to the second, and potentially most important, part of a strategy to generate full-price sales; that being, acquiring full-price buyers.

Acquiring New Full-Price Buyers

Simply put, some buyers do not have the means, the will or the desire to shop at full price. The rise of taglines like “never pay full price again” by dominant retail chains is testament enough to this reality.

So it is essential that the marketer develop an acquisition program that doesn’t just add trial buyers to their database, but those who are most likely to spend more often, have higher AOVs and, of course, buy at full price.

These higher margin customers will become worth investing in a relationship now, and over time, and the the MVB (Most-Valuable Buyer) Law states that these are the customers who will drive up to 80 percent of the profits of a brand.

Acquiring these coveted full-price and most-valuable buyers is addressed in two columns I have developed called, “The Most Important CRM Metric You Might Be Missing” as well as “Bigger Is Better — How to Scale Up Customer Acquisition Smarter

A ‘Full-Price’ or ‘Margin Growth’ Strategy Must Be Holistic

Keep it simple. You have three segments of customers you need to find in order to execute a full-price or margin growth strategy — and two of them demand most of your focus. The full-price buyer needs to be excluded from any and all discounting, or price breaks. Instead, replace those touches with “appreciation touches” — thank them, lavish them with attention and show them that you value them. This ranges from super-luxury brands sending a Rolls Royce to pick them up, to a server in a fine dining chain acknowledging guests who are in the top loyalty decile accordingly, and surprising them with a dessert or cordial.

The buyers who buy both ways (full-price and discount) also need special consideration. Testing is a must, as the behavior will vary by brand, product and timing. Discounts can be methodically reduced using predictive algorithms. The concept is to reduce the number of discount purchases that could realistically be made at full price.
Lastly, the group of buyers who simply won’t or can’t pay full price for your product ultimately need to be replaced over time. Discount buyers can be migrated to an off-brand clearance product, elevating the premium brand. Consider Nordstrom Rack and its success in selling to discount seekers, while Nordstrom retains its premium branding and offers personal shoppers to its highest-value customers.

‘Damn the Torpedoes’ vs. ‘Ready, Aim, Fire’

Perhaps the biggest lesson we’ve seen is a data-driven and thoughtful strategy trumps a big decision, with a “damn the torpedoes, full-speed ahead” style … Remember when Admiral David Glasgow Farragut first cried the now famous expression? The “torpedoes” Farragut referenced are today commonly referred to as a minefield.

With planning, testing and measurement, you can minimize the negative effects of losing revenues to changing pricing strategies, and maximize the relationship with the customers you really want.