I need to start this post by swearing all readers to secrecy: My wife is a Dr. Jekyll and Mr. Hyde shopper. However, I ask you not to divulge that my wife has anything to do with this price-sensitivity article. With that out of the way, let’s talk about it: My wife recently shopped at Costco. Does that make her a price-sensitive shopper? Maybe, but we really need to know more before we can answer that question. She will not travel to Costco unless we need a large quantity of something, such as paper towels, napkins, or printer paper; or if she is planning to buy something specific, like a laptop or a printer. The first items she buys in bulk, because prices are lower in large quantities and we have plenty of room to store them. (As a side note, I also ask her to get a 4 lb. pack of bacon while she is there -- not because we need it -- but because if it is in the house I will eat it. And I like bacon). This bulk-buying process definitely indicates a level of price sensitivity, and she is willing to use our storage space in exchange for that lower price. But that is not the whole story. I believe this approach works as well for online as for in-store shopping...
Upon returning from her most recent trip to Costco, my wife showed me two bargains she picked up while there -- a cotton sweater for herself that was marked down to $15 and a cotton sweater for our son for $20. That was definitely the price-sensitive shopper in her. That is her Dr. Jekyll side. However, in the same trip she exhibited the complete opposite Mr. Hyde behavior by picking up some lobster tails for $20 per pound and a pound of chocolate-covered pomegranates for $10. Of course the lobster tails and chocolates were delicious, but we did not need them, and she could certainly have purchased less expensive seafood and candy.
Those are not my wife’s only Jekyll & Hyde moments. She will buy clothes at Macy’s at the end of a season when they are on sale (Dr. Jekyll), but she will also pay full price for other clothes at Nordstrom when they have what she is looking for (Mr. Hyde). She will stock up on items that are on sale at our local grocery store (Dr. Jekyll), but she will also pick up a meal at a smaller, higher-priced neighborhood store three blocks from home.
What’s a retailer to do with these multiple personalities?
In order to make more sales, every retailer should note these 5 key points:
1. Recognize that nearly every shopper can behave like both Dr. Jekyll and Mr. Hyde. So have something for both shoppers. Once Dr. Jekyll is in the door or online, sell something to Mr. Hyde.
2. Shoppers are not all the same, so don’t try to be all things to all shoppers. Some will be 80% Jekyll and 20% Hyde, but some will be the reverse. Identify your target group and have an assortment and pricing strategy to match.
3. Use your data to figure out who is who. You can track everything that customers in your rewards program do. For others, start to create profiles of them using address, phone number, or whatever data they give you. This analysis can help you fine tune your targeting from #2.
4. Do your homework to understand what is happening in the market. Pricing analytics can help you here. What are the ranges of prices that are occurring and under what circumstances? Think competitive pricing intelligence and always keep "correct" pricing in mind: If you are going to create a promotion to get Dr. Jekyll in the door and sell something to Mr. Hyde, make sure your promotional price is attractive, but don’t price too low to Mr. Hyde. By the same token, know what the limits are. My wife’s Mr. Hyde bought lobster at $20 per pound, but she would not have done that at $40 per pound.
5. Use well-aimed, rifle shots to hit your targets -- shotgun techniques are too broad. At the beginning of the school year, Bed Bath & Beyond was targeting students moving into dorms. To get Dr. Jekyll in the door, they offered a coupon for 20% off the largest item. They also recognized that kids were moving, sometimes a long way, so the store enabled students and parents to order whatever they needed in the nearest store to home and pick it up in the nearest store to campus. Bed Bath & Beyond recognized that the parents would value a service that made everything easier, and the Mr. Hyde's would be a little less sensitive in exchange for the service. This is also another example of using multiple channels for your sales and marketing.
Bottom Line For A Retailer's Bottom Line:
Always remember that you, the retailer, are in business to make money, but inconsistent behavior by your customers can make that difficult.
Use your data to figure out who is who. Identify your target group and have an assortment and pricing strategy to match. Once Dr. Jekyll is in the door, sell something to Mr. Hyde. Always keep "correct" pricing in mind. Make sure your promotional price is attractive, but don’t price too low to Mr. Hyde.
The most successful retailers, armed and prepared for the multiple personalities of shoppers will have happier, more loyal customers, and increased profits to match.
Follow Scott Francis at Strategic Pricing Solutions and on Twitter@StratPricing