Are couponers eating your profits?
One of the things I love about my job is that it encourages me to find the
answers to the many questions raised by our members while working with them to
develop their marketing plans.
One question that always
seems to pop up with novice members is, “Are there shoppers who habitually only buy the items featured in their marketing
coupons?” In theory, are these customers playing the system by short-circuiting the
loss-leader concept?
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Additionally, they ask, “If there were a lot of such shoppers out there, could their actions have a
measurable impact on a store’s bottom line?”
A recent study found that these “extreme cherry pickers” — shoppers who buy only sale items and nothing else — do not harm retailer profits.
The study was conducted by Bebabrata Talukdar, associate professor of marketing
at the University of Buffalo School of Management, K. Sudhir, professor of
marketing at the Yale School of Management, and Dinesh K. Gauri, assistant
professor of marketing at Syracuse University’s Whitman School of Business, and published in the Journal of Marketing
Research.
The researchers looked at several variations of cherry picking to determine the
impact on retailers’ profits and consumer savings. Some cherry-picking shoppers buy sale items at
only one store over a period of time, while others visit different stores
within an area, solely to buy sale items.
So is all that effort worth it for the consumer?
Apparently yes. The professors determined that cherry-pickers saved more money
than shoppers who hadn’t actively searched for promotions (My guess is that this study was done without
considering the current price of gasoline, not to mention the value of even a
minimum-wage-worker’s time!).
The extreme cherry-pickers averaged 76 percent of potential savings, while
store-loyal cherry-pickers averaged 68 percent of potential savings in the
marketplace. Cross-store cherry-pickers, over time, obtained 66 percent of
potential savings.
The bottom line is: the researchers found that extreme cherry-pickers barely
affected profits.
“Retailers’ fear of extreme cherry-pickers is overblown,” said Professor Talukdar in the article. “Extreme cherry-pickers make up only 1.2 percent of retail store customers and
they only reduce profits less than 1 percent.”
I, and most long-time Golomb Group members, knew this from practical experience.
It’s the fear of first-time marketers that everyone who comes into their store
during the promotional period will receive a hefty discount and the drycleaner
will be doing volumes of work at no profit!
Yet so many drycleaners have a fear of giving something away, of becoming a “coupon cleaners,” of reducing their price, even by a small amount, even for a short time, that
they never experience the mega-growth their businesses are capable of.
Eventually, aggressive competitors come into the market, either with routes or
drop stores, and begin to slowly but surely steal customers away from those too
paralyzed by fear to take action.
As Franklin Roosevelt said, “We have nothing to fear but fear itself.” Fear of the unknown (to them) results of marketing they have never tried is
what keeps most drycleaners from ever realizing the true potential of their
business endeavors.
They are afraid to spend the three to five percent of their sales necessary to
get their message out to the public and, in particular, to their best
prospective customers, and they are afraid that any offer they make will be
taken advantage of. The above-mentioned research shows that those fears are
unfounded.
I’ve always been a fisherman. Fisherman are risk takers. They invest in small fish
or shrimp or whatever bait they choose and risk the loss of their bait to catch
larger fish.
Sure, they could have played it safe, and eaten whatever they used for bait. But
they don’t. They take the chance that they will catch larger fish and, ultimately, eat a
much better meal.
I like to catch big fish. However, in order to catch large fish (also known as “big tuna” customers), you have to make the commitment of putting smaller fish (also known
as a reasonable offer) on your hook as bait. You can’t catch fish without bait. The more bait you put out, the more fish you’ll catch.
O.K that’s it for today. I’m going fishing.
