Is Your Customer Base Changing?
A couple of weeks ago I began to write an entry about a phenomenon we often speak to our clients about: how it is important to focus on cultivating and retaining best customers, but at the same time, it is just as important to watch for changes in the customer base that either indicate a serious threat or a new opportunity. As with about half my blog entries, it sat unposted; in this case, because I struggled with a good example that would not be too obviously one of our clients.
Fortunately, the news media came to the rescue, with an article in the Wall Street Journal about Burger King's current challenges. The article describes Burger King's successful strategy of catering to "super fans", which are characterized as 18- to 34-year-olds that comprise about half the visits to their restaurants and that visit fast-food restaurants an average of 10 times per month. For those not familiar with Burger King's history, their market position had eroded over many years in the 1990s and 2000s. In response, the company devised a new strategy in the mid-2000s that led to five straight years of increases in same-store sales.
All seemed well, and it seemed that the company had implemented one of marketing's mantras – focusing on one's best customers – successfully. There were some naysayers, such as some franchisees that felt the strategy was eroding other customer segments, such as families with young children. And there were critics of some of Burger King's marketing campaigns which stretched the norms of the fast-food category. Yet, overall the strategy paid off, until same-store sales began to fall in 2009.
Burger King, in its financial reports has pointed to the fact that the wider economy has an adverse effect generally and has hit the 18- to 34-year-old segment particularly hard. On the other hand, some analysts have pointed out that this segment was already reducing its fast-food trips before the recession, as consumers sought healthier alternatives. McDonald's, which worked through market challenges a few years ago by introducing healthier menu items and emphasizing its family-friendly environment and value menu items, saw same-store sales increase by 2.5% in the quarter ended September 2009 versus Burger King's decline of 4.6% during the same period.
Burger King is a special example of a larger dilemma many companies face. We need to appeal to segments that either spend disproportionately within a category or that prefer our brand. If executed well, this strategy brings short-term success, but carries with it long-term risks, because consumption patterns and brand preferences shift. The recession accelerated such shifts, but the danger is always there.
There are ways to mitigate the effects of such changes. The first and most important is to monitor the customer base with an unbiased eye. I say "unbiased," because as marketers, we tend to fall in love with valuable customer segments and tend to filter reality through those emotions. In a sense, marketers fail to recognize that "he's just not that into you" when enthusiasm among their best customers cools. Of course, this does not mean we want to abandon customer segments, but we do need to recognize changes before they become a wider problem. And, metaphorically speaking, we did to think about dating some other segments that represent an opportunity to build a lasting relationship.
Despite the common use of the words "customer portfolio," marketing practice often does not implement the thought contained in the phrase. Good financial portfolios are designed to spread financial risk to achieve long-term stability. Similarly, a customer portfolio should be managed so that there is always some balance in customer composition. Again, that is not to say that we should not exploit shorter opportunities to grow some segments, but not if it results in unbalancing the customer mix too far.
It will be interesting to see how Burger King and others that have seen their core customer segments eroded by the recession and other factors respond to these pressures. And the current winners – the Wal-marts and McDonalds of the world – will need to avoid some of the same potential landmines over time.
Posted at 08:43AM Feb 04, 2010
by David King in Data |
