How to Increase your Customer’s Average Spend
Retail Feature – Increasing ATV (Average Transaction Value)
On my way through Dublin Airport last week, I bought a Clarins moisture gel. In conversation with the salesperson, she extracted from me that I was on my way to Riyadh. So I ended up also buying a sunscreen. In a very friendly way, The Loop in Terminal 2 got more of my money.
As I shared previously, the fundamental levers that drive sales for all type of retailers are in this formula.
Retail Sales Formula: F x C x A = S
‘Footfall’ (the number of customers entering the store) multiplied by ‘conversion’ (the percentage of those that actually buy rather than just browse) multiplied by ‘average transaction value’, equals sales. After doing the hard work that’s required to attract customers into your shop in the first place (covered two weeks ago), your next two priorities should be conversion (covered last week) and ATV. Increasing the average transaction value is often quite easy. Yet bizarrely, it’s an ongoing challenge for retailers the world over
Put Your People First
Most importantly, your sales people have an important role to play in increasing ATV.
1. Give yourself and your people the skills to up-sell. When a customer asks to see a product, don’t just show one item. Offer them two-three options across the good-better-best spread (see below). A professional salesperson will skilfully encourage and up-sell to a customer by talking up the added benefits. The beauty houses are masters at this, so go and mystery-shop some and they’ll tell you how they do it if you just ask!
2. Aim to link-sell a second item to every customer. As soon as the customers commit to buying what they came in for, only then should you suggest that they also buy a related item. Using a non-pushy phrase ‘just so you know, we have a fabulous bracelet to match those earrings’ is a gentle way of introducing the idea to a customer. Be careful and don’t be greedy. Make the additional item an easy and small decision for the customer. If you link-sell an extra item to every fifth customer (to the value of say 15% of their primary purchase), that adds 3% to your overall sales. (Samantha is this doesn’t make sense to you, dump it).
3. Incentivise your people to link-sell. Introduce a competition in your team and incentivise your team to link-sell. Keep it short and focused – perhaps for a week or a weekend. You can measure this with even the most basic till systems. Make it fun and non-threatening.
4. Ensure your salespeople have great product knowledge. When your team has a greater knowledge of the products (than the customers with phones in their hands) and the best sellers, they will speak with more confidence about the product.
5. Revisit your commission structure. If you do pay commission, refresh how you structure it. For example, if you’re paying a set percentage rate across all products, where is the incentive for your people to sell higher margin product?
Focus on your Product Mix
The fashion industry is structured around seasons, so those retailers are forced to plan their product mix twice a year. For other sectors where the product ranges are more continuous (such as with pharmacy, food, homewares, some gifts, technology), they can fall into a rhythm of simply replenishing out-of-stocks. Consequently the buyers don’t get to lift their heads enough above the daily grind – to give adequate consideration to their buying. Replenishing continuity stock is not buying. Buying requires preparation, planning, curating, negotiating and then ordering.
1. Plan your product mix and price architecture. Mindful of your brand positioning and margin expectations, select a range of brands (and products within those brands) that spread from ‘good’ to ‘better’ to ‘best’. For example, Arnotts in Dublin have frypans from Tefal (good), Stellar (better) and Fissler (best). This gives them an appropriate selection for their chosen customer base. It also gives the sales associates more choice to up-sell.
2. Remove the recession mindset. There is now more disposable spend and while customers are savvier post-recession, they do spend when they feel they’re getting value. Customers are more conscious too that ‘when you buy cheap, you buy twice’. Don’t be afraid to introduce higher priced merchandise into your selection.
3. Stop discounting. I completely understand the pressures that come with being an independent retailer. When sales are not hitting target and cash-flow gets tight, panic and stress can set in. A knee-jerk reaction is to start discounting, which plays havoc with your image, ATV and your margin. This should be a last resort after you have tried all the other things that successful retailers do.
In a project with Ann Summers (who has very aggressive on-line competition) we increased ATV by reducing discounting activity. Exclusive product was just one enabler of that.
The Last Word
I’ve been privileged to consult with and train some of the most iconic retailers around the world. From food to fashion, luxury to mass, multiple site to department stores. Every one of them is challenged in the same way with the pace of disruption and change in the industry. But regardless of their size, sector, scale and balance sheet, there are common themes that shine through the more successful ones.
With an underlying passion for giving great customer experiences, every single one uses the FCA model detailed here over the last three weeks. Each one is investing in their stores and yes, they each have an on-line presence of varying sorts. They also have belief and confidence that they can effectively compete in their bricks and mortar stores. But for me, the most significant attributes are that they embrace change and are proactive. They work on their business, not just in it.
Alan O’Neill is Managing Director of Kara Change Management, specialists in strategy, culture and people development. Go to www.kara.ie if you’d like help with your business.
Alan’s debut book “Premium is the New Black” will be launched in October.
© Copyright. Alan O’Neill. All rights reserved. 2018