Retailers love their customers — but that doesn’t necessarily mean they understand them. Which leads to a problem when it comes to trying to bulk up conversion or build up margins as it is very hard to motivate a group of people one doesn’t really fully understand.
Sure, there are the tried-and-true tricks. Big discounting works when one is trying to pull a wary customer off the conversion fence, but discounting can be a costly solution.
For example, the U.S.’ retailers just learned during the 2016 holiday shopping season — if you mark it down by 70 percent, the shoppers will come and and they will buy. But the goal of retail isn’t only selling goods — it is to actually earn a profit in the process.
Which is the problem with discounting in general — however effective it may be, it is still something of a blunt tool for getting the job done.
And, noted SmarterHQ’s CEO and President Michael Osborne in a recent chat with Karen Webster, that is assuming drastic discounting is actually doing something positive. As it turns out, depending on how a retailer does it, it might not even really be as good a conversion tool as it looks like at a quick glance.
“Batch-and-blast discounting — where you mass-mail an offer to your customers — will make some money because someone will respond to those offers. So you can fool yourself into thinking you’re doing a really good job when you are in fact doing the exact opposite by alienating some consumers or annoying them. Retailers can only see the customers who show up because of the promo — it is a lot harder to count who stayed home because of it.”
But offering those kinds of “harder” counts is, in fact, exactly what SmarterHQ is in the business of doing.
Founded as a collaboration between a data scientist with a penchant for predictive analytics and a retail vet with a strong vision of where the pain points are, SmarterHQ was founded with a simple mission:
“The goal was to help retail drive a better experience with digital campaigns, which they clearly needed,” Osborne explained – before noting exactly why it was needed.
“Retailers actually have this incredible trove of data about their customers — but without any good way to organize it or understand it, it just isn’t helpful. So instead what we were seeing was really bad digital marketing experiences. Customers getting offers for things they just bought, or offers for clothes for the wrong gender that don’t want or offers on discounts that have already past — there a lot of ways to do it wrong.”
Doing it right, on the other hand, according to Osborne, takes good data and good tools for understanding how to use it.
How It Works
Said simply, once a retailer starts working with SmarterHQ’s solution, the program begins watching customers’ habits online and offline to begin to get an idea of what kind of shoppers they are.
Some are early adopters and trendsetters who want the newest now, and don’t care about price. Some are discount devotees who don’t want to hear anything about it unless it’s already marked down by 25 percent. Some spend a lot, but only after thinking about it for a few days after they’ve loaded their cart. And some subscribe to patterns of shopping behavior so weird that a human eye probably couldn’t pick them up.
“We really will see very nichey behaviors — customers that buy on every month when the moon is full on Tuesdays — stuff that no human being could ever notice, but that jumps out to an algorithm that is looking for it.”
That refinement becomes key, Osborne says, because it means the retailer both knows their customers and is able to put the right offer into their hands at the right time.
Unsurprisingly, it can have some pretty dramatic results.
“We have stats to prove that it matters — some of our clients got a 15x revenue increase over and above what they paid us for our services,” he said, noting that these are non-trivial sums measured in tens of million of dollars.
The point isn’t just to hand out tools to get to conversion — discounts get conversions — but instead to better understand what they are actually doing, who their best customer segments are and what the most margin-boosting ways to approach them will be going forward. And, it allows them to custom-fit those solutions with the individual customer profiles it creates.
That means one customer might get emailed a discount code after their first visit to make sure they buy some of the items out of the cart they filled before wandering off. It might be an offer for an early preview of a new line of shoes or clothes for an early adopter who doesn’t care about price — and who will almost certainly buy if you give them a shot at the front of the line. It might be doing nothing at all — since the the data shows a regular customer who will always come back exactly two days after filing their card up so they can buy everything in it.
The point, Osborne says, is that retailers don’t have to be data scientists — they just need to follow where easy mapped data leads.
“The coolest part is that the team at a retailer does not need to tell us their vital stats. The data determines that. If our clients were required to figure that out on their own, we wouldn’t be more than a trigger firm.”
And SmarterHQ certainly aspires to be more than that.
And, with their latest $13 million in new funding, they are certainly growing toward that goal.
The Big Fundraising Round — And What’s Next
“It is rare that a retailer comes to us and says ‘We’ve got all these current beliefs’ please show us if we are right or wrong,’” Osborne noted.
The more likely friction they run into with partners in the beginning is hearing “We do that already” or “We’re really good about cart abandonment; we won’t need you for that.”
“And we show that they are 5x more productive and that most of the time we can improve on their campaigns, even if they are really good about it.”
Because at the end of the day, SmarterHQ is really selling some of that elusive customer understanding and making it possible to actually construct digital marketing and recruitment efforts that capitalize on it.
And, with numbers behind them to show that it all works, SmarterHQ is pushing to get the good word out there — and expand its reach into new verticals like financial services and travel.
To that end, they’ve recently made a pick-up: $13 million in new funding to expand operations.
Boston-based Spring Lake Equity Partners, whose past investments include Shoebuy.com and Wired Ventures Inc., led the round. Battery Ventures and Simon Venture Group — the investment arm of Simon Property Group — also participated.
There is no such thing as a crystal ball in retail — or any certain way to always push conversions or drive margin. If there were, everyone would probably already be doing it.
But SmarterHQ doesn’t think retailers — or anyone else trying to drive their customers — really need to be become psychics or mind readers. They just need be able to see the data that is there now clearly, know what it means and have a clear way to act on it.