January 2011Marketing

Complicated Customers: Ignore "Cherry Pickers" at Your Peril

complicated customers

Wharton marketing professor Stephen Hoch calls them "cherry pickers." They're the tireless shoppers who travel from store to store in search of bargains. While they're prone to revealing every detail of their retail conquests to anyone who'll listen, marketers typically pay little attention to them. Says Hoch, who teaches in Wharton's Essentials of Marketing program, "Marketing is about understanding and building relationships with your customers. To reach them, you need to know their wants and needs, shopping behavior, sensitivity to price, and many other factors. And yet cherry pickers remain largely ignored and misunderstood.

"It's inaccurate, but common, to judge the extreme bargain hunter as an anomaly. My research shows that those who are smart about cherry picking do save money. For that group, the behavior makes economic sense. Marketers who write this group off as a small number of people with too much time and not enough to do could be making serious missteps. Not only are cherry pickers savvy, but their numbers are growing, and they're capable of causing serious problems for the unsuspecting retailer."

Hoch notes that those who aren't paying attention to this group can easily create "arbitrage opportunities" where smart, busy consumers can "take them to the cleaners." He continues, "Promotions can quickly turn into financial drains for a company when shoppers take advantage of them. You're trying to get someone in the door and then hoping that they'll buy more, either during that visit or during repeat visits. But making up a loss with volume later doesn't always happen the way it used to."

Two-year-old Groupon.com is mentioned by Hoch as a minefield for participating organizations. The website, which just turned down a six billion dollar acquisition offer from Google, invites companies to offer promotions — a recent search turned up a local gym membership for 50 percent off and free wings from a local pizza place — that are then emailed to registered Groupon users.

Hoch finds the risk for retailers daunting. "When businesses offer 50 percent off a service or goods, they're taking a gamble. Sure, they're exposing themselves to a lot of new potential customers, but that doesn't mean they'll become regulars. In fact, the most likely number of times people try something is once. Getting them to repeat is the real trick, and promotions alone won't make it happen. Cherry pickers can easily scam the system by taking advantage of these offers and then walking away. They're more than willing to take the time to search for them and select only the cheapest options.

The Information Advantage

Although cherry pickers have been around for a while, the amount of information available to them is making their job easier, and it's enticing others to join their ranks. But are retailers responding appropriately to the change? Hoch sees many who aren't. "Consumers were at a real information disadvantage when they needed to buy a car until the mid-90s. Since that time, however, people have been able to access the facts and figures they need to make an informed decision. The smart dealers recognized quickly that they couldn't try to squeeze every last little cent out of this better informed consumer. They saw that they could reduce the time for each sale and make it up in volume later on. The new model became a more efficient sale.

Today, those kinds of changes are happening in many industries, as access to increasing amounts of information gets even easier. "In some ways we're still in uncharted waters. It used to be incredibly costly to search, and that created many advantages for the seller. But now search is cheap. Realize that the bulk of your customers in a decade will have grown up knowing how to search online. They are a large and very sophisticated group. You need to stay current with your understanding of their shopping behavior, both because it's different and because it's changing rapidly. The day is coming when your customers will take a picture of a UPC on their cell phone and search for all the prices in a two-block area."

Are you ready for these changes? Hoch shares his recent findings regarding consumer behavior with participants in Essentials of Marketing. "At its core, marketing is about understanding people. What motivates them? How do you reach them and keep them coming back for more? Today it is critical that your understanding takes into account the latest research. Changes are happening quickly. It's no longer a viable option to ignore a group of shoppers or to respond to them as you would have a decade ago. They're savvier and smarter — and they know where your competition is."