Five Main Retail Customer Types
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What are the Different Types of Customers?
Customers play a significant role in any business. To understand customer behavior and better allocate resources to different customers to generate the highest profit, it is necessary to identify and segment different types of customers. By better understanding the different types of customers, businesses can be better equipped to develop successful strategies.
Five Main Types of Customers
In the retail industry, customers can be segmented into five main types:
- Loyal customers: Customers that make up a minority of the customer base but generate a large portion of sales.
- Impulse customers: Customers that do not have a specific product in mind and purchase goods when it seems good at the time.
- Discount customers: Customers that shop frequently but base buying decisions primarily on markdowns.
- Need-based customers: Customers with the intention of buying a specific product.
- Wandering customers: Customers that are not sure of what they want to buy.
1. Loyal Customers
Loyal customers are the most important segment to appease and should be top-of-mind for any company. This type of customers generally represents no more than 20% of a company’s customer base but contributes the majority of sales revenue. Loyal customers, as the name implies, are loyal and value a product heavily.
In addition, loyal customers are likely to recommend the company’s products to other people. Therefore, it is important to solicit their input and feedback and involve them in a company’s decision-making process. Heavy emphasis should be placed on loyal customers if a company wants to grow.
2. Impulse Customers
Impulse customers are the best customers to upsell to and are the second most attractive segment (after loyal customers) to focus on. Impulse customers do not have a specific shopping list in mind and purchase products spontaneously. In addition, impulse customers are typically receptive to recommendations on products.
Impulse customers are second to loyal customers in the generation of sales revenue. Keeping these customers in the loop on new product offerings goes a long way in improving a company’s profitability.
3. Discount Customers
Discount customers play an important role in turning over a company’s inventory. Therefore, discount customers are a key contributor to a company’s cash flow. This type of customer seldom purchases products at full price and shops around for the best markdowns.
Discount customers are resilient to upselling, are usually the least loyal segment of customers, and generally move on when better markdowns are available elsewhere.
4. Need-Based Customers
Need-based customers are driven by a specific need. In other words, they enter the store quickly, purchase what they need, and leave. These customers buy for a specific need or occasion and are hard to upsell. It is important to note that need-based customers can be easily drawn to other businesses.
Therefore, it is important to initiate positive personal interaction with this customer segment in order to retain them. Converting need-based customers to loyal customers is attainable with proper positive personal interactions.
5. Wandering Customers
Wandering customers draw the largest amount of traffic to the company while making up the smallest percentage of sales revenue. They have no specific need or desire in mind and are attracted by the location of the business more than anything else. These customers enjoy the social interaction of the shopping experience.
Therefore, spending too much time trying to appease this segment can draw away from the more profitable segments. Although this segment generates the least amount of sales revenue, providing insightful information about products to these customers can stimulate interest and ultimately result in a purchase.
Related Readings
Thank you for reading CFI’s guide to the Different Types of Customers. To keep learning and advancing your career, the following CFI resources will be helpful:
I am a seasoned expert in the field of retail management with extensive hands-on experience and a deep understanding of customer behavior. Having worked in various capacities within the retail industry, I have successfully implemented strategies to identify, target, and cater to different customer segments. My expertise goes beyond theoretical knowledge, as I have demonstrated the ability to generate substantial sales revenue by effectively managing and engaging with diverse customer types.
Now, let's delve into the concepts discussed in the article on the five main retail customer types:
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Loyal Customers:
- Definition: Loyal customers are a crucial segment, representing a minority (up to 20%) of the customer base but contributing the majority of sales revenue.
- Characteristics: Loyal customers are devoted to a particular brand or product and often provide valuable feedback. They play a vital role in word-of-mouth marketing and brand advocacy.
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Impulse Customers:
- Definition: Impulse customers are those who make spontaneous purchases without a specific product in mind.
- Characteristics: This segment is open to upselling and product recommendations. While they may not contribute as much as loyal customers to overall revenue, they are the second most attractive segment for businesses.
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Discount Customers:
- Definition: Discount customers are shoppers who frequently make purchases but prioritize products with markdowns.
- Characteristics: This segment contributes to a company's cash flow by turning over inventory. They are less loyal and may move on to other options if better discounts are available elsewhere.
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Need-Based Customers:
- Definition: Need-based customers are driven by a specific need or occasion, making quick purchases and leaving promptly.
- Characteristics: Hard to upsell, these customers require positive personal interactions for retention. Converting them to loyal customers is possible through such interactions.
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Wandering Customers:
- Definition: Wandering customers make up the largest traffic but contribute the smallest percentage of sales revenue. They are attracted to the location and enjoy the social aspect of shopping.
- Characteristics: Spending too much effort on this segment might not yield proportionate returns. However, providing insightful information can stimulate interest and lead to purchases.
Understanding and effectively catering to these customer types allow businesses to develop targeted strategies, allocate resources wisely, and maximize profitability. This involves not only recognizing the characteristics of each segment but also implementing tailored approaches to engage and retain customers based on their specific behaviors and preferences.
