Many years ago as a radio sales rep I had a client say to me “Everyone is a price shopper.” The gentleman had a small retail carpet shop. I needed a way to show him that this wasn’t the case. I developed my “X’s and O’s of Retail.” Over the years this has morphed into a model which contrasts what I call Transactional Shoppers and Relational Shoppers. When I shared this with Roy H. Williams, the Wizard of Ads, in early 2002 he wrote about it in his Monday Morning Memo.
Let’s run through this to see if it resonates for your organization. In my illustration above, the X’s are customers and the O’s are retailers. Each line, whether red or black, leading from a customer to a retailer represents a shopping trip. The red lines indicate a purchase.
For the carpet store owner, I asked him to imagine there are 5 customers that are going to buy carpet today and there are 5 carpet stores. Customer 1 visits all 5 stores looking for the lowest price. Store 1 has the lowest price and the business makes a sale. Customer 2 also visits all 5 stores looking for the lowest price. Store 1 makes another sale. Customer 3 renovated an older home 4 years ago. They recently moved into a larger home that needs new flooring and they return to the store they purchased carpeting from 4 years ago. Customer 4 has a sister that works at Store 4 so she is dealing with family. Customer 5 was recently transferred from Atlanta and knew where to buy carpet in Atlanta but doesn’t know the local stores. She asks a co-worker and gets a recommendation and buys from Store 5.
The owner of Store 5 saw three shoppers, two of them were price shoppers. It seems that 2 out of 3 customers are price shoppers but they did make a sale. The math is the same for the owners of Store 3 and Store 4. Store 1 only saw price shoppers but are confident in their approach of low prices and make 2 sales. Store 2 is in trouble because all they saw were price shoppers, they didn’t make a sale today.
In this scenario 40 percent of the customers purchased based on price. However, they represent 77 percent of the shopping trips. You see the price shoppers try everyone. This illustration is in no way trying to suggest what the percentages of price shoppers might be. the simple point is that there are fewer price shoppers than you think.
Here are things to keep in mind about these two buying styles.
- Focus on price, savings or added value
- Treat products and services as commodities
- Have a low need to trust suppliers
- Have a low loyal to suppliers
- Each transaction is separate from previous transactions
- See themselves as the “expert”
- Fear of loss is focused on the price difference between suppliers
- Like the negotiation process and are not concerned about the time it takes
- Focus on value and product augmentation
- Differentiate between product and service offerings
- Have a high need to trust suppliers
- Have a high loyalty to suppliers they trust
- Each transaction is seen as part of the ongoing relationship
- See the supplier as the “expert” and the source of information
- Fear of loss is the entire amount of money and time invested
- Dislike the negotiation process and the time it takes