Rethinking your target customer
Should you change in a challenged economy

In the current economy, we are often hearing how consumers are rethinking their spending. Wal-Mart and McDonalds are two retailers that are often mentioned as destinations for this new style thinking. While other businesses are struggling, businesses that advertise their lowering of prices and offering ‘value meals’ are reported to be having sales increase.

As this happens, it is no surprise that business owners often feel an urge to consider targeting this new customer buying style. If the customer is downsizing their budget for other aspects of their lives, then for their purchases from your business, perhaps the business should be adapting by having more ‘moderately priced’ products for that customer.  Some of the argument for this strategy is that the prolonged recession has caused the typical American customer to change the way they buy.

If this is true, then it would make sense for every business owner to begin changing their product line to reach this customer. You will know for your particular business if this is an appropriate action when you examine categories of products and find that the more expensive an item is, the slower it is now selling as compared to previous years.

Taking this step however, is not going to be as simple as it seems. Not to say that you shouldn’t but there are some other things to consider. Perhaps the first is to ask if you believe that the consumer has permanently changed their buying habits. If they have not, and you have retargeted your business to a more price oriented customer, you may find the customer you left has since found another business to spend their money with.

Another concern is that in any industry the lower price items often come with low margins.  When you have lower margins, there are only two ways to make up for that loss of profit. One is by having the new products sell at a much faster rate so that the turn rate compensates for the loss in gross profit. The second option is to look at operating expenses. We are already squeezed enough as it is for gross margin and these new items are going to require to find ways to eliminate expenses.

With the low margin items we will likely find our businesses competing more with the mass merchants; not just in hard goods but for many of us, our claim to be different from these mass merchants is in our plant material. If you begin to stock a lesser price, will you lose your point of difference between you and the mass merchant.

There may be other reasons for, or concerns about your having the new target customer and lower priced merchandise that have not been shared here. And, there is another option for the solution; that being your simply adding the lower priced merchandise and not eliminating what you are currently stocking.

The advantage from this will be your introducing your store to more customers and with a qualified sales staff you will be able to interest some of these customers to the point that they will decide to spend more as well as purchasing the higher quality products you offer. We can expect that the mass merchant competition isn’t doing anything to teach the customer about the joys of the products and services you offer. You may be the one that causes these new customers to take it up as their new interest.

The challenge you will likely have by simply adding these new price points will be two fold. One is that you are going to have to come up with the money to allow you to stock these items. One possible solution is looking to your slower moving items and diminishing or eliminating them. Just make sure you are not eliminating the items that make you unique. The other challenge you may face is that this additional offering of products is going to require some square footage to be properly displayed.

The McDonalds and Wal-Mart challenge is not one that you can or should easily resolve. It has the possibility of providing your business with a great opportunity to get a part of the market you have not previously had. It also has the possibility of forcing you to be in competition with those you have wanted to distinguish yourself from. Or you could find yourself having left behind the very customer that you have worked to attract.