...Or are we just focusing on the wrong customers?
Last week, I was again off to see the Wizard, the wonderful Wizard of Ads (Aka. Roy H. Williams). This was the second time I had the pleasure of spending the day at his beautiful Academy in the Texas Hill Country south of Austin. A very interesting part of his presentation contrasts relational versus transactional buyers.
A relational buyer is a person who doesn't have the time or inclination to comparison shop. When a relational buyer needs something, he simply goes to a likely source and buys it. In the end, a relational buyer's only worry is that a product may not do what he needs it to do. If he is happy with the product and buying experience, a relational buyer will typically return to the same source over-and-over to make similar purchases. He will also recommend a business he likes to others.
In contrast, a transactional buyer is a comparison shopper who prides himself in getting the best deal. He will research the product, then call or visit numerous locations in search of the lowest price. The transactional buyer's only concern is that he may find the product for less somewhere else after making his purchase. Sometime later, if he needs a similar product, he will start the process of comparison shopping all over again.
Can you guess which one is more likely to be a loyal long-term customer? Beyond the advantages of loyalty and repeat business, relational buyers are more likely to provide higher profit margins, higher purchase rates per visit and lower overall transaction costs compared to their transactional counterparts.
Many businesses attempt to increase traffic to their stores through pricing strategies that appeal more to transactional buyers than to relational buyers. The additional traffic that is generated may be very misleading because only a small percentage may actually make purchases during a given visit. The low conversion rate means that actual sales may not offset the price discount used to attract the additional business.
While low prices attract transactional buyers, relational buyers are more likely to choose a source that someone else recommends, is convenient, or simply comes to mind as a source. According to Roy H. Williams, winning the mindshare of relational buyers must be a long-term commitment of providing a consistent and salient message that emphasizes unique value, quality and service.
There is nothing wrong with targeting transactional buyers or both types, but businesses will be most effective if they understand the differences and align messages and pricing strategies with the particular group they wish to target. For more on this and similar topics, you may want to checkout the many classes, books and articles on the Wizard's website at www.wizardofads.com.
