There is a tried-and-true adage that 80% of business comes from just 20% of customers. While the so-called 80/20 rule may be anecdotal, analysis consistently confirms that customers who have spent money in the past are more likely to spend money in the future.
Making Cents of It
First, it’s important to note that it costs far less to sell additional items to an existing customer than it does to attract a new customer (as much as seven times less!). That is, after you have someone hooked, additional profits come easily – if you can sell more items to that person.
In my early days with the company – now 23 years ago – Dave Hamacher used to use this expression, “if you could simply convince every prescription customer to spend 25 cents more, it would amount to a significant sales gain.” Let’s do the math with today’s averages. According to the National Community Pharmacists Association’s Annual Digest, a typical independent pharmacy dispenses 210 prescriptions per day. Let’s assume that represents about 120 unique patients. If the pharmacy is open the average six days per week, annual sales at only a quarter per patient would amass more than $9,000 in revenue. Now imagine if they each spent only a dollar more and you’ve just quadrupled that number.
Basket Analytics
In market basket analysis, the buying habits of customers is examined based on the types of products they are most likely to purchase in conjunction with other products; i.e. a customer who buys a particular brand of shampoo may be more likely to buy the same brand of hair conditioner at the same time. This information is useful to companies who wish to target their marketing and advertising dollars to specific customers, or who wish to pursue cross-promotional opportunities between two or more products.
To that end, it's in your best interest to encourage add-on sales. Instead of
selling one bottle of vitamins to a customer, try recommending two instead — or a bottle of water, or another complementary product. Adding extra items to an existing sale doesn't cost any more money in terms of promotion, and it's a surefire way to boost profits per sale. Did I mention that the average front-end margin is hovering around 38 percent? Examining the information from my earlier example, $9,000 in additional sales per year was estimated by adding 25 cents per customer – and this results in about $3,500 profit.
How could add-on sales be encouraged? Here are a couple of thought provokers:
- Make sure that you offer items that are complementary to the item the customer just purchased. If you're selling shoes for patients with diabetes, for example, you should offer socks;
- If your customer is buying pill splitters, offer pill organizer compliance containers.
So what is the role for the distributor and supplier in this quest to build the basket? Knowledge, product information, merchandising help, and training. The most recent HDMA study released earlier this year, Pharmacist and Patient Conversations at Independent Pharmacy, includes additional ideas on how a patient conversation can logically lead to an additional purchase and how.