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Types of Customers

Five Main Retail Customer Types

What are the Different Types of Customers?

Customers play a significant role in any business. To understand customer behavior and to better allocate resources to different customers to generate the highest profit, it is necessary to be able 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.

 

Types of Customers

 

Five Main Types of Customers

In the retail industry, customers can be segmented into five main types:

  1. Loyal customers: Customers that make up a minority of the customer base but generates a large portion of sales.
  2. Impulse customers: Customers that do not have a specific product in mind and purchases goods when it seems good at the time.
  3. Discount customers: Customers that shops frequently but bases buying decision primarily on markdowns.
  4. Need-based customers: Customers with the intention of buying a specific product.
  5. 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 represent 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 values 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 is the second most attractive segment (after loyal customers) to focus on. Impulse customers do not have a specific shopping list in mind and purchases 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 a company’s inventory over. Therefore, discount customers are a key contributor to a company’s cash flow. This type of customers 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 moves on when better markdowns are available.

 

#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 experience of shopping.

Therefore, spending too much time trying to appease this segment can draw away 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

CFI offers the Financial Modeling & Valuation Analyst (FMVA)™ certification program for those looking to take their careers to the next level. To keep learning and advancing your career, the following resources will be helpful:

  • Bargaining Power of Buyers
  • Buyer Types
  • Customer Satisfaction
  • Network Effect

Financial Analyst Certification

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