Think Like a Pro: Customer Segmentation for DIY Retailers

It is no secret that DIY retailers serve two very distinct groups of customers. Households – who might be buying basics like lightbulbs, or might be taking on a more ambitious home renovation project. And professionals – who are doing those projects repeatedly for different customers.

This division is the essential starting point for an effective DIY customer strategy. But many retailers take an overly simplistic approach to identifying to which group a customer belongs. It is not enough to create a simple RFM segmentation and assume that the most valuable customers are all professionals and the least valuable are homeowners. The middle ground, where it is tough to distinguish between the groups, is actually the one that contains the bulk of the customers.

The issue is not trivial. Given a short enough time frame, a professional and a household that are both engaged in a bathroom renovation may look the same. But over time, the difference in how these customers shop can be vast. Professionals visit the store 7 times more frequently than homeowners. Their baskets are on average 60% bigger. They shop more than twice as many categories. All this adds up to a customer who is, on average, 10 times more valuable than his non-professional counterpart. Given this difference in value, and the fact that the needs of professionals are so different than those of homeowners, to treat both groups the same way would be a mistake.

With this in mind, we present four key insights for developing the right strategy for both the pros and the households.

Get the Identification Right

Obviously the first step is to figure out which customers are the professionals. As we have seen, a straight value segmentation will not do the trick. But there are a number of other factors that can be used to get this right. Over time, professionals and households show very distinct purchase patterns. Household purchases cluster around a specific project.  Professional purchases tend to cluster around a profession – say, plumbing supplies. Homeowners who have bought a key item may not buy the item again for years. Professionals show a much higher repeat purchase of major items. Let’s just say if a customer has bought 15 toilets at different times through the year, chances are he is not buying them all for himself.

Another very helpful data point to look at is shipping addresses. In working with a client with a delivery service, we were able to identify the pros by looking for customers who were shipping to multiple addresses rather than a single home.

Understand Needs vs Wants

In general, household customers are much more easily driven by wants, where professionals will be driven by needs. A homeowner may be convinced to upgrade to higher end items or to take on a new renovation project. A professional will be driven by the needs of the client.

One possible exception to this rule is in the area of equipment. Professional builders may need to follow their clients wishes on the projects. But the tools they use are completely up to them. This can create a great opportunity for an upsell.

Be Smart About Cross-Selling

In many retail scenarios outside DIY, a classic product affinity algorithm can be very helpful in identifying products that are purchased together. Customers who buy organic eggs might also be more interested in organic meat.

But applying this single approach to both households and professionals will yield sub-optimal results.

For non-professionals, the most important dimension to consider is the time sequence of events. A purchase of wiring and electrical supplies may be a good signal to send an offer on light fixtures. On the other hand, by the time a customer is buying paint, it might be too late to sell him the drywall.

For professionals, the timing is less important. After all, there is a good chance they will be doing a similar project in the near future. They may even be working on several projects at the same time. The important signal to look for here is not the sequence but the gaps. If a professional is regularly buying roofing supplies, but never buying shingles, chances are he is getting them somewhere else.

Accelerate Your Learning About New Customers

In our work with DIY retailers, we have found that about a third of customers in the database are simply too new to identify. If someone has made one or two purchases, it simply isn’t possible to tell if they are a pro or not. But that doesn’t mean you need to just sit around and wait. It is well worth the effort to figure out who the professionals are and build a relationship with them early on.

One simple tactic to get more information is to give new customers an attractive offer to get them back to the store after a first or second purchase. A discount on their next basket will be appealing to them, and by observing what they purchase you can more quickly determine what kind of customer they are.

Want an even simpler way to identify the professionals? Why not just ask? Developing a program for builders that they can sign up for to receive some benefit is the quickest way to get them to raise their hand and identify themselves.

Whatever your approach, identifying professionals quickly will pay dividends for years to come.

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