How Much Is Boneless Chicken Worth?

The recent theme of these columns has been on customer experience management and loyalty. Thinking about these things like I do makes you a watchdog for bad customer experiences that kill loyalty. Life’s lessons pop up anywhere.

I recently witnessed a great retailer lesson at my local food grocery store. The woman in front of me had a very large order (sigh!), and was telling the cashier about a dinner party she was hosting that evening. It was apparent the customer was in a hurry, and frustrated she hadn’t been able to get the boneless chicken she needed for the main course. The cashier was surprised and said: “But we sell boneless chicken.” “Yes I know,” the customer replied, “but the butcher said you are out, so I’ll have to pick it up somewhere else.” You could tell she was annoyed as she left to find the chicken she needed at another store.

As I listened to this I thought, “Chicken, butcher, knife. How can they ever be out of boneless chicken?” So the question is: “How much is boneless chicken?” This customer was seriously inconvenienced by the store,  and is on her way to shop at a competitor. Consider the typical numbers for such a scenario. The woman spends $175 per week on food, and would normally shop at this store for another seven years. The store has a gross margin of 4% on food. The Lifetime Value (LTV) of this customer is the profit she represents to the store over her purchasing life. A reasonable estimate is $2,550. This is calculated by average sales times number of purchases per year times years as customer times gross margin.

For the lady needing the boneless chicken, the butcher’s indifference may have been the last straw in a series of missteps that cause her to shop elsewhere. Boneless chicken actually costs more than you think. In this case, it’s worth $2,550 in lost profit from a single customer over the next seven years. It is well known that unhappy customers tell their problems to other customers, creating immense negative word of mouth. So defecting customers cost more than you might think. Imagine the impact from more customers defecting due to poor performance at other points of contact with the store.

Levels Of Spending

The concept of customer Lifetime Value is even more critical in agriculture where the customer base is shrinking, and the spending differences between Gold, Silver, and Bronze customers is large. One of our Midwest customers has average annual sales to his grower segments as follows: Gold $139,535; Silver $64,183; and Bronze $5,747. Let’s look at a potential Lifetime Value of a Silver customer for this retailer.

AgKnowlogy has the purchase history of over 150,000 customers and 200 retailers in our database. The loyalty of these customers is 74%, which translates into an average customer lifespan for all customers of four years. Silver customers account for 30% of your sales and roughly 15% of your customers. Since they are generally high quality, I stretched the life expectancy in our example to 12 years. I also assumed the customer brings the retailer just one new customer as a referral, and that new customer only purchases at 50% of existing customers I used a margin of 15% across all purchases for this example. This single Silver customer is worth almost $158,000 in profit during the time he is a customer.

Given the trend of grower consolidation, not enough retailers think strategically about customer loyalty. If the Lifetime Value of one Silver customer can easily be worth the profit in our example, retailers must diligently protect this LTV. Paying close attention to customer experiences at every point of the customer corridor is one of the most important tasks you have. Profit from customer retention drops directly to the bottom line.

Back to boneless chicken. I don’t know if the butcher and the cashier would have let the frustrated customer walk out unsatisfied if they understood her Lifetime Value. I would like to think not. Now think about your business. Can you and your staff readily identify the long-term value of your Gold and Silver customers? Is every contact your business has with customers underpinned by the actionable knowledge of their Lifetime Value?

Leave a Reply

Management Stories

Crop InputsWeed Expert: Adding A Second Herbicide Not Always Easy
February 9, 2016
In my last post, I reviewed some recent research that suggests one of the best ways to delay the evolution Read More
HerbicidesWSSA Announces New, Updated Free Web Resources
February 9, 2016
Today the Weed Science Society of American (WSSA) announced that new and updated educational materials for both weed scientists and Read More
ManagementOABA Annual Conference Wraps Up In Columbus
February 5, 2016
More than 300 Ohio AgriBusiness Association (OABA) members and industry professionals were on hand to engage in collaborative learning and Read More
Chesapeake Bay
StewardshipKeeping A Watch On Water Issues
February 2, 2016
During a down cycle in the market, it’s difficult to think about investing for the long term. For retail businesses, Read More
Top 100 Articles
Elburn Cooperative
CropLife 100Elburn Cooperative Members Vote To Join CHS
December 28, 2015
With 81% of eligible producers voting, 94% cast an affirmative ballot for Elburn Cooperative, a diversified agricultural retailer based out Read More
West Central Cooperative, Jefferson, IA
CropLife 100Farmers Cooperative-West Central Merger Approved
December 21, 2015
The members of Farmers Cooperative Co. (FC), Ames, IA, and West Central Cooperative, Ralston, IA, have both approved the merger Read More
Wheat Growers Innovation Center, Bath, SD
CropLife 100Wheat Growers Opens Innovation Center
December 21, 2015
Wheat Growers’ commitment in providing its farmer-owners with the latest in technological advancements now has a one-of-a-kind focal point, as Read More
CropLife 100ARA Selects The Andersons As 2015 Retailer Of The Year
December 9, 2015
The Agricultural Retailers Association today named Maumee, OH-based The Andersons as its Retailer of the Year for 2015. The award Read More
CPS Washington Court House John Deere Sprayer
CropLife 100Application Equipment Report: It Is Easy Being Green For Top 100 Ag Retailers
December 5, 2015
On The Muppets television show, Kermit the Frog is famous for singing a song about the troubles he encounters in Read More
Fertilizer Bin
CropLife 100Fertilizer Sales: Another Down Year For Top 100 Ag Retailers
December 4, 2015
In pure number terms, the fertilizer category still dominates all crop inputs/services among CropLife 100 ag retailers. In 2015, for Read More
Latest News
Crop InputsMarrone Bio Innovations Submits New Bio-Fungicide For E…
February 9, 2016
Marrone Bio Innovations, Inc. (MBI) today announced that it has submitted a new biological fungicide (MBI-110) to EPA. The broad spectrum Read More
Crop InputsWeed Expert: Adding A Second Herbicide Not Always Easy
February 9, 2016
In my last post, I reviewed some recent research that suggests one of the best ways to delay the evolution Read More
Crop InputsGenetic Literacy Project: Farmers Need More Herbicide C…
February 9, 2016
There are two things that I think just about every weed scientist can agree on, writes Andrew Kniss for The Read More
HerbicidesWeed Expert Warns North Dakota Growers Of Coming Herbic…
February 9, 2016
Ford Baldwin painted a bleak picture of weed control at a recent workshop here exploring the future of ag production, Read More
HerbicidesWSSA Announces New, Updated Free Web Resources
February 9, 2016
Today the Weed Science Society of American (WSSA) announced that new and updated educational materials for both weed scientists and Read More
Soybean field
FungicidesFour Arysta Fungicide Formulations Given FIFRA Approval…
February 8, 2016
Arysta LifeScience North America recently announced the issuance of Federal Insecticide, Fungicide, and Rodenticide Act (FIFRA) Section 2(ee) Recommendations for Read More
FungicidesAgri-Fos Systemic Fungicide Plus Receives EPA Registrat…
February 8, 2016
Vivid Life Sciences has announced the EPA registration of Agri-Fos Systemic Fungicide Plus, a highly concentrated active ingredient phosphite fungicide, Read More
Crop InputsBayer Contests EPA’s Decision On Valuable Insecticide F…
February 5, 2016
Crop Science, a division of Bayer, has announced it has refused a request by the Environmental Protection Agency (EPA) to Read More
Wheat Field North Dakota
Seed/BiotechSyngenta Wins Seed Fraud Suit Against South Dakota Grow…
February 5, 2016
Syngenta has obtained a $25,000 settlement from Paul and John Mayclin, Mayclin Farms, Plankinton, SD, in response to their Plant Read More
ManagementOABA Annual Conference Wraps Up In Columbus
February 5, 2016
More than 300 Ohio AgriBusiness Association (OABA) members and industry professionals were on hand to engage in collaborative learning and Read More
Crop InputsBayer To Contest EPA Flubendiamide Decision
February 5, 2016
Crop Science, a division of Bayer, announced today it has refused a request by EPA to voluntarily cancel the uses Read More
Syngenta
Seed/BiotechNot So Fast: ChemChina Syngenta Takeover Could Draw Nat…
February 5, 2016
State-owned China National Chemical Corp. (ChemChina), which plans to buy Swiss seeds and pesticide maker Syngenta, will promptly start preparations Read More
Rendering of Syngenta Seedcare Institute expansion
Seed/BiotechExpansion Of Syngenta’s North America Seedcare In…
February 4, 2016
As demand for seed treatment knowledge and products grows among farmers, retailers and others in the seed industry, Syngenta is Read More
Soybean Field
Industry NewsArysta LifeScience Strengthens Sales Team
February 4, 2016
Arysta LifeScience North America recently announced three new personnel additions: Jake Cook and Peter White are Territory Sales Managers for Read More
Davor Pisk Syngenta COO
Crop InputsSyngenta COO: Why ChemChina Offer Beat Monsanto’s
February 4, 2016
Syngenta Chief Operating Officer Davor Pisk says he is confident the proposed acquisition by ChemChina will ultimately help preserve choice Read More
Young corn plants in soil
Crop InputsKoch Biological Solutions Invests In Pathway Biologic
February 4, 2016
An affiliate of Koch Biological Solutions, LLC has acquired a minority equity position in, and entered into collaboration with, Pathway Read More
Crop InputsABG: China Signs Off On Monsanto’s Roundup Ready …
February 3, 2016
Monsanto Co. on Wednesday announced it plans to launch its Roundup Ready 2 Xtend soybeans in time for the 2016 Read More
Syngenta headquarters in Basel, Switzerland
Crop Inputs6 Things To Know About The ChemChina-Syngenta Deal
February 3, 2016
After months of rumors and speculation, Syngenta has announced that ChemChina has offered to acquire the Swiss-based company. “In making Read More