WHITE PAPER PART 1 ROI OF DESIGN MAY, 2014 RETAIL AND CUSTOMER EXPERIENCE ROI of Design: PART 1 02 ROI of Design: PART 1 03 What is the ROI of design?
BY JANE C. GREENTHAL
Great design is both aesthetic INTRODUCTION As designers, we are essentially applied artists. We harness and functional; it combines the the creativity and personal expression of art onto the pragmatic goals and objectives of a particular project. visceral and physical. Elicitation Because of this, tension often occurs when an idea feels of emotion coupled with sublime right at an intuitive level but the project budget or client response necessitates a quantitative discussion around usability separates design “value added” or “return on investment (ROI)”. How do we then rationalize these decisions? CONTENTS from pure art, and elevates an INTRODUCTION 3 In the retail sector, in particular, a multitude of store design experience from mere satisfaction decisions can be a critical factor for a company’s brand and DESIGN-VALUE PARADIGMS 4 to delight. business. The right decisions could garner rave reviews and viral “buzz”, while the wrong ones could witness declining THEORETICAL FRAMEWORKS 5 revenues and even shuttered stores. Moreover, in a post- Amazon, “buy anything, anywhere” world, retailers are A PARADIGM SHIFT 6 struggling to differentiate themselves and design can be a THE EXPERIENCE ECONOMY 8 powerful tool to create a unique identity and experience that NEW RELEVANT METRICS 8 enthralls customers and is difficult to replicate. CUSTOMER EXPERIENCE AS KEY DRIVER OF VALUE 10 What is the return on design? Is it calculable? What are the drivers of value? As part of ongoing research on the subject, NEW FRAMEWORKS 11 my colleagues and I focused on assessing the correlations DESIGNING FOR CUSTOMER between store design and consumer behavior. We sought EXPERIENCE 11 empirical evidence and any related tools and methodologies. NEW METRICS 13 We synthesized previous research; interviewed designers, architects, consultants, retail managers and staff; analyzed CONCLUSIONS 14 case studies and visited renovated stores to better understand the value of design from the viewpoint of FRAMEWORK FOR DESIGNING CX (CHART) 16 different stakeholders.
APPENDICES 18 Our research confirms that design can have a critical role in retail strategy. However, past studies have oversimplified the consumer response to design out of necessity and few tools exist to methodically assess the drivers and outcomes of ROI of Design: PART 1 04 ROI of Design: PART 1 05 good design. This paper will discuss our key findings and It is interesting to note that many of these studies did not DDC, 36% of the surveyed companies in 2003 were at Stage 1 Generally speaking, design propose a conceptual framework for identifying significant judge the quality of design, but only quantitatively measured (no design), and only 15% at Stage 4, the most advanced factors and correlations linking store design and customer total investments in design. This metric reflects a common stage of design maturity. Just four years later, less than half has proved to be correlated to behavior, and a methodology for assessing outcomes. behaviorial assumption that companies will invest more the companies remained at Stage 1 while the number of heavily in areas they believe to be sources of competitive companies at Stage 4 increased by almost 50%. (See financial performance: companies advantage. These “design alert” companies cross industries Appendix B.) DESIGN-VALUE PARADIGMS and do not merely reflect secular traits. While correlation that invested most heavily in Because we are looking at the commercial aspects of design, does not equate to causality, we suspect other links between Perhaps inspired by Apple’s success, an increasing number of design outperformed their peers. financial metrics are requisite indicators of success. Over the a strong design focus and other key success factors. Given companies across all industries are looking at design more past decade, a number of international studies have used that the design process is user-centric, companies that are strategically. Target stores, for example, broke away from the One study found share price various proxies for design (e.g., total dollar investment in design-focused tend to be more attuned to their customers’ pack of value retailers (e.g., Walmart, Kmart, Kohl’s, Ross, etc.) design, number of design awards received, etc.), to assess its needs. The design process also lends itself to a culture that is by taking a decidedly design-focused approach to their performance of “design alert” impact on such key metrics as productivity, revenue growth, more creative, adaptive, comfortable with rapid prototyping, strategy. From designer product collaborations to shop-in- and share price appreciation. Generally speaking, design has and willing to try new things. From an external perspective, shops, Target led design innovations in their sector. Returns businesses around 200% higher proved to be correlated to financial performance: companies strong design appeals to users on an emotional, as well as a to shareholders (2008-2013) have outpaced that of its than that of the general stock that invested most heavily in design outperformed their functional, level and thus is more apt to generate exuberance, competitors. peers. One study found share price performance of “design loyalty, and word of mouth. market index. alert” businesses around 200% higher than that of the For retailers, in particular, this connection between design general stock market index. Moreover, continuous The postulation that “design matters” is becoming more and financial outcomes is especially meaningful given the investment magnifies the benefits. A study by the Danish widely accepted by companies worldwide. In the study by significant investment typically put into stores and the created a new paradigm that not only broadens the definition Design Center found companies who invested in design had potential role of stores in the customer experience. While of how customers perceive value, but creates a closer cross- 22% higher sales growth than non-investing companies and 2012E Global Smartphone ASPs (US$) there are scores of studies on consumer response to various functional alliance between marketing, strategy and design. 40% higher if the investments were continuously higher. store design elements, understanding the antecedents to $700 (See Appendix A for list of studies.) successful experience design and positive consumer response Traditional models of Customer Perceived Value (CPV) $600 is a relatively nascent area of study. Thus, we took a closer consider tangible (utility) value and intangible (psychic) value 618 One study in particular, the Danish Design Center (DDC)’s $500 look at existing theoretical frameworks and sought empirical in calculating total value to the customer. However, these
“The Economic Effects of Design” (2003), found distinct links $400 and anecodotal evidence specific to store design, to develop relatively simple and rational models omit the contextual between sustained investments in design and key financial deeper insights on how consumers perceive value in the retail aspect of CPV and thus belie the complexity of how indicators such as sales growth, employment and share of $300 context. individuals perceive value. (See Appendix C for CPV models.) 310 310 298 291 exports. The “Danish Design Ladder” stages a company’s $200 281 240 226 design maturity from Stage 1, where design plays no role in $100 198 THEORETICAL FRAMEWORKS Since the dawn of commerce, there has been an implicit product or service development to Stage 4, where design is a For retailers, store design plays a critical role in brand value-exchange model that presumes that people will $0 key component of corporate strategy. Using this model, the Apple HTC Samsung Motorola LG Other Japan Sony RIM Nokia expression, customer experience and customer engagement. exchange products or services based on a perception of value DDC found that companies at stages 3 or 4 had significantly Over the past 40 years, there have been roughly 70 studies that constitutes a “fair trade”. One person’s crop of produce is Source: SeekingAlpha.com higher results than peers at the lower levels. analyzing store design (aka “store atmospherics”) and the “worth” another person’s horse, crafted arrowheads, or what impact on shopper behavior. have you. As barter gave way to market pricing and the Apple Computer is a prototypical case study of a Stage 4 5-Year Share Price Appreciation (Apple vs. Competitors) subsequent rise of economics as an academic discipline, company that not only consistently features design as a key Apple The vast majority of the studies have been academic, in lab or theorists developed more sophisticated models of CPV that tenet in its strategy, but also integrates design into its Samsung simulated environments, and focused on isolated store continues to inform marketing and pricing strategies today. corporate culture. Design is not just used for product HTC elements such as lighting, music, scent, color, layout, etc. Economic principles of supply and demand drive pricing and development but for creating the entire customer However, it is well-accepted in psychology and other market dynamics. However, individual behavior is not always experience around the brand. Their products garner twice 800% disciplines that humans perceive their environments as rational as these models imply, nor are they uniform or the average selling price as their nearest competitor, their 600% holistically and while variances in a single element may drive consistent across populations. stores generate 10-20x the sales per square foot of industry differences in behavior at a localized level, people will 400% averages and shareholder returns far outpace competitors. generally base their overall impressions on a mix of factors. Research studying shopper behavior, in particular, concludes 200% These factors comprise “customer experience” that is greater that CPV is personal, situational and comparative. Each That is not to say that design alone can ensure company or 0% than a mere aggregation of single store design variables. consumer brings his/her own personal values, needs and market performance but the data suggests that all other previous experience to any potential experience. Depending things being equal, companies with stronger design focus 2010 2011 2012 2013 2014 What has been most compelling in recent years, from our on the sector, the consumer may be shopping for utilitarian (indicated by greater investments in design), are rewarded Source: SeekingAlpha.com view, is the evolution of marketing theory based on this more or hedonic reasons, in a group or alone, rushed or shopping with better financial and stock market performance. holistic model. Within the last decade, this mental shift has for leisure, or shopping for a specific occasion... these ROI of Design: PART 1 06 ROI of Design: PART 1 07
Fig. 4. CPV Moderators going to stores less for purely utilitarian needs (acquiring business and design perspectives to create experiences that product) than for hedonic (social or entertainment) reasons. engage customers on a cognitive, emotional, social and In many cases, the basis of competition is shifting from physiological level. By engaging all the senses and addressing products and services to broader customer experiences. One tangible and intangible needs, retailers can connect with PERSONAL SITUATIONAL can derive value from the shopping experience, even when consumers on a deeper level and create true “fans” -- nothing is purchased. Hedonic value is even more subjective customers who will not only demonstrate loyalty, but also Values - shoppers want Motive - utilitarian (task- alignment of values oriented) or hedonic (pleasure- than utilitarian value and dependent on individual context. share their positive experiences and opinions with others. with brands oriented) Armed with the ability to gather unprecedented amounts of The latest incarnation of CPV suggests that value is co-created Epistemic Needs - Social - alone or with group desire for knowledge/ customer data, companies can target specific consumers with the customer and dominated by service rather than CONSUMER learning/education Time - rushed or leisurely along a wide range of dimensions. These dimensions include goods. While goods are still important, it’s the service around
Previous Experience - Circumstantial - event or personal attributes such as beliefs, attitudes, values, and delivering a particular good or solution that creates bias for or against a brand occasion-driven (e.g., wedding, consumption habits. These aspects are more predictive of differentiated value. holiday, etc.) future shopping behavior than typical characteristics such as age, gender, zip code or level of education. By understanding As Terry Lundgren, Chairman, President & CEO of Macy’s, COMPARATIVE individual motivators such as purpose for shopping, social states, “...make no mistake about it, our stores are absolutely Competitive - relative to other options context, and brand expectations, retailers and designers can critical to our future. Stores are where our customers come create an experience that successfully engages customers on with their best friends or their family for entertainment and a variety of levels. ideas. Stores are where customers can touch and feel and see and experience the merchandise, and interact with our The next chapter in retail design is the convergence of knowledgeable associates.”13 moderators affect how s/he may value or respond to a retail “category killers” and store design became more expressive experience. Moreover, the value is perceived relative to other of brands. Store design elements were tailored for a target options. demographic (e.g., stores targeting youth had bright colors, loud music, etc.) or reflective of the core strategy (e.g., big To exceed expectations and create “delight” in the view of the box stores were designed to communicate low prices and Paradigm Shift to Customer Experience customer, it is imperative to consider the individual context. display high volumes of product, etc.) 1970’s Then in the mid-90’s, the internet gave rise to e-commerce Product Focus Business POV Design POV Operational Efficiency Individual Store Elements to A PARADIGM SHIFT and created a seismic disruption in the industry. Purely online Uni-dimensional CPV = Benefits - Sacrifices 4 P’s: Product, Price, Promotion, optimize utility, layout, display, The basis of competition has historically been focused on retailers (most notably Amazon) brought to consumers Place lighting, music, etc. utility value -- selling an objectively better widget or service. hereto unrivaled convenience and prices that benefited from Branding took the premise of adding intangible value and more direct distribution and lack of overhead from physical sought to take an inherently similar widget or service and stores. The turn of the century saw traditional retailers differentiate it through more subjective qualities such as scrambling to stay relevant. Long-standing stores, if not 1980’s authenticity, image, desirability, visual appeal, etc. Store entire companies, closed or merged with others. Yet, the Service Focus Multi-dimensional Business POV Design POV design was, to a large extent, an extension of a product’s marketing paradigms remained remarkably stable. Rooted in CPV = Functional value + Emotional Customer Satisfaction Isolated Retail Channel “packaging”. Thus, the marketing and design disciplines were the economic premise of value-exchange, marketing still value + Epistemic value + Conditional Customer Segmentation/CRM Store Image and Influence very product-centric, focusing on optimizing the 4 P’s: viewed customer relationships in a transactional sense. value Separate Channel Strategies Branding of Spaces product, price, promotion and place. The store was primarily about location and product display. Generally speaking, market research and ensuing design strategies focused on improving the transaction. Metrics In the 80’s, however, attention shifted to the customer. New focused on operations to reduce costs and “value chain” 2000’s marketing theories and best practices acknowledged that activities such as order and fulfillment to increase “customer Experience Focus mere location and product display were not enough, and that satisfaction”. Although consumer intelligence improved New paradigm of engagement Business Approach + Design POV a deeper understanding of the customer was required. dramatically, customers were still viewed somewhat at an CPV = Individually derived across all Customer Experience (CX) arm’s length: they were faceless groups, sorted by channels and over time (journey) + social Engagement and “Fan-dom” Qualitative and quantitive tools abounded, segmenting demographics, market need or other surveyable data. interactions (employees + other customers). CPV is co-created. markets, identifying targets, developing stronger (but primarily single) channel strategies and measuring customer However, a paradigm shift has been occuring for the last satisfaction. This era saw the rise of specialty retailers and decade. With the growth of online commerce, shoppers are ROI of Design: PART 1 08 ROI of Design: PART 1 09
Ironically, in a post-Amazon world, not only is the physical Warby Parker, Rent the Runway (RTR), BaubleBar, Birchbox Through a variety of pop-up events with strategic partners, Ironically, in a post-Amazon store still relevant, but it is potentially a critical element in and even online stalwarts such as eBay and Amazon, are they also gained significant brand exposure for relatively little creating a unique and memorable customer experience that creating physical environments (both temporary and expense. BaubleBar’s creative events, many incorporating world, not only is the physical engages customers for long-term loyalty. permanent). Their offline experiences validate expectations social media, and some with photo booths, lounges and bars, that consumers appreciate a physical as well as virtual generated marvelous buzz. Julia Straus, Director of store still relevant, but it is The Experience Economy experience. The opportunity to physically connect with Partnerships, believes the events helped their credibility and In 1998, business authors B. Joseph Pine and James H. consumers on a personal, human level can be invaluable. ability to seek new partnerships, such as their recent potentially a critical element in Gilmore were possibly the first to coin the term “Experience exclusive collaboration with Anthropologie Stores. creating a unique and memorable Economy”. In a “buy anything, anywhere” world, it stands to As Craig R. Johnson, President of Customer Growth Partners, reason that consumers would enter stores seeking more than observes, “An Apple store doesn’t just exist to sell iPads and The mindset of these two savvy start-ups (Rent the Runway customer experience that engages a transaction that can be handled more conveniently and MacBook Pros, it exists to create a brand experience that launched in 2009 and BaubleBar in 2011) are indicative of a cost-effectively online. Drawing an analogy from theater builds loyalty, brand and buzz. If you are a Google and you are new model that is agile, experimental and firmly rooted in a customers for long-term loyalty. where the experience is the product, Pine and Gilmore an eBay, you are sitting there on the Internet. The Internet is customer-centric view that seamlessly crosses channels. suggested that a retail store is a “stage” where the employees emotionally a very flat experience. It can never match the Emotional terms like “fun”, “excitement”, and “engagement” are actors to “perform” for an “audience”. experience of being there in person.”49 are part of their parlance and metrics similarly center around tell the brand story and provide immediate access to goods. outcomes from customer excitement such as social media We see this evolution across product categories and sectors. In the case of RTR, executives knew that fit was a “huge” issue buzz and word of mouth. With e-commerce the new reality, retailers are realizing that Take coffee as an example. Coffee is a basic commodity that for customers and created small showrooms (their first as a the historical differentiators of price and location are not was “marketized” with early brands focusing on the coffee shop-in-shop at NYC’s Henri Bendel’s flagship store) and Another successful online-only player, Birchbox, is also enough. In fact, for brick-and-mortar retailers who compete itself: “mountain-grown” and “good to the last drop”. Coffee- realized how emotionally engaging the experience could be dipping its toe into the physical world. Birchbox launched primarily on price, designing for CX is even more imperative. as-service gained momentum in the 80’s as Starbuck’s proved for their customers. As Becky Hyman, Senior Director of four years ago as a web-based subscription service for Big-box stores, for example, have seen a secular decline as that consumers were willing to pay more for made-to-order Retail, explains, “Women come to us for a personal styling premium beauty samples. Having grown to 250 employees customers turn to the web for lower prices and greater drinks and a nice environment in which to dwell. The newest experience aimed to help them find the perfect looks for all of and over 800,000 subscribers, Birchbox is branching out into selection. Retailers who’ve focused on the customer iteration of Starbuck’s and the resurgence of local their upcoming events. Our stylists know the inventory bricks and mortar. After experimenting with five “pop up” experience, however, have not only survived, but are thriving. coffeehouses featuring an “authentic” backstory, live forwards and backwards and use their expert advice to help stores in New York City and the Hamptons, co-founder Costco is one player who has followed a strategy that focuses entertainment, fine art collections, kid play areas, locally the customer find the look that helps her feel her most Hayley Barna states, “We saw some clues along the way -- on “delighting” the customer and enjoys much higher market made food, etc. demonstrate a more interactive, experiential beautiful and self-confident.” wow, it’s really powerful to interact with our customers.” share (46.5% vs. 38.4%) and customer loyalty than Sam’s Club desire for the coffee-consuming experience. (whose market share declined 2010-2012 while Costco’s went RTR found their new customer acquisition rates higher in Birchbox is planning to open a 4,500 sf storefront in NYC in up)51. Costco ranks highly on Forrester’s CX index and the A few of the remaining department stores conspicuously their showrooms than on their websites and believe the late May of 2014. The founders envision a lifestyle returns to its shareholders are nearly triple that of Walmart demonstrate this concept of retail as theater; Selfridges, social environment and one-on-one interactions between “experience” where shoppers can experiment with products, (see chart below.) Harrod’s and Macy’s have long traditions of spectacle. From employees (stylists) and customers (clients) are key take classes for beauty tips and even indulge in hair styling the man-made rooftop lake at Selfridges to live animals at differentiators. services. Touch screens throughout the store will allow To that end, traditional metrics such as customer satisfaction Harrod’s to Macy’s Thanksgiving parade, these retailers customers to complete personal profiles and get product typically focus on a single episode/encounter or point in time, understood the value of the customer experience and have Moreover, having offline space allows retailers to experiment recommendations and customer reviews. rather than the entirety of the customer’s journey leading to thrived despite economic downturns and an arguably and learn from their customers. RTR took the learnings from anachronistic business model. their Henri Bendel shop-in-shop to their standalone boutique Like RTW and BaubleBar, Birchbox is thinking beyond just in the Cosmopolitan hotel in Las Vegas (opened December in-store sales. Co-founder Katia Beauchamp states, “We are 5-Year Share Price Appreciation (Costco vs. Walmart) 2013) and plan to expand their physical footprint. “We’re still not focused on profitability, we are focused on NEW RELEVANT METRICS figuring out all the different elements, but in the end, it’s hypergrowth.”49 The founders expect the new store to be In assessing the success of a given retail store, traditional really about creating a warm, fun, comfortable, personal somewhat of a laboratory. Perhaps having been incubated metrics such as sales per square foot and customer experience,” says Erica Oswick, Senior Visual Designer. during a time when social media has dramatically changed satisfaction have their place, but are increasingly less the conversation within the entire value network, these meaningful in an omnichannel world. The store can be Online jewelry retailer BaubleBar discovered that shoppers companies intuitively understand the importance in having a valuable as a showroom, service center, idea/market research buy different scale jewelry in-store vs. online and garnered dialogue with their constituents and meeting emotional and lab or an engaging brand experience, but those roles are not new insights into the “trying on process” by observing and psychological needs as much as delivering physical goods. necessarily intended to generate in-store sales. listening to customers--an activity difficult to replicate online. “We would mystery shop, drop in on conversations and These retail strategies view the physical store as more than One fascinating development in recent years is the actually see what guidance our customers needed,” says another sales channel, but as an important touchpoint along proliferation of offline endeavors for online retailers. Despite BaubleBar’s Director of Offline, Katharine Hill. the customer journey that provides opportunities to learn proven success of their purely online models, retailers such as about the customer and build the relationship as much as to Source: Yahoo Finance. ROI of Design: PART 1 010 ROI of Design: PART 1 011
an overall emotional connection to the brand. While they give customer experience, Forrester has found that companies are at cross-purposes when it comes to servicing the Summary of Store Design Elements a good indication of past performance, customer satisfaction that focus on excellent customer experience reap the rewards customer. A typical conflict is between online and offline levels are relatively poor indicators of future loyalty. In fact, along a variety of dimensions. In the case of Fidelity channels. An example of this is one client who installed TRADITIONAL ELEMENTS OF STORE DESIGN OTHER KEY FACTORS business strategist Fred Reichheld found that 60-80% of Investments, their CX team discovered that customers with a kiosks in their stores so customers could order items online BASIC PROGRESSIVE HOLISTIC quitting customers had been “satisfied” or “very satisfied” good experience invested 4.5x more than the average that they couldn’t find in the stores. However, because all Exterior - Location, Service interaction - Merchandising - 29 access, parking, marquee, Employee uniforms and Assortment, quality, price, just before switching to competitors. customer, leading to an annual differential in the billions of sales through the kiosks were credited to the e-commerce architecture, window interaction, technology, promotion, uniqueness, etc. dollars.50 divison rather than the store, store employees had unplugged displays, etc. customization, etc. Customer Relationship Customer experience, on the other hand, reaches customers the kiosks (telling customers the machines were not Interior (spatial) - Layout, Communications - Management (CRM) - space planning, wiating Brand identity, theme, Customer knowledge, at a cognitive, emotional and intuitive level, leading to working), in order to keep sales in-house. queues, privacy, wayfinding, authenticity, community, loyalty/rewards programs etc. etc. stronger brand affinity. Marketing professors Maklan and Operational - Staffing, Stock Returns - Watermark Portfolios Interior (physical) - Social environment - inventory levels, IT systems, Klaus (2011) found that customer experience had much One of the few retailers with a deep appreciation for Flooring, materials, finishes, Crowding, interaction with return/exchange policies, stronger correlation to loyalty than customer satisfaction 6-year Return potential channel conflict is Macy’s, who turned heads last fixtures, furniture, visual other customers, social etc. displays, equipment, etc. engagement, etc. (86% vs. 65%)14. year by no longer reporting sales by channel. In their 2013 Cross-channel experience Interior (atmospheric) - Seamless integration of Annual Report, Macy’s states, “We see a growing number of - Lighting, colors, scent, web, mobile and other Top 10 Customer sounds, temperature, digital and physical And customer loyalty, more than satisfaction, is the real our customers becoming omnichannel customers. They may cleanliness, etc. touchpoints to enhance CX driver of value to the bottom line. Reichheld and co-author Experience Leaders +43% research on their mobile device before visiting one of our Majority of research over last Last decade has produced A more holistic approach Earl Sasser, in a seminal study published in the Harvard stores to touch the fabric on a jacket or converse with a 40 years focused on these new research into social to environmental design is elements and impact on interactions and more emerging that looks at the Business Review in 1990, found that even a 5% increase in beauty advisor in our cosmetics department. They may make shopper behavior. human-centered elements. entire customer experience. customer retention could almost double profits.23 Over the the purchase in the store or buy it online while at home or in last 20 years, additional studies have borne out the the office... Macy’s embraces customers and strives to provide correlation between loyalty and increased profitability, if not S&P 500 Index an experience that transcends ordinary shopping.” By the exact multiple. If loyalty is a key driver for profit growth +14.5% pursuing a strategy that focuses on the customer experience and customer experience is a key driver to loyalty, then our across channels, Macy’s is outperforming peers in a among) the major stakeholders: the company, consumers goal in using design for positive financial outcomes must challenging retail market. and employees. focus on designing the customer experience (CX). What has been difficult in the past is a relatively narrow and -33.9% We believe that successful retailers of the future will go CX as the Key Driver of Value Bottom 10 Customer beyond an “omni-channel” strategy to a CX strategy that puts fragmented approach to store design. Designers were CX has already proven demonstrable value on an empirical Experience Laggards them wherever and whenever is most convenient to their historically given a site and budget and scant context on and anecdotal basis. A recent study by McKinsey found that customers -- be it at home, in stores, on their smartphones or corporate strategic vision, customer profiles, market when designed for end-to-end customer experience44: wearable device. The physical store, however, plays a unique positioning, or service model. What we’ve found in recent role in CX in its ability to provide a differentiated experience years, however, is a growing convergence of business and • Revenue growth went up 10-15% Source: Forrester Research, “Avoiding the Top 3 Customer Experience that is multi-sensorial and emotionally engaging. design processes and a demand for greater insights and Failures in the Age of the Customer” presentation, March 2014. • Customer satisfaction went up 20% more strategic design solutions. • Employee engagement went up 20-30% • Cost to serve customers went down 15-20% Moreover, the focus on CX appears to impact fundamentals NEW FRAMEWORKS Strategic and sustainable design solutions require an leading to increased shareholder returns across industries. Designing for CX is an emerging field that requires a multi- integrated design process that: Consultancy Temkin Group studied 206 U.S. and 66 U.K. Using Forrester’s Customer Experience Index (CXi), disciplinary approach. In designing retail environments for • Clearly defines strategic objectives, brand positioning companies and also found strong correlations between CX Watermark Consultants created a stock portfolio of the top almost 50 years, Gensler has seen its role shift from a and vision and loyalty. For the retail industry, this translated to over 10 CXi leaders and one of the bottom 10 CXi laggards. Over a technical expert to an industry advisor to a strategic partner. • Incorporates market intelligence, consumer insights $300 million in increased revenues from CX improvements. period of 6 years, they found that the top 10 portfolio yielded It is no longer sufficient to just have well-priced and well- and candid inventory of organizational strengths and (See Appendix D for chart.) returns of 43% vs. the S&P 500 return of 14.5%. The portfolio displayed products in a well-located, well-designed store. weaknesses of CXi laggards had share depreciation of 33.9%. One must design for the entire customer experience that • Connects the customer experience across channels Given that studies have found correlations between CX and does not necessarily begin nor terminate at the store. • Aligns policies, communications, incentives and staffing top-line growth, customer engagement and operational However, despite the mounting evidence and growing models accordingly efficiencies, it is not surprising that CX has been heralded as a business case for CX, few companies actually do it well. This In our experience, the most successful outcomes result from key source of competitive advantage. Forrester Research calls is partly due to the fact that CX itself is still a relatively new the collaboration of our diverse resources of designers, We thus propose a new framework and process that builds post-2010 the “Age of the Customer”. Unlike previous eras construct. According to Forrester Research, only about 6% of strategists and branding experts with a client team of on existing retail store design and shopper behaviorial where technology has been primarily responsible for major the S&P 500 have some version of a Customer Experience managers and leaders across functions, including marketing, models by integrating various stakeholder perspectives and 50 industry shifts, this particular shift is due to human factors (CX) Officer. Many organizations are also hampered by corporate strategy, IT, human resources, customer service understanding all physical and digital touchpoints within and rising customer expectations that “demand a new level of traditional silos in organizations that obscure visibility to the and e-commerce, as well as retail operations. Designing for the context of the greater customer journey. To that end, obsession”. In their extensive research in the field of entire customer experience, and conflicting incentives that CX must align key components from (as well as interactions we’ve developed an integrated and holistic process that ROI of Design: PART 1 012 ROI of Design: PART 1 013
• CX in other channels Designers were historically given CX Stakeholders • Consistency/congruency (among aforementioned elements and in relation to brand) a site and budget and scant COMPANY Where many retailers and designers fail, however, are in the • Defines brand, vision, strategic last two categories where the entire experience is viewed context on corporate strategic objectives across all channels, is on brand, and congruent with all other vision, customer profiles, market • Identifies target markets >> Hiring elements. We have seen cases where the design and >> Policies • Develops HR model >> Training/Empowerment merchandising is superlative, yet the service interaction is >> Loyalty/Rewards program(s) positioning, or service model. • Determines investments >> Compensation poor, and/or the interface with the website and mobile are >> Marketing/Communications • Selects and manages third parties >> Technology/Knowledge inconsistent and poorly designed, and the overall impression What we’ve found in recent (e.g., supply chain, vendors, etc.) >> Customer data/CRM COMPANY tools of the brand is left wanting. >> Self-service technologies Corporate Strategy years, however, is a growing CONSUMERS Additionally, there are elements outside of our control that convergence of business and • Brings personal values, biases, pose risks to the developed design. These include the needs and previous experiences external environment (e.g., economy, weather, competition, • Shopper intent is key variable in CONSUMERS EMPLOYEES design processes and a demand etc.) as well as the personal context of the shopper (discussed determining CPV “Moderators” Service Model • Customers also impact each other earlier in how consumers perceive value). Companies that for greater insights and more (“C2C”) seek to understand these moderators of the designed experience through market research and analysis not only strategic design solutions. EMPLOYEES mitigate these risks, but provide valuable input into the • Enabled or disabled by the built design process. environment >> Personal interactions and qualitative and quantitative tools to develop a deeper relationships • The number of, attitudes and In recent years, we have developed tools to help clients understanding of target consumers, relevant trends and physical appearance of employees >> Expertise/advice gather and analyze this information. In addition to traditional impact customer perceptions external context. market research, we also use ethnographic fieldwork (observing and interviewing consumers in-situ), and other As an example of insights garnered from simple observation, we discovered for a particular entertainment destination, that many of their customers did not speak English as their first CASE STUDY language. While our client knew that their location attracted provides discipline and tools to optimize CX design, merchandising components, operational issues, CRM, In 2015, Macy’s Herald Square will complete its $400 a high number of tourists, they didn’t realize the extent of the measure outcomes and contribute to ongoing customer policies and programs, etc. million renovation, featuring 22 new eateries and new struggle that their English-only signage and wayfinding improvements. technologies designed to appeal to younger shoppers and created for many of their constituents. Additionally, since all In designing the customer experience, we need to go beyond make omnichannel shopping seamless. Features include their customer satisfaction surveys were conducted in Designing for the Customer Experience the physical design elements and atmospherics that have a system to stream live video feeds of Macy’s events English, they had inadvertently overlooked this key segment Given the broad nature of design, we identified and traditionally defined store design. This necessitates a broader nationwide, digital product information displays, and a completely. categorized specific design elements into three categories: skillset within design teams to translate business objectives new mobile app to guide consumers while shopping. The shoe department, billed the “largest shoe store in the into design solutions, and retailers to apply design thinking New Metrics 1. Basic Elements of Store Design: world” with over 300,000 shoes in 39,000 square feet, will to business strategies. Increased collaboration is needed Lastly, one of the newer, more nascent areas of study have This includes exterior and interior design elements such also have a new coffee, wine and chocolate bar. Spectacle as architecture, window displays, layout, space planning, among design teams, corporate leadership and the business events such as the 4th of July fireworks, flower shows, been around metrics. While business outcomes such as sales, flooring, materials, lighting, etc. functions that impact the customer experience. fashion extravaganzas, celebrity appearances, cooking foot traffic, repeat patronage, etc. are commonly captured, demonstrations, Christmas tree lighting and in-store Santa the employee and customer experience are less commonly 2. Progressive Elements of Store Design: Based on our research and collective experience, we have are all part of the “magical” Macy’s experience and strive measured. Yet they are critical drivers for desirable business These elements layer upon the basic store design with developed a Framework for Designing CX that maps key to make the store a destination. outcomes and the bridge between design and outcomes. service and social aspects, as well as a consistent drivers, variables and potential outcomes. In designing for At a time many retailers are downsizing their retail communications strategy to convey brand, create CX, many of the elements are within our control and form the The store environment is the workplace for retail employees footprint, Macy’s is adding 100,000 sq. ft. of selling space. community, etc. basis of the experience: and can thus help or hinder employees in performing their Macy’s focus on the customer experience has rewarded 3. External Key Variables (Holistic View): • Exterior and interior design shareholders with 5-year returns over 600%, versus its jobs. In our workplace research (http://www.gensler.com/uploads/ Though typically outside the purview of designers, these • Merchandising peers (just over 350% for Nordstroms and around 35% for documents/2013_US_Workplace_Survey_07_15_2013.pdf), we have elements are nonetheless critical to consider in designing • Service interaction Kohl’s) over the same period. found that certain design aspects directly impact employee the customer experience and include traditional • Social environment productivity such as access to natural light, the level of ROI of Design: PART 1 014 ROI of Design: PART 1 015
ambient noise, and availability of spaces for different modes CONCLUSION Further, CX needs to be measured across the entire journey of work. In the case of store employees, the environment can We began our research looking to quantify the value of over time. This requires a broader and longer view of the also directly impact service levels and customer experience. design specific to retail store design. What we discovered is customer experience and a collaborative design effort that While this may seem obvious, the store employee component that correlations between specific design elements and cuts across the client organization. is often overlooked in store design. Perhaps due to the shopper behavior could be proven in a contrived setting; typically high turnover nature of retail staffing models, the however, because humans perceive their environments To rise to the challenge of designing the entire customer staff perspective frequently lacks credence; however, this may holistically and through personal and situational filters, the experience and measuring its success, we must expand our be a missed opportunity to gain valuable insight into more critical objectives are to understand the entire design process and constituencies to gain visibility to all the employee productivity and effectiveness. experience and the contextual moderators impacting levers that impact the experience. With our proposed CX perceptions of value. Design Framework, we go beyond the traditional store Our framework builds upon previous work by Bitner (1990), design elements to consider the customer experience more Turley & Milliman (2000) and Verhoef et al., (2009) and brings The empirical evidence is clear on two fronts: 1) that the fully, and begin to correlate environmental design to together the elements we have found critical from our own ROI of design, in general, is significant along a variety of consumer behavior and business outcomes. This is an research and professional experience. Retail design has been dimensions, including increased sales growth, shareholder exciting new realm for designers to articulate value in the traditionally limited to the controllable factors, and while value, and productivity and 2) customer experience is the longer term, and for brands to create sustainable advantage some businesses may have extensive market research on the key to increasing loyalty and ultimately, financial and stock by designing superlative customer experiences. moderators as well as business outcomes, that information is performance. We can design the customer experience, and infrequently shared with designers or provided in a usable thus, we can design the impact on business outcomes to format to inform the design process. The convergence of some extent. This next level of design comes from a broader business analytics and design thinking in creating retail and deeper understanding of the customer experience, the strategy is an important development in the successful design role and impact of employee experience in CX and of the customer experience. monitoring the right metrics.
We advocate a holistic approach to designing and measuring Designing great customer experiences, however, is easier customer experience. There are a growing number of said than done. The extant research indicates that within sophisticated tools that measure dwell time, create heat maps industries, there are large gaps between competitors on and even track where people are looking and for how long. their ability to deliver superlative experiences and that However, any individual tool tells only part of the story. there are entire industries still in the infancy of CX design. Because consumers assign intangible as well as tangible value This is an emerging field with immense opportunity for all around their experience and interaction with a company, companies. A particular challenge for retail, hospitality and metrics need to capture outcomes along both dimensions. other industries where physical space is a key part of the About the Author: customer experience, is the disconnect among the Jane Greenthal is a design strategist with Gensler in the San As the studies show, the level of brand engagement and CX stakeholders, designers, and various corporate functions Francisco office. Ms. Greenthal has over 20 years of experience can be highly predictive of loyalty. Therefore, in addition to responsible for delivering the end-to-end customer in consulting and industry and is passionate about the traditional financial and operational outcomes, qualitative experience. The seamless integration of other channels, intersection between design and business. She holds bachelor’s measures around the emotional aspects also need to be particularly web and mobile, are no longer “nice to haves” degrees in Economics and Interior Architecture & Design from captured. Social media monitoring and deployment of gaming but quickly becoming necessities. UC Berkeley and the Academy of Art, respectively, and a and other interactive programs are some ways to assess Master’s in Business Administration from the Harvard Business engagement. The approach to retail design of focusing on the product, or School. She can be reached at [email protected] the store as the “packaging” of the product, no longer Our framework for designing CX begins to lay out the key works. The transactional nature of the relationship must About Gensler: components, research needs and inter-relationships. evolve to an emotional one that seeks to engage customers Gensler is a leading global architecture, design, planning, and Project-specific data collection tools and metrics are long-term. In the new “experience economy”, the process strategic consulting firm that partners with companies to developed as part of the design process, bringing together needs to begin and end with the customer. This “user- achieve measurable business and organizational goals through the creative output with disciplined insights based on actual centric” design approach, while not new, is not applied design. For almost 50 years, Gensler has been a pioneer in outcomes. By evaluating specific outcomes before and after consistently in environmental design nor in an integrated creating great places that enhance the quality of work and life. major renovations or new prototypes, we can better manner with consideration and understanding of all Today, Gensler has more than 4,000 professionals networked correlate and understand the impact of design decisions. stakeholders, strategic goals and organizational alignment. across 46 locations. ROI of Design: PART 1 016 ROI of Design: PART 1 017
FRAMEWORK FOR DESIGNING CX
CONTROLLABLE FACTORS UNCONTROLLABLE FACTORS ASSESSED OUTCOMES
EXTERIOR - Location, access, parking, marquee, architecture, window displays, etc.
INTERIOR DESIGN - Layout, space planning, SITUATION MODERATORS - wiating queues, privacy, wayfinding, Economy, weather, season, local culture, EMPLOYEE EXPERIENCE - environmental graphics, flooring, materials, competitors, etc. Cognitive, emotional, social, finishes, fixtures, furniture, lighting, colors, physiological scent, sounds, temperature, cleanliness, etc. Ex. Comfort, company perception and loyalty, commitment, mood, MERCHANDISING - Visual display, attitude, capability, etc. assortment, quality, uniqueness, price, etc.
SERVICE INTERACTION - Employee uniforms, BUSINESS RESULTS - technology, training, policies, etc. Financial: Sales growth, share of wallet Operational: Foot traffic, SOCIAL ENVIRONMENT - Crowding, social CUSTOMER EXPERIENCE - response times, customer engagement (designing for community, use of feedback, etc. social media, etc. Cognitive, emotional, social, Loyalty: Repeat CONSUMER MODERATORS - physiological purchases, likelihood to Shopping purpose/intent, Ex. Engagement, brand affinity, switch to competitors, CX IN OTHER CHANNELS - Holistic psychographics, personal values, comfort, mood, attitudes, etc. willingness to recommend view of experience across all channels previous experience, price sensitivity, mood, etc. Other: Brand awareness, social mention/reviews CONSISTENCY/CONGRUENCY - A critical element to creating a seamless and immersive experience. Relates to brand and all elements above.
Sources: Bitner (1990), Turley & Milliman (2000), Verhoef et al. (2009), Gensler research. ROI of Design: PART 1 018 ROI of Design: PART 1 019
APPENDIX A APPENDIX C
Customer Perceived Value (CPV) Models relation to expectations of various characteristics (e.g., Perhaps the most widely cited and used models of CPV are cleanliness of store, orderly layout). The model suggests that Design Studies 2003-2010 based on Khalifa’s work in 2004 that introduced the Value the absence of expected characteristics lead to greater YEAR NAME PUBLISHER KEY FINDING Exchange Model (Fig. 1) and Value Buildup Model (Fig. 2). negative perceptions, even outrage, whereas unexpected 2010 The Design Effectiveness BNO-Association of Dutch Emphasis on experience and functionality design leads to better product Both models consider tangible (utility) value and intangible elements have greater potential for higher levels of Industry Report Designers performance. (psychic) value in calculating total value to the customer. satisfaction or delight. 2010 Design Value - A Strategy for Red Dot edition, Zec, P. and Using the Red Dot Award for calculating design value (without regard to design However, these relatively simple and rational models omit Business Success Jacob, B. quality), found design to be crucial driver of value. the contextual aspect of CPV and thus belie the complexity of 2008 Svenska Företagom Design SVID- Swedish Industrial Difference in productivity between companies who invested in design and those how individuals perceive value. The Value Dynamics Model Design Foundation who didn’t was over 50%. (Fig. 3) is third model that begins to look at perceived value in 2007 The Value of Design British Design Council Total sales of design alert businesses grew by avg. GBP225 per GBP100 invested Factfinder Report and share price performance was 200% higher than that of the general stock market index. 2007 The IDEA award as a design Stanford University, Center for The share price of IDEA Award winners for 5-year period (2000-2005) exceeded quality metric Design Research that of companies in S&P500 Index by avg. EUR650/yr. Fig. 1. Value Exchange Model Fig. 2. Value Buildup Model 2003 Financial Effects of Design Research Institute of the Heavy investors in design beat competitors in sales growth, product export Mostly CUSTOMER Mostly Finnish Economy shares and market value. Utility Needs NEEDS Psychic Needs Psychic 2003 The Economic Effects of DDC-Danish Design Centre Companies investing in design had 22% higher sales growth than non-investing Value Net Customer Value More as an More as a Design companies (40% if sustained higher investments). Total Value interaction Person to Customer Total Cost of search, Meaning or “Living For” Customer Cost acquisition, etc. Source: http://www.slideshare.net/fred.zimny/design-roi-measurable-design2012issuueng
Supplier Margin Experience or “Living Through” Utility VIEW OF OF VIEW OF VIEW
Value Price CUSTOMER
APPENDIX B RELATIONSHIP Solution Cost to Supplier Functionality Value Buildup More as a More as a transaction Customer Mainly CUSTOMER Mainly Danish Design Ladder Tangible BENEFITS Intangible
Source: Ullakonoja, Juho, “Marketing Master’s Thesis: The Effects of Retail Design on Customer Source: Ullakonoja, Juho, “Marketing Master’s Thesis: The Effects of Retail Design on Customer Perceived Value”, Aalto University, School of Economics, 2011. Perceived Value”, Aalto University, School of Economics, 2011. % of companies in 2003 15% % of companies in 2007 21% Stage 4: Design as strategy 4. STRATEGY Design forms a part of the Fig. 3. Value Dynamics Model Company’s strategy 35% Stage 3: Design as process Value Magnifiers 45% Delight 3. PROCESS Design is part of product development and other processes 13% Satisfaction 17% 2. STYLING Stage 2: Design as styling Level of Customer Design used for improving the Satisfaction Unexpected Neutral Destroyers appearance of products Value 36% 15% Stage 1: No Design 1. NO DESIGN Dissatisfaction Design plays no role in product or Explicitly Expected service development Implicitly Expected Outrage
Absent Present Source: http://www.slideshare.net/fred.zimny/design-roi-measurable-design2012issuueng Presence of Characteristic
Source: Ullakonoja, Juho, “Marketing Master’s Thesis: The Effects of Retail Design on Customer Perceived Value”, Aalto University, School of Economics, 2011. ROI of Design: PART 1 020 ROI of Design: PART 1 021
APPENDIX D ROI of Design: PART 1 022 ROI of Design: PART 1 023
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Turley, L.W. and Milliman, R.E., “Atmospheric Effects on 48. http://www.telegraph.co.uk/luxury/property-and- ABU DHABI MINNEAPOLIS ATLANTA MORRISTOWN, NJ AUSTIN NEW YORK BALTIMORE NEWPORT BEACH BANGALORE PHILADELPHIA BANGKOK PHOENIX BEIJING PITTSBURGH BOSTON RALEIGH-DURHAM CHARLOTTE SAN DIEGO CHICAGO SAN FRANCISCO DALLAS SAN JOSÉ, CR DENVER SAN RAMON DETROIT SÃO PAULO DOHA SEATTLE DUBAI SEOUL HOUSTON SHANGHAI HONG KONG SILICON VALLEY LA CROSSE SINGAPORE LAS VEGAS SYDNEY LONDON TAMPA LOS ANGELES TOKYO MEXICO CITY TORONTO MIAMI WASHINGTON, D.C.
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