IBM Global Business Services IBM Institute for Business Value Retail Turning shoppers into advocates The customer focused retail enterprise IBM Institute for Business Value IBM Global Business Services, through the IBM Institute for Business Value, develops fact-based strategic insights for senior business executives around critical industry-specific and cross-industry issues. This executive brief is based on an in-depth study by the Institute’s research team. It is part of an ongoing commitment by IBM Global Business Services to provide analysis and viewpoints that help companies realize business value. You may contact the authors or send an e-mail to [email protected] for more information. Turning shoppers into advocates The customer focused retail enterprise By Herb Kleinberger, Melody Badgett and Maureen Stancik Boyce While retailers are heeding the daily drumbeat of pundits on the importance of focusing on the customer experience, a gap remains between what retailers are delivering and what shoppers expect. Retailers can close this gap by systematically integrating knowledge of what their best customers want and expect from their brand into every core operational decision. This is where the bar will be set for retailers – to turn shoppers into advocates and create a sustainable, differentiated advantage. Unprecedented diversity, fragmentation of compelling experience. This is a transforma- consumer values and information transpar- tional strategy that will enable retailers to turn ency have polarized the retail marketplace shoppers into advocates – customers who will and created an imperative for all retailers to recommend and promote the retailer to others, differentiate. In addition, the challenges of an spend more of their wallet with that retailer and increasingly price-driven world have raised the remain loyal over time.1 bar for retailers to create a shopping experi- ence that builds loyalty to brands, channels Retailers can develop advocates by becoming and services and is not based solely on price. a customer focused enterprise and blending the customer perspective with a traditional Certainly these messages are not new and product-centric approach. This new perspec- many retailers are moving forward on their tive will require retailers to build customer customer strategies and are gaining deeper insights into their core business decisions insights into their core customers’ needs. But such as merchandising, marketing, customer that is just the first step. The new dimension to service, new product development, and store be explored is how retailers can change the and channel operations to significantly change way they operate to create a satisfying and the day-today operations of the business. Turning shoppers into advocates We believe that retailers that are customer Becoming more customer focused is focused achieve greater customer advocacy, important for all retailers, regardless of value retention and loyalty, capture increased share proposition. The pace of change in the market- of wallet and market share, develop deeper place will quickly make winners and losers. customer trust and demonstrate superior Leading retailers will move first to build strong financial results. bases of loyal, profitable customers who are also advocates of the company and achieve sustainable, differentiated advantage. Where will you be? IBMIBM Global Global BusinessBusiness Services Services Turning shoppers into advocates The customer focused retail enterprise The new business model: The with them, and the tactile performance or customer focused enterprise how their customers use their products or What does being customer focused services mean for retailers? 4. Prioritization of investments based on criteria Several factors in today’s retail marketplace that define a successful shopping experi- are driving the need for differentiation and ence for their best customers. customer focus. Retail market fragmenta- Becoming customer focused requires a shift tion and complexity are increasing, while in how retailers think about and organize their boundaries between traditional segments businesses. This is not to suggest embracing a continue to blur. In addition, the vast amount new perspective and abandoning the old way Becoming customer of available information is raising the bar on of doing things. In contrast, it is about bringing focused requires what customers expect retailers to provide in together an inside-out, operational view with the shopping experience. To navigate the ever- bringing together a an outside-in, customer view to deliver a changing marketplace, successful retailers “customer view” with superior shopping experience. are placing customers at the center of their a traditional “product- strategies and operations and becoming truly Traditionally, retailers have operated their busi- centric” view. customer focused. nesses with an internal focus on their core operations that is product-centric. At the same Retailers that are customer focused embody time, the view of the shopping experience is four characteristics: often constrained by functional silos, which 1. Deep understanding of the needs, shopping each have their own perspective and expecta- preferences and expectations of their best tions for the customer. These separate views customers across all channels, touchpoints, can lead to an ineffective customer experi- products and services ence due to an internal approach to managing 2. High priority placed on using customer operations that doesn’t completely consider insights to drive decisions in merchandising, the impact on the customer. For example, pricing and promotions, customer service, customers continually toss the promotional and marketing and communications mailers they receive at home because they are unrelated to their shopping baskets or habits. 3. Consideration given to both the emotive The reality is that marketing promotions are aspect of the shopping experience or often created with a mass approach and are how their customers feel about shopping cast with a wide net (see Figure 1). with them and how they want to interact Turning shoppers into advocates FIGURE 1. Disconnected views of the shopping experience. Demand Browse and Transact Fulfill Service and Remarketing generation research support “The coupons and “I can’t find “I can never find “I wasn’t able to “I was rushed “I’m receiving What your offers I receive clothing items that anyone to help reserve an item off the phone three e-mails a customer by mail have little fit my particular me, and if I do, from the Web site and didn’t get week, and they sees to do with what lifestyle or needs” they can’t tell me and then go pick all my questions all say something I purchase, so I whether a product it up in the store” answered” different” toss them” is in stock or not” GAP Mass approach Assortment No access Inventory Metrics reward Separate How you to marketing planning to inventory management reducing marketing plans operate and promotions doesn’t reflect availability; doesn’t span average call by division and customer staffing based channels time channel needs solely on cost Source: IBM Global Business Services; IBM Institute for Business Value. By balancing internal objectives with customer customers defect and take with them their objectives, retailers can bridge the gap purchases of low-margin items that didn’t meet between what the customer experiences and corporate targets, and the high-margin items how the company operates. The starting point that were bought in tandem. for this transformation is leveraging customer data across the company. When insights are aligned with customer- facing processes, retailers can transform their Consumer insights are critical to businesses in the following ways: align a product-centric view with the • The focus on the shopping experience customer view becomes channel, lifestyle and segment As retailers combine inside and outside based. perspectives, incorporating consumer insights • Merchandise selection includes category, into decision making across all core business segment and local market needs and processes is essential. Often times, retailers assortment decisions are based on opti- capture significant amounts of customer data, mizing the baskets of core customers. but it gets trapped in Marketing and is not • Marketing becomes less mass-market- leveraged across the company. This could driven and more personalized by segment. result in a category being deleted because of low margin and poor sales performance, • Organizational metrics include both product when this category was actually preferred by performance and customer satisfaction (see top customers. Unfortunately, a retailer may Figure 2). discover this only after some of their best IBM Global Business Services FIGURE 2. Transformation of processes with consumer insights. Modified view: Traditional leverages Example processes Traditional/product view consumer insight Assortment planning/ Category buyers and planners focus on Buyers and planners work with customer category management product and department financial goals data analysts, marketing and store/channel and performance representatives; criteria includes customer segment goals and performance SKU Decisions made primarily on item Decisions filtered through performance and rationalization performance versus plan needs of top customer segments In-store customer Store associates do not have access Store associates are empowered with data on service to customer preferences and purchase