Magazines Archives - 2009 October

Customer centricity is key to success
Story 2 - Cover Story

Retailing has always been and always will be about the customer and never more so than today as retail businesses across the world strive to keep a healthy balance between margins and consumer spend. Jolene Klassen finds out from global management consultancy company Accenture how retailers can transform their businesses to be absolutely customer-centric.

Over the past year, battered economies have kept the retail industry on the edge of its seat. While many businesses around the world folded as others changed hands, retailers found that they were frequently torn between improving their margins and maintaining their consumer spend, without compromising
the quality of their products and brands.

On top of this, the ever-evolving consumer, who has become more discerning and demanding as purse strings tighten, proves to be an added challenge for retailers. In this highly competitive
environment, retailers not only need to make sure their customers continue to buy their products, but they must also ensure that they have what their customers need. If the product that the customer wants is not on the store’s shelf, it is a lost sale.

It is no wonder that the more savvy retailers have turned to analytics, delving deeper into the customer psyche to understand how they go about their spending habits. Knowing their customers
intimately enable these retailers to better streamline their promotions and marketing initiatives. By turning their focus to customer centricity as an essential business approach, these retailers set themselves apart from their competition.

By learning more about the customer and deploying the appropriate in-store loyalty programmes, among other initiatives, to achieve their customer-centric goals, retailers have been able to achieve their company’s sales and profit targets. At the end of the day, tangible results and benefits from retailers’ investments, while remaining relevant to their customers, is what will see them excel in the tough economic environment.

According to global management consulting company Accenture, customer centricity is about “how well retailers know their customers”, and then, most importantly, how effectively retailers are able to align their key “customerfacing” activities, such as merchandising, marketing and pricing, with their understanding of customers. This proves vital to retailers, especially when consumers have an “unprecedented choice of retailers, channels and products” in the market, states Marek Rucinski, partner and Customer-centric Retailing lead, Asia Pacific Retail at Accenture.

“Customer-centric retailing is more than loyalty and customer experience. It is the next-generation business model for retailers of all formats in all geographies. Their entire organisation needs
to transform their existing processes and mindset, and be fully aligned to the customers,” Rucinski continues.

More specifically, in understanding what motivates customer demand, retailers are able to identify how customers respond to different product features based on their buying decisions, which can then be translated into what drives demand. In streamlining their product selection, retailers can not only derive
the impact on their volume of goods should it choose to add or remove a stock-keeping unit (SKU), but also anticipate if “product cannibalisation” is likely to occur, and what new item opportunities
are in store for them in order to experience increased performance.

In addition, retailers can better manage their cost to meet demand by understanding how their profits are impacted by the change in assortment and space or merchandising decisions. In terms of space allocation in their stores, retailers are in a better position to decide where more space and inventory
is necessary, and where costs can be cut through proper inventory allocation, which inevitably leads to maximised store productivity.

In an Accenture study, Winning strategies for uncertain times: How retailers can achieve high performance in a downturn, the company shows that retailers who have achieved customer centricity leverage analytics in doing so — with three times the number of high performers in
comparison with low performers using analytics to accomplish this.

In addition, through analytics, retailers were able to reduce their inventory by up to 20%, allowing them to stretch their operating capital, while those who reassessed their procurement processes,
combined with a number of strategies, such as private label, inventory optimisation and global sourcing, were able to reduce their total cost by up to 50%. Once these steps are taken,
Accenture adds that the retailers can then align the demand for their goods with their strategic objectives in terms of volume goals for the brands, products and categories that are vital to increasing
consumer transactions, and, ultimately, increase customer retention, that is, turning customers into loyal customers.

With the ability to understand what consumers want, retailers would be able to map out their stores more precisely based on customer needs and behaviours, then align their marketing
strategies, through marketing, in-store experience and product assortment, among others, to target those customers directly. This in turn would deliver a “unique experience towards the most
important and valuable customer targets”, Rucinski maintains.

One component that has been given emphasis by the company is, retailers need to increase their ordering accuracy to ensure that they are bringing the appropriate merchandise to their stores
across the country. By placing customers as their top priority, retailers can identify and maximise the stock allocation by matching their product selection to the types and the number of customers
who frequent the stores, which in turn helps prevent out-of-stock situations at their outlets. However, Rucinski notes that “although retailers typically have vast amounts of customer data, and have
invested in powerful IT systems with the potential to help transform the data into useful information, few retailers are effective at utilising it to become customer-centric”.

In Accenture’s newly released report titled The Customer Code, Rucinski states that the challenge ahead for retailers is how to combine this analytics with their instinct, in order to “gain a
real edge” above their competition by anticipating and delivering what their current and potential customers want and need. The report also highlights that upon collating the necessary data
and analytics, customer insights should be integrated into the store environment, particularly in terms of selection and pricing of stocks, and even in the merchandising of the products on the shelves.

To this end, Accenture has broken down the process into six steps towards achieving customer-centric retailing:

Build and organise data
Before retailers decide to boost customer centricity, a very astute perception of their current market position, combined with the degree of customer centricity and their goal, should be determined.
Aside from internal aspiration for achieving this aim, retailers also need to consider external factors such as benchmarking against the competition in the market, along with the economic climate
and current consumer confidence.

In determining these objectives, the retailers set the course for the direction and approach they will take in implementing customer centricity throughout their business.

Attaining and analysing their business data while keeping these objectives and factors in sight would then help retailers identify what they need to improve on, where their strengths and weaknesses lie, and provide a basis from which they can work towards obtaining customer insight.

Profile customer segments and store clusters After extracting the relevant data, segmentation helps retailers profile their customers, to better understand who they are, what they buy and where
they shop. The retailers will be able to use this insight to make decisions that are essential to improving customer centricity.

In addition, retailers can better evaluate how their prices impact the customer’s buying decision; how effective their promotional efforts are; and if their product assortments are meeting
the customers’ needs and whether their limited store space is maximised to ensuring not only the convenience and comfort of shoppers, but also to securing optimum sales.

Armed with their customer profiles and by segmenting them into respective groups, retailers can identify where their opportunities lie and which areas in their business they need to work on.
At the same time, by clustering their stores, retailers can gain a better idea of how their product range and prices at different outlets appeal to their customers and build customer satisfaction, bringing about a loyal customer base.

To illustrate this, Accenture is working with a major retailer in Greater China, to deploy its Strategic Segmentation programme, which helps the retailer identify its customer groups and their respective value contributions and behaviours. Through this programme, the retailer is able to categorise its customers into seven segments, and then roll out targeted campaigns to each of the segments, to not only improve its relationship with the customers, but also to draw in potential customers into its stores.

Develop go-to-market strategies
After obtaining insights into what customers want and need, retailers can begin to fine-tune their company strategies to meet those demands, and devise their financial plans and key performance
indicators. Retailers can then develop strategies to improve customer value across their outlets and skew their marketing and merchandising measures to attract and retain customers.

Generate tailored tactics by touch point and channel
Collecting and analysing the data is pointless if the information retrieved is not implemented in the business. As such, based on their analysis and a more astute understanding of their customer
segments and priorities, retailers can then customise key areas in their business to ensure that the customer is taken care of.

One area that is often overlooked is in streamlining product assortments in the store. According to Rucinski, retailers who have revamped their SKU range have seen increased sales of between 5% and10%, while margins improved by 2%-3%, which is no mean feat especially in light of the recent downturn. Aside from space and merchandising, analytics can also determine the effectiveness
of a retailer’s marketing and advertising activities in various media, such as print, television and new media, helping them to realise their marketing return on investment (MROI).

Through years of experience, Accenture has found that about 87% of marketing investments can be improved, with about 29% of retailers’ marketing investments proving unproductive. With
analytics, retailers can create tailored programmes to target specific customer segments, bringing about a more proactive relationship between the retailers and their customers, and providing an
enhanced customer experience.

Execute targeted tactics
Implementing the recommended strategies across the marketing mix is the next step towards improved customer centricity. One way in which to do so is by ensuring the scaled execution of campaigns towards the retailers’ targeted groups, and using these campaigns to track and analyse how effective these programmes are.

At the same time, this would bring about added visibility to the retailers’ supply chain by monitoring inventory flow and levels, and identifying which range of products in the stores meets the needs of the various groups of customers, thus eliminating speculation in the process.

Track, learn and refine
Once implemented, retailers need to ensure that they track their performance via regular reviews and use these results in their business planning. In so doing, they can learn from the progress
that they have made, which areas they need to work on and how they can further improve their customer centricity, while making updates on their customer profiles as both the market and their customer continue to evolve.

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