How to Develop a Retail Business that Gives Your Customers
White Paper How to Develop a Retail Business that Gives Your Customers the Love they Expect Table of contents The Multi-Channel Age .......................................................................................................... 3 New Dynamic, New Perspective ........................................................................................... 4 Redefining Relationship – the Value:Cost Ratio .................................................................... 5 Consistency is King ............................................................................................................... 6 Broken Relationships ............................................................................................................. 7 Getting IT Right ..................................................................................................................... 8 © Copyright 2012 MICROS Systems, Inc. All rights reserved. 2 The Multi-Channel Age With more than 955 million monthly active users on Facebook, 175 million on LinkedIn and 140 million on Twitter – and growing daily – we can no longer deny that a ‘New Age’ has dawned for retailers. Customers are researching, comparing and increasingly purchasing products and services using ‘new’ channels such as the web, m(obile)-commerce, s(ocial)-commerce, and even TV-commerce. However, this is not to say that traditional channels are obsolete: recent studies indicate that the physical store in 1 particular still has a pivotal role to play in a retail operation. Indeed, research from customer insight agency SMG , found that 65% of retailers go so far as to say the in-store experience they offer defines their brand, and more than half claim it is still their most profitable channel. With the proliferation of channels, not to mention the convergence of old and new, it is not surprising that many retailers are struggling where to focus their energies and investments to make the best impact. What is clear is that, in the ‘Multi-channel Age’, it is imperative to get the balance of channels right and align the business to present a consistent and familiar experience of the brand at each point of contact. With so much at stake, where should a retailer begin? This paper outlines the steps required to successfully tackle this challenge and develop a retail operation fit for the new multi-channel customer. They include: Defining the market opportunity and nature of your (desired) relationship with your customers in the context of market competition, business opportunities and customers’ needs Converting this to a brand proposition – that balances the shopping experience you propose to deliver against these needs and opportunities along with your costs and prices Aligning and measuring all processes, people and systems – to enable and ensure consistent delivery of this brand proposition, and to thereby achieve and sustain the desired customer relationship. This is far easier said than done. Let us explain. 1 Carried out with, and reported in, The Retail Bulletin, 20 March 2012 http://www.theretailbulletin.com/news/high_street_fights_back_65_of_retailers_believe_the_instore_experience_defines_their_brand_13-0312/1.2 Strukturelle Herausforderungen für den Einzelhandel © Copyright 2012 MICROS Systems, Inc. All rights reserved. 3 New Dynamics, New Perspective With the dawn of the Multi-channel Age, the key to a successful retail model can be found neither by studying traditional, operationally vertical mechanics nor by blindly ploughing resources into new-channel initiatives. Instead, it is essential to recognise that there has been a veritable power-shift in the industry. With the explosion in potential touch points now out of a retailer’s direct control, we see the demand for products, prices and service increasingly being dictated not by the retailer but by the consumer. These new ‘pull-demand’ dynamics have irreversibly changed the retailer/customer relationship – not just because the market power has shifted to the consumer, but because it is re-defining what customers expect and accept from their retailers. In this way, the multi-channel shift is impacting even retailers who are abstaining from establishing new or multiple channels. In response, as a business imperative, all retailers must review their customer relationships with a fresh perspective. © Copyright 2012 MICROS Systems, Inc. All rights reserved. 4 Redefining Relationships – the Value:Cost Ratio Crucially, defining a customer relationship that will work in this new environment involves weighing up how much added value service to offer in order to meet customers’ expectations while being competitive, against how much to spend – therefore how much to charge – in delivering this level of value. We might call this the value:cost ratio. To help explain this concept, retail expert Marc Cox designed the ‘Love Grid’ (shown below). This compares the three major categories of relationship a retailer might have with its customers – from a low-cost, no-frills transactional one, to the higher value, quality service one that engages the customer on a more emotional level. Customer Experience Company Behaviour Customer Relationship Brand Memorable Product & price & added-value services Sense of purpose Love Beliefs and values Enjoyable Retailer Product & price & added-value services OK Dealer Respect Transaction Product & price ‘The Love Grid’ / Source: Marc Cox It is important to understand that each category on this grid has equal merit; the difference lies in the value:cost ratio – in the relative responsibilities and consequences – essentially associated with each. For example, to have a ‘Brand’ relationship, a retailer’s management style must be inclusive – engaging customers, empowering employees, sourcing feedback, sharing results, personalising contact and generally encouraging loyalty through an emotional connection and that ‘extra mile’ approach to service. It also involves being highly accessible to customers, which in the Multi-channel Age increasingly means being available and engaged with customers via new digital and/or social channels. This inevitably costs more to achieve, and therefore will be a more expensive proposition to customers. However, this is commercially viable where customers perceive and appreciate the extra value – or ‘love’ – received, and so are willing to pay for it. In contrast, the ‘Dealer’ relationship involves a focused, top-down, ‘get-it-done’ managerial approach, with efficient processes and decisions based on cost-effectiveness that, critically, keeps availability high and prices low. This is equally commercially viable if customers are looking for a commodity transaction and happy to expect and accept a ‘basic’ service in return for keeping their own expenditure to a minimum. Therefore, the first step in developing a successful brand proposition is to understand the exact nature of the retailer/customer relationship, and ensure that you know what level of value customers expect for what price band. If the value:cost ratio is acceptable to customers before they proceed with a transaction, then they are effectively agreeing to the ratio’s merit, and, as long as the expectations are met, there is every chance that the transaction will be repeated, thereby building into the desired ongoing relationship. But, and it is a big but, this will only hold true if the expected value:cost ratio continues to be delivered consistently. © Copyright 2012 MICROS Systems, Inc. All rights reserved. 5 Consistency is King It logically follows that the second step, then, is to establish a business model that consistently delivers on the defined proposition, or the value:cost ratio ‘agreed’ with – and therefore expected by – customers. Often overlooked in the scramble to adapt to the new multi-channel environment, consistency of the offer is nevertheless emerging as the key to giving the brand proposition the credibility that is all-important for customer retention. 2 SMG found that: while 98% of retailers agreed that multi-channel is vital, more than two-thirds of retailers said that their multi-channel strategies currently do not deliver the same customer experience across all their channels, and 66% recognise that such inconsistency affects customer loyalty. Retail consultancy SD Retail goes further, suggesting that it is not just inconsistency between channels that undermines customer retention: it is inconsistency between expectation and experience. It claims that, in recent years retailers and customers have begun to travel in completely opposing directions. Regardless of their desired customer relationship, the majority of retailers have responded to the global downturn by re-organising themselves functionally (through processes, people and IT) to achieve ‘transactional’ relationships that prioritise cost-efficiency, scale and standardisation. This may perfectly meet the expectations of the customers of ‘Dealer’ retailers. However, for the majority of retailers whose customers are looking for more from the relationship, this model fails to deliver the multi-faceted, easy-to-access or personalised shopping experience expected. In this situation, a retailer and its customer are in different positions on the ‘Love Grid’. Here, the value:cost ratio is not delivered as ‘agreed’ in the customer’s mind, and the relationship inevitably breaks down. 2 Carried out with, and reported in, The Retail Bulletin, 20 March 2012 http://www.theretailbulletin.com/news/high_street_fights_back_65_ of_retailers_believe_the_instore_experience_defines_their_brand_ 13-03-12/ © Copyright 2012 MICROS Systems, Inc. All rights reserved. 6 Broken Relationships Typically, we find that such a disconnection between the retailer’s actions and customer’s expectations are caused by ‘silo thinking’, where departments and channels operate in a vacuum, see only their one-dimensional view of the customer and systematically fail to communicate effectively with each other. This makes their customer relations strategies appear incoherent and puts them out of step with their customer, which creates some fundamental business issues Competing channels A disjointed retail operation invariably suffers a degree of internal competition between its own channels, with different business silos focused on their own KPIs and processes and lacking real understanding of each others’ motives, challenges and opportunities. This inevitably results in a confusing if not unsatisfying experience for customers. With many retailers reporting growth in click and collect business and in store ordering from extended ranges for delivery to home, any disconnect in the pricing, product availability, order management and customer communication can breed disappointment and leave customers disillusioned. Higher cost of sale Further, by not being able to track, collate and share customer habits and responses from across its operation, a retailer cannot fully understand its customers. This makes it difficult to consistently meet customers’ expectations or make them feel appreciated. The fallout from this is a less loyal customer base and a higher cost of sale. Undermined service, lost sales, increased HR costs Inadequate internal coordination and poor stock, order and customer insight also prevent staff from having the information they need to make effective decisions. This not only results in an underwhelming customer service, but undermines a retailer’s ability to up-sell and cross-sell. Worse, this can ultimately lead to staff dissatisfaction and a higher rate of churn - which increases training costs. Poor stock performance The effect of a silo approach to stock management is likely to be just as negative on profits. If stock is not consistently available, visible or accessible to customers across all its channels, the upshot will be lost sales against stock which lies redundant elsewhere in the business resulting in squeezed margins and customer disappointment. Unloved customers In short, with disjointed processes, IT systems and structures, retailers are likely to operationally drift away from their value proposition. This means that customers don’t get the experience they expect, and the relationship between the two is compromised. Retailers may have ‘got away with’ this situation before the Multi-channel Age, but emerging market dynamics make it far easier for unloved customers to be wooed by competitors who live up to their relationship and value:cost promises and make them feel better understood and appreciated. © Copyright 2012 MICROS Systems, Inc. All rights reserved. 7 Getting IT Right Fundamental to the ability of a retailer to consistently meet its customers’ expectations, then, is the ability to underpin every aspect of its operations – from its managerial style and processes, to channels, service quality and human resourcing – with the right technology infrastructure. Seamlessly interconnected operation In the ‘Retailer’ relationship, the right mix of solutions can all help a retailer to better understand its customers, and respond with a value-added service that will appeal - and seal the relationship. Importantly, by integrating its solutions operation-wide, a retailer’s various channels will be able to mutually support each other – either simply through consistent communication or more proactively through coordinated promotions or a cross-channel single basket order and delivery service. By also enhancing the ability to boost profits through affinity- and up-selling, cross-organisational systems benefit the business as a whole. Shared information Going a step further, successful customer-centricity at ‘Brand’ level can use a common IT infrastructure to dispense the collated, cross-organisational information back through the interconnected estate in useful, accessible formats, in real time. Powerfully, guided selling applications can put information about products, stock, prices, promotions, orders – as well as customer preferences and purchase history - at sales staff’s fingertips. This allows them to deliver the personal, knowledgeable and consultative transaction that Multi-channel Age customers increasingly seek from a store visit. At ‘Brand’ retailer levels, this means a store associate would be able to engage with a customer anywhere on the shop floor, accurately advise on their options for choosing and buying a product or service that may possibly relate to previously purchased products, locate stock from anywhere in the business, simply arrange payment and a convenient day for delivery using information previously captured or entered there and then. It is not only customers who will respond to this ‘loving’ relationship, but the empowered - and subsequently more motivated - staff, too. Shared information can also help: With benchmarking and understanding the role of channels and outlets Improve effectiveness of merchandise planning and buying Increase the cost-efficiency of stock replenishment Optimise staff rosters and the store operating model The assessment of supplier performance or supply chain bottlenecks. Customer insight Even deeper value can be mined from a fully interconnected organisation. By collating and analysing customer-related data from each system, a retailer is able not only to log customer activities, but map their actual journeys – taking into account what influences, pleases and motivates them, and what triggers the all-important decision to purchase, in which channel and at what time. © Copyright 2012 MICROS Systems, Inc. All rights reserved. 8 This level of interconnectedness is increasingly required to support the ‘Brand’ relationship. It is important to understand that ‘Brand’ quality customer insight needs more than data on a one-off purchase or isolated Twitter exchange. True customer profiling collates multiple contacts from multiple channels to build an understanding of the relevance of each contact – such as whether a Gen X-er genuinely likes Engelbert Humperdinck and Cliff Richard, or is a regular Justin Bieber fan who has simply bought her Great Gran a birthday CD. Armed with this integrated customer insight, retailers can offer a more enriching, engaging experience that connects with customers on a more emotional and personally relevant level, and also go that extra mile to exceed rather than merely meet customer expectations. Moreover, by feeding continuously evolving insight – or mapping of customer journeys – back through its interconnected estate, retailers will be better able to develop ongoing customer-oriented strategies, structures, processes and points of interaction that: Attract and re-attract customers – both by being Enable brand consistency through all points of contact present where they are (eg on social networks), and by engaging and enticing them with personalised communications through those various channels Deliver non-transactional elements to the relationship, eg making it easy for satisfied customers to refer the business through a simple Facebook ‘Like’ Live up to the brand promise: eg by ensuring stock availability matches customer expectations, and that all channels offer multiple options for paying or receiving Reward loyalty and incentivise repeat custom goods Gain valuable feedback that then feeds back into all Provide a great experience every time – with core strategies. personalised, swift and informed service © Copyright 2012 MICROS Systems, Inc. All rights reserved. 9 Consider MICROS MICROS, is a global leader in technology Consider SD Retail Consulting SD Retail Consulting knows how to help make a difference. Throughout our 40 year history, we have successfully designed and implemented practical business solutions for retailers of all segments, sizes, markets and scale designs throughout the world. We know how to unlock value from your stores, headquarters, supply chain, direct channels and support centres. We also provide a unique approach, emphasising measurable results and change management from the outset, ensuring that your team takes ownership and accountability quickly and results are sustainable over the long term. Consequently, the hard and soft benefits generated by our engagements typically rival or exceed the ROI of any other project your organisation will undertake in a given year. For more information visit www.sdretail.com/ Find out more about how MICROS can help you grow Get in touch with us for more information or to schedule a demo and consultation appointment. E-mail: uk-retail@micros.com Or contact us at: mprefontaine@sdretail.com Consider MICROS MICROS, is a global leader in technology solutions for retailers that allow them to trade anywhere and everywhere, offering a seamless cross-channel experience to their customers. MICROS cross-channel platform provides the functionality that allows retailers to successfully engage their customers – a true end to end global retail solution suite. Our services include platform implementation and integration, strategic business consulting, design services including creative and user experience, hosting, and managed services. Nearly 2000 retailers around the world rely on MICROS to strengthen their businesses and deliver results across all consumer touchpoints: store, web, direct and mobile. MICROS retail solutions are installed in over 60,000 stores in 30 countries, while analytic solutions process data at a corporate level for an additional 100,000 stores. ® ® MICROS Systems UK Ltd. Houghton Hall, Business Park Houghton Regis Dunstable LU5 5YG Great Britain Phone: +44 (0)1582 869-600 Phone: +44 (0)1582 869-601 E-mail: uk-retail@micros.com www.micros-retail.co.uk ® micros , micros-fidelio and micros-retail are registered trademarks of MICROS Systems, Inc. Certain product and company names appearing here may be the trademarks or service marks owned and/or registered by third parties. All other product and brand names are the property of their respective owners. © Copyright 2012 MICROS Systems, Inc. All rights reserved. © Copyright 2012 MICROS Systems, Inc. All rights reserved. 10 © Copyright 2012 MICROS Systems, Inc. All rights reserved. 11
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