Customer Centricity, the Retail Buzzword of 2009

2009: The Year of the Customer

One trend I’ve picked up on from conversations with my retail clients is an urgent
need to modify their business processes to be customer centric. That’s why I’m
declaring Customer Centricity as the retail buzzword of 2009.

Customer Centricity is the use of a deep understanding of customer wants and needs
to deliver tailored retail offerings and a preferred shopping experience. It requires
execution at a detailed level enabled by the use of scalable business applications that
utilize powerful analytics to automate relevant business processes.

Gone are the days when retailers could increase revenue and margins by opening a
large number of new stores. Today revenue and margin improvements must come
from the stores they have or with less. Since retailers spent the past several years
fine tuning their supply-chains they can no longer find additional margin
improvements in them. There’s no more juice left to squeeze out of the supply-
chain. Retailers are turning to customer centricity to find the revenue and margin
gains of tomorrow.

It seems paradoxical that many retailers have a limited understanding of their best
customers, how to communicate relevant promotions to them, and how to assort
stores based upon local preferences. Traditional brick-and-mortar retailers built
efficient supply-chains and a one-size fits all approach to merchandising. In good
times, treating all customers like the average customer works fine. In bad times, the
times we find ourselves in, there is no average customer and customer centricity is
critical for survival.

It is increasingly important for retailers to know their customers and their buying
behaviors. Customer centricity allows a retailer to do things like:

• Assort stores and develop plan-o-grams based upon local market preferences.
• Optimize pricing.
• Target promotions to customers that are most likely to respond.
• Provide better service by knowing what treatment a customer prefers.
• Customize the shopping experience with relevant products and information
  tailored to each customer.

As the world of retail becomes multi-channel, most brick and mortar retailers are at a
disadvantage. While web and catalog retailers have always captured data about their
customers, store based retail often did not. Although web and catalog retailers have
data about their customers I have found that they don’t always use the data to drive
business decisions.

Becoming a customer centric retailer does not happen overnight, it is a deliberate
process. The change must come from the top because it is strategic to the business
and impacts all parts of the organization. Customer centricity must be a core
competency of the organization if it is to be successful. Resources must be
dedicated and skills built to manage the transformation to maximize its impact. Parts
of the process can be outsourced to partners, but successful retailers will build an
internal customer centric team like they have for merchandising or the supply-chain.

The transformation to customer centricity follows a four-step process:

1. Gather – bring together your customer information from both internal and
   external sources.
2. Discern – analyze the data to see what it tells you about your customers and
   their behaviors.
3. Engage – your customers in relevant ways based upon their unique
   characteristics.
4. Refine – your customer centric processes by measuring results.

Following the four-step process is critical for a successful transformation. Without
properly executing the gather and discern steps it will be impossible to engage your
customers well. You must realize that each of the four steps is a significant amount
of effort. That’s why the change must be driven by the top leadership of the
business. Each step requires the coordination of resources throughout the business.

I’ll discuss each step in upcoming Predictive Retailer articles. For now though let’s
look at some factors that are critical for a successful customer centric transition.

First, have a clear business objective at the start of the project. The first objective
could be tactical like localizing assortments or targeting promotions for a loyalty
program. Only by establishing a clear business reason up front gives you the ability to
measure your success.

Second, customer centricity is a business problem and must have a single business
owner. Designate an executive to manage and own the process. Ultimately customer
centricity will be leveraged in every department, but it must be owned by one
person. I’ve seen successful Chief Customer Officers in shared services departments,
marketing, and merchandising. Avoid splitting the responsibility, which really means
no one’s in charge. Make somebody the king. The IT organization is generally not a
good choice for ownership since customer centricity is a business issue; however IT
is a critical partner because they are the data management experts.

Third, customer centricity is a strategic process so avoid the temptation to
outsource too much of it. If you do not have the internal skills and resources to do it
well, get them. You may need more external help in the beginning, but your goal
must be to internalize the process; particularly the decision making aspects. Most
retailers do not outsource their merchandising or store operations because they’re
critical processes. Customer centricity is too.

Lastly, but most importantly, customer centricity must be driven at the executive
level. It requires input from all areas of the business and affects all of them as well.
The top of the organization must embrace and drive the change to be successful.

There are two red-flag scenarios I want to point out to you so you can avoid them.
Often these situations occur when the four-step process is not followed. If you feel
your customer centric project moving in one of these two directions take a step
back and reevaluate how the project is organized.

The first scenario is when a retailer defines customer centricity as just gathering all
customer information into one database. Often the project has a name like Single
Customer View. While these projects tend to be technologically successful, at the
end management usually questions what the business improvement is for the
invested time and money. You must have clear business objective of why you’re
gathering the data into a single view. A database has no value on its own. Generally
this is a sign that customer centricity lacks senior management sponsorship, a
business owner, or a clear business goal.

The second scenario is when too much of the gather and discern steps get
outsourced. Generally this happens when a retailer feels they do not have the
internal resources or skills to do the steps properly. Often times these projects do
not meet their expectations. The reason for this is because of the thousands of little
decisions made during the gather and discerns steps. An external party does not
understand the business as well as internal resources and therefore their
assumptions are inaccurate. Even if the initial project is successful it may be difficult
to scale up or move to other areas of the business. If the customer centric
competency does not exist within the organization it may be hard to leverage
effectively.

Remember the four-step process is critical for a successful customer centric
conversion. Make sure that you set the project up in the beginning according the
success factors as well. I look forward to discussing each of the four-steps in
upcoming Predictive Retailer articles. If you would like to discuss you customer
centric needs with me you can reach me at 919-531-2246 or Robert.signore@sas.com.