Retail Convergence

Retail Convergence - A Changing Landscape

There is a large movement in retail toward what is now being called Convergence. Convergence is the blending of channels into a single concept that leverages components from all consumer touch-points into a single set of processes and procedures that act the same, regardless of the consumer touch-point. 

While one could argue that this is simply Omni-channel, this would not extend the vision far enough. Convergence is not just about the unification of channels, it is about the unification of activities and interactions across all touch-points, including what have been perceived as channels in the past, but are becoming increasingly difficult to link to a specific system or business unit. An example of this convergence is the use of mobile devices while in a retail store, either through third-party solutions such as a Google search, or through mobile applications residing on the consumer phone itself.

Convergence comes in the form of data, commerce, and interaction. Data being a natural progression of the movement toward a single version of the truth for unified data, with commerce coming in the form of the endless aisle and DOM capabilities, while interaction imbues the benefits of engagement and messaging across all touch-points in a centralized process and vision.

As a recent Forrester article pointed out, a majority of sales today happen in the world of a blended on-line and in-store interactions. Sales begin on-line through eCommerce or social engagement, move to the store, and sometimes back to eCommerce again before a purchase is made. While Omni-Commerce is a portion of this customer lifecycle, not all interactions with a brand come in the form of purchases, or even as a lead-up to a purchase. Interactions may be related to brand awareness, service or follow-up, ratings or comments on-line, recommendations to friends, and a host of other aspects of a customer journey that are largely out of the control of the retailer or brand. 

Convergence is an attempt to unify processes and procedures, as well as technologies to combine all channels into a single concept rather than a recognition that channels even exist. It is to Omni-Channel what Omni-Channel was to Cross-Channel.  The movement form Cross-Channel to Omni-Channel was to break down the walls barriers of the channels, so they could function in tandem, whereas Convergence is the breaking down of the silos of channels themselves.

How will this impact retail and retail technology?  It will impact overall retail in a very dramatic fashion, in that the lines between channels will no longer exist. Commerce online and in the store will be seamless, with orders being placed on mobile devices while in a store, and baskets being shared between customers and associates to build the perfect outfit. Marketing will provide a queue of consumer messaging which can be delivered by any touch-point, and when performed can trigger the next communication, which is also oblivious and uncaring as to the next customer touch-point.

Influencing the customer journey will become the primary goal of a retailer, and providing tools to assist retailers in influencing the journey will become the principal purpose of retail technology companies. 

The next few years will fundamentally change how system and process are managed in retail, and for those not progressive in their thinking, there is a serious risk to success on the horizon. 

Effective Principles of Clienteling

Clienteling

The word clienteling came about as a rhetorical use of the noun clientele. It was used to describe activities one might take when working with their clientele, and is used now primarily as a verb to describe those activities. The word Clienteling now also describes initiatives or programs (manual or software-based) which revolve around these activities, much like CRM describes solutions for managing customer relationships.

Looking at the broader definition of Clienteling, I often define it as a philosophical approach to better serving ones customers (clientele). An approach focused on highly personalized service that is established over time through a learning relationship.

While the verb clienteling might describe most activities associated with the sales process, the more common activities can be summed into three key elements:

1. Access to information to assist the customer while in the store 
2. Customer profile enhancement (likes, preferences, wish lists, etc.)
3. Personalized customer communication (outreach)

While personalized communications finds itself last on the list, it is in actuality the primary goal of a long-term Clienteling program. It is through the successful completion of the other two items, however, that this communication becomes meaningful and effective.

The Customer Life-cycle

As described above, relationships are established over time. Selling is like any other relationship in that the more you know someone, the more you understand their needs and wishes. You don’t learn everything about a person in a single encounter. But over time, as the relationship matures, your understanding of them improves, and your ability to relate to them and to guide them improves as well. It is through the enhancement of the profile over time, that the communications can be more targeted and meaningful for each and every customer.

The following graphic highlights how a customer/associate life-cycle can change over time. From the first time encounter, whereby the associate needs to identify the immediate need, to a long-term relationship, where they are able to anticipate needs, make personalized suggestions, and follow-up regularly.

The Pareto Principle

Any Clienteling initiative should be designed in such a way as to get the most benefit for the least cost. The Pareto Principle states that roughly 80 percent of the effects of an activity are derived by 20 percent of your efforts. This principle holds true for retail as well, where for most retailers roughly 80 percent of all sales come from 20 percent of the customers. This 20 percent are the most loyal customers, and most often shop the most categories of merchandise. 

With this general understanding in mind, many clienteling activities focus almost exclusively on the Top 20% of customers. The logic being that an increase in sales of 10% with this segment represents an increase of 8% for the enterprise as a whole. It would take an increase of 40% in sales for the remaining customers to equal this same 8%. Obviously the cost to reach 80% of your customers is also significantly higher than for the 20%, so this approach makes sense on a number of levels.

There are three items to consider, however, with using this approach exclusively:

1. Over time customers attrite, albeit at a much slower rate with the 20 percent, so a focus solely on this group of customers at the exclusion of other will see your pool of customers diminish
2. First-time customers may take some time to qualify as a top customer, and without appropriate guidance from the store associate the relationship may never mature to this point
3. These customers are most often already your loyal customers, and may already be benefiting from some form of Clienteling, so the gains might not be as immediate as with customers previously ignored in these efforts  

So, while there is tremendous benefit to focusing on these top customers, you can see that this effort alone will have diminishing returns over time. For this reason, it is important to also nurture elements of the 80 percent, but to do so in a highly targeted and strategic manner. The most effective approach is to focus most energies on the top tier of customers, but to design targeted in-store “campaigns” around segments of the remaining customers. These in-store campaigns for non-clients might include one year follow-ups, replenishment items, birthday/anniversary wishes, in-store events tied to past purchases or noted wish lists and preferences, etc.

The below graphic demonstrates these principles. In this diagram the word Customer defines a consumer that may not be in an associates “book”, while the word Client defines consumer that belongs to an associate’s book (or multiple associates’ books).      

     

Note:To a large degree the success of clienteling activities, and most specifically outreach, is tied to basic math. The more of your clientele you work with, the more successful you will be. While the old manual process only supported a limited book, and therefore the same customers were contacted over and over; this has changed dramatically with clienteling applications.  If we assume the average associate has 125 customers in their client book, and reached out to each customer every 2 months, that will consist of 750 interactions. While that number sounds good at first, if you break this down to the workday it is far less impressive. This 750 communications averages only three a day. By augmenting this list of clients with targeted customers, an associate can double their outreach without losing focus on their best customers.   

Putting It All Together

The typical customer life-cycle goes from a first-time buyer, to a repeat customer, ultimately to a long-term client. It is the goal of every retailer to move customers from point A to Point B, and eventually to Point C.  Working exclusively with customers who have reached Point C in the life-cycle has immediate value, but diminishing returns if new customers are not brought through their own journeys.  So the question becomes, how do you focus most efforts where they have immediate benefits, but not at the expense of those efforts that will pay off in the future?

This is accomplished by designing a program that enables the associate to keep their primary focus on their top customers (their Client Book), but to augment this activity with pre-defined scheduled and automate campaign types that support the nurturing of a larger segment of customers based on customer needs, life events, interests, and other relevant and personalized outreach.

Quantifying Clienteling

Quantifying Clienteling

I have been involved in dozens of Clienteling projects over the years, and am quite actively engaged in consulting on the topic with retailer to this day. One question that invariably arises is how do you go about quantifying the results of clienteling efforts?  If we are going to commit to a broad-sweeping change, how can I know if the efforts will work, or are working?

While it is a simple question, the answer is a bit more complex. This is the case for a number of reasons.

First, many retailers that have previously implement Clienteling did so with the intent of using this heightened service as a competitive advantage over their competition. As such, they are hesitant to discuss real-world successes, as they are content to be among the few who reap the benefits for as long as possible. So while there are clear benefits, you are unlikely to get much detail on them.  

Second, many of the retailers that undertake a new software-based clienteling initiative have already been practicing clienteling activities manually; so any measurable gain can really only reflects the incremental value of systematizing an already existing practices – not the entire gain of performing an activity versus not performing an activity. For retailer that are looking to implement clienteling for the first time (manual or software), the potential gains are even greater.

Third, many factors can impact the sales at a given point in time including staff, product, management, weather, Marketing efforts and events, seasons, etc. Isolating the value of one specific initiative if often fairly complex, especially as retail typically has numerous initiatives design to impact revenues.

So how then can we measure the effectiveness of clienteling?

The Scientific Method is the most accurate way to measure the success, or lack of success, of new methods, practices, or activities. Using this Scientific Method a retailer would identify “like” customers, associates, stores, etc. then divide these combinations into two groups – a study group and a control group. Using the study group they would then take the new actions, and in the control group continue to perform business as usual. Regrettably, as described above, there are so many factors that can impact sales that the combinations of these various factors make the Scientific Method impractical if not impossible.  

There are, however, a number of useful measures that can be used which in their combination serve to be more scientific in their approach, and help to quantify the value of Clienteling. 

1.        Affiliated Sales – affiliated sales is a concept that tracks the sales as a percent of total sales which can be attributed to “Affiliated” clients.  An affiliated client is one who belongs in a store associates book. A common measure for this ranges from 20-40% depending on the retailer. High-end luxury retailers tend to be on the higher side, while mid-priced retailers more toward the lower side of this range. What makes this number perhaps less valuable, however, is that simply affiliating with more customers can grow this number, even if no actual clienteling actions are implemented.
2.       Outreach Sales % – whereas Affiliated Sales does not focus on the actions taken by an associate, Outreach Sales shifts the focus primarily to the impact of a very specific activity – outreach communication. Outreach Sales % is a measure of the percent of all business that happened in a defined time-frame as a direct result of a personalized communication from an associate. If an associate proactively reaches out to a customer, and the customer makes a purchase (within a defined time-frame such as 14 days), this is then considered to be a direct result of the outreach. This is then expressed as a percent of total sales for the time period (most often 1 month). This is a common metric I suggest tracking, as it is rewarding measuring the effect of the efforts, and not just the activity.  This Outreach Sales number most typically ranges from 15% to over 25%, meaning that as much as 1 in 4 dollars can be a result of associate outreach activity. An interesting point of note on the topic of outreach is that one to one personalized communications coming from the store associate are far more effective than those coming from the Marketing department. In fact, a very typical response rate (making a purchase) to a personalized communication falls in the range of 12-20% -- exponentially better than even the best marketing campaigns.
3.       Affiliated Outreach Sales – an argument can be made that many of the customers who received an outreach communication may have wished to shop regardless, and therefore even this number is not 100% proof of the effectiveness of personal outreach to a customer. Affiliated Outreach Sales attempts to address this issue head-on. It is a measure of only those customers who are affiliated, and then looks at the percent of business derived from the affiliated customers who received an outreach communication in comparison to the percent of business for those who had not received a communication. A recent 1 month analysis showed that associates had communicated with approximately 1/3 of their affiliated customers, and this third represented 2/3 of all sales to affiliated customers. Literally ½ the number of customers generated twice the sales for the given month demonstrating the clear value to associate outreach communications.       

While the above metrics help to prove the viability of Clienteling, they are not always the only metrics tracked in a clienteling initiative.  In fact, the most common measures used to gauge the success of Clienteling are much more common statistics most often already in use. It is the impact on these metrics that helps to demonstrate the benefits of the initiative. Some of these include:

•          Total Sales
•          Average Transaction Value
•          Items/Units per Transaction
•          Margin
•          Sales Per Hour
•          Customer Frequency

Looking at these measures on the whole provides the most value in gauging the success of a program, but looking at these metrics as they relate to a specific set of customers (for example affiliated customers, prospect lists, targeted segments used for outreach tasks, etc.) can provide even more insight, and can help to prove the value of the efforts being performed.

Over the years I have been involved in a number of Clienteling deployments, and have had the pleasure of monitoring their success through most of these performance metrics. By focusing efforts in the store toward a specific measure, all of the above metrics can and have been impacted by clienteling activities with great success. 

Customer Centricity is Social

Customer Centricity  - How to Leverage Social Media

Social networking has been an area of focus for many retailers, yet few have a handle on precisely how to fully capitalize on the burgeoning trend of social sites and social users.   While these Social Media sites often offer a new delivery channel for advertising, there is far more potential to the Social infrastructure when taken into the context of Customer Centricity.

Customer Centricity is a paradigm shift where the retailers view their customers as the organizations Core Asset - and find products that match the individual; as opposed to viewing the product as the Core Asset, and the role of the organization to be finding customers to which they can sell their products. I blogged about this recently here.

In the context of a Customer-centric philosophy, the more I know about my customer the more I can intelligently meet their needs.  Existing Retail data can only take us so far, as I can make assumptions about past purchases, but I am not often aware of enough about a given individual to be truly personal in my communication.  For this reason, many Marketing departments have leveraged third party sources to augment their data in meaningful ways, such as gaining demographic information, and in some cases psychographic data.  These exercises have been meaningful in segmenting groups of customers, but typically not leveraged in highly personalized communications.

I often say that it is the in-store associate that is the most customer-centric part of any retail environment. This is due to the open dialogue with the customer, and the ability to ask targeted questions about needs, lifestyle, life events, etc.   This is a fairly typical part of any mid to high-service environment.   

With the advent of Social Networking, and open API’s, however, there is a wealth of information available to retail organizations that answer many of the questions an associate might ask, and can in fact provide details well beyond the capability of an associate to ascertain.  There is a wide variety available for most Social sites which can provide a wealth of information unique to a very specific customer. Likes, friends, favorite sites, comments and more are available through the many Social APIs. From this data retailers can now get a true 360 ° view of a customer – related to the retail brand, but also in a more social environment.

The immediate challenge for retailers is in linking Social customers with in-store and on-line customers. This requires technologies capable of storing the data consumed across these new channels, as well as incentives for customers to share this data with the retail organization. While these are clearly not small obstacles, many retailers are coming up with creative ways to do gain access to data, and top technology vendors are providing solutions that can leverage this data (more on this topic in an upcoming blog).

The future of Customer-centric solutions is one where there is a view of the customer as an individual – inside the store, online, and in social engagements. Armed with this true Omni-channel data, retailers are then equipped to provide highly personalized and unique value to each customer through real-time recommendations, offers, promotions and more. 

Customer Centricity is Still in its Infancy

Customer Centricity is Still in its Infancy

I ran across an interesting a article, and thread of comments on the topic of Customer Centricity. The post is an assessment of a Whitepaper that declares Customer Centricity to be all but dead, and wondering what's next. I found the author of the post to be fairly on target with his assessment, but couldn't help but notice the impassioned discussion as well. 

You can follow the thread here.

I believe much of the discussion, and much of the potential confusion comes from the fact that there is no real definition of Customer Centricity. As such, interpretations become overly broad, and the true meaning is lost. I recently published an article myself on the topic called 1:1 Customer-Centric Retailing.  

While I did not go into how such a strategy might ultimately be executed, I will state that I believe technology will allows us to finally accomplish our goals, but we are very much still in the infant stage of life. I see a future where each and every communication done by a retailer (other than the 1:1 interactions with in-store associates which already do this) can be personalized down to the "segment of one". Furthermore, this communication can be timed based on a customers preference, taking into account their past purchases, needs, lifestyle, stage in the customer life cycle, social interests, etc. 

My years in the Clienteling and CRM business have proven to me that customers want to have relationships with the retailers with whom they do business; and once a relationship is forged, they are more than willing to provide more information if they believe it will provide benefit to them. By then leveraging this information on a customer by customer basis, a retailer can finally see the true benefits of Customer Centricity. 

While CRM is not yet capable of this true 1:1 relationship management today, it is most definitely heading in that direction. 

1:1 Customer-Centric Retailing

1:1 Customer-Centric Retailing

Customer Centricity has become a prevalent buzzword in the retail industry over the last several years. There is hardly a retail executive today that is not touting the virtues of a customer-centric corporate strategy. Is Customer Centricity simply a platitude or retail jargon expressing business as usual, or is this truly a fundamental change in the way retail is being performed today?

The unfortunate answer is both. In many instances this Customer-Centric rhetoric serves little purpose other than to allow retail executives to paint the picture of a new and improved corporate direction; while little has changed in the actual operation or strategic direction in the enterprise.  In other organizations, however, executives are looking for ways to truly reshape their business through targeted customer centric strategies designed to foster and maintain long-term loyal relationships with their customers.  These executives recognize the true value of approaching their business from an alternate perspective, and are investing heavily in efforts to restructure their organizations around a new paradigm known as Customer Centricity.

Business jargon serves a useful purpose in condensing what is often a large idea or concept into an easily expressed and easily digested word or phrase. The jargon aids in the coalescence of ideas into a singular form that serves as a common language to a given target audience as a branding mechanism. This branding helps to differentiate an idea or concept from others, thus allowing it to gain greater recognition and critical mass.

Unfortunately, this branding of an idea can often have negative implications as well. The most common shortcoming is the lack of a thorough understanding of the entire scope of the topic. This can occurs for two reasons. First, the use is quite often very industry specific, and does not always translate to other industries easily or consistently.  Second, the extraction of this “condensed” expression of an idea is subject to personal interpretation. Without prior understanding of the scope of the initial idea or concept, the individual is left to infer as to the larger meaning – leading to varying definitions.

A perfect case in point is the use of the acronym CRM (Customer Relationship Management). While those in Sales or Marketing are quick to derive Customer Relationship Management for the acronym CRM, the larger meaning is still subject to varying interpretations. In one industry CRM may be thought of as the activities around managing prospects, accounts, and sales pipeline; while in another it may be about segmentation, campaign management, and call center activities. In fact, to many people, CRM is interpreted to mean the computer software solution used to support any or all of the activities described above.  Overall, the meaning is quite broad, while the individual definitions are often quite narrow.   

One reason for this confusion is that CRM is actually not intended to define activities or software solutions, but is in fact intended to convey a strategy. CRM is a strategy designed to foster, maintain and enhance relationships through a set of repeatable processes. It is accomplished through the development of operational practices which manage activities related to the customer interactions.  While the typical implementation of a CRM strategy involves using technology to organize, automate and synchronize the desired business processes and activities; these same activities could be performed manually (albeit far less effectively). 

Customer Centricity

The term Customer Centricity shares a similar fate as CRM. It would be hard to find a CEO today who would tell you that his or her company is not already customer-centric. But ask what makes them so and you would likely get very different answers. The reason for this is once again the individual interpretation of the meaning of Customer Centricity. At a very high level, the meaning is easy to define (putting the customer at the center of the business), but detailing exactly what this means is another thing entirely.  

Ultimately, the reason for this is that Customer Centricity is at its heart not a strategy. It is first and foremost a philosophy. Customer Centricity is a belief system whereby a business shifts their business model away from a focus where products and services are perceived as the core asset, to a focus where the customers are the core asset of the business.  It is no longer about finding customers for an organization’s products, but about finding products for an organization’s customers. This is a fundamental paradigm shift for most retail organizations.

A customer-centric strategy is borne out this customer- centric philosophy. It is defined by the goal of building long-term loyal relationships through providing solutions to customer problems – owning those problems, and the resolution to those problems. By taking on the responsibility of solving customer problems, the retail organization builds a lasting relationship with their customers; one where the customer wouldn't think of shopping anywhere else.  

While the application of a customer centric strategy may be different depending on the retail vertical (for example, a designer driven apparel retailer’s brand is driven primarily by the vision of the designer, while an electronics retailer may have more flexibility related to the products and services they offer), The primary tenet is the same --- the customer is at the center.

An effective Customer-centric strategy is accomplished through a better understanding of the customer’s needs.  Not just as they pertain to the retailer’s current products and/or services, but as they pertain to the customers overall lifestyle, and day-to-day activities. There is a requirement to understand the customer at a new level – a much broader level. It is not sufficient to focus only on a customer’s past purchases or basic demographic information. There is a need to expand the knowledge and insight related to of each individual customer in such a way as to tailor each interaction in order to solve problems that are unique to that individual. Understanding a customer’s shopping habits, on-line habits (both related and unrelated to your brand), social habits, lifestyle, sports and recreational activities, travel, aspirational goals, preferences, etc. can all come into play while executing a customer-centric strategy.

There are a number of articles and a few books on the topic of Customer Centricity; each with accounts of retail organizations use of a customer-centric strategy. While many of these examples of customer-centric retailing point to transformative changes created through the implementation of such a strategy, these examples most often focus on the customer as a group or segment. The analysis is most often done at the aggregate, not an individual. It is achieved through the combination of viewing their business through the eyes of the customer, combined with new input parameters that shed a new light on their business model.

One such example is highlighted in the book by Ranjay Gulati, called “Reorganize for Resilience: Putting Customers at the Center of Your Business”. He details a situation where grocery stores began offering pre-bagged salads through the realization that many consumers were trying to eat healthy, however grocery stores were not selling a proportionate amount of salad ingredients. By viewing the shopping experience from the “outside in” and by identifying the issues consumers were having related to the inconvenience of washing and chopping ingredients, they made a logical leap and solved the problem for the customer by pre-mixing and bagging salads.

This type of innovative thinking can help organizations to transform their business over time, and can be a key ingredient in a customer-centric strategy. It is important to note, however, that this “macro” view of Customer Centricity tends to be less operational in nature, and more tied to strategic initiatives such as new product lines, innovative service offerings, etc. On the other hand, a “micro” view of Customer Centricity can see gains in very short order, with the existing business framework – but a new perspective.

The “micro” view of Customer Centricity is even more about the individual, not about the group of similar individuals. In marketing terms, it is the segment of one. This is referred to as 1:1 Customer Centricity.  Ultimately, the benefits at the 1:1 level can be seen much more rapidly, and can impact every single interaction.     

1:1 Customer Centricity

Perhaps surprising to some (although it really shouldn't be), the in-store sales associate is most often the individual in a retail environment that is the most customer-centric in their day to day dealings with a customer. This is particularly true in a high service business, but is also true to varying degrees in virtually all retail. While more and more customers are shopping on-line, bricks and mortar retail still represents the vast majority of sales today. Online shopping provides a convenient medium, and an easy shopping experience. It also provides very simple price comparison across retail brands, so price becomes a more important factor in the buying decision.

What e-commerce still fails to provide, however, is the personal interaction; someone to provide counsel, answer questions, look for and recommend alternatives, investigate issues. It is this one-to-one relationship that strengthens loyalty and fosters long-term relationships. The interaction is most often enhanced through the gathering of information by the sales associate.

o   What is the item’s intended use?

o   When will it be used? 

o   Is there a particular look or brand you were interested in?

o   Is this for use while traveling? 

o   How often do you travel?

o   Where?

o   Oh, and based on what I now know, may I suggest the following three coordinated items that will enhance this purchase?

o   I’m also expecting a new shipment of product in a week that I think would address this other need you mentioned, do you mind if I contact you when they arrive? 

o   By what method?

It is through this 1:1 relationship that the associate is able to interpret the problems, and to take responsibility for fulfilling the customer’s needs.  It is also an opportunity to identify other needs that the customer may not have been thinking about at the time they came into the store. If done well, the customer is delighted and a relationship is born.      

The best sales associates are masters at capturing the appropriate level of customer information in order to identify needs, and then using this information to personalize their recommendations. Unfortunately, there are a finite number of “best” associates. More often than not, the average associate in an organization falls short in some critical areas, which negatively impact the relationship with the individual and with the brand.

Imagine, however, if a retailer had the capacity to learn more about their customers. To record all of the information gathered during the in-store exchange, as well as on-line interactions with their own e-commerce site and that of their competitors, know of comments being made about them on social media sites, or blogs? Imagine if they could replicate the “best practices” of their top associates, and provide personalized service to each customer across all channels, and through the contact medium preferred by the customer.      

This is what 1:1 Customer Centricity is all about.