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. 

Is Apple the Sony of the 21st Century?

I just completed a webinar on the ROI of in-store mobility for retail, and focused a portion of the discussion on the platform to deliver the experience, and the devices which retailers were considering for their in-store mobility strategies.  We performed a poll on the attendees for the event, asking which device was being considered. Not surprising, Apple came in first with the Apple iPad, and second with the iPhone/iPod.  Android and Windows represented a fairly small segment. So why am I asking if Apple may be the next Sony?  My response is a single word “proprietary”.

How many of you can recall the advent of the Walkman, and the tremendous almost life-changing impact the product had on society as a whole?  Talk about disruptive technologies!!  The Walkman was the perfect answer to the boom-box of the generation, and not only provided the mobility required to take your music with you, but also the ability to listen via high fidelity without disrupting those around you. Sony captured the hearts, minds, and wallets of a huge share of the market as a result.

How many of you recall the MiniDisc player?  Oddly enough, it wasn't until 2013 that Sony announced the demise of the MiniDisc from their suite of products, although the company has struggled since the 1990’s to gain any momentum in the space at all. Why?  Primarily due to the proprietary nature of the discs and the corresponding players (and also the price, as a MiniDisc player might run you $750 back in 1992).  A great technology was ultimately marginalized.

How about the Sony Betamax?  Back in the 1970’s the Betamax was all the rage (at least for a couple of years – in a couple of markets). Sony had developed a consumer-level analog videocassette recorder format, but competitor JVC was worried about how they wanted to structure the deal, and decided to develop a competing technology known as VHS.  While Sony was not trying to be entirely proprietary in their approach, there had been a history of prior deal relate to the U-matic format that made JVC nervous. While the VHS format came to market later, JVC was quick to license their technology to nearly every consumer electronics company, which then set the standard. Some have argued that this happened even though Betamax was the better quality picture (although in reality this may not have been entirely the case). Regardless, it ultimately became about the shared standard, and cost of getting products to market based on the corresponding competitive pricing. Sony once again lost out.

So how about the Sony Memory stick?  Remember whenever you bought (or buy to this day) a Sony digital camera, or some other electronic device from Sony, that you needed their proprietary memory card?  While there were standards for storage devices such as the SD card, Sony insisted on continuing with their proprietary format, to the frustration of many users.

Then there was the ATRAC Audio Compression technology of 1993, where Sony insisted on selling their solid-state Walkman using this proprietary compression, rather than the rapidly growing MP3 open standard. 

Is any of this sounding familiar with the Apple products?  

Not only is Apple proprietary with its iOS software, but it is also proprietary with its hardware devices and peripherals (has Apple not heard of mini USB or SD cards?). It is also proprietary with its delivery mechanisms, all centered on the iTunes hub (and yes, I know about corporate provisioning files, but focusing on the overall Apple ecosystem).  While there is no doubt Apple has seen incredible growth due in large part to their almost maniacal control over the user experience, one which is best managed through proprietary measures, the return on this approach has diminished significantly as competing technologies (Android and Windows on the OS software side, and Samsung, HTC, Motorola, and others on the hardware side) have begun introducing improvements and/or specialized devices and capabilities for specific targeted consumers or industries.  The Samsung Galaxy, with its oversize screen, and even new waterproof and dustproof version, provides a great example of creativity not yet provided by Apple.  While the iPad mini may be hugely successful, the competition will be introducing even more looks and form factors to compete.

If the Apple ecosystem had a true Network Effect, where the value was derived in some form by the network of all others using it, then I think the story would be different (yes, FaceTime is a step in this direction, but there are many alternatives).  For example, Facebook provides value in and of itself by the quantity of users on the platform. I’ve been able to connect with dozens of friends from college whom I might never had found without Facebook. While the quantity of apps and music provided by Apple is a motivation, even this gap has closed dramatically. Ultimately, much of what Apple provides is in the long run simply a set of commodities.  

In Q2 of 2013, Android tablet sales surpassed Apple’s iPad for the first time ever.  The Android operating system for smartphones has been outpacing Apple now for a couple years (although this bounces back and for a little depending on new devices arriving into the marketplace). And this is just Android.  While admittedly these are the two most important operating systems on mobile devices today, it is likely ill advised to count Microsoft out of the picture too quickly – especially in the retail industry.

The reason for this is competition.  I am speaking perhaps less about the competition related to the operating system, and more about the competition related to the hardware vendors that have traditionally played in the retail space. Powerhouses like NCR, Motorola, HP, and even Dell have each carved out a niche in retail over the last decades, and none of them are complacent in their approach to competing for in-store and back-office technologies.  These same manufacturers are responsible for a very large part of the software and hardware that runs the retail organization today, from shipping and receiving, to POS, to back-office solutions.  As many of them cannot deliver customized versions of Apple product, they have shifted their attention to Android and Microsoft.  

I’ll be perfectly honest here – Microsoft stubbed its toe badly; not just in the consumer market, but in Retail as well. While their attempts to introduce more user-friendly software has been a step in the right direction (first with Windows Mobile 7, and now with Windows 8), the existing technologies in retail could not migrate to the new technologies; and in fact even applications written for Windows Mobile 7, will not easily migrate to Windows 8.  So while retailers were using Windows devices heavily only five years ago, Microsoft opened the door to other operating systems by not providing a migration strategy for legacy software solutions.  Most can now argue, if my software needs to be re-written anyway, why not write it for iOS, or Android? And the vision of one common experience on the PC and tablet still hasn't materialized in the way most would have hoped, even with Windows 8.1.

That being said, most POS solutions are still operated via a PC, with mobile solutions still representing a small portion of devices used in the typical retail store.  I don’t see this changing anytime soon. That is not to say I don’t see it changing in the future, however, as I do believe it is somewhat inevitable.  The ultimate question becomes when, and what will the state of the software landscape be at that time? 

In addition, those software vendors that also deliver hardware are certainly not inclined to rewrite their software on a hardware platform that is not their own.  So while many vendors that sell only software have quickly retooled their development to the Apple iOS, this is not the case with the big players in the market.

In addition, POS terminals typically perform many more tasks than simply ringing a transaction, and Manager Workstations even more than POS terminals. While mobile capabilities for these other solutions are likely desirable in the long-run, I am still left wondering how quickly this conversion will take.  And once it does, does it not make sense that a common operating system still has validity? One that can run on a PC as well as a mobile device?  If not a common OS, then certainly a common technology capable of running on both devices (think HTML5 web applications). Under this last scenario, Apple then carries less value, but perhaps also less risk. If solutions don’t care what platform they run on, then Apple is as valid a choice as any, and due to the current adoption rate perhaps a strong contender.  But this presupposes many solutions providers are writing applications that are OS agnostic, which unfortunately has not been the case.  

Retailers do have specific hardware needs as well. Today’s POS register still needs a receipt printer, a scanner, and a card-swipe.  And while there are many components available as add-ons to the Apple products, these are not nearly as “built-in” to the design as certain offerings soon to come out by competing vendors.  And with the competitive nature of retail technology over the years, you can bet this only gets more heated.   

So do I believe Apple will fail in the retail industry?  No, at least not any time in the near future. Do I believe they will dominate retail?  Let me think about it while listening to my MiniDisc player or relaxing to a good movie on my BetaMax while transferring my digital content to my iPad from my Sony memory stick.

OK, I’ll admit most of these technologies would likely have been supplanted by now anyway. But perhaps that is my exact point – why isn't it Sony that did just that? 

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.