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. 

Retail Mobility – Today’s Technical Challenges

Retail Mobility – Today’s Technical Challenges

For any Retail CIO, the rapid changing technology landscape is making it difficult to deploy in-store mobile solutions. There are a number of implications to deploying mobile technology on the store floor, ranging from the selection of the device, to the solutions available by device platform, to security and potential privacy concerns.  And while all of these issues exist, it is clear that a large number of retail organizations feel it is imperative to get technology on the floors, so as not to be left behind.

The technology landscape has changed dramatically in the last 5+ years. Consider the following:

• New Channels – Consumer Mobile, Social Media, Publically available API’s  
• New Devices – iPhone, iPod, iPad, Android Phones and Tablets, Windows 8 PCs, phones and Tablets; each with different screen resolutions and screen sizes
• New Operating Systems – iOS, Windows 8, Android; each with a different development environment for native application deployment.
• New Data Access Requirements – Cloud, On-Premise, Hybrid deployments. Social and Public APIs. Omni-channel real-time connectivity.

Most retailers have been caught a bit off-guard with all of these changes.  Not that they didn’t see any of them coming (we have all known the potential of mobility for some time), but the speed of the changes, and the urgency to deploy technologies now has come as a bit of a surprise.  

Let’s be honest. Retail is often not the most up-to-date in the technology department – at least not on the store floor. There are certainly legitimate reasons for this – cost and risk to name the two most obvious. Putting new hardware and software into every store, adding wireless infrastructure, bumping up bandwidth, etc. all come with a cost associated with them. Then there is the risk. Take POS as an example. POS is mission critical, and having registers down for any period of time can have dramatic impact on the sales of the organization. This is true of most in-store solutions, as issues at the store can have dramatic impact at the head office. As a result, retailers have most often followed the adage that slow and steady wins the race – or at least it was until a few years ago.

Then along came Mobility. Mobility impacted customer perception in three important ways:

1. Consumer adoption of mobile smartphones became ubiquitous, and the ease of use of the devices, on the go, became commonplace. In fact, combined with the always connected Internet at home, consumers were beginning to enter the store with as much knowledge as their associates working for the retail store. Expectations began to rise. 
2. Apple Stores came out with a new way of ringing up customers on the iOS devices, which was seen as a far better user experience (although forms of mobile POS have existed for many years). Mobility was suddenly seen as sexy and not just practical for line-busting. 
3. New form factors began to arrive, creating the potential for a joint Associate/Consumer experience. While tablets have been around for over a decade (I was personally involved in a Clienteling deployment using Windows Tablets over a decade ago), the ease of use of the iPad and Android tablets made it far more feasible to deploy applications that were easy to use, with little training. And these solutions could actually augment the relationship with the in-store associate.

As Executive Management began to understand the impact of mobility (if not just from the point of view of consumer perception), more and more initiatives were created to leverage these new capabilities.  The obvious low hanging fruit was POS, but without some other technologies also being supported on the same device, the ROI was sometimes hard to justify. For this reason, many retailers looked for deploying in-store solutions other than POS in parallel with their mobile POS initiatives.

This is when the real challenges began.  First, the easy approach to mobile POS was to “bolt on” the mobile solution provided by the existing POS vendor. The challenge here was that not all vendors had a mobile solution; or those that did may not have had a solution on the device type of choice by the retailer. The iOS platform was gaining the largest acceptance (particularly in the US), and many vendors committed to creating solution on the iOS (iPod, and now iPad). Unfortunately this created additional issues for retailers in the form of security and privacy, as well as internal expertise. In addition, most PC-based solutions remained on the Windows platform, as this has been the hardware of choice for a number of years in the retail stores. As a result, IT now needed to support multiple hardware platforms.

Globally the device of choice was not always the iPod or iPad, as Android began to gain momentum.  While Windows was clearly late to the game (unfortunate due to the more robust security in the platform by nature), even Windows Mobile platforms were no longer supporting past application development (such as Windows Mobile 6.5), so now vendors were faced with a new set of Operating Systems for which to design, and retailers new devices (and corresponding OSs) to deploy.   Add to this that fact that traditional hardware vendors such as HP, NCR, Motorola, etc., were unable to deliver iOS hardware solutions due to the proprietary nature of the Apple platform.  As each of these vendors looked for ways to compete in the mobile device space, they looked to Windows or Android for their solutions; which has ultimately led to more competition, and even less clarity.

Making Sense of It All

So what is a retailer supposed to do in the midst of all of these changes?  What follows are my thoughts on how many of these challenges might be addressed.

In order to handle the problems associated with the above issues, retailers should be looking for solutions that provide the following four capabilities. The solutions should be:

• Platform Agnostic – solutions should be able to be deployed on myriad devices and Operating Systems - natively. While not 100% standardized today, HTML5 solutions provide the best cross-platform capabilities, and with the use of cross-platform development tools, these solutions can now be installed on devices natively, which provides for a much richer user experience. While there may be issues in the myriad screen resolutions and dimensions, these tools offer the promise of building code once and running it on existing PC hardware and on various mobile devices. 

• Data Agnostic – solutions should be able to access data from a variety of existing data sources real-time, and operate as though the data exists within the particular solution itself. While Web Services (SOAP and Restful) are clearly meaningful, a complete Data Access Layer that can draw data from a variety of sources into a logical data model, and then operate on this logical model can be even more significant. With the availability of data providers, this can now be a reality. Such a full extraction and separation of concerns allows a software solution to integrate in a variety of ways based on the retailer’s specific environment and data availability. 

• Deployment Agnostic – while retailers were cautious about storing data in the Cloud due to security risks, more and more retailers are seeing the benefits of doing just that. Hosted solutions, or Software as a Service (SaaS) has become commonplace in most industries, and retail is beginning to follow. Some information, however, does currently reside in-house, so a migration to the cloud is not practical, so solutions that allow for a hybrid deployment is a perfect compromise. This provides the benefits of the Cloud (cost savings, distributed data access, scalability, etc.) and the gradual migration of prior investments. Of course for those retailers with large IT organizations, the on premise model should also be available. 

• Flexible and Extensible - solutions deployed in retail must be flexible and extensible through SDKs and configurable capabilities whereby a retailer does not have to rely on the solutions vendor to add new features, or modify the way the solution works today. While there are clearly advantages to certain features being incorporated into a base solution, there are times where a retailer may wish to leverage prior development efforts, or to create a unique set of features which provide a degree of competitive advantage they may not wish to share. This extensibility is critical to future-proofing a solution to allow for the lowest total cost of ownership.

Conclusion

Advancements in technology and in consumer expectations have made deploying mobile solutions a high priority for many retailers; however the range of solutions, platforms and devices has made the choice of the ideal solutions increasingly challenging.

By leveraging technology and software development advancements, however, retailers can now begin to address these challenges with little risk. Solutions that can run on any device platform, can access data from a variety of sources, can be deployed in the Cloud or on-premise, and are fully extensible, are now not only a possibility, but a reality. Such solutions provide the retailer the flexibility needed to leverage existing systems, and the comfort in making decisions on their future hardware and environmental platforms.