March 19, 2009
JTTP: Consumer-Centric Strategies Imperative for Retailers and Suppliers
By John Walsh, editor, Journal of Trading
Partner Practices
Through a special arrangement,
presented here for discussion is an excerpt of a current article from The
Journal of Trading Partner Practices (JTPP), the official online publication
of the Vendor Compliance Federation (VCF), the Trade Promotion Management
Associates (TPMA), and the Federation of Credit and Financial Professionals
(FCFP).
Between rising unemployment rates and diving
home values, consumers’ discretionary spending is evolving as much more
selective, more informed, and more scarce, creating
significant competitive challenges for retailers and suppliers alike. The
ability of retailers to attract and maintain a loyal customer following
requires customer-centric strategies in collaboration with suppliers.
Speaking at the recent Trade Promotion Management
Associates’ (TPMA) Workshop, in the three-dimensional, virtual world of
Second Life (www.secondlife.com), Jim Nadler, vp of marketing and business development at afterBOT, said that customer centricity has many components,
and is best described as a strategy where “every decision that a retailer
makes is done with the customer in mind, even if it means it is at the
expense of short term profit initiatives. If we do the right thing for
the consumer, it will be the right thing for the retailer, and in the end,
it will be the right thing for the supplier community.”
Becoming a customer-centric retailer requires
extensive collaboration with suppliers, making effective use of technology
an imperative. While many retailers have focused on predictive models,
today’s economy truly has no predecessor, so the very basis of the models
must be questioned. According to Mr. Nadler, “While predictive modeling
makes us better, we have to implement real-time solutions so we can react
quicker to what’s happening at the store level.” Predictive modeling
alone cannot stop out-of-stocks, so trading partners must be able to capture
and share real-time data to gauge consumer behavior and adjust marketing,
sourcing and supply chain decisions to ensure the right products are on
the store shelves when needed.
Customer-centric retailers must re-evaluate
traditional strategies designed to boost sales, but may be viewed as a
turn-off to shoppers. Mr. Nadler asked, “Should you put candy at the
check-out? In the short term, that may seem like a good way to gain a few
extra nickels. But, if having candy near the check-out counter irritates
moms with children, it’s not a customer-centric initiative.”
He provided additional strategies that appeal
to shoppers in subtle ways. In a customer-centric supermarket, perishable
items are at the rear of the store rather than at the front. This prevents
scenarios where shoppers pick up their eggs first and place them at the
bottom of the cart and then crush them later when heavier items, such as
canned goods, are added. Retailers should also look to tap into the sustainability
movement by offering and marketing environmentally-friendly items.
Shoppers will pay more for these items if it makes them feel good about
themselves, which boosts retailer margins.
Discussion Questions: What common practices
will retailers have to change in order to become truly customer-centric?
What’s required from vendors? Can you think of any other typical situations
in which short-term sales gains are ultimately negative for long-term
customer centricity?
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Being “customer-centric” sounds just great–but I have little idea what it really means. Right now, Wal-Mart is kicking butt–is customer centricity in this environment simply defined by low prices?
Gum at the checkout may irritate some moms–but obviously is appealing to other customers who like the convenience. Grocers have off and on tried experiments with “no candy” lanes, but they seem to have disappeared. My guess is that “shortest line” trumps no candy every time.
These kinds of goofy “customer-centric” practices ignore what is by far the number one issue–adequately staffing the store. Even my local Wal-Mart Superstore seems to be intentionally dramatically understaffing normal checkout personnel to drive people to the self-service system that doesn’t really work without terrible aggravation.
From my view, with a very few exceptions (Trader Joe’s comes to mind, as well as my local IGA, which I think survives because it seems to almost overstaff at the checkout), retailers have been moving away from customer centricity at almost every turn in name of lower costs.
I’d be curious as to some additional examples of “customer-centic” practices, especially those that benefit customers at the expense of short term profits.
You know, it’s all really pretty simple: hiring people that care about people and actually enjoy talking to other people–in other words CUSTOMER SERVICE at retail. Nothing will improve sales more in this environment.
Southwest Airlines has it right in that regard: Hire for Attitude, Train for Skill. If only retailers would pick up on that (do or die now!).
I have to weigh in again.
I really don’t know much about this area, but my takeaway from most of these posts is that “customer-centric” has to do with smart consumer analytics and figuring out what will sell to more targeted groups of customers.
This is smart business, and smart merchandising, but it doesn’t seem at all to me customer-centric in the sense of the article that was the basis for all this.
That article above said customer-centricity was when “every decision that a retailer makes is done with the customer in mind, even if it means it is at the expense of short term profit initiatives. If we do the right thing for the consumer, it will be the right thing for the retailer, and in the end, it will be the right thing for the supplier community.”
Is that the same as Best Buy’s smart segmentation strategies? I don’t think so.
Most of the above commentary is about pushing the right buttons with the customer to increase sales, using more refined segmentation and analytics. That’s smart retailing and business. But sacrificing short-term profit to make sure the customer is satisfied? That’s mostly long dead, as any trip to the store will tell you with a few exceptions.
Just check out the trend in returns policies, for example.
Consumer Centric should mean running your stores at the micro level, much like we did 20 years ago, with an “in touch” relationship with customers. Now we have data and extraordinary means of quantifying what was once intuitive. Consumer Centric has also brought forth a plethora of consultants with dress accessories for the Emperor with no clothes. The business still requires much art to complement the science. Merchants will succeed. Theorists will fail.
This is so hilarious to read. I use the movie example of “Miracle on 34th Street,” made in 1947, for so many purposes. It depicts the Macy’s Department Store, and if you look at the film, it truly is no different than the typical department store of today. Nothing’s changed in 60 years. However, specific to this topic, they initiated a policy in the movie of that if a customer cannot find what they are seeking in Macy’s, then Macy’s will find the competitive store that has it.
Imagine, if Walmart is out of stock, and you ask a friendly associate, they tell you where the local Target store is. Maybe they even offer to call them first for you to check if it is in stock.
Armageddon, for certain.
I prefer “shopper centricity” when we talk about the retailer’s imperative. This implies, IMO, that the retailer take a total view of the shopper experience into account when making merchandising and operational choices. It requires consideration of all five pillars: Service, Convenience, Ambiance, Merchandising and Price (I like to use the mnemonic, “SCAMP” to keep track of all these – see my blog for more).
To points well taken above, I must agree, that the phrase “shopper-centric retailing” (and its variants) are in some ways redundancies. Of course we use this terminology to distinguish from supply-chain centric decision making, which favors manufacturing and logistical efficiencies over the shopper’s experience.
When we do put the shopper’s interests first in the equation, we also take on the challenge of complexity that naturally emanates from the innate differences between groups, individuals, trips and moments in time. As well covered above, a global decision to eliminate candy from the check-out lane serves some shoppers very well but inconveniences others.
This is one relatively small example of the vast matrix of decision challenges we face when we try in good faith to tune our merchandising efforts based on shopper insights. Hey–nobody ever promised this would be easy.
Best Buy is indeed a great example but so are Amazon.com, Nordstrom and Zappos.
Customer-Centricity is indeed a business strategy and requires top-management buy in. It’s well documented that Jeff Bezos spends most of his time thinking about customers. As I’ve said before here, Amazon gets it.
It also requires the ability to recognize, measure and understand how customers behave. More important is actually making strategic and tactical decisions using that information. Here Best Buy is, as Ben references above, a great example. They use customer data, largely obtained through Reward Zone, to support decision making throughout the enterprise, not just within marketing.
Last, being Customer-Centric is about managing customer expectations and exceeding them where possible. This is not a short-term thing but rather a long-term commitment to customers and recognizing that they are truly the asset that matters to any business.
As this short thread has already pointed out, there are many interpretations of what customer-centricity means but making decisions that align with their needs is an adequate one. I would add that those decisions should be based on a rich understanding of those customers driven by both quantitative analysis (shopper insights from basket data, segmentation, etc) as well as qualitative (focus groups, exit interviews, etc). This enables a retailer to make decisions that are better for their customers…and specifically their most important customer segments… but also make decisions that may actually increase both short-term and longer-term profits.
Overall, the innovators are considering it a mindset shift. Managing customer segments not just categories, for example. Retailers should ask themselves whether they are pricing, promoting, or assorting their stores for the “average” customer and also ask whether there is such a thing.
At NRF this year, we worked with IDC on a survey to study the “state of customer-centricity” in the industry and presented results along with case studies from Best Buy and Rexall/PharmaPlus. Click here if interested in what we learned.
“Consumer-Centric” (or some would say “customer-centric”) will win all acclaims for this year’s new trendy buzz word in the CPG retail world. Everybody’s talking about it and almost every retail chain claims to be “doing it.” Here’s another one; this will be runner-up: “Consumers are no longer buying what they want; they buy only what they need.” Let me be contrary here, just for fun:
1. History has shown that in times of economic downturns, consumers will indeed turn to retail stores to find affordable luxuries.
2. Even if we should hit 12% unemployment, that means that 88% of the public is still working and still purchasing much of the same goods of all types that he or she always purchased before.
3. Retail stores offer alternative solutions to other means in these types of economic downturns. Good example: the HBC section where consumers are self-medicating with premium HBC solutions.
Memo to retailers: treat this economic situation with a scalpel. Put the sledge hammer away.
Some of the examples cited in the post (such as laying out the store for shopper convenience rather than current-trip profit), are really just examples of smart retailing. The lifetime value of a loyal shopper should be far greater than the incremental value to be gained on a few baskets until the shopper defects to a store that makes shopping more pleasant. Calling it “customer-centric” is a truism–if you are a retailer, then you are and have always been customer-centric (although you may not have been very good at it in the past).
True customer-centricity in retail is not about changing the store format, it’s about changing the way decisions are made to always end in the phrase “… for [a particular group of] our shoppers.” So, the discussion with a manufacturer about a temporary price reduction should begin with questions like: “What can you do for our top shoppers? What can you do for your most loyal brand buyers? What can you do to help get shoppers who don’t buy your category to try your product?”
Of course, this type of thinking requires both a cultural shift and a technology platform to support it. Loyalty databases are the obvious foundation, but there is a major gap between the tools and techniques of today and what’s needed to support real customer-centric collaboration. A layer of technology is needed to make sharing information with manufacturers simple and automatic. Manufacturers and retailers must have shared visibility into real sales and customer data, and identifying a group of shoppers you want to reach or analyze has to take seconds, not days. Only then will retailers and manufacturers coordinate fluidly and intelligently around their shoppers.
Dan Gilmore raises a key question with “what exactly does ‘consumer or customer centric’ mean?”
In the recent RETAIL NEXT: Formats in Transition survey conducted by RW/DHC we found “Consumer-Centric formats” to be one of the top attributes assigned to winning retail concepts for the future. The example used to illustrate that concept in the survey was Best Buy, who has probably become the best known retailer for championing this idea.
In Best Buy’s case, this literally meant different store designs, colors, merchandise and service staff for different consumer segments. These segments had names and personality profiles (Jill the soccer mom vs. Buzz the twenty something techie, etc.). This approach is clearly addressed to a specific group of consumers. But the inevitable truth is that not every consumer in the trading area of a store will be a soccer mom. There will also be some Buzz’s and Barry’s. So how do you do this without limiting a particular location’s appeal to all potential shoppers. There is a reasonable argument that focus trumps any bland attempt at ubiquity. But it is a tough one to prove.
Dan seems to interpret “customer centricity” differently, as in doing things that will improve the basics of the shopping experience for ALL customers. That approach may ultimately make more sense for most retailers. But isn’t that just being a good merchant to begin with?
Ultimately customer centric may just become a catch phrase for a subset of good retail business practices ala category management. But that in itself could prove very useful in an environment where we have very few “merchants” and a whole lot of “traders.”
Winning retailers know that they must become customer-centric, but they’re still taking baby steps. To become more relevant to customers, retailers are gong to need to study SKU sell speed, be able to answer questions online and in the store, and allow online purchases in the store. In short, retailers are going to have to move away from the “hey, if you can’t find it or if we don’t have it, that’s your problem” model. Don’t expect this to happen any time soon…but the retailers who are going to thrive are working on it.
IMO, it’s hard to take this topic very seriously when most every retailer is committed to reducing store level payrolls as much as possible. Every now and then we have a question about the sorry state of both customer service and motivation of store level personnel. It seems a perverse contradiction to suggest that information regarding customers can be reduced to a series of data points, while the ability to interact with real live human customers is continually being undervalued.
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Being “customer-centric” sounds just great–but I have little idea what it really means. Right now, Wal-Mart is kicking butt–is customer centricity in this environment simply defined by low prices?
Gum at the checkout may irritate some moms–but obviously is appealing to other customers who like the convenience. Grocers have off and on tried experiments with “no candy” lanes, but they seem to have disappeared. My guess is that “shortest line” trumps no candy every time.
These kinds of goofy “customer-centric” practices ignore what is by far the number one issue–adequately staffing the store. Even my local Wal-Mart Superstore seems to be intentionally dramatically understaffing normal checkout personnel to drive people to the self-service system that doesn’t really work without terrible aggravation.
From my view, with a very few exceptions (Trader Joe’s comes to mind, as well as my local IGA, which I think survives because it seems to almost overstaff at the checkout), retailers have been moving away from customer centricity at almost every turn in name of lower costs.
I’d be curious as to some additional examples of “customer-centic” practices, especially those that benefit customers at the expense of short term profits.
You know, it’s all really pretty simple: hiring people that care about people and actually enjoy talking to other people–in other words CUSTOMER SERVICE at retail. Nothing will improve sales more in this environment.
Southwest Airlines has it right in that regard: Hire for Attitude, Train for Skill. If only retailers would pick up on that (do or die now!).
I have to weigh in again.
I really don’t know much about this area, but my takeaway from most of these posts is that “customer-centric” has to do with smart consumer analytics and figuring out what will sell to more targeted groups of customers.
This is smart business, and smart merchandising, but it doesn’t seem at all to me customer-centric in the sense of the article that was the basis for all this.
That article above said customer-centricity was when “every decision that a retailer makes is done with the customer in mind, even if it means it is at the expense of short term profit initiatives. If we do the right thing for the consumer, it will be the right thing for the retailer, and in the end, it will be the right thing for the supplier community.”
Is that the same as Best Buy’s smart segmentation strategies? I don’t think so.
Most of the above commentary is about pushing the right buttons with the customer to increase sales, using more refined segmentation and analytics. That’s smart retailing and business. But sacrificing short-term profit to make sure the customer is satisfied? That’s mostly long dead, as any trip to the store will tell you with a few exceptions.
Just check out the trend in returns policies, for example.
Consumer Centric should mean running your stores at the micro level, much like we did 20 years ago, with an “in touch” relationship with customers. Now we have data and extraordinary means of quantifying what was once intuitive. Consumer Centric has also brought forth a plethora of consultants with dress accessories for the Emperor with no clothes. The business still requires much art to complement the science. Merchants will succeed. Theorists will fail.
This is so hilarious to read. I use the movie example of “Miracle on 34th Street,” made in 1947, for so many purposes. It depicts the Macy’s Department Store, and if you look at the film, it truly is no different than the typical department store of today. Nothing’s changed in 60 years. However, specific to this topic, they initiated a policy in the movie of that if a customer cannot find what they are seeking in Macy’s, then Macy’s will find the competitive store that has it.
Imagine, if Walmart is out of stock, and you ask a friendly associate, they tell you where the local Target store is. Maybe they even offer to call them first for you to check if it is in stock.
Armageddon, for certain.
I prefer “shopper centricity” when we talk about the retailer’s imperative. This implies, IMO, that the retailer take a total view of the shopper experience into account when making merchandising and operational choices. It requires consideration of all five pillars: Service, Convenience, Ambiance, Merchandising and Price (I like to use the mnemonic, “SCAMP” to keep track of all these – see my blog for more).
To points well taken above, I must agree, that the phrase “shopper-centric retailing” (and its variants) are in some ways redundancies. Of course we use this terminology to distinguish from supply-chain centric decision making, which favors manufacturing and logistical efficiencies over the shopper’s experience.
When we do put the shopper’s interests first in the equation, we also take on the challenge of complexity that naturally emanates from the innate differences between groups, individuals, trips and moments in time. As well covered above, a global decision to eliminate candy from the check-out lane serves some shoppers very well but inconveniences others.
This is one relatively small example of the vast matrix of decision challenges we face when we try in good faith to tune our merchandising efforts based on shopper insights. Hey–nobody ever promised this would be easy.
Best Buy is indeed a great example but so are Amazon.com, Nordstrom and Zappos.
Customer-Centricity is indeed a business strategy and requires top-management buy in. It’s well documented that Jeff Bezos spends most of his time thinking about customers. As I’ve said before here, Amazon gets it.
It also requires the ability to recognize, measure and understand how customers behave. More important is actually making strategic and tactical decisions using that information. Here Best Buy is, as Ben references above, a great example. They use customer data, largely obtained through Reward Zone, to support decision making throughout the enterprise, not just within marketing.
Last, being Customer-Centric is about managing customer expectations and exceeding them where possible. This is not a short-term thing but rather a long-term commitment to customers and recognizing that they are truly the asset that matters to any business.
As this short thread has already pointed out, there are many interpretations of what customer-centricity means but making decisions that align with their needs is an adequate one. I would add that those decisions should be based on a rich understanding of those customers driven by both quantitative analysis (shopper insights from basket data, segmentation, etc) as well as qualitative (focus groups, exit interviews, etc). This enables a retailer to make decisions that are better for their customers…and specifically their most important customer segments… but also make decisions that may actually increase both short-term and longer-term profits.
Overall, the innovators are considering it a mindset shift. Managing customer segments not just categories, for example. Retailers should ask themselves whether they are pricing, promoting, or assorting their stores for the “average” customer and also ask whether there is such a thing.
At NRF this year, we worked with IDC on a survey to study the “state of customer-centricity” in the industry and presented results along with case studies from Best Buy and Rexall/PharmaPlus. Click here if interested in what we learned.
“Consumer-Centric” (or some would say “customer-centric”) will win all acclaims for this year’s new trendy buzz word in the CPG retail world. Everybody’s talking about it and almost every retail chain claims to be “doing it.” Here’s another one; this will be runner-up: “Consumers are no longer buying what they want; they buy only what they need.” Let me be contrary here, just for fun:
1. History has shown that in times of economic downturns, consumers will indeed turn to retail stores to find affordable luxuries.
2. Even if we should hit 12% unemployment, that means that 88% of the public is still working and still purchasing much of the same goods of all types that he or she always purchased before.
3. Retail stores offer alternative solutions to other means in these types of economic downturns. Good example: the HBC section where consumers are self-medicating with premium HBC solutions.
Memo to retailers: treat this economic situation with a scalpel. Put the sledge hammer away.
Some of the examples cited in the post (such as laying out the store for shopper convenience rather than current-trip profit), are really just examples of smart retailing. The lifetime value of a loyal shopper should be far greater than the incremental value to be gained on a few baskets until the shopper defects to a store that makes shopping more pleasant. Calling it “customer-centric” is a truism–if you are a retailer, then you are and have always been customer-centric (although you may not have been very good at it in the past).
True customer-centricity in retail is not about changing the store format, it’s about changing the way decisions are made to always end in the phrase “… for [a particular group of] our shoppers.” So, the discussion with a manufacturer about a temporary price reduction should begin with questions like: “What can you do for our top shoppers? What can you do for your most loyal brand buyers? What can you do to help get shoppers who don’t buy your category to try your product?”
Of course, this type of thinking requires both a cultural shift and a technology platform to support it. Loyalty databases are the obvious foundation, but there is a major gap between the tools and techniques of today and what’s needed to support real customer-centric collaboration. A layer of technology is needed to make sharing information with manufacturers simple and automatic. Manufacturers and retailers must have shared visibility into real sales and customer data, and identifying a group of shoppers you want to reach or analyze has to take seconds, not days. Only then will retailers and manufacturers coordinate fluidly and intelligently around their shoppers.
Dan Gilmore raises a key question with “what exactly does ‘consumer or customer centric’ mean?”
In the recent RETAIL NEXT: Formats in Transition survey conducted by RW/DHC we found “Consumer-Centric formats” to be one of the top attributes assigned to winning retail concepts for the future. The example used to illustrate that concept in the survey was Best Buy, who has probably become the best known retailer for championing this idea.
In Best Buy’s case, this literally meant different store designs, colors, merchandise and service staff for different consumer segments. These segments had names and personality profiles (Jill the soccer mom vs. Buzz the twenty something techie, etc.). This approach is clearly addressed to a specific group of consumers. But the inevitable truth is that not every consumer in the trading area of a store will be a soccer mom. There will also be some Buzz’s and Barry’s. So how do you do this without limiting a particular location’s appeal to all potential shoppers. There is a reasonable argument that focus trumps any bland attempt at ubiquity. But it is a tough one to prove.
Dan seems to interpret “customer centricity” differently, as in doing things that will improve the basics of the shopping experience for ALL customers. That approach may ultimately make more sense for most retailers. But isn’t that just being a good merchant to begin with?
Ultimately customer centric may just become a catch phrase for a subset of good retail business practices ala category management. But that in itself could prove very useful in an environment where we have very few “merchants” and a whole lot of “traders.”
Winning retailers know that they must become customer-centric, but they’re still taking baby steps. To become more relevant to customers, retailers are gong to need to study SKU sell speed, be able to answer questions online and in the store, and allow online purchases in the store. In short, retailers are going to have to move away from the “hey, if you can’t find it or if we don’t have it, that’s your problem” model. Don’t expect this to happen any time soon…but the retailers who are going to thrive are working on it.
IMO, it’s hard to take this topic very seriously when most every retailer is committed to reducing store level payrolls as much as possible. Every now and then we have a question about the sorry state of both customer service and motivation of store level personnel. It seems a perverse contradiction to suggest that information regarding customers can be reduced to a series of data points, while the ability to interact with real live human customers is continually being undervalued.