Beyond transactions: Building a compelling retail experience

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  1. 1. Beyond transactionsBuilding a compelling retail experienceAn Economist Intelligence Unit white paperSponsored by SAP
  2. 2. Beyond transactionsBuilding a compelling retail experiencePrefaceBeyond transactions: Building a compelling retail experience is an Economist Intelligence Unit reportsponsored by SAP. The Economist Intelligence Unit bears sole responsibility for this report. TheEconomist Intelligence Units editorial team conducted the interviews and wrote the report. The ndingsand views expressed in this report do not necessarily reect the views of the sponsor. Dan Armstrong wasthe editor of the report and Sylvia Helm as the author. Mike Kenny was responsible for layout and design.Our thanks are due to all of the executives who responded to the survey.October 20091 Economist Intelligence Unit Limited 2009
  3. 3. Beyond transactionsBuilding a compelling retail experienceContentsIntroduction 3Key ndings4Conclusion 7Appendix 1: Overall survey results 8Appendix 2: Americas survey results13Appendix 3: Asia-Pacic survey results 18Appendix 4: Europe Middle East and Africa survey results 232 Economist Intelligence Unit Limited 2009
  4. 4. Beyond transactionsBuilding a compelling retail experienceIntroductionGlobal recession, the accompanying fall in demand and the proliferation of shopping choices havecombined in the last year to make retailing a tough business in which to succeed. Shoppers can buy thesame goods from any number of interchangeable sources, including competing chains and multiple webcommerce sites. They can use their mobile phones to scan bar codes and instantly obtain a list of storesand website where the product is available and how much it costs at each. They can reject a retailer for anynumber of reasons: a price that may be only pennies higher than competitors, the level of convenience,the friendliness of the sales staff, even the stores dcor. When products are delivered to the door at a lowprice with a click of the mouse, there is no reason to even leave the house. To differentiate in this environment, retailers need to provide something specialsomething informedby the qualities that the customer values. If it is not price, the key is customer experience. Regardlessof channel, the retailer needs to provide a consistently enjoyable and convenient shopping experience,ensuring that everythingfrom the feel of the store or website to the return and exchange policy and thepromotions extended to the customeris carefully matched with the traits that the customer values. In this difcult economy, retailers would be well-advised to focus on the elements within their control,especially building customer loyalty among the most valuable customers who account for the bulk of therevenues and prots. Getting these customers to keep coming back requires gathering information fromcustomer transactions, sharing that information across customer-facing units, and ultimately measuringand taking actions based on the value of each customer. About the surveySurvey respondents spanned the globe, with 34% from the Asia-Pacic region, 32% from the Americas and 34% from EMEA. Respondents annual revenue ranged In September 2009, the Economist Intelligence Unitfrom less than US$500m to more than US$10bn. The surveyed 89 executives of retail organisations on the level of seniority of respondents was high: 31% were challenges of getting customer-facing departments C-level or board members and another 17% were VPs or to work together more consistently and effectively. heads of business units.3 Economist Intelligence Unit Limited 2009
  5. 5. Beyond transactionsBuilding a compelling retail experienceKey ndingsEstimating customer lifetime valueMost retail organisations in the survey consider customer loyalty their strong suit. Despite the recession,65% say they have greatly strengthened customer relationships over the past 12 months. What they havenot done is gure out a way to measure the lifetime value of their customers and use that informationto prioritise their sales and marketing efforts. Regardless of industry or region, very few executives canhonestly say that their companies can quantify the value of their best customersor any customers, forthat matter.Measuring the value of customers(% of respondents who agree minus % who disagree)Disagree Agree Despite the recession, my organisation has greatly strengthened customer relationships over the past 12 monthsMy organisation has an accurate way to estimate the lifetime value of customersMy organisation has an accurate way to estimate the lifetime value of customers-30 -20 -100 10 20 3040 50Source: Economist Intelligence Unit survey, September 2009.Targeting the customersAs to which customer-related areas need to be improved the most, the number-one response is targetingthe right customer to meet sales goals. Retailers point to segmenting and proling shoppers, reducing thecost of sales and cross-selling or upselling shoppers as areas in need of improvement. They also mentionenhancing their ability to drill down to the individual sales level to understand what each customeris likely to buy, estimate how much revenue will be produced, and what to promote or cross sell each4 Economist Intelligence Unit Limited 2009
  6. 6. Beyond transactionsBuilding a compelling retail experiencecustomer. To do this, retailers have moved beyond traditional demographic criteria to frequency and sizeof purchases, lifestyle information and the last product bought. For instance, the US womens clothing retailer Coldwater Creekwhich sells through retail stores, aweb site and direct-mail catalogsrecently announced the launch of the Onecreek loyalty programaimed at the top 5% of the companys active customers. It offers early peeks at new merchandise, apersonal shopper, free shipping on returns and a gift on the customers birthday. Eligible customers arethose who purchase three times as frequently and spend four times as much as an average customer. Theprogram is designed to improve retention and overall spend within this very important and protablesegment of our customer base, said Dennis Pence, the companys CEO, in a press release.Targeting resourcesSurvey respondents say big benets can be gained from integrating marketing, sales and serviceactivities. If all customer-facing service units share the results of every customer interaction, theyshould receive a detailed picture of shopper behavior from all angles. Then resources could be prioritisedbased on total value of each customer over the life of the relationship. Many companies, including SonyEricsson, Bell Canada, Samsung, Apple and Amazon have distinct customer service numbers for so-calledexecutive customersthose whose spending surpasses a certain level, whether for their companiesor on their own behalf. These customer service agents have information on each customer at the touchof a button, and are empowered to offer discounts and provide extras on depending on the value of therelationship.Top three benefits from integrating marketing, sales and service activities?(% respondents)Developing and sharing a detailed picture of shopper behavior and preferencesMaking each unit aware of how the others have interacted with a given shopperPrioritising resources directed towards shoppers by total value over the life of the relationship0 5 10 1520 253035 40Source: Economist Intelligence Unit survey, September 2009.5 Economist Intelligence Unit Limited 2009
  7. 7. Beyond transactionsBuilding a compelling retail experienceHow the three regions differThe three regions surveyedthe Americas, Asia-Pacic and EMEA all give themselves top marks forexcellent customer service. All pride themselves on the loyalty of their customers. And all admit thattheir organisations cannot accurately measure the value ofor even identify, in many casestheir mostprotable customers. The challenges faced in each region include the following.Americas Reducing the cost of salesnecessary to keep margins low and prices competitiveis a toppriority for Americas retail organisations. In the Americas, customer feedback tends to be ltered throughthe less expensive e-commerce channels, rather than from direct response feedback (as is the case in thetwo other regions).Asia-Pacic Asia-Pacic retail organisations get most of their customer feedback in stores, through retailsales staff, and at the point of sale. They are the lowest users of e-commerce, and call centers are used byonly 17% of respondents.EMEA Of all regions surveyed, EMEA retail organisations are the least able to gauge the lifetime valueof customers. Most in need of improvement: proling, targeting, and cross selling or up selling existingcustomers. EMEA retailers use call centers the least and direct response (direct mail, e-mail) the most.6 Economist Intelligence Unit Limited 2009
  8. 8. Beyond transactionsBuilding a compelling retail experienceConclusionFew survey respondents say they can accurately measure the value of customers. Faced with challengesthey cannot controlglobal economic trends, rapid shifts in product demand, commoditization of theretail channelthey have to focus on what they can control, working to understand the customer andprovide a pleasant and convenient retail experience. Retailer organisations should consider how to:l Do a better job of analysing the customer base and measuring the value of individual customers.l Share and act on customer information in all customer-facing units, making sure to improve the weaklinks.l Differentiate customers by products purchased, services used and revenues generated.l Provide distinct service to high-value customers, building their trust, increasing their loyalty, andgenerating more revenues.7 Economist Intelligence Unit Limited 2009
  9. 9. Appendix 1 Beyond transactionsOverall survey results Building a compelling retail experience Appendix: Overall survey results In your view, which of the followin