Chasing The Customer … Not The Competition!

“Data is becoming the new raw material of business and economic input almost on par with capital and labor.”  The Economist Feb 25, 2013

Many think the competitive issue facing brands and retailers is about continuously tracking competitors. Many others think the great challenge to modern day retailing is between bricks or clicks, the physical storefront location vs. the internet connected distribution warehouse. But what if it’s not? What if the real challenge is about understanding the customer? What if it’s about Customer Intelligence, CI.

 “Chasing the customer … not the competition!” seemed an appropriate title. Six words define the most fundamental change in retail strategy ever ─ in my opinion. Since the days of the ancient Agoras, competitive retailers ‘scouted’ competitors for price, merchandise presentation, marketing, and retail location.

Elite retailers are now about to redefine the strategy process and claim a new and powerful competitive advantage by combining the internet, customer communication technology and data science – all driven by ‘big data’ –  to identify ways to serve current and future customers ─ better than anyone else can serve them.

Amazon, Nordstrom, Kroger and Tesco are all proceeding successfully down the path that allows them to service their customers on a virtual one-to-one basis by harnessing customer specific data. They are looking at customer data to build their business, not trying to copy competitor’s initiatives. And … Nordstrom seems to be proving that data to insights to action to data, drives the Omni-channel – both physical location and internet distribution. But where on this pathway is Walmart, the world’s largest retailer?

This document is not a traditional financial review, rather an examination of selected strategic processes that elite retailers are mastering or must master to drive their business. It is intended as a ‘thought starter’.

First, Nine ‘must win’ benchmark strategies  ‘winning’ retailers will have in common:

1) Fast Growth

2) Market Share Gain

3) Customer loyalty across multiple channels

4) Merchandising

5) Marketing

6) Mobility

7) Supply Chain excellence

8) Exceptional customer experience

9) The ability to leverage data to drive the 8 points above that ultimately attracts, holds and grows profitable customers.

 Example: How does Amazon see and operate in its world?

1) Vision and Mission: “Our vision is to be earth’s most customer centric company; to build a place where people can come to find and discover anything they might want to buy online.” All activities including promotions, marketing campaigns, acquisitions etc. are aligned toward this common vision of the company. [Amazon is, simply, a customer data driven enterprise.]

2) Brand Imagery: Purpose; Quality products at affordable prices, Self-Expression: Tech savvy image, Next generation outlook, Emotional: Reliability and trust, Secure transactions, Functional: Lowest prices, Ease of purchase and delivery.

3) Amazon’s six pillar marketing strategy:

  1.  It freely proffers products and services
  2.  It uses a customer-friendly interface
  3.  It scales easily from small to large
  4.  It exploits its affiliate’s products and resources.
  5.  It uses existing communication systems
  6.  It uses universal behaviors and mentalities

Note: Customer Retention –  2/3 of the sales come from returning customers. Why? See six pillars above.

5) Risk, Rewards, Results Analysis:

  •  Amazon adds emerging business lines to portfolio to manage risk.
  • Amazon’s sales composition was 100% media sales in the first 3 years. By 2011 media forms 43% of total sales.
  • No brick and mortar store presence.
  •  Largest online retailer.
  •  Better prices than Walmart (19%).
  •  Overall U.S. online sales grew 17 percent, 2011-2012. 4 times faster than overall traditional retail sales.
  •  4th quarter 2012, 53% of Walmart customers said they also shopped Amazon compared with 47% a year earlier. Six years ago, only about 25% of Walmart customers shopped Amazon.
  • More than 12 years after opening its Web-Store Walmart generates about $5.5 billion or 2 % of its total annual sales online. Amazon’s sales last year were $34.8 billion.
  • In the past 5 years, Walmart shares have gained 45%. Amazon has more than quadrupled. [Nov 1, Amazon $359 Walmart $77]
  • There is an interesting estimate that based on current growth trajectories; Amazon will surpass Walmart in global revenue around 2025.

Example: How does Nordstrom see and operate in its world?

  • Nordstrom envisions itself as an Omni-Channel retailer.
  • Nordstrom strategic priorities:
  1. IMPROVE CUSTOMER EXPERIENCE
  2. ENHANCE MERCHANDISE OFFERING
  3. INCREASE RELEVANCE
  4. GROW ONLINE
  • “While we’re making improvements to each individual channel in which we operate, we recognize that the customer views us simply as Nordstrom. Increasingly, we’re seeing the benefits not only of the growth at each channel but also the synergies between them, including customer acquisition and retention.” Blake Nordstrom, president of Nordstrom.
  • Nordstrom customers who buy via multiple channels spend up to quadruple the dollar amount of single-channel shoppers, according to Nordstrom.
  • Nordstrom has tallied two consecutive years of at least 30% growth rates in e-commerce.
  • One important area of investment for Nordstrom is personalizing the customer experience, using a shopper’s transaction and preferences (CI) for guidance.

Example: How does Walmart see and operate in its world?

In 1997, Amazon recruited Richard Dalzell and Michael Packer, two key Wal-Mart IT executives credited with building out many of the logistics and customer order systems for Amazon.

Amazon had a 44% top-line growth last quarter. Walmart growth is in the single digits.

More than 12 years after opening its first Web-Store Walmart generates about $5.5 billion or 2 % of its total annual sales online. Amazon’s sales last year were $34.8 billion.

In 2012, Wal-Mart hired Neil Ashe from CBS and Jeremy King to head up @walmartlabs in Silicon Valley. This is the team that is charged build the ‘Amazon’ technology + for Walmart.

Walmart is trying to rejuvenate its heretofore lethargic e-commerce presence and to sync its massive databases. The new initiatives include:

  • Integrate store and online marketing. [Walmart’s store managers and employees will get credit for online sales from their territory, just like sales in the store. In my opinion, this is a very smart move!]
  • Walmart is rolling out new apps, iPad, My Local Walmart Facebook app, and a newly refurbished iPhone app. [Looks like each store will have its own Facebook page for store focused, manager generated promotions.]
  • Stores will ship orders over $45 to homes for free, no $79 membership fee like Amazon Prime. “Next day delivery will also be at a very economical price. There will also be ‘free site to store delivery. [Walmart has found that orders picked up at stores generate an average of $60 in incremental purchases.]
  • Walmart is recruiting top Silicon Valley talent and acquiring start-ups.
  • Walmart is investing in ‘social gifting’ [Nordstrom made two major acquisitions in this space last year.]
  • Walmart has upgraded its website search engine.
  • Walmart is upgrading its data structure.

“In the first few years, were we tinkering and  experimenting and not moving? There’s some truth to that. But look at our history. When Walmart leans into something, it’s like a tidal wave.” Neil Ashe

What does all of this mean?

First, It’s now about customer, customer, customer … not just location, location, location as in the past.

Second, what the competition is doing is less important than what the customer is doing. Following the customer drives you decisions about today and tomorrow. Market share changes will tell you if the competition is doing a better job a CI than you are.

Third, the strategy now shifts from trying to sell customers what the buyers / product managers bought / created, to making sure that the buyers / product managers buy or make the products that the customer wants to buy.

Here we start to define the fundamental difference between chasing the competition and chasing the customer.

Big Data essentially reduces to individual Customer Intelligence or CI. CI allows you to understand your customers:

1. Buying, purchase history, how often do they buy? favorite products / categories , Promotion or full price buyers? Brand loyal or switchers? Etc.? [This data allows for affinities and correlations on multiple planes.]

2. Interaction history, how do they interact with you? Mobile apps? Websites? In-store? Site delivery? How often do they use? Are they spending more or less time / money with you?

3. Social Media history: What do they like? What interests do they share? Are they influencers or followers? Do people in their network share similar interests? [social media graph]

4. What are they saying? (CRM) What are your customers saying about your products, prices or services? Are sentiments shifting from positive to negative?

A retailer will have to create a streamlined Omni-channel customer experience between online and offline visits; store and internet and product / services offerings. Email, direct marketing, advertising, customer service will ultimately have to be personalized communications to each customer experience. Look at some of the numbers in the above text for strategy validation.

Historically, a retailer could calculate a Customer Lifetime Value (CLV) based on purchase history alone. Now, an online and social media presence must also be calculated at some point to take into account not only what the customer purchases, but also how much that customer/influencer drives others into a transaction with the brand or retailer. [Therefore, we will have to have the ability to monitor and process both structured and unstructured data.]

Using both historical purchase data and social media history, a retailer redefines and strengthens the retailer / customer relationship. CI allows a retailer to:

1. Improve customer recognition

2. Create a comprehensive customer profile

3. Gain a broad understanding of purchase behavior

4. Extend web and cross-channel marketing and purchase optimization

5. Create pricing models

6. Launch companion products and services

7. Create and monitor meaningful metrics that monitor the entire customer path to purchase.

8. Create a seamless communication strategy / technology between business partners and most importantly – to customers.

All of the above necessitates an end to information / communication silos between retailers, vendors and the supply chain. Just as important, managers will have to move from traditional hierarchical structures to matrix models.

The technology to accomplish CI is and will be developed. But it is all for naught if management teams do not develop the collaborative mind and skill sets to interact with each other. CI will be the competitive advantage and economic drive, perhaps as soon a tomorrow.  Equally important, however, is a Communications capability. Information is useless without Communication.

I was fortunate enough to spend a few years as a Senior Vice President at Leo Burnett, the ad agency that created Tony the Tiger, The Jolly Green Giant, The Pillsbury Dough-boy and great work for Hallmark, Disney, McDonald’s and a host of others. We all learned quotes from Leo about marketing, consumers, customers and communications. One of my favorites has always been, “In this agency business, we are people talking to people and that’s what we should keep running through our fingers.” Leo was all about Communications! Information, ultimately, has to be communicated – one to one, people talking to people!

Closing thought I picked up from reading Dr. Priscilla Berry’s new book.

Fostering Spirituality in the Workplace: a Leader’s Guide to Sustainability http://www.amazon.com/dp/B00D22X0PU/ref=rdr_kindle_ext_tmb

“We have evolved from an Agrarian Society, to an Industrial Age, to a Service Economy to an Information Age, to a Knowledge-Based Economy; and I would say we have moved again, even without an exact name, into a Communications Economy.” Dr. Priscilla Berry

 

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Comments
5 Responses to “Chasing The Customer … Not The Competition!”
  1. Great article Ron. I truly believe one of the simplest moves Walmart could make is to re-locate its .com group to Bentonville. To be an omnichannel retailer, it’s important for the functional groups to have constant interaction regarding the activities and behaviors of customers and to be able to rapidly react, test and optimize the experience. IMHO, the distance between Bentonville and San Bruno is both physically and collaboratively challenging to this goal.

    Like

    • I agree … just not sure you can get tech talent to move to Bentonville. Austin Texas is not a bad place for innovative techies. Company could fly a shuttle.

      Encouraged by some of the moves they have made. But at some point, CEO has to realized that the Omni-channel of the customer is really separate channels for a retailer … but they must be seamlessly integrated into the corporate structure.

      Most important will be the culture change required within Walmart management teams. Been doing some work with Dr. Berry on this. She is really quite good.

      Like

  2. glenn mealman says:

    outstanding work wish we were still selling groceries glenn mealman

    Like

  3. djcaccamo says:

    Very nice analysis Ron. It looks like Walmart tactics are mirroring their competitors the same way that traditional grocery did when they are losing share to “The Walmart”. Hiring the ex-Amazon staff reminds me of Winn-Dixie hiring ex-Walmart staffers. I like what Nordstrom is doing.

    Like

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