In God we Trust…all others must bring data
Teaching old dogs new tricks
“Retail is detail” is common industry wisdom, and it means that achieving success is subtle and difficult. Success in any field demands practice and experience, and so it is little wonder that many senior retail and brand leaders and middle managers have vast years of experience, and that most have grown up through the business in progressive steps. One has to earn one’s “stripes” in retail; credibility is hard won by working in stores, on the shop floor, by facing Customers and managing departments and categories and people.
Accordingly, business decisions are heavily based on experience, and more often on personal memory of choices and executions and how a thing has traditionally been done. I believe that the original sin of retail is this dependence on history and on personal experiences. Some would call this nod to intuition and experience a “seat of the pants” approach; nevertheless, the credo of “the way we’ve always done it” is systemic and endemic in the industry.
Hence, the natural reflex of retail is not so much to follow data as it is to follow traditions like last year’s sales execution, or to follow the competition. Using data is very much like teaching old dogs new tricks.
“It’s not what you don’t know that gets you into trouble…it’s what you know for sure that just ain’t so”
Mark Twain could have been talking about the current state of mind of most retailers when he spoke these words. Experience naturally breeds knowledge and confidence, creating a common wisdom and common sense among the retailing fraternity gleaned from many years of practice. But this experience also creates a list of faulty assumptions and a mythology regarding growth and sustainability of the business.
These are a just few of the things that most retailers absolutely know for sure (considered “truth” still today, and certainly by Kroger prior to its Customer 1st transformation which began in 2003):
- We must acquire new Customers in order to grow our business
- Price-sensitive and ‘cherry picker’ Customers are not profitable. The competition is welcome to them
- Customers are different in every part of the country / region / urban vs. suburban vs. country stores / format or banner
- Our loyal Customers are already giving us most of their spend in the categories we offer
- Our weekly flyers and promotions always drive footfall and sales
- After all these many years in the business, we know what Customers want
The problem is that these beliefs are rarely, if ever, true according to the data (and depending on retailer format differences, market coverage, etc). Many retailers are in trouble today because what they know for certain just ain’t so.
Why what we know about Customers just ain’t so
The old axioms are no longer factual because Customers themselves have dramatically changed – in their needs, expectations, and experiences of retail (think of e-commerce and mobile commerce disruptions) – while the retail industry itself has undergone massive seismic shifts in the past decade alone.
“Your customers–every single one of them–have been changed by their exposure to web-based commerce. Regardless of the type of business you’re in, the customer service and customer experience expectations of your customers have been changed forever. It doesn’t matter if you’re a retail bank or a hair stylist or a clothing store; there’s no going back to a pre-Web mentality if you want to survive and prosper with the customers of today and tomorrow.
Customers today expect every business in every industry to achieve “digital parity.” In other words, your business needs to be able to offer all the advantages, and be as easy to do business with, as the best of what your customer has encountered online and in self-service solutions.” Micah Soloman, from They’re Not Making Customers Like They Used To: Changing Customer Service Trends And Expectations, www.forbes.com, Dec 21, 2016
Also see: Wired and Dangerous: How Your Customers Have Changed and What to Do About It Paperback – Chip R Bell, John R. Patterson
The pace and depth of change for customers and for the industry only continues to accelerate.
Busting myths with new truths
Separating fact from fiction – business truths from myths – will change how the business sees itself and how it will make decisions. And this change to insight-led decision-making is critical for a company wanting to activate a Customer First culture, and required for to sustain Customer-led sales growth.
The following are some of the new truths of retailing in the 21st century, uncovered by analysing Customer-level data:
- Expanding share of wallet from Customers who are already “loyal” can better optimize growth.
- Loyal Customers need more love and investment than do new Customers.
- Retaining loyal Customers and reducing churn among “opportunity” Customers can drive more growth than by acquiring new Customers.
- Price-sensitive Customers are often more profitable than other segments because their basket mix includes more private label products or higher-margin portion sizes. Besides, even Affluent Customers are price-sensitive in some categories.
- Behavioural “buy-o-graphics” and intended trip missions matter much more than demographics or geographics.
- Customer segments are typically distributed variably within geographic regions or zones, but all Customer types exist in all stores.
- Store clusters built upon Customer dimensions are more useful to operations and execution than are store groupings based on geographic zones or volumetrics.
Agility at retail can only be maintained by understanding Customers using data in all available quantitative and qualitative forms.
What we think we know can fill volumes: what we know for sure can fit on a post-it note
Agility at retail can only be maintained by understanding Customers using data in all available quantitative and qualitative forms. Questioning what we think we know for sure is the only way that I know of to avoid management hubris.
Here’s a personal story.
A tool called ‘Customer 1st Tracker’ measures Kroger’s progress against factors that customers themselves have said are most important to them. Before the first Tracker was published, I thought it would be interesting to learn how the Customer ranking compared to the rankings that my colleagues would assign.
Our regular weekly senior team meeting brought together many of the wisest and most seasoned leaders in the business. I felt comforted when I looked around the room one day and added our years of service to calculate almost 500 years of combined experience. Certainly, what we knew together would fill volumes.
After briefly introducing the Tracker methodology, I asked the team to list what factors (e.g., meat quality, short queues, clean floors, etc.) they thought customers would list as important, and in what order they thought customers would place them.
A long list of factors was nominated and spirited debate followed in setting the order. Not surprisingly, each merchant tended to rank factors in their department higher on the list than those for other parts of the store. Little agreement was reached, but a compromise ranking was eventually defined (not so surprisingly influenced by group dynamics like who argued most passionately or held rank in the management hierarchy).
Comparing our list to the customers’ list revealed spectacular differences; we had listed most of the same elements as did customers, but in completely the wrong order (‘price’ was at the top of both lists, to be fair).
That day, the team experienced a true epiphany in our journey toward Customer First – we realized that “we didn’t know what we didn’t know”. One of my colleagues was heard to quip, “When you think about it, what we think we know would fill volumes…what we actually know would probably fit on a post-it note”.
The lessons we learned were:
- Humility gained in discovering that “we don’t know what we don’t know” empowers the Customer First journey.
- To become more relevant to Customers, we must become fact-based deciders and activators; we cannot win using intuition gained by experience and supplemented by a few facts or by bits of research.
- Using Customer data well creates true consensus and inclusive action.
Building new beliefs and principles for the business: 10 Customer First beliefs
|Accepted industry beliefs||Customer First beliefs||Why we believe|
|1.||Adding new shoppers and consumers is the best way to increase brand value.||Growing shopper and consumer loyalty is the best way to increase brand value.||Focusing on acquiring shoppers typically leads to trading higher value loyal shoppers for lower value new shoppers.|
|2.||You are your demographic, so go-to-market tactics should be based on demographics.||You are what you buy so go-to-market tactics should be based on behavior.||Demographics are a proxy for how someone might behave. Actual behavior varies widely within demographic cohorts. Demographics can’t reflect individual preferences, prior experience, values and other factors.|
|3.||There is an overwhelming amount of data available.||Most available data is inadequate to the task of building stronger brands or better shopping experiences||Most data fails to lead to a new understanding of shoppers and consumers. That’s because most data is inherently limited (small samples, no shopper view, etc.) and even useful data is not well managed.|
|4.||Most innovations will fail. It happens.||Innovations fail due to lack of relevance. It can be fixed.||Most new products are irrelevant to their intended audiences and / or are launched with poorly aimed marketing strategies and plans.|
|5.||Marketing investments should be measured based on the CPM or redemption rates.||Marketing investments should be measured based on the short- and long-term ROI.||In the past, clear ROI measurement was not possible due to a lack of useful data, and limited willingness to subject the results to analysis. Now such data are available and the measurement of all spending is essential.|
|6.||Big brands should be supported with mass marketing activities.||All communications should be targeted, based on behavior.||Even the largest brands have household penetration of less than 10%. Mass marketing therefore involves a staggering level of waste for most brands.|
|7.||Retailers should focus on growing shopper traffic, bringing them to stores where our brands are stocked.||Retailers should focus on improving the shopping experience for their best and highest potential shoppers.||Retailers can use data and insights to understand the large difference in value and potential represented by each of their shoppers. Improving the shopping experience for their best shoppers is more profitable and sustainable than focusing on attracting more shoppers to the store.|
|8.||Shoppers and consumers are naturally at the center of our thinking and action.||Most manufacturers are thoroughly brand-centric and pay a steep price for it.||We have worked with hundreds of manufacturers across the globe and we know how hard it is to set aside past practices. A focus on products and competition often puts the topic of relevance to shoppers and consumers further down the list.|
|9.||Most shoppers and consumers are disloyal to the brands they buy.||Most marketers are disloyal to their best shoppers and consumers.||Most marketers allocate the lion’s share of their marketing investment to attracting new shoppers and consumers. Few marketers identify and act on opportunities to retain and grow their loyal shoppers.|
|10.||The average grocery shopper is a female head-of-household, 25 – 44 years old, with a family of 4.||We don’t believe in average shoppers or consumers.||We analyze household level data from more than 200 million shoppers worldwide. The diversity of shopping behavior, needs, motivations, attitudes and sensitivity to marketing influences is enormous and cannot be reduced to averages without causing a substantial loss of understanding and effectiveness.|