The Prophets of Aisle Six is the first online reality series focusing on innovation in the food retail industry. In this episode, Jose Gomes, dunnhumby's North America Managing Director, travels to the downtown Cleveland store of Heinen's Fine Foods. Jose meets with Tom and Jeff Heinen, co-owners and brothers, and learns how they are evolving their grandfather's mission of delivering excellent customer service. With 23 stores in Northeast Ohio and the greater Chicago area, and a 90-year legacy, Heinen's is proving that being a small retailer can be an advantage when it comes to data.
In this series, dunnhumby tours the globe and speaks with some of the world's greatest brands, exploring their biggest challenges and how they are using customer data science to meet those challenges.
In my last post, I posed five questions to retailers to help them determine whether they're ready for a customer-first mindset. Now, I'd like to challenge the retail basics that seasoned retailers were trained on, and suggest instead a new customer data science approach.
"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 managers have vast years of involvement, and that most have grown up through the business in progressive steps.
Why What We Know About Customers Just Ain’t So<p>The old axioms are no longer factual because customers themselves have dramatically changed, in their needs, expectations and experiences. Separating fact from fiction—and business truths from myths—will change how the business sees itself and how it will make decisions. The following are some of the new truths of retailing in the 21st century:</p><ul><li>Expanding share of wallet from customers who are already "loyal" can better optimize growth.</li><li>Loyal customers need more love and investment than new customers.</li><li>Retaining loyal customers and reducing churn among "opportunity" customers can drive more growth than acquiring new customers.</li><li>Price-sensitive customers are often more profitable than other segments because their basket mix includes more private label products or higher-margin portion sizes.</li><li>Behavioral "buy-o-graphics" and intended trip missions matter much more than demographics or geographics.</li><li>Customer segments are typically distributed variably within geographic regions or zones, but all customer types exist in all stores.</li><li>Store clusters built upon customer dimensions are more useful to operations and execution than store groupings based on geographic zones or volumetrics.</li></ul>
What We Know for Sure Can Fit on a Post-It Note<p>Agility in retail can only be maintained by understanding customers and using data in all available quantitative and qualitative forms. Here's a personal story to illustrate:</p><p>A perception-based research tool measured one retailer's progress against factors that customers themselves had said are most important to them. Before the first customer perception report was published, I set out to learn how the customer ranking compared to the rankings that the senior decision-makers would assign.</p><p>The regular weekly senior team meeting brought together many of the wisest and most seasoned leaders in the business. After briefly introducing the research methodology, I asked the team to list what factors they thought customers would list as important, and in what order they thought customers would place them.</p><p>Not surprisingly, each merchant tended to rank factors in their department higher on the list than those for other parts of the store. Although little agreement was reached, a compromise ranking was eventually defined.</p><p>Comparing our list to the customers' list revealed spectacular differences; leaders had listed most of the same elements as did customers, but in completely the wrong order. That day, the team experienced a true epiphany—they realized that "we didn't know what we didn't know."</p><p>The lessons learned were:</p><ul><li>Humility gained in discovering that "we don't know what we don't know" empowers the customer-first journey.</li><li>To become more relevant to customers, we must become fact-based deciders and activators.</li><li>Using customer data well creates true consensus and inclusive action.</li></ul>
In summary, “In God We Trust” ... all others must bring data.<img lazy-loadable="true" data-runner-src="https://assets.rebelmouse.io/eyJhbGciOiJIUzI1NiIsInR5cCI6IkpXVCJ9.eyJpbWFnZSI6Imh0dHBzOi8vYXNzZXRzLnJibC5tcy8yNDYyMjA4MS9vcmlnaW4uanBnIiwiZXhwaXJlc19hdCI6MTYyMzA2MzY0MX0.IONHl7U4GvV1SELtCU05-gSd24MuhErJw9fkohPlDJU/img.jpg?width=980" id="0a481" class="rm-shortcode" data-rm-shortcode-id="acf695ac2df738141d48aee28b7b9861" data-rm-shortcode-name="rebelmouse-image" data-width="600" data-height="988" /><p><em>David Ciancio is global customer strategist for Dunnhumby, a pioneer in customer data science, serving the world's most customer-centric brands in a number of industries, including retail. David has 48 years' experience in retail, 25 of which were in store management. He can be reached at email@example.com</em></p>
Most companies attempting to drive customer loyalty fail miserably—and few so-called customer-centric companies generate sustainable customer loyalty that drives measurable business results. Why? Because they get three key principles completely wrong, right from the start:
- Loyalty is about the company acting loyally to its customers, not vice versa.
- It is about a loyalty approach, not a loyalty program.
- Loyalty is about the store, not only about the CRM.
1. Loyal to Customers
We start to act loyally to customers when we understand them to a level of detail that ensures that we remain responsive to changes in their behavior, relevant to ever-changing customer needs and rewarding in the way we treat customers.
Acting loyally is about adopting a loyalty mind set of managing customer segments as strategic business units (aligning with how we think about a category management strategy as managing categories as strategic business units). This context demands change that is both incremental and transformational—evolution, but with a bit of manageable revolution.
What customer loyalty is, and is not:
- Acting loyally (responsive, relevant, rewarding) to our customers; not about customers being loyal to us
- An overall approach throughout our business; not a proposition or program
- Earning customer loyalty; not thinking that customers should become loyal
- Collaborative partnerships to win customers together; not tolerant of internal conflict between areas of the business or with suppliers
- Transparent; not opaque
- Driving sales and cash margin; not customers being responsible for percent margin
2. Loyalty Approach vs. Loyalty Program
We demonstrate loyalty to our customers by taking a loyalty approach wherein we commit to rewarding and delighting our customers with products and experiences that meet their wants and needs.
- We call this putting customers first—when we decide on priorities and actions based on insights from our customer data.
- By doing so, a retailer becomes an even more prominent choice in the customer's consideration set. This is not a tactic; it is a long-term strategy that makes the customer the focal point of our business decisions and objectives.
The loyalty program is an important element within a loyalty approach, as the key source of the data that enables customer intelligence, and as the channel that enables us to talk to our customers personally. I call the loyalty program the "little l" in loyalty, with the loyalty approach as the "big L."
But a loyalty program is not required to act in a loyal way to customers. Here's how to think of "big L" loyalty:
A loyalty approach, simply put, embeds customer insight throughout the retail organization to enable better, faster decisions and thereby increase sales and profit sustainably. Best-in-class practitioners have seen an incremental sales uplift in the early stages of a loyalty approach of between 1% and 2% and later stages between 3% and 4%, quarter over quarter and year over year.
3. Loyalty Is About the Store, Not Just the CRM
As I used to say to my retail colleagues, "If the store is lousy but we deliver brilliant targeted CRM, the store will still be lousy."
Even if the personalized CRM is perfect, customers need to perceive that tangible changes have been made in the store itself before they will respond by giving more of their custom. We must put customer insights into action within the "hardwiring" of retail practices—pricing, promotion, assortment, adjacencies, new products, the checkout experience and so on.
In a previous article, I shared several examples of being loyal to customers in store by simply making the shopping experience easier—setting the yogurt section by customer need rather than by brand blocks, for example, and by setting product adjacencies according to how customers shop, rather than by how items are sourced in the supply chain.
3 Ways to Activate a True Loyalty Approach
- Make better business decision by putting the customer first. Everything is better when you start with the customer. Start with the data you hold on customers—understanding how they shop and behave, what is important to them and how they engage with your business. This insight will identify a number of opportunities for better decisions using the data.
- Improve the customer experience by using data-driven insights to improve your retail offering, such as assortment, pricing and promotions. Use insights to connect you to your customer through the store. Think of the mantra "data to insights to actions"—this is how improved like-for-like sales growth and customer loyalty is delivered.
- Transform the organization using customer-driven insight to help you better understand, anticipate, measure and continually respond to your customers. This is realized through empowering, aligning and equipping your people with relevant insights, values, goals, strategies and actions.
Retail leaders must objectively understand how their business currently considers Customers before trying to set a more Customer-centric direction and focus. There are some formal assessment methodologies, like dunnhumby's Retail Preference Index (RPI) and Customer Centricity Assessment (CCA), which offer detailed evaluations of a business' capabilities, strengths and weaknesses based on Customer perceptions (RPI) or global best practices (CCA).
The approach outlined below is not intended to replace these formal tools; rather, these observations are intended as a kind of 'toe in the water' to help retail leaders form early hypotheses and points of views. These are rules of thumb, heuristics culled from global experience. Later, leaders might use these observations to informally check progress from time to time as a way of assessing whether the "program in the stores matches the program in our heads".
1. Who really runs the store?<p>Walking around a store (or better, walking around several), can give many clues toward understanding a retailer's attitude about its Customers, as well as revealing some of the challenges ahead for installing Customer First. As Customers ourselves, we are qualified to assess an organization's 'readiness' for Customer First, simply starting by walking around.</p><p>How a Customer experiences the store shapes their perception of the brand, and there are dozens (even hundreds) of 'moments of truth' for Customers in each shopping trip – opportunities for the retailer to win more loyalty, or indeed to lose it. And it only takes one 'bad' experience to erase all the good.</p><p>Leaders can form an opinion about the Customers' true shopping experience by observing 'Who really runs the store?' – a way to put on a Customer lens to assess if the Customer, the retailer, the supplier, or no one is driving shopping experience decisions, like range and presentation. For example:</p><ul><li>Choose three sections across the store (telling categories include yogurt, pasta sauces, milk, and packaged lunch meats). Look to see how the product is organized and presented (remember to try to see through the eyes of a Customer).</li><li>Is the section organized by brand (e.g. all Danone yogurt is merchandised together in a recognizable Danone brand block)?</li><li>By Customer benefit or usage (e.g. all brands of probiotic yogurt are merchandised together, as are all Greek style yogurts, all kid's yogurts, etc)?</li><li>Or, by some hybrid but logical planogram rather random plan, with little recognizable logic at all?</li><li>Would you conclude that the product display / layout logic is influenced more by supply chain, by brands, or by the Customer need states or trip missions?</li><li>How broad is the range (e.g., number of varieties or sizes)? How deep (e.g., number of brands of the same flavor or variety)? Does the breadth and depth feel Customer friendly, or confusing?</li></ul><p>Of course, analysing any available loyalty data will later tell us how Customers shop the category and that might well be by brand (or flavour or size, etc., and will certainly vary by section). But this first assessment helps us begin to form our perspective on how tuned-in the business is around its Customers, and about where within the business leaders might need to begin to install insights and the Customer language.</p>
2. What messages are Customers receiving?<img lazy-loadable="true" data-runner-src="https://assets.rebelmouse.io/eyJhbGciOiJIUzI1NiIsInR5cCI6IkpXVCJ9.eyJpbWFnZSI6Imh0dHBzOi8vYXNzZXRzLnJibC5tcy8yNTE0ODQ5OS9vcmlnaW4uanBnIiwiZXhwaXJlc19hdCI6MTY0MjUyNDUxM30.7G_Sn_ukMUg7hOE2aq2SjlqJ89dTwJpSQHP3_K99dZg/img.jpg?width=980" id="a0b6c" class="rm-shortcode" data-rm-shortcode-id="bdd5cc0fd757aa960dcde7f8c38aabdb" data-rm-shortcode-name="rebelmouse-image" data-width="980" data-height="567" /><p>Store signage not only delivers a written message, but also a type of 'body language' that Customers tune in to, albeit not always consciously. Look around the store to see both the written and hidden messages, and hear the tone being communicated: ask, do messages speak respectfully to Customers? For example:</p><ul><li>Signage at the entrance rudely telling Customers what the rules are, even though 99.999% of Customers will never even think of shopping without shirts or shoes, or wearing roller blades</li><li>Narrow limits on the quantities of promoted products or services.</li><li>Rules and restrictions, terms and conditions.</li><li>Aggressive security barriers and gates at entrances – although sometimes operationally necessary, these also tell honest Customers that they, the shoppers, are not to be trusted.</li><li>Phony expiration dates for promoted prices – Customers learn that the deal will be repeated soon, if not immediately. Best example is the many carbonated soft drink promotions below shelf price that are repeated frequently, and the innumerable 'roller' prices practiced by many retailers.</li><li>Stupid pricing signs (any stupid sign, really).</li></ul>
3. What messages are Employees receiving?<img lazy-loadable="true" data-runner-src="https://assets.rebelmouse.io/eyJhbGciOiJIUzI1NiIsInR5cCI6IkpXVCJ9.eyJpbWFnZSI6Imh0dHBzOi8vYXNzZXRzLnJibC5tcy8yNTE0ODUwMS9vcmlnaW4uanBnIiwiZXhwaXJlc19hdCI6MTYyMDgxMTUyMX0.qIFlDdRtVT6COWsq65y1HkU9T_h2a-eAd1BYtGRRjLY/img.jpg?width=980" id="df065" class="rm-shortcode" data-rm-shortcode-id="89d3a28c27f3390b6503d825243f3472" data-rm-shortcode-name="rebelmouse-image" data-width="640" data-height="360" /><p>While walking the store, traveling through stock rooms and the employee break room, note the signage and messaging aimed at staff. What seems to be valued more – numbers or people? </p><p>What policies and rules guide employee behaviour?</p><p> How are they expected to interact with Customers? </p><p>Are the messages respectful of staff? Of Customers?</p><p> What do signs say about the culture around Customers?</p>
4. Who has the power to satisfy Customers?<p>dunnhumby's Loyalty Drivers analysis suggests that Customers exhibit four 'mindsets' in their shopping journey – Discover, Shop, Buy, and Reflect. One element of the 'Reflect' mind-set includes the decision to return, exchange, or to request a refund when the product or service does not quite suit.</p><p>On your store walk, observe who has the power to satisfy Customers making a return or wanting a refund: is the front-line employee empowered to satisfy the Customer, or must the Manager be called? Is there one 'service' desk where Customers must queue to get their money back, or can the helpful cashier make it good on the spot?</p><p>Examine the return policy to assess its sensibility and ease from a Customer viewpoint. For example, must a Customer act within 7 or 30 days, and is a receipt required and signature under penalty of perjury? Is the taking of an oath necessary, or perhaps a drop of blood? The store's practice says volumes about who deserves trust in the eyes of the business. Requiring levels of approvals and higher management involvement (or some other form of hoop-jumping) is neither trusting of employees nor Customers.</p><p>The return / refund policies and practices are strong indicators of a company's readiness for, or progress along the Customer-centric journey. Customer First organizations give front-line employees broader authority to resolve Customer needs, and extend the power to satisfy Customers to most members of staff, in some form. For best practices in this area, please see the policies from Nordstrom in the U.S. and Ritz-Carlton globally.</p>
5. Do the words of your leaders matter?<p>Senior leaders set the tone for how Customers are regarded and treated in the business both by their words and their actions, of course. And the C.E.O.S – <u>C</u>ustomers, <u>E</u>mployees, <u>O</u>wners, and <u>S</u>uppliers – all take notice. It's widely documented that leaders who walk the walk are more effective than those who only talk the talk.</p><p>One simple yet powerful way to assess readiness and progress is seeing how leadership's walk and talk align. A word cloud, like the one illustrated below, makes the point very clear. In this example, recent shareholder statements (same quarter) were compared for two companies on a Customer-centric journey. We can see different progress in a form of 'walking the walk' at Retailer X and Retailer Y. The C.E.O.S are hearing what really matters to the leaders, and are forming the Customer culture accordingly, all the way down to store level.</p>
Implications for retail leaders<p>The store shapes Customers' perception of the brand; there are hundreds of opportunities for the retailer to win or lose loyalty in each shopping trip. Customers take clues, consciously and unconsciously, throughout their entire shopping experience, and draw conclusions about retailer warmth and attitude toward shoppers. And it only takes one disappointing experience to erase all the good.</p><p>Retail leaders must take an objective assessment of the shopping experience using a Customer lens to understand their current state and readiness for customer centricity. Pay close attention to the body language and tone of your policies. Store signage, employee empowerment and communications, and practices around assortment and presentation are clear indicators of the organization's attitude about the Customer.</p>
Who actually runs your store?<p><em>This is the first in a series of LinkedIn articles from David Ciancio, advocating the voice of the customer in the highly competitive food-retail industry.</em></p>
Part 1: The Evolution of Loyalty
Today's 'always on, always connected' customers have become much savvier and discriminating. Unsurprisingly, they have lost their appetite for loyalty programs that deliver irrelevant offers and rewards via the same-old, tired propositions and experiences. Although the retail industry has generally graduated to 'loyalty 2.0' – more personalized communications, coupons, and channels based on data and segmentation science – the majority of loyalty programs are simply not keeping pace with the needs and expectations of today's shopper.
Customers now have much higher expectations of how rewards programs use of their gift of personal information – ever more valuable benefits and "hyper-relevant" experiences where and when the Customer wants it. Hence, the next (and long overdue) evolution of loyalty must no longer limit its focus to earning and redeeming, but also on continual and active Customer engagement. The 'program' must become a 'conversation' that creates interactions throughout the whole Customer journey to better demonstrate the retailer's loyalty to the Customer, and thereby winning incremental loyalty in return.
Customer Needs and Expectations Have Raised the Bar
Customers expect their experience with a retailer to be fully integrated and seamless across touch points. Whether they are searching for product information, checking reward status, making an online purchase or browsing in the store, they want to be recognized and have their needs understood and reflected in the retailer's offerings and the personalized service provided. Their lives are so busy, retailers who make shopping easier will be rewarded. Convenience and ease are key – whether it's making relevant suggestions and offers based on past purchases, making access to the rewards program fully digital, or offering an app that provides information, offers and payment options at their fingertips.
The following graphic illustrates how some of these expectations are playing out:
What This Means for Loyalty Programs Today and Tomorrow
The importance of a loyalty approach over a loyalty ‘program’
We live in an "attention economy" – Customers are attracted to offerings and retailers that win their attention in an otherwise cluttered and confusing multichannel world. Retail growth (and indeed, retail survival in a non-growth market) comes down to who best attracts meaningful attention. It's almost as if there are two choices that retailers face: win attention by being cheaper or by being more personally relevant (for Customers, this can be translated as better service, selection, convenience, etc.).
Arguably, in today's multichannel, post-recession world, the decision is binary and any middle position is short-lived and profit-starved. Being cheaper means competing in a continual race to the bottom against every type of price competitor and disruptor. Being more relevant means understanding Customers better than others, resulting in the ability to deliver an experience that Customers personally value. And, it means being more loyal to Customers than others are. In this way, a loyalty approach powers the growth strategy.
To earn loyalty rather than be given loyalty – to think of loyalty as a relationship earned through ever-relevant shopping experiences, offers, and conversations – is an important and powerful distinction with significant implications for any organisation in the multichannel world. One view puts the responsibility to change on the organization itself, while the other presumes that the Customer owns the change journey (from less loyal to more so). Only the former approach has been proven to drive sustainable growth, measured in organic, like-for-like terms.
Earning more loyalty means earning more sales – one more item, one more visit, one more customer, and so on.
Therefore, the essential question is around which type of loyalty program – points, discounts, surprise and delight, experiences, etc. – will best enable the practice of a loyalty approach? In our experience, the answer depends on how willing the business is to use data and insights to truly change the experience for its Customers.
Loyalty Trends and Best Practices
Customers have redefined what "relevance" means to them, rewarding retailers who deliver value and experiences that best meet both transactional and emotional needs. Clearly, today's customers are saying that points and discounts alone are insufficient. The most successful and appreciated loyalty propositions in practice today are focused on responding to the following Customer needs:
1) Sharing – Socially enabled and connected, local, advocacy and reviews, C2C and C2B. Customers expect propositions that listen more than talk, and marketing communications that speak with / on behalf of (not to) them. Think of propositions that help create communities, enable influence, ideas and reviews, and which enable Customers to gift their rewards.
2) Digital – Seamless omni-channel experiences, mobile enablers and connections. Customers expect programs that recognize them with or without a card and offers / status whenever and wherever they want. Integrate payment and 'discover' options.
3) Experiential – Experiences that are entertaining, fun, interactive, disruptive (the concept of gamification fits here), and priceless. Customers expect rewards for activities above just dollars spent and authentic 'thank you' messaging. Think of experiences that gratify instantly, are priceless and disruptive, personalizing and human.
4) Control – Of the offer, of time, of promotions and privileges. Customers expect transparency, simplicity, and curated choice. Think of experiences that are easier to enjoy and eliminate hoops.
Stay tuned for Part 2 coming soon: Foundational principles for developing a brilliant loyalty strategy
This is the eighth in a series of LinkedIn articles from David Ciancio, advocating the voice of the customer in the highly competitive food-retail industry.