Martin Newmans' Blog

My top 10 Tips for Retailers to combat the economic downturn

martin.newman — Mon, 17 Nov 2008 15:50:00 GMT

My top 10 tips for retailers to combat the economic downturn

Introduction

Clearly we are in the grip of an economic storm, and very few if any retailers will escape unscathed. Most retailers normally experience a downturn in a weakening economy. However, as consumers rein in spending, a downturn is usually not distributed equally among all retailers. The extent of the downturn depends on a number of factors, including the geographic location of stores, the product categories being sold, the specific market segments, in addition to the different channels to market the retailer operates and the lifecycle stage of the distance selling channels.

There is no question that after the peak trading period there will be more casualties in the retail space, and that the next year or so will see more retailers go to the wall. However, you can still survive a tightening economic climate, and by focusing on both short and long-term objectives can come out of the other side in a stronger position.

So despite the current economic climate, retailers should continue to explore investments in technologies that provide an enhanced customer experience, improved customer service and optimised operational efficiencies in order to improve their competitive position.

The tips to follow contain both short-term tactical opportunities to improve performance and increase efficiencies as well as medium to longer term strategic choices that will deliver sustainable and incremental growth.

1. Focus on customer retention – Build customer loyalty

Retailers can ill afford to lose customers and market share at any time, but this takes on even greater significance in a downturn.

Too few businesses have well-defined customer retention strategies and the focus often falls more on customer recruitment. Yet it will always be more expensive to recruit a new customer than it will be to retain an existing one. Not only does the existing customer have a potential lifetime value (LTV) greater than one purchase, but they can also become even more valuable if they can be persuaded to purchase through more than one channel and become multi channel customers. And there’s also the potential for the customer to be an advocate and to leverage their relationship with their friends and family to help drive additional business.

Another consideration is the ‘Pareto’ effect whereby for many businesses, 80% of the sales come from the top 20% of customers, and therefore customer retention should also be segmented by the most profitable customer groups.

To maximise customer retention retailers should address the following;

- Reward customer loyalty; This could take the form of discounts off another purchase, or incentives to purchase through another channel, loyalty programmes, early access to products on sale, access to exclusive products etc

- Drive consumer behaviour; This is achieved by developing a single customer view; This is achieved by integrating information gathered from every stage of the customer lifecycle – from enquiry or requests for further information, through to initial and subsequent purchases and responses to campaigns, and even financial and billing information. This is also used to carry out loyalty building programmes and communication.

- Develop trigger and event based marketing communications; Determine key criteria for triggering of a personalised offer to be communicated to customers based on when they last bought, what they purchased, how much they spent etc

- Produce integrated marketing communication programmes; where the advertising, direct communications, customer service, database marketing and sales programmes are all orchestrated together and designed to build loyalty

- Ensure the customer service team is empowered to solve problems; And that there are online customer service solutions in place for customers who need a bit more help making product choices (Live chat) and for self service customers who prefer to find the answer themselves (online knowledge base and dynamic FAQs)

- Segment the customer base by lifetime value groups; and create different marketing programmes designed for each segment.

2. Maximise sales potential online - Improve sales drivers & KPIs

Very few retailers know what the benchmark should be for the performance of their web channel and therefore irrespective of the sector, would all benefit from an independent review of their website, highlighting issues across usability, user experience and performance measurement. Small incremental changes can often have a very significant impact upon conversion rates and other key metrics such as units per transaction, average transaction values, drop off and abandoned basket rates.

Key areas to focus on would include the following;

- Social shopping;

Your customers are heavily influenced by their peer group and therefore user reviews are a great way to promote the strengths of a product and invariably increase conversion rates quite considerably. Although it is category dependant, you can expect anywhere in the region from a 20% to 70% increase in conversion rates. However, it’s likely that there will be a tipping point after which the effectiveness of user reviews flattens somewhat as it moves through the adoption curve and becomes more common place.

- Customer service;

As above, consider the following;

· Is the customer service team empowered to resolve issues?

· Do you offer customers live chat and dynamic FAQs in order to help them make the right choices? You can expect a very quick and healthy ROI from these

Customer service should be viewed as a sales driver and that will often require a cultural change as well as adding new skills to the team

- Cross and up selling

A vitally important aspect of driving an increase in both average transaction values and units sold per transaction;

· Are you promoting cross sell options to customers?

· And are they the right choice to drive an increase in units per transaction?

· Are you also offering customers the opportunity to up sell onto a similar but more expensive product?

· And are you using peer pressure to drive sales? e.g.; ‘people who bought this also bought that’

- Searchandising;

This is a term used to promote the interdependencies of search and merchandising and the fact that you need to consider both in order to do either successfully.

Search

Ask yourself the following;

· Does the product search enable users to find all products even if misspelt?

· Does it redirect to the right product even if it’s a synonym that’s typed in?

· Does it also bring back customer service related search queries?

· Are you analysing what customers are searching for and optimising your site merchandising?

You’ll find that even for high fashion brands, slippers are quite popular at this time of year!

Merchandising

The following are the key aspects to consider;

· Are you ensuring that customers see your best selling lines first?

· Or alternatively are you pushing poorer selling lines to drive sell-through?

· Are you applying the same merchandising logic you use in store to your online channel and are your range plans simply an extension of your retail channel? You might find that you are selling to slightly different customer segments through different channels? And therefore the bestsellers might vary by channel

· For some segments the long tail will be a driver for the web whereby you generate the bulk of your sales from a much wider range. This is most applicable in the entertainment sector (Including books and DVDs etc)

· Do you promote ‘people who bought this also bought...?’

- Personalisation

Serving up content, products and offers based on a user’s previous behaviour should deliver a better and more rewarding experience for the user and therefore increase their lifetime value to your business.

- Checkout

If you have web analytics, you’re likely to find that this is where you’ll lose a lot of customers from your site. Abandoned basket rates can be anywhere from 25% to 95% with the average being around 55%. Consider the following points, which may enable you to address this issue;

· Do you offer a quick checkout for returning customers or do they have to follow the same process as new customers?

· How many stages does your checkout have?

· Is there an opportunity to introduce a one page checkout and therefore reduce the number of customers dropping off at this stage?

- Optimise the customer journey

A/B and multivariate testing will add science to your thinking around content and merchandising decisions. Let customers demonstrate to you through their behaviour on the site what works best. This is an extremely quick method to improve performance on the site and you should be a permanent feature of your trading and optimisation activity

- Delivery and returns – What delivery options do you offer? The easier you make it for the customer to receive and to return their order, the higher your conversion rate will be. Also, this is the gift giving season, how easy do you make it for your customers to by gifts and send them directly to the recipient?

I recommend you offer the following services;

i. Same day delivery or timeslot delivery

ii. Guaranteed next day delivery

iii. A specified date service (Great for gift buyers)

iv. Multi recipient delivery (Also great for gift buyers)

v. A Saturday delivery

vi. Deliver to business addresses as well as residential

vii. Pick up the return from the customer

viii. Provide the customer with a pre-printed and postage paid returns label

ix. Do you send the customer a text message informing them of when their order has been despatched and is due to be delivered? That way they can plan when to be in

I suggest you review whether or not offering free delivery delivers a ROI

- Implement, measure, improve then Repeat

Are you measuring and analysing the peformance of your e-commerce channel? If not, how do you know what’s working and what’s not? We are fortunate in the Internet world that we can prove the ROI on most of our activity therefore there’s no excuse for not applying all the analytical, reporting and Business Intelligence tools at your disposal in order to trade more effectively.

To follow is a list of some of the key metrics you should be focusing on in order to drive your trading performance online;

· Conversion rates – Whilst not the be all and end all, it is a good barometer for how your site is performing. But you should be aware of the factors that influence conversion rates such as traffic (As it increases it becomes harder to retain the same conversion rate).

· ATVs – Average transaction values help you gauge average spend and can be influenced by a number of factors, but focusing on your range architecture as well as your cross and up sell options will be the main drivers for increasing this metric. You can also use promotional activity to increase ATVs such as offering free delivery over a certain ATV or offering a bundle of products.

Are you also measuring your in store ATV, and how do this compare across channels?

· UPTs – Units per transaction provide insight into how well cross and up sell choices are working as well as how well you are merchandising the site. How does this compare to the in store metric? A good tool for leveraging an increase in UPTs is the Look book that we implemented for Oli, by enabling customers to mix and match products and create different outfits; we helped to increase the conversion rate as well as how many items the customer bought.

· Unique visitors and returning visitors – The former being a good measure for the success of your recruitment focused marketing activity as well as how good your natural search rankings are, the latter is a better indication of how impactful your customer retention strategy is

· What is the percentage of unconverted baskets? And where does this rank in terms of the key areas customers are dropping off the site? More importantly, what can you do here to reduce this percentage? This is tantamount to customers in a retail store adding goods to their basket but then leaving the basket and walking out before paying

· Bounce rates – Do you know what percentage of users are bouncing/exiting the minute they hit your home page? If it’s high that would suggest that either your homepage is ineffective for the target audience or that your search engine strategy is bringing the wrong people to the site...or possibly a combination of both

3. Increase efficiencies

While all retailers focus on cost reductions in a downturn, this should not be at the expense of the one channel that still delivers solid growth and you should also take into account the fact that the web will drive sales for your retail business. According to Boots and Argos, the ratio of sales generated by the web in their retail stores compared to sales online is around 3 to 1. In other sectors such as fashion, the ratio will be even higher due to continual prevelance of consumers wanting to try products on in store.

Are you taking account of this when determining your budget for the development of the web channel?

There are some key areas that can be made more efficient where there is often either wasted or under investment and these include;

· Marketing - Tips for improving the efficiency of marketing activity are;

i. Measure the performance of all marketing activity. Constantly review customer acquisition costs and the lifetime value (LTV) of customers and also measure this by different customer segments

ii. And then feed this analysis into your marketing campaign and revise your activity accordingly. Digital marketing is a science, but you’ll only find out what works by constantly testing, tweaking and revising your activity

iii. If you’re not doing so already, then develop your overall campaign to focus on the recruitment of new customers, the retention of existing customers and the reactivation of lapsed customers. Leverage different media and different strategies and tactics for each of these approaches

iv. Segment your customer base by recency (When they last purchased), frequency (How often they purchase) and value (How much they spend), this in turn will enable you to focus on the most profitable customers when it comes to your retention strategy

v. In terms of media and the specific activity for the web, I recommend you focus on the following;

§ Email marketing to your existing customer base (Retention & reactivation)

§ Search engine marketing, but place more emphasis on improving your own natural search rankings (Recruitment)

§ Affiliate programmes – You only pay commission when a sale is generated (Recruitment)

§ Behavioural targeting – Enables you to push your message to consumers who have shown in an interest in brands or categories with a proximity to yours (Recruitment)

· Fulfilment – There are many aspects of order fulfilment that can be reviewed from a performance perspective and where you can increase productivity. It should be noted that this can also have a direct impact upon the customer experience. This includes;

i. The pick and pack time per order (Should be less than 4 minutes)

ii. The total time it takes per order for pick pack and despatch

iii. Distribution – The percentage of first time deliveries, lost orders etc

iv. Packaging quality and neatness for each order

v. The time it takes to process a customer return (Should be within 24hrs of receiving the goods back)

· Customer service – Customer service is all too often thought of only as a service function and not a sales driving opportunity. After all, isn’t every interaction with a customer a potential selling opportunity? Key areas to focus on are;

i. Average time to answer the call

ii. Abandoned call rates (A lost call is a lost sales opportunity)

iii. Percentage of first time issue resolution

iv. Percentage conversion rate of sales calls and live chat

v. Time to respond to email communication

vi. The time it takes to refund a customer’s return

vii. Are you channelling all customer communication into a customer contact tool in order to give you a full view of all customer service communication with them? Ideally you would then channel all of this communication into your CRM application to provide more info the single view you already have of the customer’s transactional behaviour

viii. Is the customer service team big enough?

ix. Is the customer service structure appropriate? For example; could you benefit from having one team to handle customer service issues and one to handle sales?

Having direct contact with the customer can also help to drive an increase in average transaction values and units sold per transaction due the cross and up sell opportunities that this interaction presents.

· Operational structure – As I’ve outlined in previous postings, every retailer has a different operational structure for their e-commerce channel, yet they have largely the same structure that manages their other channels (Stores and call centres). www.e-consultancy.com has a good report highlighting what e-commerce structures should look like.

My main tips are;

i. Appoint a Director of e-commerce – Make it a board level role and appoint someone who has an appropriate width of skills and depth of experience. If you don’t then you’ll not have the level of insight required to make the right decisions on the strategic vision, the roadmap, the benchmark for the scope of opportunity and the level of investment required to deliver a ROI

ii. Focus on day-to-day trading of the website and develop a structure that will enable you to optimise the site and maximise the opportunity. If you’re a multi channel business this will likely involve having a merchandising resource dedicated to the web channel, and a marketing resource with the appropriate level of digital marketing experience

iii. But this said; don’t treat e-commerce like a siloed business unit. Wherever possible integrate it with other operational functions, and develop support functions to serve all channels of the business.

iv. As outlined above, ensure that customer service is sales driven. But please note that good retail sales skills aren’t always transferable to a telesales or live chat role

4. Think cross channel and be channel agnostic

The customer experience transcends all channels to market. Too often it is thought of only in an online context. You need to make EVERY customer interaction count. Every touch point the customer has with your brand is both an opportunity to recruit and retain their business as well as lose their custom if you get it wrong. The latter generates negative Word of Web, which due to the growth of social commerce can have a far greater reach than traditional word of mouth.

The customer controls when, where and who they transact with, and they expect you to be ‘always open.’ They also expect you to provide a convenient multi channel proposition, and for most customers that means;

· Being able to reserve if not pay for a product online but pick it up in store

· Being able to return a product to a store, to your customer service team or to your warehouse, irrespective of the channel they purchased through in the first place

· Being able to return their goods free of charge (e.g.; pre paid delivery)

· Being able to buy in store but have you deliver to their place of work or to their home rather than having to carry their goods around all day

5. Cross-Channel Inventory management

It should always be a priority to maximise sales potential through product availability, however in a weak economy, it takes on even greater significance. Therefore it is crucially important that retailers utilise effective supply chain and product management techniques and strategies to help avoid lost sales opportunities.

During an economic downturn, stores can experience a decrease in footfall and the web a decrease in traffic. As a result, it becomes essential to complete a sale with as many visiting customers as possible. So whether a customer visits a physical or an online store, the systems in place must be such that the customer is not lost due to a product they wish to buy being unavailable. In order to achieve this objective, retailers must utilise systems which optimise their various sales and inventory channels.

The inventory of the entire retail business should be available to satisfy customer demand rather than just the inventory at the specific store or by a specific warehouse location assigned to fulfill an order. In practical terms, if a customer visits a store and wishes to buy a product which is not available in that particular store, the retailer should have cross-channel systems in place which will keep real-time track of where the inventory is located (anywhere in the chain) and be able to complete the sale to the customer and offer quick delivery of the items directly to the customer's home or for pick-up at the store. This provides the opportunity to catch a potential lost sale. This can sometimes take the form of a web kiosk which enables the retailer to offer an extended range in store.

Similarly, the inventory used for the e-commerce channel should be based on inventory across the entire chain rather than on just the inventory in the warehouse or an inventory that is dedicated to the web. This will increase the probability of the sale being completed. This will also ensure that inventory at store locations across the chain is available to satisfy Web sales in the event that the warehouse that normally carries inventory for the online store is out of stock.

Inventory control is also critical for survival. Effective cross-channel systems will select inventory for the sale from the stores most unlikely to sell that inventory. This will reduce the number of markdowns required at the end of the season and will reduce overall inventory, providing the retailer with much needed liquidity.

6. Think customer data - Turning single channel customers into multi channel customers

The optimum solution is to have all customer data in one place with a clear view of all customer behaviour irrespective of the channel, the reality is that very few retailers are in this position. The sooner you invest in an integrated CRM solution and a central data warehouse holding all customer details the better. This will enable you to have a single customer view and really drive the behaviour of your customers.

It’s worth noting that a multi channel customer can be up to six or seven times the value of a single channel customer.

7. Is all staff incentivised to drive cross channel sales?

Unless store staff are incentivized to also promote the web channel, they are likely to view it as a threat as in their minds it will be taking away selling opportunities that would help them to achieve their targets.

Even if you have web kiosks in your stores, unless they are rewarded for the sale, staff will be less inclined to push a customer to buy through a kiosk even if it means the customer can find the right size for them.

Customer service staff who are working on selling through the call centre or through live chat also need to be incentivised to promote the retail channel.

8. Stay close to your competitors

As the saying goes, keep your friends close but your enemies closer! And this takes on even more significance during a downturn due to the fact that retailers are reacting to an ever changing and increasingly fragile environment and therefore it is vital that you are aware of any changes to their overall proposition or alternatively any tactical changes to pricing, products and promotion as soon as it happens.

9. Proposition and positioning

Don’t only focus on discounting . . . Add Value.

Often during a downturn, companies start discounting their recommended retail price to increase sales. And we’ve seen a lot of this in the market at present. But discounting on its own is unlikely to be enough. Instead try to add value to the customer experience. If all of your competitor’s are also cutting prices, what are your points of differentiation?

And from a price positioning perspective if you also promote adding value to the customer, you’ll find it easier to reposition after the market returns to growth than you will if you only position on price.

10. Take Action…now

Although most Retailers will now be in lock down mode for the peak trading period, they must move quickly to implement strategies to sustain their peformance. Effective implementation of these strategies will improve retailers' sales performance during the downturn and will enhance retailers' competitive positioning during the upturn.

But don’t only focus on the here and now, many of the ideas above present opportunities to pick low hanging fruit in the short-term, but there are also key pointers that will provide you with the focus to ensure you don’t ignore the longer-term, as you also need to be developing your strategy and roadmap for that now.

Happy trading!

E-Commerce strategy - The final frontier

martin.newman — Wed, 12 Nov 2008 09:16:00 GMT

Despite the growth in the e-commerce channel, many retailers are still unable to make truly informed decisions regarding the strategic development of e-commerce in their business, as they are unable to effectively benchmark the performance of the channel.

This is the case for both retailers who think they're performing well and those who don't.

The issue
The big gap in most businesses is still around the strategy piece and the inability to make truly informed decisions in relation to the scope of opportunity presented by the e-commerce channel, and therefore the structure and investment that is required in order to maximise the opportunity and sweat the asset.

While many multi channel retailers are now enjoying seven, eight or even nine digit revenues from e-commerce, most retailers still lack real insight into whether or not the channel is as successful as it might be. As they don’t know what to benchmark against.

There are too few e-commerce players on the board
This lack of insight is partly due to the fact that e-commerce is not its own directorate in most businesses, and therefore there isn’t an experienced e-commerce practitioner on the board. As such, decisions made around strategy, structure, technology and investment can be ill-informed.

But to caveat this, there is still a big shortfall of experienced practioners who have the breadth of skills and depth of experience required to add this strategic insight at board level. And this is also often determined by what stage of the lifecycle e-commerce is at within each business.

The level of investment in technology and customer experience is often insufficient
A question for retailers: “How much would you invest in a new store shop fit?”

In most cases, it’ll be a very similar amount, if not more than they would invest in developing their e-commerce platform, and yet the latter will end up driving up to 20% of their turnover or, well over 10 times the turnover of any one store.

I hear the term ‘fit for purpose’ being bandied about frequently. But I wonder if that is entirely relevant to the e-commerce channel. As the lack of insight makes it a pretty tough call to determine, what is the benchmark for being fit for purpose? And will being fit for purpose actually do enough to maximise the opportunity through the channel?...Would it not be more appropriate to set the bar higher and aim to be best in class?

The web is a driver for all channels
Let’s not forget that the web is a driver for all channels. The question I still hear retailers asking frequently is around the web cannibalising store sales. To the contrary, the web is a driver for retail sales. A number of retailers (including Boots and Argos) who have tested the impact of the web on store sales have concluded that for every sale the web generates online, it pushes three sales in store. How many retailers are accounting for this impact when it comes to determining the level of expenditure required on their web channel? This is a discussion we should be having with them when responding to their brief or RFP.

The operational structure
As outlined above, there is also a lack of understanding over what the operational structure should be. Why does every multi channel retailer have a different structure to manage this channel? Because that’s essentially what happens. Surely there must be a standard model for job roles and remits that can be applied? With scale, level of adoption and levels of multi channel integration being the only key aspects that differentiate the core structural and operational requirements. In the offline world, there is a fairly standard model for the operational structure.

Multiple channels (Cross channel) vs integrated multi channel
And of course another challenge is that most retailers run multiple channel businesses and not integrated multi channel companies, or cross channel businesses. And therefore very few retailers provide the same customer experience across all touch points with the brand. Customers want to do business with an always open retailer who will deliver a consistent experience irrespective of the channel.

In addition, very few retailers have a single customer view and are therefore unable to drive and influence the behaviour of their customer base across all channels, and thus lose out on the vastly increased value of a multi channel customer vs a single channel customer.

Add to this the fact that many retailers are now developing new channels such as kiosks, direct mail and mobile, and this before they've managed to maximise the opportunity through e-commerce and before they've integrated their channels.

The last mile disappoints
Finally, the last mile is the most important one in the customer experience of buying online and yet it’s the one area that gets the least amount of attention from a strategic perspective. So even when you do get the customer and brand experience right on the website, this all becomes irrelevant when the customer is let down at the end of the process.