Customer-Centricity Drives Successful Omni-Channel Retailing

White Paper

It isn't easy for retailers to align around customers and brands rather than sales channel, but the effort is worth it. Cross-channel shoppers are significantly more profitable than single-channel customers - 38% more profitable this year versus last, according to Retail Systems Research (RSR). In this whitepaper, Nikki Baird of RSR explores the "Five Cs" of marketing, why the sales funnel is obsolete and how to create an immersive, multi-channel retail experience.

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Even if you have fully checked out your blind date on Facebook, LinkedIn and Google, you can’t let on how much you know during that first date. Your date probably investigated you just as thoroughly, but knowing that would be just plain creepy.

Retailers are still figuring this out.

An indignant customer complained to the manager of a Target store in the Midwest, angry that his teenage daughter received coupons in the mail for baby clothes and cribs.

“She’s still in high school,” he said, showing the mailer addressed to his daughter, with ads for maternity clothes, nursery items and photos of smiling babies. “Are you trying to encourage her to get pregnant?”

Turns out, the young girl was pregnant. Target knew, but Dad didn’t.

A clever Target statistician had analyzed the buying habits of women from the retailer’s baby registry and identified about 25 products that, when analyzed together, could produce a “pregnancy predictor score” for each shopper – even a projected due date based on the type of products purchased – long before the first box of diapers went into a shopping cart.

In the flak that followed, including an article in The New York Times, Target discovered an emerging truism of marketing: Customer insight is nothing without context. The traditional marketing mantra – “the right product, at the right price, at the right place and the right time” – could still be very wrong. Marketers need to add two more elements – the right interaction and the right service.

To be right, the knowledge around the interaction and service must transcend channels, said Nikki Baird, Managing Partner of Retail Systems Research (RSR) and co-author of the RSR 2012 benchmark report, Omni Channel 2012: Cross-Channel Comes of Age. “Since our first cross-channel benchmark in 2007, we’ve observed how retailers have moved from accepting the notion that establishing a selling channel in the ‘digital’ domain is important, to realizing that the new selling channels need to have some level of integration to the legacy store channel, and now to an understanding that consumers routinely use more than one channel to execute a single transaction, and therefore all the selling channels need to work seamlessly together to support the company’s brand.”

It hasn’t been easy for retailers to align around customers and brands rather than by sales channels, but the effort is worth it, said Baird. RSR found that cross-channel shoppers are significantly more profitable than single-channel customers – 38 percent more profitable this year.

“Forward-thinking retailers are using customer analytics to gain insights from both the digital and the physical selling worlds,” said Baird. “By using actual transactional, behavioral, social and other data, retailers can align their strategy with the customer’s expectation of one seamless experience across all channels. The answers are already in the customer data to pinpoint the best opportunities, map out the best marketing actions and then maximize cross-business impact.”

The answers are there in the customer data, somewhere, but are they being revealed? Not so much, the RSR study found. While 100 percent of responding retailers believe the customer shopping experience should be consolidated across all channels for a consistent experience, only 32 percent have actually achieved that ideal. For most of them, the biggest obstacle is the lack of a single view of customers across all channels.

“Retailers now know that increasingly, their cross-channel shoppers are just ‘shoppers,’ and that their biggest challenge is in how to merge the digital and physical selling worlds into one seamless customer experience,” said Baird. “The compelling opportunity for retailers is in blending the best of what the digital realm has to offer with the best that the physical realm delivers. But this year’s survey respondents show that the ultimate objective of the digital channels isn’t clear, and the integration of the digital and physical realms still lags the desire to simply ‘sell more stuff.’”

The Five Cs of Marketing

RSR developed a way to put customer-centricity and cross-channel concepts in context, and give retailers and solution providers a way to rethink fundamental assumptions about retailing. “We took a step back and asked, ‘If you were starting a retail business today, how would you do it, given all the shifts in customer expectations and cross-channel opportunities?’” The answer emerged in a framework based on the “five Cs” of marketing:

  • Content is all of the information about products and lifestyle that retailers can use to help educate customers. Early in the sales process, this is category-level information that helps customers understand general attributes of the purchase decision. Later, it is product-specific information that guides them to a selection, especially for technical products.
  • Community is the collective set of opinions and influencers that guides a shopper’s purchase decision. This community now includes many voices the customer trusts but does not know and will never meet, such as online reviewers and passionate brand advocates who are actively engaged with the retailer.
  • Commerce is all the shopping power a retailer has available to turn an interaction into a transaction – from price and offer to the digital shopping cart – in whatever form it is presented to the customer. “It’s all about the ‘Buy’ button,” said Baird. Now that you can click to purchase online, from your mobile phone, or from a digital kiosk in a public place, the point of purchase is more conceptual than physical.
  • Context is understanding where the shopper is on the path to purchase and conforming to the customer’s specific needs and wants at that point.
  • Customer insights are a necessary precursor to context. “Context is gleaned from the gigabytes and exabytes of data retail collect about customers,” said Baird. “Alongside all this data is the ability to analyze it to get insights into real behavior, rather than educated guesses based on simple measures such as demographics.”

Baird presented examples of where retailers had excelled in the first three Cs. For example:

  • Content. David’s Tea has an elegant website that helps consumers understand the differences among teas from different plants, processes and regions of the world. Best Buy’s website helps consumers research products in side-byside comparisons and then look more closely at tech specs, product reviews, recommendations, comments and more. enables you to choose the product attributes most important to you to quickly narrow down results. The website helps the consumer along the path to purchase while providing valuable insight about how customers shop in a given product category.
  • Community. Lowe’s Home Improvement provides Web pages where customers can post photos and step-by-step instructions for projects they have created. Through this interactive forum, Lowe’s engages active customers as brand ambassadors. The only thing lacking is a “Buy” button for one-stop ordering of the project’s supplies, Baird noted.
  • Commerce. The British grocery chain Tesco Home Plus reinvented grocery shopping by enabling commuters to shop for groceries on wall-mounted displays in subway stations. Simply scan the QR code of a product with your phone, and the product automatically lands in your online cart. When the online purchase is done, it is delivered to your door shortly after you get home.

“We see the real power of commerce when we can disassociate commerce from a specific device,” said Baird. “When you can put that ‘Buy’ button anywhere, then commerce becomes way more flexible than we have ever thought of it before.

“As cross-channel marketing comes of age, we’re seeing a shift in primary focus away from the more customer-facing elements, such as context and community, and into the kinds of things retailers need to understand for long-term success, which is that all-important context and customer insight.”

Context is Everything

A man sat down in a Metro station in Washington, DC, on a cold January morning and started to play the violin. For 45 minutes, he played six classical pieces, two by Bach. Only seven people stopped to listen; 27 tossed money into his violin case but continued on their way. When he stopped playing, there was silence. No applause. Altogether, he had collected $32.17.
More than 1000 rush-hour commuters had filed through the L’Enfant Plaza station in that time, but only a few stopped to listen. Nobody knew they were being treated to a free concert by Joshua Bell, one of the world’s foremost violin virtuosos, who had sold out Boston’s Symphony Hall two days earlier at $100 seat. He was playing a 1713 Stradivarius violin worth $3.5 million.

Context shapes our perceptions of quality, value and the total experience, as shown in this experiment staged by the Washington Post. “It’s absolutely out of context to expect a world-renowned violinist to be giving a free performance in a subway station during rush hour,” said Wilson Raj, Global Customer Intelligence Director at SAS. “We could be any of those people walking around in rush hour traffic, totally oblivious to what is before us.”

There’s a lesson here for marketers. “As marketers, we have our world view, our context that we are trying to communicate to consumers,” said Raj. “Consumers have their own version of the reality of context. Where you have two different contextual definitions, you have dissonance. Good marketing and good customer relationships hinge on bridging that gap.”

“Historically, retailers were making educated guesses about context – inferences from focus groups, surveys and customer intercept interviews, trying to extrapolate what an entire customer segment wants,” said Baird. For many, this was simply the best the technology allowed them to do. “We didn’t have access to all of this data and the processing power to take advantage of all the data.”

Now that retailers can gather and analyze massive amounts of data, there’s no excuse for not understanding the big picture – purchase decision context, physical context and social context – and to use that knowledge to define more relevant interactions.

Purchase Decision Context/p>

Baird presented a matrix to conceptualize the purchase decision context. The X axis represents decision proximity: How imminent is the actual decision? Is the shopper still becoming aware of purchase options and considerations at the category level, or zooming in on a product selection? The Y axis represents physical proximity. How close is the consumer’s access to a sales channel and receipt of the merchandise?

The marketer’s actions should be linked to the shopper’s location on this matrix, said Baird. “For example, is the shopper standing at your shelf, looking at an opportunity for instant gratification? Or, is it an online product that will be delivered to the home at a later date? You might have a different strategy for spurring action, depending on this context, coupled with an understanding of channel, the customer’s objective and the customer’s potential lifetime value to the retailer.

Social Context

If you think social media is just a playground for trivial and irrelevant banter, think again. Social media is a powerful force for building brand awareness and engaging with customers. Your brand is out there; it is being talked about. You might as well listen and join in the conversation.

Few retailers take full advantage of the opportunities, said Baird. “Retailers have been fairly hesitant in embracing social context for building pre-purchase awareness. Most of the focus has been on damage control and customer service.” Most retailers have established a baseline social media presence, but the activity tends to be reactive response to customer service issues.

Baird called for retailers to be more proactive in understanding social context – using it to build customer loyalty through online engagement, to increase propensity to buy, drive initial demand for new products, get insight into emerging quality issues.

Furthermore, retailers should incorporate knowledge gained from social media into marketing and operational decisions, Baird said. “With social media, we’re at a stage equivalent to the early days of e-commerce, when retailers were reluctant to use sales activity from online channels as any kind of predictor for overall operations. They were worried that online shoppers were not necessarily representative of all customers. Over time, they started to accept online data as an input for decisions about in-store operations.

“It is much the same with social media context. Retailers aren’t very sure how the insights they can gain from the social context relate to the business overall. But we’re going to find out, and it’s only a matter of time before retailers start using this information as the basis for marketing and operational decisions across channels.”

Physical Context

“Online and digital channels give us an enormous amount of information on real customer behavior, such as how consumers navigate your website, how long they spend on a page, what they tweet about you, whether they ‘Like’ you on Facebook and those kinds of things,” said Baird. Unfortunately, equivalent insight about the instore experience is still elusive. “We generally don’t know customers went to the store unless they bought something or checked in using a location-based app. We don’t usually know their objective when they entered the store, where they browsed in the store and what they looked at.”

There are ways, though. For example, surveillance systems installed for loss prevention can also monitor shopper movement through the store and create heat map diagrams of traffic patterns. The technology is also available to track traffic via shoppers’ cell phones.

Retailers need to tread carefully though, Baird warns. “One could argue that as a guest in the retailer’s location, you don’t have an expectation of privacy, but most people would feel differently. You have to be careful about the privacy considerations customers expect from you, especially when it comes to tracking them in the physical environment.”

Because of this concern, more retailers are using computer simulations to test out new store formats, layouts and product sets in a virtual store. “Although it’s a simulated environment, you can get an idea how the consumer would interact with the store environment,” said Baird. “A lot of retailers are finding great insights by taking this approach, and feeding that study insight back into store designs or assortment designs to help avoid expensive mistakes.

“The real opportunity for context is in marrying what we know about physical context and social context. For example, we have no inkling right now as to what kind of influence Facebook product links have on in-store. Being able to marry our understanding of both of these contexts with what we understand about online shopping behavior will give us a more complete view of the customer, about what they’re trying to achieve and how they’re going about trying to achieve it.”

The Biggest Pitfalls of Customer Insight (Too Little or Too Much)

Being Irrelevant

Consumers have high expectations for personalized treatment, and they expect to be remembered. They are annoyed by offers that don’t relate to their needs and interests, or by retailers who don’t seem to remember what they actually were interested in. “My biggest complaint is when I have gone to a retailer’s website, I’ve made a purchase, but the retailer still targets me as a potential buyer for that product,” said Baird. “It’s very annoying to consumers to get an offer for a product they have just bought.

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“We can infer what customers might like based on other offers they have redeemed, or past purchase history in general, but we can short-circuit that whole cycle by asking one simple question:

‘Would you like more offers like this one?’

You don’t have to be fancy about why they liked this offer. That doesn’t matter. As you make more offers and get feedback about which offers they liked, you become more relevant, because you’re not guessing. You’re letting your customers tell you. Guessing gets you into a lot of trouble.”

Being Intrusive

“Acting in isolation can be dangerous,” said Baird. Just ask Target. “Just because somebody bought a product from you that relates to the demographic or the behavior you’re looking for, that’s not the same as permission [to use that information in marketing]. Permission has to be something more intimate than that, where the customer has the expectation that you are going to contact them about something that they are interested in. Whether implicit or explicit, permission is required.”

Being Creepy

Baird offered a final warning on blending context and customer insight: “Just as much as you have to respect customer privacy, you have to be very sure you’re not creepy. My definition of creepy is personalization without relevancy.”

Others might consider it creepy to use knowledge, however legally obtained, that seems too personal. It gets back to that first-date syndrome. You may know from a Facebook or Twitter feed that someone wants a new washing machine, but you could alienate that person by revealing that you have examined their personal communications to find out about them. Sure, social media is about as private as a highway billboard, but its users don’t see it that way.

The Sales Funnel is Obsolete

“Every marketer is familiar with the concept of the traditional sales funnel, where you have a nicely gated process that proceeds from awareness to consideration to interest, trial, purchase and then to loyalty and advocacy,” said Raj. “A number of years back, McKinsey did extensive research and developed a different model that views the process as a customer life cycle rather than a funnel. At the time, this thinking was very groundbreaking, but it’s not uncommon for us to think about things this way now.”

Trouble is, there’s still a disconnect between the way consumers experience the shopping life cycle and the way the retailer manages its side of it, said Raj. For the consumer, it’s a closed-loop process of Discover, Explore, Buy and Engage. Discover the need, explore the options, buy the product or service that best meets the need, and (assuming a satisfactory experience) engage with the brand as an advocate, a member of the brand community or a repeat purchaser.

Raj called for retailers to make greater use of analytics to improve every stage of the life cycle: to acquire more profitable customers, make those customers profitable faster, reduce cost to serve, drive marketing, identify the customers who provide best “share of wallet” and advocacy, and give them special treatment.

If you visualize the life cycle as a time-series curve with customer profitability on the X axis and customer lifecycle stages on the Y axes, analytics can move that curve up and to the left, said Raj. Not only can you improve results at every stage, you can shorten the time between acquisition and retention. “That’s really the goal in today’s hyper-connected world, especially in omni-channel retailing. Customers are making split-second decisions from device to device – doing discovery on iPads or some other mobile device, and going online and maybe going to a real experience at the point of sale – and this can happen in seconds. Retailers have to accelerate that experience so the brand is at the top of the consumer’s consideration list.”

It takes analytics to do that, but many retailers aren’t taking full advantage. In an informal webcast poll, respondents indicated that they apply the most analytic rigor on the last phase of the cycle, Engagement, focusing on loyalty programs, communities, remarketing or customer support (60 percent). The remaining 40 percent of respondents said their companies focus analytics efforts on the Buy phase, to guide decisions about site/store design, pricing/promos, merchandising, etc. If the poll is indicative of the industry at large, there’s a huge opportunity for retailers to dramatically improve results by applying analytics to the earlier but often overlooked Discover and Explore stages of the buying cycle.

Raj outlined a framework that paired analytic techniques with marketers’ goals for each stage of the customer journey. Retailers can compare their analytics efforts to this matrix to identify activities that are underserved – and ripe for improvement.

[Download PDF to see Table]

However, some retailers may argue that the data for analytics is more scarce or harder to collect in the earlier Discover and Explore phases. That’s true, but it is changing. For example, social media analysis can provide valuable, aggregated insights from online forums. What is being said about your brand? What is the overall sentiment about your offers, store layouts, merchandising and other elements of the customer experience?

The ability to analyze unstructured data (text) can reveal what Raj calls the “haggling data” that captures the softer aspects of a purchase decision, such as motivation, tone and sentiment. This is important knowledge, since consumers are motivated both by rational needs (a need for information, a transaction or a service) and emotional needs, such as fulfilling an aspiration, identity or sense of belonging.

“The idea is to keep the experience high, with very engaging experiences,” said Raj. “The more you can get that haggling data, the richer the insight you will have about how to create the right experience in the consumer journey loop.”

However, in a webinar poll, only 20 percent of respondents reported that their organizations can capture the unstructured “haggling data” and integrate it with marketing processes. Another 60 percent capture it when possible, but fully 20 percent of respondents said their companies can’t do it at all. These results suggest a big opportunity to do better at the pre-purchase phases, ensuring their brands land in the first round of consideration.

Raj would go further, calling for retailers to make analytics not just customer-aware but also marketing-aware. “We talk a lot about the power of analytics to increase customer insight. It is equally important to apply analytics to improve the marketing operations context that underpins the customer experience.”

Operational data points such as response times, abandon rates, shrinkage, average speed of answer for call handling … these kinds of metrics tell you a lot about the marketing context as the customer experiences it. Analytics also has a role to play in strategy and planning, as well as understanding the financial impact of marketing decisions. “When you superimpose the data that goes into that, and all the different types of analytics, you get a better understanding of where your organization stands on the maturity scale, where there are gaps, and what steps you need to take to move forward,” said Raj.

Closing Thoughts

Today’s customers expect far more than e-commerce or even a multichannel presence. They expect an authentic, relevant experience across various channels. They expect retailers to manage and integrate all their data so that they get an immersive experience – regardless of the channel where they engage with you. Success in today’s retailing environment demands an obsession with customer experience that is not only memorable and consistent, but also relevant and timely – especially from digital fronts.

To meet those customer expectations, retailers need to:

  • Use customer analytics to gain insights from both the physical and digital selling worlds to achieve an informed business strategy centered on the customer.
  • Access transactional, behavioral, social and other data from multiple channels, to align strategy with the customer’s expectation of one seamless experience across all channels.
  • Find answers in customer data to pinpoint the best opportunities, map out the best marketing actions and then maximize cross-business impact.

In summary, when you think about omni-channel strategy, think of it as one strategy across all media, focused on the customer and context. Align the marketing process to the customer journey, and construct the marketing process not just to optimize results from a customer perspective, but also from operational and financial standpoints.

Get the Five Cs right, and customers might drop more C-notes in that violin case, or wherever your “Buy” button happens to be.

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