The data of the many outweighs the opinion of the few
In my last post, I posed five questions to retailers that think they’re ready for customer first. Now, I’d like to challenge the retail basics that seasoned retailers were trained on and suggest a customer data science approach.
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 managers have vast years of involvement, 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, managing departments, 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 practice. 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.
This is a challenge facing most of the food retail industry. As Chris Foltz – Director of Operations at Heinen’s Fine Foods – told me in a recent exchange, “our industry, and our company, was very opinion based, albeit expert opinions. We realized early on that we needed data; on customer needs, customer satisfaction, and customer buying behavior to improve our decision making. As we adopted this metric driven approach, I believe we prioritized our investments and effort to deliver a better customer experience.”
“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 held as common wisdom throughout the industry):
- 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 seismic shifts in the past decade alone. In a Forbes article entitled, They’re Not Making Customers Like They Used To: Changing Customer Service Trends And Expectations, Micah Soloman writes:
“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.”
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 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 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.
- Behavioral “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 in 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 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 thought it would be interesting to learn how the customer ranking compared to the rankings that the senior decision-makers would assign.
The 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 and added the years of service to calculate almost 500 years of combined experience. Certainly, what the leaders knew together would fill volumes.
After briefly introducing the research 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; leaders 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 their journey toward Customer First – they realized that “we didn’t know what we didn’t know.” One of the 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 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
In summary, “In God We Trust” … all others must bring data. If you’re interested in putting customers at the heart of your business, here’s 16 things you can do right now to put Customers first.
This is the second in a series of LinkedIn articles from David Ciancio, advocating the voice of the customer in the highly competitive food-retail industry.