Archive for March 14, 2012

The Consequences of Unintended Consequences

When you can measure what you are speaking about, and express it in numbers, you know something about it, when you cannot express it in numbers, your knowledge is of a meager and unsatisfactory kind.….Lord Kelvin.

And so it goes with contemporary business. With new tools and technology, we can measure most anything that moves in retail.  Customer data, warehouse movement, refrigeration case temperatures are all trackable and manageable.

But what about those things that we still cannot easily measure?   It is a simple scientific process that enables the retailer to measure pre and post effects of making changes to the operation.  But what we don’t do a very good job with is measuring “unintended” results that often occur when our intended directives become reality.  Some quick examples of unintended consequences spoiling the “wins” we hope to get from our actions are familiar to all of us.  Reductions in labors are a great example.  These reductions often  that produce more efficiency and short term cost reductions, but the resulting impact on customer service erodes customer count and sales. But do we every attribute this erosion to the measured efficiency?  Likely not.

How about another initiative that is very much in vogue currently, “sku rationalization”?   Reducing inventory or selection within categories can have the predictable positive financial impact on that particular category, but in the longer run, negatively impact the stores’ ability to attract shoppers who like the extended variety that store formerly showcased.

You get the drift.  While we live and operate in an age where financial formulas have taken the lead in driving business initiatives, I think it is important to “think through” and identify the list of potential negative consequences that often mitigate any of the predicted financial benefits of  these so-called innovative efficiencies.

Avoiding such calamities begins with the decision making process.  I am not suggesting the financial or operational teams not have a role to play in the decision making process.  I am advocating that it is important to have a customer-centric, research based advocate voicing their opinions and evidence about potential “watch outs”  when considering making such changes.

It is important to remember the customer is in charge….a theme that continues to dominate  food industry research findings.  If reductions in labor or inventory do more damage to consumer satisfaction than create financial benefit for the company, it might be wise to re-think how decisions are reached and how the  potential impact of those decisions are measured.  If retailers and brands continue to make decisions without forethought to customer impact, they will likely be managing increasingly smaller sales and customer numbers going forward.

 

Using Customer Data….”Great” can be the Enemy of “Good”

Much has been written and pontificated relating to customer segmentation schema and related strategies.  We all know that there are many ways to slice and dice shoppers, whether it their spending behavior, their demographic profile or life stage/lifestyle mandates.  Of course, once you have segmented the shopper base, you should be able to connect with them with more relevance.  Makes sense, right?

As someone who has spent the majority of his career on the retail marketing side of things, when I talk to brand people, especially the ones who are relatively new to the food industry, one of the first questions they have pertaining to retailers is;

 “Why are so many doing so little with so much customer data?”

Here is the short, slightly glib answer. Most retailers, being basically simple folk who are typically immersed with the blocking and tackling activities necessary to run stores and make a few pennies at the end of the day, have little time or even acumen for complex customer segmentation theories.  In fact, many retailers that have assembled fairly impressive customer databases over the years, still struggle to leverage these data efficiently and effectively.  I count myself among this group.  Trying to ingest all this data can be tantamount to “drinking out of a fire hose”

Despite some progress among few, most still rely on the tried and true mass marketing methods of yesteryear, i.e., the weekly circular, TV and radio advertising and other mass modes of reaching their shopper base

Scars of experience have led me to the painful conclusion that “great is indeed the enemy of good” when it comes to retailer customer strategies.  Most that are offered today are too complex  to execute and maintain.  These complex strategies require content and funding that can only come from the buckets of dollars retailers use for mass marketing programs.

To be blunt, retailers and brands remain all too entrenched in their more traditional programs and their short term benefit to divert funding to targeted customer specific initiatives.  These programs are still sacrosanct to most retailers and brands, that enjoy the predictability and reach these programs afford.

So that leaves us with starting simple, building incremental credibility, and subtly diverting dollars and human capital to a more targeted marketing approach.

I call it “knocking off a few gas stations along the way to the perfect crime”. 

Tracking this discussion to its logical conclusion,  retailers that are struggling with their data need a “bridge” plan, one that gets them in the game, but does not tax the entire enterprise by competing with mass marketing programs for funding and attention.

  • Step One:  Identify your best shopper base.  Track them, reward them, and make certain best shoppers know that you know they are special.
  • Step Two:  Devise a way to recognize first time customers.  If you have a loyalty program, develop a mechanized bounce back reward or message at the point of the very first engagement that incentivize a second trip.  If there is a second engagement, recognize that as well.  If, after a reasonable period of time, if there is no second engagement, devise a plan for that scenario.
  • Step Three:  Track defection and attrition.  Devise intelligent ways to understand how to allocate resources to ameliorate losing shoppers or share of shopper’s wallets.

Focusing on  just these three aspects of Customer Relationship Management will enable retailers to smartly use their customer database in a measured, reasonably affordable way.  Once “wins” are gained in these three areas, more specific strategies can be employed, hopefully with funding from brands and other sources that are convinced your CRM program works and delivers results.

 

mh