What top-performing retailers know about satisfying customers: Experience is key

Transcription

1 IBM Institute for Business Value What top-performing retailers know about satisfying customers: Experience is key Customer relationship management (CRM) is becoming a mainstream practice for retailers looking to increase sales and profitability. But many current initiatives don t have the customer-centric focus that today s market requires. In their rush to make the next sale, many retailers have lost touch with the first step to successful CRM: understanding what customers really want from retailers. What are the true drivers of customer satisfaction? The IBM Institute for Business Value surveyed nearly 1000 customers to shed light on what distinguishes top-performing retailers from their competitors. By Julian Chu and Troy Pike

2 Contents 1 Introduction 1 Today s CRM: An era of unrealized promise 2 Inside the mind of a consumer: What drives satisfaction? 3 Taking a left turn: The top satisfaction drivers for retail consumers 4 Experience is the top driver of satisfaction 9 Clusters for support: Enabling the ultimate experience 11 It just feels right: Satisfaction and the customer relationship 12 Manage customer relationships by managing the customer experience 13 Taking the next step 13 Conclusion 14 About the authors 14 Contributors Introduction Because of the positive impact that customer relationship management (CRM) programs purport to have on customer economics, many retailers have undertaken a wide range of technology, process and organizational initiatives to improve CRM capabilities. However, even with strong emphasis and sizable investments in CRM, customer satisfaction does not seem to be improving. According to a recent study that we performed at the IBM Institute for Business Value, the current disconnect between CRM investments and their real benefits may result from a lack of focus on improving customer satisfaction as one of the key if not the primary objectives of CRM. Indeed, many retailers tend to leave customer satisfaction measurements to their retail service departments and focus solely on maximizing the next transaction and reducing their costs to serve customers. Our study suggests that although there is not a one-to-one correlation between customer satisfaction and profitability, consumer satisfaction is a key indicator of operational and financial performance in the retail industry. A survey of approximately 1000 customers of 10 major retailers found that retailers who performed the best financially also ranked higher in customer satisfaction. Furthermore, it is the superb customer experience provided by these top retailers that drives customer satisfaction and distinguishes them from their competitors. In fact, consumers responses showed that factors relating to their overall experience are far more important to customer satisfaction and, ultimately, the retailer s bottom line than traditional areas of CRM investment, such as creating personalized marketing, targeted offers and preferred pricing. Today s CRM: An era of unrealized promise Lower customer-acquisition costs, increased customer retention, increased customer satisfaction, higher profits and improved share price: the promise of successful CRM is almost too good to be true. Yet today, CRM initiatives are often put on hold or even abandoned due to retailers inability to realize the expected results. In reality, current CRM programs are complicated by conflicting goals, advice and technology choices that impair retailers ability to discern a successful CRM approach. Visions of CRM offered by vendors, analysts and other experts often fail to offer pragmatic steps to achieve success. The technology infrastructure and capabilities required to share and exploit customer information effectively across corporate boundaries do not yet exist in many organizations. Finally, bringing about the cultural, process and organizational changes required to execute CRM successfully continues to be a major challenge for most retailers. 1

3 Awash in a whirlpool of challenges, many retailers have overlooked an important underlying factor: successful CRM begins with an understanding of what drives customer satisfaction and strengthens the customer relationship. Better prices, more targeted marketing and increasingly attractive promotional offers alone will not drive overall customer satisfaction unless retailers invest in improving the customer experience. Inside the mind of a consumer: What drives satisfaction? We surveyed the consumers of 10 U.S.-based retailers: five top-performing retailers who have done very well in terms of same-store-sales growth and net earnings growth over the past three years, and five lower-performing retailers who have produced relatively flat to declining results. Overall, the top-performing retailers had a substantially higher proportion of highly satisfied customers: 35 percent for top performers versus 28 percent for the lowerperforming stores. Overall satisfaction is a complex metric. Inside the mind of every consumer, there is interplay between the rational or left side of the brain and the emotional or right side of the brain. To understand fully what drives overall customer satisfaction, we developed two separate series of questions for our survey. One series focused on the task-oriented, fact-driven, left side of the customer s mind, which responds to satisfaction drivers like quality, service, cleanliness and value. The other set of questions focused on the experiential, sensory, right side of the brain, which forms relationship elements like trust and perception. Leading retailers use both the key satisfaction drivers and relationship elements effectively to provide customers with the optimum total experience or the collective impression that a customer takes away from both the tangible and intangible dimensions of a company or a brand. 2

4 Taking a left turn: The top satisfaction drivers for retail consumers We applied statistical analysis to the survey results and discovered five groups or clusters of satisfaction drivers. The clusters are comprised of individual drivers that are correlated with one another in terms of their impact on customer satisfaction: Person-to-person experience The store has helpful, friendly, knowledgeable employees who anticipate customer needs and exceed customer expectations. Store experience The store is clean, well-designed, organized, adequately stocked with quality merchandise and provides fun experiences. Price and value The price that customers pay for goods is matched by the perceived value that they receive for making the purchase. Marketing and communications The store s promotions are well-communicated, easy to redeem and valuable to customers. Data integration and analytics The store provides the same product selection and product information across all sales channels, and uses information from a consumer s past purchases to provide better service. The consumers in our survey clearly indicated that the person-to-person experience and store experience drivers have significantly greater impact on their overall satisfaction (see Figure 1). In fact, each of the top fifteen individual drivers rated by respondents as most important to their satisfaction fell into these two clusters. The remaining drivers, although important enablers of satisfaction, had significantly less impact. 3

5 Consumers are clear about what drives their satisfaction Relative strength index Person-to-person experience Store experience Price and value Marketing and communications Data integration and analytics Figure 1. Our consumer survey indicates that factors relating to experience have much greater impact on satisfaction than other areas of CRM investment. Source: Making CRM Work for Retailers 2002 Survey. IBM Institute for Business Value. Experience is the top driver of satisfaction Person-to-person and store experience are inseparable components in creating the ultimate customer experience and driving customer satisfaction. Customers rated person-to-person experience drivers as the key to their satisfaction, and store experience drivers came in second. If one imagines how the store experience would be impacted by unsatisfying or subpar interaction with store employees, or vice versa, it is easy to see the interdependency of the satisfaction drivers in these two clusters. Though there were substantial differences in how individual retailers performed, there was little difference on average between top retailers and their less-profitable competitors on the person-to-person experience drivers (see Figure 2). Merely to remain competitive, retailers need to achieve minimum levels of performance on these experience elements. Conversely, poor performance can undermine even the most sophisticated, well-designed CRM programs. This finding alone begs the question why so many CRM programs today fail to recognize interpersonal interactions as a key to improving relationships. 4

6 Consumers report little distinction on top person-to-person satisfaction drivers 1. Helpful store employees 28% 29% 2. Makes customers feel valued 23% 24% 3. Has friendly and courteous employees 30% 31% 4. Employees consistently exceed expectations 13% 14% 5. Has employees who are knowledgeable 6. Employees understand customer needs 7. Employees available to answer questions 8. Has employees who make eye contact with customers 9. Treats customers with personal attention 10. Values you as a customer 22% 22% 19% 20% 21% 23% 28% 26% 19% 21% 21% 19% 0% 20% Retailer performance 40% Top-performing retailers Lower-performing retailers Figure 2. Performance on the person-to-person satisfaction drivers varies little between top- and lowerperforming retailers. Source: Making CRM Work for Retailers 2002 Survey. IBM Institute for Business Value. 5

7 CRM case in point: Nordstrom provides person-to-person excellence Nordstrom is world-renowned for its customer service. Nordstrom was the top-performing retailer in the IBM Institute for Business Value survey in terms of how it deals with consumers in person-to-person interaction: an average 45 percent of its consumers responded that they are highly satisfied. How does Nordstrom do it? According to Brad Mayer, Director of Marketing for Nordstrom.com, successful customer service begins in the hiring process. We don t do extensive customer-service training with our new associates. I think two things contribute to our in-store service success, Mayer says, We hire nice people who genuinely enjoy helping the customer. Really, their parents have trained them we just hire them. Second, we work hard to earn the trust of customers, one at a time. We focus everything we do on delivering an outstanding shopping experience consistently and wholly. This mission pervades Nordstrom s organizational culture. What can be learned from Nordstrom? Clearly, not all retailers have the breadth of customers or associates that Nordstrom attracts. In fact, many retailers are scraping to attract enough staff to man the sales floor, or are faced with the economic reality of reducing floor coverage below the minimum acceptable levels. IBM research and Nordstrom s results reinforce the fact that personal interactions in stores and in the call center are primary drivers of retail consumer satisfaction. Developing CRM programs without paying specific attention to how customers are served by employees would be foolhardy: personal interaction is the primary touch point for building relationships with customers. 6

8 Although top retailers and their lesser-performing competitors rated similarly on person-toperson experience drivers, the store-experience cluster accounts for nearly the entire gap in overall satisfaction of seven percent (see Figure 3). The store experience can therefore be a strong opportunity for retailers to distinguish themselves from the pack. Consumers are substantially more satisfied with their store experiences at top-performing retailers 11. Has neat and clean stores 40% 54% 14% 35% 12. Has stores that are well-designed 25% 32% 7% 7% 13. Has highest quality merchandise 19% 22% 3% 0% 20% 28% 40% 14. Provides fun and entertaining shopping experience 12% 19% 7% Overall satisfaction 15. Has wide product selection 24% 37% 13% 0% 20% 40% 60% Retailer performance Top-performing retailers Lower-performing retailers Gap in performance Figure 3. The significant differences between retailers satisfaction scores emerge in the store experience drivers. Source: Making CRM Work for Retailers 2002 Survey. IBM Institute for Business Value. 7

9 CRM case in point: Williams-Sonoma wins with store experience Williams-Sonoma was hands down the top performer in the store experience cluster of the survey. On average, 53 percent of Williams-Sonoma s consumers expressed high satisfaction with their store experiences. Notably, 80 percent of customers were highly satisfied with the store s neatness and nearly half gave top marks for the fun and entertaining shopping experience it provides. Capitalizing on its store-experience strengths, Williams-Sonoma develops customers by providing interesting, relevant store events. For example, it recently identified a group of prospective customers who had purchased gifts through the store s online bridal registry. To induce an instore visit, they designed a promotion inviting the group to participate in cooking lessons and demonstrations. The price to attend the class was US$30, for which participants received an opportunity to learn how to prepare popular recipes, a chance to meet and talk with professional chefs, a free tasting, and a recipe book. The promotion conveyed a strong brand impression and helped the company attract customers that were likely to fit the profile of a profitable customer segment: cooking enthusiasts. What can retailers learn from Williams-Sonoma? First, as difficult as it may be in practice, continue to enhance the aesthetic attractiveness of your stores such efforts do not go unnoticed by customers and, in fact, prove to be a key differentiating point between top financial performers and lesser performers. Second, market and merchandise your stores based on specific customer insights, instead of on the standard assortment triangle of high to low price-point items. Finally, listen to your most avid and profitable customers and deliver the store experience that delights that customer base. 8

10 Clusters for support: Enabling the ultimate experience Clearly, retailers who invest in providing a stellar store experience will differentiate themselves from their competitors. What about the other clusters: price and value, marketing and communications, and data integration and analytics? Although our research showed that they are not the primary drivers of satisfaction, they are still enablers that can support a more favorable overall customer experience. In the area of pricing and value, over half the survey respondents indicated that price is not the main reason they shop at a particular retailer and only 13 percent claim to be highly motivated by price. Although the importance of price obviously varies by the company s particular brand and stated value proposition, retailers who focus solely on price-based promotional messages may be missing out on an opportunity to develop a different kind of relationship with their customers: one based on insightful fulfillment of wants that are meaningful to consumers. Higher-satisfaction retailers provided customers with the right amount of information about new products and offers at the right time, and did a better job of fulfilling the promotional offers that their consumers chose to accept. Thirty-six percent of shoppers from stores with lower financial performance indicated that they don t enjoy receiving special offers from those retailers, versus 29 percent for the high performers. Marketing and communications budget should be spent on offers that are not only relevant to target customers, but also provided in a way that does not encroach on their time, privacy or comfort. And when customers come to the store to take advantage of promotions, retailers should be well-prepared to deliver. Lastly, although most customers surveyed were in-store shoppers, many customers had little or no cognizance of retailers multichannel options, and those who did were not impressed with the level of service provided. In fact, more than half of those surveyed indicated that they don t know how to get information on a particular product without going to the store. As the Internet and networked devices become an increasingly important part of the overall shopping experience, strong orchestration of interactions, services and offers across channels will become a critical retail capability. 9

11 CRM case in point: Staples goal is to know each customer individually Staples is a prime example of how to use data and marketing to develop ongoing customer relationships as opposed to one-off shopping incentives. CRM isn t a program or initiative at Staples, it is just part of what we do, says Michelle Ormes, Director of Customer Development at Staples. The company uses a variety of approaches to get to the heart of the way that customers shop and what they value. Mystery shopping, third-party research and monthly customer surveys are just a few of the ways Staples keeps apprised of what its customers want and need. Staples goal is to utilize customer data to talk to each customer individually, says Ormes. Its business-to-business (B2B) loyalty program, Business Rewards, is focused on creating visibility of customer shopping patterns and then marketing to customers in a way that best meets their needs and keeps them coming back. To aid in this process, Staples uses automated analytics to score customers and serve them appropriately, in their channel of choice. This allows them to analyze how customers are spending versus how they could spend, and act accordingly to move them through the loyalty lifecycle. Technology-driven marketing, pricing and analytics should not be the core drivers of a CRM initiative leading retailers use these as tools to enhance the customer experience. Staples understands that retailers must enable customers to access the same level of information and services regardless of the sales channel. They are working to integrate customer data across the company and show a seamless face to customers to strengthen satisfaction, overall experience and trust in their brand. 10

12 It just feels right: Satisfaction and the customer relationship To build enduring customer relationships, retailers also need to provide shopping experiences that are consistent with consumer desires and expectations associated with the right or emotionally stimulated side of the brain. The second set of questions in our survey asked consumers to rate how they feel about experiences with that retailer. As we analyzed the responses, four major clusters of relationship elements emerged, again based on their correlation with each other and with overall customer satisfaction: Ease-of-use Shopping is hassle-free; the retailer makes the customer feel welcome; the retailer meets all customer expectations. Strong association Retailer is top-of-mind; the customer feels good recommending the retailer to family and friends; the customer feels that the retailer provides the best value compared to competitors. Self-esteem Shopping gives the customer a sense of familiarity; the customer believes shopping reflects their good judgment; shopping makes the customer feel like they fit in. Price relationship The customer enjoys taking advantage of special offers and low prices. The importance of relationship elements varies by segment and individual store, based on their differing value propositions, brand positioning and merchandise selection. By understanding the relationship elements that appeal to a satisfied customer s emotions, and how customers process their shopping experiences, retailers can begin to assess specifically how different aspects of the experience need to be changed. For instance, the person-to-person experience is clearly the most important driver for all retailers, but what should be emphasized in these interactions? For some retailers, customer convenience is the top priority; for others, social value and emotional attachment are key. Affecting the overall shopping experience and hence satisfaction requires that retailers take deliberate steps to improve performance on key satisfaction drivers and help ensure that they consistently deliver the appropriate relationship elements. 11

13 Manage customer relationships by managing the customer experience Based on the results of our consumer survey and analysis of dozens of retail CRM cases, the following areas stand out as key considerations for any retailer seeking bottom-line improvement from CRM strategies. Before retailers begin to address more-advanced CRM capabilities such as personalization and data mining, they should consider whether they have adequately addressed retail basics. Industry executives should examine the person-to-person and store experience that they currently provide to see where they may be falling short of customer expectations, and identify areas for improvement. Furthermore, ongoing associate training and evaluation need to be key parts of a retailer s customer strategy. Simply stated, if a retailer s physical store is not an enjoyable place for customers to shop from interactions with store employees to their ability to navigate the aisles and find the products they want CRM initiatives in other areas may be immaterial. Marketing and communications should not be the sole goal of CRM initiatives, but should instead be aligned to support strategies fully that focus on increasing customer satisfaction. Providing promotional offers that are valuable to customers and increase customer profitability separates strong retailers from their less-profitable peers. Offers that create more hassle than savings alienate customers. Achieving favorable results from promotions depends largely on how well-integrated marketing and communications initiatives are with the overall customer experience. Good promotions should not begin and end with price, but should consider what will solidify the customer relationship. Data integration and analytics should be seen as supporting players for a well-engineered CRM approach, instead of as the primary goal for CRM initiatives. Creating a holistic and comprehensive view of customer data is becoming increasingly important to enhance both online and in-store experiences. However, this capability is not an end, in and of itself. The first question that retailers need to ask themselves is, what is the knowledge I would like to derive from this data, and how will I act upon it? In the end, the insights gleaned from analytics should enhance the overall customer experience in specific, well-considered ways. Every experience can be improved; the key is establishing the rigor to spot weakness and fix it and find strength and build on it. CRM strategies need to include regular, ongoing feedback channels and the structured discipline to take action on insights learned. 12

14 Taking the next step Finding out what customers truly value provides insight on how to form strong customer relationships. The following questions are fundamental to CRM success and are important for retailers to address, so that they can begin to improve the customer experience and increase customer satisfaction: How do we want our customer experiences to evolve? What are the most important opportunities for improvement? How should these experiences vary by different target customer groups? What types of insights do we want to develop about customers? What different sources of data are required? How can and should these be integrated? How will these insights be applied to effect real change in business processes and practices? How does our technology infrastructure need to evolve in the near term and long term to support CRM and other business strategies? Are our people and processes ready to move to a more customer-centric model? What changes will be required? Conclusion The customers have spoken. Retailers who view investments in providing a superb experience as the starting point for effectively managing customer relationships are much more likely to win satisfied customers in a competitive marketplace. CRM strategies must begin by understanding customer-satisfaction drivers and explicitly tying business and technology initiatives to these levers. By taking such an approach, retailers can create a fantastic total experience that results in highly satisfied customers and highly profitable businesses. In an era where customers expect more and more, retail is a tough business. Companies need to be careful that they spend CRM budget on smart, fast and focused initiatives that will satisfy more customers, more of the time. Please contact us at bva@us.ibm.com if you would like to: Receive further information about the consumer survey on which this paper is based Obtain a copy of other papers in this series Explore how we might assist your company in designing CRM initiatives that result in outstanding customer experiences. To browse through additional resources for business executives, visit our Web site at ibm.com/services/strategy 13

15 About the authors Julian Chu leads the Distribution Sector team at the IBM Institute for Business Value. Julian specializes in helping executives in the retail and consumer goods industries develop and implement leading-edge e-business ventures and initiatives. Julian can be contacted at Troy Pike is the Retail Industry lead for the IBM Institute for Business Value. Troy develops business insights that help executives create and implement innovative business strategies. Troy can be reached at The Institute for Business Value develops fact-based strategic insights for senior business executives around critical industry-specific and cross-industry issues. Clients in the Institute s member programs the IBM Business Value Alliance and the IBM Institute for Knowledge-Based Organizations benefit from access to in-depth consulting studies, a community of peers and dialogue with IBM strategic advisors. These programs help executives realize business value in an environment of rapid, technology-enabled competitive change. You may contact the authors or send to bva@us.ibm.com for more information on these programs. Copyright IBM Corporation 2002 IBM Global Services Route 100 Somers, NY U.S.A. Produced in the United States of America All Rights Reserved IBM and the IBM logo are registered trademarks of International Business Machines Corporation in the United States, other countries, or both. Other company, product and service names may be trademarks or service marks of others. References in this publication to IBM products and services do not imply that IBM intends to make them available in all countries in which IBM operates. Contributors Steve Ballou, Executive Consultant, IBM Strategy & Change Consulting Michael Reynolds, Consultant, IBM Strategy & Change Consulting G