41 06 Shock the system: Driving sales via in-store execution Many telcos are witnessing a reduction in store transactions. McKinsey s retail sales approach can serve to boost a telco s frontline results by 15 to 40 percent. When markets slow, telecoms players need some powerful retail magic to draw in new customers and drive up profits. To help them pull off this conjurer s feat, McKinsey has developed the Storanomics approach to telco retail. In engagements across Europe, the US, and the Middle East, Storanomics has triggered surges in sales performance ranging from 15 to 40 percent. What s more, experience shows that impact is both rapid and sustainable. One telco garnered an increase of over 10 percent in monthly gross subscriber additions (gross adds), while enhancing its customer satisfaction by over 30 percent. The Storanomics approach relies on rigorous execution that teams drive from the field with significant guidance from top managers. Missed opportunities In many cases, telco managers misread their retailing reality. They assume that opportunities out there are mostly small and that any large ones will be difficult to capture, take a long time to implement, and ultimately generate only a short-term effect. McKinsey s experience tells a very different story (Exhibit 1). Even after retail improvement efforts, initial mystery shopper visits often reveal significant missed sales opportunities. They also expose high variability across shops, markets, and regions. In one instance, mystery shoppers noted 140 walkouts per day in one store and found that the network engaged in only limited proactive selling activities. In another case, an operator discovered that total service activations per store varied by over 50 percent, up-selling rates by more than 30 percent, and crossselling by nearly 180 percent. While these retail opportunities may seem challenging to capture, managers can seize them by taking a comprehensive approach that links objectives to a meticulous and sustainable frontline transformation process. Storanomics pilot projects can show impact within a single quarter and broader results within six months. Storanomics delivers an effective way to resolve the traffic/customer-handling paradox. Stores in dire need of traffic stimulation exist without question. However, high traffic alone will not ensure higher sales. This is because sales productivity has a strong negative correlation with traffic (i.e., high traffic levels reduce the time sales staff can spend with individual customers, thus limiting sales effort). Depending on the store, traffic stimulation might actually prove counterproductive. Store managers need to use other ways that complement or precede traffic growth. Such approaches might include efforts to manage existing in-store traffic, reduce walkouts, increase traffic-handling speed, or enhance staff skills to better capitalize on traffic. Storanomics fundamentals McKinsey s Storanomics delivers sales uplift by focusing on store-level retail improvements in three areas: Traffic generation seeks to increase store traffic from attractive shopper segments.
42 01 The retail experience up front and behind the scenes is often unoptimized The retail experience up front and behind the scenes is often unoptimized Up-front customer experience Competitor store or exclusive dealer right next door Store positioning, network architecture, merchandise Behind the scenes The responsibility for own and third-party retail is not coordinated Dirty windows without product/service displays Lack of destination products or services Store layout prevents reps from approaching customers, leading to a high number of walkouts Sales reps taking orders, not selling proactively (< 30% closure attempt) Technical product explanations rather than structured need identification and interest raising Traffic generation Traffic/customer Frontline execution Three times more traffic per FTE in top quartiles compared with bottom quartiles Follow-up calls almost nonexistent Sales reps spend 30% of their time on administration; store managers, 30 to 50%, leaving less time for selling 40% of staff would not recommend own product to a friend High attrition rate (> 50%) among sales reps Little floor time (< 50%) per week for store managers Three to four times higher sales productivity in top quintile compared with bottom quintile SOURCE: McKinsey Traffic and customer focuses on reducing the number of store walkouts, freeing up sales reps and managers to concentrate on selling, and improving customer interactions by reducing average waiting times. Objectives include increasing product trial rates, enhancing the speed and quality of service request handling, and lowering the number of stockouts. Frontline execution works to improve store and sales rep productivity in terms of offer rates (e.g., service versus sales requests), how often reps convert initial service requests into sales, the value captured per sale, and the service fulfillment rate. McKinsey s modular approach to retail rejuvenation covers the entire flow of customer interactions (Exhibit 2), providing effective tools and techniques telecoms players can use to tackle their biggest retail challenges. The first step involves identifying the root causes behind issues. Traffic generation. One operator, for example, discovered that about 40 percent of its store and staff were underutilized, with traffic levels far below the average. Local promotions, improved signage, and street hunters directing passers-by into stores helped increase both traffic and sales by 17 percent. Traffic and customer. One telco discovered that up to half of the people entering its stores with the intent to buy something ultimately left emptyhanded. Surveys revealed the key reasons behind this. These included not finding the desired product, needing more time to consider the purchase, finding that waiting times were too long, being in a crowded store, or discovering that items desired were out of stock. Another case had to do with a lack of available sales rep time during peak periods. Here, the team analyzed how the sales reps worked and found that they spent just under half of their time actually involved in the sales process (e.g., speaking with customers, inputting sales data). Furthermore, product activation times tended to be high. ADSL broadband activations, for example, took as long as one full hour. To ensure shoppers are promptly and properly engaged when visiting the telco s stores, managers can apply a segmentation strategy to both traffic and the staff who serve them. Instead of treating all customers and reps the same, shoppers identified as having high sales or care-to-sales potential (e.g., those lacking current postpaid service with the telco) are handled by skilled sales specialists. Less promising shoppers (e.g., angry customers), in contrast, are served by care specialists. In some cases, they are even directed to care hotlines if
43 02 The Storanomics toolbox covers the entire customer flow The Storanomics toolbox covers the entire customer flow Customer touch points Store positioning, product portfolio, network strategy (e.g., store density), and channel strategy Store positioning, network architecture, merchandise Enablers Store ownership model, retail organization Store appeal, national/local trade marketing, in-store services, outbound calls, hunters, referrals Opening hours, triage (ticketing, meeter-greeter), in-store channel diversion, live experience, services as retail SKUs Selling and servicing skills Traffic generation Traffic/customer Frontline execution Processes and organization for store support, campaign, merchandising Staffing, staff segmentation, activity, PoS/order and other systems/processes, inventory Sales tools, people, and performance SOURCE: McKinsey their issues cannot be resolved in the store. By applying this segmented approach, the telco increased its total sales conversion rate from 18 to 29 percent. Operators can further reduce waiting times and walkout rates via lean techniques. One telco noted differences in average handling times per request type of 40 to 50 percent between medium and low performers. Increased automation and changes in processes were designed to reduce average waste time by about 20 percent. Finally, staffing levels always need to reflect customer traffic. Successful operators deploy scheduling tools to optimize agent staffing as well as store-manager time. Measurements show that productivity can vary by up to 50 percent depending on whether the store manager is on the shop floor or not. Frontline execution. As an example in this dimension, one telecoms player noted a high level of performance variability across its store network. By conducting further investigations into why this was happening, the operator discovered that the problem centered on poor area capabilities, since 6 of 18 area managers were responsible for 16 of the bottom-20 stores. In order to address this, the company instituted a rigorous performance approach, involving dialogues during three different types of staff interactions: At sales meetings (best practice: 70 percent of meetings on sales topics, the rest on peer training, finding root causes, and working out action plans) In informal huddles (to energize and set objectives) During individual discussions (to set development goals and career objectives). Structural elements of performance include setting sufficiently stretched targets at the individual level, establishing a daily tracking and reporting system including SMS notifications, and offering incentives that really mean something (e.g., best performers earn at least twice as much as their lower-performing counterparts). In one case, increasing the granularity of reporting and breaking store sales down into separate offer/success rate per type of traffic, followed by rigorous discussions, helped increase pilot store sales by 16 percent. Other helpful techniques are sales coaching, where managers intensively coach the coaches during rollout, applying peer-to-peer coaching and other effective methods. Companies can also increase staff sales capabilities by using tools tailored to specific situations, e.g., laminated sheets to guide customers through need identification and proposition or cheat sheets providing responses to the most frequent customer objections or effective cross-selling catch phrases. Other
44 Ten golden rules to ensure substantial, sustainable sales impact 1. Move fast pilot in stores after two to four weeks 2. More ideas early on, narrow down before rollout 3. Focus on people-related actions (mindsets, skills, performance ) 4. By the field, for the field rapid iteration and design lead that is adjusted by store staff on a daily basis 5. Visible results early on clear measurement and communication of pilot results 6. Shock the system radical ideas delivered to stores packaged in a big-bang rollout (all ideas in one package for each store), but sequenced over time to manage complexity 7. Lead by the line the line assumes implementation responsibility: store and area managers with strong project support from staff 8. Effective SWAT team in place from day one 9. Actions to ensure sustainability beyond the obvious (e.g., link bonuses to sustainability) 10. Proactively manage opinion leaders in the network in line with the local context must-have programs include frequent in-store training sessions and advanced skill-building workshops (e.g., applying irrational-buyer techniques). Storanomics at work McKinsey s experience is that successful Storanomics launches tend to adhere to several principles throughout the three phases of this sales stimulation approach. In the test and refine phase, telcos seeking to drive up sales tend to move fast, typically piloting solutions in their stores just two to four weeks after beginning with Storanomics. They also commit to idea generation, narrowing down the set of potential actions before the rollout. One final aspect of the test and refine phase is that it is highly people-centric. Not only do the improvement activities focus on retail staff skills and mindsets, it is their responsibility to make rapid, daily adjustments as needed in preparation for rollout. The rollout phase commences with clear communication of the pilot results and prioritization of stores. Multivariate regression allows operators to explain more than 60 percent of store performance variability with structural reasons, so that an initial focus can be placed on stores with significant operational underperformance. Then, the ideas are implemented in the stores in ways that completely shock the system. Experience shows that incremental approaches to boosting sales are suboptimal, but bundling the tested and refined ideas into a single, radical big-bang package yields longterm results. The overall rollout effort is still sequenced, i.e., stores are addressed one after the other, not all at once, in order to manage complexity. The sustain phase is in fact an ongoing effort, where continuous monitoring and tweaking are key. Here, the line assumes continuous implementation responsibility (i.e., store/area managers). An effective SWAT team is also established and drives stores toward attaining Storanomics certification. Levers such as linking bonuses to in-store sales improvements and actively managing opinion leaders at the store level help attain the performance and attitudinal buy-in of everyone involved and ensure that early gains are sustained. * * * Storanomics incorporates new ideas based on field data and insights from other industries with the intent of shocking the system with outside influences at all levels. Storanomics is tailor-made to provide that extra uplift telecoms players need in the current economic situation.
45 Duarte Braga is a Principal in McKinsey s Lisbon office. duarte_braga@mckinsey.com Branislav Klesken is a Principal in McKinsey s Prague office. branislav_klesken@mckinsey.com Jan Mischke is an Associate Principal in McKinsey s Zurich office. jan_mischke@mckinsey.com Steven Rudolph is a Principal in McKinsey s Boston office. steven_rudolph@mckinsey.com