Customer centricity 2.0 the rise of the chief marketing officer(1)

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Customer centricity 2.0 the rise of the chief marketing officer(1)

  1. 1. Customer Centricity 2.0: The Rise of the2011 Benchmark ReportChief Marketing OfficerNikki Baird and Paula Rosenblum, Managing PartnersDecember 2011 Sponsored by:
  2. 2. Executive Summary Retailers are currently struggling with something beyond a proliferation of channels – it’s more like an explosion - both for selling to and communicating with consumers. This disruption is hitting the marketing department, as retailers rush to provide a single customer experience across digital and traditional channels. It is also felt within the retail executive team, as a new center of gravity - customer, rather than product - is taking center stage in the retail enterprise. This report explores the challenges and opportunities for retailers navigating these uncertain times in the world of “Marketing”.Business Challenges The main retail marketing business challenges can be expressed as what RSR calls “the uncertainty trifecta:” retailers dont know who to target, they dont know how best to reach them, and they dont know how to measure the effectiveness of the efforts they make. Part of the issue lies squarely with leadership - when "everyone" owns the customer relationship, in effect, no one owns it. Compounded by the pressures that digital channels present, both from an opportunity and from a measurement perspective, the chances of achieving a single voice or face or even brand identity to the customer is small.Opportunities Opportunities focus on two distinct areas: the marketing organization, and the measures through which we measure that organization’s effectiveness. Marketing is still measured on its perceived ability to drive sales. Many retailers operate with a split marketing organization, where digital and corporate marketing go head-to-head in managing communication channels. “Corporate marketing” holds on to traditional media like print and TV advertising (for which investment is on the decline), and the digital group manages areas of future growth including social media in all its stripes. Ultimately, until marketing, no matter where it lives, shifts from driving sales to building the brand as its main objective, many of these efforts will continue to fall flat.Organizational Inhibitors Retail survey respondents report that their top three organizational inhibitors are poor measurement, lack of coordination, and missing data. The lack of coordination is a channel issue as much as an organizational one. Retailers priorities for overcoming these inhibitors include formalizing roles and bringing better technologies to the table.Technology Enablers In the realm of technology, "platform" seems to be the operative word for supporting and enabling marketing activities. Between digital marketing platforms and customer relationship management, survey respondents are looking to technology to help enable both the single view of the customer and the single face to the customer that they would like to present.BOOTstrap Recommendations Marketings nascent awakenings in retail should bring many issues to the surface - questions like, how can I leverage the content that I own or that has affinity to my brand to better deliver a customer experience across channels? But answers will remain unclear until the most important ones are asked: Who is the owner of the customer experience at my company? Is that the right person? ii
  3. 3. Table of Contents Executive Summary .......................................................................................................................... ii Table of Contents ............................................................................................................................ iii Figures ............................................................................................................................................. iv Research Overview ......................................................................................................................... 1 Why This Study Was Conducted ................................................................................................. 1 Methodology................................................................................................................................. 2 Defining Winners and Why They Win, and Why Laggards Fail ................................................... 2 Survey Respondent Characteristics ............................................................................................ 3 Business Challenges ....................................................................................................................... 5 The Uncertainty Trifecta............................................................................................................... 5 #1 - Who to Target ....................................................................................................................... 5 #2 - How To Reach Them ............................................................................................................ 7 #3 - Did It Work ............................................................................................................................ 8 Opportunities ................................................................................................................................. 10 Asking for A but Rewarding B .................................................................................................... 10 Differences between Corporate and Digital Marketing Spend ................................................... 11 Marketing Investments Will Shift in the Coming Years .............................................................. 11 As the Spend Shifts, New Tools Needed to Measure Results .................................................. 12 Organizational Inhibitors ................................................................................................................ 13 Poor Measurements, Lack of Coordination, and Missing Data ................................................. 13 Formalizing Roles and Bringing Better Technologies to the Table............................................ 14 Technology Enablers ..................................................................................................................... 16 If Only Marketing Had A Platform... ........................................................................................... 16 From Stepchild to Cinderella...................................................................................................... 17 Cleaning Up A Dirty Word .......................................................................................................... 18 BOOTstrap Recommendations ..................................................................................................... 19 Marketing is to Brand As Operations is to Sales? ..................................................................... 19 Back to the Future ...................................................................................................................... 19 Reality Check ............................................................................................................................. 20 Appendix A: RSR’s Research Methodology .................................................................................... a Appendix B: About Our Sponsors.................................................................................................... b Appendix C: About RSR Research................................................................................................... c iii
  4. 4. Figures Figure 1: CMO Early Days ............................................................................................................... 1 Figure 2: Top-Level Access When It Comes to the Customer ........................................................ 2 Figure 3: An Uncertain World .......................................................................................................... 5 Figure 4: Channel Proliferation Means Data Proliferation ............................................................... 6 Figure 5: Loyaltys Uncertain Role in "Knowing" the Customer....................................................... 6 Figure 6: Can You Hear Me Now? .................................................................................................. 7 Figure 7: When Does Everyone Mean No One? .......................................................................... 8 Figure 8: A Laser Focus on the Customer .................................................................................... 10 Figure 9: …with a Conflicting Way to Measure Success............................................................... 10 Figure 10: Online, Mobile and Social Coming into the Forefront .................................................. 12 Figure 11: Poor Measurements and Lack of Coordination Hamstring Retailers ........................... 13 Figure 12: Resource Constraints and Lack of a Business Case ................................................... 14 Figure 13: A Leader, Coordinator and Better Technologies Needed ............................................ 15 Figure 14: CRM, Out of the Doghouse .......................................................................................... 16 Figure 15: The Technology Gaps That Fall Between Cracks ....................................................... 17 Figure 16: Investment Progress, Future Plans .............................................................................. 18 iv
  5. 5. Research Overview Why This Study Was Conducted Selling and communication channels in retail havent so much as proliferated as exploded, creating new challenges for retailers as they scramble to align their brand identities across these disparate touch points. New channels also create opportunities: retailers now have access to more details about their customers’ tastes, preferences and buying patterns than ever before - if they could only use this information to create a better retail experience. This confluence of events, all centered on the customer, has brought a once background retail corporate player into the mainstream of day-to-day retail operations: the Chief Marketing Officer. This report examines the current state of the retail marketing department. Along with the day-to- day disruption caused by channel proliferation, retailers are also in some organizational disarray - with merchandising groups owning promotions, marketing owning traditional advertising channels, and the eCommerce team creating new digital channel opportunities every day. Are retailers elevating the role of marketing internally? Are they consolidating marketing functions that currently exist across the enterprise? The early answer is "sort of". While Winning Retailers - those that outperform their peers - are more than three times as likely to report that they have a Chief Marketing Officer at the helm of the customer ship, they are also more than twice as likely to say the responsibility resides at the director level (Figure 1). Figure 1: CMO Early Days What is the Title of the Chief Marketing Executive at Your Company? Winners Others CMO 18% 5% VP Marketing (includes SVP, AVP, etc.) 41% 64% Director of Marketing 41% 18% Other 0% 14% Source: RSR Research, December 2011 The wrench in the works, as you will see in this report, is digital channels. In general, the eCommerce team has overseen the largest expansion of customer touch points in retail. Retail Winners have been very careful to stay on top of that wave, but also readily acknowledge that the future of their customer strategy is more likely held by the eCommerce or digital marketing director than by the traditional marketing organization. The net result: a marketing organization in flux. The good news is that, at least compared to the IT department, marketing generally has more access to the executive office. Despite the fact that a clear majority of respondents (75% overall 1
  6. 6. between VP and director) do not have C-level representation for marketing in their companies,71% of respondents also say that their chief marketing leader reports to the CEO (Figure 2).Figure 2: Top-Level Access When It Comes to the Customer Who does the chief marketing executive report to in your company? CEO 71% COO 10% Chief Customer Experience Officer 2% Chief Merchant 2% Other 15% Source: RSR Research, December 2011These shifts have profound implications to the enterprise as a whole, and most especially to therealm of IT Governance. Someone must represent the customer in a seat at the IT SteeringCommittee table. Will it be the CMO? Someone else? In many ways, the answer will depend onwhether retailers decide if they can move from marketing as a driver of store traffic tomarketing as strategic owner of the customer relationship. That is definitely not a foregoneconclusion at this point.MethodologyRSR uses its own model, called the “BOOT,” to analyze Retail Industry issues. We build thismodel with our survey instruments. Appendix A contains a full explanation of the methodology.In our surveys, we continue to find differences in the thought processes, actions, and decisionsmade by retailers who outperform their competitors and the industry at large – Retail Winners.The BOOT model helps us better understand the behavioral and technological differences thatdrive sustainable sales improvements and successful execution of brand vision.Defining Winners and Why They Win, and Why Laggards FailOur definition of Retail Winners is straightforward. We judge retailers by year-over-yearcomparable store/channel sales improvements. Assuming industry average comparable store/channel sales growth of four percent in 2010 compared to 2009, we define those with salesabove this hurdle as “Winners,” those at this sales growth rate as “average,” and those below thissales growth rate as “laggards” or “also-rans.” It is consistent throughout much of RSR’s researchfindings that Winners don’t merely do the same things better, they tend to do different things.They think differently. They plan differently. They respond differently.Laggards also tend to think differently. They may have spectacular vision, but often fail onexecution. They may forget the power and breadth of choices today’s customer has. They fail tore-invent themselves when it becomes obvious their existing business model is no longerworking. They don’t change their business processes in an effective manner, and so they eithereschew technology enablers, or don’t gain expected Return on Investment on those they DO buy.In good times, they skate by: in tough times these weaknesses come back to haunt them. 2
  7. 7. Survey Respondent CharacteristicsRSR conducted an online survey from September - November 2011 and received answers from57 qualified retail respondents. Respondent demographics are as follows: • Job Title: Senior Management (e.g., CEO, CFO, COO, CIO) 26% Vice President 15% Director/Manager 41% Internal Consultant 3% Staff/Other 15% • 2010 Revenue ($ Equivalent): Less than $50 million 26% $51 million - $999 million 27% $1 billion - $5 billion 28% More than $5 billion 18% • Year-Over-Year Comparable Store Sales Growth Rates (assume average growth of 4%): Worse than average 18% Average 38% Better than average – single digit growth 28% Better than average – double digit growth 15% • Headquarters/Retail Presence: USA 67% 72% Canada 13% 33% Latin America 0% 13% UK 0% 21% Europe 5% 23% Middle East 0% 15% Africa 5% 15% Asia/Pacific 11% 26% • Functional Responsibility: Merchandise Management 12% Marketing 42% Store Operations 9% IT 30% Finance 6% 3
  8. 8. • Primary Category: Apparel, Footwear and/or Soft home 29% General Merchandise and Hard Goods 13% Groceries 18% Hardware and Construction 3% Drugs 3% Jewelry and Accessories 5% Home Furnishings 8% Music, Books and Entertainment 5% Prepared Food 0% Fuel (Petrol) 0% Auto Parts 3% Miscellaneous Services 13% Other 20% 4
  9. 9. Business Challenges The Uncertainty Trifecta When it comes to reaching consumers, retailers struggle with an uncertainty trifecta of business challenges: they dont know who to target, they dont know how to best reach them, and assuming they manage to get the first two right, they have no idea how effective their communications are (Figure 3). Figure 3: An Uncertain World Top-3 Marketing Business Challenges Winners Others Customer segments are fragmenting, making it 71% harder to reach our consumers 52% We cant keep up with all the new ways to engage 59% with consumers 71% Too many communication channels have 53% unproven effectiveness 62% Its hard to differentiate our brand from our 29% competition 43% The uncertain economy constrains our marketing 29% budget 43% Competitors can see and copy innovations too 24% easily 24% Uncertainty around regulations impacting privacy 18% and the use of customer data 5% Source: RSR Research, December 2011 While Winners and laggards put a different emphasis on the order of the top three (laggards are more overwhelmed by channels, Winners by customer segments), overall the top three challenges are the same for both groups. By retailer size, the challenges remain consistent with only two exceptions: the smallest retailers (under $50 million in revenue) are most challenged by the unproven effectiveness of communication channels, and the largest retailers (over $1B in revenue) are much more worried about how to differentiate themselves from their peers. Neither of these priorities is surprising. The smallest retailers tend to also have the smallest appetite (or cash flow) for risk - risk in the form of bets made on new or experimental ways to engage with customers. The largest retailers are facing a double-sided threat - a sea of sameness as nearly every retailer seems to carry nearly every major brand on one side, and Amazon.com threatening to turn their stores into showrooms on the other. #1 - Who to Target Retailers collect more data about customers than ever before - and have more channels that can serve as sources for collecting customer data (Figure 4). 5
  10. 10. Figure 4: Channel Proliferation Means Data Proliferation Selling Channels that Collect Customer Data In-store (POS, employee mobile, kiosk) 79% Email 71% eCommerce Site 61% Social networks 47% Call Center 39% Consumer Mobile (general use) 21% Consumer Mobile (location-specific) 5% Source: RSR Research, December 2011While there is certainly a lot at stake in terms of translating all of this data into actionablecustomer insights, the challenge is more deep-rooted than that. A clear majority of retail surveyrespondents say they believe their company knows who their best shoppers are. But theagreement starts to fall apart from there. Only 35% of respondents agree - and of those only 4%strongly agree - that their company is proficient at targeting across channels, and another 41% ofrespondents argue that loyalty programs are not a strategic asset for gaining better insight intohow customers tend to shop across channels (Figure 5).Figure 5: Loyaltys Uncertain Role in "Knowing" the Customer Source: RSR Research, December 2011Winning retailers are the most pessimistic - or perhaps the most realistic - of our surveyrespondents. Thirty percent of Winners disagreed that their company knows their bestshoppers vs. 18% overall. Another 53% disagreed that their company is proficient attargeted marketing across channels. And fully 70% disagreed that a loyalty program isfoundational to their strategy, with 0% strongly agreeing.This pessimism seems to have come from experience. RSR has been surveying retailers abouttheir customer programs since 2007, and in that time we have seen Retail Winners move from 6
  11. 11. enthusiastic embracers of targeted, personalized, one-to-one marketing to the biggest skeptics ofall. The challenge is context - its easy to know a lot about customers, but its very hard to knowwhich pieces of knowledge are most important at any given time. Guessing wrong can havedrastic consequences - up to and including risking a relationship with a valuable lifetimecustomer.The smallest retailers demonstrate the challenge at the other end of the spectrum. They are mostlikely to say they know who their best shoppers are and not want to rely on a loyalty program toget that information. This knowledge comes from direct contact - from that local store relationshipwith a customer. Largest retailers report the exact opposite. They are the most unsure about whotheir best shoppers are and the most likely to turn to a loyalty program to help them find out.Smallest retailers have the advantage in intimacy, but have achieved it through personalrelationships, which are nearly impossible to scale as the retailer grows.#2 - How To Reach ThemAlongside more data, retailers have more channels in which to both communicate and transactwith customers. In fact, for the first time in RSRs research, we had respondents report that theywere as likely to operate an online channel as stores - a shift from store dominance in the past(Figure 6).Figure 6: Can You Hear Me Now? Channels in operation today Stores 80% Online/eCommerce 80% Social channels 52% Catalog 34% Dedicated mobile/mCommerce site 25% Mobile SMS campaigns 20% Downloadable mobile app 16% Source: RSR Research, December 2011The only channel that has yet to achieve a strong showing is mobile, but by no means count itout. From RSRs other research on the mobile channel, retailers will make significant inroads inmobile capabilities in 2012 - if they havent already.One result from this survey perhaps serves as a portent of things to come: the smallest retailers(under $50 million in revenue) are the most likely to report that they dont have stores (45% ofsmallest retailers reported stores as a channel vs. 94% of those over $1 billion in revenue), andalso the most likely to report a presence in social channels (64% vs. 40% of the largest retailers).eCommerce and social channels are currently two of the most inexpensive channels to operate.But it raises the question - outside of a few exceptions, can retailers expect to get to $1 billion inrevenue, or $5 billion, without stores? Will social and mobile be enough to offset the "presence" 7
  12. 12. that stores provide? Either way, retailers of all sizes seem to be re-evaluating their investmentstrategies across all of these commerce channels.#3 - Did It WorkThe third leg of the uncertainty trifecta is measuring the effectiveness of new communicationchannels. Marketers of all stripes have struggled with the question of effectiveness for so longthat Lord Leverhulmes (founder of Unilever) quote about it has almost become cliché: "Half the 1money I spend on advertising is wasted, and the problem is I do not know which half."In other RSR reports, including those on loyalty and CRM as well as Business Intelligence, wehave devoted a lot of effort into benchmarking the mechanics of measuring effectiveness. On theCRM side, retailers seem to do a very poor job of tracking offer redemption, which automaticallylocks them out of opportunities to understand which customers responded to which offers. If youthrow an offer or campaign out into the market and dont pay much attention to who redeemed it,how will you know who to make that offer to in the future? Perhaps it doesnt much matter -retailers also report that they are overwhelmed by customer data, often lacking both theresources and the skills to analyze customer data in a timely, repeatable fashion. Sometimes theissue is as basic as the retailer being sure what salient questions to ask about its customer.These problems, however, are symptoms of a larger issue. And this issue brings us back tomarketings role in managing the customer experience. Across our survey respondents, there isno majority identifying a specific role or person in charge. The executive team edges ahead in theplurality, followed by the chief marketing officer, but the numbers fall off rapidly after that (Figure7).Figure 7: When Does Everyone Mean No One? Who is the individual primarily responsible for the customer experience? The executive team collectively 22% Chief Marketing Executive 20% VP Stores 18% CEO 14%Chief Customer Experience Officer 6% No explicit owner 6% Other 6% eCommerce Executive 4% COO 4% Chief Merchant 2% Source: RSR Research, December 2011Unless your organization has a strong single owner of the customer experience, it will continue tostruggle with the "did it work?" question. That might, at first glance, seem to place too muchemphasis on leaderships role in answering a relatively simple measurement question, but the1 http://www.12manage.com/quotes_m.html 8
  13. 13. challenge here isnt so much about the numbers as it is the strategy and the objectives - and thatis very much a leadership question.As an example, take one very simple targeted offer. Cola Company #2 approaches the merchantat a grocer and says "I would like to offer a discounted price to all of your shoppers that buy fromCola Company #1, and in return I will fund that discount - it will drive more sales in the categoryand everyone will be happy." The merchant agrees, Cola #1 customers duly receive theirdiscount, some of them switch or supplement, and everyone is happy - except for a certainsegment of customers.In the early days of loyalty programs, consumers didnt have much expectation for how retailersused the data they collected. Nowadays, everyone is in on the game and how it works - andbecause of the personalization that websites can provide, consumers increasingly expect thesame level of personalization across all of a retailers touch points. If a shopper has neverbought Cola #2, even after receiving multiple offers for Cola #2 in the past, is the retailer buildinga good customer experience by continuing to offer that shopper discounts on Cola #2? Or is itdemonstrating that it cares nothing for the shoppers preferences or past purchase history and isjust trying to make a buck? Cynicism can develop rapidly on both sides of the customerexperience.This example can easily happen in a situation where the "executive team" owns the customerexperience, because merchandising has a completely different view than marketing of whatmakes for a "good" customer experience. In fact, it can also easily happen when the leadmarketer alone owns that relationship. In most retail organizations, the marketing department hasfar less influence over the customer relationship than merchandising, particularly in heavilypromotional environments. However, the same challenges exist in any other retail vertical -relevancy can be as simple as only offering deals on womens apparel to the single femaleshopper, rather than spamming her with offers she has never shown a propensity to use - like formenswear or childrens clothing, as an example.The point is this: when "everyone" owns the customer experience, unless someone takesthe lead in defining what that experience needs to be - and measuring and enforcingexecution against that definition, you might as well have no one owning the experience.And while marketing may be the right owner of the customer, if they dont have the organizationalsway internally to enforce the experience they are trying to create, why bother designating themthe owner in the first place? 9
  14. 14. Opportunities Asking for A but Rewarding B Given the “uncertainty trifecta” exposed above, it’s not surprising to see the perceived opportunities our respondents identify. These opportunities are the tip of the iceberg in a fundamental retail shift: a movement away from the product-centric thought of “If we get the right stuff they will come” to “How can I please my customers?” This is clear when we look at Figure 8. Figure 8: A Laser Focus on the Customer Marketing Opportunities Highly valuable Somewhat valuable Little to no value A greater focus on customer, less on 61% 33% 6% product Turning customers into advocates 58% 36% 6% through social media Targeting better through more detailed 58% 39% 3% customer preferences Delivering real-time personalized offers 50% 47% 3% to consumers To become more brand-focused 44% 50% 6% New marketing channels enable us to 37% 51% 11% truly differentiate our brand Source: RSR Research, December 2011 However, there is a notable lack of clarity on how to actually achieve that goal, and some pretty tired metrics associated with recognizing that the enterprise is moving in the right direction (Figure 9). Figure 9: …with a Conflicting Way to Measure Success Marketings Primary Objective Drive sales 49% Drive traffic (stores, website) 23% Build the brand 23% Build customer loyalty 5% Communicate promotions 0% Source: RSR Research, December 2011 10
  15. 15. We were frankly surprised to discover that with all the talk about brand building, turningcustomers into advocates, and personalizing offers, half of our retailer respondents still identifymarketing’s primary objective as “Driving Sales.” Retail Winners were slightly less apt to cite thisas their primary objective (45% vs. 53% of other respondents), but the number is stilldisconcerting. We expected to see much more focus on building the brand and building loyalty.We fully understand that a retailer’s primary objective is to “sell stuff” – LOTS of stuff – but thosesales are an outcome. Today’s over-educated consumer can find alternative sources for almostanything, and she is generally willing to trade a certain amount of her privacy for relevancy. Infact, through social media sites, reviews and blogs, she has made her interests quite clearlyknown. Returning to the soda example in the previous section, sending offers for cola #2 may bejustified as an attempt to drive sales, while the outcome is a somewhat tarnished store brand, anda frustrated, likely less loyal consumer.As always, we acknowledge that people do what they are paid to do. If the marketing departmentis rewarded for driving sales, brand-building and relevancy may take a back seat to theimmediate need to get the virtual and physical cash registers ringing. We believe there is greatopportunity in retailers re-thinking objectives and compensation strategies for theirmarketing departments to better align with customer-centric objectives.Differences between Corporate and Digital Marketing SpendThe current marketing spend goes to unremarkable mass media channels: print (89%), online(84%), traditional radio, TV and direct mail (82%), with a new nod to relatively inexpensive socialmedia (75%).Not surprisingly, the largest retailers (those with more than $1 billion in annual revenue) have thehighest propensity to spend on mass media. The smallest retailers (those with revenue under$50 million) tend to rely on print ads, most likely in local papers. The mid-market ($51-$999million in annual revenue), are most focused on online ads, search engine optimization, andsocial media.We see some differences (and similarities) by corporate vs. digital marketing groups that areworthy of note: • Almost no digital marketing departments own the budget for the traditional mass media of print, TV and direct mail • Facebook, mobile, and other online advertising budget is roughly divided between digital and corporate marketing • Corporate marketing is more likely to own both Twitter (40% vs. 29%) and single offer discounts like Groupon or Living Social (35% vs. 14%)Some of these variations are surprising, and we continue to ponder the division of labor betweencorporate and digital marketing, even as we wonder when retailers will put these groups underone umbrella. The opportunity: consistency in messaging in reaching the omni-channelconsumer.Marketing Investments Will Shift in the Coming YearsWe are clearly early in the omni-channel marketing era, but things are maturing rapidly. That isevident when we look at planned shifts in investments over the next year (Figure 10). 11
  16. 16. Figure 10: Online, Mobile and Social Coming into the Forefront How will your companys investment in each channel change in the next year? More investment No change Less investment No investment Online advertising 63% 33% 2% 2% Mobile advertising 56% 23% 2% 19% Facebook or other community social network (for 51% 40% 2%7% example, Hi5 or Renren) Search advertising 47% 42% 2%9% Twitter 37% 39% 0% 24% Traditional advertising (TV, Radio, Direct Mail) 21% 51% 23% 5% Non-commerce mobile apps (for example, games 14% 29% 5% 52% or lifestyle apps) Single-offer discounts (for example, Groupon or 14% 35% 2% 49% Living Social) Print ads - includes newspapers, magazines, 14% 47% 37% 2% inserts/circulars Source: RSR Research, December 2011Clearly, retailers are moving into virtual channels with investment increases reported in online,mobile, social and search engine advertising. Traditional TV, radio and direct mail will mostlyremain the same, while print continues to decline. The reasons for print declines are a mixture ofobvious and subtle. The obvious: untargeted and expensive. The subtle: the long lead timesrequired in many cases are antithetical to the rapid responsiveness needed by today’s retailers.As the Spend Shifts, New Tools Needed to Measure ResultsClearly more granular and targeted advertising allows for more granular analysis of results.Retailers need new technologies and analytics for their digital and corporate marketingdepartments to measure the effectiveness of their investments. We’ll take a look at the tools theyprize and plan to purchase in the Technology Enabler section of this document.First, however, we’ll investigate what might stand in their way of taking advantage of new andexisting opportunities: Organizational Inhibitors. 12
  17. 17. Organizational Inhibitors Poor Measurements, Lack of Coordination, and Missing Data When your marketing department’s objective is to “drive sales,” measuring effectiveness across an unpredictable (and partially anonymous) path to purchase can be challenging. Our retail respondents agree (Figure 11). Figure 11: Poor Measurements and Lack of Coordination Hamstring Retailers Top-3 Marketing Operational Challenges Measuring the effectiveness of different marketing 58% tactics Difficulty coordinating internally to create a seamless 58% cross-channel experience Understanding and accommodating how different 55% customer segments engage with us Measuring the cross-channel impact of different 53% marketing tactics Customer expectations limit how quickly we can 32% innovate in our marketing communications The technology is not advanced enough to support 21% the kind of brand experience wed like to offer Consumers privacy concerns over how we collect or 16% use data Source: RSR Research, December 2011 Winners are most challenged to coordinate internally (71% vs. 48% of all others). This is part and parcel of the Retail Winner’s dilemma. They tend to be moving quickly to press their advantage, and don’t necessarily work well across departments. As we’ve already pointed out, compensation strategies don’t encourage cross-department collaboration either. Others are more challenged to get the basics in order, like understanding how different customer segments engage with them. Walmart has gone so far as to buy its own social media company and create separate Facebook pages for every store in an attempt to get a better handle on its customer. There are some indications of success, as the company posted the first positive quarterly comparable store sales in two years this past quarter. The data above map well to the Organizational Inhibitors our respondents identify. The number of real-time channels continues to proliferate like bunnies, and many retailers don’t have the technologies available to help understand exactly what they’re getting out of the investments in people and products they do make (Figure 12). 13
  18. 18. Figure 12: Resource Constraints and Lack of a Business Case Top-3 Organizational Inhibitors We dont have enough marketing resources to manage 71% all the available opportunities We don’t know how to turn customer data into 63% actionable business intelligence ROI is hard to quantify 46% Difficulty getting IT resources for marketing projects 43% The executive team doesnt understand the 31% opportunity The merchandising organization does not understand 17% the digital strategies we need to support marketing Marketing cant get its share of capital budget for new 17% analytics Source: RSR Research, December 2011Again, when your primary objective is to “drive sales,” it is very difficult to measure the return onany investment that doesn’t result in a direct boost in revenue. Having said that, companies havebeen spending fortunes on Superbowl ads and stadium naming rights for decades, with nary atool to determine if there’s any return on those investments beyond Q Scores.Formalizing Roles and Bringing Better Technologies to the Table For several years, RSR has noted the culture shock brought on by the sudden influx ofcustomer-specific data into the retail enterprise. As early as 2007 our benchmark data revealedthat more often than not, customer data had no explicit home, with marketing sitting as the de 2facto owner. This state has stabilized somewhat, as two-thirds of this year’s respondents reportmarketing as the explicit owner and another 22% report the “direct, eCommerce channel” as theexplicit owner. Only 18% still report no explicit owner of customer data.With these roles formalized, retailers now recognize the value of coordination and chargingsomeone within the organization with managing the Customer Experience. As we noted on page8, this Customer Experience Manager is still notably absent.There is also a strong recognition that new technologies are needed to support managing omni-channel marketing, solutions that are easily digestible by both users and IT (Figure 13).2 Getting Loyalty Programs Back to Loyalty: Benchmark Study, July 2007, by Nikki Baird 14
  19. 19. Figure 13: A Leader, Coordinator and Better Technologies Needed Overcoming Organizational Inhibitors Very valuable Somewhat valuable Little to no value More coordination between selling channels and 56% 32% 12% marketing An executive tasked with managing and improving 51% 37% 11% the overall customer experience Investment in a streamlined technology platform or 51% 43% 6% infrastructure Solutions that dont burden our IT department 38% 44% 18% More experimentation with new technologies 29% 56% 15% A savvy cross-channel agency to help manage our 26% 29% 44% brand Case studies/success stories in my vertical 24% 41% 35% Source: RSR Research, December 2011While overall, coordination is deemed “most valuable,” IT infrastructure investment actually aremore highly prized in total – with only 6% of respondents seeing “little to no value” in investmentin a streamlined technology platform or infrastructure.In the next section, we’ll take a look at the specific technologies retailers believe will help themovercome their external and internal challenges. 15
  20. 20. Technology Enablers There are two facets to the problem of having no single owner of the customer experience. We have already explored the organizational facet. No matter who owns or even participates in defining and measuring the customer experience, technology can easily make those efforts either easier or much more difficult. Here we will explore the technology facet. If Only Marketing Had A Platform... Ironically, after five years as a term that made retailers’ eyes glaze over, "customer relationship management" (CRM) has re-emerged as a valid retail concept. Uncertain times make for new opportunities. Not only do retailers acknowledge that they need a single marketing platform for managing marketing functions (53% vs. 15% who advocate point solutions only and 32% a mixed approach), they give it a very specific name: customer relationship management (Figure 14). Figure 14: CRM, Out of the Doghouse Marketing Technology Value Very valuable Somewhat valuable Little to no value Customer relationship management 82% 15% 3% Customer purchase analytics 74% 26% 0% Customer segmentation 68% 32% 0% Revenue attribution and campaign ROI analysis 62% 35% 3% Web analytics 56% 35% 9% Customer sentiment analysis 53% 32% 15% Social media analytics 50% 44% 6% Content management system 44% 38% 18% Market segmentation 44% 50% 6% Digital Marketing platform 41% 53% 6% Promotion planning solution 32% 50% 18% A/B Testing management 26% 50% 24% Customer offer engine 26% 65% 9% Source: RSR Research, December 2011 Consistent with the split we saw over business challenges, Retail Winners are more likely to place a higher value on customer segmentation (80% rating it "very valuable" vs. 58% of peers). Laggards value CRM and customer purchase analytics more highly. Winners also appear to place more value on technologies that could help them unwind the mysteries of customers cross- channel paths to purchase - social media analytics and revenue attribution both make this particular list. 16
  21. 21. From Stepchild to CinderellaThere are two primary reasons why retailers might say that they dont have the technology theyneed to support their customer experience efforts: one, theyve never needed it before to thedegree that they increasingly need it today. And two, lacking a strong relationship with the ITdepartment and feeling intense pressure to move at the speed of consumers, marketingdepartments are used to having to make do on their own.So when looking at the technology capabilities that retailers say are the most valuable next tothose that report that they have had these capabilities available to them for more than a year,there are some clear areas of parity and some very large gaps (Figure 15).Figure 15: The Technology Gaps That Fall Between Cracks Technology Value vs. Use Very valuable Longer than 1 year Customer relationship management 82% 36% Customer purchase analytics 74% 48% Customer segmentation 68% 34% Revenue attribution and campaign ROI analysis 62% 16% Web analytics 56% 55% Customer sentiment analysis 53% 12% Social media analytics 50% 12% Content management system 44% 27% Market segmentation 44% 34% Digital Marketing platform 41% 12% Promotion planning solution 32% 30% A/B Testing management 26% 9% Customer offer engine 26% 9% Source: RSR Research, December 2011Customer purchase analytics, web analytics, market segmentation, and promotion planning allhave a fairly close match between value and usage. Of all of these, customer purchase analyticsis probably one of the most mature. But consider who might own the rest of these capabilities.Web analytics is most likely going to be owned by digital marketers reporting up through theeCommerce channel. Market segmentation can easily have a tighter relationship with storeoperations (through new store openings) than with marketing. And promotion planning often iscloser to merchandising than marketing.The largest gaps exist around the newest capabilities: revenue attribution (apportioning revenuegained from a conversion along the entirety of the customer purchase path), customer sentimentanalysis, and social media analytics. 17
  22. 22. However, survey respondents have some clear priorities for upcoming investments. Top targetsfor the next 12-18 months include a digital marketing platform, customer offer engine, A/B testingmanagement, and revenue attribution (Figure 16).Figure 16: Investment Progress, Future Plans Source: RSR Research, December 2011High on the wish list for beyond the 18-month investment timeframe are customer sentimentanalysis, revenue attribution, and customer segmentation.Cleaning Up A Dirty Word"CRM" has had a bad reputation in retail - in some cases it has been deserved, as eager solutionproviders pushed a technology that had not been designed for a B2C environment into retail, thebiggest B2C environment there is. But that happened decades ago - not last year. Andcapabilities have evolved, becoming much more geared toward the volumes and relativeanonymity of a business to consumer relationship.This points to a future - one that our survey respondents reported embracing - of a single platformfor holding customer data, analyzing it, and acting on it. Were not that far away the capabilitiesthat would enable the analytics, though retailers need additional work on developing the rightcustomer data model in a cross-channel and social world. But if the promise needs to be onebrand across all touch points, then retail has a long way to go before that vision can becomereality. 18
  23. 23. BOOTstrap Recommendations While the customer revolution has been going on in retail for at least the last decade, the industry is now reaching a point where differentiation in retail may depend as much on organizational and systems alignment as creative campaigns and must-have merchandise. To be fair, a lot of things got in the way: cross-channel, the rapid rise of mobile and social. Retailers have really only just gotten to the point where they can sit back, take a look around and decide how they should best meet customer demands among proliferating touch points. But the changes that are needed soonest arent really about process or technology. They are about strategy. Our recommendations focus there. Marketing is to Brand As Operations is to Sales? Retail is in an unusual place in that "marketing" and "sales" are apparently considered to be the same thing - as our survey respondents proved with their marketing departments primary focus on driving sales. In most other industries, marketing and sales are distinctly separate organizations. As old strategies and ways of doing business come into question, perhaps it is time to consider what marketing and sales really mean for the future of retail. In the online world, retailers well understand the difference between traffic and conversion. Their digital marketing groups sprang out of a need to provide distinct online strategies from traditional store traffic marketing efforts. But they also quickly learned that the eCommerce site itself had a huge impact on conversion - turning shoppers into buyers - and the impact could be either negative or positive. Sometimes traffic marketing efforts can be used to help offset conversion challenges - the way a site guides a shopper through a purchase process that begins with "refrigerator" as the search term entry point vs. the way a site guides a shopper through a purchase process that begins with "Kenmore Model XYZ", for example. But the distinction is still clear: some activities drive traffic, and some activities - within the site itself - drive conversion. This can easily be carried over to the physical world. It is marketing that drives traffic, but it is store operations (and merchandising and supply chain) that ultimately drive sales. If the store conversion rate is dropping but foot traffic is on the rise, its hard to swallow that this is marketings fault. The net result is this: retailers want one single view of the customer and they want one consistent brand experience across channels. But they also want marketing to own sales. The former requires an investment strategy. The latter requires short-term thinking at the expense of the long-term relationship. In an age when more and more retailers are coming to the conclusion that they need to act more like brands in order to successfully engage with customers, then the first thing they need to do is treat their marketing departments as brand ambassadors, not as sales people. Back to the Future In 2010, RSR released a prospective view on the future of commerce, basically by taking a step back from the current mire of making existing systems work in a cross-channel way and looking at how a retailer starting with white space might approach cross-channel customer engagement. We defined 5Cs of customer engagement: Content, Community, Commerce, and Context all centered on the Customer. 19
  24. 24. If anything, the last two years have proven that this model is more important than ever. But withan emphasis on having marketing "drive sales" (i.e., Commerce), retailers are leaving too muchother opportunity on the table. And marketing should most definitely be the primary owner ofthese other Cs: • Content is all of the information that is centered on product, brand, and customer - it’s about pulling together all of the information that a customer needs in order to navigate a path to purchase. This could be retailer-generated, manufacturer-generated, even customer-generated. But note that content is not just what gets displayed on the product page. It is the lifestyle blogs, the brand statements, and the customer statements that the retailer makes. Product information is about commerce - getting someone to buy. Content is about brand promise - getting someone to engage. • Community is all of the people that a shopper needs to engage with on a path to purchase. This community includes all of the retailers experts - from the best store associate to the merchandiser who selected a certain design or product line - as well as other shoppers, known or unknown to the customer, along with friends and family. "People like me" are part of the community as much as "my best friend." Ratings and reviews play an important role in converting shoppers to buyers, and they are a subset of community that is primarily focused on commerce. Community is also as much about the brand promise - who are people who are like me? • Context isunderstanding a specific shoppers objective at a specific point in time. A shopper browsing the website late at night has a very different objective than the same shopper standing at the shelf in the store. Context helps retailers understand when to apply the next C - Customer Insights - to provide a more relevant shopping experience. It can be behavioral, or based on demographics or purchase history. • Customer Insights involve applying all of the activity seen through the other four Cs - Content, Community, Commerce, Context - to understand what is the right message to deliver to which shoppers and through which communication channels. This is clearly the mandate of marketing today, but without a single view of shoppers activities as they move through the other Cs (beyond just Commerce, and beyond just a purchase view of shoppers commerce activities - and hopefully shared across channels), then retailers will continue to fall short on delivering actionable insights - the kind that dont just drive sales, but also build a brand.Reality CheckSo beyond "Align marketing to brand-building and traffic instead of sales" what should retailersdo? First, evaluate how well you are delivering the 5Cs across all of your channels. Where iscontent missing? Which channels have great content that could potentially be leveraged intoother channels? Are your shoppers already members of communities that you would benefit fromparticipating in? Would it help your objectives (and your customers) to create your owncommunity for them? Should it be something that can be used to reward the best shoppers?There are a million questions to ask from here. But none of them will lead anywhere until retailersask the first, most important question of all: "Who owns the customer experience at my company?Is that the right person?" 20
  25. 25. Appendix A: RSR’s Research Methodology The “BOOT” methodology is designed to reveal and prioritize the following: • Business Challenges – Retailers of all shapes and sizes face significant external challenges. These issues provide a business context for the subject being discussed and drive decision-making across the enterprise. • Opportunities – Every challenge brings with it a set of opportunities, or ways to change and overcome that challenge. The ways retailers turn business challenges into opportunities often define the difference between Winners and “also-rans.” Within the BOOT, we can also identify opportunities missed – and describe leading edge models we believe drive success. • Organizational Inhibitors – Even as enterprises find opportunities to overcome their external challenges, they may find internal organizational inhibitors that keep them from executing on their vision. Opportunities can be found to overcome these inhibitors as well. Winning retailers understand their organizational inhibitors and find creative, effective ways to overcome them. • Technology Enablers – If a company can overcome its organizational inhibitors it can use technology as an enabler to take advantage of the opportunities it identifies. Retail Winners are most adept at judiciously and effectively using these enablers, often far earlier than their peers. A graphical depiction of the BOOT follows: a
  26. 26. Appendix B: About Our Sponsors NCR is leading the way in a new world of retail interactions - with industry focus, innovation and expertise along with one hundred and twenty five years of experience and insights. NCR is your partner in business transformation. We offer converged retailing—c-tailing—which enables a personalized experience based on consumer preference through multichannel solutions, whether in-store, online or mobile. NCR can help retailers increase customer loyalty and create a true competitive advantage. For more information email retail@ncr.com or visit www.ncr.com. Oracle provides retailers with a complete, open and integrated suite of business applications, server and storage solutions that are engineered to work together to optimize every aspect of their business. 20 of the top 20 retailers worldwide - including fashion, hardlines, grocery and specialty retailers - use Oracle solutions to drive performance, deliver critical insights and fuel growth across traditional, mobile and commerce channels. For more information, visit our Web site at http://www.oracle.com/goto/retail b
  27. 27. Appendix C: About RSR Research Retail Systems Research (“RSR”) is the only research company run by retailers for the retail industry. RSR provides insight into business and technology challenges facing the extended retail industry, providing thought leadership and advice on navigating these challenges for specific companies and the industry at large. We do this by: • Identifying information that helps retailers and their trading partners to build more efficient and profitable businesses; • Identifying industry issues that solutions providers must address to be relevant in the extended retail industry; • Providing insight and analysis about a broad spectrum of issues and trends in the Extended Retail Industry. Copyright© 2011 by Retail Systems Research LLC • All rights reserved. No part of the contents of this document may be reproduced or transmitted in any form or by any means without the permission of the publisher. Contact research@rsrresearch.com for more information. c

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