How Customer Insights Transform
Nikki Baird, Managing Partner
Edited by Steve Rowen
Being Customer Centric
While retailers have been focused on dealing with a convergence among channels - feeling the
pressure to respond to consumers' desire to engage with retailers as one brand regardless of
channel - there has also been a convergence between strategies. What started out as a crosschannel endeavor has run headlong into the need to become more customer-centric.
A focus on product is no longer enough to succeed in retail. If retailers want to win, they must
become customer-centric: instead of looking at which products sell, retailers must understand and
anticipate customer needs. It's about a highly personalized, relevant shopping experience, of
which product is only part.
The easy work has been done on the marketing front - retailers increasingly feel that, even if they
haven't done everything they want to do to present one face to the customer, they at least know
everything they need to do. The hard part remains: bringing customer-centric principles and
practices to the rest of the retail operation. This means the people who don't necessarily interact
with customers everyday, and yet play a critical role in defining the customer experience - from
the product, to how the product is displayed, to how and who it is merchandised to, delivered, and
what happens after the sale.
And the changes that are expected of these groups are at least as disruptive as the changes still
being felt in customer-facing organizations. On the road to cross-channel, the time has come
when product-oriented organizations can no longer ignore the customer revolution bearing down
A Prospective View
This report will focus on the future of merchandising and how customer insights are transforming
merchandising processes and practices. It is part of an occasional series of reports that RSR
produces to more deeply explore specific industry topics. RSR's Prospective View methodology
leverages multiple research benchmarks to dig deeper into issues that cut across retail
disciplines. Prospective Views bring together these disparate data trends to provide not only a
current-state perspective on a topic, but also to bring a more forward-looking viewpoint to the
industry. For a list of the reports referenced in this research, please see Appendix A.
What Merchandising Wants
To be fair, many in the merchandising and supply chain organizations recognize that the power
shift has happened - the customer is in charge, and it's up to the retailer to respond. In RSR's
research, we've seen customer analytics move from "Why would I need that?" to a capability at
the top of Merchandising's list (Figure 1).
Alongside customer analytics, localized assortments have moved from a "nice to have" capability
to something much more important. While localization appears on the surface to have more of a
geographic, rather than customer, component to it, this definition of localization is changing.
Geography has historically been a proxy for customers. But as customers increasingly cross
channels, geography is becoming muddled - a less relevant proxy than going straight to customer
Figure 1: Customer Analytics
How Important are the Following to your Retail Success?
Retail Forecasting (demand forecasting,
forecasting for replenishment, etc.)
Not Very Important
An optimized, end-to-end merchandising lifecycle
Unified pricing, promotion and assortment
Lifecycle price optimization
Source: RSR Research, Optimizing Assortments to Invigorate Retail Benchmark 2012
But what do merchants want with these capabilities? How do customer analytics get incorporated
into merchandising beyond "nice to know" perspectives on customer segments?
Retailers' experience getting to know customer behavior much more deeply, thanks to the deep
analytics available through digital channels, is changing their expectations for how those insights
can be used far beyond marketing. In the early days of incorporating customer insights into
merchandising, retailers are focusing on two initial opportunities:
1. Customer Segments & Assortment
The primary objective in bringing customer insights to assortment planning is to ensure that the
product assortment meets a comprehensive set of customer needs. For example, an electronics
retailer may wish to target a strategic customer segment that it's not currently strong in: moms
with young children. In order to ensure that the retailer is attractive to the mom segment, it's
important to not only make sure that stores have kid-friendly shopping carts, but to also ensure
that there is an assortment of products that meets mom-shopper needs.
In assortment planning, the merchandiser responsible for cameras might not only plan the
assortment according to other, standard attributes, she might also look at the assortment from a
customer segment perspective and balance it out. Are there enough cameras at different price
points to appeal to the mom segment? Is there a strong representation among specifications that
are popular with moms?
In this case, the analytical work of customer segments must already be done - the retailer must
know both of the customer segments it's already strong in, as well as the customer segments it
may not have - but wish to attract. The output of the analytical work - the customer segments becomes input into the assortment planning process, as an attribute assigned to products. Retail
merchants must then understand whether they have an assortment that will provide balance
against the retailer's customer segment goals.
Post-season, understanding whether products that were expected to do well with certain
customer segments is just as important as deciding which products to target to which segments in
the first place. In this case, the electronics buyer might be evaluated as to whether she grew the
category among the moms segment, and whether that segment bought the cameras she had
targeted against that segment - or whether assumptions about that segment need to be adjusted.
2. Responding to Customer Sentiment in Planning and Replenishment
Retailers understand that there is value in monitoring and understanding customer sentiment via
social media channels. The immediate value was in customer service - identifying and responding
to unhappy customers who had taken to social media to complain. But as retailers grow more
comfortable with the data and historical data accumulates, they are starting to turn to customer
sentiment for more predictive analytics - and product planning and replenishment are prime areas
Theoretically, social media can be used to ask a nearly unlimited number of interesting questions
What happens to a product's sales when reviews bump it from a 4-star item to a 5-star
item? What about if it moves from 5 stars to 4? Or fewer?
Does the overall portfolio of product ratings have any bearing on a category's sales? For
example, if a category is too heavy in 1-star rated products, does that help or hurt
Do commonly used phrases in reviews have an impact on sales? For example, if
reviewers say that a size runs small or that a color or pattern isn't true to the picture, does
that hurt an item's sales? Can reviews of online-only products be used to predict how a
product might do in store?
Can the rate of growth in Facebook "Likes" for a product be used to predict demand? If
so, can social media be used pre-season to test demand for seasonal goods or for new
These questions can be applied during the overall category or season planning process, where
last year's results are potentially used alongside pre-season testing results. They can also be
applied in-season, to impact replenishment decisions, potentially even before sales results start
Why Merchandising Wants It
There are few cases in RSR's research where Winning Retailers and laggards generally agree,
but customer analytics as a part of merchandising's future is one of them. Out of the varied list of
opportunities for customer analytics to play a role, the top two are merchandising related: better
what-if capabilities for demand modeling, and more intelligent space and product allocations.
Third on the list is the first marketing application - retaining customers (Figure 2).
Figure 2: A Rare Consensus
Top 3 BI Business Opportunities
Better “what if” modeling capabilities for matching
demand with assortment, price, and promos
More intelligent space and product allocations
Higher customer retention
Labor and Store Operations efficiencies
Higher average transaction value
Increased shopping frequency
Better reaction to supply chain shocks
Improved IT responsiveness & better system
Source: RSR Research, Retail Business Intelligence: A Work in Progress
Retailers' objectives are two-fold. First, they want to delve more deeply into customer
preferences; they want to better understand the "why" behind the "buy". But, according to our
merchandising benchmark, retailers have a second, much more interesting objective: they want
to become more experimental and innovative in merchandising.
Increasingly we find that it is difficult for retailers to maintain differentiation based on product
alone. Products are too-easily copied, and in a global environment, local tastes can find a much
larger market thanks to the internet. Localization of products based on the geography where
those products are made can actually be difficult to maintain in the long run.
Differentiation based on customer insights and providing relevancy in merchandising and
marketing is much more sustainable. When retailers make the shift to customer-centric as their
focus, their differentiation comes from knowing their customers, not from having unique products.
Or, alternately, think of it this way: a retailer's unique products are wildly successful because the
company knows its customers.
And insight-based differentiation is not easily copied, because your unique customer base can't
be replicated. Further, the value derived from your interactions with that customer base is not
easily copied, because your competitors won't have the same insights - even if the exact same
shoppers frequent two direct competitors, those shoppers may show different personalities,
preferences, and ultimately, buying behavior, to those two competing retailers. It would ultimately
lead each retailer to develop a different - but each equally valid - understanding of the why behind
Cultural and technical challenges prevent merchandising from immediately making the most of
As much as the merchandising team recognizes that their processes and systems need to
transform to be able to take on the customer dimension of data, this does not prevent the
merchandising organization from becoming one of the biggest barriers to change. Buyers become
buyers because they like products - if they wanted to deal with customer insights, they would
have become marketers.
However, the biggest source of cultural resistance to change is financial. No one wants to risk
their bonus by experimenting with customer data. And no one really wants to sign up to be
accountable for customer-oriented financial goals when they have little insight into past
performance or what to except in the future.
Retailers need to overcome this barrier by creating a "safe zone" for experimentation with
customer insights in merchandising along with setting objectives aligned with the customercentric goals. Merchants should be rewarded for finding innovative ways to use customer insights
to drive business results, rather than penalized for trying to learn a new way of doing things.
On the flip side, marketing is not always willing or able to be forthcoming about customer insights.
You might have a merchandising organization hungry for such insights, but challenged to get
them because marketing has for so long been responsible for "protecting" customer data and
insights that they are resistant to the idea of spreading those insights around. Or marketing might
have previously tried to reach out to merchandising with customer insights only to be rebuffed
and reluctant to try again.
The way through this barrier is through the customer segments themselves. While marketing may
have insights into who makes up each strategic segment, they may not have much visibility into
which products each segment buys, or which product attributes most appeal to them, or even
which discounts or offers get the greatest response. In that sense, their segmentations are
incomplete. Insight sharing can often begin over a cross-functional effort to build out everything
that the entire company knows about each segment, so that marketing is no longer the sole
arbiter of that information, but becomes the facilitator for sharing that information.
However, marketing may not share insights well not because the organization doesn't want to,
but because it doesn't know how to - and that leads to technical challenges.
One of the biggest challenges marketing departments face these days is reconnecting to
enterprise IT. Over the last several years the pace of customer technology change has increased
tremendously. Retailers have coped with that change by setting marketing free to invest, however
it needed, in order to respond. But now all of those investments need to be integrated with the
rest of the company, and the primary driver for this is the need to share customer insights. The
challenge isn't limited to marketing, either (Figure 3).
Retailers face pressure from all sides of the business to make customer insights an asset that
can be leveraged across the enterprise.
Figure 3: Pressure From All Around
Please identify the top three (3) OPERATIONAL challenges
you face that create interest in using near-real-time BI in
Merchants don’t get information fast enough
today to react to differences between what they
thought would happen vs. what is actually
Information is siloed
Can’t support customer cross-channel activities
very well (eg. In-store return of a web-based
We can’t act quickly enough on the information
Can’t identify our best customers to offer special
incentives to them while they are shopping
Marketing doesn’t know what customer
sentiment is until we can see it in sales
We struggle to match inventory to demand
Logistics managers don’t get information fast
enough to minimize the impact of supply chain
Source: RSR Research, Retail Business Intelligence: A Work in Progress
However, even if retailers could wave a magic wand and solve all of their information-sharing
challenges, customer data would pose unique problems in its own right. Customer data is a
moving target - a target that moves as fast as customer technology evolves. CRM systems and
customer databases of ten years ago didn't imagine a future where you tracked a customer's
Facebook credentials or social graph, where you tracked their social participation alongside their
transaction history. Or the tags or hashtags they use when talking about your products or brand.
And retailers have hardly scratched the surface of the customer data they have been tracking for
much longer than ten years. According to RSR's benchmark on Marketing, only 45% of survey
respondents track customers' email responses as part of their behavioral analytics. Only 35%
track behavioral data from their own website, and 31% track social media behavior. And for the
ultimate hottest priority for retailers - consumer mobile phones - only 25% use mobile behavior as
part of their customer analytics.
So while the organizational issue associated with using customer insights in merchandising can
seem substantial, there may well be a more immediate need on the technical side. Customers
and customer centricity have disrupted retail - but that wave of change is truly only getting
Appendix A: Relevant RSR Research
Optimizing Assortments to Invigorate Retail: Benchmark Report, RSR Research,
Retail Business Intelligence: A Work in Progress, RSR Research, October 2012
Appendix B: About Our Sponsor
Symphony EYC delivers ROI for retailers and manufacturers by using customer insights to drive
execution through software and services that enable a better customer experience and optimized
operations. The solutions optimize multi-channel customer engagement strategies, assortment,
merchandising, marketing, inventory fulfillment, store operations and supply chain execution
ensuring multi-channel connectivity of both the customer experience and retail operations.
Deployed in over 70 countries, Symphony EYC is a strategic partner to leading retailers and
manufacturers worldwide enabling them to differentiate against the competition, improve
productivity and deliver value to the bottom line. More at www.eyc.com and follow us on twitter