The new key to retail success

The New Key to Retail Success Create and Sustain Customer Loyalty with Brand-right, Differentiated Experiences Jon Stine (Lead), Dick Cantwell, Stephen Du Mont, Sharon Finke, Lisa Fretwell, Shaun Kirby, Jeff Loucks, James Macaulay, Tim Merrifield, Lindsay Parker, Paul Schottmiller, Jeffrey Tobias, James Vila, Edward Westenberg August 2008 Cisco Confidential Internet Business Solutions Group 1 Copyright © 2008 Cisco Systems, Inc. All rights reserved.

Executive Summary Five trends have created a gap between customer expectations and the typical shopping experience This has lowered brand loyalty, negatively impacting retailers’ business results To close the gap, retailers must create experiences that: Consistently exceed expectations over time Reflect the brand promise Happen where and when they matter most to consumers By using this approach and deploying an agile retail architecture to increase customer loyalty, a $3B retailer can gain close to $1B over 5 years (relative to other retailers) Source: Cisco IBSG, 2008 Cisco Confidential Internet Business Solutions Group 2 Copyright © 2008 Cisco Systems, Inc. All rights reserved.

Agenda 1. Five Retail Trends 2. The Customer-expectation / Shopping-experience Gap 3. Win Loyalty with Brand-right, Differentiated Experiences 4. How to Sustain Brand-right Differentiation 5. A $1 Billion Opportunity 6. Case Studies and New Deployment Ideas 7. Next Steps Source: Cisco IBSG, 2008 Cisco Confidential Internet Business Solutions Group 3 Copyright © 2008 Cisco Systems, Inc. All rights reserved.

Retailers Face Challenging Times Worldwide Consumer Pessimism Weighs Down Retailers 160 Conference Board Consumer Confidence Index 140 Consumer Confidence and University of Michigan Sentiment Readings Consumer Sentiment 120 100 80 60 40 2010 1990 1995 2000 2005 Sources: Conference Board, 2008; Reuters and University of Michigan, 2008 Cisco Confidential Internet Business Solutions Group 5 Copyright © 2008 Cisco Systems, Inc. All rights reserved.

Traditional Retail Strategies Bring Diminishing Returns Loyalty Product Price Location Programs Imitation products Consumer Online sales to More than 50% of on shelves in days electronics pricing grow 17% in 2008 U.S. shoppers down 51% (2000- belong to two or 59% of U.S. U.S. store closings 2008) more grocery consumers want up 25% in 2008 loyalty programs fewer goods, more Real food prices in U.S. foot traffic “intangible” Britain down 7% “Loyalty programs down 8 of first 9 experiences (2000-2007) do not change months in 2007; behavior or Sales lost to Internet makes U.K. foot traffic increase profits” counterfeiting: pricing transparent down in Q1 2008 (Source: INSEAD) $500B–$600B annually worldwide Sources: U.S. Department of Commerce, 2008; Reinartz, INSEAD, 2006; Shop.org, 2008; International Herald Tribune, 2007 and 2008; U.S. Census Bureau, 2005; Maritz, 2006; @ShopperTrak, 2007; Synovate, 2008; The Economist, 2008 Cisco Confidential Internet Business Solutions Group 6 Copyright © 2008 Cisco Systems, Inc. All rights reserved.

Diminishing Brand Loyalty 30–35% of Shoppers Are Completely Indifferent to Your Brand’s Value Consumer Brand Attitude by Retail Segment Only 40–47% display 100% attitudinal or behavioral 14% 15% 16% repurchase loyalty 80% 25% 27% Only 1 in 7 would 33% 60% recommend your brand to others 25% 24% 22% 40% Up to 60% are ready to defect to the competition 20% 35% 33% 31% 43% of all customers who 0% defect do so because of Grocery Consumer Specialty service issues Electronics Apparel Defection Line Indifferent Satisfied Committed Delighted Source: Maritz, 2006 Cisco Confidential Internet Business Solutions Group 7 Copyright © 2008 Cisco Systems, Inc. All rights reserved.

Technology Innovation Keeps Retail Experience Expectations High Mobile Commerce, High GS1 Databar, 2004 2006–2007 Multichannel POS, 1996 Point-of-sale Technology Capability EPC (RFID), 2005–2007 QR Code, 1994 Thin Client Web Services, Wireless “Queue-Busting” 2000s Point of Sale, 1990s Biometric Payment, 2000 EAN-UPC Bar Code, 1973 Computer-based Self-service POS, 1990s Interactive Kiosk, 1977 Computer-based POS, 1973 Mechanical Cash Register, 1879 Low Time Source: Wikipedia, 2008; Food Service Solutions, 2008 Cisco Confidential Internet Business Solutions Group 8 Copyright © 2008 Cisco Systems, Inc. All rights reserved.

Difficult to Keep Up with Accelerating Customer Technology Adoption 2000 2007 2012 Conclusions Technology Households Households Households (105 Million) (116 Million) (121 Million) 6M 58M 83M Broadband 16% 50% 68% They’re Connected Home 5M 41M 58M Networks 57M 96M 106M They’re Mobility Everywhere 54% 82% 87% Laptops: 12M Laptops: 43M Laptops: 65M Now, Digital cameras: Digital cameras: Digital cameras: They’re in Devices 10M 75M 95M Control MP3 players: 2M MP3 players: 37M MP3 players: 48M Sources: Park Associates, 2007; Forrester Research, 2006, 2007; Consumer Electronics Association, 2006 Cisco Confidential Internet Business Solutions Group 9 Copyright © 2008 Cisco Systems, Inc. All rights reserved.

Growing Gap Between Customer Expectations / Retailers’ Ability to Deliver What Is Creating the Expectation Gap? Customer 6% Expectations Year-over-year Percent Change CXO and budget 4% Customer Loyalty Index: priorities 4.5% 2% Rising industry 0% norms 13.7% -2% Personal technology Gap adoption -4% -9.2% -6% -8% -10% Retailers' Performance Source: BrandWeek, 2006 Cisco Confidential Internet Business Solutions Group 11 Copyright © 2008 Cisco Systems, Inc. All rights reserved.

Satisfying Experiences Do Not Always Create Differentiation and Loyalty Consistently above Advocate expectations, where and Differentiation when it matters most / Loyalty Delighted (40% of customers) More Satisfied Path of Least Resistance Meet Customer Satisfied expectations Satisfaction (25% of customers) Less Satisfied Leaving Consistently Defection below expectations (35% of customers) Gone Source: Cisco IBSG, 2008 Cisco Confidential Internet Business Solutions Group 12 Copyright © 2008 Cisco Systems, Inc. All rights reserved.

The Value of Experience Differentiation and Customer Loyalty Annual Top-line Advantage: $184.4M Top Quartile Second Quartile Third Quartile Bottom Quartile Repurchase loss: Repurchase loss: Gain: $71.5M $14.8M $44M Repurchase: Retention loss: Retention loss: +1% $24.6M $68.9M Gain: $17.2M Revenue loss: Revenue loss: Retention: +1.4% 1.3% 3.8% Repurchase: +0.3% Retention: +0.2% Repurchase: -0.5% Repurchase win: Repurchase win: Repurchase: Retention: -0.8% -1.5% $29.7M $10.4M Retention win: Retention win: Loss: $39.4M $41.8M $6.8M Revenue gain: Revenue gain: Retention: -2.3% 2.4% 0.5% Loss: $112.9M Source: Forrester Research, 2008 Cisco Confidential Internet Business Solutions Group 13 Copyright © 2008 Cisco Systems, Inc. All rights reserved.

Create Customer Loyalty Consistently Exceed Expectations by Creating Delight Where and When It Matters Most to Your Brand Promise 1. Brand Type 2. Shopping Stages 3. Touchpoints Source: Cisco IBSG, 2008 Cisco Confidential Internet Business Solutions Group 15 Copyright © 2008 Cisco Systems, Inc. All rights reserved.

Specific Customer Expectations Accompany Each Brand Type Cost Leadership Dependable Quality Success factors: cost leadership, Success factors: efficiency, accuracy, value, economies of scale security, brand equity, seamlessness, trust Capability focus: transaction Capability focus: frontline systems, operational leverage execution, supply-chain excellence, standards, quality control Response and Trend Leadership Service Excellence Success factors: flexibility, proactivity, Success factors: innovative designs, responsiveness, customization, speed aesthetics, time to market, unique product assortments, service Capability focus: training, customer advocacy, measurement, analytics, Capability focus: product leadership, touchpoint integration usability, research, design Source: Cisco IBSG, 2008 Cisco Confidential Internet Business Solutions Group 16 Copyright © 2008 Cisco Systems, Inc. All rights reserved.

Specific Expectations Accompany Each Stage of the Shopping Lifecycle How I choose what to buy and where to buy it Research, Decide Where and how I learn what your brand offers Where and how I pay for Buy Awareness Where and what I want how I learn if my needs will be met by your brand Service, Support Where I have my issues resolved and questions answered Source: Cisco IBSG, 2008 Cisco Confidential Internet Business Solutions Group 17 Copyright © 2008 Cisco Systems, Inc. All rights reserved.

Expectations Accompany Touchpoints— All Are Critical to the Top Line Store Call Center 75% of all purchasing decisions Retail customer satisfaction 10% made here lower than B2B Average 1.6 contacts to resolve retail issue 36% of retail contacts include upsell / cross-sell Online / Catalog Mobile 18% of retail; will grow 17% in 2008 2.6 times more cell phones than PCs worldwide 69% of consumers research products online 9% of consumers “text” friends about products while shopping 62% of consumers access peer reviews Sources: WPP The Store, 2005; Shop.org, 2008; Forrester, 2007; Customer Contact Council, 2007, BusinessWeek, 2007 Cisco Confidential Internet Business Solutions Group 18 Copyright © 2008 Cisco Systems, Inc. All rights reserved.

A Model for Where and When to Create Differentiating Experiences Touchpoints: Store, Call Center, Online, Mobile Personal Interactive Loyalty Ubiquitous Cheaper / Faster / Better Industry Norm Satisfaction Slightly Below the Norm Defection Significantly Below the Norm Shopping Research, Service, Awareness Buy Lifecycle Decide Support Source: Cisco IBSG, 2008 Cisco Confidential Internet Business Solutions Group 19 Copyright © 2008 Cisco Systems, Inc. All rights reserved.

\"Earning Customer Loyalty\" Example: Response / Service Excellence in 2009 Touchpoints: Store, Call Center, Online, Mobile Personal Wardrobe Wardrobe Concierge Card on File with SMS Texting Service Fashionista Peer Wardrobe with Fashionista Social Network Social Networking Social Network Loyalty Mobile Web Mobile Web Mobile Payment Online Appointments SMS Texting Contactless Payment Online Chat Personal Shopping Email Adverts Accurate Assistance Coordinated Outfit Satisfaction Accessories Fashion / Trunk Shows 3–5 Minutes in Queue Wardrobe Assistance Mass Advertising, Don’t Have My Size, Personal No Personal Defection Catalog Wrong Color / Style Data Loss Recognition Research, Service, Shopping Awareness Buy Lifecycle Decide Support Source: Cisco IBSG, 2008 Cisco Confidential Internet Business Solutions Group 20 Copyright © 2008 Cisco Systems, Inc. All rights reserved.

Multiple Enterprise Technologies Enable Retailers to Meet Rising Expectations Touchpoints: Store, Call Center, Online, Mobile Personal Advanced Advanced Data Analytics Management Interactive Micro- Single view of Loyalty merchandising data truth Ubiquitous Cheaper / Faster / Better Cross-channel CRM Cross-channel integration Lean Retail Industry Norm Satisfaction Business Process Architecture Management Reduced time Process automation to capacity Slightly Below the Norm Defection Significantly Below the Norm Rich Media and Social Computing Video, virtual, Research, Service, Shopping Web 2.0 community Awareness Buy Lifecycle Decide Support Source: Cisco IBSG, 2008 Cisco Confidential Internet Business Solutions Group 21 Copyright © 2008 Cisco Systems, Inc. All rights reserved.

Sustaining Differentiation: Start with Executive Leadership Different Levels of Customer Experience Activities 0% 20% 40% 60% 80% 100% View customer experience as very 80% important or critical 87% Have a corporate-wide program 85% focused on improving customer 29% experience across channels Use a single set of customer feedback 55% scores across the company 19% Have a disciplined approach to 45% customer experience 42% Firms that have a Customer Base: 68 firms Experience executive (20 firms) Firms that don’t have a Customer Experience executive (48 firms) Source: Forrester Research, 2006 Cisco Confidential Internet Business Solutions Group 23 Copyright © 2008 Cisco Systems, Inc. All rights reserved.

Sustaining Differentiation: Your Customers Have the Answer What the Leaders Do: 1. Commit to customer experience as differentiating strategy 2. Deliver brand promise through customer experience 3. Exceed ever-rising expectations across lifecycle and touchpoints—where and when it matters to the brand 4. Aspire to customer delight, not satisfaction Source: Cisco IBSG, 2008 Cisco Confidential Internet Business Solutions Group 24 Copyright © 2008 Cisco Systems, Inc. All rights reserved.

Sustain Differentiation with an Agile, Flexible Enterprise Architecture The New Strategic Metric: Time to Capability Rapid deployment enabled High by architecture that: Has centrally managed applications and data Consumer Expectations Uses thin clients Is network-centric Uses a consolidated, virtualized data center Deployment to All Stores Takes advantage of software- as-a-service (SaaS) Deployment to All Stores Low 9 0 18 Time (months) Source: Cisco IBSG, 2008 Cisco Confidential Internet Business Solutions Group 25 Copyright © 2008 Cisco Systems, Inc. All rights reserved.

Retail IT Architecture for Customer Experience Differentiation Local Services, Applications, and Devices Store Corporate Partner Customer Kiosks Thin POS IP phones GPS Haptics Content Tags and Handhelds Digital signage PCs SONA Principles and Governance production sensors Other Mobile Tags and sensors devices devices Thin, Network-enabled Client Applications High-availability Voice, Video, and Data Network Multichannel Centrally Managed Services and Applications Next-generation Technologies Rapidly deployable new services Next-gen web, Content / digital media Social Location-based Wisdom tools virtual worlds management networking services EAI, EII, MDM CEP: BPM, rules, business policy, preferences Core Business Operational Corporate Systems / Data Lean Retail Architecture (LRA) Foundation Source: Cisco IBSG, 2008 Cisco Confidential Internet Business Solutions Group 26 Copyright © 2008 Cisco Systems, Inc. All rights reserved.

Increase Revenues and Reduce Costs Customer Loyalty from Greater Efficiencies from Experience Differentiation Agile Retail Architecture Store ($3B, 1,000-store chain) Spend more per visit $6M one-time savings Make more visits 20% reduction in annual per-store Buy at higher margins operating costs Data center (2,500 servers) Up to 6.4% top-line 30% fewer servers advantage per year, or $184M for $3B retailer 30–70% server utilization increase $22.5M one-time savings $6.75M annual incremental savings $922M in 5 years $58M in 5 years Sources: Forrester Research, 2008; Cisco IBSG, 2008 Cisco Confidential Internet Business Solutions Group 28 Copyright © 2008 Cisco Systems, Inc. All rights reserved.

Apparel Retailer Enables Interaction of Mobile Customers to Raise Awareness New example of innovation and delight at awareness stage Connected consumers bring online experience into stores Blurs channels Combines physical / virtual reality Peer networks become important to shopping decisions Source: WPP, TJ Maxx, 2008 Cisco Confidential Internet Business Solutions Group 30 Copyright © 2008 Cisco Systems, Inc. All rights reserved.

Mashups and Powerful Mobile Devices Create New Touchpoint for Awareness Personal mobile devices have become more capable and powerful Mashups combine applications to create new capabilities Consumers have more information and tools than ever before Combined, mobile devices and mashups create important new touchpoint for awareness Real-time traffic Detailed directions Integrated search results Movable maps Satellite imagery Source: Google, 2008 Cisco Confidential Internet Business Solutions Group 31 Copyright © 2008 Cisco Systems, Inc. All rights reserved.

Leading Retailer Reduces Checkout Time; Creates Delight at Buy Stage Store managers automatically alerted in real time to checkout queue length Staff reassigned and new checkout stations opened in response Guarantee: no customer waits longer than 60 seconds “Hidden” technologies equally important to consistently creating customer delight Source: Tesco, 2008 Cisco Confidential Internet Business Solutions Group 32 Copyright © 2008 Cisco Systems, Inc. All rights reserved.

Leading Retailer Enhances In-store Customer Service Retailer sends coupon before customer leaves due to long line Real-time communication using SMS, email, or voice allows retailers to respond to customers within 60 seconds Source: WPP, Fizzback, 2008 Cisco Confidential Internet Business Solutions Group 33 Copyright © 2008 Cisco Systems, Inc. All rights reserved.

Store Goes to the Customer—Anywhere, Anytime, and at Every Stage From: Consumer in To: Retailer in Retailer’s Environment Consumer’s Environment Source: Cisco IBSG, 2008 Cisco Confidential Internet Business Solutions Group 34 Copyright © 2008 Cisco Systems, Inc. All rights reserved.

Step One: Self-assessment Where Do You Stand on Brand Type, Shopping Stages, and Touchpoints? Are you delivering on your 1. Brand Type brand type and promise? What are the norms of the shopping stages and touchpoints for your brand type? How are you performing at each touchpoint in each 2. Shopping Stages 3. Touchpoints shopping stage? Creating loyalty? Creating satisfaction? Reason to leave? Source: Cisco IBSG, 2008 Cisco Confidential Internet Business Solutions Group 36 Copyright © 2008 Cisco Systems, Inc. All rights reserved.

Step Two: Understand Today and Envision Tomorrow Touchpoints: Store, Call Center, Online, Mobile Personal Interactive Loyalty Ubiquitous Cheaper / Faster / Better Industry Norm Satisfaction Slightly Below the Norm Defection Significantly Below the Norm Research, Service, Shopping Awareness Buy Lifecycle Decide Support Cisco Confidential Internet Business Solutions Group 37 Copyright © 2008 Cisco Systems, Inc. All rights reserved.

Step Three: Act Now to Win Short-term Goals (12 months) 1. Identify and fix below-norm performance 2. Identify quick wins that will exceed brand-promise norms 3. Identify senior leadership 4. Measure customer loyalty, not satisfaction 5. Pay attention to new technologies and integrate them into plans and processes Long-term Goals (several years) 1. Prioritize competitive differentiation through experience 2. Reallocate resources from customer acquisition to customer loyalty 3. Begin implementation of Agile Retail Architecture 4. Start formal, cross-corporate process for experience innovation 5. Identify, prioritize, and begin deployment of your 2012 differentiation profile Source: Cisco IBSG, 2008 Cisco Confidential Internet Business Solutions Group 38 Copyright © 2008 Cisco Systems, Inc. All rights reserved.

The new key to retail success

0 comments

Notes on slide 1

7 Favorites