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Is Your Store Customer-centric?

Written By: James E. Dion
Published On: June 23 2006

Introduction

Is your store "customer-centric"? What does being customer-centric even mean? Obviously, most soccer or running stores would say that they were focused on the customer, and would point out that without customers, their store would not exist. And they are right. However, simply being there, opening the store, stocking some shoes and equipment, and having staff to collect the money, is not the same as being customer-centric. Being customer-centric means that everything we do—from the shoes, socks, and clothing that we carry, to the environment that we place them in and the staff that we have to serve those customers—is centered on and about customers and their experience in our store. There is a huge difference between simply serving a customer and centering on a customer's specific needs and satisfaction.

Students of Your

Customers Customer-centric stores are "students of their customers," which means that they literally "go to school" to learn as much as they can about their customers' needs, wishes, dreams, hopes, wants, and desires. Every customer is different. A customer-centric retailer recognizes this fact, and also recognizes that it cannot create a different environment for each individual customer. This means that it has to find a way to group similar customers together, and create solutions and environments for those groups. We call this customer segmentation. When we segment our customers, we identify clusters of customers that have similar needs, wants, demographics (age, sex, education, sport, and so on) and create environments, policies, services, and product groups especially for the customers in each segment.

The Best Buy Experiment

A good example of a major retailer who has adopted this approach is Best Buy. About two years ago, Best Buy determined that it could not continue to operate on price as its major strategy and message to its customer. Brad Anderson, its chief executive officer (CEO), stated "if we do nothing, Wal-Mart will surpass us by the simple fact that they open more stores than we do each year. There is no point in trying to compete on price." (emphasis added) With that statement in mind, Best Buy launched its customer-centric strategy. During 2005, Best Buy spread its customer-centric message to selected North American stores (110 in all), and allocated over $50 million (USD) in capital expenditures to those stores. The initiative was two-pronged: getting customers to buy what was already in stock; and asking them what products they would like to see the company offer. The 32 stores piloting the initiative in 2004 showed 7 percent sales gains over other US-based Best Buy stores, while their "conversion rates" (the percentage of shoppers making a purchase) improved by 6 percent over these same stores. Although selling, general, and administrative (SG&A) costs (including nonrecurring and investment costs) rose considerably the pilot program still delivered profits for the thirty-two stores over non-participating stores. These test stores also represented a mix of high- and under-performing operations. Best Buy identified key customer segments in five areas of its customer-centric program: affluent professionals seeking the best technology experience (internally identified as "swinging single professionals"); younger males wanting cutting-edge technology and entertainment ("gadgeteers"); fathers looking for technology to improve their lifestyle ("cherry pickers"); mothers seeking technology to enrich their children's lives ("affluent soccer moms"); and small-business people using technology to improve their bottom lines ("small business"). Part of the strategy included giving employees closest to the customer some of the more important decision-making responsibilities. In addition, Best Buy store associates received customer-centricity training to be able to really deliver the promise at the store level.

The way that the stores are adapted to each segment is interesting. For the soccer mom, the stores feature brightly colored signage, play areas for children, educational toys, and in-wall appliance displays, and provide personal shopping assistants. For the swinging single, the stores place greater emphasis on higher-end and more cutting-edge consumer electronics, and feature separate rooms with full home entertainment rooms and enhanced audio-visual product assistance. For the cherry picker, the stores focus on technophiles on a budget, and offer the most promotions and incentives, and the best financing packages. For the gadgeteer, the stores are geared toward teens and twentysomethings, and emphasize cell phones, music and movies, home theater, gaming, and mobile audio. And for small businesses, the stores are signed "Best Buy for Business," and have an expanded computer section and a stronger "geek squad" (Best Buy's in-home/office technology assistance team) presence, as well as central help islands staffed by associates wearing blue-collared shirts (as opposed to knitted golf shirts).

"People come to specialty stores because they are looking for some service or selection that they can't get from the mass market," Anderson said. He went on to say that "for those reasons, Best Buy intends to invest more heavily in customer service, and position itself as a solutions provider for consumers of high-tech entertainment products. Best Buy's customer service initiatives will mean a more decentralized structure for the business. We are moving power from Minneapolis [US] to wherever the engagement is with the customer. Instead of Minneapolis telling the store what to do, it would be the store asking what it can do in assisting its customers."

Internally, Best Buy has also worked extensively on its customer database. The company wanted to identify who its best customers are, as well as who are the customers that are costing them money by abusing their customer service policies. The name that they gave to their best customers was "angels," and their problem customers were called "devils." This terminology is not for the public, however: it is only used internally! The goal is to get more angels and to stop selling and serving devils.

Initially, the customer-centric strategy in the stores paid off, as Wall Street praised the new focus by the company. The company posted an incredible 85 percent profit gain in its fiscal first quarter in 2005—a gain Best Buy attributed, in part, to its customer-centricity initiative. In the first quarter, sales increases at stores converted to the new model were more than double the increases at Best Buy's regular stores. But in December 2005, shares plunged 12 percent after Best Buy said its third-quarter profit would fall well short of Wall Street expectations because of higher costs. Anderson said in an interview in December that the company's "customer-centricity" initiative has proved more expensive than anticipated, and Best Buy might have to eliminate staff to help control costs. "Right now, the evidence suggests that we overspent" on customer-centricity, Anderson said. "We have to make adjustments." But he also says that Best Buy's commitment to customer-centricity has not lessened at all. "Customer-centricity at its core is ... identifying a customer that you want to serve better," he said. "In some stores, it's working great."

Lessons Learned

The lesson to be learned from Best Buy's move to customer-centricity is not that it doesn't work, but rather, that it is not an easy thing to accomplish. They moved too fast, and should have done it slower and used more of what they learned about each segment before they expanded the program. Another issue they are trying to address is that many locations have a mix of all five customer segments, and to design a store for just one of these segments can be dangerous. They are trying to integrate areas for all five segments, with one being dominant (without ignoring the others).

So, the lesson for soccer and running stores is that customer-centricity is key to future growth and profitability, but it must be done right. Your store will need to identify the segments you serve. For example, how many serious or professional athletes do you serve? How many amateurs or first-timers? How many of each specific group in your trade area are customers in your store? And there may be more segments that you need to identify. Do you have a large group of young people as customers, or more mid-lifers? Are most of your customers women? Do you have a large group of team players? First you need to identify the major groups of customers that now shop at your store, and then identify what these customers have in common, how they like to shop, and what products they like. When you have answered these questions, you are ready to structure your store experience for these customer segments. For example, if you have a large segment of younger customers, you should most likely have staff that are also part of this segment: young people often will feel more comfortable being served by sales associates that are in their age group, and this is also true for mid-lifers. Have you created an assortment of product that appeals to young customers? Have you displayed and signed it so that these customers find it easy to shop and browse? Have you planned special events that young people would find fun and interesting? For each segment you identify, you should create a specific strategy around merchandise, display, signage, staff, and special events that addresses the needs of each segment. Not an easy task!

Checklist For Creating a Customer-centric Store

  1. Have I identified distinct customer segments? (Two or three are good, but more than five is too many!)
  2. Do I know the special needs and wants of each segment? (Have I asked them in either informal focus groups or by observing their current purchases?)
  3. Do I have products and services that meet these customers' needs and wants?
  4. Have I created an environment that is attractive to each segment? (Mid-lifers, for example, would welcome larger price tickets, chairs, and more open areas)
  5. How will I communicate with each segment? (Can I identify the media that each segment reads or listens to or watches?)
  6. Is my staff aligned with these segments? (Can my staff empathize with each segment? Do they "run and play" at the same level?)
  7. Is my staff trained to meet the requirements of these customers? (Have I put a training program in place?)
  8. How will I measure success? (What specific measures will I use to insure that the program is working?)

If you have the right answers to these eight questions, you will be well on your way to making your store customer-centric, and enjoying the increased sales and customer satisfaction!

About the Author

Jim Dion is founder and president of Dionco Inc., Chicago (US). He is an internationally known consultant, keynote speaker, trainer, author, and one of North America's leading experts on retail technology, retail selling and service, merchandising, operations, and consumer trends.

Dion has taught at Laurier University, Ryerson University, and the International Academy of Fashion Merchandising and Design in Chicago. He also authored the retail selling manual Retail Selling Ain't Brain Surgery, It's Twice As Hard. In addition, he co-authored Start and Run a Retail Business for Self-Council Press. He can be reached at jimdion@dionco.com.

 
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