Monday, March 17, 2008

Creating The Ultimate Customer Experience The New Competitive Differentiator For Retail

By Amanda Ferrante, Assistant Editor

With the playing field leveling in terms of product differentiation in many categories, insiders suggest that the only real point of difference for retailers will be in creating the ultimate customer experience for customers.

“Retailers are finally realizing the person who pays their bills and keeps the lights on is the customer. Today, everywhere you look, everywhere you go—you can find perfectly acceptable substitutes for any product of any kind 24/7,” says Pam Danziger, the founder of Unity Marketing and author of the new book, “Shopping: Why We Love It and How Retailers Can Create the Ultimate Customer Experience.” “Finally, retailers are catching on that opening their doors and putting product on the shelf isn’t enough anymore.”

One of the keynote speakers at next week’s Global Shop 2008 event, Danziger suggests retailers will need to give customers the optimal shopping experience through in-store organization and by creating a community feeling among customers. “The focus for retailing success in the future is not so much what you sell, but how you sell it.”

Based on the belief that shopping decisions are influenced by several factors, Danziger has developed her own formula that she suggests retailers apply to their strategy. To demonstrate, she uses the following model:

The Quantum Theory of Shopping
P= (N+F+A) x E Squared

As an example, she cites a female shopping for red velvet shoes. There’s virtually no real need. The features: she has red shoes; has velvet shoes, but no red velvet shoes. There is no price limitation, so in this case, the emotion is the deal-maker. Danziger points out that retailers cannot create need—only desire. “Need tends to drive choices about where to shop. The higher the real need, the less the other factors play. In many cases, nobody needs anything you sell,” says Danziger.

Enhancing Customers’ Desire

Product features stimulate desire; luxury is the opposite of a need. Danziger says, “[90% agree that] when you buy a luxury item, you expect it to be a cut above the average.” Those consumers who shop for luxury items expect superior quality, and shoppers are increasingly aware about discerning product quality, which justifies spending more.

“Shopping is an experience,” says Danziger. Luxury consumers are willing and able to spend. The key is to add new awareness of value. “Nordstrom doesn’t sell the cheapest stuff—what they sell is with style.”

When you’re pricing items, remember that pricing is not about the money, but the meaning to the customer who will be purchasing the item. “By adding value that has meaning to the customer, you create more incentive and reasoning to buy,” Danziger says.

To play off of the emotion squared factor, she adds that marketers and retailers must control all of the tangibles like place, price, product, and promotion. In addition, the intangibles, like perception, performance, peripheral, people.

While more retailers are expanding their loyalty programs to help acquire and retain customers, Danziger stresses that these offerings need to provide real rewards for customers. “You should never charge anybody for loyalty programs,” Danziger says. “They need to be designed for the convenience of the customer, not the store. Too many loyalty programs are clearly trying to simply get people to spend more money, and not provide the real benefit.”

Danziger’s Keys to a “Shop That Pops”:

· Create high levels of customer involvement and interaction. “The people principle is absolutely the most mission critical when it comes to making the shop pop. You can’t program excitement and energy into a shop.”

· Evoke shopper curiosity- this draws customers into the store and around the aisles to browse, and ultimately, buy. Changing and rearranging merchandise evokes curiosity. Creating a paradox compels curiosity;

· Have a contagious, electric quality- a happening, exciting atmosphere with a nice ambience and organic electricity. "Apple stores aren’t electric until people are in there relating to each other and the products."

· Values-driven concept- vision gives the store soul and feeling, which translates to the importance of the customer. “Damsels in This Dress is more than just a store for apparel, it’s a destination where people discover their inner diva and own style.”
· Price/Value model that favors the shopper- sometimes discounting is the story behind the store. Most often, discounting is downplayed in retail. Rather than marketing down price, it’s all about enhancing the value of the product. It’s also important to run with the values of your target customers and existing customers.

· Accessible, non exclusive, and free from pretensions- stores that are welcoming make the customer feel special. It can’t be faked. There’s a different between saying and doing the right things. “Saks 5th Avenue’s myth as a luxury emporium gives inspiration.”
· Maximize customer involvement- give the community feel. “Cabela’s has something for everyone. It’s a destination for a true shopping experience with a store, natural history museum, and cafĂ©.”

Monday, March 3, 2008

Unlocking the Value in Return Transactions

Insights from LakeWest Group

Return transactions are a dark part of the retail environment- accepted out of necessity and/or customer service pressures, yet often left unexamined. But returns can hold significant promise, and LakeWest Group believes that the concept of Return Optimization may be a key to unlocking their value.

A new perspective on returns
Traditionally, retailers have utilized policies and procedures to manage returns and try to curb fraudulent return transactions. In the past few years, Returns Management applications, focused on receipt validation and return authorization, have been introduced to help contain the losses from returns; yet fraudulent returns continue to increase.

Return Optimization is a process that tracks purchase and return histories, and combines them with statistical models to discourage fraudulent and abusive return behavior by issuing warnings and denials, while at the same time encouraging good customers to continue their shopping experience by issuing incentives.

Opportunity to generate incremental revenue
There is no better time to reward a good customer for their patronage than when they are standing inside the store. Use the Return Optimization solution to identify the customer, and point them back into the store, with not just a generic discount to be redeemed anytime, but instead with a specific promotion tailored to the customer’s and store’s needs. Offering an intelligent discount to be applied immediately will raise customer satisfaction and create that “Wow” factor which retailers and customers continuously seek.

Opportunity to reduce fraud, abuse and costs
Retailers traditionally have fallen back to simple receipt verification to manage fraudulent returns, provided that their point-of-sale system will validate that the item was actually purchased at the store. These host-based databases can verify if the receipt and the original purchase are valid, but, unfortunately they cannot intelligently advise the store as to whether or not it should accept the return.

Instead, what is needed is a statistical modeling approach that helps more accurately determine true return fraud, eliminating abusive returns while allowing legitimate returns. Using the same type of statistical algorithms that have transformed Price Management, Return Optimization is now available to identify which customers to reward for their patronage during the return process and which customers are abusing services and/or defrauding the business.

Returns opportunities
“Retailers should have systems that not only discourage poor customer return habits, but also provide the key performance indicators that identify and reward good customers. Creating a new ‘Returns KPI’ centered on surprising and delighting the customer and converting those returns into purchases is a must”, remarks Ken Morris, President of LakeWest Group. “This will help turn a bad customer into a good customer, while creating good customer moments and keeping the sale.”

Retailers have a real opportunity to both put more on the bottom line AND increase customer satisfaction. Instead of just trying to manage returns, there is a better way to minimize fraudulent returns and associate and customer frustration, while maximizing return transactions untapped value – Return Optimization.
For more information about the Return Optimization solution, please click here .

Established in 1990, LakeWest Group, LLC is the premier independent management consulting firm dedicated exclusively to serving the retail and consumer products industries. With deep business knowledge and cross-functional skills, the firm delivers superior design and implementation of strategy, technology, and process solutions to help our clients achieve their full business potential. Headquartered in Cleveland with offices in New York City and Boston, LakeWest Group serves all retail segments and channels. For more information, please visit