Renaissance Partners

Turnaround and Performance Improvement Advisors

Thomas H. HicksReprint from SGB (August 23, 2000)

Establishing and maintaining customer relationships has always been crucial to a retailer’s success. But now, more than ever, companies have realized that in order to succeed in the information age, they must do more than offer generalized coupons, promotional events and price discounts. Consumers around the world want to quickly find the merchandise they want at an attractive price, in-stock, and they want to be recognized and feel that they can consistently rely on that organization. In short, the consumer wants to be a retailer’s main priority. What better way for a retailer to do that than through knowing the customer. Call it data mining, customer relationship marketing or whatever the current “buzzword” may be – the bottom line is knowing the customer to direct your offerings, your store and your service to the customer’s needs and desires.

What is data mining?

This is a process by which organizations compile personal, pertinent, actionable, information about the purchasing habits of their current customers as well as potential customers. Traditionally catalogers, who had no other way of getting to know their customers, used “data mining”. The concept spread quickly, becoming a necessary way of doing business in every facet of the global economy. Organizations around the world are now realizing that knowing their customers behavior, thought process and demographic profile is one important way they can establish competitive advantages and create brand awareness and brand loyalty over the long term.

How is Information obtained?

As consumers, we are often bombarded with unsolicited mailers and surveys (in-store or phone) that may be viewed by some as intrusive. With privacy concerns on the rise, many organizations have had to rethink their data-gathering initiatives. The Internet has however spawned new and unique ways of accumulating consumer information. Most importantly, it allows consumers to freely, on their own time, relay personal information about themselves. It is believed by many that the key to direct marketing is to collect information when the consumer wants to communicate it, and not when companies feel they want it.

 

E-mail addresses and websites are allowing consumers to do just that. Instead of wasting time with phone numbers and mailing out surveys, which can be very expensive, companies are beginning to publicize their web addresses as the first point of contact for current and potential consumers. It is suggested that over 60% of organizations’ consumers have a computer or have access to one even if they do not possess an e-mail address. With this, consumers can purchase products, make reservations, input preferential data and make comments on the organizations services or products. This data is then collected and compiled in a database that is used to segment consumers, focus marketing efforts, develop new products or re-invent old ones, and deliver a degree of individual customization that researchers suggest can improve customer response, conversion rates and purchases by as much as 50%.

Another method of capturing consumer specific data is through retail point-of-sale purchases. Some point-of-sale software packages allow consumers to willingly reveal information about themselves without feeling violated. The purchasing information is then used organization wide in marketing and merchandising activities, but it also helps store managers accurately determine who their best customers are, what types of inventory they buy and it permits the development of in-store service and customer recognition to keep consumers happy. The information enables companies to offer tailored local store assortments, address seasonal and size variations by store and market, and offer targeted marketing programs to its consumers for their favorite merchandise and for related complementary merchandise. Examples of the above include:

Border’s Books and Music – once you log onto their website as either a member or a guest, your queries are recorded. From that point on, every time you enter the site your preferences are shown first. If you have purchased any books or music in the past, the site will inform you of any new books or CD’s from that author or artist. In the same way, if you have asked for an author without making a purchase, the consumer will still be informed of the new material that particular author has for sale.

Amazon.com – much like Border’s Books and Music, Amazon customizes what each individual customer sees when they come to the website. On their second visit to the site, you are acknowledged by name and your past queries are recognized. Another feature offered by this company is email notification of new material by an author you have purchased before as well as offerings for particular genres you have shown interest in.

Winn Dixie Supermarkets – Winn Dixie offers to its consumers the option to become “VIP” customers. With the VIP card, your spending habits are monitored and you receive special discounts and services. Many of the discounts offered include free-of charge check cashing, and the convenience of using checks with no hassle. They also offer tailored products for different demographic make-ups of their store customer bases. At a time when grocery stores are abundant, and loyalty is difficult to establish, Winn Dixie is trying to increase their “top of mind” with consumers by offering added incentives to shop at their stores.

Retail store credit cards and customer cards have also been widely utilized as a convenient service, source of income and means to capture specific customer purchase behavior information. It is believed that this will play an even more critical role in establishing customer relationships in the future as more purchases are made by credit and debit cards. Once the card is swiped, information about what products you like and what you buy is automatically transferred into the company’s databases and analyzed for actionable patterns of customer behavior and needs at a local level. Retail store credit cards are at the 50% or higher level today in many retail stores and is predicted to go between 80 – 90% as a data mining tool.

Some retailers also use consumer research on a consistent basis to augment other data mining sources and provide more customer interaction. In-store intercept surveys can be done quickly across a valid sample of stores and the captured data can be processed and analyzed to provide information about the customers’ views of your store. These surveys go beyond raw data capture and permit the analyst to determine the retailer’s market share afforded it by its customers for the goods it sells, and why. It often allows determination of the customer’s first choice for classifications of goods and why your store may not be the first choice – some factors that may be real and some that may be perceived. The astute retailer performs consumer research in this and other ways to capture a greater share of its existing customers purchases and to learn how to become the customers 1st choice – a primary step in creating and solidifying store as brand awareness.

What is the goal of obtaining this information?

Organizations may have different agendas for the use of collected consumer data, but the typical objectives are:

Get increased sales (market share) from existing consumers
Encourage consumers who have not yet made purchases, to buy
Get information about their products, services, policies, and practices as well as learn information about the competition
Determine purchasing habits with respect to family of business, price point, sale or regular price, style, fashion and size
Find out who their customers are, what products they buy, where they buy, how frequently they shop, conversion rates, and whether or not they are loyal customers

How to keep data accurate and confidential?

Determining consumer information can only be as good as the system in which the data is stored and the consistency and accuracy of data capture. Data base management and data mining has been around for many years. Some companies have not experienced major successes, as much of the data was “crude, fragmented, overwhelming, inaccurate and not actionable”. With this in mind, organizations were not seeing the results they expected for the hundreds of thousands of dollars being spent on data warehouses. The reports of incorrect information due to human error were so large, sometimes as high as 85%, that companies have taken strides to improve the collection process through “data cleansing” and using accuracy software like “Validity Integrity Software.”

Data cleansing will extract and check for inaccuracies by using integrity software. This will clean up the data and profile customers’ behavior in a way that it can be used to better serve the customer. Analysts predict that the market for customer relationship management systems is destined to grow. No longer will it be available to only large corporations. It is expected that business owners will soon see an abundance of low priced data cleansing, data mining and customer relationship software enter the market.

In addition, data cleansing and integrity software is trending toward application at the onset of entering consumer information. As soon as data is entered (name, phone number, address) the system will check the information through “data intermediaries” (i.e., government records, phone books, yellow pages, phone companies) for accuracy.

It has become apparent to many retailers, whether large or small, that data collection is no longer used only for direct mailing campaigns and preferred customer programs. With the emergence of e-commerce in conjunction with brick and mortar retailing and catalogs, it is more important than ever to know what market you are in, who your customers are, what they need and what they think of your business and its competitors. Actionable data capture and data quality, from various but complementary sources, is a pressing issue that must be addressed and embraced to evolve a winning, successful business formula.