The Ever-Changing Point of Sale: Multichannel Considerations for the Retail-Centric Organization

This article is the third in a series that examines how each of several existing sales channels–retail, catalog, and the Internet—can create customer acquisition, retention, upsell, and cross-sell opportunities by leading to more-sophisticated multichannel marketing communications and greater connectivity among channels.

In the previous article of this series, http://www.multichannelmerchant.com/crosschannel/lists/point_sale2, we argued that consumer expectations for retailers are rising. To respond successfully, retailers of the future have to dovetail their products and services into a multichannel format, and they need to connect to the consumer using an increasing array of marketing communications to convey a sincere interest in a lifetime relationship. To that end, we examined how retail-centric organizations could use trade-area analysis to determine improved retail/catalog and retail/online strategies. In this article, we focus on how future multichannel marketing communications–combining direct, telemarketing, experiential, and interactive marketing methods–will present information to consumers in a more relevant format.

Back to the Future

A comment I frequently offer at speaking engagements is that our eventual goal for marketing must be to handle each and every customer through automated methods as if we were personally available to interact with each customer during each step of the decision-making and purchasing process. The customer relationship can be likened to a family relationship. Few people choose to communicate with family or friends by only one means of communication. By nature, when we seek to connect to those nearest to us, we write letters and we speak and we send packages and we provide e-mails. We choose the degree to which we speak, write, and send packages or e-mail based on the importance of the topic being addressed and on the ability/preference of the family members receiving the communications. For example, birthdays and holidays warrant packages, whereas fleeting thoughts might warrant e-mail. We may choose a fairly frequent flow of short e-mails to keep in touch with the business executive in our lives but choose to stage less frequent but longer communications by phone with retired parents, aunts, and uncles. The inevitable goal for marketing is to treat every customer like family and to recognize the particular nuances of working with each customer. Our goal is to arrange each interaction with our clients as if we were in the movie “The Matrix”–disciplining ourselves and our systems to provide repeatedly insightful, relevant, and sensitive individualized communications about just the right topic at just the right time to each member of our customer family.

Sample Application
An important first step to providing relevant communications to individuals within large-scale customer populations is to correctly identify who they are: where they come from, what type of household composition, their age and income, what books they read, what hobbies they enjoy… While there are several methods to ensuring you have this understanding, our clients have had success with a simple four-step “profiling” process:

1) Gather whatever customer data are available. 2) Clean the data.

3) Enhance the data with demographic and lifestyle information.

4) Construct indices—by major product lines and by recency/frequency/monetary value (RFM)–that indicate how your customer (or sets of customers) might be described relative to the public at large. A profile will quickly identify how your customers vary from the “man on the street” as well as distinguish how your customers in various product or value areas might vary from your customers in general. For example, the profile below conveys an overall 35-54 male sales target for a sporting goods chain, but counters trends associated with the store’s women’s footwear customer.

The example above depicts a profile using demographic descriptors. Profiles can as easily be arranged to score and index customers based on lifestyle and behavioral choices such as media preferences, Internet activity, and catalog usage. Often retailers will profile their customers against general commercial segmentation schemes such as PRIZM and MOSAIC to classify their targets according to types of neighborhoods.

Regardless of the content used in profiling, the purpose of the process is the same: to create a better understanding of who the customer is—the typical customer, the high spender, the buyer of specific products–and how he is best reached. Output from this task will help you ensure that customers receive relevant communications through the their preferred marketing channels tying directly to their interests, with messaging that they find appealing. The profiling exercise often links customers to a “messaging matrix,” such as shown below, so that the merchant can automatically deduce what personalized communications apply for their customers.

Profiling and the messaging matrix are basic tools that will help every merchant move toward more-relevant communications with their customers. Once you’ve embraced a multichannel strategy, you will find many other opportunities to leverage a fuller relationship with your customer. For example, the existence of an e-storefront not only creates a new point of sale but also provides customers an opportunity “to speak” to merchants about the local stores that had been their former point of sale. Cataloger/retailers can ensure that their print catalogs include maps that remind customers where to find their nearest stores. Brick-and-mortar stores can promote use of the Website and the catalog, particularly for items that are difficult to stock.

In this environment, opportunities for more frequent and deeper customer communication abound. The opportunities for more relevant and profound customer communications and analysis are immense.

Larry Daniel is president/CEO of Conclusive Strategies, an Austin, TX-based consultancy.

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The Ever-Changing Point of Sale: Multichannel Considerations for the Retail-Centric Organization

This article is second in a series that examines how each of several existing sales channels might lead to customer acquisition, retention, up-sell and cross-sell opportunities by building out more-sophisticated multichannel marketing communications and greater connectivity among their channels.

To view the first article in this series, visit www.MultichannelMerchant.com.

Historically, retailers have lived or died by site selection. Those identifying and securing the top locations matching their demographics prospered, while those who didn’t were apt to fail. The savvy retailers conducted customer spottings and surveys to pinpoint where customers came from, how far they traveled, which customers visited more frequently, and which spent the most while shopping at the store. From an exchange of data, these retailers determined where they needed to locate, what products would best match customers’ interests, and at what price they could maximize profits.

The marketing formula seemed to presume that shoppers had no other options on where else to shop and that they would happily take the time to examine their store to see if their goods matched their needs and specific desires. The formula required a fair amount of word-of-mouth advertising. Conventional business wisdom dictated that new stores required a full year before performing at the monthly sales levels that could be expected going forward. The result was that new retail concepts rolled out slowly, there was little differentiation among stores, and there was also little variation to the marketing messages sent by each store to its surrounding public.

As we enter into a century marked by increasing velocity in marketing communications, this formula is in flux. Consumers expect to know more about retailers before taking time to walk their aisles. They seek multiple ways to buy products and services, on terms and at locations that can’t fully served by a single point of sale. They also expect that the merchant will know and retain information about who they are. They expect the merchant to repeatedly demonstrate that its product is relevant and that it can deliver the product in a timely manner.

In short, consumer expectations are rising to a more demanding level. The retailer of the future almost has to dovetail its products and services into a multichannel format to remain competitive, and it needs to connect with the consumer using an increasing array of multichannel marketing communications to convey its interest in a sincere lifetime relationship.

Increasingly our clients inquire about how they can develop combined retail/catalog or retail/online strategies. There are specific considerations with each. Just as success in traditional retailing related closely to site selection, success with multichannel strategies also relate to geography.

Firms following the retail/catalog path need to determine which customers are best spoken to as retail prospects, which should be steered toward the catalog business, and which should receive promotions for both channels. A key determinant in this analysis is the retail trade-area study, conducted using both retail data to measure the distance that consumers are willing to travel to stores and catalog data to explore “pareto” effects (identifying the geographic areas and demographics/psychographics that account for the highest portion of sales or greatest penetration rates).

Click on image to view larger

Sample above: Trade-area analysis indicates the distance from which the nearest 50% and 80% of a store’s customers are found.

By viewing relationships in trade-area studies, companies can determine which geographic areas are best served by their stores, which geographic areas could be served only with catalog, and where they are best to deploy an approach that emphasizes both. These studies can isolate the areas of densest retail activity, identify areas of heaviest catalog activity, and produce actionable interpretations of what channel or combination of channels is most suitable for specific areas.

Click on image to view zoomable version

Sample above: Trade-area analysis indicates how many customers traveled various distances to the store. In example above, thousands traveled within five minutes, but very few traveled more than an hour.

In similar fashion, companies developing retail/online strategies can apply trade-area analysis to determine “click and mortar” strategies. For example, if a company understands the zip codes best served by stores, it can add incentives or information that drives Website visitors from those zip codes to the stores, just as it might consider relaxing incentives for Web purchasers from those areas.

The trade-area process is fairly simple. As long as a company has customer address information, even data as basic as zip code information, it can develop a “roadmap” for how the channels might work together. The standard process involves cleaning customer data, sending them onto a service company that can enhance the data with geographic and lifestyle descriptions, and then arranging a trade-area study with a mapping services firm. A trade-area map and “distance decay” chart, such as those shown above, are common deliverables for a firm practicing geographic analysis.

Just as important, analysis about the customers served in any single channel can then help uncover opportunities for another channel. For example, analysis of the retail consumer can provide valuable information about which consumers might receive future catalogs. Analysis of customers’ Web behavior can help a retailer customize a store to its surrounding demographic.

The interplay is exciting and complex. The opportunities for more-profound communications and analysis are immense. The faster you gain knowledge and experience with these types of marketing practices, the more likely you will be able to navigate the quickly emerging multichannel marketplace.

Larry Daniel is president/CEO of Austin, TX-based consultancy Conclusive Strategies.

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