Live from Retail Systems 2006: Put Customers First, Product Second

May 24, 2006 2:28 AM  By

Chicago—”Traditionally retail has been the last step in the supply chain,” Love Goel, chairman/CEO of investment firm Growth Ventures Group, said during his Tuesday morning session at the MIX (Merchandising Innovation & Xcellence) Summit, part of the Retail Systems show. “Retail has traditionally been an agent for manufacturers and suppliers.”

But in this era of smarter, more demanding customers with ever-increasing choices, retailers—defined by Goel as anyone selling a good or a service to someone—need to alter their mindset. Instead, he said, “think of yourself as the first step in the demand chain. If you really want to be an agent for the customer instead of for the manufacturer, you’ve really got to redefine your operation, your organization.”

And that requires gaining a “holistic” view of customers, he said, with less emphasis on finding the ideal product and more on perfecting your relationship with your customers.

For the longest time, merchants were told that product was king. But because of technological advances, knock-offs can be whipped up in a matter of days, resulting in product commoditization. “There’s no secret anymore [regarding product exclusivity] with globalization,” Goel said. “Turnaround and price have all become very transparent.”

He described innovative product as the “price of entry” for new and niche marketers. And should a niche player come up with a distinctive item that takes off, he added, a Target or a Wal-Mart will quickly begin producing and selling its own version of the product.

As a result, Goel continued, companies need to take a fresh look at what will generate greater return on investment: happening upon a hot merchandise trend or bolstering customer relationships. In his view, the latter trumps the former just about every time.

To optimize customer relationships, marketers need to add to the traditional retail metrics. In addition to measuring sales or EBITDA per square foot, for instance, Goel said companies should measure sales or EBITDA per customer. In addition to counting inventory turns, measure customer interactions. As well as profitability per SKU, calculate profitability per customer.

One metric that many direct marketers have long calculated but that has been long ignored by brick-and-mortar merchants, Goel said, is customer acquisition cost. And that gives catalogers and other direct merchants a distinct advantage: “If you don’t know your cost to acquire a customer,” he said, “how can you operate in a multichannel world?”