STRATEGIES TO DRIVE FINANCIAL GROWTH · drive growth. Over the last couple of years, there has been an increased discussion on customer experience providing a competitive differentiator

The retail sector remains a fiercely competitive, low margin sector. Retail executives are therefore very focused on making the right investments to drive growth. Over the last couple of years, there has been an increased discussion on customer experience providing a competitive differentiator. This study establishes the financial impact of customer centricity on retail performance, and creates a framework for determining what elements of customer interaction drive the greatest return. The research reveals that leaders on the dunnhumby Customer Centricity Index (CCI) enjoyed market share growth of seven percent on average, while laggards suffered a one percent decline. Not all elements of customer experience have an equal part to play in influencing likelihood to recommend and repurchase. In-store experience, price and promotions are the key drivers, and this is generally consistent across countries. The study also finds that being highly selective and excelling in one or two key areas is a greater route to success than attempting to win at everything. There is no “one size fits all” approach. Key to becoming a CCI leader is understanding what your brand means to customers, what you want to stand for, and relentlessly executing against this.

STRATEGIES TO DRIVE

FINANCIAL GROWTH THROUGH CUSTOMER CENTRIC EXPERIENCEBy Akshay Nigam & Julian Highley

JOURNAL OF SHOPPER RESEARCH

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Retailers are typically operating with scarce resources and so are forced to make selective investment decisions. Senior decision makers need to demonstrate a return from their customer investments. To meet this fundamental principle, we had three overarching goals for our research:

1. Test the link between likelihood to purchase, likelihood to recommend, and market outperformance;

2. Create a framework to establish what customer investments have the potential to drive the greatest financial return; and

3. Test our belief that making selective investments and being famous for a handful of things was a superior strategy to attempting to win at everything.

There is a reasonable body of prior research that has looked to test the link between some measure of customer satisfaction / experience and financial returns. By way of example, we can reference two recent studies: In Forrester’s Customer Experience (CX) report, they concluded that CX leaders delivered compound annual revenue growth rates (CAGR) of 17% over a five year period compared to just 3% for CX laggards.1 KPMG Nunwood’s 2016 Customer Experience report claims that “The UK customer experience top 100 achieved double the five-year revenue growth of the FTSE 100.”2 The challenge with much of this research is that it is limited to a particular country, has a limited sample, or cuts across numerous industry sectors, making it difficult to control for differing sector growth. Our focus was therefore to build on this prior research by benchmarking 400 retailers across 14 different countries to establish the impact of superior customer centricity on financial results.

While there are a number of companies that will privately consult to help identify the areas that can yield the greatest financial return, from our secondary research we have not found any prior work that publicly reports on what customer investments yield the greatest return. This is a critical component to help guide decision makers in where they should invest. With constrained budgets, decision makers need to make choices about where to invest, or risk spreading these investments so broadly that they dilute their efforts. One popular perspective is that one needs to “win everywhere” to achieve customer recognition. This point of view is summarized in KPMG Nunwood’s 2014 Customer Experience paper

“This work, therefore, focuses on giving readers a true picture of what customer experience best practice really is. ‘The Six Pillars’ describe this through the lens of Personalisation, Expectation, Resolution, Integrity, Empathy and Time & Effort. Winning on all six is essential to top flight performance.”3

This is an incredibly high bar to reach, and may not be a practical approach for developing better customer experiences. The counter view held by Marcel Corstjens, Emeritus Professor of Marketing at INSEAD, is that selective focus and choosing where to win holds the key to success.

“The problem is that most retailers are afraid of being bad at anything and try to hide it if they are. They have to make a choice because you can obviously never be the best at everything.” 4

Through our research we wanted to provide evidence on which of these diametrically opposed views to follow.

METHODOLOGYThe basis of our methodology was a survey with 126,000 individual retailer assessments made by 36,000 respondents from 14 countries around the world – carried out over the last 12 months. On average each respondent evaluated 3.5 retailers. The survey was conducted online and respondents were required to have shopped at the retailers they evaluated in the last three months.

The survey included comparative performance indicators on 399 grocery retailers and examines the positive impact that claimed likelihood to repurchase and likelihood to recommend has on market share and banner sales. The survey assessed individual responses to more than 60 different criteria per retailer, with a mix of functional and emotional attributes.

The study includes some of the world’s top economies by GDP (source: IMF 2016) US, Japan, Germany, UK, France, Brazil and Italy as well as emerging markets of scale including Mexico, Colombia, Turkey, Poland and Chile. Below we describe the methodologies we followed in order to:

• Identify Customer Pillars and their impact on the Customer Centricity Index

• Test the link between the Customer Centricity Index and financial growth

• Establish if selective, focused investment outperforms attempts to win at everything

Factor analysis was performed on ~ 60 attributes using all 126,000 evaluations. Factor regression was then conducted to identify the pillars that had the greatest influence on the Customer Centricity Index (CCI) - a blended measure of likelihood to recommend and likelihood to repurchase.

We established seven pillars, driven by customer responses to our survey, and illustrated in Figure 1 that represent the range of key performance areas that customers have identified as valuable to them when it comes to the grocery retailers they shop with. The pillars are entirely customer-driven, based on what customers believe. These are Communications, Range & Service, Promotions, Price, Affinity, Rewards, and Ease. Fifty four percent of the variation in the CCI score was explained by these seven factors.

To test the link between the CCI score and financial performance, we grouped retailers into high, medium and low segments based on their CCI scores. This grouping was performed at the country level to control for differences in grocery growth rates in different countries. Utilising Planet Retail estimates for sales, market share and sales per square foot, we looked at the sales growth performance of these groups, testing for statistical difference using ANOVA.

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Source: dunnHummy CCI 2016

FIGURE 1The seven pillars having the greatest influence on the Customer Centricity Index

PILLAR DESCRIPTION EXAMPLE ATTRIBUTES

COMMUNICATIONS“Know me and engage me”

Create a relationship with customers, personalise how to communicate with

them, ask them for their opinion

Personalises messages and communication to my needs

Inspires me with information I find interesting

Encourages me to give feedback

RANGE AND SERVICE“Offer quality products in an

appealing way”

Tailor the range to meet customer needs (variety, quality, trustworthiness), enjoyable

and appealing products and store, something I can recommend to other

people

Sells a variety of products that are right for me

Sells new products I am interested in buying

Makes it easy to find what I want with a logical layout

PROMOTIONS“Tempt me with relevant

promotions”

Appealing and relevant, easy to understand and use, good value, sense of surprise

Promotions are easy to understand and use

Promotions offer good value

Communicates promotions so I understand how they work

REWARDS“Reward my loyalty”

Linked to shopping frequency, easy to access, relevant

My loyalty is rewarded in a way that I like

The store rewards me for shopping there regularly

The Retailer provides easy access to rewards and benefits of being a loyal customer

PRICE“Offer relevant value”

Better value than competitors, right prices on products I buy, stands for value for

money

Products sold here offer better value than competitors

Stands for value for money

Prices on products that I regularly purchase are right for me

EASE“Be convenient and easy”

Convenient to work and home, easy and welcome experience

Is convenient to my work or home

Makes checking out easy

AFFINITY“Be a retailer I couldn’t live

without”

Feeling connected, caring about the retailer’s success, satisfied and not looking

to switch

I have a strong personal connection with this retailer

I care about the long-term success of this retailer

Shopping at this retailer says a lot about me and my values


7www.journalofshopperresearch.com

KEY FINDINGS

IMPROVING YOUR CUSTOMER CENTRICITY LEADS TO SALES GROWTHMaking the shopping experience more relevant and satisfactory encourages customers to reward the retailer with their loyalty. The most customer-centric retailers are enjoying financial returns that outstrip their peers. We grouped retailers into three groups based on their CCI score as illustrated in Figure 2. The “High” group constituted the top 18% of retailers, “Medium” 53% of retailers and “Low” the bottom 29%. Retailers with a top CCI score saw their banner sales increase on average by 3.2% and their market share grow by 7% from 2015 – 2016. However, retailers in the bottom quartile, saw banner sales drop by 2.5% and their market share decrease by 1% over the same period. These figures show in stark relief the significant business value for retailers if they can understand and meet their customers’ needs.

The higher return on being customer centric is evident globally, but is more obvious in some countries than others. For example, the benefits customer-centric retailers are seeing in terms of enhanced financial performance (% growth in market share) are highest in Europe and lowest in the Latin American markets, as seen in Figure 3.

Market share data source: Planet Retail; dunnhumby analysis

FIGURE 3Enhanced sales performance of retailers with high CCI score by region

6%

5%

4%

3%

2%

1%

0%

CCI Score of Retailers

EUROPE ASIA U.S. LATINAM

The return on customer centricity is more obvious in some countries than others. Retailers in Europe with high CCI scores see the greatest benefits in terms of enhanced financial performance, while Latin American retailers experience more modest returns.

5.5%

2.8%1.8% 1.3%

DIFFERENT ELEMENTS OF CUSTOMER EXPERIENCE DRIVE THE CCI TO DIFFERENT DEGREESFrom Figure 4 one can see that not all elements of the customer experience drive likelihood to recommend and likelihood to repurchase to the same degree. Affinity generally accounts for about a third of the difference in CCI scores that we see. The next most important is the In-Store Experience, with Range and Service accounting for one fifth, and Value

Market share, sales and sales per square foot data source: Planet Retail; dunnhumby analysis

FIGURE 2Top ranking retailers globally are enjoying increased market share and banner sales

TOTAL BANNER SALES

4%

3%

2%

1%

0%

-1%

-2%

-3%

CCI Score of RetailersHigh Medium Low

BANNER SALES/SQ FT

0%

-1%

-2%

-3%

-4%

-5%

-6%

-7%

-8%

-9%

CCI Score of Retailers

High Medium Low

FOOD RETAIL FORMATS MARKET SHARE %

8%

6%

4%

2%

0%

-2%

CCI Score of RetailersHigh Medium Low

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through the combination of Price and Promotions driving about a quarter. Communications, Ease and Rewards make up the remainder.

Another notable fact is the consistency of the importance of different pillars across countries as demonstrated in Figure 6. There are some noteworthy exceptions; for example, the degree to which Affinity is important in Mexico or the fact Affinity is relatively unimportant compared to other factors in Poland. However, overall, there is a high degree of consistency globally.

AFFINITY IS IMPORTANT, BUT CANNOT BE PURSUED IN ISOLATIONBrand Affinity represents the personal connection that customers feel towards those companies they perceive as truly great retailers. The statements that constitute this pillar are those of every marketer’s dream: “I care about the long term success of this retailer”; “Shopping at this retailer says a lot about me and my values”; “I have a strong personal connection with this retailer”. Powerful and emotive statements. It is unsurprising that statements like these explain a large proportion of the CCI score.

However focusing solely on achieving a high Affinity score is a strategy fraught with problems. Developing a strong connection with your customers is achieved by meaning something to them, and having a core competency that differentiates you from your competitors. This is underscored by how few retailers excel at Affinity alone. The more common scenario is to see a retailer excel in another pillar and also Affinity.

High ranking retailers seldom excel only at Affinity: Over 70% excel at one or two other pillars – most commonly Communications or Range and Service. This does suggest that while Communications has a relatively low impact on CCI in of itself, excelling at communication drives higher Affinity. Only a quarter of retailers that excel on Affinity excel on two other pillars. Positive brand affinity is therefore an outcome of executing successfully on a few things; the pillars that matter most to your customers.

By identifying your core competency, communicating that to your most important customers and delivering exactly what you promise, thereby

FIGURE 5Proportion of retailers that excel at only one pillar

Price

Ease

Promotions

Rewards

Range & Service

Communications

Affinity

54%50%

44%

40%

38%

30%

24%

FIGURE 4Global drivers of consumer perception

This chart shows the value that customers place on each pillar, with Affinity seen to be the greatest driver of customer centricity.

Affinity

Range & Service

Promotions

Price

Communications

Ease

Rewards

5%

34%

18%13%

12%

10%

8%



FIGURE 6Global drivers of customer centricity by country

Although attributes differ per region, the relative importance of each pillar shows little variation across countries, suggesting a universal view of what customers value most from retailers.

Affinity Range & Service Promotions Price Communications Ease Rewards

5%

18%13%

12%

Global

ColombiaChileBrazil

ArgentinaMexico

JapanFranceTurkey

ItalyPoland

GermanyUSUK

0% 20% 40% 60% 80% 100%

giving customers a great shopping experience, you can achieve not only a great customer centricity score, but also achieve affinity with your customer base. Customers care about your brand’s long term success when you fulfill fundamental needs such as good quality, value for money products, or an easy and enjoyable shopping experience.

OPTIMISING RANGE & SERVICE IS KEY TO A SUCCESSFUL CUSTOMER OFFERRange & Service encompasses the totality of the in-store experience: customer service, product choice, availability, store layout and experience. While having the right products (“sells products that I want”) is one of the most important things to get right in this pillar, there are more subtle environmental factors which customers place significant importance on in this area too, with statements like “Makes it easy to find what I want with a logical layout” and “Prices are clearly marked.” With the exception of Affinity, its contribution to likelihood to repurchase and recommend is the single largest. With all the talk recently about the disruptive force of technology, one to one communications, “Big Data,” online and multi-channel in retail, it can appear that there are an overwhelming series of factors that retailers need to get right. Our research has shown that it is still the fundamentals of retail that one needs to ensure are meeting customer expectations: have the right range of products, with an appealing and logical layout backed up by good customer service and store staff.

But getting the fundamentals of your in-store environment right is not easy if you lack an understanding of customer needs and behaviours. Leveraging data and insights to develop the most effective range and service approaches, that reflect different customer needs in different locations is vital, especially for those with a complex, multi-channel, multi-format offering.

PRICE AND PROMOTIONS RANK CONSISTENTLY HIGH IN CUSTOMERS’ MINDS, ACROSS THE GLOBE. Taking third and fourth place respectively in the drivers of customer centricity, together Price & Promotions account for a quarter of overall importance, demonstrating that fairly priced products and value-for-money promotions play a key role in shaping customer perceptions. It is important to stress that this is not simply about being the cheapest. The communication of pricing and promotions is key with shoppers wanting promotions to be easy to understand and use. Shoppers are also looking for an element of being surprised by the prices and promotions that are on offer. We have seen in a separate study that surprise has an important role to play - leading to excitement and anticipation about returning to the store. The results do show some sizable differences across countries when it comes to price and promotions. For example in Germany and the UK, price and promotions carry an importance weight of 28% in comparison to Chile which is 19%.

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CUSTOMERS FAVOUR RETAILERS THAT FOCUS ON CLEAR COMMUNICATIONS AND CONVENIENCEThe pillars of Communications and Ease of Shopping account for an average importance of 10% and 8% respectively, followed by Reward which is attributed just 5%. It ’s evident that customers favour retailers that focus on clear communications and a convenient experience. While Reward has scored lower than other pillars, suggesting customers place less importance on this area, it ’s important to highlight that some of the top 50 retailers in this study have achieved a high CCI ranking through being recognised for brilliant rewards. Rewards programmes with simple and immediate benefits can therefore continue to be an important differentiator. There are also other benefits that well-run rewards programmes can bring the retailer, particularly the ability to enrich the engagement and personalisation opportunities which impact other pillars such as Communications and Affinity. Within this study, the most important attribute within the communications pillar was “Personalises messages and communication to my needs.”

ONE SIZE DOES NOT FIT ALL: MULTIPLE PATHS LEAD TO HIGH CUSTOMER CENTRICITYThe best customer centric retailers do not all fit the same mould. For example, our study revealed that some Warehouse and Cash & Carry clubs with low prices have ranked just as highly on customer centricity as some premium-priced specialty retailers. Their single-minded approach to excelling at their chosen core competency and delivering on this to their customers is the common link.

FIGURE 7Attributes all top CCI retailers score highly on

Sells products that I want

Makes checking out easy

My expectations are met when I shop at this store

Prices are clearly marked

Offers good value on the products I like

Each retailer has different strengths and weaknesses. But when evaluating the global top 25 percent of retailers, we found some common attributes that they ALL score well on with their customers. These attributes can also be used as a barometer to measure performance and track progress. Customers want TRUST and TRANSPARENCY (expectations are met + Prices clearly marked), EASE (make checking out easy) and VALUE (relevant range and good value on the products).© Bluraz | Adobe Stock



WHERE SHOULD A RETAILER START WHEN IT COMES TO MAKING INVESTMENTS THAT IMPROVE CUSTOMER-CENTRICITY? As mentioned previously, some pillars of customer centricity have a higher impact on the CCI score than others. Investments in Range and Service, and then Price, are likely to yield higher returns. It is however important to ensure these investment decisions are made in the context of the strategy of the retailer, with a good understanding of the retailer’s customer base and relative strengths and weaknesses in each pillar versus the market and the more immediate competitive set. To bring this to life, an upmarket retailer may very well have a relatively poor price score, but investing heavily in this area is unlikely to yield significant returns considering the customer base. However if the upmarket retailer is performing poorly on price relative to its immediate competitors, this would be a far more important pillar to make investments in.

To provide a greater perspective on which areas were yielding returns for the leading CCI retailers, we looked to understand what combinations of attributes help retailers excel. We analysed the top 25 percent most customer centric retailers in the world and have found there are multiple routes to achieve excellence. Our conclusion is that a retailer must focus on its core competency and deliver on its promises to its target group. The most common path to high centricity was evidenced by a set of retailers that have excelled in their Range/Service and Price and Promotions which helps drive Affinity and achieve high centricity. That being said, it is not the sole route. There are multiple strategies that retailers can adopt to achieve high customer centricity. One set of retailers (predominantly discounter

clubs) outdo all others in Price and Promotions and achieve high Affinity. Specialty retailers typically have done well through Communications and Range/Service. Another group of retailers has achieved high centricity by excelling at their Rewards and Communications strategy. One group that we found particularly interesting were those retailers that had achieved a high CCI score, yet had negative Affinity scores. While customers did not have a strong emotional attachment to these retailers, they were able to achieve high recommendation and repurchase rates through strong promotions and range and service. This highlights that while attachment to the brand is highly desirable, it is by no means necessary to achieve a high CCI score. The common “paths” that we saw emerge were:

RANGE AND SERVICE + PRICE This was the most common path to a top customer centricity score, with a set of retailers that have excelled in providing a great range of products, supported by solid customer service and a positive price perception. This has helped drive affinity with their customers and achieve high centricity.

PRICE + PROMOTIONS One set of retailers dominated by Cash & Carry Clubs outperformed their peers in price and promotions which helps them achieve high centricity and affinity with their customer base.

COMMUNICATIONS + RANGE AND SERVICE Specialty retailers have often done well owing to high scores in communications and superior range and service.

FIGURE 8Paths to high customer centricity

As our study uncovered, there are a number of different routes to achieving a high customer centricity score. This chart shows where different types of retailers excelled in the eyes of their customers.

Affinity Range & Service Promotions Price Communications Rewards

Every day low price

Midmarket

Cash & Carry Clubs

Upmarket/specialty

Niche/independent

Discounters

Food-focused Hypermarkets

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REWARD + COMMUNICATIONS Top performers from Food-focused Hypermarkets have generally (though not exclusively) achieved high centricity by excelling at their rewards and communications strategy, creating a great connection with their customers.

PROMOTIONS + RANGE AND SERVICE + REWARD Even some retailers with a low affinity score have still been able to excel at customer centricity by having a strong promotional strategy in place, coupled with a valued rewards programme, and solid fundamentals like range/service.

CONCLUSION: CHOOSE WHAT YOU WANT TO BE FAMOUS FOR Those retailers that are recognised by customers as delivering a great customer experience vs. their rivals are rewarded; with annual growth rates of customer centric leaders exceeding performance of laggards by 5 percentage points annually.

We have identified that there are some areas of the customer experience that play a greater role in driving positive word of mouth and repeat purchase than others. The in-store experience continues to be of fundamental importance in this area – outstripping the areas that many retailers obsess about – price and promotions. While price, promotion, rewards, communications, in-store experience and so on have very different returns in driving growth, we have seen that the world’s top 50 most customer-centric retailers come in a wide variety of shapes and sizes, and are not all arriving by the same route. Some, like Lidl and Aldi, lead on value. Others such as Trader Joes and Biocoop win through range and in-store experience. Still others lead on communications and promotions. At first sight, it may seem that they have little in common. The shared factor however is a core competency that they use to differentiate and deliver value to their target group of strategic customers. They communicate their proposition and then make sure they deliver what is promised. This is why customers are happy to wait in line and have fewer SKUs if they are shopping at a value retailer. It’s why customers are happy to pay the difference for choice, quality and shopping experience at a specialty retailer. Although brand affinity comes through strongly as the connecting thread between these retailers, our findings also highlight that regardless of all the talk about technology and personalisation, it is critical that retailers get the fundamentals of the in-store environment and service experience right.

The last decade has seen the middle-ground of grocery retail squeezed from both sides. This research indicates this is a trend that does not respect national borders. The message is most obvious at the extreme ends of the value spectrum. Retailers can forge and protect a niche above or below the mainstream battle-ground, and should continue to build total clarity around the customer offer. Choose where to invest and stay focused. This idea extends into what has been flippantly called the “muddled middle” too. Our research demonstrates that retailers can look to utilise other areas of the customer experience beyond price to really differentiate themselves, driving repeat purchase and positive word of mouth to support growth. Again the underlying message remains the same: Choose where to invest and stay focused.

REFERENCES

1 Robles, Patricio (2016), “Customer experience drives revenue growth, but marketers lack CX skills,” available at https://econsultancy.com/blog/68069-customer-experience-drives-revenue-growth-but-marketers-lack-cx-skills/

2 Knight, Tim, David Conway & Tamsin Jenkins (2016), “A New Era of Experience Branding,” available at https://assets.kpmg.com/content/dam/kpmg/pdf/2016/04/a-new-era-of-experience-branding.pdf

3 Knight, Tim, David Conway Tamsin Jenkins & James Round (2016), “2014 UK Analysis,” available at https://home.kpmg.com/content/dam/kpmg/pdf/2016/04/kpmg-nunwood-uk-final-report.pdf

4 Dawson, Mike (2016), “Marcel Corstjens talks brands & retailing,” available at http://www.german-retail-blog.com/topic/past-blogs/Talk-with-Professor-Marcel-Corstjens-370

Julian Highley currently serves as the Commercial Product Director

Customer Knowledge and Category Management at dunnhumby.

Julian leads the product strategy and direction for dunnhumby’s

Customer Knowledge and Category Management analytics

products which help brands and retailers grow their businesses

through better insight. He joined dunnhumby in 2008, setting

the strategy for identifying global trends and heading up many

retail-focused studies, including dunnhumby’s Global Customer

Centricity Index. Prior to this Julian worked at SAP, specializing

in customer analytics for retail, CPG and banking. His background

in marketing sciences and customer behaviour started at IRI, where

he developed bespoke statistical models for CPG brands. Julian holds

a degree in Economics from the University of Bath. Julian can be

contacted via email at [email protected]

Akshay Nigam currently serves as Senior Global Trends Analyst

at dunnhumby. Akshay leads the analysis for dunnhumby’s

Global Trends and Thought Leadership. He has developed

an expertise in the areas of customer strategy and customer

centricity, supporting dunnhumby’s mega trends work across

Convenience, Multi Channel and Health. Akshay holds a

degree in Electronics and Communications Engineering and

has spent almost seven years developing his retail analytics

skillset in roles supporting Online Retail, Digital Media,

Customer Strategy and Customer Knowledge. Akshay can be

contacted via email at [email protected]



Documents

STRATEGIES TO DRIVE FINANCIAL GROWTH · drive growth. Over the last couple of years, there has been an increased discussion on customer experience providing a competitive differentiator