Customer loyalty and failing fast
At an Australia-Israel Chamber of Commerce event last week, CEO of The Good Guys, Michael Ford, and Myer CEO, Richard Umbers, outlined their approach to innovation and digital disruption in retail. The wide-ranging discussion covered talent, customer loyalty and failing fast.
The need to install the right talent, with the appropriate knowledge and skill levels, into a position where they can report up to a receptive executive and board is crucial, according to The Good Guys CEO, Michael Ford.
“What’s really important is that you allow your management team from down under to manage upwards.”
Ford emphasised that retailers need a, “very dynamic board, with a very balanced view about their investment in technology” as well as a balance within their teams of seasoned retailers and technology experts from Generation Y and Z. Importantly, the executive level has to trust the specialised digital knowledge of the people beneath, Ford said.
“Otherwise you’ll have this wonderful knowledge base on one hand and these old fossils on the other and a board that doesn’t understand either the application or the infrastructure that you are trying to invest in. Those retailers will struggle,” he said.
Ford highlighted the critical role data is having on retailers, which has forced them to change how things are done.
“I think the next era for retail is going to be about data, big data and how you actuate CRM,” Ford said.
The Good Guys have two data insights teams – one that mines point of sale receipts for insights into what products and categories are performing well, which then drives merchandising plans. The other team looks at how customers shop, or why they didn’t shop with The Good Guys.
“Historically what retailers have done, both in their merchandise and assortment planning and in their budgeting, is they have built it on historical incremental growth,” Ford said. “The great benefit that retailers are deriving now and in the future, through these data insight teams – whether it be on product or whether it be on customer – they are going to be able to anticipate the needs of their customers.
“CRM is the most over-spent, over-talked about initiative in retail and often over capitalised. But I think this is about to change. Actuating what you derive from big data is going to make your CRM programs that much more effective. That’s going to be critical to growth.”
The rise of data analytics in retail is set to have a big impact on the way businesses allocate their marketing dollars. Retailers are now figuring out how much of their marketing budget to keep in conventional methods such as TV and catalogues, and how much to transfer to digital.
“We have increased our spend by 1000 per cent and I still think we are underspent in terms of taking our advertising dollars out of conventional advertising and putting it into digital. But there is no science to that,” Ford said.
A new measurement for success
Ford predicts one of the most significant changes retailers are going to see in the near future is the ability to measure customers on a like-for-like growth.
“Today most retailers recognise their productivity growth on a sales per square metre and like for like basis,” Ford said. “You are going to get your measurement moving away from the box that you operate out of and your labour productivity to share of wallet from an individual customer and what they generate on a year on year basis.”
It’s a view that’s also espoused by Sir Charlie Mayfield, chairman of the John Lewis Partnership, who believes a focus on the customer will lead to metrics such as sales per customer, as opposed to same store sales.
“The biggest challenge for any retailer today is generating greater share of wallet out of the existing customer,” Ford said. “I think the process of measurement is going to change significantly because retail has been a pretty sleepy old industry for the last 150 years and it’s really now out on the technology forefront.”
Myer backs ‘fail fast’ thinking
The new Myer is embracing start-up industry’s favourite slogan: “fail fast” and encouraging it internally, says CEO Richard Umbers.
“Once you open the door to technology, there is no shortage of ideas,” Umbers said. “The challenge is what you do next, what is the next realistic thing you can achieve that is going to be appreciated by your customer?”
Umbers outlined how new projects are developed, a process that began as an experiment and has become a model. Individual employees who identify a problem in stores join Myer’s agile development team. They take ownership of the project and a team is built around them to help develop and prototype a solution. They are then put back in the store environment to implement and champion the new system.
“These are quite new techniques for traditional businesses, but they are actually very, very powerful because they go to rapid adoption as well as the ability to do the dev work,” Umbers said.
More broadly, the process of deploying projects is challenging the traditional governance model Umbers said, moving to prototype-driven, test and trial methods.
“We are at the leading edge where a lot of technology is still in a very volatile kind of place and a lot of stuff people are trying doesn’t work first go, so what’s having to happen is the way that ideas are operationalised and brought into your business model has to be a much swifter, a much more agile process.”
Despite all the talk of technology, Umbers insisted that the primary focus of any business should be on its core business model.
60 per cent of your efforts should focus on core business, 30 per cent on “winning in the mid-term” Umbers said, which leaves 10 per cent of your efforts to experiment. Myer’s virtual reality department store launched last month with eBay falls into the third category.
“It was a really exciting thing to do,” Umbers said of the VR launch. “It’s not going to be a revolution here and now, but I bet you that in a decade’s time virtual reality is playing a critical, active role in our industry.
“Being able to get there, get there early and get there first is getting the learnings, it’s adapting your culture, making that possible in five to 10 years time.”
The trick is in encouraging a natural basis towards looking into the future and looking to change, he said.
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