Anticipating customer needs is a proven way for companies to grow their business and increase profitability. Here are some of the ways they’re getting inside customers’ heads.
By Stephen Harris and Bill Millar
Are you merely reacting to your customers’ needs, rather than anticipating them? If so, your business could be missing out on opportunities to expand, acquire new customers and strengthen profitable customer relationships. Gathering and analysing customer data gleaned from various sources is a key first step in realising these benefits.
For example, Steelcase, a US-based manufacturer of office furniture, videotaped its customers in various work situations looking for patterns of behaviour and motion. From this research, Steelcase learned that teams functioned best when given the opportunity to work both in groups and individually. The firm incorporated this insight into its products, helping it strengthen customer relationships and become a global leader in its industry.
Observing behaviour
How can retailers better understand and anticipate their customers’ needs? Like Steelcase, most would do well to start with observation. A global survey conducted in 2007 by the Economist Intelligence Unit showed that more than one-half of the 180 retail industry executives polled used data mining to help plan the selection of merchandise they offered customers. The use of such tools can have a profound impact on firms’ ability to anticipate customer behaviour.
Customer needs and retail strategy
Firms seek to use customer knowledge as a source of competitive differentiation:
Source: Economist Intelligence Unit briefing paper, 2007.
One firm that has been highly successful in mining customer data for competitive advantage is Tesco, a UK-based retailer. The company’s Clubcard loyalty programme captures data from millions of individual transactions each week. Tesco mines and interprets this sea of information to identify highly profitable customers and, if possible, further increase the profitability of their transactions. For example, by observing an individual customer’s shopping basket, stores can determine a customer’s “life stage” and customise its promotions accordingly. Customers who buy diapers, for instance, probably will be especially receptive to discounts on baby food presented at the checkout or received through the post.
Tesco also uses the information to determine if a customer is about to defect. By observing a combination of variables such as recency (when was the customer’s last visit?) and frequency (is the customer shopping with us less frequently over time?), the company can present at-risk customers with progressively more enticing offers in an effort to preserve the relationship.
But the benefits don’t stop there. In addition, Tesco uses its data to make improvements to store layout, examine combinations of discounts to maximise profits, test new products and plan new locations. The interpretation of customer data has changed the company’s mind-set in significant ways. “As a company, we have moved from being intuitive to being analytical,” says Simon Uwins, marketing director in the US. “We don’t forget our intuition, but better data lead to better thinking.”
In fact, firms that combine data-based analysis with human experience (such as staff suggestions and ideas) often find they have hit upon a powerful formula for predicting changes in customer behaviour. To increase the chances of success, firms would do well to foster a collaborative environment where employees share customer analytics across departmental boundaries. Software collaboration tools for gathering and sharing data can help firms make innovative use of the customer insights they gather—and then measure the results.
Close encounters of the customer kind
Not content merely to collect and analyse data, nearly one-half (49%) of respondents to the Economist Intelligent Unit survey say their companies are using techniques such as customer interviews and surveys to determine customer needs.
Like many other retailers, the India-based Future Group, the parent company of Pantaloon Retail (India) Limited, recognises that customers are often dissatisfied with the shopping experience. To counteract that dissatisfaction, the firm tries hard to anticipate and fulfil customer needs. Damodar Mall, Future Group’s chief executive officer of innovation and incubation, has been instrumental in driving initiatives to develop new store formats, alliances, products, and marketing and sales campaigns.
For example, the company has an ongoing programme in which it observes customers and their buying preferences, gathering information about their level of education as well as their buying and social habits. A team of Pantaloon employees visits the company’s stores (as well as other locations such as temples and schools) to speak to customers about their needs and preferences. Researchers ask which products certain types of customers have bought, and when; the reasons for their purchases; and what they thought about their shopping experience.
Mr Mall believes that Pantaloon owes a great deal of its success to acquiring this sort of in-depth customer knowledge, which allows the firm to better anticipate the needs of its customers. For example, making fresh bread at home every day is an important part of Indian life. Pantaloon’s research into customer preferences enabled it to identify regions where it was necessary to install in-store flour-grinding machines. The company found that shoppers in Mumbai preferred to have their wheat flour ground in the store, while customers in Bangalore were satisfied with packaged flour.
But the programme delivered deeper benefits. By addressing an important, specific need in certain customer segments, the company built a stronger relationship with its customers. “The bond in the community is critical for us,” says Mr Mall.
How firms collect customer information
Firms use a variety of ways to gather vital customer information:
Source: Economist Intelligence Unit briefing paper, 2007
The decisive moment: training sales staff
When asked to select the single most effective strategy for keeping pace with customers’ changing needs, the highest percentage of respondents (40%) indicated that training sales staff to solicit and report customer responses delivered the biggest return. This was followed by market-wide analysis to identify sales trends, and conducting focus groups and opinion research.
The value of sales associates points up both potential strengths and weaknesses retailers should keep in mind. The strengths are exemplified by Sephora, a fast-growing European retail beauty chain that invests heavily in training, according to Jacques Levy, its chief executive officer. New salespeople must complete two weeks of products and sales training upon hire, followed by six days each year to keep up with products, market trends and customer needs.
Held in stores and at regional training centres, the training is conducted both by outside consultants and by Sephora’s own employees. Some training occurs on the job, when a consultant observes a salesperson serving customers. Mr Levy says the company is launching more e-learning opportunities for its employees, enabling them to access training information online and via DVDs.
The best strategies for CRM
What’s the single most effective strategy your company can adopt to keep up with changing customer needs?
Source: Economist Intelligence Unit briefing paper, 2007
Yet even where training is strong, employee commitment and retention remains a problem for much of the retail industry. Consultancies such as Forrester and Yankee Group report that poor sales help is a leading cause of customer dissatisfaction at discount stores, electronics shops, department stores and other retail outlets.
This comes as no surprise to Marilyn Moats Kennedy, a consultant who writes about business issues. She says retail sales staff tend to be in debt, switch jobs (and careers) frequently, distrust employers, eschew teamwork and work only when desperate for cash. They are, says Ms Moats Kennedy, difficult to train and impossible to retain. “It is not recruitment that counts, but recapture,” she says about retail employees. “You must make it easy for your help to come back, because you can count on them to leave.”
Turning insights into loyalty
Understanding and anticipating customers’ needs is the first step towards cementing profitable long-term relationships with them. For that reason, firms must develop insights about those needs by any means possible. They should also recognise that gaining a better understanding of customer needs and preferences will lead to a differentiated and more appealing shopping experience—leading, in turn, to greater customer loyalty and higher profitability.
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About the authors
Jeff Siegel and Bill Millar are freelance journalists who write about business issues.