Enterprise Loyalty: Power-Charging Your Merchandising Success

By Brian Ross, bross@precima.com

In today’s competitive environment, enterprise loyalty is king. Companies must embark on their strategic journey influenced by customer insights. These insights are gained through transactional data and allow for the shifting of mindset, culture and strategy across the entire enterprise – everywhere from merchandising and store layout to pricing. Sharing this information across the organization — beyond simply the marketing department – is essential to customer-centric merchandising.

Insight into what profitable customers are buying — not simply what product sells the most can power-charge your merchandising success. Here's how to begin to optimize your assortment today.

When it comes to optimizing the assortment of products in a retail store, major retailers typically focus only on carrying items that deliver the greatest sales and profits. Traditionally, retailers have identified store clusters – those with similar customers and sales – and ranked items by volume sales or profit. Then, they have eliminated those items at the bottom.

But, what if I told you that this approach can lead to sub-optimal results?

Take the retail powerhouse Walmart, for example. In 2010, the discount shopping giant famously skewered hundreds of SKUs in an effort known as "SKU rationalization," meant to optimize the chain's assortment.

Unfortunately, it turned out that although these items weren't the highest-volume sellers, many were, in fact, important to Walmart's best customers. It wasn’t long before Walmart realized that de-listing these products resulted in lost sales from customers who could no longer find what they wanted. Finally, the company backpedaled and put 300-400 of those SKUs back on the shelf.

If Walmart had a loyalty program, its ability to analyze data from that program would have put them at a distinct advantage. Retailers who have customer data through loyalty or card programs can proactively identify the items that matter most to their best customers and factor that information into their assortment decisions.

Enterprise loyalty principles can truly power-charge retail merchandising strategies, which are the profit engine of most retailers. After all, a store's merchandising efforts – all of the decisions surrounding categories and assortment, from price to quality to breadth to depth – exert the most influence on a consumer's total store experience. Yet, in a traditional retail structure, loyalty efforts have typically fallen under the marketing umbrella.

Ready to shift from this traditional view to avoid letting loyal customers slip away? If so, the merchandising area is an obvious, essential place to start leveraging the data-driven principles of enterprise loyalty.

First: Make a beeline for your best customers
Start by figuring out who your best, or high-priority, customers are. Then, determine what matters to them. Knowing and pleasing best customers can prove to be an important way to win against competitors who don't have either access to, or the ability to leverage, customer data.

Then: Identify those with the most spend or greatest potential
There is no one-size-fits-all approach to defining and identifying best customers, but essentially you need to use data and analytics, from your loyalty program, among other areas, to look at your current customer base and identify which customers either contribute the most financially or offer the greatest potential value in terms of spend. So, it's not just about focusing on those who give you the greatest share of wallet, but also about those who aren't shopping to their full opportunity or potential. Then determine what an optimal assortment is in a particular category that reflects what your priority customers are looking for?

Next steps: Change your frame of reference from traffic-builder to destination
Look at each category in a different way: Determine category roles, strategies and assessments by analyzing and understanding how your best customers shop. Use a priority shopper view to determine which categories are truly destinations versus routine, occasional or convenience purchases to determine your optimal assortment and improve your category strategies.

For a typical retailer, this might mean targeting three to five categories in which to focus on differentiating itself, either in quality or service – not necessarily on price and become the source for the core customers. Focus on having the greatest depth and breadth of those target categories.

Looking at your priority categories under a destination framework first will offer vastly different decision-making strategies than if you competed solely on price. Of course, you must still examine the varying degree of importance of individual items to a category once you get down to the nitty-gritty of specific list/de-list decisions.

The final move: Overcome internal obstacles to discover assortment opportunity
More often than not, the biggest barrier to executing a customer-centric assortment strategy results from lack of organizational commitment and change management. Such commitment involves not only buy-in from the c-suite, but also acceptance and understanding from the category managers. This acceptance is facilitated by supplying them with the right data, tools and processes to institute the assortment strategy.

The organization must also change to support the new approach, examining how teams are evaluated and compensated, beyond the traditional measurement of total sales and profits, to include customer-centric metrics. The organization must change compensation strategies – including how the merchandising team is measured against those new decision-making options.

As with the entire enterprise loyalty journey, the move toward assortment opportunity means fundamentally changing traditional decisions using additional metrics.

That said, understanding your assortment's role and importance to priority customers and optimizing those assortments by customer and by store can increase your bottom line and send you farther down the path toward enterprise loyalty.

Brian Ross is president of Precima, where is responsible for Precima's overall strategic and operational management as well its relationships with customers and business partners. As part of the LoyaltyOne group of companies, Precima has been helping consumer-focused clients develop effective shopper-centric strategies since 1991. He can be reached at bross@precima.com.

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