CRM Best Practices for Luxury Retail

1. Best Practices of CRM Implementation for Luxury Retail Sector by Leo Ting 12 July 2009

2. Challenges and Current Situation of CRM Practices in Luxury Retail

4. Difficulty in assembly a 360° view of the customer due to the disparate multichannel environment. Also, the low profile of shopper’s consumption behavior is the phenomenon in luxury retail sector.

5. Shoppers having high expectations for in-store services but the delivery of a consistent service standard across channels/stores is always a challenge.

6. Luxury retailing demands for “hands-on sales approach” in terms of high-service interactions, personalized communications, custom fittings meaning that there is more in need for interaction with a customer; however, the way to measure salesperson effectiveness is a prolonging performance management issue.

8. Among the signs of multichannel loyalty management is the spread of data in operationalizing member acquisition:

9. 45% of retailers register customers via sales associate in the store

10. 41% at POS

11. 41% online

12. 21% currently use “cross channel loyalty tools that align with cross-channel customer demand”

13. 34% saying they plan to implement this capability within 2009

14. The two most effective strategies for using customer loyalty data were:

15. “elements that suit specific customer affinity and preference” (53%)

16. “personalized promotions across channels” (52%.)

17. The top two objectives driving retailers toward loyalty program objectives were:

18. lifetime customer value (57%)

19. competitive advantage (39%)“In order for loyalty to work it has to be drawn to multichannel tools. It must be utilized in store and online. It’s the only way for the customer that gets a special offer at the POS to redeem it online or vice-versa. Multi-channel operations are the only way to operationalize loyalty” - SahirAnand, Senior Research Analyst, Retail and CPG Practice for Aberdeen Group

21. 35% of respondents don’t know y-o-y same store performance

22. Similar numbers were tracked for market basket size, customer retention, customer churn, which are key data points for any loyalty program.

23. Other unknowns are more dramatic. Only 9% of the respondents said more than 50% of their customer base promoted their brand. 46% of respondents did not measure promotion among their customer base at all.

24. Real time customer data is in use now and will be a priority over the next year:

25. 14% track operational metrics within one or two hours of time of purchase.

26. 23% plan to implement real time capabilities within the next year.

27. About “near real-time” (2-6 hrs from time to purchase) data reporting on customer :

28. 30% of retailers currently use near or real time customer data generated by their loyalty initiative.

29. 26% of all respondents plan to implement real time POS data tracking within 2009

32. processes must be coordinated across the value chain to enhance customer experience

33. technology must be a customer-focused assetRefined Business Actions Specific improvements Retailers make to adapt around strategic capabilities around customer insights

34. CRM Conceptual Framework for Luxury Retail - Customer-centric CRM strategy, a Pyramid Framework A survey conducted by IBM about factors leading to retail customer satisfaction in USA, 2002 Chu and Pike concluded that CRM can do little unless the store has its retail basics in order. Customer Satisfaction There was little difference between the one-to-one experience scores of the best and worst performing stores, yet a big difference between the store experiences of differently performing shops. Customer Experience The most important factors were the in-store experience and their interactions with the sales associates Marketing & Communication Data Integration & Analysis Not the sole goals of CRM; Marcom serves the support for customer’s experience only Not the sole goals of CRM; BI/BW serves the support for customer’s experience only

37. CRM Conceptual Framework for Luxury Retail- Principles of Customer Segmentation (5 Golden Rules) An effective CRM strategy, marketing plan or product launch cannot be successful without proper segmentation. Customer segmentation is likely the most difficult and complex decision a company must make when deciding its market strategy. THERE ARE NO RULES. Getting it right isn’t simple at all. But never copy. Each successful segmentation process is different, unique, and unrepeatable. The "me too" attitude leads to failure. The originality could possibly break a market open. REDUCING A MARKET? Sometimes it’s about EXPANDING it. Some of the most successful marketing plans have chosen a larger market by “expanding” their segmentation, not only reducing it. THE "VALUE" OF THE SEGMENT. The best segments must have Potential, Lifespan, Accessibility, and Profitability. The key is identifying which segments provide value in terms of potential, lifespan, accessibility and profitability; because a sales strategy’s effectiveness increases according to our capacity to size segments, identify them, and dissect them. IT MUST BE "DIFFERENT". Each company requires a different Market Segmentation. Being The original and efficient with segmentation is key to the amount of success achieved. We create new and personalized ways of segmenting, creating Hybrid models that are easy to interpret and explain (causes, value, behavioral, psychographic, demographic, and attitudinal) in order to obtain the most useful Results from each sectorial situation and each company. CHOOSING "THE AXES" PROPERLY. Time Segmentation and Spending Causes, Demographic but with Attitudinal axes, Psychographic but with a behavioral aspect? Surely there is an answer, but to find it we must investigate, test, and challenge the market.

39. Trend-setter – A small but growing segment; the early adopters of new / niche brands who use brands more creatively to express their identity, but still prefer the mix purchases with more well-known brands, well educated, white-collar roles, not just first-tier cities

40. Connoisseurship– Connoisseurs and collectors are a rare breed but growing in number, typically >35 yrs of age, male and based in first-tier cities

42. Butterflies - the most highly evolved luxury consumers who have emerged from their luxury cocoons with a passion to reconnect with the outside world. Powered by a search for meaning and new experiences, the butterflies have the least materialistic orientation among the segments, yet they spend nearly as much as the X-Fluents on luxury;

43. Luxury Cocooners - who are focused on hearth and home. They spend most of their luxury budgets on home-related purchases;

45. Manage Up or Out – Low current value, low potential value

46. Most Favored Status – High current value, high potential value

47. Maximize – Low current value, high potential valueCustomers of high potential value may be those, for example, young, promising professionals or imminent university graduate even though they have low current value to the retailer.

49. Frequency- Customers who purchased frequently were more likely to buy again versus customers who had made just one or two purchases

50. Monetary- Customers who had spent the most money in total were more likely to buy again. The most valuable customers tended to continue to become even more valuable.High RFM customers are most likely to continue to purchase and visit, AND they are most likely to respond to marketing promotions. Low RFM score customers are the least likely to purchase or visit again AND the least likely to respond to promotions.

51. CRM Conceptual Framework for Luxury Retail - Principles of Re-evaluating Customer Segmentation (after Down Markets) Ron Shevlin, senior analyst at the Aite Group suggested that the effective way of customer segmentation is to put customers into actionable segments. Here are the recommendations: Clearly define the rules of engagement. Each customer segment should have a protocol for frequency and relevancy of communication. For example, if a fashion retailer defined one of its segments as “frequent discount shoppers” it probably alerted that segment via email and direct mail as to sales and events. Protect the Brand: The brand, is simply an aggregation of customers. Customer value is best increased by acting with the knowledge of sound segment valuation and analysis. The highest value customer segment must be shown the best practices a retailer has to offer. Although the economy may have taken some segment metrics down (such as purchase frequency) they have not taken them out. Understand segment changes: It is quite possible, and even probable, that the monetary value of key customer segments have changed. Retailers tend to reinvent campaigns based on segment value changes, and even reinvent their entire segment profile. In most cases it is not necessary. In most cases it is not necessary because changes may not mean that actual spending plans are changing but simply reflections of immediate reactions to economic changes. Real-time customer data updates can be critical. Retailers that understand the importance of customer analysis will most likely plan for better real-time customer data, and update their segment strategy accordingly.

52. The Best CRM Project Management Approach

57. Prioritization and phasing of projects is conducted with the executive team

59. A strong sponsor (skilled, knowledgeable and politically savvy)

60. Buy-in and involvement from all process owners

61. A strong leader who can hold constructive, productive brainstorming sessions, and is good at maximizing participation from the client team, capable of holding brainstorming sessions

62. Proactive feedback from all affected internal and external parties (customer groups, other inter-dependent internal departments)

63. Do not lose sight of your customer's needs

64. Installing technology without revisions in supporting processes and people/organizational elements will not result in a comprehensive CRM Roadmap.

66. CRM Technology Framework for Luxury Retail - Customer-data driven close-loop CRM Application Architecture Process Interactions between Operational CRM & Analytical CRM Back office Customer touch points (Physical Stores & e-shop ) Analytical CRM Operational CRM

67. CRM Technology Framework for Luxury Retail - CRM Technology Strategy Fairhurst’s Technology Model for CRM Technology Strategy CRM Technology Strategy for Physical Stores E-CRM Technology Strategy for Online Stores

68. CRM Technology Framework for Luxury Retail - CRM Technology Strategy and IDIC Methodology Technology Design Landscape for IDIC and the CRM Value Cycle based on Fairhurst’s Technology Model I D C I Differentiate Customize Personalized promotion Interact Loyalty purchase / redemption Customer Loyalty Mktg Customer Segmentation Content Mgt Sys. Broadcast Engine Personalization Engine POS Transaction Engine 360° view of Customer Identify E-SHOP Customer data @DW Workflow Engine Customer Experience Operational CRM Analytical CRM

69. CRM Technology Framework for Luxury Retail– The Customer-centric MARCOM Process based on Fairhurst’s Model and IDIC Methodology Customer Loyalty Marketing (CLM) Lifecycle is designed to drive the customer-centric marketing & communication process. The core process of CLM is illustrated below: OCRM: Transaction Eng. ACRM: Personalization Eng. D C 2 1 AnalyzeTarget Customer Groups from CRM DW Initiate/refine targeted marketing campaign for building customer loyalty OCRM: Transaction Eng. I 3 Run campaign with specific offers to the Target Group Planning Planning ACRM: Analytical Eng. I 7 Conduct response review, campaign effectiveness measurement and customer value analysis Execution Content Mgt Sys. Customer data @DW Review OCRM: Broadcast Eng. I 4 Execution Interact with Target Group for promotion offer announcement and personalized messages ACRM: Customer Data Storage Execution I 6 Upload promotion sales data from POS and e-shop OCRM: Workflow Eng. OCRM: Transaction Eng. I 5 Download promotional rules to store POS and e-shop and execute targeted promotions

71. Customer portal

72. e-shop

73. Social networks

74. QR code@mobile

75. VIP smartcards

76. RFID tags

77. Credit cards

78. Other sourcesData interface with POS Account / Card / Membership management Loyalty purchase / redemption / targeted promotion @ POS and e-shop Customer value analysis Data interface with e-shop Customer segmentation Mobile sales assistant with customer data (PDA) Loyalty marketing and reward management Data interface with customer portal In-store service desk / Self-service kiosk / Customer complaint management Personalized campaign management Data interface with Account / Card / Membership Mgt Customer contact management / Call centre management Data import from other sources Personalized customer messages @ POS/MMS/ eMail / social networks Customer portal with guided selling assistant & personalized content Data Sources ACRM, OCRM ETL CRM Data Warehouse

79. CRM Technology Framework for Luxury Retail- Reference Retail CRM Solution Architecture The following CRM solution architecture diagram is developed based on the CRM components defined by the Gartner’s report of Retail CRM Vendor Landscape and Capabilities, 25 June 2009 Campaign Management Loyal Program Management In-store CRM Offer Engine and Customer Analytics Collect Customer Information @ POS / e-shop Master Data Management of Customer Data Customer Touch points Back Office

81. Smart cards offer the promise of real-time earning and redemption of promotional currencies as the chip speaks to a reader at POS.

82. RFID Tags/e-Tags

83. By providing contactless communication with POS devices, RFID tracks program members and their transactions by providing a convenient, relatively inexpensive alternative to both magnetic-stripe and smart card payment systems.

84. By deploying in-store “VIP Kiosk” @ VIP area identified by RFID smart cards, VIP customer can access his buying history and preferences, skin & beauty profile and discover targeted promotions and loyalty program rewards at ease

85. By attaching the e-Tags to merchandise in the store, the following innovative ideas can be materialized:

86. Real-time shopping behavior tracking: monitoring shopper movements with electronic sensors, the retailer can keep track of every aspect of a shopper's behavior on the floor.

87. Magic mirror: recognizing instantly what fashion items the shoppers are trying and recording their queries and choices so as to make intelligent suggestions on different combination of color, style and accessories (www.retailmega.com)

89. As suggested by Mr. Youth and RepNation Media, there are 5 golden rules of engaging Consumer 2.0, the Gen-Y, who fully embrace Web 2.0/social networks. Consumer 2.0 increasingly trusts recommendations from fellow consumers. http://www.digiredo.nl/Download/Consumer2WP_RepNation.pdfIn addition traditional mass media, Web 2.0/Social Networks now becomes a growingly important interactive media for retailers to build their brands by finding the ways to gain the word-of-mouth among Consumer 2.0 community groups. A 2006 survey by Forester and Intelliseek shows recommendations from consumers as the clear leader in consumer trust with most traditional media outlets receiving half that vote of confidence.

91. Real-time POS is a necessity to support multi-channel loyalty purchase and redemption

92. Mobile Phone + QR Codes (2D Barcodes)

93. VIP Identification: allow consumers to use their smart phones in place of their loyalty card

94. Social CRM@Mobile: allow consumers to add social networking applications so that consumers could share wish lists and new product information with their contacts.

95. Mobile Voice: allow consumers to access reviews at hosted mobile websites via product categories, keyword search and product pages.

96. QR Codes: automatically present anything from like product reviews to like product pictures in Mobile Phone.

97. Smart phone Sales Assistant + WIFI (in-store) or 3G/HSDPA (outdoor)

98. Enhancing customer service by queue busting, price look-up, inventory look-up, layaway.

99. 3rd Generation Loyalty “rule engine”

100. Open-end rule-based engine

101. Inputs can be internal event (real-time/batch) or external event (scheduler)

104. By attaching the electronic tags to merchandise in the store and monitoring shopper movements with electronic sensors, the retailer can keep track of every aspect of a shopper's behavior on the floor.

105. The size of a postage stamp, e-tag chips are capable of storing and sending wireless signals with information such as the product name, when it was manufactured, its location, directions for use and expiration date.

106. By combining the e-tags with their loyalty program, Prada can create "brickstream" profiles to enhance their consumer data.

107. As a customer heads to the fitting room, clerks can monitor their route and provide an image of the garment and details about its cut, fabric, and color.

111. Sephora’s launch with mobile voice application generated more than 100,000 reviews within days

114. After that they receive one to two e-mails per week. They also receive Perk Alerts which are Beauty Insider-specific offers: exclusive products, early access to products, special promotions. That goes out on average every other week.

115. Also, when the consumer gets her shipping confirmation Sephora has applied some of the dynamic personalization tools.

116. Sephora treats e-mail as an extension of the brand, including the next best product or a helpful tip, which is a extension of the brand experience that Sephora has established for itself.

117. A key component of that was personalization and serving up recommendations and content based on information Sephora knows about her clients. Both content and product data are automatically inserted based on business rules.

121. Consider alternative (less expensive) channels of delivery—Victoria’s Secret is planning to test inserts of their direct mail piece as FSIs in newspaper deliveries, as well as using concierges to deliver the CRM piece to high tourist areas. The retailer is also increasing the number of email contacts to target high quantities of existing customers, including those not captured in the current CRM database.

122. Reward loyalty—For those customers who continue to be loyal and maintain their spending and trip frequency, it’s important to reward that behavior. Victoria’s Secret offered branded gifts valued at US$40 each during the holiday season and saw significant increase in a 12 month period.Source: Retail CRM Blogger, 12 May 08

125. Twitter offers many benefits - in addition to communicating online or in-store sales and promotions to followers, Twitter is a great way to monitor and track what people are saying about the brand. Some companies also use Twitter to address customer service issues and internal company communications.

127. By using widgets, Mandee creates multiple surveys which plug into all of their social network pages (Facebook, MySpace, Twitter, MyYearbook, etc), to find out about customer preferences, such as favorite color to wear for spring and what world issue customers are most concerned about.

132. The myShape site will continue to evolve with new services and offerings, including a social networking component.Source: Retail CRM Blogger, 20 Nov 08

133. Thank you for Spending Your Time to Read this Article Through For any comments about this article, please send me an email. leo.ting@yahoo.com