Magazine Article | December 1, 2005

Customer-Centric Measurement

Source: Innovative Retail Technologies

Incorporate customer behavior into the marketing ROI model.

Integrated Solutions For Retailers, December 2005

In recent years retailers have primarily focused on achieving efficiencies and lowering costs through integrated supply chain management and operational focus. However, while improving processes and driving down costs, retailers must remain competitive by delivering the products, shopping experience, and service that the shopper values. This creates a "black hole" of marketing spending and measuring marketing efficiency.

Insight into consumers' preferences and value systems has become the Holy Grail for retailers. As a result, many have shifted marketing spend from general marketing campaigns to more product-focused and consumer-centric initiatives. Knowing that aligning price, promotion, and store layout with customer shopping patterns and preferences has enormous benefit potential creates the need for fact-based understanding of marketing effectiveness relative to customer wants.

So, how can retailers measure the success of marketing activities? And, is it possible to accurately quantify elusive customer behavior and preference data?

Category Management, Statistics Are Not Enough
Few retailers have built comprehensive ROI models to effectively measure marketing spend. Category management offers productivity measurement, but this alone is one-dimensional. The statistical data available through measured modeling of mass, electronic, and online media provides little actionable data regarding real-time, in-store marketing effectiveness.

Typical best efforts at measuring the impact of point-of-purchase (POP) or newspaper inserts and ads include customer surveys and mystery shoppers. But these are time- and labor-intensive, prone to a high error rate, and nearly always site-specific. Therefore, retailers are left using ad cost versus sale uplift as the best means of measurement. Of course, for any true relevancy, the ad must be tracked and repeated for comparisons against same time period last year and same store sales. This lengthy process allows ineffective campaigns to be repeated at the cost of other, more successful ones.

Perhaps the greatest frustration for retailers is measuring customer behavior while in the store. The traditional dominant reliance on transactional POS data can be effective at capturing customer behavior in terms of top line sales, but does not capture lost opportunity or true conversion. A true ROI model must incorporate opportunity costs and true costs of capital to determine the actual value of any marketing spend.

Marketing budgets are under increased scrutiny. As John Wanamaker once said, "I know that 50% of my marketing budget is wasted - I just don't know which half." So how can you measure the impact of your marketing activities on your target audience? The answer is in creating a holistic view of your customer that examines how and when they shop, what promotions catch the eye - and wallet, and how they interact within your store:

  • Capture opportunity costs through true conversion methodology by implementing a store traffic counting solution that is integrated with your POS system.
  • View the impact of newspaper and ad inserts as the ratio of opportunity to sales.
  • Measure the time customers spend in the store.
  • Track, measure, and improve the number of employee/customer interactions - the higher the number, the more assured you are of a sale.
  • Understand how your customers "flow" and "dwell" through your store and which are the most visited departments.
  • Measure the stopping power of your POP displays and digital signage.

Marketing efforts will be far more successful and profitable by integrating all data and measurement available to them. Using this holistic profile of the customer as the measuring stick for marketing dollars empowers retailers to plan and measure to outcomes.