Customer-Centricity? Let's Get Real

Asking a retail professional if his company is customer-centric is like asking a rhetorical question. Pressed to answer, you might get a response like, "Of course, I am! Why else would I be in business?" In fact, at the October 2006 ALEx [the Retail Industry Leaders' Association's Annual Leaders' Exchange] meeting, retailers in the audience were asked that very question. It was no surprise that 3/4 of them said "yes." In the field, almost every retail store manager has a heartfelt story about how the store staff went beyond the call of duty to solve a customer's difficult problem. It is this sort of folklore that drives dedicated retailers to punch the clock every morning. But customers aren't feeling the love. A 2005 IBM study found that more than half of surveyed consumers felt that retailers "all provide the same level of service" and "all carry the same products."

Has Customer-Centricity Missed The Mark?
In the last 50 years, as retailers sought to scale their businesses and merchandise planning and purchasing became more centralized, they had to use proxy information to understand what consumers wanted. It could no longer be left to the store manager or even the "merchant prince" to have a finger on the pulse of what consumers wanted. Retailers started collecting and analyzing information about what they themselves bought and sold and used that data to try to understand consumer demand. That was all technology could support at the time. In the process, retailers lost touch with individual consumers.

With the advent of POS systems, retailers could use item sales as the proxy for customer preference. In the last 20 years, retailers have built their merchandising strategies around their ability to analyze sales along three data dimensions: product, location, and time. Understanding the signals this information provides has enabled retailers to buy better, optimizing their supply chains and rationalizing their assortment.

It was inevitable that some retailers would start to collect sales data along a fourth dimension: customer. After all, with electronic payments and club cards, it's a natural extension of the data collection and analysis that's already being performed. Development of this new dimension has been accelerated by two 21st century realities: the overwhelming mastery of the supply chain by channel masters such as Wal-Mart and multichannel retailing. These are not cause-and-effect events. Rather, these realities have caused retailers whose business models are not built to win at operational excellence on the buy-side to focus instead on the sell-side — and consumers are asking for it!

So, what is customer-centricity? That depends. With the customer dimension, retailers can tune their offering as much as their business model enables them to. The goal of a customer-centric merchandising strategy is to present a compelling value proposition in a way that is meaningful to individual consumers. "Meaningful" means different things at different times. For Wal-Mart, being more customer-centric could mean aiming different assortments at generic local demographics. For a boutique retailer, it could mean one-to-one marketing.

Why does this matter? "Customer-centricity" is the "crease" that smaller retailers can find to slip past the channel masters. A channel master can talk the customer-centric talk, but can it ever walk the walk? This is where smaller, more nimble retailers can really shine.  What niche players have, and never gave up, is that human connection to the consumer. The channel masters lost that years ago and are only now trying to get back to a digital approximation of it.