Customer centricity 2.0 the rise of the chief marketing officer(1)

Customer Centricity 2.0: The Rise of the Chief Marketing Officer

2011 Benchmark Report

Nikki Baird and Paula Rosenblum, Managing Partners

December 2011

Sponsored by:

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Executive Summary

Retailers are currently struggling with something beyond a proliferation of channels – it’s more like an explosion - both for selling to and communicating with consumers. This disruption is hitting the marketing department, as retailers rush to provide a single customer experience across digital and traditional channels. It is also felt within the retail executive team, as a new center of gravity - customer, rather than product - is taking center stage in the retail enterprise. This report explores the challenges and opportunities for retailers navigating these uncertain times in the world of “Marketing”.

Business Challenges The main retail marketing business challenges can be expressed as what RSR calls “the uncertainty trifecta:” retailers don't know who to target, they don't know how best to reach them, and they don't know how to measure the effectiveness of the efforts they make. Part of the issue lies squarely with leadership - when "everyone" owns the customer relationship, in effect, no one owns it. Compounded by the pressures that digital channels present, both from an opportunity and from a measurement perspective, the chances of achieving a single voice or face or even brand identity to the customer is small.

Opportunities Opportunities focus on two distinct areas: the marketing organization, and the measures through which we measure that organization’s effectiveness. Marketing is still measured on its perceived ability to drive sales. Many retailers operate with a split marketing organization, where digital and corporate marketing go head-to-head in managing communication channels. “Corporate marketing” holds on to traditional media like print and TV advertising (for which investment is on the decline), and the digital group manages areas of future growth including social media in all its stripes. Ultimately, until marketing, no matter where it lives, shifts from driving sales to building the brand as its main objective, many of these efforts will continue to fall flat.

Organizational Inhibitors Retail survey respondents report that their top three organizational inhibitors are poor measurement, lack of coordination, and missing data. The lack of coordination is a channel issue as much as an organizational one. Retailers' priorities for overcoming these inhibitors include formalizing roles and bringing better technologies to the table.

Technology Enablers In the realm of technology, "platform" seems to be the operative word for supporting and enabling marketing activities. Between digital marketing platforms and customer relationship management, survey respondents are looking to technology to help enable both the single view of the customer and the single face to the customer that they would like to present.

BOOTstrap Recommendations Marketing's nascent awakenings in retail should bring many issues to the surface - questions like, how can I leverage the content that I own or that has affinity to my brand to better deliver a customer experience across channels? But answers will remain unclear until the most important ones are asked: Who is the owner of the customer experience at my company? Is that the right person?

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Table of Contents

Executive Summary .......................................................................................................................... ii Table of Contents ............................................................................................................................ iii Figures ............................................................................................................................................. iv Research Overview ......................................................................................................................... 1

Why This Study Was Conducted ................................................................................................. 1 Methodology................................................................................................................................. 2 Defining Winners and Why They Win, and Why Laggards Fail ................................................... 2 Survey Respondent Characteristics ............................................................................................ 3

Business Challenges ....................................................................................................................... 5 The Uncertainty Trifecta ............................................................................................................... 5 #1 - Who to Target ....................................................................................................................... 5 #2 - How To Reach Them ............................................................................................................ 7 #3 - Did It Work ............................................................................................................................ 8

Opportunities ................................................................................................................................. 10 Asking for A but Rewarding B .................................................................................................... 10 Differences between Corporate and Digital Marketing Spend ................................................... 11 Marketing Investments Will Shift in the Coming Years .............................................................. 11 As the Spend Shifts, New Tools Needed to Measure Results .................................................. 12

Organizational Inhibitors ................................................................................................................ 13 Poor Measurements, Lack of Coordination, and Missing Data ................................................. 13 Formalizing Roles and Bringing Better Technologies to the Table............................................ 14

Technology Enablers ..................................................................................................................... 16 If Only Marketing Had A Platform... ........................................................................................... 16 From Stepchild to Cinderella ...................................................................................................... 17 Cleaning Up A Dirty Word .......................................................................................................... 18

BOOTstrap Recommendations ..................................................................................................... 19 Marketing is to Brand As Operations is to Sales? ..................................................................... 19 Back to the Future ...................................................................................................................... 19 Reality Check ............................................................................................................................. 20

Appendix A: RSR’s Research Methodology .................................................................................... a Appendix B: About Our Sponsors.................................................................................................... b Appendix C: About RSR Research ................................................................................................... c

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Figures

Figure 1: CMO Early Days ............................................................................................................... 1

Figure 2: Top-Level Access When It Comes to the Customer ........................................................ 2

Figure 3: An Uncertain World .......................................................................................................... 5

Figure 4: Channel Proliferation Means Data Proliferation ............................................................... 6

Figure 5: Loyalty's Uncertain Role in "Knowing" the Customer ....................................................... 6

Figure 6: Can You Hear Me Now? .................................................................................................. 7

Figure 7: When Does 'Everyone' Mean 'No One'? .......................................................................... 8

Figure 8: A Laser Focus on the Customer .................................................................................... 10

Figure 9: …with a Conflicting Way to Measure Success............................................................... 10

Figure 10: Online, Mobile and Social Coming into the Forefront .................................................. 12

Figure 11: Poor Measurements and Lack of Coordination Hamstring Retailers ........................... 13

Figure 12: Resource Constraints and Lack of a Business Case ................................................... 14

Figure 13: A Leader, Coordinator and Better Technologies Needed ............................................ 15

Figure 14: CRM, Out of the Doghouse .......................................................................................... 16

Figure 15: The Technology Gaps That Fall Between Cracks ....................................................... 17

Figure 16: Investment Progress, Future Plans .............................................................................. 18

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Research Overview

Why This Study Was Conducted Selling and communication channels in retail haven't so much as proliferated as exploded, creating new challenges for retailers as they scramble to align their brand identities across these disparate touch points. New channels also create opportunities: retailers now have access to more details about their customers’ tastes, preferences and buying patterns than ever before - if they could only use this information to create a better retail experience. This confluence of events, all centered on the customer, has brought a once background retail corporate player into the mainstream of day-to-day retail operations: the Chief Marketing Officer.

This report examines the current state of the retail marketing department. Along with the day-to-day disruption caused by channel proliferation, retailers are also in some organizational disarray - with merchandising groups owning promotions, marketing owning traditional advertising channels, and the eCommerce team creating new digital channel opportunities every day. Are retailers elevating the role of marketing internally? Are they consolidating marketing functions that currently exist across the enterprise?

The early answer is "sort of". While Winning Retailers - those that outperform their peers - are more than three times as likely to report that they have a Chief Marketing Officer at the helm of the customer ship, they are also more than twice as likely to say the responsibility resides at the director level (Figure 1).

Figure 1: CMO Early Days

Source: RSR Research, December 2011

The wrench in the works, as you will see in this report, is digital channels. In general, the eCommerce team has overseen the largest expansion of customer touch points in retail. Retail Winners have been very careful to stay on top of that wave, but also readily acknowledge that the future of their customer strategy is more likely held by the eCommerce or digital marketing director than by the traditional marketing organization. The net result: a marketing organization in flux.

The good news is that, at least compared to the IT department, marketing generally has more access to the executive office. Despite the fact that a clear majority of respondents (75% overall

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What is the Title of the Chief Marketing Executive at Your Company?

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between VP and director) do not have C-level representation for marketing in their companies, 71% of respondents also say that their chief marketing leader reports to the CEO (Figure 2).

Figure 2: Top-Leve l Access When It Comes to the Customer


These shifts have profound implications to the enterprise as a whole, and most especially to the realm of IT Governance. Someone must represent the customer in a seat at the IT Steering Committee table. Will it be the CMO? Someone else? In many ways, the answer will depend on whether retailers decide if they can move from marketing as a driver of store traffic to marketing as strategic owner of the customer relationship. That is definitely not a foregone conclusion at this point.

Methodology RSR uses its own model, called the “BOOT,” to analyze Retail Industry issues. We build this model with our survey instruments. Appendix A contains a full explanation of the methodology.

In our surveys, we continue to find differences in the thought processes, actions, and decisions made by retailers who outperform their competitors and the industry at large – Retail Winners. The BOOT model helps us better understand the behavioral and technological differences that drive sustainable sales improvements and successful execution of brand vision.

Defining Winners and Why They Win, and Why Laggards Fail Our definition of Retail Winners is straightforward. We judge retailers by year-over-year comparable store/channel sales improvements. Assuming industry average comparable store/ channel sales growth of four percent in 2010 compared to 2009, we define those with sales above this hurdle as “Winners,” those at this sales growth rate as “average,” and those below this sales growth rate as “laggards” or “also-rans.” It is consistent throughout much of RSR’s research findings that Winners don’t merely do the same things better, they tend to do different things. They think differently. They plan differently. They respond differently.

Laggards also tend to think differently. They may have spectacular vision, but often fail on execution. They may forget the power and breadth of choices today’s customer has. They fail to re-invent themselves when it becomes obvious their existing business model is no longer working. They don’t change their business processes in an effective manner, and so they either eschew technology enablers, or don’t gain expected Return on Investment on those they DO buy. In good times, they skate by: in tough times these weaknesses come back to haunt them.

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Other

Chief Merchant

Chief Customer Experience Officer

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CEO

Who does the chief marketing executive report to in your company?

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Survey Respondent Characteristics RSR conducted an online survey from September - November 2011 and received answers from 57 qualified retail respondents. Respondent demographics are as follows:

• Job Title:

Senior Management (e.g., CEO, CFO, COO, CIO) 26% Vice President 15% Director/Manager 41% Internal Consultant 3% Staff/Other 15%

• 2010 Revenue ($ Equivalent):

Less than $50 million 26% $51 million - $999 million 27% $1 billion - $5 billion 28% More than $5 billion 18%

• Year-Over-Year Comparable Store Sales Growth Rates (assume average growth of 4%):

Worse than average 18% Average 38% Better than average – single digit growth 28% Better than average – double digit growth 15%

• Headquarters/Retail Presence:

USA 67% 72% Canada 13% 33% Latin America 0% 13% UK 0% 21% Europe 5% 23% Middle East 0% 15% Africa 5% 15% Asia/Pacific 11% 26%

• Functional Responsibility:

Merchandise Management 12% Marketing 42% Store Operations 9% IT 30% Finance 6%

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• Primary Category:

Apparel, Footwear and/or Soft home 29% General Merchandise and Hard Goods 13% Groceries 18% Hardware and Construction 3% Drugs 3% Jewelry and Accessories 5% Home Furnishings 8% Music, Books and Entertainment 5% Prepared Food 0% Fuel (Petrol) 0% Auto Parts 3% Miscellaneous Services 13% Other 20%

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Business Challenges

The Uncertainty Trifecta When it comes to reaching consumers, retailers struggle with an uncertainty trifecta of business challenges: they don't know who to target, they don't know how to best reach them, and assuming they manage to get the first two right, they have no idea how effective their communications are (Figure 3).

Figure 3: An Uncertain World


While Winners and laggards put a different emphasis on the order of the top three (laggards are more overwhelmed by channels, Winners by customer segments), overall the top three challenges are the same for both groups.

By retailer size, the challenges remain consistent with only two exceptions: the smallest retailers (under $50 million in revenue) are most challenged by the unproven effectiveness of communication channels, and the largest retailers (over $1B in revenue) are much more worried about how to differentiate themselves from their peers. Neither of these priorities is surprising. The smallest retailers tend to also have the smallest appetite (or cash flow) for risk - risk in the form of bets made on new or experimental ways to engage with customers. The largest retailers are facing a double-sided threat - a sea of sameness as nearly every retailer seems to carry nearly every major brand on one side, and Amazon.com threatening to turn their stores into showrooms on the other.

#1 - Who to Target Retailers collect more data about customers than ever before - and have more channels that can serve as sources for collecting customer data (Figure 4).

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Uncertainty around regulations impacting privacyand the use of customer data

Competitors can see and copy innovations tooeasily

The uncertain economy constrains our marketingbudget

It's hard to differentiate our brand from ourcompetition

Too many communication channels haveunproven effectiveness

We can't keep up with all the new ways to engagewith consumers

Customer segments are fragmenting, making itharder to reach our consumers

Top-3 Marketing Business Challenges

Winners Others

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Figure 4: Channel Prol i feration Means Data Prol i feration


While there is certainly a lot at stake in terms of translating all of this data into actionable customer insights, the challenge is more deep-rooted than that. A clear majority of retail survey respondents say they believe their company knows who their best shoppers are. But the agreement starts to fall apart from there. Only 35% of respondents agree - and of those only 4% strongly agree - that their company is proficient at targeting across channels, and another 41% of respondents argue that loyalty programs are not a strategic asset for gaining better insight into how customers tend to shop across channels (Figure 5).

Figure 5: Loyal ty 's Uncertain Role in "Knowing" the Customer


Winning retailers are the most pessimistic - or perhaps the most realistic - of our survey respondents. Thirty percent of Winners disagreed that their company knows their best shoppers vs. 18% overall. Another 53% disagreed that their company is proficient at targeted marketing across channels. And fully 70% disagreed that a loyalty program is foundational to their strategy, with 0% strongly agreeing.

This pessimism seems to have come from experience. RSR has been surveying retailers about their customer programs since 2007, and in that time we have seen Retail Winners move from

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Consumer Mobile (location-specific)

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Call Center

Social networks

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Selling Channels that Collect Customer Data

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enthusiastic embracers of targeted, personalized, one-to-one marketing to the biggest skeptics of all. The challenge is context - it's easy to know a lot about customers, but it's very hard to know which pieces of knowledge are most important at any given time. Guessing wrong can have drastic consequences - up to and including risking a relationship with a valuable lifetime customer.

The smallest retailers demonstrate the challenge at the other end of the spectrum. They are most likely to say they know who their best shoppers are and not want to rely on a loyalty program to get that information. This knowledge comes from direct contact - from that local store relationship with a customer. Largest retailers report the exact opposite. They are the most unsure about who their best shoppers are and the most likely to turn to a loyalty program to help them find out. Smallest retailers have the advantage in intimacy, but have achieved it through personal relationships, which are nearly impossible to scale as the retailer grows.

#2 - How To Reach Them Alongside more data, retailers have more channels in which to both communicate and transact with customers. In fact, for the first time in RSR's research, we had respondents report that they were as likely to operate an online channel as stores - a shift from store dominance in the past (Figure 6).

Figure 6: Can You Hear Me Now?


The only channel that has yet to achieve a strong showing is mobile, but by no means count it out. From RSR's other research on the mobile channel, retailers will make significant inroads in mobile capabilities in 2012 - if they haven't already.

One result from this survey perhaps serves as a portent of things to come: the smallest retailers (under $50 million in revenue) are the most likely to report that they don't have stores (45% of smallest retailers reported stores as a channel vs. 94% of those over $1 billion in revenue), and also the most likely to report a presence in social channels (64% vs. 40% of the largest retailers). eCommerce and social channels are currently two of the most inexpensive channels to operate. But it raises the question - outside of a few exceptions, can retailers expect to get to $1 billion in revenue, or $5 billion, without stores? Will social and mobile be enough to offset the "presence"

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Mobile SMS campaigns

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that stores provide? Either way, retailers of all sizes seem to be re-evaluating their investment strategies across all of these commerce channels.

#3 - Did It Work The third leg of the uncertainty trifecta is measuring the effectiveness of new communication channels. Marketers of all stripes have struggled with the question of effectiveness for so long that Lord Leverhulme's (founder of Unilever) quote about it has almost become cliché: "Half the money I spend on advertising is wasted, and the problem is I do not know which half."1

In other RSR reports, including those on loyalty and CRM as well as Business Intelligence, we have devoted a lot of effort into benchmarking the mechanics of measuring effectiveness. On the CRM side, retailers seem to do a very poor job of tracking offer redemption, which automatically locks them out of opportunities to understand which customers responded to which offers. If you throw an offer or campaign out into the market and don't pay much attention to who redeemed it, how will you know who to make that offer to in the future? Perhaps it doesn't much matter - retailers also report that they are overwhelmed by customer data, often lacking both the resources and the skills to analyze customer data in a timely, repeatable fashion. Sometimes the issue is as basic as the retailer being sure what salient questions to ask about its customer.

These problems, however, are symptoms of a larger issue. And this issue brings us back to marketing's role in managing the customer experience. Across our survey respondents, there is no majority identifying a specific role or person in charge. The executive team edges ahead in the plurality, followed by the chief marketing officer, but the numbers fall off rapidly after that (Figure 7).

Figure 7: When Does 'Everyone' Mean 'No One'?


Unless your organization has a strong single owner of the customer experience, it will continue to struggle with the "did it work?" question. That might, at first glance, seem to place too much emphasis on leadership's role in answering a relatively simple measurement question, but the

1 http://www.12manage.com/quotes_m.html

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Who is the individual primarily responsible for the customer experience?

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challenge here isn't so much about the numbers as it is the strategy and the objectives - and that is very much a leadership question.

As an example, take one very simple targeted offer. Cola Company #2 approaches the merchant at a grocer and says "I would like to offer a discounted price to all of your shoppers that buy from Cola Company #1, and in return I will fund that discount - it will drive more sales in the category and everyone will be happy." The merchant agrees, Cola #1 customers duly receive their discount, some of them switch or supplement, and everyone is happy - except for a certain segment of customers.

In the early days of loyalty programs, consumers didn't have much expectation for how retailers used the data they collected. Nowadays, everyone is in on the game and how it works - and because of the personalization that websites can provide, consumers increasingly expect the same level of personalization across all of a retailer's touch points. If a shopper has never bought Cola #2, even after receiving multiple offers for Cola #2 in the past, is the retailer building a good customer experience by continuing to offer that shopper discounts on Cola #2? Or is it demonstrating that it cares nothing for the shopper's preferences or past purchase history and is just trying to make a buck? Cynicism can develop rapidly on both sides of the customer experience.

This example can easily happen in a situation where the "executive team" owns the customer experience, because merchandising has a completely different view than marketing of what makes for a "good" customer experience. In fact, it can also easily happen when the lead marketer alone owns that relationship. In most retail organizations, the marketing department has far less influence over the customer relationship than merchandising, particularly in heavily promotional environments. However, the same challenges exist in any other retail vertical - relevancy can be as simple as only offering deals on women's apparel to the single female shopper, rather than spamming her with offers she has never shown a propensity to use - like for menswear or children's clothing, as an example.

The point is this: when "everyone" owns the customer experience, unless someone takes the lead in defining what that experience needs to be - and measuring and enforcing execution against that definition, you might as well have no one owning the experience. And while marketing may be the right owner of the customer, if they don't have the organizational sway internally to enforce the experience they are trying to create, why bother designating them the owner in the first place?

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Opportunities

Asking for A but Rewarding B Given the “uncertainty trifecta” exposed above, it’s not surprising to see the perceived opportunities our respondents identify. These opportunities are the tip of the iceberg in a fundamental retail shift: a movement away from the product-centric thought of “If we get the right stuff they will come” to “How can I please my customers?” This is clear when we look at Figure 8.

Figure 8: A Laser Focus on the Customer


However, there is a notable lack of clarity on how to actually achieve that goal, and some pretty tired metrics associated with recognizing that the enterprise is moving in the right direction (Figure 9).

Figure 9: …with a Confl ict ing Way to Measure Success


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New marketing channels enable us totruly differentiate our brand

To become more brand-focused

Delivering real-time personalized offersto consumers

Targeting better through more detailedcustomer preferences

Turning customers into advocatesthrough social media

A greater focus on customer, less onproduct

Marketing Opportunities

Highly valuable Somewhat valuable Little to no value

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Communicate promotions

Build customer loyalty

Build the brand

Drive traffic (stores, website)

Drive sales

Marketing's Primary Objective

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We were frankly surprised to discover that with all the talk about brand building, turning customers into advocates, and personalizing offers, half of our retailer respondents still identify marketing’s primary objective as “Driving Sales.” Retail Winners were slightly less apt to cite this as their primary objective (45% vs. 53% of other respondents), but the number is still disconcerting. We expected to see much more focus on building the brand and building loyalty.

We fully understand that a retailer’s primary objective is to “sell stuff” – LOTS of stuff – but those sales are an outcome. Today’s over-educated consumer can find alternative sources for almost anything, and she is generally willing to trade a certain amount of her privacy for relevancy. In fact, through social media sites, reviews and blogs, she has made her interests quite clearly known. Returning to the soda example in the previous section, sending offers for cola #2 may be justified as an attempt to drive sales, while the outcome is a somewhat tarnished store brand, and a frustrated, likely less loyal consumer.

As always, we acknowledge that people do what they are paid to do. If the marketing department is rewarded for driving sales, brand-building and relevancy may take a back seat to the immediate need to get the virtual and physical cash registers ringing. We believe there is great opportunity in retailers re-thinking objectives and compensation strategies for their marketing departments to better align with customer-centric objectives.

Differences between Corporate and Digital Marketing Spend The current marketing spend goes to unremarkable mass media channels: print (89%), online (84%), traditional radio, TV and direct mail (82%), with a new nod to relatively inexpensive social media (75%).

Not surprisingly, the largest retailers (those with more than $1 billion in annual revenue) have the highest propensity to spend on mass media. The smallest retailers (those with revenue under $50 million) tend to rely on print ads, most likely in local papers. The mid-market ($51-$999 million in annual revenue), are most focused on online ads, search engine optimization, and social media.

We see some differences (and similarities) by corporate vs. digital marketing groups that are worthy of note:

• Almost no digital marketing departments own the budget for the traditional mass media of print, TV and direct mail

• Facebook, mobile, and other online advertising budget is roughly divided between digital and corporate marketing

• Corporate marketing is more likely to own both Twitter (40% vs. 29%) and single offer discounts like Groupon or Living Social (35% vs. 14%)

Some of these variations are surprising, and we continue to ponder the division of labor between corporate and digital marketing, even as we wonder when retailers will put these groups under one umbrella. The opportunity: consistency in messaging in reaching the omni-channel consumer.

Marketing Investments Will Shift in the Coming Years We are clearly early in the omni-channel marketing era, but things are maturing rapidly. That is evident when we look at planned shifts in investments over the next year (Figure 10).

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Figure 10: Onl ine, Mobi le and Social Coming into the Forefront


Clearly, retailers are moving into virtual channels with investment increases reported in online, mobile, social and search engine advertising. Traditional TV, radio and direct mail will mostly remain the same, while print continues to decline. The reasons for print declines are a mixture of obvious and subtle. The obvious: untargeted and expensive. The subtle: the long lead times required in many cases are antithetical to the rapid responsiveness needed by today’s retailers.

As the Spend Shifts, New Tools Needed to Measure Results Clearly more granular and targeted advertising allows for more granular analysis of results. Retailers need new technologies and analytics for their digital and corporate marketing departments to measure the effectiveness of their investments. We’ll take a look at the tools they prize and plan to purchase in the Technology Enabler section of this document.

First, however, we’ll investigate what might stand in their way of taking advantage of new and existing opportunities: Organizational Inhibitors.

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Print ads - includes newspapers, magazines,inserts/circulars

Single-offer discounts (for example, Groupon orLiving Social)

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Traditional advertising (TV, Radio, Direct Mail)

Twitter

Search advertising

Facebook or other community social network (forexample, Hi5 or Renren)

Mobile advertising

Online advertising

How will your company's investment in each channel change in the next year?

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Organizational Inhibitors

Poor Measurements, Lack of Coordination, and Missing Data When your marketing department’s objective is to “drive sales,” measuring effectiveness across an unpredictable (and partially anonymous) path to purchase can be challenging. Our retail respondents agree (Figure 11).

Figure 11: Poor Measurements and Lack of Coordination Hamstring Retai lers


Winners are most challenged to coordinate internally (71% vs. 48% of all others). This is part and parcel of the Retail Winner’s dilemma. They tend to be moving quickly to press their advantage, and don’t necessarily work well across departments. As we’ve already pointed out, compensation strategies don’t encourage cross-department collaboration either.

Others are more challenged to get the basics in order, like understanding how different customer segments engage with them. Walmart has gone so far as to buy its own social media company and create separate Facebook pages for every store in an attempt to get a better handle on its customer. There are some indications of success, as the company posted the first positive quarterly comparable store sales in two years this past quarter.

The data above map well to the Organizational Inhibitors our respondents identify. The number of real-time channels continues to proliferate like bunnies, and many retailers don’t have the technologies available to help understand exactly what they’re getting out of the investments in people and products they do make (Figure 12).

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Consumers privacy concerns over how we collect oruse data

The technology is not advanced enough to supportthe kind of brand experience we'd like to offer

Customer expectations limit how quickly we caninnovate in our marketing communications

Measuring the cross-channel impact of differentmarketing tactics

Understanding and accommodating how differentcustomer segments engage with us

Difficulty coordinating internally to create a seamlesscross-channel experience

Measuring the effectiveness of different marketingtactics

Top-3 Marketing Operational Challenges

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Figure 12: Resource Constra ints and Lack of a Business Case


Again, when your primary objective is to “drive sales,” it is very difficult to measure the return on any investment that doesn’t result in a direct boost in revenue. Having said that, companies have been spending fortunes on Superbowl ads and stadium naming rights for decades, with nary a tool to determine if there’s any return on those investments beyond Q Scores.

Formalizing Roles and Bringing Better Technologies to the Table For several years, RSR has noted the culture shock brought on by the sudden influx of customer-specific data into the retail enterprise. As early as 2007 our benchmark data revealed that more often than not, customer data had no explicit home, with marketing sitting as the de facto owner.2 This state has stabilized somewhat, as two-thirds of this year’s respondents report marketing as the explicit owner and another 22% report the “direct, eCommerce channel” as the explicit owner. Only 18% still report no explicit owner of customer data.

With these roles formalized, retailers now recognize the value of coordination and charging someone within the organization with managing the Customer Experience. As we noted on page 8, this Customer Experience Manager is still notably absent.

There is also a strong recognition that new technologies are needed to support managing omni-channel marketing, solutions that are easily digestible by both users and IT (Figure 13).

2 Getting Loyalty Programs Back to Loyalty: Benchmark Study, July 2007, by Nikki Baird

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Marketing can't get its share of capital budget for newanalytics

The merchandising organization does not understandthe digital strategies we need to support marketing

The executive team doesn't understand theopportunity

Difficulty getting IT resources for marketing projects

ROI is hard to quantify

We don’t know how to turn customer data into actionable business intelligence

We don't have enough marketing resources to manageall the available opportunities

Top-3 Organizational Inhibitors

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Figure 13: A Leader, Coordinator and Better Technologies Needed


While overall, coordination is deemed “most valuable,” IT infrastructure investment actually are more highly prized in total – with only 6% of respondents seeing “little to no value” in investment in a streamlined technology platform or infrastructure.

In the next section, we’ll take a look at the specific technologies retailers believe will help them overcome their external and internal challenges.

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Case studies/success stories in my vertical

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An executive tasked with managing and improvingthe overall customer experience

More coordination between selling channels andmarketing

Overcoming Organizational Inhibitors Very valuable Somewhat valuable Little to no value

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Technology Enablers

There are two facets to the problem of having no single owner of the customer experience. We have already explored the organizational facet. No matter who owns or even participates in defining and measuring the customer experience, technology can easily make those efforts either easier or much more difficult. Here we will explore the technology facet.

If Only Marketing Had A Platform... Ironically, after five years as a term that made retailers’ eyes glaze over, "customer relationship management" (CRM) has re-emerged as a valid retail concept. Uncertain times make for new opportunities.

Not only do retailers acknowledge that they need a single marketing platform for managing marketing functions (53% vs. 15% who advocate point solutions only and 32% a mixed approach), they give it a very specific name: customer relationship management (Figure 14).

Figure 14: CRM, Out of the Doghouse


Consistent with the split we saw over business challenges, Retail Winners are more likely to place a higher value on customer segmentation (80% rating it "very valuable" vs. 58% of peers). Laggards value CRM and customer purchase analytics more highly. Winners also appear to place more value on technologies that could help them unwind the mysteries of customers' cross-channel paths to purchase - social media analytics and revenue attribution both make this particular list.

26%

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32%

41%

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50%

53%

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62%

68%

74%

82%

65%

50%

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44%

32%

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26%

15%

9%

24%

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15%

9%

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0%

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3%

Customer offer engine

A/B Testing management

Promotion planning solution

Digital Marketing platform

Market segmentation

Content management system

Social media analytics

Customer sentiment analysis

Web analytics

Revenue attribution and campaign ROI analysis

Customer segmentation

Customer purchase analytics

Customer relationship management

Marketing Technology Value Very valuable Somewhat valuable Little to no value

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From Stepchild to Cinderella There are two primary reasons why retailers might say that they don't have the technology they need to support their customer experience efforts: one, they've never needed it before to the degree that they increasingly need it today. And two, lacking a strong relationship with the IT department and feeling intense pressure to move at the speed of consumers, marketing departments are used to having to make do on their own.

So when looking at the technology capabilities that retailers say are the most valuable next to those that report that they have had these capabilities available to them for more than a year, there are some clear areas of parity and some very large gaps (Figure 15).

Figure 15: The Technology Gaps That Fal l Between Cracks


Customer purchase analytics, web analytics, market segmentation, and promotion planning all have a fairly close match between value and usage. Of all of these, customer purchase analytics is probably one of the most mature. But consider who might own the rest of these capabilities. Web analytics is most likely going to be owned by digital marketers reporting up through the eCommerce channel. Market segmentation can easily have a tighter relationship with store operations (through new store openings) than with marketing. And promotion planning often is closer to merchandising than marketing.

The largest gaps exist around the newest capabilities: revenue attribution (apportioning revenue gained from a conversion along the entirety of the customer purchase path), customer sentiment analysis, and social media analytics.

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Customer offer engine

A/B Testing management

Promotion planning solution

Digital Marketing platform

Market segmentation

Content management system

Social media analytics

Customer sentiment analysis

Web analytics

Revenue attribution and campaign ROI analysis

Customer segmentation

Customer purchase analytics

Customer relationship management

Technology Value vs. Use

Very valuable Longer than 1 year

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However, survey respondents have some clear priorities for upcoming investments. Top targets for the next 12-18 months include a digital marketing platform, customer offer engine, A/B testing management, and revenue attribution (Figure 16).

Figure 16: Investment Progress, Future Plans


High on the wish list for beyond the 18-month investment timeframe are customer sentiment analysis, revenue attribution, and customer segmentation.

Cleaning Up A Dirty Word "CRM" has had a bad reputation in retail - in some cases it has been deserved, as eager solution providers pushed a technology that had not been designed for a B2C environment into retail, the biggest B2C environment there is. But that happened decades ago - not last year. And capabilities have evolved, becoming much more geared toward the volumes and relative anonymity of a business to consumer relationship.

This points to a future - one that our survey respondents reported embracing - of a single platform for holding customer data, analyzing it, and acting on it. We're not that far away the capabilities that would enable the analytics, though retailers need additional work on developing the right customer data model in a cross-channel and social world. But if the promise needs to be one brand across all touch points, then retail has a long way to go before that vision can become reality.

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BOOTstrap Recommendations

While the customer revolution has been going on in retail for at least the last decade, the industry is now reaching a point where differentiation in retail may depend as much on organizational and systems alignment as creative campaigns and must-have merchandise. To be fair, a lot of things got in the way: cross-channel, the rapid rise of mobile and social. Retailers have really only just gotten to the point where they can sit back, take a look around and decide how they should best meet customer demands among proliferating touch points.

But the changes that are needed soonest aren't really about process or technology. They are about strategy. Our recommendations focus there.

Marketing is to Brand As Operations is to Sales? Retail is in an unusual place in that "marketing" and "sales" are apparently considered to be the same thing - as our survey respondents proved with their marketing department's primary focus on driving sales. In most other industries, marketing and sales are distinctly separate organizations. As old strategies and ways of doing business come into question, perhaps it is time to consider what marketing and sales really mean for the future of retail.

In the online world, retailers well understand the difference between traffic and conversion. Their digital marketing groups sprang out of a need to provide distinct online strategies from traditional store traffic marketing efforts. But they also quickly learned that the eCommerce site itself had a huge impact on conversion - turning shoppers into buyers - and the impact could be either negative or positive. Sometimes traffic marketing efforts can be used to help offset conversion challenges - the way a site guides a shopper through a purchase process that begins with "refrigerator" as the search term entry point vs. the way a site guides a shopper through a purchase process that begins with "Kenmore Model XYZ", for example. But the distinction is still clear: some activities drive traffic, and some activities - within the site itself - drive conversion.

This can easily be carried over to the physical world. It is marketing that drives traffic, but it is store operations (and merchandising and supply chain) that ultimately drive sales. If the store conversion rate is dropping but foot traffic is on the rise, it's hard to swallow that this is marketing's fault.

The net result is this: retailers want one single view of the customer and they want one consistent brand experience across channels. But they also want marketing to own sales. The former requires an investment strategy. The latter requires short-term thinking at the expense of the long-term relationship. In an age when more and more retailers are coming to the conclusion that they need to act more like brands in order to successfully engage with customers, then the first thing they need to do is treat their marketing departments as brand ambassadors, not as sales people.

Back to the Future In 2010, RSR released a prospective view on the future of commerce, basically by taking a step back from the current mire of making existing systems work in a cross-channel way and looking at how a retailer starting with white space might approach cross-channel customer engagement. We defined 5C's of customer engagement: Content, Community, Commerce, and Context all centered on the Customer.

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If anything, the last two years have proven that this model is more important than ever. But with an emphasis on having marketing "drive sales" (i.e., Commerce), retailers are leaving too much other opportunity on the table. And marketing should most definitely be the primary owner of these other C's:

• Content is all of the information that is centered on product, brand, and customer - it’s about pulling together all of the information that a customer needs in order to navigate a path to purchase. This could be retailer-generated, manufacturer-generated, even customer-generated. But note that content is not just what gets displayed on the product page. It is the lifestyle blogs, the brand statements, and the customer statements that the retailer makes. Product information is about commerce - getting someone to buy. Content is about brand promise - getting someone to engage.

• Community is all of the people that a shopper needs to engage with on a path to purchase. This community includes all of the retailer's experts - from the best store associate to the merchandiser who selected a certain design or product line - as well as other shoppers, known or unknown to the customer, along with friends and family. "People like me" are part of the community as much as "my best friend." Ratings and reviews play an important role in converting shoppers to buyers, and they are a subset of community that is primarily focused on commerce. Community is also as much about the brand promise - who are people who are like me?

• Context isunderstanding a specific shopper's objective at a specific point in time. A shopper browsing the website late at night has a very different objective than the same shopper standing at the shelf in the store. Context helps retailers understand when to apply the next C - Customer Insights - to provide a more relevant shopping experience. It can be behavioral, or based on demographics or purchase history.

• Customer Insights involve applying all of the activity seen through the other four C's - Content, Community, Commerce, Context - to understand what is the right message to deliver to which shoppers and through which communication channels. This is clearly the mandate of marketing today, but without a single view of shoppers' activities as they move through the other C's (beyond just Commerce, and beyond just a purchase view of shoppers' commerce activities - and hopefully shared across channels), then retailers will continue to fall short on delivering actionable insights - the kind that don't just drive sales, but also build a brand.

Reality Check So beyond "Align marketing to brand-building and traffic instead of sales" what should retailers do? First, evaluate how well you are delivering the 5C's across all of your channels. Where is content missing? Which channels have great content that could potentially be leveraged into other channels? Are your shoppers already members of communities that you would benefit from participating in? Would it help your objectives (and your customers') to create your own community for them? Should it be something that can be used to reward the best shoppers?

There are a million questions to ask from here. But none of them will lead anywhere until retailers ask the first, most important question of all: "Who owns the customer experience at my company? Is that the right person?"

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Appendix A: RSR’s Research Methodology

The “BOOT” methodology is designed to reveal and prioritize the following:

• Business Challenges – Retailers of all shapes and sizes face significant external challenges. These issues provide a business context for the subject being discussed and drive decision-making across the enterprise.

• Opportunities – Every challenge brings with it a set of opportunities, or ways to change and overcome that challenge. The ways retailers turn business challenges into opportunities often define the difference between Winners and “also-rans.” Within the BOOT, we can also identify opportunities missed – and describe leading edge models we believe drive success.

• Organizational Inhibitors – Even as enterprises find opportunities to overcome their external challenges, they may find internal organizational inhibitors that keep them from executing on their vision. Opportunities can be found to overcome these inhibitors as well. Winning retailers understand their organizational inhibitors and find creative, effective ways to overcome them.

• Technology Enablers – If a company can overcome its organizational inhibitors it can use technology as an enabler to take advantage of the opportunities it identifies. Retail Winners are most adept at judiciously and effectively using these enablers, often far earlier than their peers.

A graphical depiction of the BOOT follows:

b

Appendix B: About Our Sponsors

NCR is leading the way in a new world of retail interactions - with industry focus, innovation and expertise along with one hundred and twenty five years of experience and insights. NCR is your partner in business transformation. We offer converged retailing—c-tailing—which enables a personalized experience based on consumer preference through multichannel solutions, whether in-store, online or mobile.

NCR can help retailers increase customer loyalty and create a true competitive advantage.

For more information email [email protected] or visit www.ncr.com.

Oracle provides retailers with a complete, open and integrated suite of business applications, server and storage solutions that are engineered to work together to optimize every aspect of their business. 20 of the top 20 retailers worldwide - including fashion, hardlines, grocery and specialty retailers - use Oracle solutions to drive performance, deliver critical insights and fuel growth across traditional, mobile and commerce channels. For more information, visit our Web site at http://www.oracle.com/goto/retail

mailto:[email protected]

http://www.ncr.com/

http://www.oracle.com/goto/retail

c

Appendix C: About RSR Research

Retail Systems Research (“RSR”) is the only research company run by retailers for the retail industry. RSR provides insight into business and technology challenges facing the extended retail industry, providing thought leadership and advice on navigating these challenges for specific companies and the industry at large. We do this by:

• Identifying information that helps retailers and their trading partners to build more efficient and profitable businesses;

• Identifying industry issues that solutions providers must address to be relevant in the extended retail industry;

• Providing insight and analysis about a broad spectrum of issues and trends in the Extended Retail Industry.

Copyright© 2011 by Retail Systems Research LLC • All rights reserved.

No part of the contents of this document may be reproduced or transmitted in any form or by any means without the permission of the publisher. Contact [email protected] for more information.

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Customer centricity 2.0 the rise of the chief marketing officer(1)

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