Retail customer-centric - Microsoft Dynamics

Tips for focusing on your customers

Is your store customer-centric? What does being customer-centric even mean? Most specialty stores would say that they are focused on customers, and would point out that without customers their store would not exist. And they are right. However, simply being there, opening the store, stocking products, and having staff to collect money is not the same as being customer-centric. Being customer-centric means that everything you do—from the products that you carry, to the environment that you place them in, and the staff that you have to serve those customers—is centered on and about customers and their experience in our store. There is a huge difference between simply serving a customer and centering everything you do on the customer's specific needs and satisfaction.

This article talks about lessons stores have learned when becoming more customer-centric and provide a checklist to help you make your store more customer-centric.

Students of your customers

Customer-centric stores are "students of their customers," which means that they literally "go to school" to learn as much as they can about their customers. Every customer is different. A customer-centric retailer recognizes this fact, and also recognizes that it cannot create a different environment for each individual customer. This means that it has to find a way to group similar customers together, and create solutions and environments that are relevant and work for those segments. This is called customer segmentation. When you segment your customers, you identify clusters of customers that have similar needs, wants, and demographics (age, sex, education, lifestyle, and so on), and in response, you create environments, policies, services, price strategies, and product groups especially for the customers in each segment.

The Best Buy experiment

A good example of a major retailer who has adopted a customer-centric approach is Best Buy. About three years ago, Best Buy determined that it could not continue to operate on price as its major strategy and message to its customer. Brad Anderson, chief executive officer (CEO) of Best Buy, said, "If we do nothing, Wal-Mart will surpass us by the simple fact that they open more stores than we do each year. There is no point in trying to compete on price" (emphasis added)

How Best Buy became customer-centric

With that statement in mind, Best Buy launched its customer-centric strategy. During 2005, Best Buy spread its customer-centric message to selected North American stores (110 in all), and allocated more than $50 million in capital expenditures to those stores. The initiative was two-pronged—getting customers to buy what was already in stock, and asking them what products they would like to see the company offer.

The way Best Buy adapted the stores to target each segment is interesting. For example, for the soccer mom, the stores feature brightly colored signage, play areas for children, educational toys, and in-wall appliance displays, and provide personal shopping assistants. For small businesses, the stores have signage that reads "Best Buy for Business," and have an expanded computer section and a stronger "Geek Squad" (Best Buy's in-home/office technology assistance team) presence, as well as central help islands staffed by associates wearing blue-collared shirts (as opposed to knitted golf shirts)

Part of the strategy also included giving employees closest to the customer some of the more important decision-making responsibilities. In addition, Best Buy store associates received customer-centric training to be able to really deliver on the promise at the store level.

"People come to specialty stores because they are looking for some service or selection that they can't get from the mass market," Anderson said. He went on to say that "for those reasons, Best Buy intends to invest more heavily in customer service, and position itself as a solutions provider for consumers of high-tech entertainment products. Best Buy's customer service initiatives will mean a more decentralized structure for the business. We are moving power from Minneapolis [the company's headquarters] to wherever the engagement is with the customer. Instead of head office telling the store what to do, it would be the store asking what it can do in assisting its customers."

Internally, Best Buy has also worked extensively on its customer database. The company wanted to identify who its best customers are, as well as who the customers are that are costing them money by abusing their customer service policies.

Results of Best Buy becoming customer-centric

Initially, the customer-centric strategy in the stores paid off. The company posted an incredible 85 percent profit gain in its fiscal first quarter in 2005—a gain Best Buy attributed, in part, to its customer-centric initiative. In the first quarter, sales increases at stores converted to the new model were more than double the increases at Best Buy’s "comp" stores without the initiative. But in December 2005, Best Buy said its third-quarter profit would fall well short of Wall Street expectations because of higher costs. Anderson said that month that the company's "customer-centricity" initiative has proved more expensive than anticipated, and Best Buy might have to eliminate staff to help control costs.

"Right now, the evidence suggests that we overspent" on becoming more customer-centric, Anderson said. "We have to make adjustments." But he also says that Best Buy's commitment to being customer-centric has not been reduced. “Customer-centricity at its core is ... identifying a customer that you want to serve better,” he said. "In some stores, it's working great."

Lessons learned

The lesson to be learned from Best Buy's move to a more customer-centric focus is not that it doesn't work, but rather, that it is not an easy thing to accomplish. Best Buy likely should have done it slower and used more of what they learned about each segment before they expanded the program. Another issue they are trying to address is that many locations have a mix of all five customer segments, and to design a store for just one of these segments can be dangerous. They are now trying to integrate areas for all five segments, with one being dominant (without ignoring the others).

Being customer-centric is key to future growth and profitability, but it must be done right. First you need to identify the major groups of customers (the "segments" described earlier) that now shop at your store, and then identify what these customers have in common, how they like to shop, and what products they like.

When you have answered these questions, you are ready to structure your store experience for these customer segments.

Checklist for creating a customer-centric store