Posts Tagged ‘retail’

Customers who return products – not as bad as we thought?

Tuesday, December 1st, 2009

There’s been lots written about customers who deserve to be fired. “Bad” customers call customer service constantly, return products willy-nilly, and otherwise misuse the gifts that corporations bestow on them with their products and services.

But there’s another side to the story. By clamping down on returns (or even selectively penalizing “serial returners”), companies can depress their overall sales, write Andrew Petersen of the University of North Carolina and V. Kumar of Georgia State University in the most recent WSJ Business Insight section (”Get Smart About Product Returns“):

For every retailer, there is an optimal rate of returns. Higher returns, up to a point, have been shown to result in higher future sales. So if the rate of returns is too low, the retailer is missing out on potential sales. But if the rate of returns is too high, the costs to the company outweigh the benefit of the increase in sales.

Petersen’s and Kumar’s insights are based on their study of a large catalog retailer. They compared sales during a period with a liberal return policy with another period with a more restrictive return policy. In this brief podcast, Petersen further illuminates their findings. Lenient return policies caused purchasers to buy more, and also encouraged referrals, which were found to be extremely valuable. In the end, the amount returned by frequent returners (and the study found them – 5% of shoppers made 75% of all returns) was outweighed by the increased purchases from all other shoppers.

Retailers dwelling on getting ripped off by “serial returners” would do well to think about what their policies do to all the other customers out there, who end up buying somewhere else.

[Here's a little taste of the moral quandary posed by returning a product that you shouldn't.]

Related post:
Using customer returns information to improve products

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Customers are talking: here comes “Broadcast Shopping”

Tuesday, November 17th, 2009

This week Doc Searls posted on an idea called “Personal RFP.” In this model, people wishing to buy a product would be able to put together an open “request for proposal” – essentially, a specification for what they want to buy, including budget, and solicit bids from suppliers wanting to sell it to them. [Nothing even approximately like this exists today, except perhaps Priceline, the reverse-auction travel broker, which is full of compromises to the Personal RFP model.]

Scott Adams of “Dilbert” fame made a similar proposal, and he created a catchy name for this type of service. He called it “Broadcast Shopping,” and described it like this:

The standard shopping model needs to be reversed. Instead of the shopper acting as hunter, and the product hiding as prey, you should be able to describe in your own words what sort of thing you are looking for, and the vendors should use those footprints to hunt you down and make their pitch.

For example, let’s say you’re looking for new patio furniture. The words you might use to describe your needs would be useless for Google. You might say, for example, “I want something that goes with a Mediterranean home. It will be sitting on stained concrete that is sort of amber colored. It needs to be easy to clean because the birds will be all over it. And I’m on a budget.”

Your description would be broadcast to all patio furniture makers, and those who believe they have good solutions could contact you, preferably by leaving comments on the web page where you posted your needs. You could easily ignore any robotic spam responses and consider only the personalized responses that include pictures.

This is something kind of revolutionary. “Customers are talking” has meant, by and large, customers responding and reacting to what companies do to them. Companies release a product, change a service, or make a promise, and customers, through their stories, say what they think about that. Those stories influence other buyers, competitors, regulators, and (hopefully) the company itself.

“Broadcast Shopping” is talking, too, but it’s active, not reactive. The customer sets the agenda, and companies respond.

In Searls’ terms, it’s a type of “Vendor Relationship Management” system, as opposed to the Customer Relationship Management systems that many companies utilize today to help them sell and service customers.

There are many profound implications of broadcast shopping. One that comes to mind immediately is this: it will greatly reduce the benefit companies get from distribution scale. If I am asking people to supply me, anyone can respond. Today, I have to seek out suppliers, and the bigger they are, the easier (by and large) they are to find.

Using Adams’ example, a small provider of patio furniture, who could provide a set meeting his specifications, would be on par with Wal-Mart from a distribution standpoint – they each could respond to the Personal RFP.

Broadcast Shopping also undermines traditional branding. Because any company could respond to a customer request, many choices are available, along with information that allows customers to evaluate the proposals independent of the brand identity of the product.

Broadcast Shopping doesn’t exist yet. But Searls is convinced it will, and soon. He writes:

All this is not only do-able, but inevitable….

Google should be interested because Advertising in Reverse, or Broadcast Shopping (a term I love, by the way), will either undermine or replace the company’s standing business model (which pays for all those freebies we enjoy).

Microsoft should be interested because this could give them something Google doesn’t have yet.

Yahoo should be interested because they need something new that’s a winning idea. Amazon and eBay should be interested because they’re already in that business, though in a silo’d way.

Oracle should be interested because it will sell more databases and Sun gear.

Apple should be interested because it’s one more area where they can push for new standards on which the range of innovation goes through the roof.

Every retailer and intermediary should be interested because the promise of the Net for buyers is not an infinite variety of closed silos, but a truly open marketplace where any buyer can do business with any seller — and on the buyer’s terms and not just the seller’s.

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Farmers’ market secret ingredient – community

Thursday, October 22nd, 2009

Broad Street Market 2I did a project last year with the Broad Street Market, a farmers’ market here in Harrisburg. (Disclosure: I am on the Market’s board of directors.) We were trying to establish some parameters for a strategic plan for the Market. My project was to interview Market customers to understand why and how they valued the Market, and what common issues might be that the strategic plan should address.

I did 60 open-ended interviews, and heard some great stories – for example, a woman in her seventies discussed coming to the Market as a young girl, shopping at a place that used to sell wonderful pears, taking the trolley that ran down 3rd Street. But some of the best stories weren’t explicitly told – they occurred during the interviews.

Perhaps half a dozen times an interview was interrupted while the person I was speaking to greeted a friend who walked by: “Hi, how you doing?” and an embrace. “Let’s get together,” or “See you Saturday.”

And when the board reviewed the stories, a theme emerged: community as an important value. We had expected customers to discuss safety and cleanliness (and they did), the types of vendors (a bit), fresh and local products (yes) or the hours of operation (a lot). But the theme of community, something we hadn’t been looking for, kept coming up. For those customers, the Market was more than just a place to shop. It was a place to meet friends, to stay connected, even to return to after they’d moved out of town.

This is an interesting observation for all brick-and-mortar retailers, restaurants, etc. Even in this technology society, people yearn to get together, to be with friends and acquaintances. (Note how tech-based getting-together solutions like Meetups, Tweetups and Foursquare have emerged.) How aware are you of the community you serve? How can you engage it, and nourish it? How can you honor the value that your customers place in it?

Related posts:
The Values Proposition

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To motivate front-line employees: don’t just thank them, use their insights

Wednesday, August 5th, 2009

Sylvia Ann Hewlett blogged at Harvard Business Review that leaders need to inspire lower-level employees. She writes:

…No one succeeds alone, which is why all leaders must find a way to pollinate the workforce with their values, ideas and enthusiasm. This is what keeps businesses humming, especially during a downturn.

Some leaders inspire the masses via the grand motivational speech. Others via one-on-one conversations. At Time Warner, CEO Jeffrey L. Bewkes held a series of skip-level lunches with ten to twelve high performers that typically had little or no access to him. He spent two unscripted hours talking about his vision and answering their questions. Employees who attended Bewkes’ lunches reported feeling more “confident in the company” and developed a new affinity for their chief.

Whatever vehicle leaders choose to use to reach out and inspire employees at local levels, their talk must have teeth. Don’t spout hyperbole — “Great job” or “we can do it!” Instead, serve up concrete, achievable goals. Listen to people’s problems and offer real solutions. Mentor by sharing your own lessons learned, celebrate teams’ efforts and reward tangible achievements. Even a simple “thanks” goes a long way when delivered from on high.

Each week at furniture designer Knoll, president and COO Lynn Utter emails four senior managers and asks them for the name of one person on their team who has been exemplary. Utter then calls each person to thank and congratulate him or her for a specific accomplishment. Utter is as time-constrained as the rest of us but says that if she cannot make four phone calls a week to acknowledge people’s good work, then she is not doing her job

Hewlett is right–inspiring the troops is an important leadership task, especially in tough times. But my reaction on reading this prescription was, “Ugh, more top-down thinking.” In other words, everything’s up to the leader–that “affinity for the chief” and thanking employees makes a company better.

How about this idea instead? Let’s forget about CEO Bewkes for a moment, and focus on making the work more fun and rewarding for the 87,000 people who work for Time Warner.

Gary Hamel discussed this idea in his recent book “The Future of Management.” In it he pointed out how Toyota is able to leverage the creative thinking of all its 300,000 employees through means like the Toyota Production System. This benefits the company by ensuring a constant stream of innovation, and the employees by making the workplace a more rewarding place to spend time.

I am focused on one particular group of employees–those who interact directly with customers. This includes customer-service reps, retail clerks, bank tellers and account support staff. It is a group with tremendous insight, and a group that’s held in low esteem in companies I’m familiar with. To borrow a phrase from my friend Matthew Achak, “Nobody listens to the reps.”

They sometimes are not even allowed internet access.

This is just wrong. These groups occupy a unique position in the company. They hear the unvarnished truth from customers. Their stories, rather than being ignored, should be nurtured and collected. Everyone else in the company should read them and absorb the lessons (especially the leadership). They should be primary inputs to strategy, marketing and product development. The best stories and best storytellers should be acknowledged and promoted.

Companies should focus on something like this, instead of sending their CEOs around on motivational tours or making four calls per week to exemplary employees.

Increasing employees’ sense of meaning and personal value in their work. Now that’s leadership.

Related posts:
Time to start listening to customer-facing employees
On “The Future of Management”

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Customers are talking: retailer Zara relies on ground-level “specific knowledge” to forecast sales

Tuesday, July 21st, 2009

Andrew McAfee’s blog is a great place to learn about how businesses can gain competitive advantage by their use of IT. But yesterday he took a left turn and discussed business situations where data crunching is not helpful to decisionmaking, and I loved it.

In “When Information is NOT the Answer,” McAfee takes issue with Don Sull’s assessment of fashion retailer Zara’s “fast fashion” approach, at least when it comes to data-driven decisionmaking. Writes McAfee:

Sull stresses that “Zara’s business model demands good information,” which is certainly true. But my work with the company (see this Sloan Management Review article and this case study) revealed something I found fascinating: Zara succeeds in large part because the company makes comparatively light use of market data and sales information, at least as these terms are commonly understood in the retailing industry.

McAfee further explains the difference he sees between Zara and other retailers’ use of information:

The decisions about which clothes should to go which stores at what time(s) are probably the most important decisions made by any large apparel retailer. Most chains make them by collecting large amounts of daily sales data from stores, combining it with other hopefully relevant information, then applying a variety of statistical techniques to generate a forecast – a quantitative prediction about what will sell. This forecast is used to push the ‘right’ items – the ones predicted to sell — over time to each store.

Each retailer forecasts differently, of course, but I find their techniques broadly similar: they all gather lots of data, analyze it centrally, then use the resulting predictions to determine shipments to stores. In this model, the stores themselves have fairly limited roles: they are expected to record data accurately and send it promptly, then do their best to sell whatever headquarters decides to send them.

This seems sensible enough, and it also seems logical that as the business world gets more and more turbulent more and more supporting data will be required. This data will need to be acquired, analyzed, shared, and interpreted with ever-greater velocity, requiring ever-bigger computers, ever-faster networks, and ever-more-quantitative decision makers.

But Zara, operating in an intensely turbulent environment, does something totally different. The company doesn’t really generate a store-level sales forecast at all. Instead, it relies on its store managers to tell headquarters what they think they could sell immediately at their locations. Headquarters then gets as many of these clothes as possible to the stores as quickly as possible.

What’s more, the store managers are given very few quantitative or analytical tools to help them make their short-term predictions. They rely largely on intuition and experience, on walking the floor and talking to customers and employees.

I think this distinction between high-level numbers (what McAfee calls “general knowledge”) and the ground-level view of the customer needs (”specific knowledge”) is very important. In order to gather and understand specific knowledge, it’s necessary to be very close to the customer, “walking the floor and talking to customers and employees.”

Small retailers have always worked this way. When I worked at the local hardware store during high school, each department had a buyer who looked at stock levels, assessed what was selling, took the season into account, and placed orders weekly.

For large retailers, the fashion has been, as McAfee writes, to gather scads of information “Numerati“-style and make central purchasing and stocking decisions. Overreliance on this had a negative effect on one large store: Home Depot.

So it’s good to learn that at least one mega-retailer is using high-level number crunching judiciously, and relying on the folks closest to the customer to set ordering levels at each store. However, I think even they can do better.

As McAfee describes it, Zara “relies on its store managers to tell headquarters what they think they could sell immediately at their locations. Headquarters then gets as many of these clothes as possible to the stores as quickly as possible.” In other words, headquarters’ visibility into the “specific knowledge” in the store is limited to the managers’ forecasts.

I wouldn’t propose changing the ordering process, but I do think Enterprise 2.0 has a role here in sharing specific knowledge more widely. Information in the form of customer or employee narratives (generated by a simple prompt–”what was the most interesting thing that happened today?” or “tell me about your experience today” for example) could be captured at the store level and uploaded to a story-bank accessible to all Zara employees–especially those at a remove from the direct customer experience.

Through tools like commenting, scoring, nudging, sharing, etc., those narratives can inform a much broader base of employees what customers are doing and how they’re reacting to the products on the shelves. [I have been trying out a very cool open-source story-banking tool currently in alpha test that would fit this need perfectly.] This would provide a great service to the company by “bringing the outside in” (John Kotter’s phrase) and enabling all employees to make decisions with much deeper customer insight than they now possess.

This narrative data can supplement the high-level numbers, essentially combining McAfee’s general and specific knowledge to provide better insight into customers–for product, marketing and customer service purposes.

Related posts:
John Kotter on corporate change and “bringing the outside in”
A competitive advantage: employees who talk to customers
Time to listen to front-line employees

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