The retail journey to customer-centricity is no longer news. Personalization is everywhere. Customer insights are a standard part of assortment decisions and category reviews. Nearly every retailer is sharing some level of customer data with their suppliers – and getting paid handsomely for it.
But while the practices associated with customer data may be nothing new, there’s a major shift underway in how retailers are operationalizing their customer data strategies. For two decades, the prevailing model has been to outsource customer data functions to partners that specialize in customer data analytics.
This model certainly had advantages – retailers benefited from shared infrastructure, access to top data scientists, and a deep knowledge base drawn from working with retailers around the world. But many retailers are recognizing that this model has had its downsides, too. The system in many ways created a black box for retailers – the analysis and thinking behind personalization strategies weren’t accessible to them, so they had to blindly trust the output. The model also came with a steep price tag – in the form of ongoing consulting fees and a revenue-sharing model that meant a large slice of the funds collected from suppliers didn’t end up in the retailer’s pocket.
Perhaps most important of all, retailers are realizing that understanding their customers and collaborating with their suppliers aren’t side activities or “nice to haves.” They’re the core business of retail. If you were opening a restaurant, you might hire an outside firm to do the cleaning or get an accountant to do the books. But would you outsource the cooking?
Some retailers that are making the move to take back control of their customer data build in-house solutions. While this approach can be resource-intensive, it ensures a solution that’s fully customized for their business. Others turn to off-the-shelf software solutions that are sold as a product rather than as a consulting service.
But whatever technical solution they choose, retailers that are making the use of their customer data a priority have several features in common:
They Start With the Customer
The customer-centric revolution has been wonderful for retail, but it’s still largely a work in progress. In fact, you could argue that most of today’s retail personalization practices – which were built around the idea of sourcing coupons from suppliers, and then using algorithms to deliver the coupons to the right customers – are much more “offer first” than “customer first.” The offer-first approach says, “I have an offer I want to send. Find me the right customers to send it to.” The customer-first approach says, “I have a customer I want to grow. Find me the right offers to send to her.” The difference is subtle but powerful: Just because you’re using customer data doesn’t mean that you’re being customer-centric.
They Take a Comprehensive View
Retailers capture a vast amount of data about their customers’ purchase habits. Yet too often, retailers are still making decisions about customers based on a subset of that data. They may still be relying on panel solutions that survey a small percentage of customers. Or perhaps they only have access to insights from loyalty cardholders. The best solutions today can provide insights based on the full sales data of the retailer. This gives a more comprehensive view of the data and leads to better decisions.
They Personalize at Scale
Traditional retail promotions haven’t changed much in the past 50 years. Select a set of items to promote. Plan the week you’re going to promote them. Run the promotion, and measure the results. The arrival of personalization technology hasn’t changed this much.
While the technology may have changed, many retailers’ personalization programs are simply a digital version of the old-school approach. They’re set up to manage 50 or even 100 supplier coupons that can be run for the duration of a campaign, and then discarded.
But more retailers are moving to an “always on” promotional model in which hundreds or even thousands of offers are in market all of the time, each one selected for the right customer at the right time through precise targeting algorithms. To manage a program like this means managing a pool of hundreds of offers and assigning them to millions of customers every week. It’s no small task, but the rewards are worth it.
They Get Privacy Right
Retailers today find themselves caught in a dilemma: Customers increasingly want highly personalized content, but if you get personalization wrong – or cross a line into territory perceived as “creepy” – you’re quickly punished for it.
The retailers leading the way have robust processes to manage items that may be sensitive for religious or personal reasons – think pork for an observant Jewish customer, or pregnancy tests, or weight loss pills.
Retailers that engage in all four of the practices noted above are truly ready to control their own destinies when it comes to leveraging their customer data. They may be using new tools, but they’re doing what great retailers have always done: They’re laser-focused on understanding and delivering on their customers’ needs.