At the NRF’s annual convention this year, the IBM Institute for Business Value announced a survey it recently completed of 30,000 US consumers. The goal was to understand what drives consumer spending across a variety of retail categories, including grocery, apparel and pharmacy. Fred Balboni, global retail industry leader of IBM Business Consulting Services, offers the lowdown on the survey results as well as his outlook on the retail environment overall.
Q: What was the vibe like at NRF this year?
A: I think the people at NRF this year recognized it’s a tougher environment. Having said that, the clients I spoke to were there with purpose. They are not rudderless, they are very crisp in their direction. They’ve all confronted the reality of the economy and they’ve moved their way past that. They’re talking about the implementation of specific programs, about increasing their customer base, about stealing market share from their competitors, about customer satisfaction.
Q: In what direction are they moving in terms of implementation?
A: I think there’s kind of three major games afoot. There is clearly a lower cost of operating game, where retailers say “I’ve got to lower my break even level.” It’s really direct hard-core cost-cutting maneuvers. Then there is a business and supply-chain efficiency play – how do you increase customer service without increasing cost? Then there’s an innovation story going on. People are looking for clever ways to reach new customers and to maintain the loyalty of existing customers and a get a larger share of customer wallets.
Q: What were the big announcements from IBM this year at NRF?
A: The big umbrella work is the study we announced of 30,000 customers and what’s really driving their customers. We used that as a platform for the four major areas we work in a broad base with retailers on – performance analytics; multichannel retailing; merchandising and supply chain; and the total store.
Q: In the study you talk about the importance of customer advocacy – what do you mean by that?
A: Customer advocates are loyal to you and they’ll recommend you to someone else. They also have a great wallet share with their primary retailer. For all those reasons you want more advocates in your store. What we did is look at the operational characteristics that drive advocacy. For example, quality is the number one thing that drives customer advocacy, then customer experience and convenience. Price was on the list this year, while last year it wasn’t even on the list. The current economic environment has now raised price as a driving factor.
Q: What’s your top advice to retailers facing massive challenges in ’09?
A: Number one, innovation is going to be about challenging existing business models in new ways. You’re not going to get blood from a stone. Number two, you’ve got to definitely look at alternative ways to get cost out of the business – you’re not going to do that by telling all suppliers that you’re reducing payment by 5%. Number three, retail has always been an innovation-led recovery. Retailers that win in down economies have always been innovation-led. Don’t play it safe.
Q: What about marketing?
A: Marketing has got to be really intimate. You cannot use traditional marketing, it has to be one-to-one. You need to know your customers and know their breaking points. Would you like to hear more and how would you like to hear it?
Q: And the multichannel experience?
A: I think multichannel is really important, more and more it’s kind of expected – people want to experience it, taste it, smell it, and use it before they buy it and they might want to buy it online or they might want to go to the store. Retailers have got to offer a reason for you to come to their Web site, whether it’s being part of a community or availability or a range of other services. Or you can be a monodimensional brand like Apple, where you’re both the product and the retailer – what I really like about Apple is that you learn about it online, you know what the price is, you learn about how you’re going to use it, maybe you buy it online or in the store, then you go back to the store to be part of a community, to learn more or to service it. That’s a multichannel experience.
