Final Project- Customer Centric

8/7/2019 Final Project- Customer Centric

1/22

Project Name : Customer Centricity in Retail

Guide: Prof.Ms. Smithu Malhotra

Course: PG in Sales and Marketing

Name: Narasinga Rao

Registration N0: 105969

Page 1 of22


2/22

Jubilant Bhartia GroupThe Jubilant Group embarked on a journey to create leadership in its chosen

areas of business over two decades ago. The Group has a strong presence in

Pharma , life sciences and healthcare sector through its flagship company

Jubilant Organosys and has the fastest growing Dominos pizza chain in India

through Jubilant FoodWorks. The group is a leading Indian private sectorplayer in oil and gas exploration and production business through Jubilant

Energy. Through a clutch of independent Companies the group has a

significant presence in Retail segment including Hypermarkets and

Automobiles. The Group also offers a wide range of marketing and technical

services for international companies in the area of aviation, oil & gas services

and power and infrastructure services.

Jubilant identified the increased globalization of Indian economy and its first alignment with international economic

trends, adapted these changes and spread its wings to the outer world and moved away from being industry oriented

to sharing knowledge. Headquartered in India the group has built strong business in North America with significant

investments over the last decade. Through it various entities the group is engaged in business in over 60 countries

across the world.

The four core segments of Jubilant Group are:

Pharmaceutical, life sciences and specialty chemicalsJubilant Organosys is an integrated pharmaceuticals and Life Sciences

Company. . It is the largest Custom Research and Manufacturing Services

player and one of the leading drug discovery and development solution

provider from India It is well positioned as an outsourcing partner for the

global pharma and life sciences companies.

Oil and gas exploration and productionJubilant Energy is one of the leading companies in private sector engaged in

Oil & Gas exploration and production (E&P) in India and overseas. It has

collaborations with leading global companies and currently operates 12

blocks 8 in India, 3 in Yemen and 1 in Australia.

Jubilant Food Works & RetailJubilant FoodWorks Limited holds the Master Franchisee Rights for the

Dominos Pizza, for India, Nepal, Sri Lanka and Bangladesh. The company

has been listed on the Indian Bourses recently and is the fastest growing

dominos pizza country in the world with 300 stores in India.

The brand, Dominos Pizza, was founded in the US in 1960 by Thomas and

James Monaghan. Since then, it has grown into a global network of 9000

pizza stores in more than 60 countries around the world.

Page 2 of22


3/22

The Jubilant Retail is present in four Formats in retail: hypermarkets (Total) and supermarkets.

Jubilant Retail is a Bangalore-based retail chain running state-of-the-art hypermarkets and malls. Its hypermarket,

Total, which is designed on the lines of international shopping malls, is a single-point food store. This primarilyconsists of food items and includes packaged foods, processed items, groceries, vegetable/fruits, bakery products,

confectioneries, savouries, along with a range of beverages. It also stocks non-food items like apparel, sports goods,

bed and linen, furniture, to name a few.

Jubilant MotorworksThe Group through Jubilant Motors Pvt. Ltd. is engaged in sales and

servicing of Audi Cars through state of art showrooms in Bangalore and

Chennai. Audi has been well recognised globally as a manufacturer of high-

quality and innovative luxury cars, it is one of the worlds leading premium

brands which is among the most admired car brands across the world. Audi

has a presence in over 110 countries and it set up shop in India in 2004.

ServicesJubilant Enpro, through its alliances with international companies, provides

business, marketing and technical support related to Oil & Gas services,

Power & Infrastructure services, and Aviation related services

(sales/maintenance of aircrafts & helicopters).

A shared vision and a common set of values bind all diverse businesses of

the Jubilant Group. So far, Jubilant has created a strong global presence in

the pharmaceutical and life sciences sector and in the other areas the group

is moving ahead steadfastly gaining remarkable experience and growth. Overthe years Jubilant has successfully established itself as a partner of choice in

an ever-changing environment that presents both opportunities and

challenges for its various businesses. The focus on servicing customers and building partnerships to create value has

generated significant stakeholder return and aptly reflects the groups promise of Caring, Sharing and Growing.

Board of Directors:

Mr. Shyam Bhartia, Chairman & Managing DirectorMr. Hari S Bhartia, Co- Chairman & Managing Director

Jubilant Group rolls out Total format21 Jul 2007

Page 3 of22


4/22

Jubilant Group, which started off with its Monday2Sunday food & grocery retail chains, has now opened its first mall

christened Total in Bangalore. The company also announced the re-branding of its Bangalore-based value retail

chain Jumbo Saver as Total. The anchor at the mall is also named as Total, and it is one of Bangalore's largest

hypermarkets, spread across 1.2 lakh square feet.

Jubilant Group is targeting a revenue of Rs 8,200 crore in this fiscal. The new launches, re-branding exercise

everything is aimed at that target.

The sprawling mall, spread over 200,000 square feet, offers everything a family needs. There are over 800 fashion

and lifestyle products to choose from, including apparel, footwear and accessories, besides a complete range of

consumer durables, toys and sports equipments, coffee shops, fruits and vegetables, fish and meat, groceries, home

lines, bakery, hypermarket and restaurants. The three-storeyed mall will soon have a pub and a food court.

Asked about renaming Jumbo Saver as Total, Spokesman informed: Only the name has changed to Total; the stores

will continue to offer an assortment of brands at great prices, without the quality cuts. Like always, it has fashion,

cosmetics, perfumes, time wear, eyewear, footwear, consumer durables, toys and sports equipments, bakery products,

fruits and vegetables, fresh fish and meat, food and beverages, groceries, home appliances and furniture." The Total

hypermarket has allocated an area of 1,200 square feet for apparels alone.

Level one of Total mall is devoted to fashion and lifestyle brands like Reebok, Planet Fashion, Pepe, Peter England,

Spykar and Kaanz. In addition, there are also McDonalds, Caf Coffee Day and Citi Deli. First and second levels are

the retail playground for Total hypermarket, offering fashion and lifestyle apparels and accessories, food and

groceries, home lines, furniture, beverages, and the like. The third floor will soon have a food court and a pub likely

to be operational by August 15.

The company has tied up with a Hyderabad-based food court Ohris, which will be opening its outlet in Totals top

floor. The Jubilant Group also holds the credit for bringing the Dubai-based sandwich bar Citi Deli into the country.

It is learnt that the company is bullish about the southern market. Right now, the focus is on South India. First, we

will open malls in other parts of Karnataka and will slowly move on to other states, Malpani informed, thoughwithout disclosing the number of malls or targeted locations.

Top of Form

/w EPDwULLTE3

Page 4 of22


5/22

Bottom of Form

Page 5 of22


6/22

Customer Centricity in Hyper Market Format

EIGHT KEY STEPS TOWARDCUSTOMER-CENTRIC MANAGEMENT

1. Define your customer segments2. Create store clusters3. Define your target-customer segments4. Align your product category strategy5. Optimize your range6. Optimize your pricing strategy7. Improve the effectiveness of your promotionalBusiness/direct marketing8. Implement a change-management process

The challenges faced by todays Modern Retailer in India are to retain the profitable customer and add

new customer to the existing portfolio.

I have identified few areas as Retailer to understand and try to study, analyze in dept these areas and

implement the business process in my organization.

Customer centricity Management to prolocate in all departments.

To provide brief view of the Structure of Modern Retailer:

The Buying and Merchandising Team, the Supply chain team and the Operations/ Selling Team in Stores.

2. Creation of Store Cluster:In the year2006 October the First Hyper Market was opened for its customers. The stores locationselection is in Mysore road area. To be precise demographically the stores catchment area has a large

population of lower middle class, the economic conditions of the people in this area are mostly laborersworking in small Industries, working for Traders, self employed in petty stores, or auto rickshaw/ taxi/ truckdrivers.

Inference: This Store selection was done without Market Survey, future in thought. This store is a greatchallenge even today.

The next is to create clusters of stores to make them easier to manage according to their individualneeds and special characteristics. The criteria on which decisions are based should no longer be theregion, store size or position, but each store's customer-segment profile. AndThese can differ considerably. We distinguished between Economy, standard and premium stores. In anarea where the customers were most interested in buying at discount prices, more space was devoted tothe entry-level price range and the retailer's own brands. However, at locations with an above-averagepercentage of consumers with higher incomes who like to buy higher quality food, the proportion of

premium products was significantly increased, Particularly in categories such as Life Style and freshfoods. Of course, varying the range of products offered according to store clusters involves moreorganizational work:

Instead of forming cluster of stores within a radius of 5-8kms within the range of 1st Hypermarket , themanagement took detour and opened its second Hyper Market in Madivala area. Which is beyond thecluster area, and the same was repeated for other three stores.

Page 6 of22


7/22

Demographic Segmentation VariablesSegmentation variables are basically factors which help the organization to determine the target group. Indemographic segmentation, variables mainly consist of demographic factors such as age, ethnicity,occupation etc. Below we have given a list of demographic segmentation variables which are commonlyused to divide the market into smaller segments.

Age Gender

Family size

Family life cycle

Income

Occupation

Education

Ethnicity

Nationality

Religion

Social standards

Based on these variables, we have decided which group would they cater to.

Each dept is assigned specific roles and Responsibilities in Customer Centric Project.

Buying and Merchandising: Alignment of product, Category Strategy, Optimization of Range,

Optimization of pricing Strategy, Effectiveness of promotional activities, Study of customer loyalty

programs and measure of customer satisfaction levels

Operations: Customer Base, Target Customer segment, Clustering of Categories in stores

(Hypermarkets) these areas come under Stores Operations.

Supply Chain: Warehousing, Replenishment of Stocks, Servicing the internal Customer

Human Resources: Availability of trained manpower.

Customer Segment( base) of Total, Category Cluster at Stores, Target-Customer Segment, Alignment ofCategory strategy, Optimization of Range of Products in major categories, Optimization of Pricing

strategy, effectiveness of Promotional business activities, Customer retention programs - loyaltyprograms,HR initiative/ process in training employees towards customer Service and measure ofprofitability of customer to business.

The procedure I have followed is defining the process for customer centricity and, how it has beenimplemented in my company and if not implemented recommend for implementation of the process.

Page 7 of22


8/22

The business is segregated into 16 Categories; each is treated as SBU headed by Sr. Category Manager.

SLNO

Category

Mar-10

Sales

Sales

Contribution Margin

Margin

Contribution Margin %1 Apparels AP 268.00 10% 92.04 18% 34.34%

2 Apparels - FA AF 27.00 1% 7.20 1% 26.67%

3 Bakers Factory BI 33.00 1% 15.95 3% 48.33%

4 Beverages BV 140.00 5% 17.68 3% 12.63%

5 Consumer Durables CD 270.00 10% 28.86 6% 10.69%

6 Dairy & Frozen DF 30.00 1% 4.96 1% 16.52%

7 Fresh & Vegetables FV 125.00 4% 29.26 6% 23.40%

8 Staples GR 700.00 25% 60.27 12% 8.61%

9 Home Needs HN 500.00 18% 148.21 28% 29.64%

10 Liquor & Tobacco LI 105.00 4% 11.44 2% 10.90%

11 Non-Food NF 260.00 9% 41.29 8% 15.88%

12 Meat Mart NV 58.00 2% 11.81 2% 20.37%13 Processed Foods PF 165.00 6% 28.09 5% 17.02%

14 Foot Wears FW 28.00 1% 11.31 2% 40.39%

15 Fresh Kitchen FK 28.00 1% 10.53 2% 37.59%

16 Jeweler J

W45.0

0 2%4.1

1 1% 9.13%

17 Total 2,782 100% 523 100% 18.80%

1. Define customer segments:The keystone of the CCR approach is a valid segmentation of customers. Of course, not every customerhas the same needs, shopping habits and purchasing power. We have used statistical methods to formclearly defined customer segments based on the information we have gained from loyalty cards and theassociated transaction data mentioned in the chart. The quality of these segments is further enhanced byfocus groups and market research to make it easier to understand their general values and requirements.This generates homogeneous customer segments that reflect the shopping habits and needs ofcomparable customers. As a retailer we now understand our target segments a lot better. For example(45 years old, married South Indian housewife with two grown-up sons, belongs to the "conservative"target group) tends to buy in bulk, usually accompanied by her husband. Her food basket consists of20kgs of Sona Masuri rice, 5kgs branded atta pack, 5lit sunflower oil can, 4kgs of all pulses put together,whole spices, branded condiments the basket value is around Rs. 2200.00 exclusive of other non-foodand fresh. She generally purchases high-quality foods and associates quality with premium brands. Herdietary regime is balanced, made up

Mostly of good home cooking. She's not one for ready meals; if she has pizza in her freezer, it's only thefor emergencies.At the other end of the scale there's housewife (35, married, one child average income). She representsthe "price-conscious" customer segment. She sees shopping for food as a chore, and shops where pricesare right. Healthy eating is not her top priority and she has neither the time nor the inclination to cookmuch. One of the fundamental components of the CCR approach. This additional information alsoenabled us to picture purchasing behavior in competitors' stores and deduces the economic potential ofeach customer segment and category.

Page 8 of22


9/22

Target Customer Segmentation- Studyexample of Food Retailing

SLNO Customer Segment in Food Retail Characteristics

1 Conservative and brand- conscious Premium/brand-conscious products

2 Healthy Eating Fresh Food/organic/healthy/high-quality enjoyment

3 Convenience Modern/Young

4 Traditional Cuisine Store Brands/ Dry Grocery/ Fresh Food

5 Families with a Baby Brands and Promotion/Children

6 Price-Conscious price before quality- migrating customers

7 Smart Family Shoppers Brands and Promotions

8 Bulk Buyers Traditional/ large families/ more likely older

Page 9 of22


10/22

value propositionsThe third building block of customer-centricity is the creation, effective communication, and delivery ofvalue propositions that meet the most important unmet/under met needs of each customer segment..Unfortunately, the expression value proposition can mean very different things to different people.Indeed the expression seemed to reach its zenith during the dot-com era. Every new start-up had awinning value proposition that just needed a bit of capital to get started. For Retail a value proposition isthe complete experience that a customer receives from a retailer when it buys its product or service. Theexperience is made up of a series of elements. And the experience of each element is compared by thecustomer to that of other firms. Some elements are viewed positively and others negatively. Suppose thata companys sales associate was very helpful compared to the associates of competitors. Then that is apositive element. A higher price than competitors would be a negative element. The goal is to create avalue proposition that has far more positives than negatives. This notion of a complete experience is verydifferent from the typical use of value proposition to reflect a product or service in isolation.

The Layout of the stores and Planogram of the categories plays an important role.

. Align product category strategy: .This evolution from product-push strategies to customer-pull models requires that all retailers seekanswers to the following questions: What are my shoppers doing right now in my store? What newexperiences do they seek, and what efficiencies do they hope to gain? Addressing these questions will

enable retailers both to better understand the customer mission and develop a more granularunderstanding of the core products and services that frame this mission. In addition, this knowledge willprovide retailers with competitive differentiation and an opportunity to strengthen margins.

Todays empowered customer expects more value than the in-store environment has delivered in thepast. Consider revamped grocery store concepts in which customers can now bank, drop off dry cleaning,and/or relax at an in-store caf. This one-stop-shop environment reflects proactive retail initiatives thatsmart retailers have designed to offer customers the goods and services that they require to successfullycomplete their respective and often differing shopping missions.

Empowering the Customer

Page 10 of22


11/22

The retail market is in the midst of a strategy rethinking, as two examples make clear. Procter & Gamble(P&G) argues that organizations throughout the value chain must better understand evolving patterns ofcustomer behavior to optimize store operations and boost profitability. P&G has worked with Giant FoodStores to align Giants store operations with the first moment of truth the first encounter a customerhas with a product in the store. This collaborative effort led to an 11% increase in category unit sales anda 20% increase in revenue.

We as Retailers remain too product focused. Total as a retailer must leverage stores as laboratories forin-depth behavior patterns analysis and as new sources for operational best practices.

Innovative organizations also understand that aligning business operations with the customer mission willbenefit the mission of their own shareholders. Cutting-edge retailers have left behind the mind-set of thestatus quo; that is, we have a new product; how can we sell more of it. These retailers are proactivelydeploying solutions designed not only to understand the products and services the customer seeks todaybut also to offer customers the support required to accomplish their shopping mission. They understandthat there is no point in launching promotions, or building or renovating stores, without first betterunderstanding the evolving needs of the customer.

Total as a Modern retailer must realign their traditional data-mining tools and processes to embrace adata-driven view of the customer a go-to-market strategy that revolves around customer behavioranalytics. a solution offering that demonstrates the depth of tactical expertise that retailer should seekwhen moving to an operational model that is driven by customer behavior.

To profitably manage the dynamic patterns of change that define todays market, retailers need solutionsthat translate the principle of customer-centricity into tac-tical strategies that can be readily implementedat the store level.

The companys vision of the evolving retail universe is one in which the retail enterprise directly alignsbusiness process flows with the customer mission. Reflecting the call for customer focus to supersedeproduct-centric go-to-market strategies, We need to place the customer in the center of the retail universeunderstand the customer mission and how the customers preferred channel (stores, catalogs,) affectstheir mission. Their process enhancement tools intertwine traditionally disparate data pools (customerdata, product information, psychographics, geophysical store attributes, etc.) into a more intelligent andmore actionable customer profile. Retail InSight binds together customers and their preferredchannel/point of sale to create the core from which customer-centric go-to-market strategies originate.

Page 11 of22


12/22

4

Page 12 of22


13/22

Thus, is to provide Category Manager integrated solutions that address questions such as: How do theexpectations of todays customer translate into new operational requirements? Which business processesneed to be updated to deliver the experience the customer expects? What are the tools that can bothprovide in-sight into the customers mission(s) and align store operations with the most prevalent and/orimportant missions?

Industry laggards that ignore the urgency of addressing these questions will watch their bottom lines

suffer as their customers increasingly complain (primarily with their pocketbooks) that stores look and feelthe same and that the merchandise and store locations and/or layouts fail to differentiate one retailer fromanother.

The Philosophy: Satisfy the Customers Mission, and Sales Will FollowTechnology should be enlisted to understand the customers point of view. This is a rare attitude focused on optimizing product sales from the enterprises viewpoint, largely because enterprise data hasbeen more readily available. For example, a grocer typically thinks, I have an excess of milk, how do Iget it to move?From category Managers point of view, that question should be both more strategic andturned on its head: How do I most effectively sell milk to customers who pop into the store to getessentials on the way home?

.

In the above case, the grocer could sell more milk by dropping the price, but that quick-fix tactic wouldgive away already thin margins. It may make more sense for the grocery store to remain steady on price,but make it easy for dart-in-and-out buyers to accomplish their convenience-focused mission in threeminutes by re-configuring the parking lot and using grab-and-go coolers/shelving to create a milk andbread display at the front of the store. This strategy can potentially draw customers away from a nearbyconvenience store where the price of milk is likely to be higher and where no loyalty card points can begained. It is worth noting, how-ever, that this does not mean that retailers should abandon the back of thestore as a place for the dairy section (often done as a way to pull customers through the store in hopes oftriggering impulse buys). Instead, it means that retailers should be more creative in product placementwhile leveraging their key strengths this way, they can gain incremental sales by satisfying customerdesires.

The In Sight Suite offers analytics supporting five areas of retail operations:

1. Store performance The hallmarks of good (and bad) store performance by individual productcategory

2. Customer purchasing How customers buying behavior can be used to inform strategicmarketing, merchandising, and promotional activities, thereby increasing customer loyaltyand lifetime value

3. Product promotions How to make promotions most effective for the retailer while utilizingpromotional funds to their fullest

4. Customer shopping missions What the missions are of a retailers customers by region,format, store, etc., and how a better understanding of these missions can lead merchandisingactivity

5. Customer life cycle How customer behavior is changing over time, enabling retailers tounderstand and measure customer lifetime values, as well as create categories and place

Page 13 of22


14/22

products in a way that consumers demand (thereby ensuring that customers keep coming backfor more)

Store Performance In Sight

This enables retailer to improve store and product category revenues by understanding, at a detailedlevel, what drives good and bad performance of their stores. Targeted at a variety of departments within aretail operation trading, store operations, property, finance, and marketing the software can helpanswer both strategic and operational questions, such as:

What is a fair benchmark for category and store performance?

Which stores are underperformers across the entire range and also by individual productcategories?

Which product categories require immediate attention, in which locales?

What/where are my best opportunities for refurbishment and expansion?

If the company is planning to open a new store, the category Manager can recommend the categories itshould carry, based on competitor locations, customer demographics, and customer missions.

This proprietary, fine-grained approach has two advantages over the more traditional ways of analyzingstore operations, such as year-over-year growth (or decline) in revenue and operating margin. First,retailers can start optimizing store performance sooner they do not have to wait a year to get abaseline of data before deciding whether the store is doing well. Second, Store Performance In Sightdiscerns root causes, enabling retailers to analyze departmental and brand performance, acrossstores, for example, as well as understand the impact that store locations and formats have on storerevenue.

Advanced Category In SightThis module enables retailers to align product categories, range selection, and placement to customermissions, as well as to enhance the role and value of private label products. Targeted at the trading,marketing, merchandising, and format departments,

What are the key products for each customer basket type?

Which products are best used to drive targeted promotional activity?

How can I re-cluster or relocate products to increase sales?

Which products should I stop carrying (bearing in mind often invisible knock-on benefits ofmaintaining triggering, but low-selling, lines?)

How can I make my private label lines more profitable?

Advanced Category In Sight is able to answer such questions by leveraging analysis from an affiliatedmodule, called Shopping Mission. By analyzing at-tributes of each basket (e.g., time of purchase, productcount, total spend, number of promotions, and number of promotions) with point-of-sale (POS) data,loyalty card information, and customer demographics,

Advanced Category In Sight uses this understanding to offer five main functions:

1. Basket Reward Analyzer Identifies key products within specific basket types, enablingCategory Manager to prioritize effort and investment for buyers and merchandisers

2. Cross-Category Analyzer Validates category definitions and themes, helping users decideon product placement and secondary display

3. Range Deletions Analyzer Highlights candidates for delisting, retailers to discontinueproducts with minimal revenue impact

Page 14 of22


15/22

4. Private Label Analyzer Identifies market opportunities and pricing adjustments to driveproduct margin and customer loyalty

5. Products Insights Analyzer Lists item/SKU level metrics to enable users to analyze productpurchasing and performance

Source: Aberdeen Group, Inc. 260 Franklin Street Boston, Massachusetts 02110-3112 USA

5. Optimize your range Our next aim is to provide a range of products that is as attractive as possiblefor the defined target-customer segments. To do this, you must find out which customersprefer which items, how loyal they are to these products ,and how many buyers are reached by theindividual products. A decision tree showing purchase decisions for each customer segment and productcategory. It reveals the logic followed by the customers when they are in the store right down to theirpurchasing patterns at the shelves. This allows conclusions to be drawn for a more customer friendlyproduct chronology and better merchandising.

CCR in practice: Laundry detergents on the shelves before ...

... and after

Page 15 of22


16/22

Optimizing your range from the customer's perspective: Here is an example from the field ofdetergents. The laundry detergent products are arranged according to the traditional industry-dominated

shelf system by brand and package size. As a result, the arrangement is not governed by howcustomers tend to buy. Products that customers feel belong together are arranged separately; theshelves offer little in the way of orientation.

The photograph on the top right shows how customers would set out a shelf of laundry detergentproducts. The new layout reflects how people actually buy: this is why, in this case, products thatcustomers think of as belonging together are placed next to each other on the shelves. Here we havecopied the customer's first purchase decision and separated liquid detergents from powder detergents.We have also created vertical brand blocks to improve orientation .

Today, decisions on inclusion and exclusion are still very much based on lists of fast and slow sellers andthe subsidies for advertising provided by manufacturers. However, such data does not give any indicationof how important certain products are to individual customer groups. For example, although a high-quality skin cream might not be purchased very often, it could nevertheless be an important product forthe "conservative and brand conscious" customer segment. If you want to boost the loyalty of this

customer group in the field of personal hygiene, you need to understand exactly which productshave a positive impact on customer satisfaction, which products can be dispensed with, and whetherthere are any product gaps on the shelves.

The essence of store assortment is straightforward. Assortment planning at a retailer is to find theoptimal set of products to be carried and set the inventory levels of each productConsumers may be willing to accept a substitute when their favorite product is not available and thereforethe demand for a product depends on the availability of other products. And, there is a limited shelfspace assigned to each product category.Thats the bare essence of the challenge presented by store assortment optimization . Traditionally,Retailers have relied primarily on their personal experience and comparing competitors assortments intheir efforts to meet this challenge. In a relatively uncompetitive marketplace, this approach may appearto be adequate, but in markets with stronger competition and for retailers with multiple outlets servingdisparate markets, this going by the gut technique is no longer an acceptable approach

OPTIMIZING THE ASSORTMENT MIXSuccessful store assortment optimization requires the ability to receive up-to-date information on productperformance across the organization, as well as the ability to analyze sales and profits both current andhistorical with trends and performance against target. Only then can retailers apply benchmarking to theassortment for optimal performance POS systems obtain and deliver all the data needed to take the firststep toward improving total business performance, but simply collecting the data is only a start. The datamust be analyzed. Products must be categorized, segmented and identified as stars or dogs (and asmany gradations between those two endpoints as is appropriate), based on:

Page 16 of22


17/22

1. Percentage Value Share2 .Percentage Growth3. Percentage Share4 .Share of Profit5.Share of VolumeEstablishing these basic benchmarks allows a Category Manager to begin developing insight into his orher assortment and its performance. It then becomes possible to rank the category change performance

of each and every category based on sales, value, profit, profit margin percentage and sales per item.Sales achieved can be measured against sales targets for specific time periods.

This, in turn, leads to greater understanding of the sales performance of the entire product range, givingthe product manager knowledge of the contribution of products to category performance, as well as whichelements of the portfolio are generating the most and the least revenue. Armed with thisunderstanding,the assortment can be adjusted and aligned to actual, rather than perceived, demand.

6. Optimize your pricing strategy

To survive and thrive in the highly competitive retail world, Category Managers must become moreattentive and meticulous with their pricing. More than ever before, the financial success of companies

selling retail goods depends on their price strategy. Consumers demand fair prices in exchange for theirbusiness and are constantly comparison shopping. With the ever-present pressures from shrinkingmargins, rising costs, and competition, winning in the retail arena today demands price strategies thatreliably and frequently guide retailers decision-making.

Aligning business goals and pricing policy seems commonsense, but too often Category managers lackthe insight and technical ability to plan and price strategically. Instead, retailers too often rely on a basiccost plus strategy to maintain margins, follow their competition, or adopt wholesale-supplied pricing.Smart retailers know they should set prices in line with their own business objectives instead of simplyreacting to competitors, cost changes, and margin objectives.

Competition is by no means removed from the equation in a modern ,optimization-based price strategy.But modern price strategies reflect an analytical, big-picture approach. They include a far wider variety offactors such as pricing gaps, ending number psychology, brand sensitivity, and product movement. These

factors enable retailers to manipulate pricing toalign with their broader strategic business objectives. These options were previously not available intraditional pricing systems.When competitors introduce a new product or slash prices, retailers who have developed a strategic-levelpricing regime can respond with a multitude of options. The first and most typical option might be torespond immediately with similar changes. However, an optimization-based strategy can introduceadditional options for retailers, providing them a deeper understanding of the long-term financial impactsof reactionary changes.Optimization environments can suggest alternative actions to make up for those losses caused by fiercecompetition.

Category pricing policy must vigilantly protect the consumers perception that they are choosing the bestplace to shop for their families. Consumers who are confused by non-palatable prices tend to shopelsewhere. Many retailers inadvertently confuse customers by setting prices without a comprehensive

policy, by being reactionary to competition, or pricing strictly on margin goals. Although few customersmay be able to articulate why they feel confused in a given retail environment, research from theWharton Business School indicates that consumers typically rely on three reference points whendetermining what they think is a fair retail price: 1)how much an item cost in the past; 2) how muchcompetitors charge for the same item; and 3) their perception of the associated costs of selling an item.

Wharton Professors Z. John Zhang and Jagmohan S.Raju documented an important statistic in a recentresearch paper:

A one-percent reduction in fixed costs boosts profits 2.3 percent; a one percentincrease in volume will result in 3.3 percent increase in profits;

Page 17 of22


18/22

a one-percent reduction in variable costs can produce a 7.8-percent risein profit; but a 1-percent improvement in pricing will boost profits by awhopping 11 percent.The Wharton research validates what new-era price optimizationstrategists have asserted since 2005: pricing is one of last retail frontierswhere significant gains can be immediately realized with proper strategy,technology, and support.

Essential Components of a Modern Price StrategyEstablishing a formal pricing strategy is a long-term commitment to a set of over-arching business goalstied to a set of decision-making processes, technology, and actions. These four attributes characterizetodays most effective pricing strategy: Embraces a long-term approach that creates a perception of value in the customers minds Balances short-term, proactive tactics with long-term margin enhancements in other areas Contains well thought-out and imbedded mechanisms formeasurement, evaluation, and course-correction Ultimately deliversthe financial goals.

The Human ElementDedicated human resources are another essential component, worth discussing. Retailers should

empower individuals to learn, monitor, implement, and adjust the companys pricing. Empowermentshould be coupled by the appropriate authority and accountability that convey the roles importance.Multiple layers of decision makers in multiple departments often blur the purpose and unison of thestrategy. Total responsibility must reside in one department with those goals being visible across theentire organization. This is a key area that often requires change management activities if responsibilitiesare adjusted in any way.Other employees are also a part of the equation. Communicate the strategys importance and purposebecause evolving traditional ways of thinking and implementing a new pricing system must occur on anorganizational level. Internal buy-in and understanding leads to a more consistent, less-ambiguous set ofcommunications to the public. Although prices themselves represent one important channel ofcommunication to customers, public-facing employees can also help or hinder this communication.

Measurement and AdaptationIts one thing to develop a powerful strategy or deploy a robust optimization system, but many retailers

find execution and measurement equally challenging. To some retailers, price recommendationsgenerated by their optimization systems make perfect sense on paper, but when several hundred orseveral thousand price changes occur every week, they need the reassurance the system is working.

Zone AnalysisThe Category managers in Total already practice grouping stores into zones. These groupswere originally set up using a cost-to-serve model driven by geographies, distribution centers, or criticalsuppliers. Category Managers today sit on both ends of the spectrum with only one zone or too many tomanage.Determining an optimal price strategy through zone configuration requires a deep understanding of manyfactors, including cost. Cost serves an important purpose, but certainly should not be the only factor. Evenretailers with several outlets in one geographic area do not have identical economic, cultural, anddemographic identities within every store. These differences become evident with basic price elasticitystudies. Such store specific insights can empower a retailer to anticipate and react to factors such as job

growth, housing, and other economic trends that can greatly impact consumer price sensitivity andcompetitive activity. For example, the price of a large bag of flour is highly sensitive in a North Indianfamily community, where life does not exit without rotis. a way of life versus a community of homes withno children or parents who often travel andseldom cook at home. Both of these extremes exist in the same cities andstates across the country. Why rely then on just one factor to set pricing?Category GroupingsCategory Managers in Total apply a general margin goal to categories of like itemswhen using price management systems. This is largely a function of how earlier pricing was done inaccordance with historically popular rules-based approaches to pricing. Mature category management

Page 18 of22


19/22

systems, new product innovations, health and wellness attributes, green products, and convenience foodsare creating opportunities with new segmentswith in standard categories. Today, it benefits retailers to look inside categories for margin opportunities.For example, the rise in popularity of specialty teas has put those items in a category of their own,capable of performing much better than the general category of coffee and tea.Retailers who lack insight into these buying trends miss opportunities to reshape a price strategy.

Creative PricingCreative pricing pushes consumers into action when they consider making a purchase. Should I buy itnow or later? is a question that too often is answered, later. Should I buy one or two? Is oftenanswered by one. For items not promoted through advertising, retailers can build their pricing strategy toleverage specialized, creative appeals that drive product movement based on the perception of addedvalue or savings. Successful retailers in every market use tactics like offering better single price pointsonly if multiple purchases are made, cash discounts for purchasing a suite of products, discounts onother categories for purchases made in-store, and any other strategies to generate larger orders andtakecustomers out of the market on key items. Since these prices are built around large purchases, smallerorders can become more profitable as those offers do not apply. These tactics MUST be supported by: Clear, simple communication to both employees and customers. A great in-store merchandising program

Such tactics can help convert part-basket customers into full-basketcustomers.Private Label Private label brands and strategies are evolving quickly. Category Managers have learnedthat a good private label strategy pays off big dividends in customer loyalty, margin enhancement, andcategory control over nationalbrand manufacturers. Retailers should be aware of the emerging bestpractices in pricing private label. Supporting private label growth should be top priority in time andmanagement as it adds profit at a much higher rate than any other category in retail. Establish an idealprice gap between private label and national brands, recognizing the consumer will evaluate the coresuite of items (by size). Support a value-price perception by adopting both long term and seasonal pricingpractices that capture margin targets. Avoid line pricing organics or better for you products withmainstream items. They offer additional benefits and have competitive items of their own to take intoconsideration.Private label also enables retailers to fill a hole in their product mix with the added benefit of not beingsubjected to a direct-price comparison by developing new products of a different size, added features,

unique flavors, or even different packaging. This practice has resulted in multiple tiers of private labelofferings but has some private label items taking on the popularity of a national brand with consumers. Byhaving a comprehensive data file that can be intelligently and systematically analyzed, retailers canreverse engineer price gaps to identify the right size and package for their new private label initiatives.Set a competitive price that generates better-than-average margins.In terms of managing gaps between multiple private label tiers, a consistent and purposeful price strategyis critical.

Some time the private label strategy can back fire the assortment and profits. In India we are comfortablein private label only in soft commodities.

Vendor Management: What is the message you send to your customers when they stand in front of yourshelves? Does the message shout about a specific brand? Or does itshout about your price/value message?

Retailers and vendorsmotives are often similar, but not the same. A retailer with a well-reasoned pricing strategy and reliabledata is suddenly in a position to negotiate effectively towards common goals. Retailers who leveragetechnology end up being better supported by manufacturers and distributors . The retailer providesreliable pricing leadership by aligning pricing to longer-term goals and strategies that, by and large,account for manufacturer best interests. By making item optimization metrics available, retailers cannegotiate meaningfully with vendors and manufacturers. As an example, retailers whose priceoptimization systems generate customer demand curves are equipped to talk on-par with manufacturersor vendors on performance criteria, promotional vehicles, floor placement, item authorization, or cost

Page 19 of22


20/22

increases. When negotiating with vendors, understanding product demand factors based on differentstrategies offers a powerful tool.ConclusionThe old adage knowledge is power is once again proving true in the arena of retail price optimization.The historic reliance on human knowledge to set pricing is now giving way to tried-and-true priceoptimization science. Broader economic and societal pressures and competition from larger, increasinglysophisticated retailers is forcing retailers of every size to develop and execute strategic, proactive

pricing. Over time ,as the system learns, profit building opportunities will explode.

The effectiveness of promotionalBusinessConsumer Perceptions of Promotional Activity

Several models of consumer response to promotions suggest that a current decision on brand andpurchase quantity depends on the expected time until the next price reduction and the expected size of

future reductions. In spite of the importance of expected deal frequency and expected deal price to aconsumer's decision, relatively little empirical work has been reported on those topics. The authorsinvestigate several aspects of consumer perceptions of deal frequency and deal prices. First, aconceptual model is presented to describe how consumers develop and use those perceptions. Second,results of an extensive survey are used to estimate the degree of consumer knowledge about dealfrequency and deal prices. Third, hypotheses about which types of consumers have better knowledge ofpromotions are tested. Results from the survey indicate that many consumers are reasonably accurateabout deal frequency and sale price. In addition, recall on deal frequency and sale price is higher forconsumers with larger family sizes and those who read weekly fliers for items on sale, devote a higherpercentage of product class purchases to the brand, and purchase the package size more frequently. It islower for older buyers.CONSUMERS routinely face the decision of what brand to buy and in what quantity. The decision iscomplicated by temporary price reductions for various brands and by the fact that the size of the pricereductions varies across deals. Common sense and formal economic analysis (Blattberg et al. 1978)

suggest that a consumer's decision on brand and purchase quantity may depend on the size of the pricereduction and the time until the next price reduction. For example, if a consumer's preferred brand of softdrink is on deal every other week, stockpiling eight weeks' worth of the brand may not make sense. Inspite of the importance of expected deal frequency and expected deal price to a consumer's decision,relatively little theoretical or empirical work has been reported on those topics.Our study has three general objectives. The first is to develop a conceptual model to describe theinteractions between consumers and retailers or manufacturers as retail price promotions areimplemented. The model describes how consumers encode information on deal activities. It also indicateshow retailers or manufacturers influence in-store promotional activity and could use information onconsumer perceptions and purchasing to design future promotions. The model provides a basis foridentifying several key constructs in consumer decision making about deal purchases and suggestsseveral hypotheses about the relationship between consumer characteristics and perceptions of dealactivity.The second objective is to conduct an empirical analysis of certain key constructs in the model. In

particular, we want to estimate the degree of consumer knowledge about deal activities. These findingsare expected to improve our understanding of why and how consumers react to price promotions. If manyconsumers are aware of the deal frequency for individual brands, consumer response to deals on highlypromoted brands may be very different from their response to deals on brands that are not oftenpromoted. Manufacturers and retailers could take those reactions into account in designing promotions fordifferent brands.The third objective is to test hypotheses about the association between a household's characteristics andits perceptions of deal activities. We want to determine which consumers have more accurate knowledgeof deal frequency, sale price, and regular price than others. These findings could be used to segment the

Page 20 of22


21/22

market, for mailing coupons, for designing specific promotions, and for improving models of consumerresponse to promotions.The two major constructs of the conceptual model that are examined here are deal frequency and dealprices. Buyers' perceptions of deal frequency for a specific brand-size have several implications. If mostconsumers perceive that a specific brand-size is promoted frequently, they might not feel a need to stock-pile the brand (i.e., accelerate purchases) when it is promoted, which could account in part for the findingson stockpiling by Gupta (1988) and on purchase timing by Neslin, Henderson, Quelch (1985).

If promotions for a brand are perceived as occurring frequently, retailers may not be able to use deals toreduce their inventory holding costs (see Blattberg, Eppen, and Lieberman 1981). Also, a large proportionof purchases for the brand-size may be made on deal, decreasing the brand's profitability. In addition, ifmost consumers perceive that their preferred brands are often on deal, they may be less willing torespond to deals on less preferred brands.Conversely, if deals on a particular brand-size are perceived to be infrequent, consumers may buy largerquantities when it is offered on promotion and retailers could use deals to reduce their inventory costs.Moreover, consumers may be willing to switch among several brands in the product class if they perceivethat promotions are rare in that product class.Perceptions of deal prices may also have an important role in consumer decision making. For example, ifmost consumers have an accurate perception of the typical deal price for a 2-liter container of Coke, theymay not react favorably to a Coke promotion in which the price discount is less than the regular discount.Alternatively, if most consumers do not have a perception or have an inaccurate perception of the typical

deal price, consumer reactions to a small discount count could be very different. Information onconsumers' deal price perceptions could help manufacturers and retailers in determining the amount ofdiscount for a price promotion.The Role of Consumer Expectations AboutPrice and Deal Frequency in Prior Studies

One possible role of expectations about future prices in current consumer decisions was described byBlattberg, Buesing, Peacock, and Sen (BBPS) in 1978. They assumed that a household's objective is tominimize expected costs over present and future periods. "Thus expectations about future demand andfuture prices affect the present period's decisions" (p. 371).

In a 1981 study, Blattberg, Eppen, and Lieberman (BEL) based their expression for the optimal purchasequantity on the assumption that the next price promotion will not occur before that optimal quantity isdepleted (p. 120). If a consumer expects a deal to occur before the optimal quantity is depleted, the

quantity purchased may be different. A second aspect of the BEL model indicates the importance of priceperceptions. The model (equation 1, p. 119) includes a term, D, to indicate the price reduction. Inclusionof a term like D implies that a consumer has a perception of the price reduction. If the regular price is notdisplayed and the perception of D is inaccurate, consumers may not react as predicted by using the truevalue of D in the model.The important role of deal and nondeal price perceptions is illustrated also in the model of the purchasequantity decision developed by Neslin, Henderson, and Quelch (NHQ) in 1985 (p. 150). Their modelincludes the difference between the current price and the price of the brand in the previous week. Thus,before using either the NHQ, BEL, or BBPS model, it appears important to conduct an empirical analysisto determine whether consumers have perceptions of deal prices and to determine the accuracy of thoseperceptions. In addition, it appears important to determine consumer perceptions of deal frequency usingthe BEL model.Some researchers have assumed that consumers notice prices and update a reference price each timethey encounter the brand (Friedman 1979; Raman and Bass 1986; Rinne 1981; Winer 1986). Reference

price usually has been computed as some function of past prices (Emery 1970; Rinne 1981).Consequently, a consumer's reference price could be influenced by how frequently the brand-size ispromoted. Because reference prices are assumed to be based on a consumer's perception of prices(Monroe 1973), a consumer's perception of deal frequency and deal prices could have a critical role indetermining his or her reference price.Research also provides evidence of the discounting of discounts by consumers (Gupta and Cooper1989), implying that consumers have perceptions of the regular price and sale price. In a similar vein,Blair and Landon (1981) show that the full savings claims made by reference prices in retailadvertisements are not accepted by many consumers. This finding suggests that many consumers haveperceptions of regular prices. It is also supported by related work on the effect of merchant-supplied

Page 21 of22


22/22

information and deal prices on a consumer's reference price (Berkowitz and Walton 1980; Della Bitta,Monroe, and McGinnis 1981; Lichtenstein and Bearden 1989).

8. Implement a change-management processCustomer-centric retailing is far more than just a new way of optimizing your range, however. Whenproperly thought through, it's a holistic management approach involving all company divisions. Thesuccessful implementation of customer-centric retailing requires a systematic change management

process. Processes and controlling systems must be adjusted to the CCR logic. If you want to bring thedaily activities of your employees into line with this way of thinking, you must also integrate customer-centered objectives into the staff MbO system. Roland Berger's team of retail experts have alreadyprovenmany times that CCR works. And what is probably one of the most successful retail groups in theworld started using CCR years ago to put the focus on the customer."We grow by understanding our customers," says Sir Terry Leahy, chief executive of Tesco."When they change, we change with them."

Kotter's eight step change model can be summarised as:

1. Increase urgency - inspire people to move, makeobjectives real and relevant.

2. Build the guiding team - get the right people in placewith the right emotional commitment, and the right mixof skills and levels.

3. Get the vision right - get the team to establish asimple vision and strategy, focus on emotional andcreative aspects necessary to drive service and

efficiency.4. Communicate for buy-in - Involve as many people as

possible, communicate the essentials, simply, and toappeal and respond to people's needs. De-cluttercommunications - make technology work for you ratherthan against.

5. Empower action - Remove obstacles, enableconstructive feedback and lots of support from leaders- reward and recognise progress and achievements.

6. Create short-term wins - Set aims that are easy toachieve - in bite-size chunks. Manageable numbers ofinitiatives. Finish current stages before starting new

ones.7. Don't let up - Foster and encourage determination and

persistence - ongoing change - encourage ongoingprogress reporting - highlight achieved and futuremilestones.

8. Make change stick - Reinforce the value of successfulchange via recruitment, promotion, new changeleaders. Weave change into culture

P 22 f 22

Final Project- Customer Centric

Documents

Transcript of Final Project- Customer Centric