Today it is no longer acceptable to ignore consumers. The balance of power has shifted towards customers. They can compare prices and services and request to be contacted however they prefer. The ways retailers used to keep their customers are gone. The result is that customer loyalty is an increasingly difficult task. Today consumers have many options to choose between products that are in many ways indistinguishable. They can compare prices, specifications and reviews quickly and easily. Today, the only way for retailers to remain competitive is through personalized service.
To offer it, however, it is necessary to know your customers by collecting retail KPIs. One of the significant changes happening is that retailers are starting to measure the acquisition and loyalty of their customers. This shift from transactional retail KPIs to metrics that measure customer engagement is probably the most fundamental shift in the new retail operating model. Based on dozens of conversations with retail managers about the new retail model, we explore the ten key performance indicators (retail KPIs) driving the fundamental changes in retail.
What Are Retail KPIs?
Return On Investment ( ROI ) On Marketing Spend
It used to be said that 50% of marketing expenditures were wasted. Businesses spend money on advertising and various campaigns. They then crossed their fingers that they all had a positive result. However, the truth was that when a customer visited a shop, it was not possible to tell if this had happened thanks to an advertisement, an announcement or if it was just a coincidence.
Modern digital marketing managers today can accurately measure the effect of each euro invested in terms of spending and customer acquisition. Now you can optimize every marketing activity to maximize your ROI. It is no longer conceivable for a Marketing Manager of a retail company not to measure ROI. This is the most important KPI for understanding how and why customers engage with the company.
Retail KPIS On The Customer Journey
In traditional store-based sales, we barely knew a specific customer was in our store. Even less could we have learned what events brought him there. We knew how many white t-shirts we had sold in our store but didn’t know who bought them. Therefore, the KPI indicators on sales were minimal and needed to provide a clear and reliable overview. Today we can track every digital step a customer takes before visiting our site and compare that to our knowledge of their history. With evolving mobile applications and in-store technology, retailers today are beginning to understand the customer journey of physical stores and how customers move from one channel to another.
By combining detailed knowledge of each stage of the customer journey with analysis of what marketing activity does at each step, retailers can now better understand how and when to engage with customers to build loyalty and long-term value. We are beginning to see significant retailers hiring customer intelligence experts to develop these skills and new technologies that enable retailers to collect and analyze increasingly rich customer data to improve product and service decisions.
Social media platforms allow retailers to know what their customers say and think about their brand in real-time. In the traditional retail model, this has never been visible. Today’s world is different. Customers provide extensive and detailed information about how your brand is performing in their eyes and share their thoughts with the world. Only resellers who pay attention to these channels and respond proactively will run into trouble. Product and service reviews, Twitter comments, and in-store analytics – are all essential to understanding how customers perceive your brand. And how it stacks up against the competition.
An important component of the customer experience with the brand is the availability of the product where and when they want it. In-store or available for home delivery. In the traditional brick-and-mortar existence-only model, lack of stock was not measured or addressed by most retailers because the customer was anonymous and silent. In today’s omnichannel digital reality, availability is crucial for most customers.
Retailers are therefore forced to consider this and manage it much more effectively. The concept of “lost sales” was virtually unknown before the advent of digital. Today, thanks to data held by retailers, lost sales can be measured with a high degree of accuracy, and the level of customer satisfaction can be understood much more quickly.
Traditional retailers were focused only on product sales and margins. Retailers generally knew very little about their customers or what they thought about the brand. Things have changed a lot today. If retailers know who their best customers are and what they think of the brand, they will retain them. Retailers can now segment their customer base by:
- The total expense.
- The size of the cart
- The frequency of visits.
With this information, they can surgically fine-tune all their marketing investments. In today’s world, if customers are ignored for too long, they will find someone else to take care of them sooner or later.
Profitability Of The Channel
This is one of the biggest challenges for large retailers. Giant supermarkets where low margins do not cover all costs incurred, such as online ordering, delivery and data collection. As retailers invest more in technology and online logistics, they need to ensure that short-term operating losses don’t impact the overall profitability of the business. Where retailers are incurring costs in particular channels, such as in-store shopping and home delivery, all these costs must be allocated appropriately to that channel.
If retailers assume that the online channel’s growth will lead to increased market share, these projections should be part of a detailed business plan. They should also be monitored closely to see how accurate these assumptions are. Currently, only a few retailers explore their channel-by-channel P&L like most do for individual stores.
Productivity Across All Channels
Most retailers are seeing their stores’ gross margin decline. This is caused by customers moving to new channels. There is an excess of store square footage for the leading retailers today. This puts further pressure on overall returns. This growing challenge of decreasing store productivity requires ever more accurate management of costs and returns on space. Efficient work scheduling. Detailed measurement of space productivity. Conversions. And the use of space is critical to increasing productivity.
The economic return of rooms is no longer measurable only on sales per square meter. Stores now serve as hubs for customer engagement and retention across all channels. This should be reflected in a more sophisticated approach to gross margin measurement of GMROS spaces, for example, by considering those who buy online and pick up in-store. Keeping the channels separate when looking at store performance is no longer satisfying.
Pace Of Innovation
Traditional retailers have always taken a long-term view of technology and innovation. New system designs often take several years to implement. This approach is no longer acceptable in today’s fast-changing world, where technological innovation and new devices change every week. There is no longer a “five-year IT strategy”.
Retailers need to take a much more responsive approach to innovation to reflect the increasing rate of change in customer demands. The rapid and agile adoption of new technologies and the customer engagement they create are now critical measures of success. The traditional model of centralized IT departments is becoming less and less relevant. Only companies with development teams capable of generating high levels of innovation can meet customer expectations.
Organizational Retail KPIS
The traditional retail model is too often based on an organization divided into departments with little communication. Often with conflicting KPIs that create multiple operational tensions between different functions. These companies’ “ECommerce” and “Digital” departments were born, constantly creating other functional conflicts. For example, many retailers are now watching their stores’ margins decline. This depends on the price reduction needed to offer the same prices between the online and physical channels.
While the sales function owns margins, price promotions are implemented by different tasks across the business, often by people who have no responsibility for the margins achieved. Now the time has come for retail companies to rethink their organizational structure and KPIs to ensure that the division of departments is minimized. Roles clarified. And the KPIs aligned across all departments. An integrated approach is needed to develop roles and retail KPIs across the business. E-Commerce is no longer a hidden niche separate from traditional business. Today a new multi-channel structure is required. Which reflects the way today’s customers relate to brands.
Retailers have long understood the inefficiencies of an opaque supply chain. For example, inefficient demand forecasting and inventory planning lead to upstream and downstream losses. The advent of multi-channel retail invites greater supplier participation in areas such as inventory maintenance and direct delivery. Increased exchange of transactional data between retailers and suppliers offers many opportunities to minimize the inefficiencies inherent in the traditional supply chain.
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