Comment: Knowledge is power

In today’s highly competitive market, retailers are constantly competing to differentiate themselves. That’s understandable; competition from bricks and mortar retailers and online operators has rarely been tougher. But the risk is they do so without knowing what their customers really want; something which should set alarm bells ringing in head offices up and down the country, given that customer expectations have also never been higher.

Launched today, our retail report Integrating the retail supply chain, suggests that only 39% of major retailers actually talk to customers to understand their needs, despite 77% believing that successful businesses put customer service first. Many retailers are making decisions based on gut instinct or their own perceptions of what customers want, rather than talking to them to understand their real likes and needs. This is particularly surprising in today’s increasingly digitally enabled world where customer expectations are developing fast, often influenced by service experiences outside retail through companies such as AirBnB, Uber and Just Eat.

This can be extremely costly, because it means retailers can be focussing on the wrong areas. Many retailers continue to pursue a ‘faster and freer’ delivery mantra, often in the belief that they need to compete with online pureplay retailers like Amazon. In our experience, if they speak to their customers they may find that the customer doesn’t actually need or value that level of service. For many customers, what is more important is that deliveries arrive when and where they are supposed to, and that the delivery window is as short as possible so they don’t have to waste the whole day waiting for a parcel. There are, of course, examples of product sectors where next day or same day delivery is essential, but in the majority of cases, customers are making a planned purchase and it is more important to them to receive the delivery on terms that are convenient for them, rather than next day.

We recently worked with a high street retailer, who wanted to move to a standard next-day delivery offer because they felt this was what their customers wanted. The implications for this on their distribution operations would have been severe as all orders need to be received, picked, packed and dispatched in a short time window to enable next day delivery – with a consequential impact on the size of distribution facility needed. After some research, they discovered that their customers would be content with two or three-day delivery; their customers were making an informed decision to buy and what was more important to them was the assurance that it would arrive at a time and in a place of their choosing. Naturally, two or three-day lead times enable the smoothing of order peaks and troughs across a longer time period and result in a smaller, simpler, more cost effective distribution operation.

Such exercises can produce other insight, too. In the above example, customers revealed what was important to them, as well as what wasn’t. They wanted returns-ready packaging – the ability to reuse packing for returning items without the customer having to source an alternative, and with a return-ready label included. They also revealed that all the additional special offers included in deliveries, which our client thought added value for the customer, were actually an annoyance and went straight into the bin. Essentially, the retailer had prioritised the wrong elements of the customer proposition, because it hadn’t until that point found out what their real customers wanted.

Encouragingly, our report also found that leading retailers (those we define as omnichannel pioneers) are more than twice (76%) as likely as others (32%) to undertake in-depth customer data analysis, suggesting those who do take the time to find out what customers really want see benefits in both sales and bottom line profit. Critically, by combining historical sales data with real customer insights and an understanding of future trends they are able to ensure they deliver the right offer for their customers, and by neither under or over-servicing those needs, they are also delivering their proposition more cost effectively.

Retailers can also learn from trends outside their sector. Some of the online operators, such as Uber, demonstrate the potential that can be achieved with digital channels, including the ease with which transactions can be made and the benefits of adapting websites to mobile devices.

Those retailers which can use customer insight effectively will be able to stand out through offering differentiation to customers. It’s a model John Lewis has used successfully for many years, driving loyalty through a singular focus on providing customers with what they want.

Businesses which can align their supply chains to deliver excellent, personalised, service will naturally differentiate themselves in the market and be more able to confidently move away from the race to offer ever faster and freer’ delivery, focussing instead  on improving customer satisfaction and retention, and ultimately generating higher profits.

The write is Stuart Higgins, retail partner at LCP Consulting. Click here to access the LCP retail report, Integrating the retail supply chain