Ideations_SepOct2007 | Analytics | Brand

September/October 2007

A Retail Publication by an

Company

Great retail ideas often start with a vision from the mind of a highly creative and persuasive individual. If a company is lucky enough to be led by a Gene Pressman, a Mickey Drexler or a Howard Schultz, it could put its faith in a pure creative leap and succeed. For the rest, there’s analytics. Analytics is the function of dynamically using facts to reach decisions objectively. It means a company doesn’t have to extrapolate from the past or rely on intuition. Using it does not limit inspiration or creativity, and it supports design. As for creative leaps, it uses facts to create a compelling business case for change. Charismatic leaders have a seemingly magic ability to build consensus. So does analytics. Many companies use data analysis in Customer Relationship Management (CRM)—the use of transaction data to personalize marketing messages. Some are employing Web analytics to optimize their online businesses. But as a tactical and strategic tool for brand and space, retailers are just beginning to take its power to the sales floor. “Retail has never been more complex in terms of what information you need to make a good decision,” says Amanda Yates, Design Forum’s vice president of strategy and research. “The sheer amount of all the moving parts, each with its own velocity and interactions overwhelms decision-makers.” Although at first analytics doesn’t sound like a sexy big idea, its broad application, level of precision and orchestration power is such that many companies experience a big ‘aha!’ once they get it. Take the case of brand. Companies have always known that brand influences demand, but not how much or why. Analytics has an important role to play in connecting a company’s data to its strategy. A data-driven approach uncovers the economic power of a brand and identifies which elements create that power. It can shed light on previously unrecognized opportunities and help managers make smart decisions. “Brands are about relationships,” says Yates. “Business is defined by how people interact with and socialize through the brand. Analytics help deconstruct the brand and its drivers; its positive or negative value according to customer segments. It helps you find the brand elements you can put to use.” In its search for greater differentiation, the BMW Group brought the power of analytics to bear, both on the clarification of its core brand and the relaunch of the Mini as an independent, contemporary mark. The company used the resulting knowledge as a platform for brand decisions around dealerships and exhibit spaces. Their efforts also benefited from a deeper understanding of target customer behavior “Right now companies are in hot pursuit of shopper behavior,” says Yates. “Segmentation is great, but there’s a more finite level of understanding available. What we commonly see are clients who over-invest in segmentation that is unactionable, and people are grumbling because the marketing department isn’t making it work. It’s because the right message will get you onto the short list of store choices, but you’ll have to address a new mindset, new

Creating with

Analytics

needs, and provide new information inside the store at the moment of decision.” Traditional demographic analysis does not comprehend the shopper mindset as driven by occasion and need state. With in-store shopper insights derived from analytical methods, stores can adjust the shopping experiences to satisfy both according to segment. With shelf principles linked to shopper behavior, more productive shelf sets, and improved shopping experience, retailers are seeing a positive impact on total basket. Procter & Gamble is one of the early adopters of such in-store analytics. “We’ve seen how a single insight can ring the cash register thousands of times and generate millions of additional dollars,” says Yates. “Smart retailers, often in conjunction with their manufacturer partners, have been figuring out that in-store experience, and translating shopper insights into strategic and tactical recommendations that environmental designers and merchandisers can actually use in the store.” In terms of floor space, retailers more than ever need to make the most of every square inch of space while keeping capital spending in check—and creating a unique shopping experience to keep the customer coming back. Because of its ability to orchestrate space, brand and finance, three-dimensional analytical tools can determine which store plan configurations maximize profits, or which are most efficient. Retailers in the furniture, convenience and drugstore categories have successfully employed such methodology to optimize their stores. “If you want to create a great shopping experience, you have to know how consumers are linked to space. And of course how to balance the demands of the manufacturers, merchants and operations people to whom space allocation is critical,” says Yates. “How do I use my store and brand touch points? Where should I invest and what will it cost me? “Opportunities abound to employ analytic methods to substantially increase profitability. Positioning strategies, package design, branding in a post-merger environment—we’re just scratching the surface.” Understanding the constantly changing variables of consumer behavior, attitudes, perceptions and preferences is one of the fundamental challenges of the industry. Given the greater levels of exactitude in decision-making required, the trend toward analytics will likely continue.

Where to next?
Any time a little deviant behavior occurs in the retail world, I take it as a positive sign. It’s good to shake up the status quo now and again. It means someone is taking a risk, and that’s great. Getting to someplace new requires a little daring. Gap’s hiring of CEO Glenn Murphy, for instance, strikes many as highly irregular. He’s a drug store guy! A supermarket operator! He’s Canadian! Come on. If he surrounds himself with Gap’s smart passionate people and lets up on their reins, he’ll succeed. I was in New York last month, speaking at the annual Women’s Wear Daily Brand Forum, where the buzz was all about hot designers moving from luxury to mass. Vera Wang in Kohl’s was the most mentioned. Will Wang’s luxury stock drop “now that her creations can be found hanging cheek-to-jowl with Mom jeans?” Designers are used to taking creative risks. But this is a business risk. And why should non-apparel retailers care? Because, as they say, every retailer is in the fashion business. Every brand has an aesthetic, a cachet that should be carefully managed and adapted to extend its life. The great challenge— always—is to maintain integrity, honesty and passion. People don’t like phonies. When I see the retail news filled with stories about the nearcomical extravagences of luxury—Nieman Marcus is selling a personal submarine this holiday, as well as his and her portraits painted in chocolate syrup—I know the American dream is alive and well. Unlike other cultures, those of us who are not rich do not have a class-based resentment for those who are. We all aspire to riches. Although the greater concentration of wealth within a tiny minority looks like a mad return to the Roaring 20s, luxury is a niche. And retailers are going ever narrower to reach new customers. It’s the job of every business to continually try and reach more people. In fashion, especially, you don’t want to get old and you want to attract new customers constantly. In the upper spheres, there’s the newly rich, the hyper rich and the old money rich, each with specific needs to be met, as Burt Tansky will tell you. Although it’s been referred to as “wealth porn” we enjoy watching. Riches may not be everyone’s destiny, but thanks to the great design and retail genius of the last several years, everyone has access to beauty and a little of the exclusivity they crave. The recent flurry of brand extensions and new concepts is all about narrow niches: Gymboree’s Crazy 8, J.Crew’s Madewell, or Brooks Bros. 346. The executions have all been very sensible and practical and minimally exciting. Nothing disruptive. But an honest and profitable connection to the customer.

Chairman’s Commentary

Getting someplace new requires a little daring.

If the move to mass is done condescendingly, the aspirational brand is in trouble. If the designer compromises their vision, as a pair of notable upscale designers admittedly did for Uniqlo, they may be vulnerable to loss of equity. As a creative decision that’s decidedly risky. As a business decision, to be seen in hundreds of stores worldwide is priceless advertising. The concern about brand “dilution” is actually about the loss of passion. Maybe Kate Spade faded because of a long-term commitment to the Macy’s customer, someone the brand didn’t really know. Maybe the limited runs of Target and H&M are what keep stars like Mizrahi and Lagerfeld in love with creating for everyone without class snobbery. It would be great if it could work both ways. Martha Stewart started at Kmart. It would be fun to see her verve and passion take her into luxury. On the other hand, I’ve been to the Plano, Texas, Wal-Mart. You can’t convince me that Bentonville has a true passion for wine and gourmet chocolates.

I don’t think it’s a matter of “going upmarket or downmarket.” Does Vera Wang really want to get involved with the Kohl’s shopper? The line could be better merchandised, the prices might be out of line and some items may be stripped of the designer’s special magic. But Kohl’s says the numbers are terrific. So shoppers must be feeling the love. I will always raise my glass to a little messing with the established order. To quote my good friend Watts Wacker, “Sacred values are fine. Sacred cows are not.” Thoughtfully,

D. Lee Carpenter Chairman & CEO

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GuestFeature
Brands no longer follow a clear, linear path on their way to mass market adoption. Instead, multiple spheres of influence act as stepping-stones on the way. A key sphere of influence is youth. By 2010, today’s youth will be the largest, most diverse group in the U.S. (SNS) such as MySpace, Facebook, Tagged, and MyYearbook. Social networks are the new phone number, portal and recommendation engine that link all youth communications and media consumption together. Next up are microtelevision networks based around SNS content created by users. It is also quite possible that MySpace or Google’s Okurt

The New

Sphere of Influence
New Media Model The desire to acquire social capital, get exclusive information and products, and know the “buzz” is nearly universal among teens. However, buzz is no longer being spread by individual influencers, but by networks. Networks do not behave independently—the individuals within one influence the other. For youth, we now need to focus less on who to influence—and more on how they are influenced. Once we reach a critical mass of easily influenced people who become early adopters, they in turn influence the next sphere of consumers. In Web 3.0 terms, this is a move away from buzz as something that can be engineered, to an understanding that buzz arises naturally from within a highly net-worked world. Brands must employ a new marketing approach to immerse young people in branded product experiences via the new media paradigm—online, offline and wireless. Today brands have to permeate the target audience’s life 24/7, locally and nationally with controlled and uncontrolled one-to-one interactions. Everything must be relevant to consumers’ communities of interest—what they are passionate about. Narrowcasting allows marketers to infiltrate micro-communities whose one-to-one involvement and eventual adoption allows a product to move to the next level until it achieves mass. Sphere of Influence The Sphere of Influence marketing model is based on the notion that most products and trends follow a similar process on their way to mass adoption. This process is heavily influenced by peer-to-peer interactions within influential consumer groups especially those within social network sites

by Alan Rambam

will become the next Microsoft, they and other SNS-like Facebook evolve into our new virtual operating systems. Movement within the Sphere of Influence Most brands, products and trends travel through three essential spheres before they reach mass-market adoption. 1. First to Market Members of the First to Market sphere of influence are the “underground” or “hardcore” consumers who have a passionate, deep personal relationship with media channels offer opportunities to gain a product or brand. Companies must enable social capital and trade social currency. this group to customize a product, which Fashion and music are a big focus. influences its success. Their media Achieving Mass-Market Adoption channels are peer-written zines; niche fashion magazines; music, graffiti, fashion, Navigating your way through the spheres of influence is a means of reaching the massand sneaker based cultural Web sites. market. “Massclusivity” is rooted in the 2. Envy-Inspirers Sphere of Influence model, since consumers Envy-inspirers ensure mass-market now expect this type of personalized adoption when used as a promotional product development in all areas of their vehicle. These A-list celebrities and shopping experience. Young people are hipsters must adopt a product for it to looking for the same control they demand achieve enough prominence to continue and receive from their media selections. through the remaining Sphere of Influence process. Their media channels are fashion, Since today’s youth have grown up with the ability to personalize every facet of their trend, gossip and recommendation Web lives, the notion of massclusivity will sites and magazines on events, people, continue to evolve. From iTunes play lists, and fashion. to SNS profile widgets, video ringers, and 3. Influentials limited edition sneakers, almost everything Influentials are employed in entertainment, has become customizable. Mass media, marketing and high-end sales and customization will continue to raise serious are regularly on the “scene.” Influentials challenges for brands. It will also help usher have plenty of social capital with non-stop in more powerful channels to engage youth access to MySpaceMobile, Deviant Art, at all levels of the Sphere of Influence. Facebook online and the newest These new channels will put even more destinations. Brands must interact with this pressure on brands to develop deep personal group at places such as the W Hotel, VIP relationships with their consumers if they areas in popular clubs, local radio shows, want to achieve mass-market success. and arts neighborhoods. Their credible

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