ANALYTIC CRM FOR RETAILERS: AN ROI PERSPECTIVE
prepared by iQO Corporation

Today's retail environment includes increased competition among stores, a general economic downturn, rising interest rates and higher gas and heating oil prices. All of these factors have reduced the disposable income available to many retailers' core customers. In this economic environment, retailers must learn to generate more business from their existing customers. To do this they must first mine the data they have collected on customer purchases and loyalty programs. Still, retailers are "drowning in customer data."

• Critical customer information is inaccessible and underutilized.
• More decision-makers need more access to consistent corporate data about their customers.
• Loyalty program, POS, and demographic databases exist, yet are not integrated within a retail corporation.
• Merchandisers and direct marketers lack expertise in the standard analysis applications sold by business intelligence vendors today.
• Current retail data analysis systems require heavy IT resources to maintain and utilize.

According to "The Marriage of Category Management & Customer Management", written by Gary Robins and published in RIS, July 1999, "Category Management and promotion management need to include analyses of loyal customers. Failure to consider the effects on loyal customers means resources spent on category management and promotion might be and probably is in some or many cases harming your business." "Combining category and loyalty data analysis has been done before, but with great difficulty. The biggest hurdle now is getting robust, fast databases to handle the huge amount of integrated data."

iQO CustomerView was designed to address these retail data challenges.

CustomerView supports the retailers' top marketing objectives to solve these problems:

• Reward loyal shoppers and get them to buy more -- "According to Robert Blattberg, director of the Center for Retail Management at Northeastern's Kellogg Graduate School of Business, a study of a chain drug retailer showed a 30%/70% split, meaning the top 30% of their customers generated 70% of their revenues. It also revealed which categories were more important to top and bottom level customers."
• In another example, a small regional chain with seven stores targeted 18,000 of their best customers based on recency and overall dollar amount spent. Of the 18,000 customers mailed, 921 responded, generating a 5.1% response rate. Total revenue brought in from this particular promotion was in excess of $227,000 generating more than $22 for every dollar spent on the promotion. The event's average transaction was $247.44 - an almost $50 increase from their normal average transaction.
• Target top switchers -- If your firm is not the lowest cost producer in the category and your switchers are price sensitive, the best marketing strategy for addressing price-sensitive purchasers is to attempt to change their preference structure by raising their awareness of, and preference for, specific brand/product attributes, whether they are tangible or intangible. Then try to persuade these Price Sensitive Purchasers that your offering has the better value, all things considered. The goal is to increase sales and market baskets of top switchers.
• Optimize trade areas and improve assortments store-by-store -- A leading supermarket chain recently used data from loyalty programs to edit which products to delist in a category. "It is not just sales, it is how it is affecting loyal customers," was the mantra from the chain. In a test of the carbonated beverage category, the chain did not lose customers even after eliminating 26% of the category's SKUs.
• Cross-sell the most profitable products and increase the average basket size -- "A leading beverage company, which has been working with over 40 retailers, says that use of loyalty data does help retailers increase basket size. According to a senior category manager, "we did a presentation with a small chain in Houston, Texas, and this company had a 6.5% increase in dollars per basket and a 9.8% gain in total dollars among their best shoppers."
• Maximize ROI for programs funded with manufacturer co-op funds -- A national retailer recently completed a targeted promotion with a leading CPG company. 350,000 pieces were mailed bringing the retailer an additional $124,000 of co-op dollars. The piece featured 10 different products, received a 16.4% response rate, and the market basket of the responders was 40% greater than the non-responders.

Who can benefit by using CustomerView?

iQO CustomerView is targeted at five key audiences within the retailer's organization:

Financial - CustomerView enables retailers to take existing customer data and use it to drive revenue, increase market basket size, and build market share with no additional capital expenses and labor costs. It enables the CFO to show increased margins on current capital and enables profitable growth.

Merchandisers - CustomerView enables merchandisers to improve the effectiveness of their staff. Using CustomerView, merchandisers can quickly see how certain products can increase market basket size. Using CustomerView they can see how merchandise mix affects customer loyalty and adjust their assortment accordingly. CustomerView can help merchandisers measure and build retention. It can show market basket value of loyal vs. non-loyal customers. CustomerView can quickly help identify the value of a consumer that shops in critical categories vs. the shopper that does not.

Operators - CustomerView can help Operations Executives make changes in an intelligent way. Using CustomerView a retailer can keep labor constant while increasing margins. CustomerView can help increase the depth of category purchases by turning cherry pickers into buyers, increasing a loyal customers shopping trips to a category and increasing overall market basket size.

Consultants - Loyalty and POS databases tend to be stand-alone systems not integrated with category management systems. Most data is uncleansed and hosted in many locations. This leads to many opportunities for consultants to create systems to clean the data, aggregate the data, de-duplicate the data, household the data, etc. before the data enters the CustomerView system. There are also many opportunities for consultants to use CustomerView to help the retailers interpret, translate, and develop strategies based on the information and provide business practice recommendations.

Vendors - CustomerView can help CPG manufacturers build category/brand sales by using real retail data. CustomerView can help them build their share of market by identifying customers buying a particular category of products, but not their brands. CustomerView can show the CPG manufacturer how to increase multi-segment sales by identifying likely purchase behavior across divisions, departments or categories.

Conclusion

iQO specializes in the capture, storage, management, distribution and analysis of data for retailers, delivering highly usable and customized analytical CRM portals.

For the retail industry and their value chain partners, iQO CustomerView enables retailers to distribute key information throughout the value chain and the extended enterprise. It allows users to track supplier merchandise, market basket analysis, campaign segmentation, customer loyalty and ROI, allowing retailers to optimize their one-to-one marketing efforts at lower costs.

As retailers implement CRM strategies and applications, decision making will become more pervasive. Those organizations that can deliver accessible up-to-date and accurate information to both employees and partners will have a competitive advantage. With CustomerView, you can be sure that the right people get the right information at the right time, so that your organization has the ability to make more insightful and cost-effective decisions, and truly understand your customers.

For more information about iQO CustomerView, please contact us: iQO Corporation, One Expressway Plaza, Suite 200, Roslyn Heights, New York 11577 www.iqo.com, sales@iqo.com, 1-888-214-8764.