New Role of Segmentation in the

Retail Sector:

The Digital Boom

Adapted from Mc Kinsey Quarterly - July 2014

Customers are becoming more powerful, more knowledgeable and more sophisticated, and

modern consumer behaviour is increasingly important for the retailing sector. Research into

retailing and how to attract consumers via better environments, service and policies is an

important area to improve today's consumer experience to help better understand the modern

society and to support retailers to attract and retain customers with better efficiencies and

effectiveness.

Retailers need to adapt to the new digital landscape, especially the social media phenomenon

to make most of the enormous opportunities they present. It's hard to talk about the effects of

digital and social media on how businesses operate without hearing about the 'disruption'

these new technologies are causing.

The increased desire for involvement by customers is opening up opportunities to collect data

around a customer's attitudes and interactions. Retail customers have ever more demanding

expectations of value, choice, availability and accessibility of products and services. Finding

ways to service these expectations is forcing the retail landscape to change very rapidly.

Many of these changes are clear and well documented. The dexterity of customers, with

access to e-commerce, social media and mobility enabling them to seek out the best deals, is

forcing traditional bricks and mortar retailers on line in an attempt to compete with e-tailers

with different margin and operational structures. The power of social media to make or break

a brand is forcing retailers into communication strategies that are interactive and immediate,

a far cry from the traditional communication approach retailers have been used to.

The other reality of the retail landscape is the current economic climate, which is creating

consumers who are happy to wait for special deep discount promotions to make their

purchases. This is forcing retailers into long sale periods, which can impact the bottom line.

In retail, inevitably, business intelligence starts with understanding the customer. Therefore,

the most significant strategic decision is to ramp up data collection, analysis and use. Just as

exceptionally strong corporate commitments to data have fueled the success of the biggest

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retailers such as Walmart and Tesco, these same principles apply to all retailers, whatever

their size.

The really good news is that as consumer behaviour with retail brands is changing so is the

availability of data that can drive meaningful insights and 'intelligence' that allow the brand to

manage the customer engagement and experience. Retailers who can delight their customers

across all contact points and occasions will build relationships that will deliver incremental

revenues.

The consumer behavioural trends of personalisation, virtualisation, mobility and interactivity

are delivering customers who both want to be involved with brands and to be seen to be

involved. This involvement may be as simple as 'liking' a brand on Facebook. These trends

are allowing for the collection of new data about customer engagement.

For some time retailers have been collecting demographic and transactional details about who

the customer is and what, where, when and how much did they purchase, etc. Collection of

demographic data is one of the major hurdles to entry for loyalty programmes due to lack of

interest in filling out lengthy forms. One example of the way new customer habits are opening

up improved data capture is just the simple ability to extract personal data information from a

customer's Facebook page or quickly through a mobile app after receiving authorisation from

the customer.

The increased desire for involvement by customers is opening up opportunities to collect data

around a customer's attitudes and interactions. Attitude data is information about a customer's

preferences. Interaction data reflect the customer's offers, responses, likes, dislikes. The other

information capture their non-transactional interactions. These new data sources are easiest

to understand in an online retail world where we are used to recommendations being

presented to us based upon products we have looked at but not bought (that is our interaction

preferences).

One way of creating value from this increased understanding is simply a function of timing.

Traditional customer relationship management programmes have been limited by the fact that

the customer in physical retail is more often than not identified only at the end of their store

visit. While in such a scenario the customer's next visit can be influenced through the analysis

of data and targeted interaction, the opportunity to really delight a customer and offer a winning

engagement experience is a little limited as the customer is leaving the store.

In the online retail world, a customer is typically identified early on in the transaction, by logging

in, which allows the understanding of the customer to be used to manage that engagement

and drive greater sales. Pulling this capability into the physical world allows a seamless brand

experience for the customer. For large format stores the technology can allow tracking of the

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customer's store footprint. This data can be used in conjunction with real-time communication

of offers to a customer around the store presenting additional purchasing options.

The changes to more sophisticated data analysis and insights can be distinguished easily by

thinking of a very simple standard lapsed customer case. Traditionally, we have identified a

target list of customers who have stopped visiting and made them an offer to entice them back.

However, if we further analyse the target group utilising a broad range of earlier data such as

offer responses and likes and dislikes, it gives the chance to personalise the 'influence' to the

specific customer. This increases the chance of success.

In retail, we hear of mobile commerce, peer-to-peer referrals, group buying and many other

terms having a disruptive impact on the fairly rudimentary act of a customer buying a product

from a seller. There needs to be a way of understanding where this 'disruption' has taken

place, and more importantly how retailers can actually take advantage and adapt.

One of the most fundamental models from consumer behaviour theory relates to the consumer

decision making process - it also provides a framework to look closer at this 'disruption'.

New technology is raising the awareness of what is now available; traditional advertising has

evolved to become more personal and personalised - Facebook advertising, for example, can

target individuals based on what they've said they like and is almost creating the need before

it has been recognised.

With the ability for research to be undertaken in real time from any location, information search

has been disrupted to such an extent it's now not enough for retailers to have a presence on

the major review websites that customers visit.

Retailers must listen out for customers looking for information, and then give it to them - almost

before they have had the chance to look for it themselves. The process has become much

quicker and more pro-active.

The simple comparison engine that has become ubiquitous throughout online retail sites has

made the evaluation of alternatives more cutthroat. Customers are empowered to evaluate a

retailer's product against their competitors using any feature or metric they want.

Even in the purchase phase, the channels through which your product can be bought have

evolved. We've almost moved past online purchasing into mobile optimised websites and

smartphone apps - and with Facebook credits social media could prove another fertile

battleground.

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Post purchase evaluation through comments on forums, social media and review sites now

need monitoring; positive feedback can generate immense goodwill but equally negative

feedback can spiral into a full blown PR crisis.

The individual platforms are constantly evolving. Consider social media in the past three

years we have witnessed the emergence of group buying with Groupon, location based

targeting through platforms such as Foursquare and Facebook Deals (now evolved

into Facebook Offers) and the newest kid on the block in Pinterest now responsible for

driving more sales to retail websites in the United States than Facebook.

All this makes the retail marketer's job harder than ever. A deeper understanding of the

customer, their online habits and their purchasing habits has become essential. No retailer

can ignore the fact their customers live in an integrated online/offline world and they need to

make sure they have an appropriate presence on the channels where their customers are.

Moreover, retailers need to make sure they are constantly learning. It's impossible to predict

how and when new platforms and technologies will become mainstream. Retailers must

instead always be on the ball and ready to react and adapt when the technological landscape

changes, be that through mobile, social or web.

But retailers should also be reassured that new technologies present enormous opportunities

to foster deeper and more loyal relationships with new and existing customers. By embracing

these tools, retailers will be able to turn customers into product and brand advocates much

sooner and hopefully reap the rewards from their investment in new media channels.

Given these challenges, it can be safely concluded that it is a difficult time to be a retailer. On

the one hand increasing consumer demands are driving significant strategic decisions around

new channels, new business models, new operations and new communication, on the other,

the bottom line is not exactly glowing with the necessary good news to fund these new

directions.

However, all is not lost. The trick is in servicing consumers economically. As in all walks of

life, the chances of making good economic decisions is directly proportional to the quantity

and quality of 'intelligence' or data insights about the factors involved that are available to the

decision maker.

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QUESTION 1

Identify the stages in the 'consumer buying process' model and discuss using

materials from the case study how some of the stages of the model is changing in the

retail sector with the emergence of technologies?

QUESTION 2

Critically analyse the concept of the STP process model and its relevance in the

way the retail sector has to henceforth segment customers/ stakeholders?

QUESTION 3

Briefly explain the key characteristics of service. Using examples from the case

study, explain how the retailers of today are moving out from selling commodities but

engaging more and more the consumers in the transaction and service co-creation?

QUESTION 4

Critically analyse the concept of Big Data and its relevance in the way companies are

doing Marketing Research today