| Customer segmentation for a large retailer in US |
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| The client |
| The client is a specialty retailer of consumer electronics, home-office products, entertainment software, appliances and related services and operates chiefly in North America under a variety of prominent brand names. |
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| The challenge |
Facing tough retail challenges like fierce competition and with the need to show better financial results to stakeholders, a specialty retailer of consumer electronics in North America realized that improved business profitability & a clear and differentiated positioning through a customer centric approach was the need of the hour. This in turn called for grouping customers into segments based on demographics, buying patterns and profitability, with each of the segments having uniquely defined value propositions. Also, aligning the organization along customer segments and assigning responsibility for each segment were imperative.
Following were some of the major challenges faced:
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Customer-centric approach called for a change in mindset and organizational flexibility to react rapidly to changing customer segment needs. The organization needed to think of itself as a portfolio of customers and not products. Empowering store-level employees to act as owner-operators required changing the perception/behavior of the store staff. |
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Customer Centricity needs many avenues for capturing customer information in the first place. However, a typical retail customer spends limited time at the POS terminal, within which data capture is difficult. Due to incomplete information, phenomenon like Unidentified Transactions and Customer Merges are unavoidable, impacting information analysis. |
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Balancing Customer Profitability and Customer Satisfaction with an appropriate offering – Tailor made Value Propositions for the Customer Segments |
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| The solution |
| Our team adopted a four-phased approach to mitigate risk, given the scale of the project. The four phases include Proof-of-Concept, Pilot Project, Pilot Expansion and Daily Market Basket Item Profitability. |
| 1. |
Analysis and Consulting – Proof of Concept for Segementation
This phase focused on introducing the concept of customer segmentation to the client. It also demonstrated the utility of dimensional analysis to executives, who wanted to understand the feasibility of analyzing performance along a customer angle, track measures at a segment level as well as take a deep-dive into individual customer specifics. |
| 2. |
Pilot
The pilot phase built on the P-o-C and involved testing customer centricity concepts at select outlets in order to evaluate benefits. During this phase, customer centricity was physically rolled out to some specific stores and daily financial reports were produced and tracked to monitor the performance of the concepts/ testing. |
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Pilot Expansion
A successful demonstration of the concept encouraged building on the pilot functionality and a gradual roll out of customer centricity to more outlets across regions. Key highlights in this phase include:
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Segmentation was extended to the entire customer base of over 65 Million customers, who were clustered into 5 segments based on over 20 parameters |
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Demographics for the customers were sourced from external data providers and integrated with internal match-merge and cleansing processes |
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Data was integrated from various sources like POS, Rebates, Warranties, Private Financing, Sales (5 years - 3 billion records) |
Due to the huge volumes, various architecture alternatives were evaluated and recommendations on the solution approach were put forth. Wipro’s team proposed a radically parallelized architecture for meeting Service Level Agreements (SLA) and evaluated choice of tools for data integration. The expansion called for a rapid ramp up in team size in order to ensure timely completion of development, implementation and support activities. The huge data volumes were analyzed in record time. |
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Daily Market Basket Item Profitability
This phase called for a move towards ‘instantaneous EVA’. Activities carried out include intricate customer identification, de-duplication and match / merge logic, affecting segmentation. Cost and profitability analysis was found at the lowest denomination, which was the market basket item. Organization wide performance was tracked rolling up the profitability and costs metrics from the market basket item to various higher levels like – Store, Company, Product Lines, Customer Segment, etc. Other significant accomplishments include:
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Analytical solution with pre-stored financial metrics at Segment/Store level to facilitate quick reporting |
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Complicated cost allocation & profitability calculations |
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Rapid turnaround of evolving IT requirements due to the changing business dynamics |
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Migration from Oracle to Teradata to achieve parallel processing and improved performance |
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| Client benefits: |
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Customer-driven Decision Support tool for store employees to analyze top line, bottom line, EVA, ROIC, and other KPIs |
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Helped in identifying unique value propositions for each customer segment
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Fine-tuned Advertising, Product and Services offerings and rebates based on the segment needs |
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Improved close rates by 13% enabling stores meet targets despite lower traffic levels, from visitors to purchasers |
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Comparative sales were up 17% at Customer Centric stores in comparison to 10% at other stores. |
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Average transaction size was $104 at Customer Centric stores vis-à-vis $100 at other stores. |
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