I like to refer to the real impact of effective customer leadership or customer centricity as the Iceberg Effect. The Iceberg Effect is particularly insightful for the retail industry. Let's break down the benefits of customer leadership into three levels.
Above the waterline is what your customers and competitors see as your 'loyalty strategy': i.e. your loyalty programme (Click Clubcard, MySchool, Pick n Pay/Discovery benefits, etc). Initially, the retailer achieves level 1 results from the loyalty programme. Typically, this can be a sales uplift of +/- 6% based on broad international trends. Therefore, the retailer is happy to settle for +6% sales performance and realises that the loyalty investment is worthwhile. The loyalty investment may give a 1% return for customers in vouchers or other incentives as per various different loyalty models. Level 1 benefits are clear and visible to customer and competitors, above the waterline.
However, this business performance uplift is only scratching the surface of the real benefits of a customer centricity strategy. Let's dip beneath the waterline and go snorkelling (in a very warm wet suit!). Level 2 results dip slightly beneath the surface and therefore cannot be seen by your competitors. In a retail environment, your loyalty programme normally requires your customers to swipe their loyalty card. Every swipe captures point of sale data.
Lord MacLaurin, former Tesco's chairman, famously told Dunnhumby: "What scares me about this is that you know more about my customers after three months than I know after thirty years!"
A great CRM (customer relationship management) division in your company will use this data for personalised and targeted direct marketing: i.e. I receive a direct mailer addressed to Mrs Cromhout and with a marketing message or offer that will interest or entice me, picked up from the data from my loyalty card swipe. If you want me to buy more, then listen to what I have already told you (by shopping and swiping my card). If I have previously bought Pampers newborn nappies, then send me information on baby weaning products when my baby is due to reach first solids age, so I don't have to even consider your competitor.
Here, we are achieving level 2 benefits of customer strategy which yields further incremental sales and profits. The level of commercial returns in direct marketing depends on a host of variables (products offered, incentive levels, accuracy of data mining, etc.). Remember, your competitors can't see what you are doing (even if they subscribe to your loyalty programme, they cannot see how often you send direct marketing to different targeted customers, with different tailored offers and communications).
Are you ready to go deep-sea diving? The depth of your dive depends on how far you wish to maximise the customer centricity strategy. You won't necessarily need that extra warm wet suit because the energy from the positive benefits of customer centricity will keep you very warm! Let's go well beneath the waterline and into level 3 benefits.
If the customer data is well mined and used to its maximum, the insights gathered can be used to drive the entire business strategy, significantly beyond just marketing. None of the benefits yielded from applying customer data to retail business decision-making can be seen at all by your competitors. Customers won't consciously understand how you are using the data gathered from their loyalty swipe, but should benefit from the right product being available at the right time, in the right place, at the right price and new innovations surprising the customers' anticipated needs. If this data is used effectively, product strategies will be strongly influenced, which could bring in new category ranges, new customer solutions or simply more of the old favourites.
None of these decisions are based on product performance or old-fashioned retailer gut reaction alone (as they probably are today) - but on the combination of a scientific data approach and the soul of the merchant. Your pricing strategy should be heavily influenced by customer insights to determine which customers are price insensitive to which products and vice versa. Why discount price if you don't need to and how can you leverage price discounts to the max to the most responsive customer groups? Your distribution strategy will benefit enormously from customer input: for example, product adjacency decisions may not be obvious (do you place lipstick next to shoes? She is the same customer after all). There are endless examples of how customer insights can be leveraged to yield increased sales and profits for your organisation. We have merely dipped our toe into level 3 benefits. The depth of level 3 is not shallow and must not be ignored by any of us commercially driven retail leaders.
