Target and the pregnant teenager: A look at the current state of retail

By Jason Free, Executive Editor

One of the bloodiest areas of the creative industries over the past twenty years has been in retail. In America, we have seen the mom-and-pop stores that catered to loyal customers disappear and be replaced by large, corporate entities that offer their homogenous product lines in clothing, music and film as loss leaders. For a time, these large retailers seemed to be on the right course offering mostly generic products and distributing huge quantities, however, customers today are demanding more specialized attention. Many feel new business processes and philosophies are needed to combine the personalized approach of a local independent store with the large scale distribution and cost savings of global corporate entities.

I spoke with David Dorf, Senior Director of Technology Strategy at Oracle, to learn more about the trends retail has endured and the “old-time” processes it is trying to re-gain through new technology and applied analytics.

Jason Free: What are the most significant struggles that you have encountered, or that the area of retail has encountered, in the last ten to fifteen years? How have you worked to overcome those struggles?

dorfDavid Dorf: Without question, one of the biggest struggles that the retail industry has fought for the past decade is what we call channel silos.

In a typical retail organization, they have a group of employees that works on the stores, and a group of employees that works on the website. Maybe they have a group that works on the call center or the store catalog if they are that type of retailer. Often times, these groups do not share information even though they may be just a few feet down the hall from one another. Within this structure, a customer might buy something on the web and have it shipped to their house then decide they want to return the item. He or she goes into the store and is not allowed to return the purchase for what they want. Another situation may be that a consumer wants to buy something and then makes the effort to go to the store but the product they wanted is not available. It’s out of stock. There is no recourse. Both the retailer and the customer are not getting what they want and it all comes down to a matter of communication.

A new approach has developed called omni-channel retailing where we are pulling together all the different departments, or channels, and their staffs and the inforamtion they ought to have. Omin-channel retailers look at customer demand planning across every department of their operation. They also review their inventory across every department. All the customer information and product information is shared across every department in real time so that the best possible decisions and customer service can be created. So, whether I go to a store today, or use the website tomorrow, that omni-channel retailer will recognize me. They will recognize the types of things I’m interested in and make recommendations that are relevant to me. They will allow me to pick the item I want in the channel I want to take it. I can buy online and go pick up what I want in the store. Or, I can go to the store and, if what I want to buy is out of stock, I can have it shipped to my house from a warehouse or from another store. Retailers today need to give me all of those options to a customer and, in order to do that, there has to be that data transparency that exists with omni-channeling.

Free: Outside of channel silos, where else has retail encountered problems?

Dorf: In the old days, let’s say during the 1900s, it was very likely that you knew the store owner. He knew what you bought and he knew what you liked. He would be sure to make every effort to keep those items in stock. Through the 50’s and 60’s, we started to have retail chains popping up on the landscape. Large scale retailers saw that the way to make money was to have as many stores as possible. You had your Kmarts and Targets spreading out all over the place. The problem is they lost touch with their customers. They started carrying the exact same things in every store. It was no longer a tailored approach to stocking and delivering products to that particular locality.

Today, retail is starting to see the error of its ways and is back to saying, ‘Ok. I need to do better customer segmentation.’ Instead of just marketing to males aged 20-25, you start to make those market segments a little more specific, more focused, so you can start to understand your customers a little better.

Best Buy, ten years ago, was one of the leaders in this area. They identified five or six customer personas that they built their stores around. I remember one of the personas was a soccer mom. She was a time-starved customer. She needed to get gifts for a wide range of people. Best Buy assorted their stores with the products that were good for gift giving, and they made it easy for the soccer mom customer personas to find them within their stores.

A lot of retailers now are trying to figure out how to locally assort their stores. When you are in Texas, you better have more salsa in a store than you would necessarily have if were in North Dakota. You have to try to make sure you have the right products for the customers who visit a particular store; then you can move forward in terms of personalization and reaching out to your customers and incenting them with offers.

At Oracle, we’ve done a lot with tracking customer purchases through loyalty programs. You probably have a loyalty card for the grocery store that you shop at. The store looks at all those purchases you make each week and they determine what are the best offers to make to you in terms of coupons, rebates and things like that.

There was a very compelling story about a year ago about Target and the pregnant girl. Target was really doing well at understanding a person’s purchases associated with their credit card or their customer loyalty card. In this instance, they actually figured out that this specfic customer was purchasing prenatal vitamins and things like that so Target started sending her coupons for maternity clothes. It turns out it was a teenage girl. Her father found out about the coupons. He went to the store manager and started yelling at him. The funny part of the story is Target knew that this girl was pregnant before her dad did. All the information they had was her purchase patterns.

Today, Target does the exact thing with all their customers, but they’re just not so overt about it. When they send you a list of coupons and offers in the mail, and it has maternity clothes and baby clothes and things like that, the mailer will also have some lawnmowers and tools and regular clothes thrown in. You’re probably not in the market for those items and Target know that. They are trying to mask the fact that they know a lot about you because they don’t want that creep factor added. They actually have a full team of data scientists that comb through purchase histories and social information to combine them with other information like demographics, psychographics, your interests, opinions and likes that you express on Twitter, Facebook and all those other social media outlets. They pull the information all together to create your customer profile. That way they know what products and services you want and how can they serve you better.

Free: Why have the music industry and the film industry experienced so many problems in the retail space? Is it because it’s so easy to steal their products online unlike some other creative industries such as fashion? I can’t steal a bathing suit online. Well, not yet.

Dorf: Yeah, 3-D printing. People have been talking about that.

In terms of music and movies, I don’t know.

What differentiates a lot of successful retailers is that they go the extra mile so that you have great experience shopping and I think music and film have gotten away from this approach.

I recently spoke with the CEO of Niemen Marcus about this point. She explained how they give every one of their associates an iPhone. They want their associates to connect with their customers, understand what their customers like and make sure they deliver the best customer service possible. Niemen Marcus expects its associates to know the sizes and styles desired by their customers and they are willing to give their employees the tools needed to determine those sorts of things.

In the music industry, the problem is it becomes commoditized almost. It needs to be more than just a song. It has to be an experience; a video, an interview or something that separates one from another.

It’s also about finding the right customers. Some of these streaming sites are pretty impressive in that they understand the types of music that you listen to so they can suggest similar music. They don’t just want to give you the same music over and over again. They want to expand to new adjacencies.

Free: For our generation the experience in buying music was going to the physical store.

Dorf: Flipping through the albums. Looking at the posters.

Free: Exactly.

Dorf: And asking for opinions and news about upcoming releases.

Free: We sound ancient because that all went all out the window decades ago. With the rise of the MP3, we lost so many of those experience and the gatekeepers we used as well. Growing up, Carl, my CD guy, who used to say ‘If you like that disc, Jason, you would like this one too.’

Dorf: You can get some of that input on certain websites today, not at the same level of understanding, however, because they cannot mimic the conversations you and Carl had.

Free: That’s right. It is seems that most of these sorts of recommendation strategies we see today are based
at bit too closely to general demographic information or low-end algorithms that are only scratching the surface of who I am and what I might like to buy.

Other industries, like healthcare are trying to take the same approach and I just don’t see it working on any meaningful level.

Dorf: I tend to agree with you.

In retail, we say its customer intimacy, not scale, that matters. We want to get back to the 1940s where you know the guy behind the counter and he’s stocking the shelves because he knows what you like. We need to get back to that, but we need to be at scale.

You mention healthcare. The millennials are the ones that healthcare is terrified of and part of that fear has to do with many of the things that happened within the music industry. The baby boomers are used to bad service. They are used to things being a pain in the butt and yelling, ‘I’m going to write a letter.’ Whereas younger generations say, ‘Screw this. I’m out of here and I’m going to go on some other store or website.’ The so-called best practices of yesterday’s customer service have to go away. We have to jettison them as soon as possible. Successful retailers will adapt and move forward based upon the people they are dealing with today, not what worked in the past. Healthcare is shifting towards the need for increased patient satisfaction. If it does not watch out, it could suffer the same fate as the music industry.

Again, I think too many times, music retail deals with the widget, like a song or album.

I have a great store and I have a great product. Why didn’t anyone come and spend money?

That’s the question many retailers ask just before their doors close forever.

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