IBM Institute for Business Value
What top-performing retailers know about
satisfying customers: Experience is key
Customer relationship management (CRM) is becoming a mainstream practice for retailers looking to increase sales and profitability. But many current
initiatives don’t have the customer-centric focus that today’s market requires.
In their rush to make the next sale, many retailers have lost touch with the
first step to successful CRM: understanding what customers really want from
retailers. What are the true drivers of customer satisfaction? The IBM Institute
for Business Value surveyed nearly 1000 customers to shed light on what distinguishes top-performing retailers from their competitors.
By Julian Chu
Experience is the key to satisfaction
Contents
Introduction
Because of the positive impact that customer relationship management (CRM) programs
purport to have on customer economics, many retailers have undertaken a wide range of
technology, process and organizational initiatives to improve CRM capabilities. However, even
with strong emphasis and sizable investments in CRM, customer satisfaction does not seem
to be improving. According to a recent study that we performed at the IBM Institute for
Business Value, the current disconnect between CRM investments and their real benefits
may result from a lack of focus on improving customer satisfaction as one of the key — if not
the primary — objectives of CRM. Indeed, many retailers tend to leave customer satisfaction
measurements to their retail service departments and focus solely on maximizing the next
transaction and reducing their costs to serve customers.
1 Introduction
1 Today’s CRM: An era of
unrealized promise
2 Inside the mind of a consumer:
What drives satisfaction?
3 Taking a “left” turn: The
top satisfaction drivers for
retail consumers
4 Experience is the top driver
of satisfaction
9 Clusters for support: Enabling the
ultimate experience
11 It just feels “right:” Satisfaction and
the customer relationship
12 Manage customer relationships by
managing the customer experience
13 Taking the next step
13 Conclusion
14 About the author
14 Contributors
Our study suggests that although there is not a one-to-one correlation between customer satisfaction and profitability, consumer satisfaction is a key indicator of operational and financial
performance in the retail industry. A survey of approximately 1000 customers of 10 major
retailers found that retailers who performed the best financially also ranked higher in customer satisfaction. Furthermore, it is the superb customer experience provided by these top
retailers that drives customer satisfaction and distinguishes them from their competitors. In
fact, consumers’ responses showed that factors relating to their overall experience are far more
important to customer satisfaction — and, ultimately, the retailer’s bottom line — than traditional areas of CRM investment, such as creating personalized marketing, targeted offers and
preferred pricing.
Today’s CRM: An era of unrealized promise
Lower customer-acquisition costs, increased customer retention, increased customer satisfaction, higher profits and improved share price: the promise of successful CRM is almost too
good to be true. Yet today, CRM initiatives are often put on hold or even abandoned due to
retailers’ inability to realize the expected results.
In reality, current CRM programs are complicated by conflicting goals, advice and technology choices that impair retailers’ ability to discern a successful CRM approach. Visions of
CRM offered by vendors, analysts and other “experts” often fail to offer pragmatic steps to
achieve success. The technology infrastructure and capabilities required to share and exploit
customer information effectively across corporate boundaries do not yet exist in many organizations. Finally, bringing about the cultural, process and organizational changes required to
execute CRM successfully continues to be a major challenge for most retailers.
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Experience is the key to satisfaction IBM Institute for Business Value
Experience is the key to satisfaction
Awash in a whirlpool of challenges, many retailers have overlooked an important underlying
factor: successful CRM begins with an understanding of what drives customer satisfaction and
strengthens the customer relationship. Better prices, more targeted marketing and increasingly
attractive promotional offers alone will not drive overall customer satisfaction unless retailers
invest in improving the customer experience.
Inside the mind of a consumer: What drives satisfaction?
We surveyed the consumers of 10 U.S.-based retailers: five top-performing retailers who have
done very well in terms of same-store-sales growth and net earnings growth over the past
three years, and five lower-performing retailers who have produced relatively flat to declining
results. Overall, the top-performing retailers had a substantially higher proportion of “highly
satisfied” customers: 35 percent for top performers versus 28 percent for the lowerperforming stores.
Overall satisfaction is a complex metric. Inside the mind of every consumer, there is interplay
between the “rational” — or left side of the brain — and the “emotional” — or right side of the
brain. To understand fully what drives overall customer satisfaction, we developed two separate
series of questions for our survey. One series focused on the task-oriented, fact-driven, left side
of the customer’s mind, which responds to satisfaction drivers like quality, service, cleanliness
and value. The other set of questions focused on the experiential, sensory, right side of the
brain, which forms relationship elements like trust and perception. Leading retailers use both
the key satisfaction drivers and relationship elements effectively to provide customers with the
optimum “total experience” — or the collective impression that a customer takes away from
both the tangible and intangible dimensions of a company or a brand.
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Experience is the key to satisfaction IBM Institute for Business Value
Experience is the key to satisfaction
Taking a “left” turn: The top satisfaction drivers for retail consumers
We applied statistical analysis to the survey results and discovered five groups or “clusters” of
satisfaction drivers. The clusters are comprised of individual drivers that are correlated with
one another in terms of their impact on customer satisfaction:
• Person-to-person experience — The store has helpful, friendly, knowledgeable employees who
anticipate customer needs and exceed customer expectations.
• Store experience — The store is clean, well-designed, organized, adequately stocked with
quality merchandise and provides “fun” experiences.
• Price and value — The price that customers pay for goods is matched by the perceived value
that they receive for making the purchase.
• Marketing and communications — The store’s promotions are well-communicated, easy to
redeem and valuable to customers.
• Data integration and analytics — The store provides the same product selection and product
information across all sales channels, and uses information from a consumer’s past purchases
to provide better service.
The consumers in our survey clearly indicated that the person-to-person experience and store
experience drivers have significantly greater impact on their overall satisfaction (see Figure
1). In fact, each of the top fifteen individual drivers rated by respondents as most important to their satisfaction fell into these two clusters. The remaining drivers, although important
enablers of satisfaction, had significantly less impact.
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Experience is the key to satisfaction IBM Institute for Business Value
Experience is the key to satisfaction
Consumers are clear about what drives their satisfaction
Relative strength index
300
272
250
200
150
122
100
47
50
38
21
0
Person-to-person
experience
Store experience
Price and value
Marketing and
communications
Data integration
and analytics
Figure 1. Our consumer survey indicates that factors relating to experience have much greater impact on satisfaction
than other areas of CRM investment.
Source: “Making CRM Work for Retailers 2002 Survey.” IBM Institute for Business Value.
Experience is the top driver of satisfaction
Person-to-person and store experience are inseparable components in creating the ultimate
customer experience and driving customer satisfaction. Customers rated person-to-person
experience drivers as the key to their satisfaction, and store experience drivers came in
second. If one imagines how the store experience would be impacted by unsatisfying or subpar interaction with store employees, or vice versa, it is easy to see the interdependency of the
satisfaction drivers in these two clusters.
Though there were substantial differences in how individual retailers performed, there was
little difference on average between top retailers and their less-profitable competitors on the
person-to-person experience drivers (see Figure 2). Merely to remain competitive, retailers
need to achieve minimum levels of performance on these experience elements. Conversely,
poor performance can undermine even the most sophisticated, well-designed CRM programs.
This finding alone begs the question why so many CRM programs today fail to recognize
interpersonal interactions as a key to improving relationships.
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Experience is the key to satisfaction IBM Institute for Business Value
Experience is the key to satisfaction
Consumers report little distinction on top person-to-person satisfaction drivers
28%
1. Helpful store
employees
29%
23%
2. Makes customers
feel valued
24%
30%
3. Has friendly and
courteous employees
31%
13%
4. Employees consistently
exceed expectations
14%
22%
5. Has employees who
are knowledgeable
22%
19%
6. Employees understand
customer needs
20%
21%
7. Employees available
to answer questions
23%
8. Has employees
who make eye contact
with customers
28%
26%
19%
9. Treats customers with
personal attention
21%
21%
10. Values you as
a customer
19%
0%
20%
40%
Retailer performance
Top-performing retailers
Lower-performing retailers
Figure 2. Performance on the person-to-person satisfaction drivers varies little between top- and lowerperforming retailers.
Source: “Making CRM Work for Retailers 2002 Survey.” IBM Institute for Business Value.
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Experience is the key to satisfaction IBM Institute for Business Value
Experience is the key to satisfaction
CRM case in point: Nordstrom provides person-to-person excellence
Nordstrom is world-renowned for its customer service. Nordstrom was the top-performing
retailer in the IBM Institute for Business Value survey in terms of how it deals with consumers
in person-to-person interaction: an average 45 percent of its consumers responded that they
are “highly satisfied.”
How does Nordstrom do it? According to Brad Mayer, Director of Marketing for Nordstrom.com,
successful customer service begins in the hiring process. “We don’t do extensive customer-service
training with our new associates. I think two things contribute to our in-store service success,”
Mayer says, “We hire nice people who genuinely enjoy helping the customer. Really, their parents
have trained them — we just hire them. Second, we work hard to earn the trust of customers, one at
a time. We focus everything we do on delivering an outstanding shopping experience consistently
and wholly.” This mission pervades Nordstrom’s organizational culture.
What can be learned from Nordstrom? Clearly, not all retailers have the breadth of customers or
associates that Nordstrom attracts. In fact, many retailers are scraping to attract enough staff to
man the sales floor, or are faced with the economic reality of reducing floor coverage below the
minimum acceptable levels. IBM research and Nordstrom’s results reinforce the fact that personal
interactions in stores and in the call center are primary drivers of retail consumer satisfaction.
Developing CRM programs without paying specific attention to how customers are served by
employees would be foolhardy: personal interaction is the primary touch point for building
relationships with customers.
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Experience is the key to satisfaction IBM Institute for Business Value
Experience is the key to satisfaction
Although top retailers and their lesser-performing competitors rated similarly on person-toperson experience drivers, the store-experience cluster accounts for nearly the entire gap in
overall satisfaction of seven percent (see Figure 3). The store experience can therefore be a
strong opportunity for retailers to distinguish themselves from the pack.
Consumers are substantially more satisfied with their store experiences at top-performing retailers
54%
11. Has neat and
clean stores
14%
40%
32%
12. Has stores that
are well-designed
7%
35%
25%
22%
13. Has highest
quality merchandise
7%
3%
19%
28%
0%
20%
40%
19%
14. Provides fun
and entertaining
shopping experience
7%
12%
Overall satisfaction
37%
15. Has wide
product selection
13%
24%
0%
20%
40%
Retailer performance
Top-performing retailers
Lower-performing retailers
Gap in performance
Figure 3. The significant differences between retailers’ satisfaction scores emerge in the store experience drivers.
Source: “Making CRM Work for Retailers 2002 Survey.” IBM Institute for Business Value.
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Experience is the key to satisfaction IBM Institute for Business Value
60%
Experience is the key to satisfaction
CRM case in point: Williams-Sonoma wins with store experience
Williams-Sonoma was hands down the top performer in the “store experience” cluster of the
survey. On average, 53 percent of Williams-Sonoma’s consumers expressed high satisfaction with
their store experiences. Notably, 80 percent of customers were highly satisfied with the store’s
neatness and nearly half gave top marks for the “fun and entertaining shopping experience”
it provides.
Capitalizing on its store-experience strengths, Williams-Sonoma develops customers by providing
interesting, relevant store events. For example, it recently identified a group of prospective
customers who had purchased gifts through the store’s online bridal registry. To induce an instore visit, they designed a promotion inviting the group to participate in cooking lessons and
demonstrations. The price to attend the class was US$30, for which participants received an
opportunity to learn how to prepare popular recipes, a chance to meet and talk with professional
chefs, a free tasting, and a recipe book. The promotion conveyed a strong brand impression and
helped the company attract customers that were likely to fit the profile of a profitable customer
segment: cooking enthusiasts.
What can retailers learn from Williams-Sonoma? First, as difficult as it may be in practice, continue
to enhance the aesthetic attractiveness of your stores – such efforts do not go unnoticed by
customers and, in fact, prove to be a key differentiating point between top financial performers
and lesser performers. Second, market and merchandise your stores based on specific customer
insights, instead of on the standard assortment triangle of high to low price-point items. Finally,
listen to your most avid and profitable customers and deliver the store experience that delights that
customer base.
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Experience is the key to satisfaction IBM Institute for Business Value
Experience is the key to satisfaction
Clusters for support: Enabling the ultimate experience
Clearly, retailers who invest in providing a stellar store experience will differentiate themselves
from their competitors. What about the other clusters: price and value, marketing and communications, and data integration and analytics? Although our research showed that they are
not the primary drivers of satisfaction, they are still enablers that can support a more favorable
overall customer experience.
In the area of pricing and value, over half the survey respondents indicated that price is not
the main reason they shop at a particular retailer and only 13 percent claim to be highly motivated by price. Although the importance of price obviously varies by the company’s particular
brand and stated value proposition, retailers who focus solely on price-based promotional messages may be missing out on an opportunity to develop a different kind of relationship with
their customers: one based on insightful fulfillment of wants that are meaningful to consumers.
Higher-satisfaction retailers provided customers with the right amount of information about
new products and offers at the right time, and did a better job of fulfilling the promotional
offers that their consumers chose to accept. Thirty-six percent of shoppers from stores with
lower financial performance indicated that they “don’t enjoy receiving special offers” from
those retailers, versus 29 percent for the high performers. Marketing and communications
budget should be spent on offers that are not only relevant to target customers, but also provided in a way that does not encroach on their time, privacy or comfort. And when customers
come to the store to take advantage of promotions, retailers should be well-prepared to deliver.
Lastly, although most customers surveyed were in-store shoppers, many customers had little
or no cognizance of retailers’ multichannel options, and those who did were not impressed
with the level of service provided. In fact, more than half of those surveyed indicated that they
don’t know how to get information on a particular product without going to the store. As the
Internet and networked devices become an increasingly important part of the overall shopping experience, strong orchestration of interactions, services and offers across channels will
become a critical retail capability.
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Experience is the key to satisfaction IBM Institute for Business Value
Experience is the key to satisfaction
CRM case in point: Staples’ goal is to know each customer individually
Staples is a prime example of how to use data and marketing to develop ongoing customer
relationships as opposed to one-off shopping incentives. “CRM isn’t a program or initiative at
Staples, it is just part of what we do,” says Michelle Ormes, Director of Customer Development at
Staples. The company uses a variety of approaches to get to the heart of the way that customers
shop and what they value. Mystery shopping, third-party research and monthly customer surveys
are just a few of the ways Staples keeps apprised of what its customers want and need.
Staples’ goal is to utilize customer data to “talk to each customer individually,” says Ormes. Its
business-to-business (B2B) loyalty program, “Business Rewards,” is focused on creating visibility
of customer shopping patterns and then marketing to customers in a way that best meets their needs
and keeps them coming back. To aid in this process, Staples uses automated analytics to score
customers and serve them appropriately, in their channel of choice. This allows them to analyze
how customers are spending versus how they could spend, and act accordingly to move them
through the loyalty lifecycle.
Technology-driven marketing, pricing and analytics should not be the core drivers of a CRM
initiative — leading retailers use these as tools to enhance the customer experience. Staples
understands that retailers must enable customers to access the same level of information and
services regardless of the sales channel. They are working to integrate customer data across the
company and show a seamless face to customers to strengthen satisfaction, overall experience
and trust in their brand.
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Experience is the key to satisfaction IBM Institute for Business Value
Experience is the key to satisfaction
It just feels “right:” Satisfaction and the customer relationship
To build enduring customer relationships, retailers also need to provide shopping experiences
that are consistent with consumer desires and expectations associated with the right — or
emotionally stimulated — side of the brain. The second set of questions in our survey asked
consumers to rate how they feel about experiences with that retailer. As we analyzed the
responses, four major clusters of relationship elements emerged, again based on their correlation with each other and with overall customer satisfaction:
• Ease-of-use — Shopping is hassle-free; the retailer makes the customer feel welcome; the
retailer meets all customer expectations.
• Strong association — Retailer is top-of-mind; the customer feels good recommending the
retailer to family and friends; the customer feels that the retailer provides the best value
compared to competitors.
• Self-esteem — Shopping gives the customer a sense of familiarity; the customer believes shopping reflects their good judgment; shopping makes the customer feel like they “fit in.”
• Price relationship — The customer enjoys taking advantage of special offers and low prices.
The importance of relationship elements varies by segment and individual store, based on their
differing value propositions, brand positioning and merchandise selection. By understanding
the relationship elements that appeal to a satisfied customer’s emotions, and how customers
process their shopping experiences, retailers can begin to assess specifically how different
aspects of the experience need to be changed.
For instance, the person-to-person experience is clearly the most important driver for all
retailers, but what should be emphasized in these interactions? For some retailers, customer
convenience is the top priority; for others, social value and emotional attachment are key.
Affecting the overall shopping experience — and hence satisfaction — requires that retailers take
deliberate steps to improve performance on key satisfaction drivers and help ensure that they
consistently deliver the appropriate relationship elements.
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Experience is the key to satisfaction IBM Institute for Business Value
Experience is the key to satisfaction
Manage customer relationships by managing the customer experience
Based on the results of our consumer survey and analysis of dozens of retail CRM cases, the
following areas stand out as key considerations for any retailer seeking bottom-line improvement from CRM strategies.
Before retailers begin to address more-advanced CRM capabilities such as personalization
and data mining, they should consider whether they have adequately addressed retail basics.
Industry executives should examine the person-to-person and store experience that they currently provide to see where they may be falling short of customer expectations, and identify
areas for improvement. Furthermore, ongoing associate training and evaluation need to be
key parts of a retailer’s customer strategy. Simply stated, if a retailer’s physical store is not an
enjoyable place for customers to shop — from interactions with store employees to their ability
to navigate the aisles and find the products they want — CRM initiatives in other areas may
be immaterial.
Marketing and communications should not be the sole goal of CRM initiatives, but should
instead be aligned to support strategies fully that focus on increasing customer satisfaction.
Providing promotional offers that are valuable to customers and increase customer profitability
separates strong retailers from their less-profitable peers. Offers that create more hassle than
savings alienate customers. Achieving favorable results from promotions depends largely on
how well-integrated marketing and communications initiatives are with the overall customer
experience. Good promotions should not begin and end with price, but should consider what
will solidify the customer relationship.
Data integration and analytics should be seen as supporting players for a well-engineered
CRM approach, instead of as the primary goal for CRM initiatives. Creating a holistic and
comprehensive view of customer data is becoming increasingly important to enhance both
online and in-store experiences. However, this capability is not an end, in and of itself. The
first question that retailers need to ask themselves is, “what is the knowledge I would like to
derive from this data, and how will I act upon it?” In the end, the insights gleaned from analytics should enhance the overall customer experience in specific, well-considered ways.
Every experience can be improved; the key is establishing the rigor to spot weakness and fix
it — and find strength and build on it. CRM strategies need to include regular, ongoing feedback channels and the structured discipline to take action on insights learned.
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Experience is the key to satisfaction IBM Institute for Business Value
Experience is the key to satisfaction
Taking the next step
Finding out what customers truly value provides insight on how to form strong customer
relationships. The following questions are fundamental to CRM success and are important for
retailers to address, so that they can begin to improve the customer experience and increase
customer satisfaction:
• How do we want our customer experiences to evolve? What are the most important
opportunities for improvement? How should these experiences vary by different target
customer groups?
• What types of insights do we want to develop about customers? What different sources of
data are required? How can and should these be integrated?
• How will these insights be applied to effect real change in business processes and practices?
• How does our technology infrastructure need to evolve in the near term and long term to
support CRM and other business strategies?
• Are our people and processes ready to move to a more customer-centric model? What
changes will be required?
Conclusion
The customers have spoken. Retailers who view investments in providing a superb experience
as the starting point for effectively managing customer relationships are much more likely to
win satisfied customers in a competitive marketplace. CRM strategies must begin by understanding customer-satisfaction drivers and explicitly tying business and technology initiatives
to these levers. By taking such an approach, retailers can create a fantastic “total experience”
that results in highly satisfied customers and highly profitable businesses.
In an era where customers expect more and more, retail is a tough business. Companies need to
be careful that they spend CRM budget on smart, fast and focused initiatives that will satisfy
more customers, more of the time. Please contact us at bva@us.ibm.com if you would like to:
• Receive further information about the consumer survey on which this paper is based
• Obtain a copy of other papers in this series
• Explore how we might assist your company in designing CRM initiatives that result in outstanding customer experiences.
To browse through additional resources for business executives, visit our Web site at
ibm.com/services/strategy
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Experience is the key to satisfaction IBM Institute for Business Value
About the author
Julian Chu leads the Distribution Sector team at the IBM Institute for Business Value.
Julian specializes in helping executives in the retail and consumer goods industries
develop and implement leading-edge e-business ventures and initiatives. Julian can be
contacted at jjchu@us.ibm.com.
The IBM Institute for Business Value develops fact-based strategic insights for senior
business executives around critical industry-specific and cross-industry issues. This executive brief is based on an in-depth study created by the IBM Institute for Business Value.
This research is a part of an ongoing commitment by IBM Business Consulting Services
to provide analysis and viewpoints that help companies realize business value. You may
contact the author or send an e-mail to iibv@us.ibm.com for more information.
Contributors
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