Wednesday, June 17, 2015

Retail & CRM: Turning From Direct Profit By Products to Direct Profit By Customers

In rare occasions I have topics that link CRM, retail and strategy at the same time, but one of my last readings offered me the opportunity. I had the opportunity to read an old book (see the cover in picture right on the left) edited in 1998 which topic is how the retail business will look like in 2020.

I found it obviously funny to read a book written in the past about our future to see how the prediction is turning. A bit if I was watching back to the future 2 to see how 2015 looked like in 1985... Especially because at this time, Internet was almost not existent, especially in France.

But beyond the amusement point, I liked specifficaly one of the part of this book. You know I have written a lot about Direct Profit by Products as a concrete tool to manage both purchasing and category management. The idea to have a clear view of the true profitability of one product is key to understand how to deal with it. The author is able to talk about DPP linked to CRM.

Indeed, DPP is an old concept, which exists since the 80s. It was developped during an era where product was king: Rotations were high, sales were spiking, and there was no loyalty reward programs launched yet. But the era changed. Customers have taken back the power. Customers are more informed, have more competition to choose from, and obviously he is now the master of the relationship with retailers.

This is what the author explains:
"the profit per product" can not be the sole criterea of profitability. The equation must change. We can't think only products anylonger, but customers budget. The question is where the cusomer budget starts and where it stops. We should hence think about the household budget and propose him complete solutions matching all the specific products that matches a specific needs. Instead of trying to sell a sole tennis rackett, we should propose the balls, the shoes, the tshirt and so on. It could even go beyond that: the insurance, the club fees, video games...".

Now loyalty reward programs allow retailers to have extensive data which could help to define what the direct profit by loyal customers could be. It could also help customers meet the needs of one customers based on this idea.

I believe that this idea indeed could clearly be key in the way both category management and CRM could be managed in the future.

Some good food for thoughts.