RETAIL:
Improved Customer Experience Yields 60% Profit Increase

Client Situation

A sustained 25% annual growth rate in revenue is impressive-unless that growth is not profitable. Our client, an independent oil company, had worked hard to increase share in the very competitive retail gas and convenience store market. Unfortunately, margins at these retail locations were very low, and our client was looking to increase profitability. In a business driven by customer convenience, our client wanted to drive profitable growth by providing a better customer experience. What they did not know was where and how to improve the customer experience. Should they leverage Internet channels? Improve technology and automation at the retail stores? Produce more and better-targeted advertising?

Results

Using a rapid, eight week Customer Experience Diagnostic process, the Market2Customer^® (M2C^®) team identified targeted programs to improve the customer experience-including programs where implementation could begin immediately and yield a more than 60% increase in profits during the first year. For longer-term opportunities, we provided a roadmap that identified required capabilities and timing-information the client could use to select and sequence the technology investments and organizational change needed to support implementation.

Our customer-focused analysis helped identify, size, and prioritize improvements to the customer experience-critical for separating good investments (e.g. a segment-specific loyalty program) from bad investments (e.g. an e-commerce portal). Most significantly, this M2C work led to a fundamental shift in the way our client thought about achieving same-store growth: a shift from product-focused mass marketing to an approach where programs are designed to influence specific customer behaviors in specific customer segments by delivering a better customer experience.

The Intervention

Our client's need for a comprehensive overview of growth opportunities in a short amount of time was a natural fit for the Customer Experience Diagnostic process. We focused on answering five questions:

1. How do you define the competitive market?
2. What customer segments exist-and how valuable are they?
3. Given customer needs, motives and behaviors, what opportunities exist to enhance the customer experience in these segments?
4. What is the economic impact of these opportunities?
   Given the economic impact and the feasibility, are there "quick hit" opportunities that should begin immediately and are there "high potential" opportunities to evaluate and pursue longer term?
5. Answering these questions required a detailed understanding of the market and the customer-which demanded data.

We needed quantitative data (Which customers are purchasing what products at which stores?) and qualitative data (What are the desired customer experiences and how do they drive purchase and loyalty?). This data was not available in any database, so we headed for the field, conducting site audits at a representative set of retail locations.

Our analysis led to several insights that helped to drive the client's growth strategy. First, the market analysis forced us to think about where the client planned to compete. The "addressable market" was broader than the client realized-a recent investment had added quality fast food services to many of the retail locations, and the addressable market included take-out fast food. A clearly defined market gave the client more insight into the potential value of underserved customer segments-the Dining Out segment, for example, was largely unaware of our client's fast food services.

Even more revealing was the economic analysis to gauge the impact of opportunities to enhance the customer experience. Each opportunity was designed to influence a specific customer behavior in a specific customer segment, allowing us to tie real behavior to real results. For example, we found that the typical customer in the Dining Out segment purchases lunch at the retail store twice a year-and that a program designed to increase this to three times a year would boost overall profit by 30%. Best of all, our client had excellent field operations for the Dining Out opportunity and delivered a first rate experience once the customer was in the store. What was needed was sustained customer awareness in the segment. This M2C strategy was a "quick hit" that created bottom-line impact right away!

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