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The customer is king

By Iain Scott, ITWeb group consulting editor
Johannesburg, 17 Sept 2003

Just a few years ago the till was the last word in retail sector technology, but as the industry has grown, retailers have become dependent on vast networks to meet the ever-increasing demands of a more sophisticated market.

IT has become indispensable in areas such as customer relationship management (CRM), loyalty schemes, supply chain management (SCM), retail helpdesks, stock control and space planning. With the advent of the Internet and multi-channel retailing, the industry has also had to integrate branch and headquarters systems and set up business-to-business networks.

Integration has become the name of the game as retailers move towards a connected infrastructure that harnesses the information recorded by once standalone systems. "This is certainly of paramount importance not just to retailers here, but also overseas," says PC POS MD Paul Jules.

Integration is key to operational success, critical to managing stock in hand and working capital, and also critical to managing service levels.

Mike van den Bergh, MD, Gateway Communications

Faced with traditionally tight IT budgets, local retailers are now following their international counterparts` example, looking to external service providers and outsourcing as workable solutions in their bid to both ease and expand their customers` shopping experiences. Mike Vos, IBM SA industry sector executive, says supply chain optimisation, distribution improvement, business intelligence (BI) and CRM are the areas this sector is concentrating on now.

Complex web

Even the humble point of sale system has evolved rapidly in the past few years, particularly as it becomes more integrated into the rest of the enterprise. Jules says after the cash register gave way to PC-based technology, many retailers began using proprietary technology he describes as "a cash register-looking device that was PC-based". But in the past three to four years there has been a move to more modular PC-based technology. He says in general retailers are now more conscious of the disadvantages of being locked into proprietary technology, and are adopting a more open-architecture approach.

Vos says the trend during the apartheid era was to install PC cash drawers, but retailers moving into Africa are now installing integrated systems, since they can be updated from a central point on their networks. "Also, in the PC cash drawer environment, if the back-office system goes down, often that store comes to a grinding halt. With integrated solutions, if the back-office goes down, the store can still run."

Integration has also become a keyword in SCM, which has taken on new importance in an increasingly competitive industry. "It`s key to operational success, critical to managing stock in hand and working capital, and also critical to managing service levels," says Gateway Communications MD Mike van den Bergh.

Customer loyalty can be bought. The problem is it often needs to be bought again and again, making it a costly affair.

David McWilliam, MD, Cognos SA

He says a key aspect is the need for visibility throughout the supply chain. "The supply chain is a fairly complex web of interconnected entities." One of the areas on which Gateway has focused is providing total visibility throughout the supply chain on an integrated basis so that everyone who needs to monitor the status of a particular order has access to that information.

RangeGate MD Mark Lilje says there is an increasing use of mobile solutions in the supply chain, a factor being driven by the need to get more out of existing resources, right down to warehouse level. "You no longer have to issue tons of paper and give tasks to people, and hope that it will all happen," he says. "In a warehouse situation you might have hundreds of people. When you`re giving them all slips every day there is no control over where and when things happen."

Instead, users - even forklift drivers - are issued with specially designed, rugged handheld devices that are integrated into enterprise resource planning systems. "The big issue is real-time management - actively managing tasks and resources," Lilje says.

Multiple channels

Despite the many failed promises of the dot-com era, a more sophisticated customer base is demanding multiple entry points into the retail experience, and the Internet has certainly proved to be a lasting feature in a multi-channel environment aimed at widening the customer base and offering more choice. Specialist retailers like Exclusive Books, Musica and Incredible Connection have been online for some time, but other retailers are also beginning to embrace the Internet as another way to reach customers. But simply going live on the Web is not enough, as retail giant Edcon discovered.

Edcon has roughly 2.8 million active customer accounts. The group entered the e-commerce arena with the implementation of the Edgars Web site. However, because it was developed largely using software from US-based vendors, the site was unsuited to the lower bandwidth conditions of the local market. The result: customers looking for a sleek fashion portal found a site that was unwieldy, slow and responsive.

Like many other retailers, Edcon had been outsourcing its IT requirements for a few years and decided to go the same route for the site. It partnered with Internet Solutions and fellow Dimension Data company 3fifteen, and ran the project as an outsourced service based on Microsoft`s .Net platform. "The power of .Net is that it integrates the Internet and dispersed Web-based applications for mainstream business usage, seamlessly connecting information, people, systems and devices," says Alison Vorster, GM of Internet Solutions Business Gateway.

The power of .Net is that it integrates the Internet and dispersed Web-based applications for mainstream business usage, seamlessly connecting information, people, systems and devices.

Alison Vorster, GM, IS Business Gateway

The project was aimed at creating a site that delivered speed, ease of use, maintainability, security, reporting and aesthetics. The benefits were evident in the festive period last year, when the site managed up to 500 000 users a day with ease. Since then registration has grown by 267% and there are now almost 100 000 regular users.

"More importantly, this is reflected in the bottom line, with sales on the site having grown by 150%," Vorster says.

The partnership has continued in other areas of the business with the development of the Edcon B2B initiative, an e-supply chain that supports 500 suppliers. The group`s operational costs have been halved through the deployment of the initiative, which has given Edcon a single, integrated platform for its e-business initiatives that shows a tangible return on investment.

Customer contact

There has been a good deal of innovation in every area of retail-focused technology in the past three or four years, including smart card payment systems (BP`s FuelMaster concept, for example), in-store electronic marketing and queue management tools, electronic funds transfer devices and others.

Technology touches every aspect of retail business. Many functions overlap and each aspect of the business has an impact on another. A customer loyalty scheme, for example, will be wholly ineffective if stock management is inadequate, no matter how professionally it is implemented.

David McWilliam, MD of Cognos SA, says existing customers are a company`s most valuable assets, since it is easier and less expensive to sell to an existing customer than it is to attract a new one. He cites statistics which indicate that it is 10 times more costly to attract new clients than to retain existing ones and that a 5% improvement in a company`s retention rate will increase profits by 15% to 50%, depending on the industry.

"Customer loyalty can be bought," McWilliam says. "The problem is it often needs to be bought again and again, making it a costly affair. A more cost-effective approach to retaining and gaining customers can be found in the process of gathering data collected in the course of business and using this to attract customers back into your store based on profiles per region, product, customer and income bracket."

A solid BI implementation can make each customer believe they are the store`s primary focus.

David McWilliam, MD, Cognos SA

While this is simple for a Mom-and-Pop store, he points out that when a retailer services thousands of people in multiple regions, getting to understand a customer base and delivering the required services and products becomes more complex. McWilliam says BI makes a difference here.

"A solid BI implementation can make each customer believe they are the store`s primary focus. Not because they receive a letter in the mail saying: 'Do we have a deal for you`, but because they achieve the shopping experience they want and easily get the products they want at what they consider a reasonable price."

He says an effective sales process is one in which sales are completed quickly and at the lowest possible cost, as well as at the highest profit. To achieve this, management needs to know how to allocate human and financial resources to the regions or products where they will have the most impact and where sales tactics are the most effective.

"This information is not going to appear from nowhere. It can only be found by examining historical records of what is sold where, at what cost, in what season, combined with other historical data. This, of course, implies looking at the profiles of existing customers."

Intelligence quota

Charl Barnard, GM for Knowledge Integration Dynamic`s MicroStrategy product, says there is now an unprecedented demand for BI solutions that enable retailers to store and retrieve enormous amounts of business data. "Without access to this data, for instance, CRM initiatives based on in-depth customer analytics become a mere pipedream."

However, Stephen Howe, divisional manager of the Comparex Africa`s Tetra division, says many retailers are failing to harness IT to monitor, manage and benefit existing customers through innovative customer relations.

"Many South African retailers are not aware of the competitive tools at their disposal through an integrated IT system, including customer service and BI-motivated in-store promotions." He says in-store marketers using paper-based methods of polling customers` tastes and preferences can take as long as six months to deliver usable results that allow retailers to act on the findings and implement change to their customers` satisfaction.

"If mobile technology is used, however, using a cellphone or PDA connected to the retailer`s database, it can be a much faster BI and marketing tool, gathering real-time customer information hourly that can be collated, accessed and acted on almost immediately."

Vos says information is becoming a valuable commodity in the modern retail environment. "I`ll call it CRM, but it`s really just metrics on customer spend - they`re trying to understand and trying to enhance the customer spend in the stores. The applications are becoming so much more sophisticated and they can find a lot of that data. In conjunction with the electronic funds transfer-type stuff they can, by your credit card spend, know where you spend, how you spend, etc. And that information is becoming very, very important."

Howe says retailers are increasingly aware of the pressing need to connect and integrate their ERP systems to their point of sale systems and have them talking seamlessly to e-enable the whole organisation. He says other retail trends to be watched now and in the future include technologies that save time for the customer, like ordering goods online and having them delivered to a convenient address. Some retailers are already using this kind of technology. He also says emerging technology that increases efficiency at the point of sale, such as wireless payment, will also be a key area to watch. This includes Bluetooth and smart card interfaces.

Integration of retail systems is a key feature of technology innovation in the retail sector today, not for the sake of integration itself, but ultimately to improve profitability by being more in touch with the customer. The sector appears to be coming back to an awareness of an age-old business principle: the customer is king.

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