New Retail Day'14 - 6. maj 2014 - Bill Gillespie, IBM

© 2014 IBM Corporation1 IBM Internal
©"Copyright"IBM"Corpora0on"2014"
IBM Point of View
Driving Profitable Sales with the
New Empowered Customer

Overview
1.  The New Empowered Customer
2.  The Disruptors
3.  The New Winning Themes in Retail

CEO Study CMO Study CIO Study
CEO Study
“Technology will be the top driver
of change in the next three years
and it will be a disruptive factor”
IBM Thought Leadership
CFO Study

The “quickly” evolving customer
2010
Meeting the
Demands of
the Smarter
Consumer
‘Use of technology’
2011
Capitalising on
the Smarter
Consumer
‘Personalisation’
2012
Winning Over
the Empowered
Consumer
‘Trust’
2013
From Transactions
to Relationships
’Developing
Relationships”
2014
Greater
Expectations
‘Expectations
and SoLoMo

27%
made their last purchase
online. 50% increase
over 2012
67%
have a smart phone
9 of 10
reasons to shop a
retailer involve
omnichannel
capabilities
69%
post a review once per
month. 54% post 2-3
reviews per month
64%
say reviews are the
most important criteria
in deciding where to
shop
81%
expect the same brand
experience across all
channels
The Age of the Empowered Customer IBV 2013 Study

People are willing to share more information….
19% 36%
2011 2013
Mobile # = 38%
2013 — Willingness to share
Social handle = 32%
Willing to share current location (GPS)
Source: IBM IBV 2013 survey, n= 30,554. Q31 and Q54
Year on year comparisons include 13 of 16 surveyed countries

The emergence and growth of SoLoMo
It is becoming all the more critical for retailers to connect with consumers one-on-one. IBM
investigated three contact methods: Social handle, Location and Mobile number (SoLoMo) and
found that shoppers’ SoLoMo adoption levels ultimately revealed four distinct consumer
groups:
40%
29%
19%
12%
Traditional– Uses least
amount of technology
while shopping.
Transitioning – Uses
technology mostly to
gather research and
other information.
Tech-intrigued – Uses
SoLoMo from browsing to
buying
Trailblazers – Uses SoLoMo
extensively, including as a retailer
evaluation tool.
* Study Population

Can be very complicated but two key areas to focus:
Active Listening
!  If a customer called or complained in store
how quickly would your company react?
!  You need to listen to social media on a
daily basis and react in real time
Social Media
Deeper Data Analysis for Personalization
!  Mine the data form Facebook, Pinterest,
YouTube, blogs to:
‒ Better understand the trends of your
customers
‒ Personalize assortments and promotions
‒ New items or categories to sell

!  Identify customers presence as they
enter or leave the store
!  Identify proximity to a retail store
!  Identify what aisle or department the
customer is located
!  Interact with customers in real time
Identifying presence and location will become essential in enabling
timely and relevant customer interactions

Baby boomers no longer dominate the consumer story
Millennials take control
!  Born 1982-2000, they will just be 38 years
old in 2020
!  80 million strong (roughly the same size as
the boomers) (1)
!  Completely different values, social norms
and expectations
–  Quality over quantity (owning less stuff)
–  Completely connected and mobile
–  Heavily influenced by peers (“we vs.
me”)
–  Socially responsible attitude towards
companies and products
[1] Source: 2010 US Census Report
Aging baby boomers will mostly be in their
60’s and 70’s by 2020(1)
!  Still financially crippled from the great
recession
!  Focusing on healthcare, aging parents,
wealth preservation for retirement

!  Anticipate and service my shopping needs
Use what you know about me to deliver a seamless and
interconnected engagement regardless of where or how I am
shopping with you.
!  Make it convenient and easy to interact with
you
Consistently capture my history and profile and deliver
information and services to me through my preferred channel.
!  Be there when I need you, in real time
Empower me with real-time updates, proactive
communications and choices before, during and after I shop
with you.
!  Remember all of my interactions
Understand me and my preferences through our past
interactions.
Customers expect a personalised approach

The Disruptors

The Disruptors cause the huge paradigm shift
The New Disruptors in Grocery

$70+
billion in
sales
Projected $185
billion by 2017
second only to
Wal-Mart
The “Earths
Biggest
Selection”
Customer
experience and
personalization
Innovation
Internation
al Growth
63% sales
from GM/
Electronic
The
Wal-Mart,
Ebay and
Google
reaction Logistics
The Amazon Effect

Place your
order by 10am
have it by dinner
Free Same-Day & Early Morning Delivery on orders over $35.

Local Shops & Restaurants
We bring your city to your doorstep - from
bakery to ethnic foods to gourmet meals.
Order up fresh mahi-mahi from Santa
Monica Seafood, a tasty rhubarb pie from
The Pie Hole, or a crisp salad from
Steingarten LA.

Amazon Grocery Launched 2006:
!  Vitamins and Supplements #1
gross profit dollar category
!  Baby is the #4 category
–  Sells more diapers than Kroger
!  Health and Beauty in top 20
!  Coffee #24
!  Specialty Grocery top 30
Amazon Fresh launched 2007
!  19,000 fresh items
!  28,000 ambient
!  Open in LA and SF
!  28 DCs planed
!  Drives the trip to Amazon
!  Targeting Higher Income
Segments
Amazon Grocery and Fresh

!  Broadening its selection from its entertainment roots has
been successful in bringing customers to Amazon’s site,
making it one of the most visited websites globally.
!  Amazon typically adds 1-2 categories annually in each of
its markets.
!  Categories that are expanding rapidly include grocery/
fresh food, consumer electronics, toys and apparel.
!  Amazon’s third party Marketplace has enabled the
company’s expansion, particularly in specialist categories.
In Q4 2012, Amazon generated 39% of unit sales from its
Marketplace operations.
Amazon has sacrificed
profits to pursue its
ambition to become the
definitive online sales
reference, giving
customers everything in
one place and
undercutting rivals on
price.
#1 ‘Earth’s Biggest
Selection’
Source:"Planet"Retail"2013"Amazon"Insights"Report"""
Amazon’s Key Growth Strategies

!  Amazon’s Kindle devices are its bestselling items globally.
!  In 2012 Amazon reported that Kindle e-book sales soared 70%, to
become a multi-billion dollar business.
!  In the US and UK, Kindle e-books now outsell physical books, with
other markets set to follow.
!  Kindle e-readers and tablets have been designed to maximise
content sales in the form of e-books, apps, music downloads and
Amazon’s online streaming services.
!  Amazon has widened Kindle’s reach by partnering with bricks and
mortar retailers.
!  Unlike competitors, Amazon looks to profit from content sales from
devices rather than from hardware revenue.
Amazon has become known
alongside Apple and Google
as a technological innovator.
#2 Innovation,
technology and content

!  Much of Amazon’s innovation comes from its insight into customer
needs and wants.
!  Amazon leverages technology to analyse spending habits and to
‘know’ customers individually. This tailored customer experience is
a differentiator.
!  Amazon’s ‘all you can eat’ Prime loyalty scheme is driving growth,
offering free shipping alongside streaming services and Kindle e-
books loans. Amazon said US membership increased
“dramatically” in 2012.
!  Customer satisfaction is high. Planet Retail’s shopper insight study
in Q4 2012 gave Amazon a net promoter score of 57 with 91% of
visitors converting to buyers.
Amazon places customers
at the heart of its strategy
and enjoys strong loyalty.
#3 Customer centricity
Subscribe and save allows
customers to preorder
commonly used items or big
bulk items
Same day delivery and 2
hour delivery for grocery and
fresh items

Source: Expert interviews; Internal Analysis; McKinsey & Company
Amazon Prime drives loyalty and supply chain predictability while
allowing Amazon more control over the customer experience

The Merchant
Mindset
Creating the WOW in store
feel
Develop
Relationships with
Your Customers
The era of personalization
versus paper ads for all
The New Health and
Wellness
Integrating Doctors,
Insurance Companies and
the Grocery Store
Product is the Hero
Creating differentiation with
product
The New Winning Formula for Retail
22
Play where She
wants to Play
Build world class
omnichannel
From Gut Based to
Fact Based decision
making

Develop Relationships with
Your Customers
The era of personalization versus paper ads for all

Data Can Cripple an Organization

Current state: I have an offer – let me find a customer to sell to”
Sales and Gross Profit tracked by Category, Store and Segments
Our data is siloed,
latent, and oriented
to products and
channels
Our analytics are
geared to
propensities not
relationships and
behaviors
Every group,
product and
channel for itself –
no customer
optimization
Our offers have
little context and
relevance – we
under utilize our e-
channels
Staff are not
confident in acting
on offers – our
presentment rates
are too low
We don’t know
what is working and
can’t diagnose
under-performance
Plan Design ReportTarget Sell Serve
Target state: “I have a customer – what do they need today?”
Sales and Gross Profit tracked by Customer
Data is highly
integrated and
recent – provides
holistic, detailed
customer view
We have re-
calibrated to the
customer and
have new test and
learn abilities
We optimize
communication to
maximize value to
the customer
We deliver the
right information to
the right channel –
we capture
feedback
Staff and leaders
understand our
goals – have the
skill & motivation
to deliver
We understand the
value levers and
have instrumented
it to “know”
Inform Design MeasureTarget Present Engage
The Goal: Retailers align their marketing capabilities to meet
customer needs for personalized communications and interactions

Focus on the loyalty levers and with your ”best customers” and your
”next best customer”
Behavior(spend)
Low
HighModerateLow
Moderate
High
Attitude
Very loyal in
attitude and
behavior
Lars Spindler IBM DK

0
10
20
30
40
50
60
70
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
ValueofBehavior
Actions in each interaction over time
Known
history
Add predicted future behavior based on all expected future data points in the lifecycle
Individual Nano Entity Lifecycles (INEL)
Forecasting by Customer

!  Customer First Strategy
!  40 straight quarters of like store and
EBIT increases
!  60 million card holders
!  Focus on 15 million their best
customers
!  Personalized incremental ads to best
customers
–  70% redemption on Ecoupons
!  Personalized Pricing
!  Best customer data used extensively in
assortment decisions
Best Practices

Strategy:
Engage best customers more effectively
and acquire new customers utilizing
information, analytics and automation to
deliver personalized recommendations
and communications continuously based
on individualized profiles, personas,
purchases, preferences and networks /
relationships
Objectives:
Increase share of wallet and share of
interest / intent through
!  Engagement – Frequency and Quality
of engagement across all channels
!  Basket Size and Composition –
Breadth, Depth and Profitability of
Baskets
!  Share of Wallet and Share of Interest
Initiatives to deliver capabilities:
!  Single View of the Customer integrating store, digital, web, mobile, social
interactions
!  Digital Personalization to improve visits and baskets particularly among key
segments
!  Acquisition of new customers using advanced analytics and omni-channel
automation
!  Store based micro-clusters to drive customer centric assortment tailoring
!  Personalized Loyalty Programs tailored to customer preference and improvement
!  Marketing Media Mix Optimization
Solutions Software Services to be Leveraged:
!  Customer Master Data Management
!  Enterprise Marketing Management
!  Customer Centric Insights - CMO Dashboard (Marketing and Merchandising)
!  Big Data / Cloud applications, infrastructure, operations
!  Analytics – Rapid Development and Deployment
!  CRM Expertise – Infrastructure, Integration, Analytics, Applications, Transformation
Benefits:
References:
75#100&
Revenue
10#15&
EBITDA
Develop Relationships with your Customers
Basis points improvement

Play where She wants to
Play
Build world class omnichannel

Mobile is at the epicenter of change

Wegman’s offers shopper convenience and
community functions, with web-to-store
functions such as find/save/share recipes,
shopping lists printed by aisle location, integrated
Shoppers Club saving, and friendly iPhone
application. Events and classes in the store, with
extensive use of videos on YouTube to promote
the brand and products.
Mobile Check Out
Stop & Shop stores in the
Boston area allow customers
with iPhones to scan
grocery items and add
them to an electronic
shopping cart. By aiming
the phone’s camera at the
bar code on a product
package, the customer can
see the price and add it to
the electronic shopping cart.
Once shopping is done, the
app relays the information
to a checkout register,
where the customer can pay
with cash or a credit card.
Get your Publix Deli favorites the easy way.
Publix offers customers to build their own
sandwich and order their favorite deli meats
cheeses and other items on a PC, tablet or
Smartphone and the order will be ready when
they arrive. Publix’s shopping list feature is
downloaded into a store specific planogram for
ease of shopping
Technology is allowing grocers to offer a personalized and unique
shopping experience, inside and outside the store

"El Corte Inglés has launched an online operation in the UK, Ireland
and Netherlands. The Spanish retailer has introduced a marketplace
where customers can purchase more than 50,000 products from 200
brands, particularly Spanish ones. El Corte Inglés is partnering with
IBM, which has created an e-commerce platform using a Cloud-
based system.
The new website offers fashion, sports items, household goods and
gourmet products.
Customers will receive orders within 48 hours of purchase. These will
be dispatched from the retailer’s logistics facilities in Madrid, with
shipping provided by “leading international logistic groups”..""
In pursuit of enhanced customer service, Waitrose is exploring the
use of mobile devices on the shop floor. According to The Grocer,
the John Lewis-owned UK retailer is to equip support managers
with tablet computers, thereby freeing them from having to use a
desktop computer, allowing them to spend more time with
shoppers.
Technology is allowing grocers to offer a personalized and unique shopping
experience, inside and outside the store
ARISTO is an IBM Research First-of-
a-Kind augmented reality mobile
solution. Tesco is using ARISTO to
validate planogram integrity and in
stock position. Associates or a third
party simply scan the planogram with
a smart phone. ARISTO’s picture
recognition technology captrues
planogram and in stock position on
the shelf and bounces it off of
TESCO’s authorized planogram. Any
differences in items, space and in
stock levels is immediately noted and
fixed.

Locker shipping
option
Integration in
the eCommerce
shopping path
The Next Growth Area

InPost Locker Infrastructure in the
UK ready for market testing
!  512 lockers placed in cities most
usable for key clients
!  Courier contracts established and
ready for work
!  A staff of 28 UK based InPost
employees ready to support the
market tests
There are over 500 lockers deployed and ready for use in the UK as
of Nov. 2013

The time window available for one or two dominating forces to
capture and control the market is short

Transforming the Organization for Omni-Channel
Requires a significant shift in mindset from top down in the organization in order to
embrace the view of the empowered, omni-channel consumer
Stores
CEO
CFO
CIO
CMO
COO
Customer View
Deliver good products to our
customers
Deliver good products to our
customers in different channels
Deliver good products through a
superior customer experience
CEO
Business unit P&L, divisional
P&L, channel P&L
Customer P&L, shadow P&L,
matrix P&L, attributed P&LCFO
Balance sheet, income statement,
statement of cash flows, P&L
Technology to enable business
channels
Technology that enables
personalized customer experiences
Technology to support company
business processes
Build my brand in multiple
channels
Build my brand one customer
at a time
Build my brand
Processes that optimize buying &
selling in separate channels
Processes to optimize buy/sell
when and where customer wants
Processes that support
buying and selling products
Channel ViewCompany View + +
Stores
CHRO
Incentives that drive each
channel’s sales
Incentives/rewards that
drive omni-channel behavior
Incentives that drive store sales

Merchandising
Inventory
Management
Marketing
Design
Stores
Supply Chain
Designing for stores Designing for the brand/customer
Telling the product story in stores
Telling the product story across
multiple channels/technologies
Buying product for the store
Buying to support customer demand
(regardless of channel)
Broadcasting “Personalization in the right channel”
Fulfillment/systems optimized
by store demand
Fulfillment/systems optimized
around customer demand
Retail store policies and procedures Customer/Brand experience center
eCommerce Driving online traffic and sales
Powering/enabling cross-channel
shopping behavior
From functional expertise and efficiency to optimization around the customer
Traditional Multi-channel
Success in Omni-Channel requires a radical shift in core Retail
business processes

Best in
Class for
Grocery
10% of
sales
online
Large
investment to
fight Amazon
Click n Collect and
Delivery models
Price
Match
Diversification and Disruption
Best Practices

Strategy:
Engage with the customer and businesses
where they are – at each stage of the
shopping cycle, creating a seamless
shopping experience across stores,
online, mobile, kisoks, call centers and all
other customer touch points
Objectives:
Focus on enhancing both store and non-
store revenue ultimately driving higher
customer wallet share
!  Online and mobile revenues (in non-
food and food both)
!  Digital channel and marketing driven
store traffic and basket size increases.
Initiatives to deliver capabilities:
!  Best in class B2B and B2C
!  Cross channel single view of customer and inventory
–  Integrated view of channels – from a customer information and inventory
perspective
–  Be able to track customers across channels
!  Cross channel process execution
–  Marketing – online marketing creating store traffic, online and mobile for in-store
promotions
–  Cross sell / up sell, Save the sale at store
–  Mobility, Mobility and Mobility
–  Location based services
Solutions Software Services to be Leveraged:
!  IBM Retail SMEs
!  Web analytics
!  Mobile Platform and development
Benefits:
References:
10%&of&sales&
Revenue
(15#25)&
EBITDA
Build world class omnichannel
Basis points impact

From “Gut Based to Fact
Based” decision making

Thank You

New Retail Day'14 - 6. maj 2014 - Bill Gillespie, IBM

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New Retail Day'14 - 6. maj 2014 - Bill Gillespie, IBM