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process. Its buyers also identified additional cross-shopping, promotion,
and assortment opportunities. The retailer achieved sales uplifts of
between 3 percent and 8 percent across categories.
Space allocation also can be a thorny issue for many retailers, particularly
for categories that seem to lose money. The right data can turn a hunch
into a fact. For instance, a European hypermarket knew that a category
was unprofitable on its own but believed it made a profit contribution as
a result of cross-shopping. By looking at customer segment penetration
and cross-shopping data, the retailer determined that the category truly
was unprofitable; target customer segments were neither participating nor
cross-shopping. The space was reduced and reallocated to categories with
higher sales and profits. Sales rose by 7 percent.
Increase returns from marketing spending Both merchants and marketing executives are constantly pressing for
increased marketing spending to sustain sales levels against growing
competition. For nearly all retailers, marketing is the second largest
expense and productivity is often not measured. We expect the 16 ©McKinsey & Company 2000 MCKI29 - Ret. Smart Des.7 8/9/00 11:08 AM Page 17 proliferation of channel and media options to make demands for
improved marketing impact even more insistent. To make an informed
decision, retailers need to know which customer segments are responding
to what marketing media and programs, ranging from traditional mass
advertising to on-line marketing.
In one case, a European retailer’s promotional budget was increasing
with uncertain returns. To decide what to do, the retailer used customer
data to analyze the real impact of various promotions as well as other
marketing levers in different categories. Executives looked at the
importance of each marketing lever – price, discounts, loyalty, media – on
customers’ price perceptions and on segment behavior. To understand
true incremental sales and profit, the retailer then overlaid data on
participation in promotions by key customer segments to identify
important categories for the target segments. The retailer then decided
to reallocate promotional spending to the vehicles with the highest
impact on the behavior of target segments. By doing this, the retailer
increased its profits by about 6 percent.
On-line retailers are also leveraging customer data to improve marketing
spend impact, particularly customer acquisition costs. Sophisticated
on-line retailers are systematically tracking customer response and
reassessing their mix of on-line marketing spend across placements –
from portal deals to advertising to outbound e-mail campaigns to affiliate
marketing. For example, a leading Web wine and gourmet foods
merchant overhauled its site structure and content after realizing that
wine novices, not connoisseurs, made most of the purchases. Decisionsupport software had segmented customers by use of banner ads, site
behavior, and purchases. Segments generating the most sales were
identified, and results were calculated by advertising sourc...
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This note was uploaded on 02/08/2014 for the course RCS 391 taught by Professor Jeanielim during the Fall '14 term at University of Tennessee.
- Fall '14