Investing in customer loyalty yields big results

Manufacturers and retailers taking meaningful steps to drive consumer loyalty are 60 per cent and 88 per cent more profitable than their competitors who do not, reveals a Deloitte Research study earlier this year. Titled Serving the Networked Consumer, the study evaluated how market leaders are performing compared with other companies in the industry in responding to the new demands of consumers for better service across multiple channels.

It defines “leaders” as companies having clearly articulated strategies to acquire, maintain and develop relationships with consumers, and who at least attempted to calculate the profitability of the individual consumer. Conversely, “followers” exhibited only one, if any, of these strategies. Forty-one per cent of retailers and 48 per cent of manufacturers met the leader criteria.

The report indicates that despite the direct connection the Internet offers, retailers and manufacturers that work independently are unlikely to boost customer loyalty.

Though based in Toronto, we caught up with Bruce Parker, Deloitte Consulting regional industry leader for manufacturing (Canada), at the firm’s Montreal office to get his comments on the report.

IT World Canada: According to the study, “the largest obstacle to collaboration, according to over half (55 per cent) of retailers, is that their manufacturing partners are too product-focused, as opposed to having their primary focus on consumer’s needs and interests. Yet, manufacturers in two of the regions surveyed readily acknowledged the inherent benefits of joining forces. Seventy per cent of manufacturers in North America and Asia Pacific believed collaboration was a top priority. In Europe, slightly less than half (48 per cent) shared that opinion.” Obviously manufacturers can’t just change processes at the whim of the market as reported by retailers and wholesalers. What are they to do?

Bruce Parker: I think the best thing they can do is take advantage of the information they’re getting direct from consumers, mostly via the Web now. So for example, you and I as consumers will go directly to the manufacturers’ Web site, maybe not necessarily to buy that product from the manufacturer but to find out about that product, to find out colour, size, style, offerings. So, there is a lot of information. Manufacturers have typically had a lot of information about consumers that they haven’t done a lot with. So now the power of using the Internet and the data collected about consumers’ preferences is going to give signals to the manufacturer to help them rationalize product lines, make better investments in plants and equipment, (and) to take engineering to a new level in their products.

IT World Canada: What IT tools/strategies help them most?

Parker: Getting IT tools such as CRM products that are able to assimilate consumer data and make sense of it coming from a whole bunch of different sources. The trick is that they’re going to get information about consumer preferences from all different channels – from retail partners, Internet, surveys. Their ability to put that data all in a similar format so that analysis is easy is going to be the big trick. So, an investment in good CRM tools and data mining tools really, I think, are going to be big in the next few years.

IT World Canada: The report cites that collaboration between retailers and manufacturers is critical to success. What is the role of Canadian wholesalers in this collaboration and what challenges do they face in facilitating the collaboration?

Parker: The wholesalers still play an important role to the value chain because the manufacturing to retailing collaboration is just one of those channels that the manufacturer has to get products out into the market. The wholesalers can also play an important role in the distribution and management of goods through that value chain. We quite often see that there’s been a shift in power from the retailer and the wholesalers to the manufacturers. So what’s happening is the manufacturers still need to make sure that their wholesaler and retailer partners are still a valued piece of that chain. Even though manufacturers are gearing up to sell direct to consumers, I don’t think that’s a highest priority for a lot of them.

IT World Canada: Here’s another excerpt from the report. “For manufacturers, retailers are their primary source of consumer information at 46 per cent. However, in the next three years, 58 per cent expect consumer data collected by phone, mail, e-mail, fax or the Internet to be their primary source. Only 24 per cent plan to use retail partners as their primary source during the same timeframe.” Can you please expand on why this change in source of consumer information is happening?

Parker: Change is definitely happening by way of the Internet. That is the number one driver. As I was saying before, consumers are going directly to manufacturers’ Web sites, even if it’s just to inquire about products. The important link there then is that manufacturers redirect the consumers to those channels that they want the consumer to go and buy the products through. Links to retail partners, links to other marketing channels to get the products. The trick is going to be consistency of the product offering through price, availability, all the things that matter to the consumers through all those channels. If the manufacturer can make that consistent, then they are going to have much more information about how the consumers behave. So the important thing in that switch from getting all the information from retail partners to getting the information directly is that now they have the opportunity to go and collaborate with the right retail partners and the right channels to get the product out.

IT World Canada: What is the benefit of this to Canadian manufacturers?

Parker: There are quite a few benefits on both the revenue side and the cost side. On the revenue side, it gives them a better chance to understand the behaviours of their best customers and which customers are profitable, and that translates into making the right products for those customers and delivering what the consumer is really valuing. So on the revenue side that gives a boost to the revenue. On the cost side, it allows them to reduce obsolete inventories, it allows them to take maybe some marketing dollars and be more prudent about those investments to the right target customers as opposed to a broad brush approach to marketing.

IT World Canada: How can Canadian manufacturers best equip themselves to make this happen effectively?

Parker: I think the best thing they can do is make some investments in CRM services that will give them the best way to capture consumer preference information that is coming through the Net and connecting that wealth of information from consumers with their systems that are actually running the production facilities and forecasting tools. So, the ability to connect the front office, if you will, to the back office.

IT World Canada: What do you believe to be the best IT strategies for Canadian manufacturers in these uncertain economic times and why?

Parker: There is going to be such a tremendous focus on cost management and cost reduction. If companies don’t have a handle on their cost base and they’re not working to be the most effective cost producer in their market, they need tools and they need processes that are going to get them there.

IT World Canada: What do you see as the greatest pitfall Canadian manufacturers should avoid?

Parker: It’s so tempting for manufacturers to want to go direct to consumers and ignore all their partners in the other channels. I believe that is going to be a big pitfall because the investment and change in thinking that is going to be required to be direct to consumer may not have all the payoffs that they expect.