ANALYZING CUSTOMER DATA AND

IDENTIFYING TARGET
CUSTOMERS
• One of the goals of CRM is to identify and
cater to the retailer’s most valuable
customers. Retailers often use information in
their customer databases to deter mine how
valuable each customer is to their firm.
 Customer lifetime value (CLV)
• The value of a customer, called customer
lifetime value (CLV) , is the expected
contribution from the customer to the
retailer’s profits over their entire relationship
with the retailer. Retailers typically use past
behaviors to forecast their CLV.
 Example

• Source: Michael Levy, Barton A. Weitz, Dhruv Grewal, Retailing Management, McGraw Hill
(2023).
• Which woman has the highest CLV—that is,
who would be the most valuable customer for
the retailer in the future?
 Example continued..
• If the retailer only considered the purchases
made by the two women over the past 12
months, the retailer might conclude that Shirley
is most valuable because she has bought the
most merchandise during the last 12 months
($400 versus $355). But Shirley’s purchase history
might reflect her visit to the United States from
Brazil, making a one-time purchase, and being
very unlikely to patronize the retailer again.
 Example continued..
• As the retailer digs deeper into the data, it
might decide that Marcia is the most valuable
customer because she purchases merchandise
both more frequently and more recently. In
addition, her monthly purchases are trending
up. Even though Shirley might have bought
more in the last 12 months, Marcia’s purchase
pattern suggests she will buy more in the
future.
 RFM analysis
• A method often used in catalog and Internet
channels to determine customer segments
that a retailer should target for a promotion or
catalog mailing.
• The method uses three factors to evaluate the
potential contribution of each customer
segment: how recently the customers in the
segment made a purchase, how frequently
they make purchases, and how much money
they have spent.
• The classification of customers into these
segments is based on the profitability of the
customers, not sales.
 For example
• Customers who pay full price and buy the
same amount of merchandise have a higher
CLV than customers who only buy items on
sales.
 Example
• Customers who return 30 percent of the
merchandise they purchase have a lower CLV
than customers who rarely return
merchandise.
 DEVELOPING CRM THROUGH
FREQUENT-SHOPPER PROGRAMS
 Offer Tiered Rewards
• Many frequent-shopper programs contain
cascading tier levels, such as silver, gold, and
platinum. The higher the tier, the better the
rewards.
 Treat High CLVs as VIPs
• Consumers respond to being treated as if they
are someone special. Effective programs,
therefore, go beyond discounts on purchases
to offer unique rewards. For example, in its
PowerUp Rewards program, GameStop
encouraged its target customers to spend
more on racing and fantasy video games by
offering tickets to NASCAR races
IMPLEMENTING CRM PROGRAMS
 Customer Pyramid
• For most retailers, a relatively small number of
customers account for the majority of their
profits. This condition is often called the 80-20
rule —80 percent of the sales or profits come
from 20 percent of the customers.
• Source: Michael Levy, Barton A. Weitz, Dhruv Grewal, Retailing Management,
McGraw Hill (2023).
 Customer Retention
• Personalization
• Community
 Example
• The Nike stores create a sense of community
by hosting running groups that meet weekly at
the store for refreshments.
 Web and other Forms of Nontraditional
Retailing
• Retail channel is the way a retailer sells and
delivers merchandise and services to its
customers.
• The most common channel used by retailers is
a store. Retailers also use a variety of nonstore
channels, including the Internet, mobile,
catalogs and direct mail, direct selling,
television home shop ping, direct-response TV,
and automated retailing (vending machines)
to make sales to customers.
Internet Retailing Channels—
Electronic and Mobile Retailing
 Catalog Channel
• The catalog channel is a nonstore retail
channel in which the retail offering is
communicated to customers through a catalog
mailed to customers.
• The merchandise categories with the greatest
catalog sales are drugs, beauty aids,
computers, software, clothing, accesso ries,
furniture, and housewares.
 Direct-Response TV Channel
• The direct-response TV (DRTV) channel is a
retail channel in which customers watch a TV
advertisement that demonstrates
merchandise and then place orders for that
merchandise.
 Direct Selling Channel
• Direct selling is a retail channel in which
salespeople interact with customers face- to
face in a convenient location, either at the cus
tomer’s home or at work.
 Automated Retailing (Vending Machines)
Channel
• Automated retailing is a retail channel in
which merchandise or services are stored in a
machine and dispensed to customers when
they deposit cash or use a credit card.
Automated retailing machines, also known as
vending machines , are typically placed at
convenient, high-traffic locations.
Benefits Provided by Different Channels

• Source: Michael Levy, Barton A. Weitz, Dhruv Grewal, Retailing

Management, McGraw Hill (2023).
 The Internet Channel
• Deeper and Broader Selection
• More Information for Evaluating Merchandise
• Personalization
 Apps
• Apps are software applications designed to
improve the consumers’ shopping experi
ences when using smartphones and tablets.
Apps developed by retailers are typically used
to easily perform some specific functions
available on the retailer’s website but do not
provide access to all of the functions available
on the website.
 Amazon vs. Alibaba: The Race to
Dominate Fast Global Shipping | WSJ

• https://www.youtube.com/watch?v=r6jGTdQc
-Ms
Web and other Forms of
Nontraditional Retailing
 Multichannel retailing
• Multichannel retailing involves using more
than one channel to sell and de liver
merchandise and services to consumers
 Omniretailing
• The term omniretailing is frequently used
when discussing multichannel retailing; it
refers to a coordinated multichannel retail
offering that provides a seamless customer
experience when using all of the retailer’s
shopping channels.
Internet Retailing Channels—Electronic and
Mobile Retailing
• Internet retailing involves retailers interacting
with consumers via the Internet, whether they
use a traditional computer or a laptop, a
variety of sizes of tablets or a smartphone.
 Mobile commerce
• The mobile channel (also called mobile
retailing, mobile commerce, or m-commerce),
involves accessing the Internet using a
smartphone.
• From a retailing perspective, smartphones
differ from traditional computers in that they
are more portable, have a smaller display, are
location-aware, use different touch screen
technology to access the Internet, and as a
result of these factors produce a different
interface experience with the user.
 Catalog Channel
• The catalog channel is a nonstore retail
channel in which the retail offering is com
municated to customers through a catalog
mailed to customers.
 Direct-Response TV Channel
• The direct-response TV (DRTV) channel is a
retail channel in which customers watch a TV
advertisement that demonstrates
merchandise and then place orders for that
merchandise.
Television Home Shopping Channel
• Television home shopping is a retail channel in
which customers watch a TV net work with
programs that demonstrate merchandise and
then place orders for that merchandise,
usually by telephone or via the Internet.
 Automated Retailing (Vending Machines)
Channel
• Automated retailing
is a retail channel in
which merchandise
or services are
stored in a machine
and dispensed to
customers when
they deposit cash or
use a credit card.
 Developing Merchandise Plans
• Merchandise management is the process by
which a retailer attempts to offer the
appropriate quantity of the right merchandise,
in the right place and at the right time, so that
it can meet the company’s financial goals.
 Merchandise Category
• A merchandise category is an assortment of
items that customers see as substitutes for
one another.
 Example
• A department store might offer a wide variety
of girls’ dresses sizes 4 to 6 in different colors,
styles, and brand names.
• A mother buying a dress for her daughter
might consider the entire set of dresses when
making her purchase decision.
• Lowering the price on one dress may increase
the sales of that dress but also decrease the
sales of other dresses.
• Developing Merchandise Plans
 Types of Merchandise Management
Planning Systems

• Staple merchandise categories

• Fashion merchandise categories
 Staple merchandise categories

• Staple merchandise categories, also called

basic merchandise categories, are those
categories that are in continuous demand over
an extended time period.
• While consumer packaged goods companies
introduce many “new products” each year, the
number of “new to the world” product
introductions each year in staple categories is
limited.
 Example
• Some examples of staple merchandise
categories include most categories sold in
super markets, white paint, copy paper, and
basic casual apparel such as T-shirts
 Fashion merchandise categories

• Fashion merchandise categories are in

demand only for a relatively short period of
time.
• New products are continually introduced into
these categories, making the existing products
obsolete.
• In some cases, the basic product does not
change, but the colors and styles change to
reflect what is “hot” that season.
 Example
• Some examples of fashion merchandise
categories are athletic shoes, tablets, smart
phones, and women’s apparel.
• Forecasting the sales for fashion merchandise
categories is much more challenging than
doing so for staple categories.
 Alibaba's Freshippo and Hema
grocery stores are reinventing the
supermarket of the future

• https://www.youtube.com/watch?v=UDIvWd
wVZMg
 FORECASTING CATEGORY SALES
• Forecasting Staple Merchandise -
• Use of Historical Sales
• Adjustments for Controllable and
Uncontrollable Factors
• Forecasting Fashion Merchandise Categories
•Previous Sales Data
•Market Research - in-depth
interview, focus group

• Vendors
 DEVELOPING AN ASSORTMENT PLAN
• An assortment plan is the set of SKUs that a
retailer will offer in a merchandise category in
each of its stores and from its website.
 Category Variety and Assortment
• In the context of merchandise planning,
variety , or breadth , of a merchandise
category is the number of different
merchandising subcategories offered, and the
assortment , or depth , of merchandise is the
number of SKUs within a subcategory.
 Determining Variety and Assortment
• The process of determining the variety and
assortment for a category is called editing the
assortment
Example - Assortment Plan for Girls’ Jeans
 Example
• An example of an assortment plan for girls’
jeans shown includes 10 types or varieties
(skinny or boot-cut, distressed denim or rinsed
wash, and three price points reflecting
different brands). For each type, there are 81
SKUs (3 colors 3 9 sizes 3 3 lengths). Thus, this
retailer plans to offer 810 SKUs in girls’ jeans.
 SETTING INVENTORY AND PRODUCT
AVAILABILITY LEVELS
• how to determine the appropriate inventory
levels
Example - Model Stock Plan for Girls’ Jeans
 Model Stock Plan
• is the number of each SKU in the assortment
plan that the buyer wants to have available for
purchase in each store. For example, the
model stock plan in Exhibit 12–5 includes
nine units of size 1, short, which represent 2
percent of the 429 total units for girls’ skinny
$20 denim jeans in light blue. Note that there
are more units for more popular sizes.
 For example
• Retailers typically have model stock plans for
the different store sizes in a chain. For example,
retailers typically classify their stores as A, B,
and C stores on the basis of their sales volume.
The basic assortment in a category is stocked in
C stores. For the larger stores, because more
space is available, the number of SKUs
increases. The larger A and B stores may have
more brands, colors, styles, and sizes.
 Product Availability
• The number of units of backup stock , also
called buffer or safety stock , in the model
stock plan determines product availability.
Product availability is defined as the
percentage of the demand for a particular SKU
that is satisfied.
 Example
• Retailers often classify merchandise categories
or individual SKUs as A, B, or C items,
reflecting the product availability the retailer
wants to offer. The A items are best-sellers
bought by many customers.
 For example
• White paint is an A item for Sherwin Williams,
and copy paper is an A item for Office Depot. A
retailer rarely wants to risk A-item stockouts
because running out of these very popular SKUs
would diminish the retailer’s brand image and
customer loyalty. On the other hand, lower
product availability is acceptable for C items,
which are purchased by a small number of
customers and are not readily available from
other retailers.
Automated Continuous Replenishment
• Once the buyer sets the desired product
availability and de termines the variation in
demand and the vendor’s lead time and fill
rate, the continuous replenishment systems
for staple SKUs can op erate automatically.
 Inventory Management Report
• The inventory management report pro vides
information about the inventory management for a
staple category. The re port indicates the decision
variables set by the buyer, such as product
availability, the backup stock needed to provide
the product availability, the order points and
quantities plus performance measures such as
planned and actual inventory turn over, the current
sales rate or velocity, sales forecasts, inventory
availability, and the amount on order.
ALLOCATING MERCHANDISE TO STORES
• Allocating merchandise to stores involves
three decisions:
• (1) how much merchandise to allocate to each
store,
• (2) what type of merchandise to allocate, and
• (3) when to allocate the merchandise to
different stores.
ANALYZING MERCHANDISE MANAGEMENT
PERFORMANCE
• A sell-through analysis compares actual and
planned sales to determine whether more
merchandise is needed to satisfy demand or
whether price reductions (mark downs) are
required.
 SETTING RETAIL PRICES
• Setting Prices Based on Costs

• Retail price = Cost of merchandise + Markup

 Coupons
• Coupons offer a discount on the price of
specific items when they’re purchased.
• Coupons are issued by manufacturers and
retailers in news papers, on products, on the
shelf, at the cash register, over the Internet
and mobile devices, and through the mail.
• Retailers use coupons because they are
thought to induce customers to try products
for the first time, convert first-time users to
regular users, encourage large purchases,
increase usage, instill loyalty, and protect
market share against the competition.
 Price Bundling
• Price bundling is the practice of offering two
or more different products or services for sale
at one price.
 Example
• McDonald’s offers
a bundle of a
sandwich, French
fries, and a soft
drink in a Value
Meal at a
discount
compared with
buying the items
individually.