Rachel L. Miller

Wednesday, 28 February 2007 19:00

Retailer profitability and sales

Franchisors often struggle with trying to run an efficient retail network while increasing market share and keeping their franchisees profitable. Business management has traditionally focused on unlocking the profit potential of an individual site or franchise. But the rich data available can also lead to overall sales improvements for the franchisor, if used correctly in a business management system.

“Not only are business management programs essential to a franchisor’s ability to understand the dynamics of his brand on a retail site level, the quality of such programs significantly contributes to a franchisee’s perception of franchise attractiveness,” says Jim Blades, vice president of European operations at Urban Science, a global Detroit-based sales channel optimization consulting firm. “A business management program can improve franchisee performance and also can inform on profit-critical decisions for the franchisor.”

SmartBusiness recently sat down with Blades to discuss the components — and benefits — of a world-class business management program.

How is business management used to achieve a stable, successful retail network?

The most successful franchisors have a 360-degree approach to retail network management: embracing number, location and performance of individual outlets. In particular, they give attention to understanding the dynamics of their brand on a retail site level, achieving distribution stability by attracting quality franchisees, helping existing partners to reap the benefits of their investment, or identifying sites requiring improvement. Also, increasing competitive pressures and squeezing margins for franchisees point to the need to re-invigorate programs that monitor retail site metrics.

By analyzing key financial metrics across retail sites within a given franchise network, we can understand causal factors behind profitability and sales and benchmark competitive sites against one another. Only the franchisor is in a position to do this. That’s because individual site metrics, in isolation, cannot reveal the drivers of performance that must be understood and monitored. The ability to analyze the sum of all the data from individual franchisees releases valuable understandings for the benefit of all. Businesses that have a robust process — a business management system — for releasing the value of the collective network experience have a significant competitive advantage.

What are the components of a world-class business management system?

Business management programs conduct analysis, create benchmark-facilitating composite reports, reveal best practices and can lead to identifying the key performance indicators that are associated with best-in-class performers. The best programs also pay particular attention to the accuracy of data collection. If data is inaccurate, the conclusions drawn from it will be distorted.

A world-class program will provide expert and quality advice to franchisees in data interpretation and in the implementation of recommended actions to improve their site’s performance. This is key to establishing the franchisee’s confidence and support for such programs.

Experience shows that in successful programs franchisees use the composite reports, best-practice reports and key performance indicators available through business management programs to improve their performance across the board, including areas such as operating controls, departmental profit, sales per salesperson, business planning and increased ROI.

What can the franchisor hope to gain?

Franchisors compare the performance of retail sites in different markets, synchronize the franchisor’s and franchisees’ planning programs, and set targets for improvement based on objective parameters. An understanding of what is driving franchisees’ profitability feeds into the franchisor’s strategic planning for market development. It gives insight into network stability and identifies sales volume at risk. It informs on important profit-critical decisions, such as margins and incentive planning.

Franchisors can expect an important but often-overlooked impact of business management in the field. When the field staff has a proper appreciation of the drivers of their outlets’ business, the quality of dialogue between franchisee and field staff and the robustness of planning is considerably improved.

Releasing the potential of collective network experience through an effective business management program is a goal that more than repays the investment in systems and processes.

JIM BLADES is vice president of European operations for Urban Science. Reach him at site@urbanscience.com. For more information, visit www.urbanscience.com.

Thursday, 21 September 2006 06:31

Close-rate analysis

As a marketer, you think you have a pretty clear picture of how your company is performing. On average, sales seem strong and your retailers appear to be pulling their own weight. But how do you know for sure? The key to understanding may be closer than you think. By conducting a thorough close-rate analysis, you could identify opportunities and discover how to more effectively spend your marketing dollars.

“Close-rate analysis — comparing the number of sales to the number of leads — is the foundation for measuring success,” says Mark Yuhn, director of customer analysis at Urban Science, a global Detroit-based consulting firm. “Through this type of analysis, you’ll understand the success of your investment in generating leads and will be able to make informed decisions to allocate your funds in the future.”

Smart Business talked with Yuhn to learn more about this analysis and how a marketer can use it to measure many facets of marketing and sales performance — and to see what’s working (and what’s not).

How is close-rate analysis used to understand if you’re spending your marketing dollars efficiently?
It helps a marketer understand results on a distributed basis — by geography, chronology or lead source — so it becomes clear what a company is getting for its marketing dollar.

The media planning agency will use the analysis to understand how leads are generated by source and their cost effectiveness — such as through banner advertising, native Web sites, third-party Web sites and aggregators.

The field sales force will use the analysis to understand the causes of their retailer’s performance. In the automotive industry, price, inventory, service and CSI could be the cause of poor close rates at the dealer level.

As far as using close-rate analysis to help plan future investments in lead generation, a marketer should review results from previous efforts, determine what worked well, and focus future efforts there.

What are the characteristics of close-rate analysis?
A thorough close-rate analysis takes into account lead sources, brands, models, regions, dealers and even individual sales personnel. It is also important to understand the intra-brand close rate versus the inter-brand close rate. For example, when a lead closes at another retailer other than the one originally contacted, whether it’s the same brand or a competitor, both marketing and the field sales force need to take notice and understand the causes (and remedies) of such consumer behavior.

Timing is an important part of the analysis. For example, when lead volume increases subsequent to a significant event — like the announcement of an incentive or new model launch — the marketer can use the increase in lead volume as a measure of their program’s success.

Lead status is also an important consideration. Understanding when leads are active, duplicate, expired and closed helps provide clarity regarding what is really happening in the marketplace. With this knowledge, a marketer can clearly see where improvement is necessary.

A marketer can increase the number of his prospects through close-rate analysis. With the addition of prospect information, a marketer is able to view sales as functions of the number of prospects — and of the number of those that closed. So in the end, the marketer will see who’s buying, who’s not ... and it’ll become clear where the company’s future marketing efforts should be concentrated.

After analysis, is there a next step?
Close-rate analysis is important in its own right, but when coupled with other analytic techniques, it becomes an even more powerful marketing tool.

One such technique is lead qualification, which is an integral tool to turn shoppers into buyers. First, leads are scored and ranked on their propensity to result in a sale. To get the score, the lead data is enhanced with demographic data and historical owner information. This information, coupled with past experiences, is used to determine the treatment for the customer. Through this treatment determination process, a marketer prioritizes his resources against those leads that can be positively influenced in the most cost-effective manner. Once the leads are assigned their treatments — the purpose of which is to profitably increase retailer close rates — everything is sent on to the retailers, who have the task of following up. And by performing a close rate analysis, the marketer can see the results of the treatments: Did they result in increased sales?

At the end of the day, lead qualification and close-rate analysis can offer marketers a considerable competitive advantage. Opportunities become crystal clear, and the marketer will realize both tools are indispensable to his retail organization’s success.

MARK YUHN is director of customer analysis at Urban Science. Reach him at (313) 259-9900 or (800) 321-6900. Learn more at www.urbanscience.com.

Wednesday, 30 August 2006 03:01

How to get a grip on market share

Businesses are always clamoring to capture more market share — but not all succeed. A competitive edge is best gained by aiming for a highly-satisfied customer base. That means having the right product at the right location when your customers are ready to buy. And it’s accomplished by configuring your retail network to reflect consumer preferences and demand, ensuring that the network is composed of the correct number and types of retail outlets, all in optimal locations.

“One way of getting highly-satisfied customers is to discover how they behave and what they need, and to integrate that information into your market analysis,” says Mitch Phillips, director of network analysis at global consulting firm Urban Science Inc.

Smart Business recently talked with Phillips about how a marketer can incorporate a customer-centric philosophy into his market analysis in order to achieve success at an individual level, at the retail outlet, and across his entire retail network.

This sounds like a large — and daunting — task. Where do you begin?
A marketer needs to look at the big picture. It starts with using network analysis to get a solid overview of the company’s current position in the marketplace, and then determining the correct number, types and locations of the company’s retail outlets.

In order to gain a clear insight, a marketer needs relevant data. Then, there should be a methodology in place to analyze the data, and software to support the methodology. At the end of the day, the marketer will know where his customers live, where they shop, and what products they want.

Research and analysis are paramount in uncovering customers’ needs and product preferences. For example, pick-ups are more popular in rural areas than in cities, and there’s a higher demand for convertibles in Florida than in Alaska. All sorts of patterns emerge once the methodology is in place to analyze the data.

What kind of methodology should be used to analyze your data?
It should be a results-driven process that reflects reality. We recommend a scientific-based methodology that integrates customer data into every step. For example, we use a successful eight-step methodology to assess market performance and retail network coverage that allows a company to exercise more control, reduce uncertainty and develop retail network plans. After following the eight steps, a marketer will have a solid plan that accurately reflects the distribution of customers and their preferences.

The steps are: (1) isolate the geographic area to study performance; (2) develop a reasonable standard; (3) measure network and site performance; (4) determine the likely causes for poor performance; (5) identify an appropriate proposed solution; (6) assess the impact of the proposed solution; (7) confirm conclusions with comparable studies; and (8) finalize the plan.

This may sound like a lot of work, but as the marketplace changes, planning allows an ongoing adjustment so that network operations and offerings adapt to consumer demands, preferences and relocations. Proper planning produces a significant competitive advantage over networks that merely react to market forces.

In addition to increasing customer satisfaction, a well-designed plan can make the company more attractive to business partners, can cut operational costs and reduce financial risk, and can truly demonstrate the product’s potential in the marketplace.

How do you make sure the customer has a satisfying experience at the retail location?
Since convenience of outlet location is an important element in customer satisfaction, the locations of retail outlets — and the services available at each location — should be determined by local preferences and buying patterns.

Retailers need to provide a positive shopping experience, which means tailoring their offerings and approach based on customer preferences. For example, in the auto industry, there are three factors that influence satisfaction at the dealership level: vehicle selection, sales approach and, of course, price. All three of these are directly impacted by the customer makeup of that retail outlet.

Also, not all customers should be treated the same. The more information the sales staff has regarding each customer, the better they can treat each individual according to his or her needs. There are ways — many of which employ software — to determine the specific treatment on a personal basis.

What do you end up with?
If done properly, a retail organization will deliver products to highly-satisfied customers through a network of superior operators. That’s the ultimate vision. The company’s natural markets will be defined by customers and their shopping preferences and habits.

MITCH PHILLIPS is director of network analysis at Urban Science, Inc. Reach him at (313) 259-9900 or (800) 321-6900.