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Retail Marketing 2013:

Organizational DriftBenchmark Report 2013

Nikki Baird & Steve Rowen, Managing Partners

August 2013

Sponsored by:

Supported by:


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ii

Executive Summary

Retail marketing has received a tremendous amount of attention over the last 18 months. It has

gone from its own department doing its own thing - down to its own technology purchases - to the

center of attention in an enterprise-wide omni-channel transformation. Big, rapid changes mean

lots of new challenges, and this year's benchmark report shows that retailers are feeling thepressure.

Key findings Retailers appear to be turning the corner on uncertainty about the economy and

uncertainty about what role marketing should ultimately play within the enterprise -

secondary to merchandising? Or primary function that stands on its own?

Laggards seem to be on the cusp of leaving behind price as their only competitive

differentiator. This has enormous implications for marketing, as they attempt to move

from price-only strategy and communications, to more brand-oriented marketing.

Marketing has a lot on its plate already, and the retailers who are moving quickly to

consolidate digital and traditional marketing are creating enough pressure on their

marketing departments that key digital strategies are getting left behind.

Marketing is much more important to the retail enterprise, and thus marketing tools have

increased in their perceived value to the retailers participating in our survey, almost

across the board. However, a showdown is coming as to which platform will

ultimately be the single customer interaction platformthat retailers are looking for:

will it be CRM or will it be the digital marketing platform that ultimately wins?

BOOTstrap RecommendationsBecause retailers are focused on so much organizational and process change within the

marketing department, our recommendations focus on helping retailers ensure they minimize the

disruptive nature of their transformation. Most important, retailers need to remember that a shift in

strategy - from cost cutting to growth - also necessitates a shift in both marketing strategy and

tactics. Such a shift also has big implications for technology investments - if retailers can

successfully navigate the uncertain future of retail marketing platforms.


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Table of Contents

Executive Summary ........................................................................................................................ iiResearch Overview ......................................................................................................................... 1

Big Changes in Process for Retail Marketing .............................................................................. 1

Defining Winners and Why They Win .......................................................................................... 2Methodology ................................................................................................................................ 3Survey Respondent Characteristics ............................................................................................ 3

Business Challenges ....................................................................................................................... 4Back to the Future ....................................................................................................................... 4Answering the Question ............................................................................................................... 5Containing the Excitement ........................................................................................................... 6

Opportunities ................................................................................................................................... 7The Barriers Have Fallen ............................................................................................................. 7As Goes the Strategy, So Go the Channels ................................................................................ 8Speed is Not Always Good, Even in Marketing ......................................................................... 10

Organizational Inhibitors ................................................................................................................ 13

Old vs. New ............................................................................................................................... 13Two Different Takes ................................................................................................................... 14

Whos Driving This Thing? ......................................................................................................... 16Technology Enablers ..................................................................................................................... 19

No Shortage of Interest .............................................................................................................. 19

Great, But ............................................................................................................................... 20BOOTstrap Recommendations ..................................................................................................... 24

Returning to Growth Means Changing the Strategy .................................................................. 24When Strategy Changes, So Should Tactics ............................................................................. 24Consolidation Means "Bring Together" ...................................................................................... 24Platforms Require Careful Evaluation ........................................................................................ 25

Appendix A: RSRs Research Methodology .................................................................................... aAppendix B: About Our Sponsors ................................................................................................... bAppendix C: About RSR Research ................................................................................................. c


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Figures

Figure 1: Knowing More but Doing Less ......................................................................................... 1

Figure 2: Doing More - A Winning Behavior .................................................................................... 2

Figure 3: Turning the Corner ........................................................................................................... 4

Figure 4: Some Turn Slower Than Others ...................................................................................... 5

Figure 5: Settling the Ownership Question ...................................................................................... 5

Figure 6: Consensus around Data Is Easy ...................................................................................... 6

Figure 7: Surprise! You Can't Compete On Price Alone ................................................................. 7

Figure 8: A Glimmer of Hope for Laggards ..................................................................................... 8

Figure 9: Things Have Changed While You Were Away ................................................................. 9

Figure 10: Dipping a Toe into Digital Waters ................................................................................... 9

Figure 11: Slow and Steady Wins? ............................................................................................... 10

Figure 12: It's Never Enough ......................................................................................................... 11

Figure 13: Laggards and Strategic Value - Who Knew? ............................................................... 11

Figure 14: The More Things Change, the More They Stay the Same ........................................... 13

Figure 15: Winners Tread Lightly Around Org Change and Culture ............................................. 14

Figure 16: Platform and On-Demand Rule the Roost ................................................................... 15

Figure 17: Laggards Swear They Need To Get Strategic ............................................................. 15

Figure 18: CEO And CMO Win The Customer Experience Battle... ............................................. 16

Figure 19: ...But Have They Won the War? .................................................................................. 17

Figure 20: Winners Say Yes, Laggards Undecided ...................................................................... 18

Figure 21: The Value Stampede ................................................................................................... 19

Figure 22: Winners Have a Different Value Emphasis .................................................................. 20

Figure 23: Still a Lot of Gaps to Fill ............................................................................................... 21

Figure 24: Uneven Adoption .......................................................................................................... 22

Figure 25: Big Appetites, Small Plates .......................................................................................... 22


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Research Overview

Big Changes in Process for Retail MarketingIn retail, the marketing message has long been the front line of customer centricity and omni-

channel transformation. When retailers first realized they needed "one face to the customer"

across channels, the marketing messages were the first (and easiest) to change. That didn't

mean they were good at it, or that they could at all deliver on the cross-channel promises they

were making, but that didn't stop them from making those promises. And many retailers, when

choosing to take on consolidation across channels, looked to marketing as the starting point for

that process - looking to combine traditional and online marketing teams.

At the same time, the relative importance of marketing within the retail enterprise has rapidly

been rising, driven largely by the need to actually keep a lot of those cross-channel promises. As

RSR found in our last two benchmark surveys on marketing topics, retailers are busy

consolidating their marketing activities and elevating marketing leadership from a supporting role

for merchandising to a genuine seat at the executive table.

However, just because the future looks bright for the marketing department, retailers are not

necessarily well-positioned to deliver on customer expectations, whether in terms of the brand

promise, the product value proposition, or the shopping experience. As this year's benchmark will

show, while marketing is still the first internal organization to respond to the transformational

pressures of omni-channel retailing, it still has a long way to go, and a lot of pitfalls along the way.

As a case in point, we asked retailers to rate the degree to which they agree or disagree with a

series of statements related to their overall marketing sophistication. In 2013, more respondents

agreed more strongly that their customer loyalty program - a foundational element to collecting

and understanding customer data - is critical to their marketing strategy. They also more strongly

agreed with the idea that they know who their best shoppers are. But when it comes to execution,

the story changes (Figure 1).

Figure 1: Knowing More but Doing Less

Source: RSR Research, August 2013

18%

22%

32%

15%

28%

36%

My company is proficient at targeted

marketing across channels.

My company knows who our best

shoppers are.

Our customer loyalty program is a

foundational element of our marketing

strategy.

Marketing Sophistication:"Strongly Agree"

2013 2012


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It seems that the more retailers feel like they know their customers and have the ability to deepen

that understanding, the less confident they are in their ability to act on that information - as

indicated above in their response to the idea that their company is proficient at targeted marketing

across channels. It's as if retailers know what needs to be done and even know the specific

tactics and steps they need to pursue, but haven't quite gotten to where they can do it. And that

sums up the theme of this research report: marketing is on the cusp of becoming something

different than we've seen in retail before. But the question remains: will retailers get there? Or will

their existing culture, process, and technology hold them back?

Defining Winners and Why They WinRSRs research always focuses on a category of retailers we call Retail Winners. Our definition

of Retail Winners is straightforward. We judge retailers by year-over-year comparable

store/channel sales improvements. Assuming industry average comparable store/channel sales

growth of five percent, we define those with sales above this hurdle as Winners, those at this

sales growth rate as average, and those below this sales growth rate as laggards." It is

consistent throughout much of RSRs research findings that Winners dont merely do the same

things better, they tend to do different things. They think differently. They plan differently. They

respond differently.

The Natural Response

The natural response, when you know more, is to do more. And Winning retailers quickly

differentiate themselves from their peers through their confidence in their companies' ability to

target marketing messages across channels (Figure 2).

Figure 2: Doing More - A Winning Behavior


Ironically, as we'll see in this report, they achieve this confidence not from having a more

consolidated marketing function, but from approaching marketing consolidation slowly, and with

careful attention to both the processes that will be impacted by this consolidation - especially

when it comes to activities in digital channels - and to the cultural barriers to change that naturally

exist.

12%

18%

35%

11%

33%

36%

24%

32%

36%

My company is proficient at targeted marketingacross channels.

My company knows who our best shoppersare.

Our customer loyalty program is a foundationalelement of our marketing strategy.

Marketing Sophistication:

"Strongly Agree"

Winners Average Laggards


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The end result is that Winners do more marketing across channels, and yet are more confident in

their ability to do that marketing well - with a single face to the customer.

MethodologyRSR uses its own model, called the BOOT Methodology

SM, to analyze Retail Industry issues.

We build this model with our survey instruments. Appendix Acontains a full explanation of the

methodology.

In our surveys, we continue to find differences in the thought processes, actions, and decisions

made by retailers who outperform their competitors and the industry at large Retail Winners.

The BOOT model helps us better understand the behavioral and technological differences that

drive sustainable sales improvements and successful execution of brand vision.

Survey Respondent CharacteristicsRSR conducted an online survey from May - July 2013 and received answers from 122 qualified

retail respondents. Respondent demographics are as follows:

Job Title:Executive/Senior Management (CEO,CFO, COO, SVP) 19%Middle Management(VP/Director/Manager) 54%

Internal Consultant/Staff 20%Other 7%

2011 Revenue (US$ Equivalent)

Less than $50 Million 24%

$51 - $249 Million 17%

$250 - $999 Million 26%

$1 - $5 Billion 17%

Over $5 Billion 16%

Products sold:

Fashion / Short Lifecycle / Seasonal 30%

Basic / Replenishment Goods 26%

Durable Goods / Consumer Electronics 27%Perishable / Food 17%

Headquarters/Retail Presence:

USA 70% 73%

Canada 6% 30%

Latin America 0% 16%

Europe 7% 17%Middle East 4% 13%

Africa 4% 11%

Asia/Pacific 10% 23%

Year-Over-Year Sales Growth Rates (assume average growth of 5%):

Better than average (Retail Winners) 38%

Average 46%

Worse than average (Laggards) 16%


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Figure 4: Some Turn Slower Than Others


However, as we'll see in the Opportunities section, what laggards are choosing to do about their

business challenges appears to have taken a significant shift.

Answering the QuestionThe biggest question over the last two years of RSR's marketing benchmark has been "Who

owns the customer experience?" In the past, that answer has been muddled - even in 2012, over

a third of respondents said "no one" in answer to that question.

In 2013, the answer has grown much more definitive. Those answering "no one" fell from 35% to

19%, and it wasn't just the CMO who benefited - almost every retail executive has stepped upownership of the customer experience (Figure 5).

Figure 5: Sett l ing the Ownership Quest ion


61%50%

24%

45%

59%

22%31%

88%

44%

We cant keep up with the new

ways consumers are using

technologies

Customer retention has become

more difficult and building

customer loyalty is challenging

It's hard to differentiate our

brand from our competition

Marketing Business Challenges


8%

35%

6%

8%

8%

11%

25%

28%

19%

19%

23%

24%

25%

35%

38%

43%

eCommerce Executive

No explicit owner

Chief Merchant

COO

Chief Customer Experience Officer

VP Stores

CEO

Chief Marketing Executive

Customer Experience Owners2013 2012


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The only cautionary tale that exists in looking from 2012 to 2013 is that if retailers are going to

have collective leadership and responsibility for the customer experience, then they need to

ensure that everyone is working off of the same vision for what that customer experience should

be. Otherwise, "everyone" yields the same results as "no one."

Fortunately, retailers appear to be putting in the foundational elements to make that shared vision

possible - certainly, they are consolidating control over that most valuable resource, customerdata. The percent of respondents reporting that Marketing is the primary owner of customer data

internally nearly doubled from 2012 to 2013, from 33% to 61%, and those reporting "No explicit

owner" fell from 33% to 17% (Figure 6).

Figure 6: Consensus around Data Is Easy


Other internal areas also have increased ownership over customer data - store operations,

eCommerce/direct, and merchandising all showed increased ownership over 2012. However, this

increase appears to be driven more from a recognition of the value of customer data that is

generated in all aspects of the business (especially customer-facing ones), rather than a

diversification of ownership over consolidated data sources.

Containing the ExcitementWhen looking at the winds of change stirring around retail marketing, it's easy to get excited. The

impact of the economic downturn is fading away, and while retailers are just as challenged bycustomer loyalty and retention as ever, it appears to be more in the context of keeping up with

their changing expectations and new technology-driven behaviors. At the same time, retailers are

getting focused when it comes to their marketing strategy - they are marshaling their executive

team to focus on the customer experience, and they are defining that customer experience based

on one view of the customer, owned by marketing and fed by all aspects of customer

engagement. As we'll see in the next section, the Opportunities are bright. But there are still

significant head winds that could blow retailers' marketing plans drastically off course.

5%

33%

7%

13%

14%

19%

33%

33%

10%

17%

20%

20%

22%

23%

34%

61%

Supply Chain / Fulfillment

No explicit owner

Merchandising

eCommerce/Direct Channels

Store Operations

Customer Service / Call Center

IT

Marketing

Customer Data Internal Owners

2013 2012


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Opportunities

The Barriers Have FallenRetailers' top marketing opportunity remained relatively unchanged from 2012 to 2013: more

effective targeting by capturing more detailed customer preferences. Second on the list also held

steady: a greater focus on customer experience, less on product. But after that, all bets were off

(Figure 7).

Figure 7: Surprise! You Can't Compete On Price Alone


Most dramatic was the shift at the bottom of the list, where interest in raising barriers to entry for

competition fell from 35% in 2012 to a measly 8% of respondents rating it a top-three opportunity

in 2013. Along with that, the percent of respondents believing that customers themselves could

help identify differentiating products, for example through things like crowdsourcing, fell almost by

half - from 44% in 2012 to 23% in 2013. And more practical and less ambitious opportunities, like

using digital channels to drive traffic to stores, increased from 28% of respondents in 2012 to

44% in 2013.

The result appears to be that retailers now recognize that price and/or product are not enough to

differentiate their brand. They need to focus on the customer experience to win, and they need to

use digital channels not to build a separate customer experience, but to create links between the

physical experience and digital realms.

This shift is where laggards really shine. Winners and laggards both reported an overriding

interest in focusing more on the customer experience and less on product (Figure 8).

35%

44%

41%

38%

40%

28%

48%

52%

8%

23%

25%

28%

31%

42%

44%

48%

53%

Raise the barriers to entry for competitors

Develop better products and services through

more direct customer input (i.e., crowdsourcing)

Switch our company from primarily traditional

marketing tactics to primarily digital marketing

Become more focused on our company's brand

promise to consumers

New marketing channels enable us to truly

differentiate our brand

Turn customers into brand advocates through

social media

Use digital channels to drive traffic to stores

A greater focus on customer experience, less on

product

More effective targeting by capturing more

detailed customer preferences

Top 3 Marketing Opportunities

2013 2012

N/A


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Figure 8: A Gl immer of Hope for Laggards


But laggards took it one step further, putting emphasis on becoming more focused on the

company's brand promise to consumers and developing more customer-focused products. No

laggards reported wanting to raise the barriers to entry for competitors, and they were much more

skeptical than peers on new marketing channels' ability to help them differentiate their brand.

We're going to take this as a positive sign for laggards, who, since the economic downturn, have

been in near-panic mode about conserving existing business and not focusing on trying to grow

or acquire new customers. In our most recent Pricing and Store benchmarks, laggards were

particularly pessimistic, pursuing low-price-at-any cost pricing strategies, and looking forward to a

future where they were closing stores rather than opening new ones.

Given how much the economy has diminished as a business challenge for retailers, it appears

that laggards are shifting their strategy from maintain/cut to grow. The question remains - is this

because the economy is improving, or is it because they have lived with pervasive economic

uncertainty long enough that they've just decided it's time to stop waiting? It's too early to tell, but

we will be watching this apparent shift to growth closely to see if it lasts.

As Goes the Strategy, So Go the ChannelsThe biggest caveat to laggards' shift in strategy (from maintain existing customersto acquire new

ones) is that their tactics will also need to change. The biggest question remaining from the

economic downturn is how much lasting impact will it have on shopper behavior? That's a difficult

question to answer when so much shopper behavior was also impacted by technology. Winning

retailers appear to recognize the second half of consumer behavior shifts (to more technology

0%

31%

44%

19%

13%

44%

50%

44%

56%

6%

19%

27%

38%

25%

46%

44%

56%

35%

13%

24%

24%

29%

32%

37%

42%

53%

61%

Raise the barriers to entry for competitors

Develop better products and services through

more direct customer input (i.e., crowdsourcing)

Become more focused on our company's brandpromise to consumers

New marketing channels enable us to truly

differentiate our brand

Switch our company from primarily traditional

marketing tactics to primarily digital marketing

Turn customers into brand advocates through

social media

Use digital channels to drive traffic to stores

More effective targeting by capturing more

detailed customer preferences

A greater focus on customer experience, less on

product

Top 3 Marketing Opportunities



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use) and have moved to expand the digital communication channels they use to engage with

customers. Laggards have not moved to nearly the same degree (Figure 9).

Figure 9: Things Have Changed While You Were Away


Winners and average performing retailers have shifted their focus from traditional media like print,

TV, and radio, to search advertising, Facebook or other social networks, Twitter, and even mobile

advertising to a lesser extent. Laggards are still primarily focused on traditional media, direct mail,

and email. In other words, they are not necessarily in all the places where their shoppers engage.

However, even that is changing to some degree. When we look at the percent of retailers

reporting "no plans" to leverage a type of communication channel, we see that laggards are

consistent about avoiding digital channels - with one exception, Facebook (Figure 10).

Figure 10: Dipping a Toe into Digital Waters


62%72%

68%72%

57%69%

56%

39%

55% 51%

69%59%

49%56%

39%24%

92%83%

75% 77%

42%54% 42%

33%

Traditional

media

(print, TV,

radio)

Direct Mail Email Online

advertising

(display,

video)

Search

advertising

Facebook or

other social

network

Twitter Mobile

advertising

Communication Channels

"Longer Than 1 Year"Winners Average Laggards

10%7% 7%

10% 14%

3%7%

11%10%

19%

2% 2%

15%10%

20% 17%

8%8%

0%

15%

33%

0%

17%

25%

Traditional

media

(print, TV,

radio)

Direct Mail Email Online

advertising

(display,

video)

Search

advertising

Facebook or

other social

network

Twitter Mobile

advertising

Communication Channels"No Plans"



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When it comes to moving into digital channels, for some reason lagging retailers feel most secure

about pursuing Facebook as the entre into digital customer engagement. Oddly, they are least

enamored with search advertising - professing no plans there at over twice the rate of their peers.

We'll see in the Organizational Inhibitors section that there are reasons why laggards are slow to

move into these digital channels - it has a lot to do with their capacity to manage marketing

innovations - but it may also have a lot to do with who owns which communication channels, and

that is an area still in flux.

Speed is Not Always Good, Even in MarketingIt appears that laggards have moved the fastest when it comes to consolidating their cross-

channel marketing activities under the umbrella of corporate marketing. Winners have moved the

slowest (Figure 11).

Figure 11: Slow and Steady Wins?


Retailers have a difficult balancing act to maintain here. Customers aren't going to wait around for

retailers to figure out how to use digital channels to engage with them. In fact, by the time

retailers figure out one digital channel, consumers are off to the next new one. One of the

advantages of having the eCommerce team and/or a digital marketing specialty team focus on

some of these emerging channels has been that retailers have been able to engage in a lot of

innovation quickly.

The downside has been that retailers haven't been very consistent about telling their brand story

across channels, and this confuses customers - thus the move to consolidate marketing channels

so that it's easier to present one face to consumers.

If retailers move too fast to consolidate marketing, they risk missing important new engagement

channels. And thus, laggards are more highly consolidated into central corporate marketing, but

are less involved in more emerging digital channels.

66% 59%

45% 44% 43% 41% 41%34%

66% 68% 64%58%

62%

50% 48%40%

75%83%

67%

82%

73%67% 64%

55%

Traditional

media

(print, TV,

radio)

Direct Mail Facebook or

other social

network

Email Twitter Online

advertising

(display,

video)

Mobile

advertising

Search

advertising

Communication Channel Owners"Corporate Marketing Owns"



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This is reflected in where retailers perceived their marketing departments are spending their time

- "not enough time" clearly outweighs "too much time" in the chart below (Figure 12).

Figure 12: It 's Never Enough


And here again, laggards have a lot to say about how their marketing departments need to shift to

growth-oriented tactics (Figure 13).

Figure 13: Laggards and Strategic Value - Who Knew?


7%

13%

14%

17%

18%

18%

23%

36%

49%

56%

46%

55%

39%

55%

57%

38%

30%

37%

27%

44%

22%

Acquiring new customers

Engaging customers

Driving sales

Driving traffic (stores, website)

Building the brand

Building customer loyalty

Communicating promotions

Marketing Dept Time Spent

Too Much Time Right Amount of Time Not Enough Time

46%

46%

62%

23%

69%

46%

100%

21%

27%

38%

17%

43%

32%

48%

27%

27%

27%

28%

33%

40%

52%

Building the brand

Driving sales

Engaging customers

Communicating promotions

Building customer loyalty

Driving traffic (stores, website)

Acquiring new customers

Marketing Dept Time Spent"Not Enough Time"



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An amazing 100% of laggard respondents report that their marketing departments are not

spending enough time acquiring new customers. This is a dramatic shift from what we've seen in

the past, where laggards were overly focused on communicating promotions, driving traffic, and

driving sales. Now, they want to focus on building customer loyalty, engaging with customers, and

building the brand.

However, as admirable as these goals are, they too are at risk from moving too aggressively toconsolidate cross-channel marketing activities.

Dictionary.com defines "to consolidate" as 1) to bring together separate parts into a unified whole

and 2) to discard unused or unwanted items and organize the remaining.1If retailers treat cross-

channel marketing consolidation cutting instead of reorganizing, they're putting themselves at risk

of over-balancing more towards not doing enough innovation to keep up with consumers.

Marketing consolidation needs to tend more towards definition #1 - bringing together disparate

marketing resources so that they can more easily tell a single brand story across multiple

touchpoints. But Marketing, as we'll see in the Organizational Inhibitors section below, already

has too much on its plate to reduce the number of resources focused on marketing activities while

bringing them all under one umbrella.

1http://dictionary.reference.com/browse/consolidate?s=t


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Organizational Inhibitors

Old vs. NewAt the beginning of this report, we talked about how marketing is on the cusp of becoming

something different, but expressed concern that retailers existing culture, technologies and

processes may have the power to hold them back. Figure 14 confirms just how plausible that

concern is.

Figure 14: The More Things Change, the More They Stay the Same


Last years top three organizational inhibitors take their exact place at the top of the list again

only this time, all three (difficulty getting IT resources, a lack of resources to manage new

opportunities, and difficulty proving ROI in the first place) are even greater obstacles to retailers.

In fact, at a time when respondents to many of our most recent topic-specific benchmark reports

are telling us that the need to prove ROI is waning, it appears that marketing functions still require

quite a bit of convincing and education when pushing them up the ranks. For some retailers(some more than others, as well see in just a moment), just because Marketing now has a space

at the big table doesnt mean everyone there has bought in yet.

We were also very surprised to see that in, aggregate, we dont have an innovation and research

strategy for marketing a first time option, was identified as a roadblock by 1 in 3 retailers.

However, when viewed by performance, we can see that laggards are the driving force behind

many of these trends (Figure 15).

23%

33%

28%

27%

37%

38%

28%

29%

29%

30%

33%

41%

48%

55%

Our company doesnt a unified vision of what effectivemarketing looks and feels like in the new digital era

Marketing activities are splintered across too many

different departments

The merchandising organization does not understandthe digital strategies we need to support marketing

Our culture and processes are too product-oriented

We dont have an innovation and research strategy formarketing

ROI is hard to quantify

We don't have enough marketing resources to manageall the available opportunities

Difficulty getting IT resources for marketing projects

Top 3 Organizational Inhibitors2013 2012

N/A

N/A


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14

Figure 15: Winners Tread Light ly Around Org Change and Culture


While difficulty getting IT resources for marketing project remains ubiquitous for retailers of all

kinds, laggards are most likely to report that their marketing resources are already overstretched

and that they need help proving the ROI is there in the first place. It is also worth noting that more

than twice as many laggards as winners report that need for an innovation and research strategy

for marketing. Its going to be tough for them to get anywhere without that.

By contrast, Winners are more likely to report that their culture and processes are too-product

oriented indeed, theyre making a conscious effort to tread lightly around changing their internal

culture and processes, for fear of upsetting the entirety of their day-to-day operations too quickly.

At the same time, Winners readily admit that their marketing activities are splintered across too

many different departments. This, too, signifies that they understand the need for systematic

change in order to bring a new level of marketing to a new type of consumer, but that their

existing infrastructure will need to be coaxed along: gently.

Two Different TakesBut just as important as identifying these roadblocks are the ways retailers plan to get past them

(Figure 16).

47%

33%

13%

47%

20%

33%

53%

53%

39%

32%

34%

41%

25%

20%

48%

55%

21%

24%

26%

38%

38%

41%

47%

56%

We dont have an innovation and research strategy formarketing

The merchandising organization does not understandthe digital strategies we need to support marketing

Our company doesnt a unified vision of what effectivemarketing looks and feels like in the new digital era

ROI is hard to quantify

Marketing activities are splintered across too manydifferent departments

Our culture and processes are too product-oriented

We don't have enough marketing resources to manageall the available opportunities

Difficulty getting IT resources for marketing projects

Top 3 Organizational Inhibitors



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16

They know that absent this role, there is no master set of eyes at the front of the house. Theyve

already told us theyre cognizant of the fact their internal organizational structures were built at a

time when product-focused marketing was king. Theyve also told us they cant upend those

fractured systems and processes overnight without risking the dynamic thats already made their

culture and team members successful. What they can do, however, is ensure that even if the left

hand cant always see what the right hand is doing, this master set of eyes sees the finished

product from the customers point of view. It is their absolute best chance of rectifying

imperfections while they transition to newer marketing techniques.

By way of comparison, laggards say their best chance is to get strategic: 73% say that the ability

to design a more differentiating value proposition and customer experience is what will get them

over their organizational inhibitors. While it was encouraging to see laggards finally abandoning

the notion that price could be their ultimate competitive differentiator earlier in this report, here we

see a return to their more familiar territory: using hope as a strategy. Winners know that a

differentiated customer experience is an outcome not an ingredient.

Whos Driving This Thing?

At first blush, it appears marketing leaders have been steadily reclaiming control of settingmarketing strategies (Figure 18).

Figure 18: CEO And CMO Win The Customer Experienc e Batt le. . .


However, it is important to determine who is driving this change. In fact, this data is heavily driven

by the worst-performing retailers, who, as weve already seen, are far more likely to haveconsolidated their marketing departments (in the poorer definition of the word) beyond reason

(Figure 19).

7%

17%

25%

16%

28%

23%

71%

52%

8%

13%

21%

23%

27%

32%

68%

73%

Supply Chain Leader

CIO

CFO


COO/Store Operations

Merchandising Leader

CEO

Marketing Leader

Marketing Strategy Influencers

2013 2012


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Figure 19: . . .But Have They Won the War?


In fact, 85% of laggards say their marketing leader influences their marketing strategy (compared

to Winners 72%), but at the same time, 62% of laggards say their merchandising leader

influences their marketing strategy (compared to only 28% of Winners). This begs the

question: when both Winners and laggards told us one of their top marketing opportunities was to

focus more on the customer experience and less on product, how is it that only laggards are

enabling merchandising to continue to play such a dominant role in determining marketings

direction?

The answer only becomes even clearer when we ask our retail respondents about who needs

more influence in the overall marketing strategy: to no surprise, Winners have little interest in

handing control over to anyone beyond marketing leaders and the CEO. Laggards are all over the

road, though, with 33% wanting to get merchandising moreinvolved than they already are, and

another 33% saying that eCommerce and direct channelsshould have more say in marketing

initiatives than they do today (Figure 20).

8%

15%

0%

38%

62%

15%

85%

54%

7%

26%

10%

17%

26%

29%

69%

64%

10%

17%

24%

24%

28%

31%

72%

79%

Supply Chain Leader

CFO

CIO


Merchandising Leader

COO/Store Operations

Marketing Leader

CEO

Marketing Strategy Influencers



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Figure 22: Winners Have a Different Value Emphasis


But laggards place an inordinately low value on these same customer segmentation tools (14%),

begging the question, How can one expect to deliver a targeted and personalized message to

shoppers when you cant even segment those shoppers on the most basic level? It is a prime

example of how laggards tend to prioritize the end goal (a more relevant and differentiated

customer experience) over the required means to attain it.

Great, ButAs Figure 23 shows, retailers are still a long ways off from deriving the value from new marketing

tools; the standard ratio of the gap from valued to implemented is roughly 2 to 1.

14%

43%

50%

57%

14%

64%

64%

43%

43%

71%

53%

53%

55%

49%

44%

52%

60%

46%

64%

70%

43%

45%

48%

50%

52%

52%

53%

58%

61%

74%

Content management system / Digital asset mgmt

Promotion planning solution

Predictive analytics

Social media analytics

Customer segmentation software

Revenue attribution and campaign ROI analysis

Customer relationship management software

Digital Marketing platform

Retargeting / personalized offers

Customer purchase analytics

Marketing Technology Value"Very Valuable"



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Figure 23: St i l l a Lot of Gaps to Fi l l


Earlier, we noted that very few retailers have yet to implement a digital marketing platform (only

21%). But it is worth noting that of that 21%, Winners are the driving force behind any

implementations whatsoever (47% to laggards 7%, Figure 24 below). In fact, Winners have

already adopted CRM and ROI analysis tools slightly faster than laggards, but they are

implementing analytical tools (both social media andpredictive analytics), content management

systems, and digital marketing platforms at a muchfaster rate than their underperforming peers

(Figure 24).

23%

27%

30%

21%

37%

26%

28%

36%

25%

47%

42%

44%

49%

50%

51%

52%

54%

59%

60%

72%

Customer segmentation software

Content management system / Digital asset mgmt

Promotion planning solution

Digital Marketing platform

Social media analytics

Predictive analytics

Revenue attribution and campaign ROI analysis

Customer relationship management software

Retargeting / personalized offers

Customer purchase analytics

Marketing Technology Value vs. Use

Very Valuable Implemented


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What all of this data tells us is that when it comes to the next generation of technologies designed

to take retailers from old-world marketing into the digital age, technologists wont have a very

hard time leading them to water its the getting them to drink part that will be the challenge. Per

usual, Winners already have a jump start on their competitors, putting higher priority on more

useful technologies, making sure their internal marketing departments have the required ability to

take on new systems, and in small part, theyre already starting to roll those technologies out.

What will be interesting to see next year is this: If retailers perception of the economic outlook

finally has turned a corner, will the loosening of budgets serendipitously line up timing wise

with the other half of the equation: the unavoidable easing of internal challenges (consolidation,

culture, and old-world marketing processes) that must occur in order to facilitate real progress?

If that answer is indeed yes, we may be looking at a brand new, digitally-enabled world of

marketing sooner than we anticipated.


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24

BOOTstrap Recommendations

The retail marketing organization is at the center of a lot of internal and external challenges all at

the same time. The good news is, retailers are aware of the challenges, and they know that

something needs to be done. But as they embark on transforming their marketing organizations,

the pitfalls, as ever, are more cultural and change-related than technological. Our advice? Take ittop-down, one step at a time:

Returning to Growth Means Changing the StrategyEven retailers who typically are focused on growth (a.k.a., Retail Winners) had to take a breather

during the economic downturn. Especially during the darkest depths, everyone was focused on

preserving the customers they already had, not on acquiring new ones.

Times have changed, according to our survey respondents, and growth is back on the menu. But

that means that everything else must change as a result, and it all has to start at the top, with the

retailer's marketing strategy. A focus on growth means re-evaluating the brand value proposition

and making sure that it's aligned with the overall objective. An easy example: for the last five

years, the housing market has been miserable. DIY retailers responded with "make your home

livable." Now that the housing market is coming back, DIY isn't about living in your existing house,

it's about fixing it up to maximize your opportunity to sell it. A DIY retailer focused on growth

needs to shift the message - and the tactics that spread that message - in order to stay aligned

with what consumers need.

A growth strategy means shifting from an emphasis on retaining existing customers to a focus on

acquiring new ones. And in this day and age, acquiring new customers may actually mean that

you can't afford to take your eye off the target when it comes to keeping existing customers

happy - because they can so easily share their dissatisfaction in social spheres and thereby

chase new customers away.

When Strategy Changes, So Should TacticsThe environment where retailers are going to execute this shift in strategy has changed too - the

same tools that were effective in acquiring new customers twenty years ago are not going to be

as effective today, because there are a whole slew of new tools waiting to be leveraged. The

good news is that no one else really knows how to leverage them any better than anyone else,

certainly not in a holistic sense.

The bad news is, no ROI exists for a lot of these new tools, or when retailers talk about benefits,

it's still not certain whether those benefits are unique to that retailer or repeatable across brands.

For laggards, this is particularly problematic because they are the least likely among our survey

respondents to have an innovation program that helps them experiment with new channels and

marketing tools.

The bottom line is this: You won't know which tools work best for you if you don't try them. You

can't win if you don't play. And if you wait for someone else to figure out what works and what

doesn't, you'll have missed the boat.

Consolidation Means "Bring Together"On the organizational side, this year's benchmark presents a cautionary tale. Does universal

consensus exist that every marketing activity ought to be owned by the marketing department?


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According to our survey respondents, that verdict is not yet in. The reality is that retailers need to

manage a balancing act between a unified face to customers and marketing campaigns and

tactics that take advantage of the unique elements of the communication channel being

leveraged - Pinterest requires a different objective, content, and approach than Twitter, and trying

to tell the exact same story through both channels won't resonate with consumers.

Unfortunately, it appears that some retailers (laggards in particular) have moved almost tooquickly to consolidate their marketing teams. When traditional corporate marketing was

constrained to begin with, consolidation without consideration for the team that is truly needed

leads only to balls being dropped and opportunities missed. "Marketing consolidation" needs to

be about expanding corporate marketing to absorb new capabilities that might have once lived on

an eCommerce team. The retailers who yank channels away without bringing along the people

who know how to use those channels are building a road to disaster.

Platforms Require Careful EvaluationFinally, retailers in this year's benchmark expressed a lot of frustration with existing IT

departments and the need to "single solutions" like digital marketing platforms. However, there

are two big horses already in that race: traditional CRM tools, and digital platforms. Which oneshould be the platform that carries forward a retailer's goal of one face to the customer, one view

of the customer? The answer is, it's too early to tell. Each system knows something different

about customers, and can enable different things based on what it knows.

For retailers trying to navigate this solution space, the implication is that they are not going to find

everything they're looking for out of one box. And so they must be prepared to evaluate vendors

not just on what they can do today, but where they're headed for the future. If a solution provider

can't see beyond improvements to existing capabilities as part of their roadmap, they're not going

to be a platform provider that is prepared to cross the bridge between traditional and digital

marketing.

That bridge will need to be crossed - not today, and not tomorrow, but soon. The retailers who

have struck partnership relationships with their solution providers will have an easier time

navigating to that future than those with arms-length transactions.


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a

Appendix A: RSRs BOOT MethodologySM

The BOOT MethodologySM

is designed to reveal and prioritize the following:

Business Challenges Retailers of all shapes and sizes face significant external

challenges. These issues provide a business context for the subject being discussedand drive decision-making across the enterprise. Opportunities Every challenge brings with it a set of opportunities, or ways to

change and overcome that challenge. The ways retailers turn businesschallenges into opportunities often define the difference between Winners andalso-rans.Within the BOOT, we can also identify opportunities missed anddescribe leading edge models we believe drive success.

Organizational Inhibitors Even as enterprises find opportunities to overcome theirexternal challenges, they August findinternalorganizational inhibitors that keepthem from executing on their vision. Opportunities can be found to overcome theseinhibitors as well. Winning Retailers understand their organizational inhibitors andfind creative, effective ways to overcome them.

Technology Enablers If a company can overcome its organizational inhibitors it

can use technology as an enabler to take advantage of the opportunities it identifies.Retail Winners are most adept at judiciously and effectively using these enablers,

often far earlier than their peers.

A graphical depiction of the BOOT MethodologySM

follows:


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b

Appendix B: About Our Sponsors

Revionics delivers the industrys most powerful End-to-End Merchandise Optimization solution,

enabling retailers of all sizes to execute a fact-based omni-channel merchandising strategy

utilizing the most comprehensive set of shopper demand signals to enhance financial

performance with improved customer satisfaction. Revionics solutions leverage advanced

predictive analytics and demand-based science to ensure retailers have the right product, price,

promotion, placement and space allocation for optimal results across all touch points in the omni-

channel shopping episode online, in-store, social and mobile. Revionics has been recognized

as a 2012 Deloitte Technology Fast 500 company and has more retail locations under

optimization management than any other vendor. Visit us at www.revionics.com.

Teradata products and services provide retailers with the ability to analyze, predict and actquickly on big decisions related to market conditions or a variety of little decisions, the kind salesassociates encounter with customers daily. Built on the powerful foundation of a Teradata

Database, Teradata provides insight into:1. Supply and demand patterns so that you can quickly respond to out of stock or overstock

situations2. Customer segments so that you can better understand who they are and which ones are

valuable to your business

3. Promotions and offers so that you can optimize for higher redemption and response4. Assortments so that the you can localize for different markets and customer segments5. Key cost drivers in your operation, so that you can operate more efficiently

For more information, please visit http://www.teradata.com/industry-expertise/retail/


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Appendix C: About RSR Research

Retail Systems Research (RSR) is the only research company run by retailers for the retail

industry. RSR provides insight into business and technology challenges facing the extended retail

industry, providing thought leadership and advice on navigating these challenges for specific

companies and the industry at large. We do this by:

Identifying information that helps retailers and their trading partners to build more

efficient and profitable businesses;

Identifying industry issues that solutions providers must address to be relevant in the

extended retail industry;

Providing insight and analysis about a broad spectrum of issues and trends in the

Extended Retail Industry.

Copyright 2013 by Retail Systems Research LLC All rights reserved.No part of the contents of this document August be reproduced or transmitted in any form or by any means without

the permission of the publisher. Contact [email protected] for more information.A

retail marketing 2013_organizational drift

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