Information systems in the consumer industry/A case study - retail

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A case study of reengineering of information systems – industryA case study of reengineering of information systems – retailIntroduction to methodologyGeneral processesIndustrial processesRetail processesConclusionAppendix AAppendix BBibliography

The company: this case study is about a small-medium sized apparel company retail division. This company, as it often happens, started on the idea of a specific line of products and later approached the retail channel in a naive way. The retail story began with the need of liquidating the company surplus in a company outlet; this was not enough so the company approached the outlets circuit. At this point it did happen that the product offer was not balanced to make a good service to the customer so the company had the need to work with the stock channel to get rid of what was left over.

By that time the company thought it has developed a culture of “retail” so it made a decision to approach the wholesale market with mono-brand locations and/or shop-in-shop experience in the department stores.

Almost always such a change implies a large item offer so the initial “product” idea spread over a “total look” vision with its corresponding design and production problems.

The company we are talking about moved from an offer of about 150 samples to about 500 pieces thus multiplying by three the whole paperwork.

The retail division had a target of about 50 sales point, searched by a consultant and interiorly designed by a fashion architect.

The market: the company operated in the casual sportswear mainly on jackets. Geographical distribution was worldwide but mainly rich eastern countries and emerging countries, due to the average price of the product. The “ideal” customer belonged to a fairly rich class, he liked sportswear and he was fairly aggressive. The style actually intended to be aggressive enough to be chosen both by young and older people.

The existing retail IT system was originally chosen to support the initial outlet, so its main features were:

  • Low cost
  • Little and clear functionalities
  • One level architecture (shops and main)
  • single cash register in a shop
  • Written and maintained by a near located, “friend” software house.

Quite a few problems had been solved on a “quick” solution attitude as volumes were small, no general approach.

The whole situation was worsened by the fact that no user came from a structured culture environment so they tent to solve their problems on an unstructured, personal way.

When the whole phenomena grew bigger two very dangerous behaviors came up:

  1. The stockholder thought: “if it works for four it will work for five etc.”
  2. The software house used to say: “I am willing to grow up with you: tell me what you want and I will do it.”

The company was really pushing the instrument over its project limits patching it over and over.

The economical situation: mainly due to the international crisis the company was financially overexposed and the shop system was a real weight to the balance sheet: out of a dozen shops existing only two or three were profitable, another two or three run even and the rest were both losing money and creating end-of-season unsold inventory. These numbers also did not take into account hidden costs that the company had to sustain to help the shop system; costs which are difficult to pin out but that are often consistent. I am talking about time spent by “structure” people like accounting and/or logistics to help the whole system run.

The turn point came when an outside consultancy firm had to investigate the economical situation on behalf of a new possible stakeholder. The problem was not so much the retail policy as a principle but the way it had been implemented. The company culture was industrial and everybody used to think to “customers” as being wholesaler, which means professionals, and not final customers.

Even if a retail manager and a merchandiser existed, real decisions were made by people coming from “product” oriented people so many the whole process was still very “fashion” and “industry”.

The functional approach: to evaluate correctly the job to be done we went through a dimensional analysis of the needs of the retail department customers including all the aspects of “product”; “subjective” and “social” aspects.

For every view we tried to find as many “objective” data as possible trying to avoid preconceptions. This job was guided by an external consultant, a right choice in my opinion, as we thought that no internal resource could be enough professionally detached to guarantee a correct evaluation.

First thing the company did was to separate needs: wholesale and final customers. This meant almost doubling the job but it allowed checking whether the requests of the retail channel (both wholesaler and property shop) matched with the “real” final customer wishes.

Physically the job has been done through check lists compiled by hired personnel both in the case of retailer and of final customers. Actually final customers were divided into two major categories: customers contacted in shops (already aware of the brand) and people looking at apparel shop windows (apparel keen but not especially on the brand).

Every interview was then graded according to the expectation of satisfaction both as need and as answer to it. The complete results and the exact form of the questions are not public, what we can derive are the changes the company did in its customer policies.

Question sheet results: as far as final customers are concerned we found that:

  • Product - aesthetics and fashion alignment: the product was perceived as “fashion” but “middle low class” and definitely not “high class” as the company thought it was. Competitors were quite different from what the company dreamed they were. Some product categories were “identified” while other were considered “useless”
  • Product - reliability: quality was recognized but the price was considered too high
  • Product – availability: very low, even if much paper presentation was made on the product, the real possibility to find the item in the shops was low. Part of the problem related also to the fact that the company had decided not to offer on the web a certain number of “flagship” items
  • Subjective – recognition: sales people “customer service ” attitude was judged barely sufficient
  • Subjective – attention: sales people technical support counseling was perceived as not sufficient and this contributed heavily to the perception of a middle low class brand
  • Subjective – empathy: obviously related to individual sales people but, on the average, not very high; the brand was definitely not felt like “friendly”
  • Social – belongness: a strong feeling of group belonging was felt
  • Social - distinction: fulfillment of this need is low, probably due to inadequate CRM systems.

For retailer the results were:

  • Product - aesthetics and fashion alignment: the product was perceived as “average”; the rating was better than the one given by final customers
  • Product - reliability: good, little commercial returns and very few items with quality problems
  • Product – availability: medium/ low due to poor respect of delivery dates
  • Subjective – recognition: quite good, the “retail” customer service was considered very effective
  • Subjective – attention: low, customer perceived some sort of company haughtiness
  • Subjective – empathy: obviously related to individual agents but, on the average, sufficient
  • Social – belongness: no group feeling existed for retailers
  • Social - distinction: low, probably due to inadequate CRM systems.

Company actions: based on the results we just quoted, the company decided to

  • Product offering returned to about 150-200 pieces for wholesaler and a further set of about 100 pieces distributed only in company stores. These last set of garments were essentially variations on existing garments, to simplify the design phase. The whole set could then cover the “total-look” scenario for the shops and satisfy brand-keen customers.
  • Advertising: this moved into two directions. The first one tried to re-position the brand in a “high class” section via the relations with testimonials and events. The second activity (fashion and newspapers) was addressed only to the countries where a distribution network existed and not everywhere; only one new foreign market was to be pursued each year.
  • Company shops: only economical justified shops stayed open, with the new product offering. As far as new openings were concerned the strategy was to create mixed companies with local operators. These new middle-sized shops were addressed mainly on the sales of the well known products (jackets) and there was a one year starting period to reach balance break even, and no more.
  • External wholesalers: the company recognized their importance and created a contact and support groups with the idea of improve their brand loyalty.
  • Agents: the company cleared that a new attitude was needed: they were to become not only customer-order collector but also product and “prospect customers” proposers. Quite a few agents did not accept and interrupted their business relation with the company; the major criticism was that there was no longer an independent agent role but that we were talking of company show rooms and methods. This was one of the most difficult parts of the whole project.
  • Company shops sale personnel: a long process of selection and education is still taking place to reach the correct standard in human relations and technical knowledge.
  • Shop customer service: it became the real guideline of the retail division. Every aspect has been re-analyzed: from shop lay-out to packaging to personnel clothing and attitude. Mock customers are evaluating each site randomly and their results are discussed monthly at company level and twice-a-year with shop managers.
  • Main IT system: the upgrade on this was very limited and it concerned almost only the quality of basic data regarding customer needs like delivery dates or quality indexes
  • Retail IT system: this system has been changed very heavily. The operational part has been upgraded to a new instrument and also, even more important, new CRM systems have been introduced regarding both classical topics, like fidelity cards, and new topics like known and unknown person recognition. The possibility to follow the path inside the shop and on the front windows gave the opportunity to improve internal paths and increment the time passers-by would stop in front of the shop.

Generally speaking the reengineering is still going on but the results, up to now, are very encouraging in terms of customer service and of sales point balance break even where all the company shops are now correctly placed.