Interacting with Customers Santiago Gallino – Tuck School of Business Toni Moreno – Kellogg School of Management January 2017 July 2013 – LBS – London, UK

Learning Modules 1. Demand forecasting 2. Inventory Decisions 3. Assortment Planning 4. Pricing Decisions 5. The omnichannel customer 6. Fulfilling omnichannel demand 7. Omnichannel journeys 8. Supporting an omnichannel strategy

M5.4 Introduction 1 Interacting with customers is in the essence of retail. Excelling in this task is crucial to a successful retailer. However, excelling can mean different things for different retailers. Home depot – Trader Joe’s Nordstrom – Banana Republic – The North Face

M5.4 Value Proposition 2 The retailer value proposition to customers include a portion that refers to the product (or service) that the customer wants to acquire and experience that the customer receive while acquiring that product (or service) Product/Service Experience Value Home depot – Trader Joe’s Nordstrom – Banana Republic – The North Face

M5.4 Value Proposition 2 Satisfaction Perception Expectation The retailer value proposition to customers include a portion that refers to the product (or service) that the customer wants to acquire and experience that the customer receive while acquiring that product (or service) Satisfaction Perception Expectation Home depot – Trader Joe’s Nordstrom – Banana Republic – The North Face

M5.4 Value Proposition 2 Home depot – Trader Joe’s Nordstrom – Banana Republic – The North Face

M5.4 Operational Behavior of Customers 3 If you are a retailer, customers are not just wallets ready to be opened at the end of a line. They disrupt your operations with unpredictable behaviors, requesting service at inconvenient times, asking for the most bizarre things and changing their minds. Customers are ready to introduce variability at every step of the way. However, they tend to complain when they don’t find consistency. Where customers introduce variability? Arrival. Queues. Request and exception to the process. Capability Effort Subjective Preferences The dilemma is whether to reduce variability or to accommodate it. The answer depends on who you are or who you want to be as a retailer. Home depot – Trader Joe’s Nordstrom – Banana Republic – The North Face

M5.4 Managing the Operational Behavior of Customers Customers Serving themselves. ATM. Self Check Out. Self Check In. High Classic Accommodation Low-Cost Accommodation Uncompromised Reduction Segmentation Quality of Experience Classic Reduction Low High Cost to Serve Home depot – Trader Joe’s Nordstrom – Banana Republic – The North Face

M5.4 Managing the Operational Behavior of Customers Diagnose the Problem. Which type of variability is hurting the operations? Design a mutually beneficial role for customers Test and Improve the solution Home depot – Trader Joe’s Nordstrom – Banana Republic – The North Face

M5.4 Managing Wait Times 5 Customers find waiting more tolerable when they can see the work being done on their behalf AND they tend to value service more. This holds true even under the appearance of effort. Barista at Sturbucks Operational transparency can help and even increase customer and employee satisfaction Customers are irrational, we are irrational. What customers remember of a visit to a retailer is the salient features not the details. And what they remember is what will determine whether they return or not. Home depot – Trader Joe’s Nordstrom – Banana Republic – The North Face

M5.4 Managing Wait Times 5 Occupied Time Feels Shorter Than Unoccupied Time Per process wait feels longer than in process waits Anxiety Makes Waits Seem Longer Uncertain Waits Are Longer than Known, Finite Waits Unexplained Waits Are Longer than Explained Waits Unfair Waits Are Longer than Equitable Waits The More Valuable the Service, the Longer the Customer Will Wait Solo Waits Feel Longer than Group Waits Home depot – Trader Joe’s Nordstrom – Banana Republic – The North Face

M5.4 Managing Returns 6 What is the trade off between restricting returns and conversion. We are not talking about encouraging returns The return experience can be the high end point of our contact with the customer Customization can help reduce returns Generate Model to play with this assumptions and see the potential impact of different return policies Home depot – Trader Joe’s Nordstrom – Banana Republic – The North Face