OUR RETAIL AND CONSUMER WORK - Frontier … · commercial teams, and assess EDLP vs. promotional...

OUR RETAIL AND CONSUMER WORK

We apply economics to markets, organisationsand policies.

FRONTIER ECONOMICS 1

REGULATIONFinancialServices

Water

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Telecoms MediaSTRA

TEGY

Energy

RETAIL

Trans

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Educ

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PostEnvironment

COMPETITION

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InsightfulTeamwork

ListenersEnjoyable

IdeasSuccinct

SolutionsConsistent

Professional

ListeningOpenUnbiased

FlexibleAnalyticalFirst class

Clear directionCommitmentPurpose

FRONTIERECONOMICS

CONSUMER

We help our clients to analyse andunderstand their markets and to formulate strategies based on soundeconomics. The methods and models weuse are often complex, but our adviceis always succinct, clear and honest.

We use our analysis to provide insightinto complex situations, giving clientsjargon-free opinions and results that canwithstand even the closest scrutiny.

We advise across sectors and countriesand are one of the largest economicconsultancies in Europe (with officesin Brussels, Cologne, Dublin, Londonand Madrid).

We’re enthusiastic about what we do.Whatever the task in hand - reviewingstrategy, dispute support or getting bestvalue for taxpayers – we tackle it withenergy, expertise and determination.

Frontier is an economics consultancy that understandsthe intricacies and interrelationship between markets,organisations and government policies. We support ourclients on some of the most interesting, topical andhigh-profile issues across these areas.


Our retail and consumer practice.Frontier’s retail and consumer work is grounded in the economics of consumer and competitive behaviour. We start from the observation that for every commercial action there are customer and competitor reactions - sometimes desirable and sometimes not.

Our Frontier toolkit includes behavioural economics, competition theory, market analysis, financial modelling and practical research experience. We combine this with our in-depth knowledge of retailing and consumer sectors from grocery to clothing, banking to airlines, hotels to broadcasting to give our clients a unique perspective on how they can shape their businesses.

Each client and each situation is different, but there are some common factors in Frontier’s approach. The framework shown on the right hand page organises some of the topics we work on with our clients. These topics are illustrated in the following pages and are all based on work with clients from every sector.

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70%% of television buyers researching online:

80%% of television buyers who purchase from a physical store:

Customer reaction chain• Which levers should we pull?

• Have they been well executed?

• Has this changed how consumers think and act?

• Have we seen the commercial impact?

• Segmentation• Insight capability• Loyalty scheme analysis• Switching & spend analysis• Acquisition & retention strategies• Scenario building/ trends

CUSTOMERBEHAVIOUR

• Multi-channel retailing• Root cause analysis• Regulatory brand• Sustainability• Balance sheet levers

COMMERCIALIMPACT

• Store performance• Competitive performance• Economic costs/revenues• Customer service• Supply chain• Major procurement decisions• Management Information & KPI design

BUSINESSEXECUTION

• Proposition design• Pricing strategies• Promotion design• Advertising spend• Experiment design• Customer psychology

LEVERS

• Research & trial design• Loyalty schemes• Communicating insights• Embedding customers in decision making• Real CRM• Price perception studies

CUSTOMERPERCEPTION


Pulling the right levers.

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Our approach makes sure that the underlying economic drivers of a client’s business are clearly established. This is fundamental to ensuring that the business interventions (or levers) that are applied deliver the desired outcomes. We help clients use consumer and commercial insights to design propositions or other levers that will drive performance.

Case: Test first before pulling. Our client, a leading electronics retailer with an extensive multi-format store network across Europe and the USA, came to us with a new store concept. They felt the concept would address both its customers’ rising expectations and their need for specialist advice when faced with the increased complexity of some of the client’s core products.

But how will they know it works? We helped them do two things. First to review the consumer evidence that they had collected to see if it would help to understand what customers would actually do. Second, to design benchmarked field tests of the concept in a sample of stores. The insights and results from both elements of the work led to changes to the concept before it was introduced across the store portfolio.

Proposition design: We help clients to use commercial and customer insight to design winning propositions. This can vary from design and assessment of game-changing new retail banking services, to the economics of bundles of retail products and services.

Pricing strategy including multichannel and online: We develop and review pricing strategies and policies. We analyse competitive pricing dynamics to reveal leader follower behaviour and economics. We design guidelines for commercial teams, and assess EDLP vs. promotional strategies in particular situations.

Promotion strategy: We help clients design and assess promotions strategy as well as design trials and tests of specific propositions.

Advertising spend review: We help our clients review their allocation of advertising spend across products and channels and assess advertising’s impact on customers’ perceptions and actions.

Experiment or trial design: We design experiments or trials for new propositions, pricing and formats so that they provide the best possible foundation for making better decisions.

Customer psychology: Understanding how customers are thinking, specifically the conscious and unconscious mental processes that shape their behaviour, is critical in helping to identify both what could be leveraged and how to apply that lever.

Examples of our work:

Janet Smith, Group Clubcard Director, Tesco plc

Frontier’s desire to really understand customer behaviour, rather than just immersing themselves in data, is truly refreshing and as a result they add real value.

• Segmentation• Insight capability• Loyalty scheme analysis• Switching & spend analysis• Acquisition & retention strategies• Scenario building / trends

CUSTOMERBEHAVIOUR


COMMERCIALIMPACT


BUSINESSEXECUTION


LEVERS

• Research & trial design• Loyalty schemes• Communicating insights• Embedding customer in decision making• Real CRM• Price perception studies

CUSTOMERPERCEPTION






Tracking successful business execution.

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Assessing the impacts of pulling different business levers requires a detailed understanding of what’s happening at the coalface. We use economic logic and empirical analysis to unpick performance at a micro level. We will often re-cut or re-combine existing client datasets in new ways to bring out the insights through economic logic and highlight performance in ways not previously tracked.

Case: Reshaping the portfolio: We worked with a leading European retailer on its programme for new stores. This required a very detailed analysis of the performance of existing stores; catchment-by-catchment, store-by-store, with analysis of competitor position and plans. We identified customer trends, built scenarios using game theory, and modeled alternative strategies for them. As a result of our advice, our client has made substantial changes to their investment programme and rebalanced their mix of formats.

A combination of rigourous analytics and a real focus on what their customer needs.


Store performance and network assessment: We use econometric analysis to understand store performance. For example we decompose store performance by local competitor set, location type, format size and local demographics.

Relative competitive performance assessment: We provide assessments of business performance relative to that of competitors by looking at the key factors that drive trading performance.

Economic cost and revenue analysis: We conduct detailed analysis of costs using tools such as economic profit and marginal cost accounting that shed light on the business’s real performance.

Customer service level review: We review the execution of customer metrics to help understand the impact on the business. We do this through econometric assessments of mystery shopping, in-store availability, customer service levels, staff performance, and other criteria. Examples range from reviews of counters, service desks and ATMs in retail stores to ‘priority’ boarding services at airports.

Supply chain: We help our clients assess the economics of their supply chains, including competitive value chain analysis to assess relative buyer power. We also conduct cost price analysis on, for example, input prices, and provide guidelines for commercial teams to help them make better decisions in negotiations.

Major procurement decisions: We help clients assess major procurement decisions through economic assessment of contract design and incentive mechanisms. Our work is informed by an objective assessment of relative bargaining power.

Improved decision-making: We help clients improve their decision-making and ability to respond commercially by using better MI and KPI (management information and key performance indicator) design. We help clients restructure their board MI and develop new score cards.

Rachel Osborne, Finance Director, John Lewis


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BUSINESSEXECUTION


LEVERS


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Understanding and influencing customer behaviour.

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We know the importance of understanding the economics of both customers’ perceptions and behaviour, how they can be influenced, and crucially how they impact our clients’ businesses.

Many companies invest in analysis that enables them to segment their customer base. But how much of what they learn is useful? Frontier’s work with clients suggests that too many businesses build up complicated profiles that tell them little about how customers will react to tailored offerings. This is often because the focus is on what the business wants to sell rather than what the customer wants to buy.

Companies are also spending ever-increasing time and resources on strategies for developing customer relationships. Yet customers appear to be more and more critical of how they are treated. Customers have long memories and their trust is hard-won. Answers lie in understanding what a relationship is, what makes it work and what makes it falter.


Embedding the customer in decision-making: We help clients em-bed real customer-centric thinking into their business though mechanisms that make consumer insight helpful. This includes ‘customer plans’, ‘customer in the boardroom’ and ‘customer KPIs’.

Research design: We help clients design consumer research programmes of all shapes and sizes – from carefully specified accompanied shopping trips to annual research plans with mult-million pound budgets. By combining experience of a wide range of statistical and qualitiative techniques, with commercial knowledge and a thorough understanding of behavioural economics we ensure that valuable resources are not wasted onanswering the wrong questions or paying for the obvious. Where appropriate, we draw on specialist expertise in consumer psychology to ensure that the critical non-conscious component in consumer behaviour is identified. We can go beyond customers’ own awareness of their actions to help understand them better than they might do themselves.

Consumer segmentation: We conduct consumer and customer segmentation that is not simply demographic but both behavioural and perceptual.

Loyalty schemes: We assess the economics and psychology of loyalty schemes, including measurement of customer lifetime value, acquisition cost trade-off analysis and the reverse-engineering of competitors’ offers.

Real CRM: We develop acquisition and retention strategies designed to address the genuine drivers of customer loyalty.

Insight capability: We help develop and guide in-house insights teams, from setting out corporate objectives and designing research programmes, to guidance on team structure and skills mix.

Communicating insights: We realise that turning an understanding of consumer behaviour into business decisions requires insights to be shared in a timely and practicable way. We develop reporting systems, business processes and management incentives that get the most out of research and customer data.

Switching analysis: We analyse customer switching between competitors, and assess the root causes.

Spend analysis: We derive insight from analysing our clients’ customer spend profiles, obtaining usable insights from tools such as basket analysis, “wallet share” metrics, cross-sales and up-sales measures, and price response analysis.

Scenario building: We assess long term consumer trends as they affect particular markets and build and model scenarios for the future.

Phil Tysoe, Customer Insight Manager, Argos Ltd

Frontier’s commercial application of customer insights - genuinely seeking and deriving actions

from insights that add value - is hugely impressive. A pleasure to work with and always brought

something new and constructive to the table.

The amount by which the average UK shopper misjudges the amount that he or she will spend (up or down). 35%


CUSTOMERBEHAVIOUR


COMMERCIALIMPACT


BUSINESSEXECUTION


LEVERS


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Delivering commercial impact.

Understanding the economics of long-term competitive advantage in our clients’ chosen markets and how it applies to their businesses is key to delivering sustainable commercial impact. A basic foundation of economics is that profits go to scarcity. We therefore take time to understand where a firm has the ability to do something that its customers value, and that its competitors can’t copy.

Businesses often spend a lot of time collecting data and evidence and analysing it. In Frontier’s experience, managers that take a more structured approach to using evidence are able to take some of the guesswork out of decision-making and are more effective. We help our clients do just that.

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Multi-channel retailing: We appreciate the importance of assessing the real economics of multi-channel delivery. E-commerce is changing the way people shop and presents both threats and opportunities for businesses. We look at the economics of these shifts for our clients’ business models to help them make better-informed strategic decisions.

Root cause analysis: We bring together financial performance measures, business execution and customer behaviour to identify the real economics of how money is, or isn’t, being made. Whether it’s in response to a specific trading problem, or simply hacking through a tangled web of conflicting management information we get to the bottom of what’s going on and how much it’s worth.

Regulatory brand: It is sometimes important to understand the economic impact of changes in regulation on current and future competition in markets and on specific firms. We help clients develop a regulatory stance and brand that can be a real source of commercial advantage.

Sustainability: We review the sustainability of business models from different risk perspectives: economic, competitive, environmental and regulatory. This includes the economics of risk and diversification.

Balance sheet levers: We provide economic support for major balance sheet structuring decisions, such as the economics of sale and leaseback of owned retail stores.


2/3The proportion of consumers who used their store-card only once before cutting it up.

Philip Clarke, Chief Executive Officer, Tesco Plc

We like the way they think, the way they act; their team provokes new thinking and does so with great skill.


CUSTOMERBEHAVIOUR


COMMERCIALIMPACT


BUSINESSEXECUTION


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The unique thing about Frontier is their innovative and yet down-to-earth approach of applying economics, without jargon, to individual client problems.



Competition policy in consumer markets.

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Frontier has the UK’s leading competition practice. We cover all aspects of competition policy, at an EC and at a national authority level. The Retail and Consumer practice work closely with Frontier’s Competition practice on issues that concern our clients in retail and consumer markets. Together we work alongside clients and legal counsel to advise on cases before national competition authorities and courts, and the European institutions.

Competition Policy: Our practice covers all aspects of competition policy. We advise on market definition and market power, merger analysis, abuse of market power, horizontal and vertical agreements, and state aid.

Both strategy and technical support: We provide not only technical support but also advice on case strategy. Our clients place a high value on our ability to identify and address the central issues from the outset, thus maximising the chances of success.

Pre-emptive and preparatory work: We assist in pre-empting issues, in producing and responding to technical analysis, in preparing client submissions and expert reports, and in giving oral evidence.

Hearings and regulatory presentations: Our advice is often central to determining the approach taken in presenting the competition issues to the authorities or the courts.

Regulatory brand: We help clients design and develop an overall competition and regulatory position that is congruent with their business and the environment in which they operate. A ‘regulatory brand’.

• Domestic electrical goods and extended warranties (OFT, 2011-12)• Dairy products in the UK (CAT 2011-12, OFT 2004-10)• Electrical waste recycling (Article 101 and 102 EC Treaty – E&W High Court, 2011-12)• Premier league football (Competition Act, arbitration 2011)• Movies on Pay TV (CC, 2010-12)• Property websites (OFT 2011-12)• UK Independent Commission on Banking (2011)• Supermarkets (OFT and CC, 1998-2000, 2005-09, CAT 2009-10)• Television advertising in Germany (German competition law, 2008-12)• Live Nation/Ticketmaster merger (CC, 2009-10)• Mars/Wrigley merger (EC, 2008)• Carlsberg/Scottish&Newcastle and Heineken/Scottish&Newcastle acquisitions (ECMR, 2008)• ThomasCook/MyTravel and TUI/FirstCoice mergers (ECMR, 2007)• Store cards (UK Competition Commission, 2004-2006)• Granada/Carlton Communications merger (CC, 2003 and OFT/CC, 2007-10)

Selected retail and consumer relevant competition cases we worked on:

Steve Smith, Retail Competition and Consumer Director, Lloyds Banking Group

Frontier combines rigorous economics with practical judgement, based on their experience

with diverse retail clients. The result is sound advice and workable solutions.


Selected publications from our retail and consumer team.

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Examples of our publications:

Treasure huntingDEVELOPING VALUABLE CUSTOMER INSIGHTS

Almost every retail business knows that good customer insights can be the stairway to success. But all too often the search yields little. Mining real competitive advantage out of customer data and market research requires more than spadework, even with the fanciest tools. In Frontier’s experience helping retail teams, it’s organisation and incentives that matter most.

Good behaviourHOW BEHAVIOURAL ECONOMICS IS TRANSFORMING STRATEGY

In the past 30 years huge advances have been made in understanding how our supposedly rational economic choices are “nudged” by other influences. An expanding portfolio of insights has been extracted from the evidence, and the build-up of this knowledge has become game-changing for both businesses and government. This bulletin offers a starter guide to the tools of “behavioural economics” that Frontier has been developing for companies and policy-makers.

One-club golfersPREVENTING COMPULSIVE PRICE DISCOUNTING

Pressure to expand, especially when the market looks weak, often leads companies to cut prices indiscriminately. Placing too much weight on the pricing weapon is a dangerous practice, but many businesses are organised in such a way as to maximise the temptationto succumb to compulsive discounting. Strategic management of pricing decisions is needed to make sure the full range of clubs is used for this part of the corporate game.

Social skillsHAS SOCIAL MEDIA CHANGED MARKETING?

The rapid growth of social media gives rise to a stream of statistics. 800 million of us are active Facebook users; 300 million of us together send over 300 million Tweets per day. The sheer scale of activity – and low cost – has pushed social media up the priority list for marketing and communications teams. So where does that leave well-established marketing strategies and more traditional channels of communication?

Shelf lifeUSING PROMOTIONS EFFECTIVELY

The number (and variety) of promotional offers in the retail world continues to grow. But aligning a promotions programme with overall strategy, and understanding which offers are most effective, is challenging. Frontier’s experience with retailers has highlighted some of the ways to make the most of promotions.

Consumer.ologyby Philip Graves

THE MARKET RESEARCH MYTH, THE TRUTH ABOUT CONSUMERS AND THE PSYCHOLOGY OF SHOPPING

Consumer.ology exposes some of the most expensive examples of research-driven thinking clouding judgement, experience and evidence – from New Coke to General Motors, from Mattel to the Millennium Dome – and instances of great success through, ironically ignoring market research, such as Baileys and Dr Who. It also shows organizations the tools they should be employing if they want to understand their customers.

Frontier publications are available to download at:www.frontier-economics.com

David Wild, Chief Executive, Halfords plc

London71 High HolbornWC1V 6DAUnited Kingdom T: +44 20 7031 7000

MadridPaseo de la Castellana60, Fifth Floor28046Spain T: +34 91 343 2350

CologneKranhaus SüdIm Zollhafen 24D-50678 Germany T: +49 221 337 130

Where you can find us.

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DublinFitzwilliam HallFitzwilliam PlaceDublin 2D02 T292Ireland T: +353 1669 8531

For more information please visit:www.frontier-economics.com

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