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RetailCo*, one of the USA's premier department store retailers, renowned for its customer service practices, has been experiencing a decline in the revenues of its core business.
Given a flat retail market outlook, customer defections and growing competitive pressure from smaller, product-specific, mall-based and non-mall-based stores, RetailCo asked Bain to carry out a study of its customer and employee loyalty.
Bain's objective was to identify the key drivers of customer and employee loyalty and design a strategy to 1) reverse the company's declining revenues by driving same-store sales and 2) improve the retention of its best employees.
To identify the key drivers of customer loyalty, the Bain team carried out a large number of interviews with current and former customers.
The findings of this study were integrated with those of an equally large study of the client's frontline sales managers. Bain discovered that the tenure of the sales managers, customer satisfaction/retention and profitability were strongly correlated.
Initiatives were designed to address key customer priorities, such as easy shopping experience and inventory availability. In addition, a radical new performance-based incentives system was introduced to drive retention of managers, and thereby profits.
The customer initiatives and pay scheme were introduced to the company in a pilot program with five stores. Supporting these efforts, Bain also worked to improve the company's training, sales, staffing and inventory practices at the store level.
Over the course of the pilot, a number of modifications were made to the customer initiatives and incentive program, resulting in an easy-to-understand model that could be translated across the client's entire business.
On average, the pilot stores outperformed their non-pilot counterparts. As a result, RetailCo decided to roll out the new classification and frontline compensation system to its entire company on a region-by-region basis.
Over time RetailCo saw greater employee retention, superior customer service, higher same-store sales and increased earnings per share.