Creating Measurement Discipline in Retail Marketing

 

Like other large retailers, Office Depot supports its complex, multichannel sales efforts through a host of marketing tactics, including advertising, promotions, sponsorships, and a heavy reliance on weekly freestanding inserts (FSIs) and circulars to drive traffic into stores, call centers, or OfficeDepot.com.

The FSIs in particular were causing some real challenges within the organization. Marketing and merchandising were struggling to agree on which products to feature each week and how much space to allocate. Last minute "switch-outs" were creating havoc with not only the creative production staff but the entire supply chain as stores labored to make sure they had sufficient quantities of featured items in stock.

 

In short, talented people from many areas of the company were finding it difficult to efficiently manage a critical element of the marketing program.

They were also failing to take advantage of the wealth of information they had in their data warehouse about the relationship between promotional space in circulars and product sales. It's not that they lacked analytical horsepower: Office Depot had a sophisticated analytical staff with terrific technical skills. However, there was no structured decision process into which the analysts could inject their insights. Their voices weren't being heard at decision time, and much of their effort was spent toiling in ad hoc analysis.

The organizational structure offered some challenges, too. Marketing and merchandising reported to two different executives, each of whom had strong expertise in a single arena. Conflicts of opinion between the two departments on how to increase sales were common, adding another layer to the FSI conundrum.

Something's Gotta Change
In early 2004, Office Depot brought in a new chief merchandising officer, Chuck Rubin, and gave him responsibility for both marketing and merchandising. For the first time, the two areas would be coordinated in a single reporting line. Rubin, a former Accenture partner, brought with him an emphasis on business process improvement and a reliance on facts for all business decisions.

Right from Day One he made it clear that before he would make any decisions, he wanted to see the facts and data underlying the options. The once-shy analysts were now being thrust onto center stage as equal partners with line business managers in determining how resources would be allocated, right down to how many pages each merchandising product group got in each FSI.

To reinforce Rubin's changes, Tony Ueber, vice president of marketing strategy and decision support, launched a process improvement team to look at critical business processes from end to end and to incorporate the necessary analytical disciplines into each decision (see figure 1 below). The goal was to fix underlying problems through better business process.

 

Office Depot's culture was in need of change. The analysts involved in process improvement had to be re-schooled on their "obligation to dissent" — if a proposed action or idea is not supported by the facts at hand, they must push back firmly and draw attention to the disconnect. Further, to elevate their effectiveness in making their case, Ueber put all analysts through training in communications and presentation writing to enhance their ability to convey the value of complicated analytics to the laypeople in marketing.

To date, they have responded by stepping up to be conceptual enablers and thought leaders that have earned reputations throughout the company for their methodical, dispassionate, insightful observations and recommendations. In return, Rubin has made it clear that the organization values their contributions by opening up new career paths, placing some former analysts into business leadership roles on the strength of their balanced decision skills.

Expanding the Tool Kit
Some of the discipline lent to Office Depot's process rehabilitation derives from automated tools that expedite the scale of the retailer's analytics. Formerly, all analytics were done manually, restricting the amount of information collected and evaluated and the potential for continuous improvement.

A media mix optimization project initially drew upon 36 models that examined channel, segment, and department sales data from three years of transactions to identify the causal links between types of marketing expenditures and customer purchases.

An insert sales response tool now helps Office Depot maximize the space available in its weekly FSI according to witnessed customer purchases derived from advertising in the circular. The tool is "remodeled" periodically to remain relevant given changes in marketing spending and media effectiveness.

Separately, Office Depot employed Applied Predictive Technologies, a vendor in Arlington, Va., to build a test-and-learn capability. Into the aptRetailer database, Office Depot feeds detailed and eclectic data such as sales potential by microgeography, store manager survey data, new competitor locations and opening dates, weather by market, demographics, corporate performance metrics, capital activity, and geographic information systems maps.

Fixing the FSI Problem

In confronting the FSI challenge, the team first mapped the familiar planning and production process in detail and helped all functions involved to visualize the broken parts. It then developed a plan and defined tests for sales response to FSI-featured items and product categories. Once the tests were executed, the team methodically evaluated the results.

 

In a best-in-class improvement of what had been, marketing and merchandising now call upon analytics to select items to feature in the FSIs. The dominant business model has gone from one of historical entitlements to an earned space approach in which pages are allocated to product groups based on the accuracy of their forecasts over time and an optimization of the expected return from each FSI. Along the way, better defined roles and responsibilities have reduced item switch-outs substantially and increased productivity up and down the FSI production and distribution process, not to mention the supply chain and store operations. The net results are increased sales at decreased costs, fewer vendor relationships, shorter production cycles, and fewer errors to boot.

"We are not best-in-class to where we want to be," however, Ueber says. "This is still a work in progress."

Solving the Big Picture
By applying discipline and executing a change management plan with organizational, process, skill development, and analytical tools, Office Depot overcame a few of its long-standing cultural obstacles. As a result, it:

Marketing analysts have stepped up the level of push they apply to data, but business owners in the rest of the organization have stepped up the level of pull on data too, following Rubin's lead.