1 Best Practice of CRM Implementation For Luxury Retail Sectorarvato， at your service… Mar. 2011

2 Challenges and Current Situation of CRM practices in Luxury Retail

3 Challenges and Current Situation of CRM practices in Luxury RetailProblems for bricks and mortar retail sectors is actually identifying the customers in the first place. Difficulty in assembly a 360°view of the customer due to the disparate multichannel environment. Also, the low profile of the shopper’s consumption behavior is the phenomenon in luxury retail sector. Shoppers having high expectations for in-store services but the delivery of a consistent service standard across channels/stores is always a challenge. Luxury retailing demands for “hands-on sales approach” in terms of high- service interactions, personalized communications, custom fittings meaning that there is more in need for interaction with a customer; however, the way to measure salesperson effectiveness is prolonging performance management issue. Luxury sector grows in sophistication, difference in tastes and preference are becoming more discernable between demographic segments, even in the growing market like China ; Micro-segmentation is a must approach to understand and meet different customer needs of a heterogeneous luxury market.

4 Current Situation of CRM Practices in Retail (including luxury) -Findings by Retail Touch Points and The Aberdeen Group, 2008 Below is the snapshot from a recent report from Retail Touch Points and The Aberdeen Group, titled “ Responsive Customer Loyalty: Creating Customer Commitment in Retail, June 2008 Best-in-class retailers are bringing to loyalty programs with the sophistication and diverse multichannel approach. Among the sigh of multichannel loyalty management is the spread of data in operationalizing member acquisition: 45%of retailers register customers via sales associate in the store 41% at POS 41% online 21% currently use “ cross channel loyalty tools that align with cross-channel customer demand” 34% saying that they plan to implement this capability within 2009 The two most effective strategies for using customer loyalty data were: Elements that suit specific customer affinity and preference (53%) Personalized promotions across channels (52%) The top two objectives driving retailers toward loyalty program objectives were: Lifetime customer value (57%) Competitive advantage (39%)

5 Current Situation of CRM Practices in Retail ( including luxury) -Findings by Retail Touch Points and The Aberdeen Group, 2008 Below is the snapshot from a recent report from Retail Touch Points and The Aberdeen Group, titled “ Responsive Customer Loyalty: Creating Customer Commitment in Retail, June 2008 Some key metrics in the report go unmeasured by retailers. Many retailers are still checking “ don’t know” and “ don’t measure” when it comes to key metrics: 35% of respondents don’t know y-o-y same store performance Similar numbers were tracked for market basket size, customer retention , customer churn, which are key data points for any loyalty program. Other unknowns are more dramatic. Only 9% of the respondents said more than 50% of their customer base promoted their brand. 46% of the respondents did not measure promotion among their customer base at all. Real time customer data is in use now and will be a priority over the next year: 14% track operational metrics within one or two hours of time of purchase. 23% plan to implement real time capabilities within the next year. About “ near real-time” (2-6 hrs from time to purchase) data reporting on customer: 30% of retailers currently use near or real time customer data generated by their loyalty initiative. 26% of all respondents plan to implement real time POS data tracking within 2009 22% will implement web traffic monitoring in real time.

6 CRM Framework for Luxury Retail

7 CRM Conceptual Framework for Luxury Retail -The CRM Value CircleChu and Pike’s theory-The ultimate goal of CRM is to provide an one-to-one personalized service to each customer. CRM initiative should be to enhance the customer experience. Customer experience: overarching goal is to create unique, strong customer experience. Customer insights Application of advanced analytics to customer data to generate insights that can be acted on. Strategic Capabilities: Means of delivering value for customers and the company People across the organization must be galvanized around customer imperatives. Processes must be coordinated across the value chain to enhance customer experience. Technology must be a customer-focused asset . Refined Business Actions Specific improvements retailers make to adapt around strategic capabilities around customer insights.

8 CRM Conceptual Framework for Luxury retail -Customer-centric CRM strategy , a Pyramid Framework.A survey conducted by IBM about factors leading to retail customer satisfaction in USA,2002 Chu and Pike concluded that CRM can do little unless the store has its retail basics in order. Customer satisfaction: There was little differences between the one-to-one experiences scores of the best and worst performing stores, yet a big difference between the store experiences of differently performing shops. Customer Experience The most important factors were the in-store experiences and their interactions with the sales associates. Marketing &Communication Not the sole goals of CRM; Marcom serves the support for customer’s experience only. Data integration& Analysis Not the sole goals of CRM; BI/BW serves the support for customer’s experience only.

9 CRM Conceptual Framework for Luxury retail -Management ConsiderationsThe key stage for retailers to implement is a method by which it can identify the customer at any touch point. For Luxury Retail, before CRM can even be considered , the retailer must ensure it has its retail basics in order, otherwise, CRM wouldn’t give any significant change-the basics refers to ‘superior customer service”.

10 CRM Conceptual Framework for Luxury retail -IDIC Methodology-CRM Operating Process CycleChu and Pike framework and the Peppers and Rogers IDIC blueprint for retailers. Differentiation should be relatively easy for the retail sector to achieve once the data has been collected. With the information gained on the total spend of each customer, it is possible to work out their value to the company. The products a customer purchases can put them into “social-economic” categories. Information such as name, address and purchase information must be collected across the company, at all points of contact. Once the interaction and reactions of each customer have been analyzed, a full one-to-one service can be offered to customers based on their value to the company, personality and background. Offers can be tailored according to the socioeconomic classification. Having categorized the customers , the retail sector is in a position to treat them differently. Valuable customers can be given more benefits.

11 CRM Conceptual Framework for Luxury retail -Principles of Customer Segmentation ( 5 Golden Rules)An effective CRM strategy , marketing plan or produce launch cannot be successful without proper segmentation . Customer segmentation is likely most difficult and complex decision a company must make when deciding its market strategy. There are no rules. Getting it right isn’t simple at all. But never copy. Each successful segmentation progress is different, unique and unrepeatable. The “me too” attitude leads to failure. The originality could possibly break a market open. Reducing a market ? Sometimes it’s about expanding it. Some of the most successful marketing plans have chosen a larger market by “expanding” their segmentation, not only reducing it. The “value “of the segment. The best segments must have potential, lifespan, accessibility and profitability; The key is identifying which segments provide value in terms of potential, lifespan, accessibility and profitability ; because a sales strategy’s effectiveness increases according to our capacity to size segment, identify them and dissect them. It must be “different”. Each company requires a different Market Segmentation. Being original and efficient with segmentation is key to the amount of success achieved. We create new and personalized ways of segmenting , creating Hybrid models that are easy to interpret and explain ( causes, value , behavioral, psychographic, demographic and attitudinal) in order to obtain the most useful results from each sectorial situation and each company. Choosing “The axes” properly. Time segmentation and spending causes, demographic but with attitudinal axes, psychographic but with a behavioral aspect? Surely there is an answer, but to find it we must investigate , test and challenge the market.  11

12 CRM Conceptual Framework for Luxury retail -Best practices of Customer Segmentation-Psychographic Segmentation Psychographic segmentation approach is a traditional segmentation method with which customer segments are classified by geographic, demographic, psychographic and behavioral variables like age, lifestyle, education, occupation, income, country and so on. Below is an psychographic segmentation designed for luxury retail sector reported by KPMG China’s Luxury Consumers research study, Two important needs are the need for individuality and that for a rich and indulgence experience. Based on two dimensions, it is possible to identify 4 broad customer segments. “Bling”-willing to pay a premium for products, conformity& status seeking, mostly the youngest(20~24yrs) and oldest (over 35 yrs) age brackets. Trend-setter-A small but growing segment; the early adopters of new niche brands who use brands more creatively to express their identity, but still prefer the mix purchases with more well-known brands, well educated, white-collar roles, not just first-tier cities. Connoisseurship-Connoisseurs and collectors are a rare breed but growing in number, typically ﹥35yrs of age, male and based in first-tier cities. Indulgence-Over 70% of China consumers bought luxury products as selt-reward indicating the desire to spend money for indulgence, relaxation and enjoyment. 3

13 CRM Conceptual Framework for Luxury retail -Best practices of Customer Segmentation-Psychographic Segmentation Psychographic segmentation approach is a traditional segmentation method with which customer segments are classified by geographic, demographic, psychographic and behavioral variables like age, lifestyle, education, occupation, income, country and so on. Below is another example of the social-economic segmentation defined by Unity Marketing’s Experiential Luxury Report 2007 with a psychographic profile of the four key types of luxury consumers. These include: X-fluents (Extremely Affluent) –who spend the most on luxury and are most highly invested in luxury living. Butterflies- the most highly evolved luxury consumers who have emerged from their luxury cocoons with a passion to reconnect with the outside world. Powered by a search for meaning and new experiences, the butterflies have the least materialistic orientation among the segments, yet they spend nearly as much as the X-Fluents on luxury. Luxury cocooners-who are focused on hearth and home. They spend most of their luxury budgets on home-related purchases. Aspirers-those luxury consumers who have not yet achieve the level of luxury to which they aspire. They are highly attuned to brands and believe luxury is best expressed in what they buy and what they own.

14 CRM Conceptual Framework for Luxury retail -Best Practices of Customer Segmentation-CLV Approach“Customer lifetime value (CLV)” is a value-based segmentation approach to help develop an effective CRM Strategy based on the current/potential customer value to the retailer. Each quadrant in the Matrix suggests which action to take toward a type of customer to improve profitability. 3 Defend and Retain-High current value, low potential value Manage Up or Out-Low current value, low potential value Most Favored Status-High current value, high potential value Maximize-Low current value, high potential value Customer of high potential value may be those, for example, young, promising professionals or imminent university graduate even though they have low current value to the retailer.

15 CRM Conceptual Framework for Luxury retail -Best Practices of Customer Segmentation-RFM Approach“RFM” is a value-based segmentation approach to analyze customer behavior and define customer segments. It helps develop an effective CRM Strategy based on the customer’s recency-frequency-monetary spend (RFM) history. Customer are ranked based on their R,F,M characteristics, and assigned a “score” representing this rank. Assuming the behavior being ranked, using RFM has economic value , the higher the RFM score , the more profitable is the customer to the business now and in the future. Recency-Customers who purchased recently were more likely to buy again versus customers who had not purchased in a while Frequency-Customers who purchased frequently were more likely to buy again versus customers who had made just one or two purchase Monetary-Customer who had spent the most money in total were more likely to buy again. The most valuable customers tended to continue to become even more valuable . High RFM customers are most likely to continue to purchase and visit, and they are most likely to respond to marketing promotions. Low RFM score customers are the least likely to purchase or visit again and the least likely to respond to promotions.

16 CRM Conceptual Framework for Luxury retail -Principles of Re-evaluating Customer Segmentation ( after Down Markets) Ron Shevlin, senior analyst at the Aite Group suggested that the effective way of customer segmentation is to put customers into actionable segments. Here are the recommendations: Clearly define the rules of engagement. Each customer segment should have a protocol for frequency and relevance of communication. For example, if a fashion retailer defined one of its segments as “ frequent discount shoppers” it probably alerted that segment via and direct mail as to sales and events. Protect the Brand. The brand is simply an aggregation of customers. Customer value is best increased by acting the knowledge of sound segment valuation and analysis. The highest value customer segment must be shown the best practices a retailer has to offer . Although the economy may have taken some segment metrics down ( such as purchase frequency) they have not take them out. Understand segment changes: It is quite possible, and even probable, that the monetary of key customer segments have changed. Retailers tend to reinvent campaigns based on segment value changes, and even reinvent their entire segment profile. In most cases it is not necessary. Because changes may not mean that actual spending plans are changing but simply reflections of immediate reactions to economic changes. Real-time customer data updates can be critical. Retailers that understand the importance of customer analysis will mostly plan for better real-time customer data, and update their segment strategy accordingly.

17 The Best CRM Project Management Approach

18 CRM Project Methodology -Eight Steps of Developing a CRM Project RoadmapA CRM roadmap is a strategic plan that identifies how an organization can meet and exceed its customers’ needs, Developing a CRM roadmap involves aligning an organization’s business strategy with its prioritized CRM capabilities. It is a continuous process and not just a one-time exercise, because customers’ needs and preference change constantly. Gain Senior Level Sponsorship The sponsor helps develop buy-in from senior management team and the operations staff. Gather information Business insights can be acquired most effectively by holding one-on-one meetings from key stakeholders and decision-makers within the organization. Assess Current State and Define Future State Gaps Understand the current CRM capabilities and significant opportunities to improve; determining how close to meet customer expectation; Compares the current state of CRM against best practices within the luxury retail. Identify Value Opportunities Identifies and categorizes value opportunities by People, Process and Technology Analyzes the gaps between the current and future state. Link Value Opportunities to Strategic CRM Capabilities Link each VO and map each to world-class strategic CRM capabilities Identifies which strategic CRM capabilities are needed enables organizations to more effectively direct CRM efforts Define CRM Projects and Requirements Once value opportunities are prioritized, CRM project requirements are defined in an effective way through brainstorming sessions with key stakeholders. Develop Business Case The business case seeks to justify the dollar investment needed and the ROL( return on investment) that will be realized over the course of investment, usually three 3~5 years. Project costs are quantified and potential benefits are estimated. Develop a Roll-out strategy Prioritization and phasing of projects is conducted with the executive team Evaluation areas include project’s financial results, duration, level of effort required and technical impact.

19 CRM Project Methodology --Critical Success FactorsIn order to successfully develop a CRM Roadmap, there are several critical success factors that must keep in mind: Buy-in from top management A strong sponsor (skilled, knowledgeable and politically savvy) Buy-in and involvement from all process owners A strong leader who can hold constructive, productive brainstorming sessions, and is good at maximizing participation from the client team, capable of holding brainstorming sessions Proactive feedback from all affected internal and external partied (customer group, other inter-dependent internal departments) Do not lose sight of your customer’s needs Installing technology without revisions in supporting processes and people/organizational elements will not result in a comprehensive CRM Roadmap. Lack of communication can be life threatening to a CRM Roadmap project.

20 CRM Technology Frameworkfor Luxury Retail

21 CRM Technology Framework for luxury retail --Customer data driven close-loop CRM Application Architecture Customer touch points ( Physical shop & e-shop) Back office

22 CRM Technology Framework for luxury retail -CRM Technology strategyFairhurst’s technology model for CRM Technology strategy Workflow management Transaction engines Broadcast engines Content management Personalization engines Customer storage & analysis Transaction engines Broadcast engines Content management Personalization engines Customer storage & analysis

23 CRM Technology Framework for Luxury Retail --CRM Technology Strategy and IDIC Meth

24 CRM Technology Framework for Luxury Retail -The customer centric MARCOM process based on Fairhurst’ s model and IDIC methodology 2 ACRM: Personalization Eng 1 OCRM: Transaction Eng 3OCRM: Transaction Eng 4OCRM Broadcast Eng, 7ACRM Analytical Eng 5OCRM Transaction Eng OCRM workflow Eng 6ACRM Analytical Eng: customer data storage

25 Identify Differentiate Interact CustomizeCRM Technology Framework for Luxury Retail—Reference Retail CRM Solution Components Identify Differentiate Interact Customize Data interface with POS Account/Card/Membership management Loyalty purchase/redemption/targeted E-shop and POS Customer value analysis Data interface with E-shop Customer segmentation Mobile sales assistant with customer date Loyalty marketing and reward management Data interface with customer portal Customer contact /call center management Personalize campaign management Data interface with account/card/membership mgt In-store service desk/self-service kiosk/complain management Data import from other source POS/MMS/ /social network Customer portal with guided selling assistant Customer &sales data collected from: POS Customer Portal E-shop Social Networks mobile VIP smartcards RFID-tags Credit card Other sources

26 CRM Technology Framework for luxury retail -Reference Retail CRM Solution ArchitectureThe following CRM solution architecture diagram is developed based on the CRM components designed by the Gartner’s report of Retail CRM Vendor Landscape and Capabilities,25 June,2009 Campaign management Offer engine and customer analytics Loyalty program management In-store CRM Collect customer POS/E-Shop Master data management of customer data

27 CRM Technology Framework for luxury retail -New CRM Technologies for luxury Customer Touch Point As in most mature markets, new technologies are finding large potential for innovation and productivity gains within the loyalty landscape. WEB 2.0 /social network ( Social CRM )

28 CRM Technology Framework for luxury retail -New CRM Technologies for luxury Customer Touch Point In addition traditional mass media, WEB 2.0 becomes a growingly important interactive media for retailers to build their brands by finding ways to gain the world-of-mouth among customer 2.0 groups.

29 CRM Real-life Success Stories in Luxury Retail, Fashion and Beauty Sector

30 Prada:“e-tag”. Technology Transform shopper Experience in Luxury RetailBest Practices Luxury goods maker Prada has tested ”e-tag” technology in its New York flagship store in New York by putting e-tags on all its garments inside the store. By attaching the electronic tags to merchandise in the store and monitoring shopper movements with electronic sensors, the retailer can keep track of every aspect of a shopper’s behavior on the floor. The size of a postage stamp, e-tag chips are capable of storing and sending wireless signals with information much as the product name, when it was manufactured, its location, directions for use and expiration date. By combining the e-tags with their loyalty program, Prada can create “brickstream” profiles to enhance their consumer data. As a customer heads to the fitting room, clerks can monitor their route and provide and image of the garment and details about its cut, fabric and color. Prada is also using its system to collect market research information. RFID/e-tag

31 Sephora : Taps into the Mobile Wave for Immediate Customer Feedback Anywhere AnytimeOpportunities Mobile applications are getting popular and there is the continuing growing concern with user generated content initiatives and capturing the voice of the customer(VOC). Shoppers tend to love have the added technology in the store and it will increase the VOC to a new level. Best Practice Sephora recently debuted a mobile voice application specially design to allow customer to access review at hosted mobile website via product categories, keyword search and product pages. The new application will also provide mobile specific analytics to retailers and suppliers. Sephora’s launch with mobile vice application generated more than 100,000 reviews within days. Many Sephora products have been reviewed by more than 1,000 customers. The company’s average product rating is four out of five. She also said suppliers and internal executives gain a tremendous amount of knowledge from reading individual product review, as well as aggregate data . Futures Plan Sephora will also post signage in all its location encouraging customers to access the reviews at m.sephora.com, as well as promote the new initiative on its website. Possible Future Enhancements It is possible to integrate QR codes(i.e.2D Barcodes)into the mobile application platform(e.g.iPhone), which automatically present anything like product reviews to like product pictures.

32 Sephora: Multi-channel” Beauty Insider” Loyalty Program has Made a Splashchallenges Cosmetics brand requires high level of customer intimacy for it to work. It’s very difficult to replicate the customer experience and environment online. Best Practices When the consumer first sign up, whether in-store or online, they get a welcome that reminds them of their of their benefits and also prompts them to update for fill out a complete profile. After that they receive one to two s per week. They also receive perk Alerts which are Beauty Insider-specific offers: exclusive products, early access to products, special promotions. That goes out on average every other week. Also, when the consumer gets her shipping confirmation Sephora has applied some of the dynamic personalization tools. Sephora treats as an extension of the brand, including the next best product or a helpful tip, which is a extension of the brand experience that Sephora have established for itself. A key component of that was personalization and serving up recommendations and content based on information Sephora knows about her clients. Both content and product data are automatically inserted based on business rules. Sephora adopted the technology to tune the offer to particular circumstances of the customer’s Beauty Profile. New customer answer 14 questions so Sephora can get more information about them such as eye color, skin type to really help serve up information, tips, content and products that are much more relevant to the customers. Future Plan Sephora is looking into to help build their replenishment reminder program. In addition to and mobile, there will be investments on other types of digital marketing and advertising solutions. Sephora is looking to more tightly integrate the display advertising world as well. Technology Enabler Acxiom Impact

33 Victoria’s Secret: Optimizing CRM as the Primary Tactic in Down MarketsChallenges Retailers need to face the reality of recovery and take remedial actions against the rapidly down market resulting from the outburst of financial tsunami in sep 2008. Best Practice Growing the database—To increase the share of Voice (SOV). Victoria’s Secret invested in building the customer file and adding new communication channels to garner more contacts. Victoria’s secret is adding cell phone matching capability to identify more customers at POS. Consider alternative(less expensive)channels of delivery—Victoria’s secret is planning to test inserts of their direct mail piece as FSI in newspaper deliveries, as well as using concierges to deliver to CRM piece to high tourist areas. The retailer is also increasing the CRM piece to high tourist areas. The retailer is also increasing the number of contacts to target high quantities of existing customers, including those not captured in the current CRM database. Reward loyalty—For those customer who continue to be loyal and maintain their spending and trip frequency, it’s important to reward that behavior. Victoria’s secret offered branded gifts valued at US$40 each during the holiday season and saw significant increase in a 12 month period.

34 Mandee: Social Networking as a Tool for Branding, Community Building, an Gathering Customer Intelligence Opportunities Connecting a customer’s online and social media activity to their real purchases should be the goal of any new media program for retailers. Twitter offers promotions to followers, Twitter is a great way to monitor and track what people are saying about the brand. Some company also use Twitter to address customer service issues and internal company communications. With Facebook, retailers can create group of fan pages, which have significant viral marketing benefits—and Facebook is another channel companies can use to communicate news, promotion and other items of interest to constituents. Best Practice Mandee conducts voluntary surveys and consumer profiling on social networks typically focusing only on information relevant to the shopping experience. By using widgets, Mandee create multiple surveys which plug into all of their social network pages(Facebook, MySpace, Twitter, MyYearbook, etc),to find out about customer reference, such as favorite color to wear for spring and what world issue customers are most concerned about. This gives customer the ability to sound off on what’s important to them, but it's also a great way to get deep, personal insight into the consumer mindset and put it to work for promotional and merchandising decisions. Lessons Learned In addition to getting users to downloading and use your widgets, follow the Twitter feeds, forward the viral video ads, and “friend” the Facebook page, retailers also striver to identify whether all that activity that more purchasing of not.

35 myShape.com: Improves Conversion Rates via Personalized AssortmentsChallenges myShape has more than 400,000 member shoppers. A demographically diverse group of women have signed up for myShape. There is a wide diversity of demographic psychographic groups of women shoppers including those who are too busy to shop or don’t like to shop. Best Practice myShape provides female apparel shoppers with customized assortments that cover three attributes: body measurements, body shapes and personal preference. The personalized assortments are updated in real-time. myShape also uses context-drive software that show shoppers products that other shopper are browsing and buying. Technology Enablers Patented Personal Shop technology, Baynote Recommendations(the SaaS model) Future Plan myShape is planning to enlist the services of INETICO which provides real-time transaction monitoring, including consistent visibility into the entire, end-to-end customer purchase process, both on line and in-store. The myShape site will continue to evolve with new services and offerings, including a social networking component.

36 THANK YOU FOR ATTENTION