How to Judge Wireless SuccessBy Rebecca Wettemann | Posted 2002-12-11 Print
You want to know if a wireless system for helping pump up sales pays off. Here are key performance indicators.
Clearly, Prada focused on coolness, not return on investment, when planning its Epicenter store in Soho. As a result, it may have achieved only 20% of what it might have, for its investment.
If Prada had focused on the returns it could generate, it would have recognized that employee productivity and increased profits per customer would be the key desired results to obtain.
And to get higher productivity and more profit per customer, you have to…know the customer.
In this case, the technology is not that new. Digital tracking of inventory is not fashionable; grocery stores have been doing it for ages. And Prada specifically set out to put in place all the pieces of technology that would allow it to know exactly what its customers were interested in, what they had bought in the past and what they might buy while they were still in the store.
What separates the sale of fancy handbags from mere cans of beans is creating an individual experience in a store, rather than simply tracking sales at the checkout counter.
But without ensuring that the employees actually used the "staff devices" that made the system tick, the rest of the technology could not come into play. And until they give customers identification cards that will identify them when they walk in, it will be hard to highlight products for customers based on their past purchases and preferences, direct them to areas of the store with new items since their last visit, and let them know instantly if their size is available.
Once the technology actually gets used as intended, Nucleus Research identified a number of key benchmarks a retailer such as Prada would want to track to make sure it was continually earning a full return on its investment.
Return on employee productivity.
Formula: Time savings x fully loaded employee cost x correction factor = return
Here, the retailer would keep track of the reduced amount of time it takes to process a given amount of sales. Rapid access to stock availability information and automation of dressing-room support activities enables Prada employees to devote time to other activities and customers. The correction factor allows for the fact that not all the time saved goes into new productive uses of a worker's time. A worker may, for instance, use some of the time to daydream, surf the Web or buy a refreshment.
Return on cross-selling.
Increase in revenue per customer x profit margin = return
The systems should be suggesting additional products to purchase, boosting the average ticket. The average ticket then becomes proxy for ability to cross- and up-sell.
Subtract the current average ticket size from the prior ticket average. That will then allow you to calculate the actual incremental gain, or return, from the cross-selling effort.
Sales divided by average amount of inventory on hand.
Real-time availability of inventory information should enable Prada to reduce special ordering and logistics costs. That, in turn, means the retailer should be able to either reduce the amount of inventory on hand to support sales; or generate more sales for the amount of inventory it decides to keep on hand.
Return on brand awareness.
Average store sales gain, by square foot, by month.
Media coverage of the new store and technology increases visibility and promotes the Prada brand without additional advertising or PR investment. The actual return is almost impossible to quantify, since dollars do not change hands for the coverage received. Retailer can compare monthly sales growth of the store receiving the attention, versus company average; as well as overall monthly store sales, versus company average.
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