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Incentive Compensation in Retail Industry

incentive_compensationThe retail landscape is increasingly dominated by stores. But the headlong rise of e-commerce has put extreme pressure on retailers to become more efficient, and to justify their bricks and mortar existence to customers. Retailers are recognizing that traditional retail needs to be retooled and their key differentiator could be that employee standing in the store.

Employee motivation is probably the most important single manageable factor for success and profitability of all the facets of store retailing. There are almost as many effective ways of motivating employees as there are ways of enticing customers into a store but money is generally the greatest motivator of all.

Retailers offer incentive compensation plans to promote employee motivation. These plans are tailored to the unique situation of each store.

Some of the factors used by retailers while building a compensation plan for a store are

  • Y-O-Y growth ($$$)
  • Y-O-Y growth percentage (%)
  • Achievement against target ($$$ – A grid of growth $ against various bonus %)
  • Achievement against target (% – A grid of growth % against various bonus %)
  • Inflation
  • Seasonality
  • Store factors (Age of the Store, Store Hierarchy, Geography)
  • Non comparability against last year performance (New Store, Store Expansion, Store Relocation, Cannibalization against new store)
  • Employee role, grade/band, salary etc.

While measuring achievement, Targets are usually the store turnover or the profitability or a combination of both. It is better if the plans are simple. However, simplicity itself cannot be given excessive consideration since it is necessary to cover every major measurable factor.

The master data required to build and roll up compensation plans is either defined at the Incentive compensation platform or flows to the platform from upstream systems along with achievement (turnover, profitability) details.

Master data is typically validated by financial controllers and relevant entities before getting fed for compensation consideration.

Incentive compensation platforms help in performing calculations using set of complex rules and the final rates and amounts are dispatched to payroll department for validation before they are broadcasted to the stores.

Store employees access these details through employee portals or other methods setup for them.

Compensation platform facilitates regular reviews of performance against compensation plans to stimulate store level efforts. Data is archived to facilitate audit.

The installation of an effective incentive plan is the foundation of a successful motivational compensation program. To optimize results retailers should regularly nourish and promote the program and a regular review would make sure it is still working to expectations.

About CRMIT Solutions:

CRMIT Solutions is a leader in transforming businesses with cloud based Customer Experience (CX) solutions on sales, service, marketing & social cloud.

oracle_specialized_sales_cloudCRMIT Solutions has achieved OPN Specialized status for Oracle Sales Cloud –Oracle Recognizes CRMIT Solutions for Expertise in Implementing Oracle Sales Cloud. CRMIT Solutions Offers A Host of Solutions on Oracle Sales Cloud, Including Consulting, Sales Planning, Social Sales, Customer Data Enrichment, Field Sales Automation, User Adoption, Training, Health Checks and Testing.

CRMIT Solutions deliver a Fixed Scope Implementation offering for Oracle Sales Cloud to fast track sales productivity. Fixed Scope Offering leverages Oracle best practices and agile approach for fast track implementation of Oracle Sales Cloud – Go Live in less than 4 weeks. It drives sales productivity through higher win rates, forecast accuracy, and lead conversion.

Inputs
C.A.Mohammed
Consulting – CX/CRM Industry Solutions
CRMIT Solutions

 


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Customer Relationships In Retail Stores

Let’s Consider these:

  • The guy on his mo-bike leaves home for office. Before turning at the street corner, he stops his vehicle close to some news paper vendors. He has to wait for his turn to buy Economic Times, as the person manning the shop is busy with another buyer. He gives a lazy look at the neighboring shops selling news papers, including his favorite Economic Times, but still waits for his turn and buys the paper from same stall, as always
  • A girl born and brought up in Mumbai is working in the Mumbai office of a software company. She flies with her mother all the way to Chennai on a Friday late evening; she has to take the return flight the very next day after buying her wedding saris from T.Nagar in Chennai
  • A young couple decided to buy a washing machine. They waited to save enough before buying it. They did some desk research; spoke to some users and then shortlisted options. They decided it should be a fully automatic, Top Loading machine. Then they visited various counters selling white goods, noted price variations. Zeroed upon a Brand and specification. Eventually, they ordered on Flipkart, payment on delivery!

The paper Economic Times remains the same in the whole town. Same content, same price. But one vendor has a guy on a mo-bike waiting, even though adjacent shops are also selling the same paper. What made him wait? Was the vendor smiling ‘extra sweet’ or was there any price discount? Or, is it the magic of what we call a ‘Perception’?

And, those who know Mumbai, know well that good silk sari stores, well reputed brands are available in Mumbai. Yet the girl chooses to spend a huge sum of money on air tickets, willing to face a very crowded weekend, comes all the way to buy saris for her wedding. Again, is Perception at play, saying Chennai is the best for saris?

In the third example, someone buying a washing machine online was a big surprise to me. However, I learnt that a good price difference of Rs. 2000 was there, and the delivery team arrived at mutually convenient time along a with a Card swiping terminal. Delivery was made, and as is the normal practice with ‘touch and feel’ physical stores, the very next day a technical hand arrived from the manufacturer and installed the washer. The excited couple called it a neat, clean, hassle-free event.

Earlier the buyers used to be warned “caveat emptor”. Now the tables have been turned. Advantage to buyers, a nasty hit to some of the inefficient retailers!

All retailers have to be smart. Understand the new rules of the game.

1. The purpose of a business is to locate that potential user of its products/services; attract and make him/her try at least once AND retain the first time buyer, as a CUSTOMER.

There could be real ‘one-time-buyers’, say like this tourist from South Africa buying a gift watch or a travel bag from a store in India. But, that act of one-time-buying has the potential to gain a Brand ambassador for the store. On the other hand, the same act can earn the wrath of the buyer, who would bad mouth the store for all the ills the tourist perceived during that one-time-buying.

2. The retailer, whether a single owner or a Company, must get a decent RoI. Earn profits and expand operations. The investor knows that. But do all employees know that? A rude cashier or a listless sales man can kill a sale. Why, even the parking lot attendant, a contract service provider can kill the sale. So the retailer has to Enthuse, Enlighten, Educate, Evaluate, Empower, and Enable all his direct and indirect employees to be ‘customer’ oriented. Repeatedly.

3. Managing Customer Perception will continue to be a challenge and can impact the revenues. Retailer should keep checking the perception factor repeatedly, in order to stay in business and succeed.

Even as I am typing this, I had a word with a Branch Manager of a famous Retail Chain of Stores, instructing him to send me a refund cheque. I felt let down by this particular manager, impacting adversely my good relationship with this retail chain, lasting over some 20+ years!

It is said “God can’t be in all the places, all the situations, and so, He created a Mother.

Similarly, the investor of the retail store can’t be present in every situation. Therefore, he has to put in place an intelligent, responsive & robust Customer Relationship culture that enables, encourages and empowers all the employees, all the time. In a transaction intensive retail operation, this is more important than ever!

P. V. Ramaswamy

P. V. Ramaswamy, a veteran in Retail industry, has worked with leading brands such as Godrej & HCL BPO on the Retail space. He has held various important positions in Sales, Customer Service, Operations, HR, Expansion and more. He recently floated a Media Company, Eklavya Productions (P) Ltd., which deals with film making, producing films of all types and sizes.