The Value, Role and Performance of the Physical Retail Channel for Communications Service Companies

Consumers and Providers Perspectives An Accenture Research Study

Table of Contents
Executive Summary Consumers Perspectives Providers Perspectives Recommendations About the Research 1 4 9 17 20

Executive Summary
In an era when interactionsboth personal and commercialincreasingly are carried out in the digital world, many executives of consumer-oriented businesses are wondering what the role of the physical retail channel will be in the future and how they should structure this channel to help drive customer loyalty, competitive differentiation and, ultimately, profitable growth. For providers of communications products and services, this issue is especially relevant given the increasing commoditization of services, intensifying competition and saturation of established markets.

Accenture recently conducted a comprehensive research program to tackle this topic head on. Our global study, which involved more than 3,000 consumers of communications products and services and 50 senior executives at the worlds largest communications providers, explored the following key issues:
The

The

characteristics of a store experience that are most critical to attracting consumers and strengthening customer loyalty effectively executives of communications providers believe their companies are leveraging the physical retail channel to build and strengthen customer loyalty and drive sales profitably well providers stores fare on a variety of critical dimensions of retail performance strengths and weaknesses in key retail capabilities plans for their companyowned stores in the next two years

Broadly speaking, our research revealed the following: Consumers and providers agree on the importance of the physical retail channel. Nearly nine in 10 providers said a strong physical retail channel is important to their growth strategy today, and about the same proportion expect retail stores to remain important in two years. Three out of four consumers said they want a retail store to visit when purchasing communications products or services, about two-thirds said the store is their preferred channel for making purchases, and more than three-fourths said the quality of a communications providers store experience is a factor in their decision to do business with that company. Furthermore, more than three-fourths of consumers said that in two years, physical retail stores will be as important as or more important than providers online stores. Preferences varied widely among distinct consumer segments, with many even more strongly valuing physical stores.

How

extent to which consumers globally value a physical retail presence when purchasing communications-related products and services and seeking technical and usage assistance opinions on how well their communications providers stores currently meet their expectations across a number of key dimensions

How

Providers

Consumers

Providers

The Value, Role and Performance of the Physical Retail Channel 1

Understanding the current and future importance of this channel, providers plan to increase their presence in physical retail in the next two years, with an emphasis on company-owned stores. In the next two years, more than three-quarters of respondents said they plan to increase the total number of storefronts through which they sell. As part of that expansion, they want to increase the percentage of the total revenue they generate from their own storeswith much of that growth anticipated to come from business customers. Further to that point, as they expand, providers must understand where they need to improve their retail capabilities to help their companyowned stores meet consumers needs and increase stores contributions to the top and bottom lines. Consumers generally feel providers stores perform only average at best on a range of retail

attributes. In fact, fewer than two in 10 consumers believe their providers stores perform extremely well in product availability, having knowledgeable and available store staff with positive attitudes, and delivering speedy servicethe attributes consumers consider stores must get right. Providers themselves acknowledge a number of shortcomings in store performance (especially integrating stores with other customer channels and creating tailored store assortments and offerings) as well as key retail capabilities (most glaringly in analytical tools and performance metrics) that could impede their ability to create a compelling customer experience that drives sales. These provider shortcomings highlight todays customer satisfaction gap: Providers are lacking the retail capabilities and tools to really understand and deliver customer needs in a targeted and personalized way, cohesively across all channels.

Some communications providers in our survey appear to be further along in developing the retail capabilities that are key to a robust, highly effective physical retail channel. We identified a group of providers (which we deemed leaders) that indicated they had the most mature retail capabilities across the six we covered in our survey, as well as a group with the least mature (which we denoted as laggards). The differences between these two groups suggest there is a strong correlation between maturity of retail capabilities, store performance and, ultimately, revenue generated by the channel. For example, leaders are more likely than laggards to cite stronger performance of their stores in all 10 areas covered by our surveyeven those considered much more complex and difficult to doand to describe their stores as effective in driving sales and incremental profit, supporting the companys brand, providing a

2 The Value, Role and Performance of the Physical Retail Channel

differentiated customer experience, and delivering education and technical assistance to customers. This strong performance appears to translate into financial results, as leaders are more likely than laggards to generate a greater percentage of their total sales revenue via these outlets. Given our findings, we believe providers should consider a number of key actions as they seek to build or strengthen their physical retail channel. For starters, given that stores are, and will remain, important to consumers buying communications products and servicesand are seen by communications providers themselves as important in their ability to growproviders must develop and regularly refine a retail strategy that supports their overall business strategy. Importantly, while this strategy should incorporate a focus on building strong company-owned stores, it also should carefully balance the use and mix of other physical retail channels to maximize convenience for customers. Furthermore, providers retail strategies should acknowledge that rather than cost centers, retail locations actually can be growth acceleratorsa channel that consumers value and that can help providers increase revenue and market share. Although it is clear that stores are important, there also is strong consumer support for an effective multichannel experiencesomething at which providers have indicated they are largely ineffective today. Thus, building and maintaining the technologies and processes that provide cohesive integration across physical stores, website, call center and mobile channels will be a critical component to a communications providers success.

There is a significant paradigm shift of which providers need to be aware. Consumers view the store as a sales channel first and a support and service channel second, whereas communications providers have historically debated which comes first. It is less about which one comes first and more about transforming the entire experience into a customercentric one. This new focus involves integrating all facets of a communications providers operations, including: most effectively laying out a store from an experience and design perspective, and identifying the right depth and breadth of a compelling and relevant product assortment; and creating and implementing a flexible and dynamic staffing strategy that makes it easy for consumers to purchase new products and services while improving overall customer satisfaction. Providers also should determine how to free up their store employees time so they can dedicate more time to selling. However, communications providers must balance this by also fostering an inviting environment to deliver technical, educational and usage assistance. There was considerable evidence in our study that consumers value and want the ability to learn more about providers products and services in the store so ultimately consumers can get more out of them especially as product and service complexity increases. Consumers clearly believe communications providers stores can perform better, especially on those areas most important to them. According to our findings, product availability and knowledgeable store staff are seen as the most important attributes of stores, which indicates that communications providers should assess their supply chain and HR/training capabilities for improvement opportunities and identify ways to leverage these areas to differentiate themselves from

competitors. Providers should consider hiring talent with experience working at leaders in other retail segments something they indicated they do not currently do very wellto quickly infuse key retail expertise into their operations. Providers also should re-evaluate their training programs and potentially overhaul them to be more retail- and customer-centric. Finally, because there are substantial variations in consumer preferences, communications providers must tailor their retail experience to appeal to key customer segments. For communications providers seeking geographic expansion, a one-size-fits-all approach to market entry is a recipe for disaster. Even for providers focused on a single geographic market, large differences among age groups and other demographics make tailored offerings a necessity. Creating offerings and retail experiences that closely meet customers needs requires a strong analytics capabilitysomething most providers in our survey said they lackand the ability to act on the insights segmentation generates. Analytics will become especially important as providers strive to determine how to orient their stores to attract more business customers, who have distinctly different needs, requirements and buying behaviors and processes from consumers. In the remainder of this report, we explore the findings of both our consumer and provider research, as well as our recommendations for providers, in greater detail.

The Value, Role and Performance of the Physical Retail Channel 3

Consumers Perspectives

Figure 1. Level of satisfaction by service.

Figure 2A. Level of satisfaction by age and gender.

Men Women 59% 66% 62% 67% 60% 57% 63% 68% 18-24 53% 62% 61% 52% 50% 55% 59% 53% 25-34 50% 59% 59% 54% 56% 57% 60% 63% 35-44 56% 60% 57% 65% 54% 54% 61% 64% 45-54 59% 62% 54% 65% 59% 53% 57% 70% 55-64 67% 72% 65% 71% 69% 66% 71% 74% 65+ 72% 77% 81% 73% 60% 55% 70% 64% Fixed telephone landline Mobile/wireless phone service Wireless/satellite Internet 59% 62% 57% 61% 58% 56% 62% 65%

Voice (Mobile) Data Services Voice (Landline) Video Services

64% 61% 59% 59%

Digital Subscriber Line (DSL) Cable Internet Cable television Satellite television Satellite radio

General Skilled Student Labor Labor

Admin/ Prof Not Prof Clerical Mgmt Mgmt

Consul- Execu- Not tant tive Employed

In todays world of everything digital, do consumers really care whether a communications service provider has a physical store they can visit? And if they do, what do they think a store must have to make their visit worthwhile? And how do their providers stores perform in these areas? These are the overarching questions the consumer portion of our research was designed to answer. What we found should be illuminating for communications provider executives. We confirmed that consumers do still value physical retail storesfor specific activitiesand likely will do so for the next few years. However, consumers also indicated their providers stores are not performing well, especially in the aspects they consider most important. This suggests that, at least from the consumer perspective, providers need to focus on their physical retail presence and make game-changing modifications to meet the needs of todays consumers. Only after this transformation occurs can communications providers begin to reap the benefits of attracting, engaging and converting customers into profitable sales.

Fixed telephone landline

Overall satisfaction for Mobile/wireless phone service services is 60% communications 62% 57% consistent with 56% 55% 56% Wireless/satellite Internet other surveys and has substantial room for 61% 67% Digital Subscriber Line (DSL) 60% improvement.
Cable television 55% 52% 56%

An integrated, smooth and 63% consistent multichannel 64% 66% 60% 52% 69% 61% experience is critical, as 54% 66% 67% 50% 62% consumers use each channel 59% 62% 64% 63% 53% 69% for all purposes but have a clear 55% 64% 65% 56% 49% 59% 58% 46% Cable Internet preference by specific 65% activity. Customer satisfaction with communications services is alarmingly lowand 69% 53% Satellite television consistent with what we have seen59% in research findings from59% 78% 68% other firms. Satellite radio Given this low satisfaction level with all types of services (Figure 1), satisfaction is highest with mobile voice services (64 percent), followed by data services (61 percent) and landline voice and video services (59 percent each). Furthermore, satisfaction varies widely by age, gender and occupation. Satisfaction is highest among consumers in the Boomer Plus category (55 years and older) and lowest among men, young adults (Figure 2A) and professionals (Figure 2B). These survey results provide evidence that communications providers must aggressively change this negative perception quickly to capture the hearts and minds of the younger and growing generations.
54% 67% 59%

53%

57%

62%

56%

56%

57%

54%

56%

65%

4 The Value, Role and Performance of the Physical Retail Channel

We found that consumers had strong 54% opinions 64% what they prefer to do in a on 54% 46% 69% store and what67% would rather do via they 50% 71% 57% 76% other channels (Figure 3). For instance, the Web is the channel of choice for research and self-service: Consumers indicated they preferred to go online to learn about new services or offers, renew service contracts, submit billing inquiries and update personal account details. They want to go to stores for buying and educating: Purchasing a new product and learning how to use a new product or service were their preferred in-store activities. The phone is preferred as a support channel, with most consumers saying they would rather call a provider to report faulty equipment or service issues, complain about a product or service, or get technical assistance. These findings suggest that rather than eroding physical retail sales, the online channel is a strong complement to stores.

57%

59%

60%

46%

61%

Men Fixed telephone landline Mobile/wireless phone service Wireless/satellite Internet Digital Subscriber Line (DSL) Cable Internet Cable television Satellite television Satellite radio 59% 62% 57% 61% 58% 56% 62% 65%

Women 59% 66% 62% 67% 60% 57% 63% 68%

18-24 53% 62% 61% 52% 50% 55% 59% 53%

25-34 50% 59% 59% 54% 56% 57% 60% 63%

35-44 56% 60% 57% 65% 54% 54% 61% 64%

45-54 59% 62% 54% 65% 59% 53% 57% 70%

55-64 67% 72% 65% 71% 69% 66% 71% 74%

65+ 72% 77% 81% 73% 60% 55% 70% 64%

Figure 2B. Level of satisfaction by occupation.

General Skilled Student Labor Labor

Admin/ Prof Not Prof Clerical Mgmt Mgmt

Consul- Execu- Not tant Employed tive

Figure 4. Importance of a physical retail store to consumers purchase decisions.

Fixed telephone landline

53%

57% 57% 55% 61% 64% 52% 53% 78%

62% 60% 56% 67% 65% 56% 59% 68%

56% 63% 61% 59% 56% 54% 67% 59%

56% 64% 54% 62% 49% 57% 54% 57%

57% 66% 66% 64% 59% 59% 64% 76%

54% 60% 67% 63% 58% 60% 54% 67%

56% 52% 50% 53% 46% 46% 46% 50%

65% 69% 62% 69% 65% 61% 69% 71%

Mobile/wireless phone service 62% Wireless/satellite Internet Digital Subscriber Line (DSL) Cable Internet Cable television Satellite television Satellite radio 56% 60% 55% 55% 69% 59%

80% 70% 60% 50% 40% 30% 20% 10% 0%

20% Extremely Important 27% Very Important 25% Not Important

28% Important

Overall, almost all (97 percent) of consumers said it is important to consistently receive access to the same products, services and assistance in a store, by phoning the company or by visiting the website. Three out of four consumers in our survey said they want a retail store to visit when purchasing communications products or services (Figure 4). Of those who have purchased a communications product or service at a store in the past year, two-thirds did so in a store owned by the provider. Students and professionals in the 18- to 34-year-old range tend to visit stores most frequently.

Figure 3. Channel preferred by consumers for various activities when dealing with communications products and services.

Click
Learn Renew

Research and self-service about new service and/or offers (75%) service contracts (51%) Billing inquiry (44%) Update personal details (75%)

Purchase and education Purchase a new product (65%) Learn about how to use a product or service (31%)

Visit

Having a retail store is not enough. Consumers value the overall store experience as well as the staff and how well the store is operated.
A store must connect with consumers and give them a reason to come back. Indeed, our survey found that the quality of a communications providers store experience is a factor in the decision to do business with that company for

Call
Report Make

Support faulty equipment or service issues (58%) a complaint about a product or service (50%) Get technical assistance (56%)

The Value, Role and Performance of the Physical Retail Channel 5

Figure 5. Attributes that consumers globally look for in a retail store.

Availability of products in the store Knowledge of store sales or service staff Attitude of store sales or service staff Speed of service in the store

56% 54% 32% 28% 27%

Availability of store sales or service staff

Detailed product/service information in the store

24%

Ease of finding products in the store

21% 21%

Opportunity to try products in store Convenient hours of operation

17%

Consistent sales and service from store to store

14%

Easy-to-follow store layout

4%

Pleasing store design/atmostphere

3%

0%

10%

20%

30%

40%

50%

60%

Most Important

Second Most

Third Most

Note: Figures represent the total percentage of respondents citing each attribute as either most, second-most or third-most important.

more than 75 percent of consumers. The importance of the store experience is highest among 18- to 34-year-old consumers and lowest among the Boomer Plus group. This demographic shift brings on additional challenges in the retail area that providers should considerprimarily because these consumers needs and expectations are higher. They are becoming more mobile, tech-savvy and forward-thinking, thus redefining the overall shopping process and demanding more, while exploring multiple channels. They expect a unified and consistent experience across channelsand form impressions based on the weakest link. These consumers will leverage multiple social interaction channels to talk about their negative and positive experiences with friends, family and even strangers. The 18- to 34-year-old range demands efficiency because they often are multitasking and time-constrained. Availability of products in the store and knowledge of store sales or service staff are the most important attributes

for consumers when visiting a retail store (Figure 5). In fact, 56 percent of respondents said product availability was either the first, second or third most important attribute in a store. Close behind product availability was knowledge of the store sales or service staff, named by 54 percent as a topthree attribute.

The time and the factors that define value in the store mean consumers visit with very specific interests and are looking for answers quicklywhich means a focus on talent is key to the success of communications service providers stores.

There are significant opportunities to improve the components of the store experience, especially those consumers value most: availability of product; knowledge, attitude and availability of staff; and speed of service.
Communications service providers stores performed only slightly better than average on key retail attributes in the minds of consumers (Figure 6). Fewer than two in 10 consumers believed their providers stores perform extremely well in product availability and having knowledgeable and available store staff with positive attitudes, and delivering speedy service.

Looking ahead, retail stores will continue to be a critical channel for consumers in general and even more so for younger generations and professionals/ executives.
Our survey findings illustrate not only that stores are important today, but also that the need for a physical retail store will remain great in the coming years as well. More than 75 percent of all consumers surveyed said that in two years, physical retail stores will be as important as or more important than providers online stores. And among many sub-groups of consumers, especially students, skilled labor and executives in management positions, as well as consumers in Asia, importance will be even higher (Figure 7).

6 The Value, Role and Performance of the Physical Retail Channel

Figure 6. Consumers globally thought their communications service providers stores performed only slightly better than average on key retail attributes. Satisfaction with Store Visits 57% Availability of products in the store
Knowledge of store sales or service staff Attitude of store sales or service staff Speed of service in the store Availability of store sales or service staff Detailed product/service information in the store Ease of finding products in the store Opportunity to try products in store Convenient hours of operation Consistent sales and service from store to store Easy-to-follow store layout Pleasing store design/atmosphere
0% 20% 40%

60% 61% 44% 54% 52% 59% 41% 66% 56% 61% 62%
60% 80% 100%

Extremely Well (5)

Extremely Poor (1)

Note: Figures represent the total percentage of respondents rating each attribute a 4 or 5.

Figure 7. How will the importance of retail stores (versus online stores) change in the next two years?

How will the need for retail change (vs. online stores) in the next two years? Global Total Asia Students Skilled Labor Executives/ Management North America Ages 5564

36% 53%

42% 56%

45% 61% 59%

41% 24%

35% 25%

30% 19% 19%

-23%

-23%

-23%

-19%

-26%

-20%

-22%

+1
As Important

+18

+12
More Important

+6
Less Important

+4

-1

-3

Note: Net importance metric calculated by subtracting, for each group, the percentage of respondents indicating stores will become less important from those believing stores will become more important. Thus, stores are seen as most important overall by respondents in Asia, who have a +18 net importance metric. The Value, Role and Performance of the Physical Retail Channel 7

8 The Value, Role and Performance of the Physical Retail Channel

Providers Perspectives

Figure 8. Importance of the physical retail channel to providers growth strategy.

5* 4 3 2 1* 0% 2% 2% 2% In two years 8% 14% 27% 41% 43% 61%

Today

*Percentage rating on scale of 1=not at all important to 5=extremely important

Given consumers increasing interest in performing all sorts of transactions via digital channels, one might expect communications provider executives to be shifting their attention away from physical stores. But our research found just the opposite. In fact, an overwhelming majority of executives believe stores are critical to attracting and retaining customersand, in fact, most survey participants indicated they planned to expand their physical retail presence in the next two years to capitalize on growth opportunities. Our research also revealed some shortcomings among providers retail capabilitiesespecially in the areas of analytics, but also in performance metrics, information systems, talent management and supply chain. These shortcomings, if not addressed immediately, could impede a providers ability to achieve profitable growth, reduce costs and improve customer satisfaction in this channel. Furthermore, they will be less competitive and likely will not meet consumers expectations.

The retail channel is important to providers of communications services, regardless of where they are located and the types of services they provide.
Like consumers, communications service providers also believe the physical retail channel is still relevant and important, and is likely to remain so for the foreseeable future (Figure 8): Eighty-eight percent rated a strong physical retail channel either important or extremely important to the companys growth strategy today. Respondents also expect retail stores to remain important in two years, with 84 percent indicating they will be important or extremely important. Respondents who rated physical retail as important were most likely to cite two reasons why: Their customers are demanding it as a place to purchase and interact with the providers, and such a channel enables them to more effectively up-sell and cross-sell.

A third factor was that the physical retail channel enables them to educate customers on how to use their products and services. The small percentage (4 percent) of executives who did not consider physical retail important were most likely to say the reasons are that their online presence and call centers are sufficient for effectively reaching customers, and that the costs of developing and maintaining a physical presence are not justifiable.

Evidence of providers commitment to the physical retail channel are providers plans to expand their presence in various types of retail formats.
Accenture advocates that communications providers take a portfolio approach when determining how they should serve the needs of their current and prospective customers. Different formats serve different needs, and having the right mix and balance is

The Value, Role and Performance of the Physical Retail Channel 9

Figure 9. Nature of providers physical retail presence today.

Third-party retailers Company-owned stores Franchises/dealers Store within a store Customer service/payment centers Kiosks Other

76% 76% 71% 55% 53% 47%

8%

Figure 10. Percentage of various types of customers targeted by providers company-owned stores.
Consumer

0%
Small/home office

98% 98% 71% 75% 45% 16% 20% 53%

Small business

Medium business

Large business

12% 14%

Other

0% 2% Today In two years

critical to profitable execution. Although the following results were somewhat predictable, a key question every communications provider should continue to ask itself is: Do we have the right mix/balance to serve consumers today and how are we positioned for tomorrow? A majority of respondents indicated they used a variety of physical retail formats, with relationships with third-party retailers and companyowned retail stores being the most popular (both 76 percent), followed by franchises/dealers (71 percent). About half said they sell through a store within a store and customer service/payment centers model (Figure 9).

In the next two years, more than threequarters of respondents (76 percent) said they plan to increase the total number of storefronts through which they sell. For many providers, such expansion will be focused on increasing their company-owned stores. As they expand their physical retail presence in the next two years, providers increasingly will use the channel to target business customers (Figure 10). Today, almost all (98 percent) respondents said they use all the storefronts through which they sell to target consumers. That figure remains unchanged in two years. Providers see growth in using physical retail to attract business customers, especially those in the small office/ home office and small business segments. Focus on medium-sized businesses and large enterprise businesses also is expected to grow, although the percentage of companies targeting those segments with their stores still will remain comparatively low.

Providers also expect that such expansion will increase the percentage of their overall revenue that is generated by the physical retail channel. Today, 43 percent of respondents said half or more of their total annual revenue is generated via the physical retail channel. This revenue is nearly evenly split among three channels: third-party retailers (27 percent), franchises/dealers (27 percent), and company-owned stores (26 percent). In the next two years, respondents have increasing expectations for the total percentage of their annual sales generated by their retail channel. One year from now, they expect to generate 49 percent of all revenue from physical retail, increasing to 50 percent in two years. Respondents anticipate generating more of this revenue through their company-owned stores (29 percent two years from now, compared with 26 percent today), largely at the expense of relationships with thirdparty retailers (27 percent today, 25 percent in two years).

10 The Value, Role and Performance of the Physical Retail Channel

Figure 11. Performance of company-owned stores in key retail areas.

LOW

Determining the most appropriate and beneficial locations for stores

70% 65%

Providing appropriate education and training for store employees so they can be more engaged, knowledgeable and customer-centric Maintaining the right amount of inventory of the right products in the right stores Rationalizing underperforming stores
Level of complexity

64% 56% 49%

Understanding the traits, behaviors and needs of the customers in each stores geographic area Creating exciting and differentiating assortments, promotions and events that are relevant and compelling to customers

44%

Integrating sustainability into store operations to reduce environmental impact and operating costs

42%

Hiring corporate and store managers with experience in other retail segments

35%

Integrating the stores with customer channels (e.g., Web, call center)

35% 35%

Tailoring each stores design and offerings to the specific customers and customer segments in its geographic area
HIGH

Percentage rating a 4 or 5 on scale of 1=not well at all to 5=extremely well

Figure 12. Maturity of key retail capabilities.

Standardized operating procedures Talent management Information systems Performance metrics Supply chain Analytical tools

67% 49% 49% 47% 45% 30%

Percentage rating a 4 or 5 on scale of 1=very basic to 5=mature

Providers will need to improve multiple aspects of their own stores if they are to achieve their growth goals in the next two years.
As they expand their retail presence in the next two years, providers need to ensure their company-owned outlets those over which they have the most controlperform at a high level and meet customers needs if they are to meet providers growth goals. According to our research, providers have some work to do to in this regard. Performance in key retail areas We see a distinct dichotomy in terms of how providers view their retail performance (Figure 11). A majority of respondents believe they perform well or extremely well in site location (70 percent), educating and training store employees (65 percent), maintaining the right store inventory (64 percent), and rationalizing underperforming stores (56 percent).

On the other hand, less than half of respondents said the same about their performance in understanding the needs and behaviors of customers in each stores geographic area (49 percent), creating differentiated assortments, promotions and events (44 percent) integrating sustainability into store operations (42 percent). Hiring store managers with experience in other retail segments, integrating stores with other customer channels and tailoring store design and offerings to customers follow in performance at 35 percent each. Overall, the preceding findings show that as the complexity of the task increases, provider performance decreases. In other words, it is not surprising that a majority of providers indicated they perform well in locating sites for their stores, training store employees, stocking their stores with the right merchandise and identifying

and closing stores that arent meeting their revenue goals. These are core to the operation of any retail business and are table stakes simply to enter the game. However, at the other end of the spectrum are more complex tasks that retailers must master to differentiate themselves from competitors and boost the top and bottom lines of their stores. For example, gaining deep insights into customer needs, tailoring offerings to meet the needs of diverse customer segments, and tightly integrating stores with the Web and call center are much more difficult, yet are absolutely critical to making the entire customer experience more customer-centric, relevant and unique. Maturity of supporting retail capabilities There appears to be ample opportunity for providers to improve key retail capabilities as well (Figure 12). Only one capability was described by a majority of respondents67 percent

The Value, Role and Performance of the Physical Retail Channel 11

Figure 13. Overall effectiveness of company-owned stores in these areas.

Supporting/extending the companys brand Driving sales of traditional products and services Educating customers on the companys products and services Providing a consistent and differentiated customer experience Providing comprehensive technical or usage assistance/product training to customers

79%

74% 63% 58% 51%

Driving incremental profit Driving sales of related products and accessories

44% 35%

Percentage rating a 4 or 5 on scale of 1=not at all effective to 5=very effective

Figure 14. How providers' store employees spend their time.

Selling products/services

41% 17% 19% 17% 21%

45%

Educating customers

Customer service

Technical support

13% 11%

Non-customer-facing activities

8% 0% 7%

Today

In two years

as mature: having standardized business processes across all stores. The remaining capabilities were deemed immature by more than half of respondents. These included talent management, information systems, performance metrics and supply chain. The area in which providers appear to need the most help is analytics: Only 30 percent of respondents said they had mature tools that enable them to perform advanced analytics such as customer segmentation and market basket analysis. Overall effectiveness of companyowned stores Despite the obvious shortcomings in performance on many key areas as well as maturity in retail capabilities,

a majority of respondents believe their stores are effective in all aspects covered by our survey except two: driving incremental profit and driving sales of related products and services (Figure 13). Only 44 percent and 35 percent of respondents, respectively, believe their stores are effective in those areas. These findings raise the question of whether providers are either overestimating the return on their retail investment or have set goals for their stores that are much too low. Clearly, if most providers believe their retail capabilities are average at best, and that they underperform on all but the most basic aspects of retailing, their stores have substantial untapped potential.

Objective of stores The primary objective of companyowned physical stores among respondents is sales, cited by 81 percent. Yet currently, respondents estimate that the employees in their company-owned stores spend only 41 percent of their time selling products and services, while dedicating 51 percent of their time on supportrelated activitiescustomer service (21 percent), educating customers (17 percent) and technical support (13 percent). In two years, respondents anticipate employees to place a greater emphasis on sales45 percent on selling products and services and less on support (47 percent on customer service, educating customers or technical support) (Figure 14).

12 The Value, Role and Performance of the Physical Retail Channel

The Value, Role and Performance of the Physical Retail Channel 13

Figure 15. Importance of key business outcomes for company-owned stores.

Exceed connect and ARPU goals and gain market share profitably Drive customer satisfaction and reduce customer attrition/churn

48%

29%

Remain relevant to target customer through competitive differentiation

17%

Flawlessly enable consistent, standardized and lean operations

5%

Institutionalize a new retail culture

2%

Percentage citing each as most important

Figure 16. Leaders were more likely to say their stores perform well or extremely well, even on the most complex aspects of retailing.
HIGH

Tailoring store experience by customer segment Laggards Integrating across channels Hiring the right people Operational efficiencies
Laggards Laggards Laggards Laggards Laggards Laggards Laggards Laggards Laggards 0% 20% 40% 60% 80% Leaders 100% Leaders Leaders Leaders Leaders Leaders Leaders Leaders

Leaders

Level of complexity

Differentiating assortments and promotions Understanding customer needs Rationalizing underperforming stores Inventory management Training Site location

Leaders

LOW

Percentage rating a 4 or 5 on scale of 1=not well at all to 5=extremely well

As far as outcomes are concerned, the greatest percentage of respondents (48 percent) considered the most important outcome of their stores to be exceeding connect and ARPU goals. Driving customer satisfaction and reducing customer attrition was seen as the most important outcome by 29 percent, while only 17 percent considered the most important outcome for their stores to be enabling the company to remain relevant to target customers through competitive differentiation (Figure 15).

Some communications providers in our survey appear to be further along in developing the retail capabilities that are key to a robust, highly effective physical retail channel.
In analyzing our survey data, we identified a group of 10 providers (which we deemed leaders) that indicated they had the most mature retail capabilities across the six we covered in our surveyscoring a total rating of 24 or above out of a possible 30 in rating the six key retail capabilities. Their responses in the survey differed in many ways from providers with weaker capabilities (which we denoted as laggards), suggesting there is a correlation between maturity of retail capabilities and store performance.

For example, leaders appear to place a greater emphasis on physical retail than laggards: The former were more likely than the latter to believe a strong physical retail presence is critical to their growth strategy. On a scale of 1 (not at all important) to 5 (extremely important), leaders posted a mean rating of 4.80, compared with a mean of 4.34 for laggards. This perspective on the importance of retail is consistent with how leaders approach the use of various types of physical retail outlets. Leaders are more likely than laggards to incorporate all major types of outlets in their physical retail presence including company-owned stores (90 percent versus 73 percent), third-party retail relationships (80 percent versus 76 percent), store within a store (70 percent versus 51 percent), and franchises/dealers (90 percent versus 51 percent).

14 The Value, Role and Performance of the Physical Retail Channel

Figure 17. Leaders were more likely than laggards to say their stores are effective or extremely effective.
Supporting/extending the companys brand

73%
Driving sales of traditional products and services

100% 100% 100% 90% 80%

67%
Providing comprehensive technical or usage assistance/product training to customers

36%
Providing a consistent and differentiated customer experience

48%
Educating customers on the companys products and services

58%
Driving incremental profit

39%
Driving sales of related products and accessories

60% 50%

30% Leaders Laggards

Percentage rating a 4 or 5 on scale of 1=not at all effective to 5=extremely effective

Leaders and laggards also diverge substantially when it comes to the performance of their own stores and how effective those outlets are in engaging with customers. For example, as shown in Figure 16, leaders are more likely than laggards to cite stronger performance of their stores in all 10 areas covered by our surveyeven those considered much more complex and difficult to do. This data strongly supports the idea that the ability to perform well on the most complex aspects of retailing is one of the biggest determinants of retail leadership.

Similarly, leaders are more likely than laggards to describe their stores as effective or very effective in driving sales and incremental profit, supporting the companys brand, providing a differentiated customer experience, and delivering education and technical assistance to customers (Figure 17). This strong performance by leaders in their stores appears to translate into financial results, as leaders are more likely than laggards to generate a greater percentage of their total sales revenue via these outlets. Leaders said their store sales accounted for 38 percent of their total sales revenue, compared with just 23 percent among laggards. This finding is all the more impressive when one considers the

fact that laggards on average have about 55 percent more such stores than leaders, suggesting leaders stores are more likely to provide the kind of experience that encourages customers to buy. This trend appears poised to continue, as leaders also are more likely than laggards to expect the percentage of total revenue they generate via their own stores to increase in two years (42 percent versus 26 percent).

The Value, Role and Performance of the Physical Retail Channel 15

16 The Value, Role and Performance of the Physical Retail Channel

Recommendations
Ever since companies such as Amazon.com, eBay and Netflix began demonstrating how the Web can transform the retail experience, people have been predicting the death of the physical retail store. However, now nearly a decade since Amazon posted its first-ever quarterly profit, it is apparent that just the opposite is happening. Everywhere we look, we see evidence of the increasing retailization of companies that traditionally have not had a physical, direct-to-consumer presence. In other words, many manufacturers and service providers are aggressively moving to build physical storefronts to develop and strengthen relationships with the end consumers of their offerings. Apple, of course, has been a leader in this shift. But other high-tech companies, including Sony and Microsoft, have followed, joining consumer goods and apparel producers such as Nike and Polo as upstream companies that are using their own stores to interact directly with customers.

Communications providers are no different. As our research revealed, communications companies as a whole believe stores are a key to their growth and have ambitious plans to expand their physical retail presence (both via their own outlets and in other retailers stores) in the coming years. As they make their physical retail push, communications providers should consider a number of actions that can help build high-quality retail capabilities necessary to make their stores a powerful customer relationship-building tool.

Set the strategy

For starters, given that stores are, and will remain, important to consumers buying communications products and servicesand are seen by communications providers themselves as important to their ability to growproviders must develop and regularly refine a retail strategy that supports their overall business strategy and considers the current and desired state of their retail capabilities. Importantly, while this strategy should incorporate a focus on building strong company-owned stores, it also should carefully balance the use and mix of other physical retail channels that customers value and that

could be more appropriate for certain types of products and services. For example, an operator might choose to sell its more complex and higher-margin offerings in its own stores (where the company could provide a more hightouch, service-oriented experience in which associates would help customers select the products and services that are right for them) and sell its more commoditized, simple and lower-margin offerings through a third party (which could deliver more customer traffic and generate a greater volume of sales). Such an approach would enable operators to effectively pair each offering with the appropriate retail channel.

The Value, Role and Performance of the Physical Retail Channel 17

Integrate the channels

Although it is clear that stores are important, there also is strong consumer support for an effective multichannel experience. Indeed, consumers expect the same levels of product and service from a store as from the Web, a call center, catalog, mobile phone, kiosk or franchise. Furthermore, they expect to be able to switch at will between channels in a smooth shopping experiencereturning or exchanging products in-store, even if they bought them online, and canceling or exchanging orders via any channel, regardless of where they initiated the transaction. These cross-channel shoppers are significantly more valuable than singlechannel customers. They buy more often, and Accenture research reveals that in some industry segments they spend, on average, almost three times as much a month as those who use just a single channel.1 Thus, building and maintaining the technologies, processes and organization that provide cohesive integration across customer channels is critical to communications providers success.

Providers also should determine how to free up their store employees time so they can dedicate more time to selling. However, communications providers must balance this by also fostering an inviting environment to deliver technical, educational and usage assistance something that a sizable percentage of consumers in our research said they value in a store. As Tom Alexander, chief executive of Everything, Everywhere (the new name of the combined Orange and T-Mobile entity), said, The role of retail is changing, it's not just about selling, it's about helping customers get more out of their mobile devicesit's about holding their hands.2 Cox Communications sees the potential in such a store experience. The company recently revamped its network of company-owned stores into solution centers geared toward providing a differentiated, interactive experience for customers. The stores feature a personalized concierge service to guide customers through their visit, as well as a learning lounge where customers can sit through short classes on a variety of topics (such as how to get the most out of their Cox service or installing hardware components such as video game players). Whats unique about our solutions stores is that they are about more than selling products or giving customers a place to pay their bill, said Cox Senior Vice President and General Manager David Blau. Our new stores offer an inviting environment where consumers can have an interactive and true learning experience like no other.3

Attend to in-stocks and talent

Consumers clearly believe communications providers stores can perform better, especially on those areas most important to them. The fact that product availability and knowledgeable store staff are seen as the most important attributes of stores indicates communications providers should assess their supply chain and HR/ training capabilities for improvement opportunities and identify ways to leverage these areas to differentiate themselves from competitors. In terms of the supply chain, communications companies should invest in advanced forecasting and replenishment planning capabilities to improve in-stocks to meet rising local customer demands and service-level expectations. Indeed, a significant portion of the $93 billion in lost sales in the United States alone can be attributed to being out of stock due to poor planning and forecasting.4 Customers in highly competitive segmentssuch as communications will not hesitate to switch to a competitor if they do not find what they are looking for in a providers store. From a people standpoint, providers should adopt an integrated approach to talent management. This approach begins with the definition of a companys talent needs in the context of its business strategy and discovering the best sources of that talent (which, for communications companies, could include leading companies in other retail segments, whose experienced employees could quickly bring key retail experience). It also includes a capability for developing talent to help employees continually acquire new skills and prepare to take on new responsibilities, as well as for deploying talent in such a way that employees can be matched and aligned where they are needed and well suited.

Create the experience

Because consumers view the store as a sales channel first and a support and service channel second, communications providers should consider how to create a store design, layout, product assortment and staffing strategy that makes it easy for consumers to purchase new products and servicesand, thus, substantially increase customer conversion rates.

1 Anywhere, Anytime-the keys to true cross channel retailing and high performance, Accenture, 2009. 2 Orange and T-Mobile have cut 2,500 jobs since merger, Rupert Neate, Daily Telegraph, May 11, 2010, http://www.telegraph.co.uk/finance/newsbysector/mediatechnologyandtelecoms/telecoms/7712074/ Orange-and-T-Mobile-have-cut-2500-jobs-since-merger.html. 3 Cox Solutions Stores Offer Unique Retail Experience, Strictly Business, http://www.strictlybusinessomaha.com/24/112.1457/cox-communications.aspx. 4 RIS NewsFifth Annual Store Systems study, 2008.

18 The Value, Role and Performance of the Physical Retail Channel

Understand the customer

Because there are substantial variations in consumer preferences, communications providers must tailor their retail experience to appeal to key customer segments. When seeking expansion into new geographic markets, communications providers must avoid the temptation to treat all regions, countries or even cities the same. Even when looking to expand within an already established market, tailored offers are required to meet the needs of an increasingly diverse population. Personalizing offers and the customer experience is highly dependent on strong analyticswhich most participants in our survey said they lackand the operational expertise to transform those insights into action.

Communications companies should adopt capabilities that enable them to conduct customer segmentation and profiling to gain a deep understanding of who their customers are. By identifying target consumer segments that exhibit like profiles (such as behavioral, attitudinal and geographic characteristics), a company can provide more customer-centric merchandising and use their stores to create opportunities for competitive differentiation and increased customer loyalty. Such analytics capabilities will become especially important as providers strive to determine how to orient their stores to attract more business customers, who have distinctly different needs, requirements and buying processes from consumers.

While the preceding recommendations apply to any communications provider, how specific providers address them will necessarily differ depending on each companys starting point, desired ending point and overall current level of retail maturity. Importantly, improving the retail channel is not about simply making the store pretty. Rather, it is about reorienting the channel to deliver the companys strategic intent and achieving its desired business outcomeswhich also will differ from company to company. However, regardless of where on the retail spectrum a provider sits, our research suggests that a robust physical retail channel, tightly integrated with other customer channels, can be a powerful competitive weapon and driver of growth and high performance for communications companies around the world.

The Value, Role and Performance of the Physical Retail Channel 19

About the Research

The preceding report is the result of extensive Accenture research conducted between December 2009 and March 2010. This research includes quantitative surveys of both consumers and providers of communications products and services around the world.

Consumer Survey
Between December 2009 and January 2010, Accenture conducted an online survey of 3,148 consumers in 18 countries (Figure 18) who have used at least two of the following services:

Our survey explored the importance and value of the physical retail channel to consumers when dealing with communications products and services. Specific aspects of the issue we covered in the survey included the following:

Provider Survey
A second survey, conducted via telephone between January and March 2010, polled 51 executives at communications companies with annual revenues of at least US$500 million operating in eleven areas of the world (Figure 19). The primary respondent at each company was the executive in charge of the companys global retail operations. The majority of executives described their companies as converged service providers, while one-third were predominantly wireless telephony service providers. The remaining companies were providers of cable, satellite or wireline services (Figure 20). This survey probed the extent to which providers value the physical retail channel; the current and planned scope of their physical retail presence; how well providers believe their stores perform; and where and how providers need to improve their retail capabilities.

Fixed telephone landline Mobile/wireless service Wireless/satellite Internet Digital Subscriber Line (DSL) Cable Internet Cable television Satellite television Satellite radio

The types of communications products and services consumers are using and their satisfaction with those services The importance of communications providers retail stores to consumers decisions to do business with those companies What consumers want to do in, and expect from, a retail store Purchases consumers have made in communications providers stores in the past year and the frequency and length of their visits Consumers perceptions of providers stores on a variety of key retail attributes

Consumers were evenly split along age, gender, education and occupation lines.

20 The Value, Role and Performance of the Physical Retail Channel

Canada

United States Mexico

United Kingdom Ireland Netherlands France Germany Spain Italy Portugal

China

Japan India South Korea

Brazil South Africa Australia

Figure 18. The survey polled consumers in 18 countries around the world.

Figure 19. Regions in which participating companies operate.

Europe North America Asia Pacific Australia South America India China Central America Japan Africa Middle East

65% 41% 39% 25% 24% 22% 18% 18% 16% 16% 12%

Figure 20. Type of service provided by participating companies.

57%
Converged service provider Cable provider

4% 2%
Satellite provider

31%

6%

Wireless telephony service provider

Wireline service provider

The Value, Role and Performance of the Physical Retail Channel 21

Copyright 2010 Accenture. All rights reserved. Accenture, its logo, and High Performance Delivered are trademarks of Accenture. This document is produced by consultants at Accenture as general guidance. It is not intended to provide specific advice on your circumstances. If you require advice or further details on any matters referred to, please contact your Accenture representative.

Contact Us
Please visit www.accenture.com/ comms-retail for more information on Accentures retail solutions for communications service providers. For more details on our survey findings, contact kevin.f.bandy@ accenture.com, Global Lead, Accenture Sales and Marketing Transformation, or john.r.liesching@accenture.com, Executive Director, Retail, Accenture Communications and High Tech Practice.

About Accenture
Accenture is a global management consulting, technology services and outsourcing company, with more than 190,000 people serving clients in more than 120 countries. Combining unparalleled experience, comprehensive capabilities across all industries and business functions, and extensive research on the worlds most successful companies, Accenture collaborates with clients to help them become high-performance businesses and governments. The company generated net revenues of US$21.58 billion for the fiscal year ended Aug. 31, 2009. Its home page is www.accenture.com.