MATSUZAKAYA

Building VIP relationships

by Yoshihiko Izumoto

leading name in fashion since 1611, Matsuzakaya Co., Ltd. has earned its reputation as one of Japan's finest retailers. Headquartered in Nagoya, the company has 10 department-store branches across the country, and it has a store in Paris-one of the world's fashion hotspots.

With the support of "ancestral" fans whose families have shopped with the company for generations, Matsuzakaya's long history and established culture remain a powerful force with customers. Nonetheless, Japan's economic turmoil and changing consumer preferences are keeping the company on its toes.

The Matsuzakaya data warehousing team, from left: Masayoshi Sano, Shigeo Shimizu and Yoshiyuki Furuya

The situation became critical in 1999, when Matsuzakaya realized it would need more than reputation to maintain its competitive edge. That year, Matsuzakaya adopted a policy to make the most of information technology while reorganizing the company's data infrastructure.

Shigeo Shimizu, director and general manager of the business planning and coordination office and information development division, says, "It was a time when consumer spending declined and competition increased. To structure a store that will perform well and to increase business profit significantly were our top priorities, and information technology was essential to achieve these goals. That is how we embarked on an ambitious program of informational infrastructure reforms."

Matsuzakaya's plan included three new systems: a POS system, a data warehouse and a merchandizing support system. Of the three, Matsuzakaya concentrated most on the data warehouse, the first informational data system in the company's history. Masayoshi Sano, manager-system development, information development division, comments, "With a new operational system, it is simple. You only need to implement it, as it is a substitute system for operations. With an informational system, in contrast, there is the challenge to consider how to utilize it."

Because the company wanted to achieve higher margins, it needed a system that could link product information and customer information to better manage inventory. Matsuzakaya chose Teradata as its vendor and began the project in March 2000. The new platform integrated information from several different systems and became the basis for the company's new data infrastructure.

The project's developers realized that they were sitting on an informational gold mine, but in order to "get rich," they would have to find a way to transform the data into actionable business intelligence. Matsuzakaya decided to use NCR Japan's application package R-FOCUS 2.0, specially customized for department stores, and installed it in every Matsuzakaya store terminal. That step built the bridge between the customer and the data warehouse.

The company had three distinct goals for the information they would collect at the store-department level: Refine in-store allocation to improve profit-earning capacity, acquire new customers and retain existing customers, and improve sales efficiency.

The personal touch
In the Japanese business model for department stores, there is a special sector called "Gaishou." Gaishou associates offer one-to-one service and extreme hospitality to the company's most important customers. All top-drawer customers need to do is make a phone call to a Gaishou associate and tell them what they want. The Gaishou associate will make every effort to accommodate their needs. This sector handles various products, from prepared food costing 2,000 to 3,000 Yen (approximately $20) to diamond jewelry in the 10 million Yen (approximately $85,000) price range.

Looking at this side of the Japanese department store industry, it seems as though CRM is already incorporated extremely well into the business process. The problem, however, is that all the information is locked inside the Gaishou associate's head and therefore is not available for constructing customer strategies at an enterprise level.

The breakthrough plan for Matsuzakaya was to assign first-class customers an ID number with a "Matsuzakaya Card." By scanning the card at the register, associates load the customers' buying information into the data warehouse, where it can be analyzed as needed.

Masayoshi Sano

VIP customers represent only a small portion of Matsuzakaya's one million dedicated customers. For the average shopper, the company is deploying "Matsuzakaya MY Card." This is a discount service for customers, with service levels depending on their past buying habits.

Finally, in some stores there is a service called "Tomo-no-kai." Anyone can join Tomo-no-kai to attend cultural classes such as Japanese flower arrangement, Japanese tea ceremony and karaoke lessons. Membership data is fed into the system.

With all of this information, top management for the first time has an accurate view of the company's performance at the enterprise, store and department level. Floor managers and associates in charge of sales promotions and inventory can use the business intelligence to better understand how different products perform in different locations, enabling them to create more effective floor layouts.

The data warehouse has also enabled Matsuzakaya to begin more aggressive one-to-one marketing, with personal communications and, in some cases, even birthday gifts for high-value customers.

For example, each store includes a number of "brand shops" or outlets serving single manufacturers or brands. At each shop, there is at least one Matsuzakaya associate who serves customers alongside the brand's dedicated sales staff. If a customer visits (and buys at) a certain shop for the first time, the Matsuzakaya associate will send a thank-you card, regardless of whether the customer has shopped at other departments in the store.

Yoshiyuki Furuya, deputy general manager, information development division, says, "Most customers are happy to receive a thoughtful message from a shop they used for the first time, and they are likely to return to that shop. One of the brand shops in Matsuzakaya has also begun a unique project. The sales associates are memorizing the names and faces of valued customers so that every associate will be able to greet them personally."

Customers who feel valued are more likely to keep shopping. Matsuzakaya actively works to increase customer retention, and one way they are doing that is with RFM (recency, frequency, monetary) analysis.

RFM analysis segments and rates existing customers by their last purchase date, how often they shop over time and how much money they spend. The total point value is used to determine who might have stopped shopping Matsuzakaya or is at risk of doing so. This information allows the company to approach these customers by phone or direct mail to find out how the company can better serve them and, ultimately, influence them to come back to Matsuzakaya for their shopping needs.

These customer- and sales-related successes would not have been possible without the company's Teradata Warehouse. Matsuzakaya's top management expects to continue experiencing great benefit from the business intelligence it now enjoys. Data warehousing can be expensive to start, but the more it is used to generate actionable business intelligence, the more valuable it becomes.

A bird's-eye view
As any company that has ventured into the world of customer data knows, security and privacy are big concerns. In most cases where customer data is leaked to the outside, the person responsible is usually found within the organization. Even with a data warehouse accumulating data and optimizing efficiency, there can be temptations, and customers who regard the company as trustworthy would feel betrayed if their information is used improperly.

In response to this, Matsuzakaya has developed a complete security policy. Any associate at the managerial level or above can access management information. Product information is available for all associates. But when it comes to customer data, only floor managers and associates in higher positions have viewing privileges, and they can't print the data or download it. "Outside" sales associates in the brand shops do not have any system access at all (other than feeding information into the data warehouse through a POS terminal).

In general, Matsuzakaya has adopted a "layered" system, and each employee has a login ID. Employees are granted access rights only for the information layers below their position in the company. However, policies must be flexible as the business evolves. Matsuzakaya plans to grant more and more freedom to all of the system's users. By viewing the data from other departments or "levels," associates can gain insight into best practices and avoid becoming "the big fish in the little pond." Matsuzakaya is also considering integrating single-item information, currently managed only in the merchandising support system, into the data warehouse.

Sano comments, "We now have a 'bird's-eye view' so that we can look down into the streets from above. If we had used the data warehouse to manage single items from the beginning, we would never have been able to get off the ground. We still might have had only a 'bug's-eye view' of the information. We actually began to see that it is efficient to build a mechanism to reach product information by drilling down from the top."

In Japan, IT departments are often considered rather inferior to other operational sectors because, for the most part, these departments consist mostly of new, inexperienced employees. For example, at a manufacturing company, sentiment runs high for the prominent product planning and sales departments, but IT is considered no more than a behind-the-scenes, "use it if you need to" department.

This might have once been the case at Matsuzakaya, but it is quickly changing. "By implementing the data warehouse, the IT department has built an enhanced relationship with the business's frontline," says Sano with a look of pleasure. "We are good at analyzing, and the sales associates take their best action based on our analysis results. We absorb the needs for analysis from them, and they use our analysis results in return. We are offering the best service for our customers as a team, by combining what each of us does best. With this as our shared goal, I believe the company has now united."

Matsuzakaya has in-depth knowledge of what it values most-its customers. The company provides the very best products and services available, yet it enjoys high margins through a streamlined inventory management system and effective sales planning. With a clear vision, Matsuzakaya is prepared to grasp the brass ring in Japan's competitive retail marketplace. T

Yoshihiko Izumoto is the editor-in-chief of Tokyo-based Computopia, an IT magazine for CEOs, CIOs and other decision-makers.

GLOBE ILLUSTRATION BY SIMON SHAW
PHOTOGRAPH BY JAMES WHITLOW DELANO

Teradata Magazine - Q3 2003