Incentive Compensation Management in a Post Brick’n’Mortar Retail World

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The retail industry has undergone massive upheaval in recent years. Locally owned stores and branded chain stores have given way to big box retailers, which have lost customers and profits to yet another evolution – the online retailer.  Brick and mortar retailers are now faced with unprecedented competitive challenges.  With the rise of online retailers, the customer experience has trended away from personalized selling. When it’s so easy for customers to fulfill their needs and desires in the privacy of their own homes, how can stores convince customers to do business with them in person?

Savvy retailers start by remembering what differentiates brick and mortar stores from their less personalized competitors, and build their brands around these advantages. The greatest benefit a physical location can offer is service – the kind of service a customer can’t get online. To provide excellent service in retail, organizations should start by attracting and retaining knowledgeable sales associates who demonstrate an interest in what the customer wants, make informed recommendations, and anticipate the next item the customer may need to get complete value.

Service is an active interaction, and it’s a fact of business life that not all associates will perform at the same level.  Talented associates should be encouraged and rewarded. That’s where incentive compensation management enters the picture.  Pay-for-performance isn’t new to retail – store managers have long been paid for store performance against goals, and SPIFs are a common tool.  But the metrics on which associates have been paid tend to be revenue-based, rather than service-based.  This can cause problems that undercut the effectiveness of a retail incentive program.

Tying revenue to the person who generated it is a significant issue, especially in department stores.  An associate might work with a customer for hours in the Tools department, upselling until the customer has everything she or he might need for any project, now or in the future.  Then the grateful customer takes the merchandise off to Housewares to pick up a frying pan.  When the Housewares cashier rings it all up, the original associate who filled up the shopping cart with tools might not be identified on the transaction, and the opportunity to reward the Tools associate is gone.

A best practice in incentive compensation is to reward the payees not only for sales, but for customer service as well.  Revenue follows rewards, and it is incumbent on retailers to find a way to recognize and reward great customer interactions. Some stores have implemented “catch me at my best” programs to enable customers to give kudos to associates. NICE’s real-time customer feedback solution is another way to capture customers’ opinions of an associate’s performance. The important thing is to integ​rate these programs into an Incentive Compensation Management system to be sure that all behaviors that impact the customer experience are taken into account.

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