Issuu on Google+

1

Business Case Creating World Class Customer Experience in ÂŤDetskiy MirÂť Chain of Children Goods Stores

Microsoft Case Competition CX


Contents

3 Disclosure 5

New offer

8

The history of the global brand

9

Microsoft Business Model

10

Microsoft in Russia

11

Customer Experience

15

Retail in Russia

18

Retail of children goods

24

Detskiy Mir

32 Appendixes


3

Disclosure

Changellenge >> Capital team wrote this case solely to provide material for the Microsoft Case Competition CX. The author did not intend to illustrate either effective or ineffective handling of a managerial situation. The author may have disguised certain names and other identifying information to protect confidentiality. The data represented in this case is not necessarily actual or true and may have been changed to preserve confidentiality.

Changellenge >> Capital prohibits any form of reproduction, storage or transmittal without its written permission. Reproduction of this material is not covered under authorization by any reproduction rights organization. To order copies or request permission to reproduce materials, contact info@changellenge.com


4


5

New offer

ERP = Enterprise resource Planning; software product, — complex system for managing the enterprise 1

A large international corporation. A competitor of Microsoft in the sphere of business applications. 2

CRM = Customer Relationship Management; software product, — system for management of relations with customers (often is a separate module of EPR system) 3

Microsoft Dynamics — line-up of Microsoft products in the field of enterprise management 4

Customer Enterprise — is management of customer’s emotions 5

Case

The working day in mid-October 2012 was coming to a close. Ilya Sobolev, a key account manager of Microsoft, was sitting in a comfortable armchair in Krylatskoye, drinking tea and pondering over the new task. Tea in a teacup was about to end and pondering resulted in a clear picture. Ilya put the teacup aside, put off the written sheets of paper, moved a keyboard closer and began charting a plan for the commercial offer for a would-be customer of the ‘Detskiy Mir’. An hour before, a discipline head Michael called Ilya in his office. Outlook blinked with an invitation just in the moment when Ilya was sending a report to Michael over which he had been working last days. ‘Aha, here is a new work, to the minute’, thought Ilya when he was standing up. Entering a meeting room under a fine name ‘Helen’, written on the door, Ilya found there, apart from Michael, three more colleagues: Microsoft product expert Ivan Zacharov, leading marketing consultant of the department ‘Retail Sales and Marketing’ Nataly Astahova and technical consultant on Microsoft products Alexander Obolensky. Ilya greeted them and took a seat against Michael.

- As you already know from the invitation to this meeting, began Michael, we will discuss new perspectives which new serious upgrade of the products opens to us. Now it is necessary to detect a first potential customer with whom we should work. Your offers? - A product retail looks promising for complex changes, offered Nataly. - But they already use our products with good result, corrected her Ivan. They have excellent systems for business-process management whereas interactive technologies are not so important for them yet. It seems to me that non-food chains are more suitable: consumer electronics, apparel, children goods … - Chains for selling consumer goods and electronic devices are dealt with by Victor’s team, Ivan interrupted his colleague and ponder for a while. Hmmm, as for me, I like children goods. Here we have a promising customer – ‘Detskiy Mir’. For the time being they only buy from us PC licenses to use Windows, Office as well as licenses to use Windows and Exchange Server. Is it all true, Ilya? - Yes, it is, confirmed Ilya, mentally remembering the negotiations with ‘Detskiy Mir’ three months ago.

But unfortunately we are here somewhat limited in the space. It’s not until recently the company terminated the introduction of ERP system from Oracle and is now adding to it modules including CRM . Since introduction took much time and cost very dearly, now we are just not in a position to convince them to switch to using a line-up of Dynamics products and from the point of view of the rest solutions we enjoy a full carte blanche: family Windows 8 to make it possible to use not only PCs but also tablets; Windows Phone for active use of telephones; technology Kinect for interactive communication with buyers; Windows Azure for migration of computations into the cloud; SharePoint and Lync for improvement of mutual work by employees; System Center for management of IT-media. And I’m quite sure that we can integrate each of these solutions into their Oracle and secure effective exchange of information between the systems. - Fine. I think they really need our products. I know they recently had the changing of the guard in IT department which now is headed by Francois Le Jan, Michael made a pregnant pause, and now they are going to radically overhaul their IT-systems to improve


6

Case

customer experience and general effectiveness of their work. And it is not a small project: ‘Detskiy Mir’ has millions of customers and, having in mind that the company was sufficiently conservative in the past from the point of view of the IT, the room for changes are colossal. - Yes, ignited Nataly, we can offer ‘Detskiy Mir’ a complex program for improvement of customer experience and, as a result, for raising sales of the company. Improved management of information, planning large national marketing campaigns, interactive design for points of sale, videogames, tablets … We are in a position to radically facilitate the process of buying and add to it real emotions which is made possible by using new technologies. - That’ s fine, interrupted Michael with approval. – For the coming week our customer is ‘Detskiy Mir’. And now, colleagues, let’s do it in order: begin with needs and once more single out Microsoft products which satisfy them. And, let’s remember, we are helping customers improve sales … Stormy discussion took the rest of the day. During that time main products were chosen as well as a strategy to sell them Ilya should ponder over for ‘Detskiy Mir’. These products were operational systems of the family Win-

dows 8, Windows Phone and Kinect. Server and infrastructures products directly not connected with customers of ‘Detskiy Mir’ will be dealt with by a team of consultants headed by Alexander Obolensky.

Your task is to convince the customer to implement Windows 8, Windows Phone and Kinect. Since it is a retail, do remember that it is the figures that affect them most of all: try to calculate how, by alleviating customer experience with the help of these products, we will raise sales of ‘Detskiy Mir ’. And it is not important whether it will be at the expense of raising the number of customers, more purchases per customers or raising a median bill. Make calculation within the perspective of 3 years. Do have in mind that your commercial offer will effectively affect the customer if you not only focus on the sales of their products, but also create a real strategy of developing customer experience for the customer and show which role in it will be able to play your Windows 8, Windows phone and Kinect. Ending the meeting, Michael specifically approached Ilya and remarked: ‘ Ilya nodded with confidence, carefully folded up sheets of paper and set off to prepare the commercial offer and, in all likelihood, the new strategy for raising customer experience of ‘Detskiy Mir’.


7


8

The history of the global brand

6

Company fiscal year ends June 29

History

The history of the international company began in 1975, when Paul Allen and Bill Gates, friends with a passion in computer programming, were seeking to make a successful business utilizing their shared skills. The January 1975 issue of Popular Electronics featured Micro Instrumentation and Telemetry Systems’s (MITS) Altair 8800 microcomputer. Allen noticed that they could program a BASIC interpreter for the device; after a call from Gates claiming to have a working interpreter, MITS requested a demonstration. Since they didn’t actually have one, Allen worked on a simulator for the Altair while Gates developed the interpreter. Although they developed the interpreter on a simulator and not the actual device, the interpreter worked flawlessly when they demonstrated the interpreter to MITS in Albuquerque, New Mexico in March 1975; MITS agreed to distribute it, marketing it as Altair BASIC. They officially established Microsoft on April 4, 1975, with Gates as the CEO. Allen came up with the original name of “Micro-Soft,” as recounted in a 1995 Fortune magazine article. In August 1977 the company formed an agreement with ASCII Magazine in Japan, resulting in its first international office, “ASCII Microsoft”. In January 1979 the company moved to Belview. In 1980 Steve Balmer joins

the company and later he will replace Bill Gates as CEO. In 1981 Bill Gates became President and Chairman of the Board. Nowadays corporation Microsoft is a global leader in producing software, rendering services and developing internet technologies for personal computers and servers and Bill Gates became a legend of global business and one of the ‘icons’ of the 20th century. Brand Microsoft is one of the most expensive in the world. According to researches of Best Global Brands, its value amounts to more than $60bn, a little bit less than those of IBM and Coca-Cola. At present, the company employs about 90 thousand workers. As of 2012 , earnings of the company amounted to $73.72 bn and net income amounted to $16.98bn. By level of capitalization, the company occupies the fourth place in the world. Mission of the company is to help people and businesses throughout the world realize their full potential. The company provides customers with software for solving sets of problems. A number of products of the company includes ‘table’ and networking operational systems, server applications for customer-server media, business applications and office applications for users, interactive programs and games, means for working in the Internet and tools for development. Besides that, Microsoft of-

fers interactive online services, publishes books on computer subjects, produces peripheral equipment for computers. Products of Microsoft sell in more than 80 countries, are translated into more than 45 languages and compatible with the majority platforms of personal computers. Responding to growing needs of customers, the company is actively creating new products and investing in developments and no expense is spared. Only in 2011 corporation Microsoft spent about $9.4bn on researching and developing new computer technologies (this is the largest amount in the world). Determining global trends in many aspects, Microsoft is one of the main generators of growth for the market of information technologies. Microsoft formulates its values in the following way: ‘As a company and as persons, we value honesty, decency, openness, personal improvement, constructive self-criticism, constant self-improvement and mutual respect. We are committed to our customers and partners and we have passion for technologies. We take on the most difficult tasks and are proud that we carry them through. We consider ourselves responsible to our customers, shareholders, partners and workers, fulfilling our obligations and striving for the highest quality.’


Business

9

Microsoft Business Model Company

Hardware

Software

Cloud

Microsoft

+/–

+

+/–

Apple

+

+

Google

+/–

+

Samsung

+

7

Companies picked by one of Russian computer market leading analysts Eldar Murtazin.

Bada (stylized as bada) is an operating system for mobile devices such as smartphones and tablet computers. It is developed by Samsung Electronics. All Bada-powered devices are branded under the Wave name; similar to how Samsung’s Android-powered devices are branded under the name Galaxy. 8

In the summer of 2012 Microsoft hit the market with its new tablet computer Surface. Unexpectedly, the company, which produced solely software and became the recognized leader within the market, entered the new field — hardware. Not so long ago the company didn’t make any devices under well-known trademark, outsourcing this advantage to its partners (except the Xbox). But now the company made the first step to cover all the 3 segments of the IT market: hardware, software and cloud services. But first let us introduce all these segments: hardware — devices itself and technology which stays behind them (processors, hard drives, memory etc.), software — operational systems and programs run on devices, cloud — services and programs run not on your device but somewhere in internet. Each of the four main game changing companies in IT industry (of course, there are more than four companies but let’s not complicate), Microsoft, Apple, Google and Samsung, are focused on several segments but not on every (see table on the right).

Motorola Mobility was formerly known as the Mobile Devices division of Motorola until it was spun off as a separate entity in January 2011. It pioneered the flip phone with the StarTAC in the mid-1990s. By the turn of the 21st century, it produced another innovative hit product, the (original) RAZR, a very thin flip phone. Motorola had a commanding lead in the analog cellphone market, but it was slow to embrace digital technology. This allowed global rivals such as Nokia and Samsung Electronics to surpass it; it essentially failed to enter the global smartphone market until the 2010s. On August 15, 2011, Google Inc. announced that it had agreed to acquire the company for US$12.5 billion. 9

Apple business model is to create devices with manufacturing and lots of technology outsourced. The company designs devices and creates software which makes its products unique. Of course, Apple has several cloud services but is hardly a top player in this segment. It is also worth mentioning that the company starts investment in processors for its products, i.e. increases its presence in hardware segment. Up till now Microsoft has been rarely present in hardware segment (except for mice and XBOX with Kinect) giving the privilege of creating hardware to its platform of partners (from Acer to HP). In fact the company is specialized on developing software and here it often has a close to monopoly position with except to mobile segment (unfortunately for Microsoft the fastest growing segment). Microsoft also started work towards cloud services and became more successful than Apple but less than Google. Google started from cloud services which billions of people use (search, mail, maps etc.) and later came to software market with introduction of Android operating system for smartphones and tablets. At the moment the company tries to adapt both its services and Android as a primary operational system for PCs (little suc-

cess by now but the direction could be clearly seen). Samsung has been always focused on hardware and become an undisputable leader in the segment, creating not only research labs but also great infrastructure to develop and manufacture key components for Samsung products. Until recently the company has not prioritized software and cloud development but failure with Bada increased priority for such developments. Each of the companies above tries to reach new segments. Apple aspires to its own cloud services, while Google reaches for the PC software market and enters hardware (with the purchase of Motorola Mobility ). Samsung realized that by selling devices with its own software they can easily grow margins. The same situation happens with Microsoft. Microsoft understood that the market behavior has changed: people no longer buy first available computer or other device just to set up particular operational system, convenient for working with. Moreover the PC market itself grows slowly than the portable devices market does, especially smartphones, which extremely fast became truly personal need. As the result the 2012-2015 years will be tablet and smartphone time for the corporation.


10

Microsoft in Russia

Business

First legal products from Microsoft appeared in the country in 1987. Supplier of the product was the first joint venture USSR /US in the field of computing engineering and programming JV ‘Dynamo’. In 1990 Russian-speaking users received first russified products of Microsoft. To the ceremony of presentation of Russian-language operational system MS DOS 4/01 in Moscow even appeared Bill Gates. In November 1992 the corporation opened in Moscow an official representative office (since July 2004 — PLC ‘Microsoft Rus’). Already at the beginning of 2000s Microsoft issued Russian versions of all its main office program products, launched free telephone service for informational and technical support for Russian users, created full-fledged network of distributors and dealers, service and retail partners and began authorization of training centers and specialists in the technologies of the company.

Windows 95 and Microsoft Office 96 were a great success, sales in Russia soared as well as in the whole world. And after that the corporation embarked on a full-scale promotion of its server products included in the family Microsoft BackOffice, a system of corporate governance of data bases, Microsoft SQL, a system of circulation of documents of an enterprise Microsoft Exchange Server, a system of support of corporate internet representative office Microsoft Internet Information Server and server operational system Windows NT Server. Soon a Russian version was issued of Windows NT Workstation, — a desktop operational system especially designed to be used in business.

Today licensed soft from Microsoft is used at the hundreds of thousands of working places in Russia. Based on Microsoft products, projects are being carried out for introduction of powerful information systems in the largest domestic commercial companies and government organizations. In 2012 fiscal year the earnings of units of Microsoft amounted to $1.4-1.5bn. According to Nick Prianishnikov, president of Russian office of Microsoft, this sum is more than the respective figure of Chinese unit of Microsoft. In recent years Microsoft considerably increased a number of regional offices in Russia, from 58 to 70 for a first half of 2012. Now the representative office of the company ‘Microsoft Rus’ is engaged in promoting soft, developing partners’ network, adopting products, localizing advanced solutions and developing the market of information technologies in Russia. The company develops and builds new plans for the future.


11

Customer Experience

Customer Experience

As Colin Shaw says, a customer experience is an interaction between a company and a customer as perceived through a customer’s conscious and subconscious mind. It is a mix of an organization’s rational performance, the senses stimulated and the emotions evoked and intuitively measured against customer expectations across all moments of contact.

Importantly: ■ A customer experience is not just about a rational experience (e.g. how quickly a phone is answered, what hours you’re open, delivery time scales, etc.). ■ More than 50 percent of a customer experience is subconscious, or how a customer feels. ■ A customer experience is not just about the ‘what,’ but also about the ‘how.’ ■ A customer experience is about how a customer consciously and subconsciously sees his or her experience.

It’s a complex process of understanding your organization’s relationship with your customers. When addressed effectively, customer experience eases customer acquisition, drives customer loyalty and improves customer retention. Customer experience (CX) is the sum of all experiences a customer has with a supplier of goods or services, over the duration of their relationship with that supplier. From awareness, discovery, attraction, interaction, purchase, use, cultivation and advocacy. It can also be used to mean an individual experience over one transaction; the distinction is usually clear in context.


12

Customer Experience Management

Customer Experience

In 2006 one famous strategy consulting company report found that 80 percent of executives believed their company delivered a superior customer experience, while only eight percent of customers said they received one. Business Week’s Jeneanne Rae says, «Building great consumer experiences is a complex enterprise, involving strategy, integration of technology, orchestrating business models, brand management and CEO commitment». In the past, companies competed through product differentiation and price points. Today, with products more and more commoditized and price differences negligible, the remaining differentiator is how well a company can deliver a customer experience that is personalized, rewarding, and meets customer needs.

The goal of customer experience management (CEM) is to move customers from satisfied to loyal and then from loyal to advocate. Traditionally, managing the customer relationship has been the domain of Customer Relationship Management (CRM). However, CRM strategies and solutions are designed to focus on product, price and enterprise process, with minimal or no focus on customer need and desire. The result is a sharp mismatch between the organization’s approach to customer expectations and what customers actually want, resulting in the failure of many CRM implementations. Where CRM is enterprise-focused and designed to manage customers for maximum efficiency, CEM is a strategy that focuses the operations and processes of a business around the needs of the individual customer. Companies are focusing on the importance of the experience and realizing that «building great consumer experiences is a complex enterprise, involving strategy, integration of technology, orchestrating business models, brand management and CEO commitment.»

According to Bernd Schmitt, “the term ‘Customer Experience Management’ represents the discipline, methodology and/or process used to comprehensively manage a customer’s cross-channel exposure, interaction and transaction with a company, product, brand or service.” Customer experience solutions provide strategies, process models, and information technology to design, manage and optimize the endto-end customer experience process. One of the key features of successful CEM implementations is their ability to manage multi-channel interactions. Customer experience solutions address the cross-channel (contact center, Internet, self-service, mobile devices, brick and mortar stores), cross-touch point (phone, chat, email, Web, in-person), and cross-lifecycle (ordering, fulfillment, billing, support, etc.) nature of the customer experience process. By contrast, CRM solutions tend to offer point solutions for specific customer-facing functions such as, but not limited to, sales force automation, customer analytics, and campaign management.


13

Customer service

10

Customer Experience

Customer service is a series of activities designed to enhance the level of customer satisfaction — that is, the feeling that a product or service has met the customer expectation. Its importance varies by products, industry and customer; defective or broken merchandise can be ex-changed, often only with a receipt and within a specified time frame. Retail stores often have a desk or counter devoted to dealing with returns, exchanges and complaints, or will perform related functions at the point of sale; the perceived success of such interactions being dependent on employees “who can adjust themselves to the personality of the guest. From the point of view of an overall sales process engineering effort, customer service plays an important role in an organization’s ability to generate income and revenue. From that perspective, customer service should be included as part of an overall approach to systematic improvement. A customer service experience can change the entire perception a customer has of the organization.

Founder & CEO of Beyond Philosophy, one of the world’s first organizations devoted to customer experience

Some have argued that the quality and level of customer service has decreased in recent years, and that this can be attributed to a lack of support or understanding at the executive and middle management levels of a corporation and/or a customer service policy. To address this argument, many organizations have employed a variety of methods to improve their customer satisfaction levels, and other KPIs. Customer support is a range of customer services to assist customers in making cost effective and correct use of a product. It includes assistance in planning, installation, training, trouble shooting, maintenance, upgrading, and disposal of a product. Customer service may be provided by a person (e.g., sales and service representative), or by automated means. Examples of automated means are Internet sites. An advantage with automated means is an in-creased ability to provide service 24-hours a day, which can, at least, be a complement to customer service by persons.

Another example of automated customer service is by touch-tone phone, which usually involves a main menu, and the use of the keypad as options (i.e. “Press 1 for English, Press 2 for Spanish”, etc.) However, in the Internet era, a challenge has been to maintain and/or enhance the personal experience while making use of the efficiencies of online commerce. Writing in Fast Company, entrepreneur and customer systems innovator Micah Solomon has made the point that “Online customers are literally invisible to you (and you to them), so it’s easy to shortchange them emotionally. But this lack of visual and tactile presence makes it even more crucial to create a sense of personal, human-tohuman connection in the online arena.


Customer Experience

14

Customer Cycle Customer Cycle

Potential Touchpoints

Pre-purchase

Purchase

Post-Purchase

Information search

Brand decision

Installation and training

Brand comparison

Model decision

Use and derive value

Vendor comparison

Channel decision

Service

Channel comparison

Trial

Web Advertiserments Direct mail Store Salespeople

Web Store Placement POP Salespeople Resellers Kiosks

Disposal and upgrading

Terms of purchase

Customer Service Web Product& package Loyality program

Branded Customer Experience Management Present Consistent Experience in a Branded Environment Ensure Consistent Experience across all Touchpoints

Customer experience management covers overall customer cycle. As the customer progresses through the various stages of the customer cycle (pre-purchase and post-purchase), the customer is likely to come in contact with a variety of touch points, some of which will be more important than others. The first stage is Pre-Purchase Stage. Attention to pre-purchase touch points can improve the retailer’s customer conversion rates. Web presence is important here as most major purchases are preceded by online information search. For instance over 75% of consumer electronics purchase and over 90% automobile purchases are preceded by extensive online research by consumers. The second stage is purchase itself. Studies show that more than 70% consumers make their decision “instore”, which opens the opportunity for shopper marketing (defined as “marketing to someone who is shopping and about to make a decision”) as opposed to marketing to customers (where a customer is defined as someone who has purchased in the past).Clearly the store becomes the focal point during purchase stage. The traditional wisdom is to increase the amount of time customers spend in the store by placing the most popular departments at the opposite

ends of the store. Better customer experience will lead to more spending. Post-Purchase is the final stage of the customer cycle. Customer service and loyalty program are two important touch points. For most, retailers realize the importance of customer service. Not many are making the link between loyalty programs and customer experience. There is often the debate about whether customers choose the store first (where to shop) or the brand first (what to buy) in the purchase cycle. By guiding the consumer to make decisions, by offering a superior value proposition and by creating memorable experiences along the way, the retailer can become the destination of choice. Customers will first decide to go to that store and then decide what brand to buy once in the store. As Jeff Bezos said, “More and more money will go into making a great customer experience, and less will go into shouting about the service. Word of mouth is becoming more powerful. If you offer a great service, people find out”. In other words, spend on customer experience, not advertising, to build the retail brand. Jeffrey Preston "Jeff" Bezos (born January 12, 1964) is an American entrepreneur who played a key role in the growth of e-commerce as the founder and CEO of Amazon. com, Inc., an online merchant of books and later of a wide variety of products. Under his guidance, Amazon.com became the largest retailer on the World Wide Web and the model for Internet sales. 11


15

Retail in Russia

Retail in Russia

Retail trade (part of which is the trade in baby goods) is by tradition one of the main sources of country’s GDP. But due to its own specifics it always acutely responds to the state of global economy and level of consumer demand. So the economic recession of 2008 strongly affected the performance of trade which only recently began to show the first signs of material rise. But yet all analysts are of opinion that Russian retail suffered less than those in Europe and US. And now the trend reversed to the positive: during the first quarter of 2012 the retail in the RF rose by 6.8%.

Modern trade at the beginning of 21th century underwent serious structural changes: shrinkage of spontaneous markets, consolidation of retail chains, expansion of overseas operators, the sharpening of competition between large retail chains. For the time being, the main players of retail market are large Russian and international chains. The largest of these in Russia are: X5 Retail Group, Ashan, Magnit, Metro Group, M.Video, O’KEY, Eldorado, Lenta. Market share of ten of the largest players does not exceed, for the time being, 20%; by 2015 this showing may reach already 30%. Capital investments by Magnit, X5 Retail Group, O’KEY and Dixi for the period 2012-15 may exceed $13.6 bn. Experts point out that as of today there exists non-uniformity in regional performance of turnover of retail sales. So, 8 out of 83 subjects of the Russian Federation (Moscow, Saint Petersburg, Moscow region, Sverdlovsk region, Rostov region, Samar region, Tyumen region and Krasnodar territory) account for 44.8% of all turnover of retail sales, with Moscow accounting 17.1%.

To the specifics of the Russian consumption one should ascribe the absence of developed culture of consuming and, as a result, strong significance of the price and rational factors in the act of buying. Companies realize less significance of their own chains’ brands and pay much more attention to ‘real’ needs of a customer outside the context of marketing moves which work here not so well. It determines a small market share for and slow development of premium segment of the retail. The market of expensive delicatessen widely develops in the capital exclusively: only here there exists a sufficient potential base of buyers. One of the key players of the ‘expensive’ retail ‘Azbuka Vkusa’ has 49 points in Moscow, but was forced to leave Petersburg’s market, the secondlargest in Russia, specifically due to the absence of sufficient demand for highquality products and service.


16

Retail in Russia

When talking about the outlook for development of trade chains, analysts single out several trends. Firstly, transition to intensive development. Today chains reached the level when the supplementary increase of trade spaces leads to slower growth of consumer traffic and additional investment eats into retailers’ margin. That is why the main players will zero in on efficiency growth and optimization of costs. The winners will be chains with a high level of distribution centralization and own brands in the structure of sales and, among formats, hypermarkets and corner shops will enjoy the most popularity. Secondly, one may observe the trend of increasing number of buyers due to the widening of choice of goods, offering supplementary services and conducting promo-actions. Dwellers of large cities are especially sensitive to that. Considering all of the above factors and due to the increasing value of technological trends Russian retail is concerned with developing its IT infrastructure. According to recent forecasts retail IT expenditures will increase 11.6% per year. Some experts propose even more dramatic growth up to 40% per year.

Consumer tendency to use mobile devices during shopping process and to shop on-line also affects Russian retailers a lot. As for their own IT ecosystem retailers turned to pay more attention on gaining and retaining consumers’ loyalty while cutting expenditures. As experts point out today Russian retail industry is interested in agile and scalable IT infrastructure that takes into account peculiar market segment’s requests. Thus the most cutting edge tendencies in retail-oriented IT are connected to seamless satisfaction of industry’s demands and even with offering such innovative projects that will provide dramatic competitive advantage to the peculiar business. Analysts point that it can be achieved through proper usage of modern communication tools and technologies, mobile apps, social media, e-commerce and so on. But at the same time according to the experts innovative decisions for retail industry now should also be tightly connected with technological IT and business process reengineering within the very enterprise or network.

Another trend that appears on modern Russian retail market is blurring of border between on- and offline buyers. Both retail components tend to supplement with each other. This phenomenon is also called ROPO-effect (research online, purchase offline). According to this pattern consumer searches for information concerning the product, reviews and prices online and then buys the product offline. Thus Internet becomes a resource that somehow sells even if the Internet-session does not end up with a classic purchase. This trend seems to spread wider so the role of Internet as an informational platform and purchasedriver is likely to increase over time. The vice versa effect when consumer chooses the product in-store and then orders it online for cheaper purchase takes place as well. In this case offline store acts as a shop-window creating incentives for online purchase. The successful business processes changes should be adjusted to the strategic plans of a retailer. Thus it is very important for the company to build the proper Business Model before applying any information technologies.


Retail in Russia

17

Retail business models integrate two distinct yet intertwined dimensions Customer value proposition

Product offering

Service offering

Shopping experience

Price and revenue model

Product/service offering

The value proposition includes 3 elements:

Retail business model

Operating model

Organization

Sourcing

Cost model

Basic retail business model consists of the two parts — Customer value proposition и Operating model. For the entire business model's success, retailers should improve their operating model and keep the value proposition aligned with shifts in the market.

Store operations

Value chain

■ The product or service — depth and breadth of assortment, private-label options, and product quality ■ The customer’s shopping experience, including the physical layout of the store and the arrangement of merchandise ■ The pricing and revenue model, including the pricing strategy (such as high-low or everyday low prices) and value-added services, such as free delivery

The operating model includes following 3 elements:

■ Cost model — sourcing and store operations ■ Value chain structure — degree of integration with suppliers and logistics ■ Organizational process

Usually, for improving their business, managers are focused on changes to only one or two elements of the business model. Retailing has always been a competitive game. But the rules of that game are changing faster than ever. It is no longer enough to offer quality goods and services. Today, retailers must also maintain the most efficient supply chain. They must manage their store operations with precision. And they must offer customers a shopping or customer experience that matches the way people live and work today. Anything less than that and it’s time to close up shop. Today's consumer is smarter. And smarter consumers need smarter retail.


Retail of children goods

18

Retail of children goods

First steps of children retail in Russia

Children goods consist of many categories: foodstuff, cosmetics, clothes and footwear, toys and many others things. The market differs from general retail in orientation on young consumers and traditionally breaks into narrower age segments every of which has own specifics. But at the same time there are no general consensus among experts where the border of children-goods market passes. With certainty one may single out the market for goods for newborns (up to 3 years), but the upper age range varies from 12 to 18 years. Besides, segments of the markers often overlap. For example, nearly 40 percent of soft toys is bought not for children as well as the segment toys&gifts is a boundary area between the baby’s and grown-ups’ markets.

A significant feature of children goods is the target consumer since a decision to by, as a rule, is made by parents whereas a product ‘is consumed’ by a child. This refers, first of all, to age segment from 0 to 3 years. But the older a child growth, the more it is involved in a process of choosing goods (e.g. for age segment 6-10 45% of children participate in purchasing).

Another significant feature is the absence in the children market of the notion of ‘deferred demand’. Children grow constantly which makes it necessary to renew their clothes each year, buy special children goods etc. It maintains turnover of the market. Choice of a final purchase in the market also bears some specifics. The wish ‘to give a child the best’ is inherent in the majority of parents and they are ready to pay for it, buying expensive children goods and services with pleasure. Expenses for children are in weak dependence on family income level, with the exception of very poor and very rich families. That is why the market of children goods in all times attracted business by its stability and sustainable demand. The history of crisis in Russia has proved these qualities of the market. Fall of the market was less in comparison with ‘grown-up’ goods.

First large trading centers for children appeared in 1950s. Many mothers from all USSR made purchases in ‘Detskiy Mir’, one of the largest chains of universal shops which even had foreign suppliers. After the break-up of the USSR, Russian ‘children’ industry suffered a lot. Segments of clothes and toys were practically squeezed out from the market by Chinese

and Turkish goods because it was getting more and more complex to compete with them in prices. Industry of children food has also undergone changes. After sharp reduction in the middle of 1990s of budget financing the system of production of children food based on the state order ceased to exist. Only large privatized enterprises continued to produce children foods. And

against the general background of deficit of the production the segment of children food was quickly occupied by large global players. The economic crisis has also contributed to the development of the market. After the crisis of 1998 many families strived for saving on buying clothes and footwear since children quickly grow out


Retail of children goods

19

Russian market of children goods

of them. But in spite of this there are some largest markets of children goods which successfully work up to now: ‘Central Children Fair’ in the Tulskaya street, ‘Children Fair in Kolomenskaya’ and others. Revival of the Russian children industry began in 21th century. Since beginning of 2000s incomes of population and birth rate have been constantly growing. It results in increasing massive effective demand for children goods. It is the quality of children goods that moves to the forefront, gradually putting aside the price factor, which makes it possible to develop production and trading in the middle- and high-end segments. Market of children goods shows the performance of high growth.

Key factors for development of the market are birth rate, increase in income of population and promotion of consumption culture for children goods. Rise in birth rate only directly influences the market for newborns whereas for the other segments it has a deferred effect. The turnover of the market is mainly provided due to the fact that children clothes, footwear, toys and books require constant renewal which is why the demand for children goods has no direct dependence on prices and income level of a family. In 2007-08, according to the estimates by experts, the largest retailers controlled more than half overall volume of a civilized retail: share of Detskiy Mir

amounted to 25-30%, that of “Bananamother’ amounted to 15-20%, and “Mothercare’ and “Little ship’ have 5-7% each. The share of the rest of net players does not exceed 10%. However, the economic crisis of 2008-09 led to the redistribution of the market. Several chains ceased to exist, others slowed down their growth/ whereas the rest found themselves having new possibilities for acceleration of expansion. For example, based in 2006, the chain of shops for newborns and preschoolers ‘Little daughters & sons’ tries, since 2008, to occupy in the regions a place of ‘Banana-mother’ (‘Banana-mama’ became bankrupt in 2008).

According to Association of Children’s Goods Industry, volume of the market of children goods in 2011 estimated 417bn RUR. The median growth rate is about 15% per annum, though separate segments of the market (e. g. goods for newborns) grow faster. It is forecasted that the high rate of growth will remain at the same level while the potential maximum size of market is 650710bn RUR which could be reached by 2015. Preconditions for rapid development will be increase in birth rate, improvement of the economic situation as well as the development of retail market. Average total spend on children annually is 403 USD (however this

number do not include nutrition except for baby nutrition and education spend). Geographically the market is mostly localized in central federal district (FD) which accounts for almost 48,7% of sales. Southern FD — 17,1%, Privolzskiy FD — 16%, North-Western FD — 7,1%, Far-Eastern — 6,4%, Ural FD — 3,2% and Siberian — 3,5%. In the structure of sales, the largest share is attributed to clothes (21%), then goes baby nutrition (18%), goods for newborns (18%), toys (16%), shoes (11%); furniture 3% and other accounts for 14% (total is not equal to 100% due to rounding).

Goods for newborn and toys are the highest growing segments (about 20% annual growth rates). Slightly different results give survey of customers (2009 data): parents say they spend 38% on clothes, 23% on footwear, 10% on toys and 6% on hygiene. The main sellers of children goods are children chains, hyper- and supermarkets, but you may find children goods on the shelves of drugstores, cosmetics shops, in the malls and even in the bazars. However, a share of unorganized trade (bazars, kiosks) is rapidly shrinking; it is estimated that by 2015 it will reduce twofold and amount to about 15% of overall volume


Retail of children goods

20

Clothes and footwear

12

Russian consumption supervision Agency

of the market. At the same time one may observe significant rise in the segment of electronic trade. Year after year you may see the increase in number of purchases made in on-line shops and it is anticipated that by 2015 a share of internet sales will amount to 13% of overall volume of market for children goods in Russia. Occupying the dominant position in the market for children goods is the

import. Its share varies from 60% in the segment of baby cosmetics and goods for newborn to 90% in the segments of children footwear, clothes and toys. According to Federal Customs Service of the RF, furniture occupies 31.7% in the overall imports of goods for newborns, tableware occupies 30.7%, car seats occupy 18.2 and children carriages occupy 7.3%.

Manufacturers from South-East Asia contribute to 70% of ‘children’ imports, more than 50% of goods comes from China. A serious problem becomes a sufficiently high share of counterfeit production and grey imports in the Russian market for children products. “Rospotrebnadzor’ regularly registers the presence in the goods of dangerous substances and their non-compliance with the sanitary standards.

Since 2000s parents’ attitude to the clothes of their children has been varying from ‘let it be warm’ to the search of quality and fine things. That became a powerful stimulus to the development of children industry in Russia. Shops display a lot of brands of foreign and Russian manufacturers, from affordable to elite. Clothes are the most capacious segment of children non-food goods. About 32% of total children goods market in 2010 fell on children clothes and footwear; about 21% of these expenses are spent on clothes, second place by expenses comes to footwear (12%). Studies show that on the average in Russia a family with one child spends about 860 ruble to buy children clothes and approximately 550 ruble to buy children footwear. More often purchases are made in specialized children shops; in Moscow and Saint Petersburg the second-popular place are hypermar-

kets whereas in cities with population less than 1 million the second-popular place comes to bazars and fairs. The market may conditionally be broken into price segments: low-end (from $5 to $30), middle (from $30 to $100) and premium (higher than $100). In the low-end segment which accounts for up to 85% of the market, goods dominate of Chinese and Turkish production. The center of a price line-up accounts for about 10% of the market. This segment sells mostly the products manufactured by Chinese, Indonesian and Polish companies and by several Russian companies. Leading positions among Russian producers of children clothes are occupied by ‘Gloria Jeans’ (with brands ‘Gloria Jeans, ‘Gee Jay’) and ‘World of Childhood’ (with brands “World of Childhood’, ‘Etty-Detty’, ‘Sela’, ‘Little Fairy’, ‘ Gulliver’ and other).

According to experts’ estimates, legal Russian production accounts for about 20% of overall volume of the market. But since there is no competitive fabrics in Russia, companies are forced to deliver raw material from abroad. As a rule, fabrics are bought in Pakistan, China and Turkey. And as the wages of seamstresses in Russia are higher those, for example, in China, many Russian producers transfer their production abroad. Thus, it is very difficult for Russian brands to compete by price with cheap imports. Premium price segment is dominated by imported goods. The market of children footwear is not so developed as the market of clothes. Represented are mainly either expensive foreign European brands or cheap Asian goods. Russian manufacturer occupy a median price segment. In Russia, footwear of such brands is made as ‘Cotofey’, ‘Antipola’, ‘Paris commune’, ‘Scorohod’ and some other.


Retail of children goods

21

Baby nutrition

Goods for newborn

Baby nutrition occupies a dominant position in the structure of expenses for children in the first three years of their life. This market may conditionally be broken into two main segments: substitutes for breast milk and additional foodstuff (vegetable and fruit mushes, canned meat, juices etc.) In terms of money the share of additional foodstuff amounts to 79% (including puree (46%), juices (15%), mushes (14%), whereas products sufficiently new to the Russian market such as biscuits and tea occupy 3% and 1% accordingly; a share of substitutes for breast milk amounts to about 21%. Main feature of the modern market is the constant expansion and renewal of the range, taking into account the scientific recommendations and consumer priorities. The largest players are ‘Wimm-Bill-Dann’, ‘Progress’, ‘Unimilk’, ‘Nutritech’, ‘Nestle’, ‘Nutricia’, ‘HIPP’ and ‘Heinz’. Their share in 2012 amounted to about 70% in terms of money and about 60% in physical terms.

On the average, a share of the imported products in the market for baby nutrition amounts to about 50 — 60%. Imported products dominate in the segments of evaporated milk formulae and mushes (about 90%) as well as vegetable puree and canned products of high-end price level. ‘Wimm-Bill-Dann’ is gradually increasing the number of regional enterprises; “Unimilk’ is building up the volume of production of baby nutrition. Besides that, these domestic companies, in spite of the crisis, actively develop new niches and launch new brands: ‘Wimm-BillDann’ launches ‘Zdrivers’ (Health Drivers) whereas ‘Unimilk’ introduces ‘Smeshariki’ (‘Laughing Babies’) and ‘Disney’. In 2010 the volume of the market for baby nutrition amounted to 67bn RUR. As a foundation for forecasts serves the level of consumption of baby food which now in Russia only amounts to 12 kg per child per annum, which is by 10 kg less the showings for West Europe. In general, it is expected that the market will rise at a rate no less than 15% per annum.

Notwithstanding the crisis, in the period 2008 — 09 market growth was 11%. And, in the opinion of experts, even in the conditions of lowering efficient demand, the segment of baby nutrition will remain one of the dynamically growing ones in the food market. Most advancing for already many years is the segment of juices. And the share of imported brands does not exceed 4%. Main Russian producers are PLC ‘Lebediansky’, PLC ‘Gardens of Don’, ‘Multon’ and PLC ‘Wimm-Bill-Dann’ and they materially increase volumes of production and maintain dominant positions. Their products in aggregate occupy 85% of the market. Predominant channels for buying baby food are supermarkets (22.5%) and specialized children shops (19.4%). Drugstores, discounters and small shops have about 10% each. Shares of hypermarkets and big self-service stores amount to 7% and 6.8% respectively. Maximum consumer costs for baby nutrition fall on the second year of child’s life.

Two largest parts of goods for newborn are pampers and baby cosmetics. Active purchases of baby pampers are Russians having children aged less a year (77%) and parents of children from 1 year to 3 years (22%). However, the majority

of parents of children older than a year make use of pampers only while walking or visiting. Most popular places for buying pampers are super- and hypermarkets (52% of mothers with babies aged less a year and 53% mothers with babies aged

1 — 3 years prefer to buy pampers just there). 97% of purchasers give preference to imported products. The largest producers of pampers represented in the Russian market are Procter&Gamble (trademark Pampers),


Retail of children goods

22

Toys

Kimberly-Clark (trademark Huggies) and SCA (trademark Libero). Procter&Gamble occupies more than 40% of all-Russian sales, with Kimberly-Clark occupying nearly 30% and SCA occupying about 20%. According to analysts’ estimates, the segment of pampers has a very high potential since the market is only saturated at 17%. Practically all production comes from abroad. For a long time, pampers were not produced in Russia. It is only in May 2008 that the first line was brought into operation at the factory of the company Procter&Gamble. Company KimberlyClark opened in summer 2010 a plant for manufacturing hygienic goods for babies in Stupino district of Moscow region. The enterprise is planned to get into full capacity by 2015. Baby cosmetics includes hygienic, therapeutic, prophylactic and decorative agents for skin care, hair care and nail care. The market of baby cosmetics numbers more than 90 trademarks and

2 thousand product names. Purchasers prefer famous brands, share of unbranded products accounts for approximately 2% of all range. About 44% of the market falls on imports.

The toy segment of children goods is developing most dynamically. Parents pay more and more attention to intellectual growth and development of their children and try to begin it as early as possible. Before the economic crisis of 2008-09 rate of growth of the segment reached 25 — 30% a year. In 2010 the volume of Russian

market for children toys was valued at 60bn RUR, which accounted for about 16% of overall market for children goods in Russia. Nearly 75% of toys represented in the global market are produced in China. Wide choice and low prime cost allowed China to become in fact a monopolist.

A list of the largest producers includes: ■ Bubchen — 15.9%; ■ Johnson& Johnson (brand Johnson’s baby) — 14.5%; ■ ‘Kalina’ — recently acquired by Unilever — (brands ‘Little fairy’, ‘Dracosha’ (‘Little Gragon’))” 11.8%; ■ Svoboda (Liberty) — series ‘Me and mammy’, ‘Titan’, ‘Alice’: 8.3%; ■ Neva Cosmetics (series ‘Tip-top’, ‘Bigeared childminder’, and ‘Babies’) — 6.3%; ■ ‘World of childhood’ (brands ‘World of childhood’, ‘Curnosoki’ (Babies with turned-up noses)): 4%; ■ ‘Our mammy’ — 3.9%. Their aggregate share in price-lists of sellers amounts, by various estimates, from 53% to 85%.

Multinational companies dominate medium-high and premium price segments whereas medium-low and economy segments belong to Russian producers. Most popular channels for purchasing baby cosmetics are supermarkets, hypermarkets as well as specialized children shops and drugstores. According to RosBusinessConsulting, in 2011 hypermarkets and universal shops seriously firmed their positions since the number of purchasers acquiring baby cosmetics through their mediation rose by 8% (to 54.6%) in comparison to 2010. On the contrary, specialized children shop and drugstores lost 2% and 5.8% of their contingents which now amount to 43.1% and 28.6% respectively (total amount is higher than 100% as people may buy goods in several locations).

Companies with global brands such as Mattel, Hasbro and Disney transferred their production to China. A share of imports in the structure of Russian market for children toys accounts for about 88 — 90%. The main supplier is also China. Leading positions among Russian producers are occupied by closed cor-


Retail of children goods

23

Market players

poration ‘Zavod Ogonioc’ (Moscow), PLC ‘Vesna’ (Kirov), Trading House ‘Gulliver and Co.’ PLC ‘Stellar’ (Rostov-on-Don), PLC ‘Elf Market’ (Moscow), PLC ‘Aelita’ (Saint Petersburg), closed corporation ‘Step Puzzle’ (Podolsk), PLC ‘Nordplast’ (Saint Petersburg), PLC ‘Zvezda’ (Lobnia) etc. In the opinion of President of Association of Children’s Goods Industry Antonina Tsibulina, the maid trends of the market

are increased attention of parents to the quality of goods, increase in control from the part of the state and active combination of toys with new technologies. Among the channels of sales in large cities, organized retail dominates. A share of sales through hypermarkets and supermarkets accounts for 40-45% in Moscow and Saint Petersburg and in specialized shops it accounts for 30 — 35%. Archaic

forms of trade including open bazars account about 20% and this share is rapidly shrinking. Interestingly enough, goods in various points of sale differ in price category. For cheaper products purchasers go to supermarkets whereas for more expensive gift toys they set off to the specialized shops.

Children goods in Russia, according to Detskiy Mir estimates, are sold through four main channels: 54% — specialized shops, 21% — food supermarkets, 20% — fairs and open markets and 5% — internet. There are more than 50 chains of shops of children goods now in Russia and they already became an important channel of distribution in million cities. Rapid growth of children retail is one of the recent tendencies both in Russia and in the world. Chains of children goods are broken into three types: universal; those specialized in selling toys and companies of the segment clothes/footwear. The majority (75%) of chain operators situates their children shops mainly in trading centers. No famous brand has a format of shops of the type ‘street retail’ prevailing. Online trade is really picking up and 47% of trade chains has internet-shops (a larger part of

internet portals is opened in 2010-2012). For the time being, most part of net operators of children goods is actively developing, in the first place, in the markets of Moscow and million cities, which is attributed both to effective demand in these cities and to possibility of quality offer taking into account the priorities of development of children chains in trading centers and trading/entertaining centers. In spite of the economic crisis, experts forecast material growth of specialized retail and, in particular, of ‘children retail’. Competition will grow and the task of leaders will be to develop effective strategy to retain consumers, increase a share of their expenses and to develop loyalty to their brands. Important for all chains will be functions of line-up management and building up an emotional component of brands in order to reach out to a perspective target group.

One may find a piece of evidence of development of children retail market in appearance of new players and advancement of chains of existing brands. One of the most ambitious projects in the Russian market of goods for children is the chain of supermarkets ‘Academia’ founded at the beginning of 2008 by the company ‘New Detskiy Mir’. In 2010 two largest Petersburg’s chains of children shops ‘Healthy small child’ and ‘Children’ merged and approached the second place in the market of Moscow. And in March 2012, Hamleys, the largest British net of children toys, entered the Russian market


Detskiy Mir

24

Detskiy Mir Great beginning

‘Detskiy Mir’ is a national chain of shops for selling children goods. The retail chain already exists for more than 50 years and during this period the company opened points of sale in 64 cities of Russia and Kazakhstan.

Nowadays ‘Detskiy Mir’ leads in Russian by number of shops and turnover. In large cities you may ask practically each inhabitant about location of ‘Detskiy Mir’: both grown-up and children know the brand.

The largest and oldest in Europe shop ‘Detskiy Mir’ opened in 1957. Less than for three years the edifice was built of total space 54.5 thousand square meter of which 22.5 thousand square meter was directly designed for shopping space. It was a first edifice designed and built just for a shop of children goods. Practically at once ‘Detskiy Mir’ concentrated on its shopping floor all sales of children goods in Moscow and became a leader in this segment of market in the country. In the first year of its existence the turnover of the universal shop already amounted to 93m ruble which at that moment was big money. And with each year this figure was growing. Exclusive products and innovations appeared at the counter of ‘Detskiy Mir’from the first days of its working. In times of Soviet economy it was a difficult task: the central store of ‘Detskiy Mir’ was even forced to take on a role of initiator of development and production of many

various goods for children, from footwear through school uniform to tool kits for manual training. In a constant struggle to improve quality of products, the management of ‘Detskiy Mir’ was forced to seek and find new methods of organization of business relationships with partners enterprises, suppliers, designers and so on. It was necessary to come on to direct ties with industry, organize trade exhibitions of particular groups of goods, customer conferences, surveys by questionnaire, show of new products. Thus, suppliers had the chance to receive opinions of their products and information of the needs of customers. Besides that, ‘Detskiy Mir’ actively set up contacts with foreign manufacturers. The trademark of ‘Detskiy Mir’ was widely known in a territory of the former USSR. By 1990 ‘Detskiy Mir’ had 28 shops in Moscow and distribution warehouse in Karacharovo, west of Moscow. Turbulent

times of 1990s influenced chain significantly. The main change happened in 1996 when financial corporation ‘Sistema’ purchased stake in ‘Detskiy Mir’; later ‘Sistema’ increased its share to 70,5% by 2004. In 2001 ‘Detskiy Mir’ starts regional expansion opening its first store in Orel. However in 2002-2004 chain opens only one new store a year. But situation significantly changes in 2005-2008. Russian booming retail spurs company expansion: ‘Detskiy Mir’ opens 14 stores in 2005, 21 — in 2006, 25 — in 2007 and 40 in 2008. In 2009 the financial crisis stops expansion: in 2009 and 2010 company opens only 3 shops a year. However in 2009 company developed logistics with new distribution center in Krekshino and IT with implementation of Oracle ERP. In 2010 company opens internet-shop. In 2011 regional expansion continues. “Detskiy Mir’ opens 21 new shops, enters Kazakhstan market, develops together


Detskiy Mir

25

with SCG London new store and store zoning concept and implements new loyalty program Yo-Yo.

In 2012 “Detskiy Mir’ shows even more robust growth than in 2011. 15 new stores are opened in first half of year. In June

2012 ‘Detskiy Mir’ purchases Russian part of chain ‘Early Learning Centre’ consisting of 19 small shops.

Idea of a shop

Mission of the company consists in building a national trade chain called up to provide the society with civilized conditions for the most qualitative, safe and perspective investment in a rising generation.

‘Detskiy Mir’ is planning to become a national benchmark of a shop with the widest choice of quality goods for children and adolescents. Management of the company is building socially-responsible business which together with the state and

public organizations will always counteract infiltration into the domestic market of goods which may harm moral standards and psychiatric health of children.

Company’ business

In 2011 ‘Detskiy Mir’ voiced a new strategy of development. The company set course for expansion and raising the effectiveness of business. And already in2012 the retailer opened 23 new shops in Russia and Kazakhstan, widening the chain to 173 trading objects. Thanks to the new points trading space increased to 330 thousand square meter, and staff reached almost 7 000 employees. But the widening does not end at that and already by the end of 2012 the company plans to increase their chain in Russia to 200 shops, opening since October nearly 10 shops each month. Chain ‘Detskiy Mir’ is oriented on customers who are interested in acquiring quality goods at affordable prices. Recognizable brand with more than a halfcentury history, the widest choice of goods and optimum combination ‘price/quality’

help the company retain the leading positions in the market. The company has «one-stop-shop» business model. Malls and stores of ‘Detskiy Mir’ offer the widest choice of goods for children from 0 to 17 years as well as for their parents.

as well as car seats. ■ Sport and active recreation. This category combines goods for engaging in sports activities: sportswear, bicycles, roller skates, sleds, accessories for swimming, tourism, winter holidays and sport games. ■ Clothes and footwear. This category combines clothes, footwear and accessories for children of all ages: summer and winter jackets, jeans, shorts, tights, T-shirts, children underwear of all types and fashions for all seasons. ■ School and creative work. This category combines games for the brain and things required for children at school: bags, pencil cases, stationeries, trainable materials, books, microscopes, accessories for drawing and modeling, kits for creative work. Target audience of consumer of children goods of ‘Detskiy Mir’ entirely consists of children and is broken by age

Points of sale offer goods of the following categories: ■ Games and toys. This category combines all kinds of toys: soft and interactive toys, transport, electronics, playsets, board games, construction sets, musical instruments and toy guns. ‘Detskiy Mir’ is a market leader in this category. ■ Goods for small children. This category combines goods required for children in first years of their lives: baby carriages, pampers, furniture, jumpers, cosmetics, and dishes, toys for small children, rattles


Detskiy Mir

26

into several segments. The first segment includes newborns (from 0 to 3 years). In this category of consumers a decision to buy is made by parents or tutors. ‘Older’ segment includes preschoolers from 4 to 6 years. School age is divided in components since the groups differ in their consumer behavior: junior school age (from 7

to 10), median school age (11 — 14 years) and senior school age (15 — 17 years). In majority of cases (70% of sales in Russia) children products are purchased with no children involved. ‘Detskiy Mir’ target audience is women aged 25 to 39 and having an up to 9-year-old child (or children). Usually they are middle-class

consumers who are interested in paying a reasonable price for quality goods. Yet, the older a child is, the more involved he/she becomes in product selection process. The parental influence on choice-making decreases once children move from “children segment” to “elder children segment”.

Corporate finances

As a result of increment of trading spaces, proceeds for 6 months of 2012 amounted to 10 649 m RUR, an increase by 16.1% (8.5% in dollar terms) year-toyear. Like-for-like growth of sales of the chain of shops ‘Detskiy Mir’ amounted to 9.1% in ruble terms for the 6 months of 2012 and that has taken place due to increase in the sum of average purchase. Share of sales of Group of companies ‘Detskiy Mir’ outside the limits of Moscow rose to 61.4%. Number of customers of the chain ‘Detskiy Mir’ for the first half of 2012 rose by 10.4% to 33m person. Active growth is demonstrated by the area of online trade. Proceeds of internet-store ‘Detskiy Mir’ grew more than twofold

and amounted to 33m ruble. During this period the coverage of regions increased by 7 cities. Gross profits of the company increased by 16.1% year-to-year and amounted to 3 915m ruble. Gross margin remained at the year-to-year level and amounted to 36.8%. In the first 6 months of 2012 rate of growth of proceeds exceeded that of commercial and management expenses which weighed on the reduction of the ratio ‘expenses/proceeds’ to 41,5% (43.6% yearto-year). In comparison with the respective showing for 6 months of 2011, the commercial and management expenses have risen by 10.3% to 4 415m ruble. Growth of expenses is caused by high rate of

development and, as a consequence, by widening the geography and audience of marketing activities. Main revenue streams in 1H2012 were unchanged. 38% of revenue came from toys, 23% — goods for newborns and baby nutrition, 21% — clothes, 11% — school needs (stationary and etc.) and 7% — shoes. 39% of revenue was made in Moscow and Moscow region, 61% in other regions; share of Moscow felt from 42% in 1H 2011. As of visitors share, Moscow and Moscow region accounts for 30% of visitors in 1H 2012 and 35% in 1H 2011 with total number of visitors around Russia reaching 33,5m people in 1H2012 and 30,4m in 1H 2011.

Points of sale

The company possesses a branched chain of 173 shops throughout Russia and a separate internet-store; shops cover almost 89% of Russia in terms of retail volume. ‘Detskiy Mir’ outlets are

located close to metro stations, busy traffic routes or within large residential areas with population more than 200,000 people. However, at the moment almost 31% of chain space is located in Moscow

and Moscow region. The approach to an outlet is always properly navigated. Several signposts in Moscow metro stations are located near exits to city surface. Almost all stores are located within a

Measure for growth of sales adjusted for acquiring new points of sale and selling the existing ones 12


27

Detskiy Mir

shopping mall or gallery with only a few being standalone shops. All stores belong to one of the following groups, or “formats”: hypermarket (starting from 3,000 m2), flagman store (from 1,500 m2), local shop (from 800 m2), and small outlet (around 600 m2). The majority (up to 70% of all stores) are large hypermarkets, where visitors can spend all day and always find something special. In most cases they are located within large shopping malls with customer flow of 20,000 to 70,000 people on first and second floors (rarely on third floor and only in shopping malls with elevators). Hypermarkets of ‘Detskiy Mir’ boggle the imagination with the bounty of colorful goods and width of choice, Shopping trip to such a hypermarket always turns for a child into a festive occasion. New hypermarkets are equipped with playgrounds where animators are working and children who do not want to part with their parents even for a moment may use special little carriage-machines and small children like very much to move along the territory of a hypermarket using these machines. But there are not a lot of free spaces in a hypermarket: most spaces are used for accommodation of the products. When festive occasions are carried out (show of models of children clothes, contests and prize drawing) they are usually organized on a small area near the entrance.

The other category of points of sale are small district stores. Flagman stores, local shops and small outlets are more likely to be parent-targeted. They have a convenient location (within a shopping mole close to metro stations), but have less space and limited range of products offered. Local shops are usually “on the way” whenever there is an urgent need to buy a present or baby food which you have run out of. Yet, there are no play spaces for kids, and aisles between shelves are too narrow to pass with a customer trolley. But, of course, division into four groups of such a wide network is very conditional. In spite of general principles of decoration and organization of internal space, all stores of the chain more or less differ from each other. It depends on geographical location of a store, year of its foundation, type of point of sale and other factors. Let’s take an example: Moscow. Here you may find long-functioning points of sale, practically not changing with time. After 2008 ‘Detskiy Mir’ began to create stores in accordance with the new strategy which takes in account visual communication of brand within the trading space, system of navigation inside the store and zoning. New look have acquired four stores of ‘Detskiy Mir’ in Andropov avenue, in trading/entertainment center “Metropolis’, in trading/entertainment center ‘Rio’ and near metro station ‘Kras-

nopresnenskaya’. The latter is especially distinguished among the other points of the chain. Trading center ‘On Krasnaya Presnia’ is a three-storied building, a spacious, colorful store ‘Detskiy Mir’ with glass windows and by level of decoration and service it is close to that of premium shops of the retailer. Inside the store there are areas singled out for main product line groups: clothes for girls, clothes for boys, footwear, goods for newborns, goods for prospective mothers, toys for girls and boys, goods for active holiday etc. Search is simplified by a convenient system of indicators for grown-ups and colorful decoration of product group zones. Entertaining navigation is provided for children based on the use of a fairy-tale character. Inclusion into the trading space of game and entertainment components helps attract a child into a process of purchase and facilitates a choice of goods by grown-ups. In addition to traditional stores, the company has its own internet-shop which the geography of delivery numbers more than 20 Russian cities. It is the biggest internet-shop for buying children goods in Moscow. According to company data total number of visits in December 2011 accounted 1m unique visitors. Now the company is upgrading the current version of its site in order to make it easier from the point of view of choosing a product.


Detskiy Mir

28

Product range and service

According to the actual data from Google Analytics, an average visit depth from entrance to purchase amounts to 25 pages. It shows the necessity to improve navigation and exposition of product line on the site. And after the plans include the launch of a mobile version of the site, QR-codes, participation in co-branding programs of loyalty as well as offering the possibility to

make payments with all kinds electronic currency, integration of the internet-shops with social networks and creation of such services as wish-lists, ‘gift to a friend’, ‘order delivery’ and so on. For the time being, online sales account for less than 1% of turnover of ‘Detskiy Mir’, or 40m RUR in 2011 and 33m RUR in 1H2012. Plans are afoot to increase

this figure up to 5% by 2015. In the opinion of the management, the online purchase does not take away customer from off-line retail: it takes place mainly due to more active promotion of the project in the chain. If anything, the internet-store, in its turn, promotes the off-line retail into the Internet, serving as a site in the function of its business card.

The principle of formatting a product range in ‘Detskiy Mir’ provides a customer with the possibility to buy all the things needed in one place. It is for this that customer love ‘Detskiy Mir’: you can buy here ‘everything in the world’. At present, more than 300 thousand names of articles are represented in large hypermarkets. It is very important for a chain of children goods to have a wide product range, especially in the category of goods for newborns. Having chosen for their baby suitable nutrition and sanitary products, parents are reluctant to change them. In practice, visitors enter a shop for a concrete article of a concrete producer and, having not found it, may leave a shop without purchases. The same tendency to a certain degree refers to other goods: games, clothes, footwear. For the time being, conversion of visitors into purchasers in ‘Detskiy Mir’ is equal to 40% and the company is planning to seriously raise this figure.

With maximum wide product range as a target, the company pays special attention to goods arrangement on the shelves. For an appropriate placement of goods, consumer’s preferences are monitored non-stop, resulting in most relevant display of goods. Furthermore, network suppliers’ experience and wishes are taken into account whenever possible. In accordance with the corporate policy, a separate merchandising system for each product group is in place. Thus, suppliers of each product category are contacted separately. POS materials, such as promo stands, equipment branding etc. are often put in place in display areas for marketing purposes. Chillout music and radio commercials improve the store ambience. Festive promotions, such as one-set seasonal sales, are launched on a regular basis. For example, at the start of a new school year customers are offered related sets of school goods; such practice allows

them to buy everything they need for their families at a time. ‘Detskiy Mir’ service quality standards are targeted at creating festive atmosphere. Immediately after being employed, shop assistants, cashiers and sales area managers have to complete special training. In due time, ‘Detskiy Mir’ employees undergo other workshops and further training to upgrade their skills. However, since there are few staff members in sales area, and self-service approach is mainly predominant, the company has implemented zoning and navigation systems to help customers choose the product they need with maximum convenience possible. As no shop assistants are usually present in sales area, it’s almost always up to a customer to find an appropriate model, size or color. Service at the cashier desk does not differ much from competitors’ solutions, i.e., automated billing and a free pouch with the chain logo.


Detskiy Mir

29

Marketing

A different approach is applied to forming a product range for internet portal. Group of goods bought in internet strongly differs from off-line trade. For example, foodstuffs, clothes and footwear are practically not sold. At the end of February 2012, own goods matrix was approved for a channel of online sales, in which 53% of the product range should fall on toys, 40% should fall on goods for

newborns. The discrepancy of the product range matrix with the off-line store is equal to 15 — 20%. In the category ‘toys’ the retailer sells in the internet-shop full lines-up of famous brands Lego, Hasbro, Winx, Barbie and others. According to statistics of requests, visitors are searching in the Internet concrete popular brands. Less known brands will be taken out of the product range.

Maximum convenience for purchasers is the main principle of the internet-shop of ‘Detskiy Mir’ and instantaneous booking of goods differ it from others. Due to integration of the internet-shop with the warehouse of ‘Detskiy Mir’, a customer may be sure that an ordered article is really available in stock..

Brand ‘Detskiy Mir’ is in existence for more than 50 years and now is the most recognizable in the country among the chains of children goods. The advantages of the ‘first entrance’ into the market still help the company retain leadership. All those who now buy children goods are the people bought up in times when ‘Detskiy Mir’ was the only shop of that kind with unbelievably fabulous choice of goods. For Soviet parents the name ‘Detskiy Mir’ has practically become a synonym to “children goods shop’ and for the children visits to ‘Detskiy Mir’ have always been a ‘fairy’ occasion. Nowadays the company develops its network, positioning itself as a number one company in Russia providing a wide range of quality children goods at affordable prices. Slogan of the company is ‘Detskiy Mir’ — for happy children’. And the management carefully watches the quality of goods and services provided in order to

comply with the image of a bright, colorful and ‘kind’ shop. The company allocates hefty budget to develop its brand which includes showcase decoration, raising quality of service, marketing campaigns online and off-line. In first 6 month of 2011 the company spent 78m ruble on marketing and in 6 month 2012 — almost 220m ruble. All stores of the chain ‘Detskiy Mir’ are decorated in one style throughout. The entrance is always enhanced by an electric sign bearing large blue name and logotype with yellow, red, blue and green cubes that is known from the childhood. Store showcases are constantly updated with new POS-materials with information about current promotions and topical stock placement. Store external appearance plays a huge role in attracting customers. Decoration singles out a shop and stimulates customers to go inside. When a

store is located in a shopping mall, where all children-goods stores are located next to each other, attractive look of its outlets helps the company to gain competitive edge. Site of the company exists from 1996 in the Internet. It gives all required information about the company, goods, addresses of shops with indication of formats. Two years ago, own online store began to function which now picks up popularity. ‘Detskiy Mir’ is widely advertised though all possible channels: TV, radio, outdoor and print advertising. The most difficult thing is to formulate an appeal to a person who makes decision to buy. Communication is built in two directions: rational (for parents) and emotional (for children). However, the advertising campaign with a slogan ‘Detskiy Mir’ — for happy children’ is oriented on emotional motives and directed onto children.


Detskiy Mir

30

Program of loyalty

Active PR is conducted through social networks. ‘Detskiy Mir’ is developing informal channels of communication in two social networks: in Contact (more than 55 000 participants in the group) and Facebook (more than 2 000 participants). In these communities the company not only educates, but also entertains the public. The content of the groups is designed for children audience. By the jubilee celebration the company even launched its own game application ‘Detskiy Mir’ which united 7 000 participants. Within the framework of the group various contests and promo-actions are sometimes published which are organized by ‘Detskiy

Mir’ in conjunction with its partners. Besides that, more than once a lottery was held for exclusive conditions of selling in the shops of the chain, — winners may make use of discount coupon for 10%. All the year round ‘Detskiy Mir ’ conducts large advertising campaigns. Children festive occasions, fashion shows and contests are organized on a regularly basis. By agreement with the suppliers, the chain offers discounts and carry out sales. The company always organizes festive occasions on the eve of significant events: 1st September, New Year, 1st May. For example, in honor of its jubilee in 2012 the company gave

grand entertainment for Muscovites in the Gorky Park. Several playgrounds were deployed in the Park. For boys a special entertainment was prepared with radio-controlled small machines whereas girls were waited for by beauty parlor of popular fairies Winx where masters taught young women of fashion to make them up and hairdressing. And, of course, all day long functioning were the playgrounds with toys and construction sets; and they could not do without favorite area with trampolines. All occasion long multiple prizes from the company were drawn.

Functioning in all stores of the chain is the program of loyalty ‘Progressive bonus card’ (‘Yo-Yo-Card’). Since 2011 purchasers may register at the reception of any store a plastic card with a magnetic strip (’Yo-YoCard’). The card gives the right to participate in the program of accumulation of bonuses when making payment for the goods in all stores of the chain ‘Detskiy Mir’ and these bonuses may be written off for full or partial payment for goods of the chain.

Also, with the purchase of every goods, if the purchase was made with the help of a progressive bonus card, cardholder receives a bonus in the form of 5% discount from the price of every goods acquired. Later a client may pay up to 20% of purchase using bonuses (excluding baby nutrition, goods for newborn and sale items). For cardholders a special service is designed that allows to verify online a number of bonuses assigned. To do that

it is necessary to visit the site and key in a number of your bonus card or to get the balance over free service telephone. Participants of the bonus program constantly receive information at their e-mail or through SMS relating to actions and official offers by the chain. However no reminder to come back to a shop exists. Share of sales from loyal customers is valued by the company at 60-70% of overall number of customers.


Detskiy Mir

31

Detskiy Mir A new stage of development

But all this is not a limit. Recently a concept of Customer experience management (CEM) is enjoying a particular spreading and this concept interested the management of ‘Detskiy Mir’. Customer experience management is a paradigm suggesting a creative look at the world of consumption which goes beyond simple selling of goods and services and includes management of customers’ emotions upon purchase. The idea of managing impressions, in the best way possible, fits a shop of children goods. First attempts to create ‘an emotional world of a brand’ were made in 2008 when the company opened in Moscow several new stores with new decoration. For the first time articles were divided into two groups: ‘emotional’ one (toys, sport, books) and ‘rational’ one (clothes, footwear, goods for prospective mothers), which differ in the degree of activity of a child in the process of making a purchase.

Marketing director of ‘Detskiy Mir’ thinks that the changes helped to make stores of the chain really universal, convenient and comfortable. ‘Detskiy Mir’ is something more than just a store: it is a center of communication between children and grown-ups in which you may not only make necessary and pleasant purchases but also pass the time with use for a child and joy for the whole family. But the company is not going to rest on its laurels, especially now that before it stand large-scale plans to develop the network and brands. There exists a large potential for supplementing children goods with emotions and impressions. And it refers not only to appearance and inner contents of a store but also to playing up the process of purchase. Similarly to the Western companies (Hamleys, Toys”R”Us), ‘Detskiy Mir’ wants to try to integrate a child into a process of purchase and make it a participant of that process. For example, the chain of shops Hamleys is famed for use of not only shop assistants but also demonstrators who play with children and arrange bright performances. Responsible for animation on London stores are tens of workers many of whom are students of theatrical institutes.

With the help of creating various game elements and managing the atmosphere inside stores it is possible to seriously influence the effectiveness of sales. Brightness of shop windows and the interactive will attract more purchasers. Optimization of location and search of goods of required sizes and colors will increase the conversion of visitors into purchasers and the system of relationship with customers after the purchase will force them to return again and again. And what else, but the new information technologies could help the company achieve its goals …


32

Appendixes


Appendixes

33

1.

2.

The biggest retailers on the Russian market of children goods

Priorities of the types of children goods stores

Company

Country of origin

Year of foundation

Number of outlets in Russia

Revenue, 2011, bn RUR

Detskiy Mir

Russia

1947

173

23

Zdoroviy Malysh

Russia

2001

82

Types of the stores visited (Where did you buy children goods during the last 3 months?), % of respondents. Several answers were possible. 91

89

16,8

Deti

Russia

1997

69

Dochki-Sinochki

Russia

1996

about 100

9

Korablick

Russia

1999

more than 100

6,49

Behemoth

Russia

2005

71

4,3

87

79

76

37

33

78

38 28

13

9

Regional capitals

SPB

Internet Fairs and open markets Universal stores Specialized stores

Moscow


34

Appendixes

3.

4.

Average monthly expenses in Detskiy Mir

Which digital devices use children and their parents

Monthly expenses for children goods of a family with one child, rub.

In May-August Online Market Intelligence Agency surveyed 3833 people from Russian million-cities. All of the respondents have children, % Do you use the following device?

3 930 3 550 2 980

85 80 63

50

65

47 35

15

Moscow

SPB

15

20

Regional capitals Mobile PC

PC

Notebook

Smartphone

Handeld garne console

12

7

Tablet

Parents Children

The survey also covered question “Do children use mobile applications?”. 48% of respondents answered positively, 40% negatively, 12% did not know. Most often children use game applications (78% very often, 15% often), then educational apps (37% — very of the, 28% often, 17% — rarely) and then apps for drawing, making music or video (31% — very often, 29% — often, 18% — rarely).


35

Appendixes

5.

Dochki-Sinochki

Competitors of ‘Detskiy Mir’

‘Daughters & Sons’ is a chain of supermarkets for selling the goods for newborns and children of preschool age. The chain includes 27 supermarkets in 12 cities of Russia. Average trading space of each store is 1500 square meter.

Plans are afoot to open 100 stores in cities with population more than 250 000 dwellers. The company offers customers a wide range of production: more than 55 000 names from more than 500 suppliers from Russia, Belarus, Ukraine, Poland, China, Turkey, Spain, France, Italy and some other countries.The company tries to offer goods of all directions:

Deti

Korablick

Zdoroviy Malysh

Behemoth

Closed corporation ‘Deti’ specializes in selling children goods by wholesale and retail. The company ‘Deti’ was founded in 1997. Having begun working as a wholesaler, the company actively developed and for the time being is one of the largest network of retail stores for children goods. Nowadays the chain ‘Deti’ numbers 29 stores in Saint Petersburg and 40 stores in Moscow and Moscow region. All stores are represented in a format of self-service which gives wider possibilities of access by customers to goods and raises the convenience of choice. Stores have trading space varying from 350 to 2500 square meter. The company employs more than 1 700 skilled workers who are ready at any time to give a piece of professional advice on a particular group of goods. The company ‘Deti’ offers about 30 thousand of names of children goods from the birth to 12 years as well as for their mothers. Always in stock are baby nutrition, goods for child care, cots, carriages, playpens, furniture for children room, highchairs, car seats, swings, jumpers, sport complexes, clothes, baby cosmetics, toys, bicycles, electric vehicles, walking frames, trolley and many other things. In 2010 closed corporation ‘Special Service’, which owns the chain ‘Healthy small child’, acquired 100% of ‘Deti’.

The first store ‘Korablick’ was opened in Moscow near the metro station ‘Marino’ in 1999. Founder and owner of the chain is Alexey Zuev. In order to resist the largest competitors — ‘‘Detskiy Mir’’ and ‘Banana-mammy’ — the chain ‘Korablick’ has chosen a format of ‘soft discounter’ with low prices and high level of service. In 2005 ‘Korablick’ was a first children chain to launch an Internet-store. The chain ‘Korablick’ carries out an aggressive advertising campaign, using, for example, such slogans as ‘Make children — the rest we’ll provide’, ‘250 thousand ruble in three years but have gifts now and for each’. Only in 2006 ‘Korablick’ spent on advertising in Moscow $1.2m. According to marketing research by Nielsen, at the end of 2007 ‘Korablick’ occupied the third spot in the rating of the most famous and visited children retailers. According to workers of the chain ‘Korablick’, as a result of the crisis the demand for products changed and the earnings shrank nearly by 50%. Product range of the stores “Korablick’ exceeds 10 thousand of various names of articles.

In 2001 Petersburg chain put into operation the stores for selling goods for babies and their parents called ‘Healthy small child’. Rich product range, excellent quality — all this made a firm incredibly popular among fathers and mothers throughout the country. Step by step the company expanded its chain in Russia and, at last, occupied leading positions in the field of children goods. Since 2002 the company ‘Healthy small child’ not only became a distributor of children products, but also carries out programs connected with the help of families. Choice is immense in every store of the chain ‘Healthy small child’. Here you can find goods which can suit any taste and for little ones of any age: both for newborns and older children. The owner of the chain “Healthy small child’ is Petersburg company ‘Special Service’ that united chains ‘Healthy small child’ and ‘Deti’ in 2010 and now it is a player N2 in the metropolitan market by number of points of sale.

Hypermarket ‘Behemoth’ is the largest federal trading chain for selling toys which includes 71 stores located in the European part of the RF, in Ural and Western Siberia. The chain was formed in 2005 with the opening of the first store in Penza. It is with this store that the history of the hypermarket began. Six years went by and during this period the company managed to open 70 hypermarkets in the largest cities of Russia, to create and develop franchising network which now includes more than 400 franchisees-partners. The idea to create national network specializing exclusively in toys originated from the group of companies ‘Grand Toys’, the largest Russian supplier which entered the market in 1998. Behemoth works in the format cash&carry. It makes it possible to buy in one place and at once all goods that a customer chose in a required quantity (all stocks are conveniently located in the sales area) and at affordable prices. Besides low prices for wholesalers, there exist a special system of discounts and a set of supplementary services.

Children

Daughters and sons

Little ship

Healthy small child

children knitted fabric, apparel, children clothes up to 14 years, tights, socks, children accessories (children’s dummy, small bottles, rattles, teething toys etc.), cots, carriages, bicycles, highchairs, baths, potty, matrasses, sleeping gear, gift sets, baby cosmetics, goods for newborns, linen for expectant mothers and nursing mothers and so on.


Appendixes

36

6.

7.

Children goods industry top trends in 2012

Financial statements of ‘Detskiy Mir’ (amounts in thousands of U.S. dollars)

Antonina Tsitsulina, President of Association of Children’s Goods Industry, named the following key trends in children industry in 2012:

1.

Increasing government regulation in children goods industry;

2.

High demand to ecologically neutral products;

3.

New technologies including screened interaction in stores;

4.

Economic instability resulting in Do-it-Yourself market growth;

5.

Any customer may become your competitor soon as barriers for new player entry are low in internet-era;

2007

2008

2009

2010

2011

1Н 2012

Revenue

540 770

797 364

584 604

659 311

782 900

354 266

Growth of market with high Mergers & Acquisitions potential;

Gross profit

213 282

320 287

215 120

280 669

271 503

130 500

Margin, %

39,40

40,16

36,79

42,57

35,40

36,80

7.

Net income/(loss)

(16 248)

(50 592)

(102 346)

1 084

(5 600)

(28 930)

129

128

131

150

164

150

200

215

236

330

68,2

69,7

33,5

6.

High demand for children goods from charity programs;

8.

Civil society is an established power with opinion leaders covering millions of people in social media;

9.

Digital natives generation grown up on Pcs, laptops, tablets and smartphones;

10.

Power of children: children now make more influence on parents than ever before.

Number of shops Shopping area (th. sq. meters) Number of visitors, mln.

109


Appendixes

37

8.

9.

‘Detskiy Mir’ revenue breakdown by the regions, %

‘Detskiy Mir’ quarterly breakdown in 2011

1H 2012 Share of revenue, %

7 786

1H 2011 N of outlets

Share of revenue, %

22

8000 N of outlets

Moscow and Moscow region

38,60

41

41,80

39

The Central Federal District

10,20

33

10,30

32

Northwestern Federal District

10,60

30

10,30

29

18

21

20

7000

18

6000

15

Volga (Privolzhsky) Federal District

18,70

15

17,70

14

Southern Federal District

6,20

35

5,70

31

3000

Ural Federal District

8,40

12

7,80

8

Siberian Federal District

6,80

6

6,40

5

Kazakhstan

0,50

1

16

6 050

14

5000 4000

15

4 346

4 826

12 10 8 6

2000

4

1000

2

0 Q1

Q2

Q3

Visitors, mln people (right axis) Revenue, mln RUR (left axis)

Q4


38

10. ‘Detskiy Mir’ new store concept

Modern Emotional Convenient for client Effective for trade

Appendixes


39

Appendixes

10. Typical zoning of the ‘Detskiy Mir’ store Goods for small children: food, pampers, strollers, cosmetics

Shoes

Boys clothing

Boys toys

Toys for small children

Construction toys

Soft toys

Staff premises

Clothing for little babies

Girls’ toys

Girls clothing

Promotional area

Multimedia school and creative work

Entrance

Cash zone


40

Appendixes

Windows 8

Windows 8 is a new operating system produced by Microsoft for use on personal computers, including home and business desktops, laptops, tablets, and home theater PCs. Windows 8 is scheduled for general availability at the end of 2012.

Windows 8 introduces significant changes to the operating system’s platform and graphical user interface, such as a new interface design incorporating a new design language used by other Microsoft products, more personalization options for the Start screen, including more colors, a new online store that can be used to obtain new applications, along with a new platform for apps that can provide what Microsoft described as a “fast and fluid” experience with emphasis on touch screen input. People will also notice and enjoy improvements to the Mail, Photos, and People apps.

11. Microsoft’s products


41

Appendixes

Windows 8

Windows 8 provides businesses with the enterprisegrade solutions IT departments need. It brings new possibilities in mobile productivity, end-to-end security, virtualization and management advancements, and the longingly expected business tablets.

■ Great

■ New

possibilities for mobile productivity

■ Advancements

For people who are increasingly mobile, Windows 8 helps them stay connected and productive in a more secure way. Windows 8 includes Windows To Go — the ability to provide users with a full corporate copy of Windows 8 (along with users’ business apps, data and settings. It’s a fully manageable corporate Windows 8 desktop on a bootable USB stick and it will allow employees to work from anywhere on any device, while also helping IT professionals keep their organizations secure. Windows 8 also includes improvements to DirectAccess and built-in mobile broadband features that natively support 3G and 4G telecommunication. And Windows 8 can stay always connected with Metro style apps.

With Windows 8, users can get a virtualized experience with high-definition graphics, support for touch and support for USB devices on a local PC. It will be easier for IT departments to implement virtual desktop infrastructures in a more cost-effective way. In addition, Windows 8 includes Microsoft Hyper-V, a highperforming client virtualization technology that enables enterprise developers to develop, debug and test multiple configurations of apps and operating systems on a single PC instead of each configuration requiring its own PC.

Windows 8 has a user interface that responds equally well to touch as it does to a keyboard and mouse. Windows 8 has its benefits for business in a variety of ways, including:

user experience

Windows 8 bridges the gap between a personalized experience for users and the security and management features that IT professionals trust. Features include the new Windows 8 Start screen and fully immersive Metro style apps. People can be more productive with both multitouch and traditional keyboard and mouse interfaces. Critical line-of-business apps also can benefit from an immersive full screen, allowing people to easily interact with the app. ■ Tablets

without compromise

Windows 8-based business tablets are built for touch and are deeply personalized. Powerful, connected Metro style applications are the focal point to create an immersive experience that helps eliminate distractions while having the productivity benefits of a PC. In addition, it works well with a mouse and keyboard. It also enables organizations to use Windows 7 productivity and line-of-business applications, and IT departments can leverage their existing infrastructure to help manage, secure and support it.

■ End-to-end

security

Features such as Trusted Boot and improved BitLocker Drive Encryption, AppLocker and claim-based access control help protect corporate data across the client device, the network and back-end infrastructure.

in virtualization

■ Improved

management

Windows 8 easily integrates into most existing client management infrastructures, and management tasks are easier with Windows PowerShell automation.


42

Appendixes

Windows Phone

Windows Phone is a mobile operating system developed by Microsoft. Unlike its predecessor, it is primarily aimed at the consumer market rather than the enterprise market. The system was launched in Europe, Singapore, Australia, and New Zealand on October 21, 2010, and in the US and Canada on November 8, 2010, Mexico on November 24, 2010, the PAL region5 on December 3, 2010, and Asia in early 2011in Russia on September, 2011. In order to achieve the effective functioning on the platform, Microsoft decided to set up high hardware standards, which should become a guide for all WP smartphones developers. One of the most significant decisions is the development of the whole platform on the only chip. There are QualcommQSD8250 chip sets with an integrated graphic chip Adreno 200 adjusted into the WP smartphones The two main tools for the development of applications for a new platform became Silverlight and XNA Framework. Thanks to the universal platform and a set of libraries, developers are able to write applications for Windows Phone, web, PC and Xbox with a minimum of differences, simply modifying them according to the different screen‘s resolution.

Reception to Windows Phone has been generally positive, with special note to certain shortcomings, which Engadget and Gizmodo felt were notable omissions in a modern smartphone OS. ZDNet14 praised the OS‘s virtual keyboard and noted the excellent touch precision as well as powerful autocorrect and revision software. The touch responsiveness of the OS has also been universally praised by all three sites with reviewers noting the smoothness of scrolling and gestures like pinch to zoom in web browsing.

Windows Phone is a fresh approach to a phone interface since the iPhone. Everything is super flat and two dimensional. Ultra-basic squares, primary colors and lists. Fonts are gigantic and clean, white text on an almost universally black void. It’s fluid. This spartan nature is emblematic of the entire OS, for better and for worse. You don’t get a lot of choices; there are no custom ringtones, for instance. It just is how it is. As the result, Windows Phone was presented with a total of three awards at the 2011 International Design Excellence Awards; Gold in Interactive Product Experience, Silver in Research and Bronze in the Design Strategy.

―The Windows Phone was built around the idea that the end user is king. The design team began by defining and understanding the people who would use this phone. It was convinced that there could be a better user experience for a phone, one that revolves more around who the users are rather than what they do. The Windows Phone lets users quickly get in, get out and back to their lives. Windows Phone Wins Three IDEA Awards”.


43

WP Marketplace

Appendixes

WP Marketplace

Windows Phone Marketplace is a service by Microsoft for its Windows Phone platform that allows users to browse and download applications that have been developed by third-parties. The Windows Phone Marketplace was launched along with Windows Phone in Oct 2010 in some countries. Windows Phone Marketplace has support for credit card purchases, and ad-supported content. The Marketplace also features a “try-before-you-buy” scheme, where the user has an option to download a trial or demo for a commercial app. Other features are said to be similar to Windows Phone Marketplace’s predecessor, Windows Marketplace for Mobile. The Windows Phone Marketplace will have 61 categories split up in to 16 main categories and 25 sub-categories. Apps can only be placed in one category.

Speaking of Russia, it is important to mention that Microsoft and Softkey signed a strategic agreement that opened to developers of software for mobile platforms from Russia and CIS countries new opportunities for placing their applications on Windows Phone platforms. This agreement greatly simplifies the process of writing applications in Windows Phone Marketplace and subsequent monetization, enabling developers to focus on its core business - writing new and exciting applications. Developers can sign a contract with Softkey, which is committed to deploy applications in Windows Phone Marketplace and pay developers their profits.

“This agreement is our response to numerous requests from developers who want already to make profits out of a fast-growing mobile Microsoft platform, - said Nikolay Pryanishnikov, president of Microsoft in Russia. - Currently in Marketplace there are about 200 applications from Russian developers, which is a very good indicator for the platform, not yet represented on the Russian market. Strategic agreement with Softkey will open up to developers from Russia and CIS countries new horizons.”


44

Kinect

Appendixes

Kinect

Kinect is a motion sensing input device by Microsoft for the Xbox 360 video game console and Windows PCs. Based around a webcam-style add-on peripheral for the Xbox 360 console, it enables users to control and interact with the Xbox 360 without the need to touch a game controller, through a natural user interface using gestures and spoken commands. The project is aimed at broadening the Xbox 360’s audience beyond its typical gamer base. Kinect competes with the Wii Remote Plus and PlayStation Move with PlayStation Eye motion controllers for the Wii and PlayStation 3 home consoles, respectively. A version for Windows was released on February 1, 2012.

Kinect was launched in North America on November 4, 2010, in Europe on November 10, 2010, in Australia, New Zealand and Singapore on November 18, 2010, and in Japan on November 20, 2010. Purchase options for the sensor peripheral include a bundle with the game Kinect Adventures and console bundles with either a 4 GB or 250 GB Xbox 360 console and Kinect Adventures. After selling a total of 8 million units in its first 60 days, the Kinect holds the Guinness World Record of being the “fastest selling consumer electronics device”. 18 million units of the Kinect sensor had been shipped as of January 2012. Microsoft released Kinect software development kit for Windows 7 on June 16, 2011. This SDK will allow developers to write Kinecting apps in C++/CLI, C#, or Visual Basic .NET.

Example of Virtual Fitting Room for Topshop: A special kiosk for the fitting room was installed at the flagman Topshop store in Moscow at the shopping centre European, 5-8 May 2011. The virtual fitting room is built on the most sophisticated technologies: augmented reality and Microsoft Kinect. Augmented reality allows the customers to select a garment off the rack without having to try it on physically. As a customer, you see yourself onscreen with a 3D copy of a dress. Kinect allows the user to control the program by simple gestures pushing virtual buttons right in the air. To activate the program you don’t need special markers: the built-in camera tracks a person’s body and superimposes over it a 3D model of the dress. A unique feature that allows the customers to watch both the front and the back parts of the dress was deployed in the Topshop fitting room for the first time in the world practice.


45

Kinect as a kiosk

Appendixes

Kinect as a kiosk

With the adoption of Kinect on the Xbox platform and with all the Kinect games out now, people are beginning to better understand gesture-based interactions. Plus, with many new Kinect applications moving beyond games and toward pure experiences, the next logical question to address is what comes next and how might we use this device in the consumer space?

Now clients are coming and asking what differentiator options Kinect offers and how to incorporate it in their retail space. We have all seen the research and hacking projects that people have already started developing for Kinect, such as controlling helicopters and making shadow puppets.

The first thing to understand about Kinect is that it needs more space than a standard touch Kiosk. Ideally, it should have a dedicated area for the interaction that allows for someone, or maybe a few people, watching or interacting, being able to stand around and use wide motion gestures. Depending on the overall experience you are trying to achieve, you may want to think how it can work in your retail environment, especially if space is an issue.


46

Appendixes

Kinect as a kiosk

There are delicate considerations retailers need to make before choosing Kinect as an option. First, there needs to be a dedicated area (about 3-4 meters) for the user – this is to make sure that no passive shoppers interfere with the Kinect detection camera. Second, retailers need to make a clear designated area so consumers know if they are in the designated Kinect area or not. Best Buy and the Microsoft Store do an excellent job of defining a space for the interaction; to make it clear to passive shoppers not to enter the “Kinect experience” with the use of colored carpet and a small wall at the back of the zone. The Microsoft Store places the experience at the back and at the front of the store in dedicated areas, out of the way. The individual using the Kinect can also see where they are meant to stand, enabling them to move and not worry about bumping into shoppers. This keeps everyone aware of the Kinect interaction whether they are in it or not. Consideration also needs to be given to the height and position of the camera; it is optimal to have the camera directly in front and at about waist height to allow for tall and short users (think children) to use the Kinect properly. It can also be placed in other locations, though it can affect Kinect’s ability to detect a user’s full bodies for tracking.

Next consideration is to the interactive experience that best suits a Kinect device. The Kinect camera, at this point, is not as sensitive to body detail as you might expect. It cannot pick up, for example, individual fingers and facial details without some modifications or custom work. That is not to say it cannot be done or isn’t being worked on by developers, but the out-of-the-box experience is much more about skeletal tracking. This means that the interactions are all about moving parts of your body, hence the warning about space for people to move. The motion tracking is very fast, with almost no delay. The real issues arise in what gestures work best and are most easily picked up by the camera. Big exaggerated gestures are easiest to learn and use for both the camera and the user; like swiping your arm from far right to left (or vice-versa), raising your arm in front of you, lifting your legs and leaning all work well. The user will really benefit from short animated tutorials of the experience or some clue as to what the interaction needs to be; for instance, displaying arrows to dictate motion. Things get a little difficult when you try spinning around or standing sideways, as the camera tends to get confused when parts of the body overlap. It can make the skeletal tracking jump around

and get a little confused. We have found that we can make this harder interaction work by placing the camera off center, but this starts using more space and can make the arrangement more awkward for a tight retail environment. We even worked out a solution using two cameras Detroit and New York auto shows where space wasn’t an issue. With that in mind, the interactions for Kinect are best for big interactions, versus very detailed and intricate manipulations. At this time, we are not quite at the level that “Minority Report” has filled our heads with, but we are on our way there now. Still, it is possible to come up with some neat interactions and designs, even with these limitations. It is important to keep in mind is that many people will complete the same action differently. Ask anyone to swipe in front of them and see how many different ways people do this action. Every interaction should be considerate of individual interpretation. Plan for the gesture to not be recognized the first time by the device, and make sure the user feels compelled to try again and minimizing frustration. Kinect was designed to be used as an entertainment device for the Xbox, and that is where it excels in its experiences. The experiences that consider its origins seem to perform best. People like moving around and it makes them generally


47

Appendixes

Kinect as a kiosk

happy to do so, hence its great success in the gaming ecosystem. However, people don’t like to look like fools in front of others, and nothing is going to make you look more foolish than the wrong experience, in the wrong environment, at the wrong time. This means that this device and its interactions can create amazing marketing and in-store experiences, so you must choose the experience carefully. Consideration needs to be given to the consumers you are targeting, where you position this interaction, and what your goal is in getting people to complete the interaction. For example, children are happy to jump about and create energetic interactions with Kinect; however older users are less inclined to do so. The most careful consideration should be made while defining what supporting role a Kinect can play within a retail environment. Generally, Kinect is used as an extension of a marketing campaign or as a concentrated interactive experience. Kinect is often setup with a large display and it is important to remember that people will be 2-3 meters from the screen. This is to allow the camera to fully track the user’s gestures, so the content needs to work at a distance. I would say that the bigger the display the better because it allows others to notice the experience from across the store. It also

gives a wonderful sense of user control for moving larger than life objects and boosts the entertainment factor. This means you need to think more like a billboard designer than a touch screen developer. Content needs to be big and have large target zones for interactions to be properly tracked; it is a little like designing for mobile and finger interactions, but scaled up. Density of buttons should be very light and spread out. The optimal layout would be 10 or less items on the screen at any given time, and remember, people are not going to be reading product descriptions at this size. Leave descriptions for the touch kiosks and mobile devices. Kinect also detects voice commands and can be setup to recognize certain key-phrases. Voice activation and use can be difficult in noisy environments such as large retail stores. Of course, if your retail environment is quiet or more exclusive, this can be an alternative way to interact with the device. One of the most valuable aspects to a properly situated Kinect is that it creates dwell time in targeted regions of the store. It is important to consider products that you sell in-store that would benefit from a motion based interaction like Kinect. Looking for screws in a hardware store or finding a pair of shoes may not be the best product to

target with this experience, but it will enhance the buying experience and will bring the consumer through another retail channel, building brand awareness and affinity. Where Kinect excels is in enhancing an experience of a product, like a virtual mirror allowing users to do things they couldn’t ordinarily do; such as an area for trying on different outfits or augmenting a sports experience for a team apparel store, changing the environment they see themselves in. In summary, Kinect is a new and exciting development in technology, which offers yet another way to interact and leave an impression with consumers. Kinect’s value is in extending a brand’s channels with an entertainment factor, as it can engage with a consumer and offer a differentiated way to display beyond a physical product. Most people we have watched using this interaction have enjoyed the difference it brings and will often encourage others to become involved. I hope that this article gives a little insight to some of the benefits of Kinect for retail as well as the endless possibilities. As the technology gets more accurate and better the experiences are going to improve and become more engaging to use. I am looking forward to see how far my clients want to go with it.


48

Microsoft Case Competition CX microsoft.changellenge.com vk.com/microsoftcasecompetition Case created and published by Changellenge >>, Russian leading case study organization.


Microsoft Case Competition CX