Do you know what you want to know?

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Do you know what you want to know?

The importance of tailor-made customer knowledge

for a fashion company

Hilde Douma Student number:

1227114

Supervisors Rijksuniversiteit Groningen: Drs. H. Stek

Mr. Drs. H.A. Ritsema

Supervisor Mexx: Drs. R. van der Molen

Amsterdam, June 2007

Rijksuniversiteit Groningen Mexx Europe Holding

Faculty of Management & Organization Amsterdam

Marketing

Business Development

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“You cannot solve today’s problems with the same thinking that created them. In other words: if you do what you always did, you always get what you always got “

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Preface

This thesis was written for the purpose of completing my study Management and Organization at the Rijksuniversiteit Groningen.

The completion of this thesis involves mixed feelings. A new exciting period as Mexx employee has arrived and at the same time a valuable, fun, precious and unconcerned period as a student in Groningen has ended. Nevertheless, I am very excited to have completed this thesis.

I would like to express my gratitude towards my 1st supervisor of the Rijksuniversiteit Groningen, Drs. Huib Stek, for his feedback, support and the ‘brainstorm’ sessions which sometimes made me even more confused but definitely led to a better end-result. Secondly, I would like to thank my 2nd supervisor, Mr. Drs. H. Ritsema, for making himself available as second supervisor on such a short notice.

Furthermore I would like to thank Mexx Europe for offering me the opportunity to conduct this research within their dynamic organization. Special thanks goes to my supervisor at Mexx, Rick van der Molen, for his support and feedback during this challenging period.

In addition I would like to thank everyone who was involved in this research. Thanks for your cooperation!

Last but not least a special thank you goes to my family and friends for supporting me during the past months.

Enjoy reading!

Hilde Douma

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Management summary

Mexx is a fashion retailer selling apparel and accessories on a worldwide basis. Since its establishment in 1986 the company has grown rapidly from a local player into a multi brand lifestyle company with about one billion dollar in revenue.

This research has been conducted for the Mexx Market Intelligence Unit who initiated the research assignment together with the Mexx marketing director. After the preliminary research, which has been conducted in order to establish the problem statement, the following research objective has been formulated:

Provide Mexx tools to better align product design and direct marketing activities for the loyalty program with the current customer groups.

In order to meet this research objective the following research question has been established:

To what extent can the customer data collected via the Mexx loyalty program support the product design process of Mexx Lifestyle and Connect direct marketing activities towards existing customers?

To answer the research question, desk-research as well as face-to-face interviews (semi-structured open form of questioning) have been conducted.

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customer’s purchase is not stored properly and therefore purchase data is not reliable and complete.

These customer data are gathered with the help of an online and offline application form for the Mexx Connect loyalty program. Besides above mentioned data, the form asks to fill in the names and gender of the customer’s children, however these data are not stored in the database.

As a result of the determination of the current available database selection variables the next step could be taken to find out to what extent these data support the direct marketing activities. Numerous interviews with Mexx employees and external specialists revealed the following. Main goal of the direct marketing activities is stimulating sales. Mexx uses two tools in order to communicate with Connect members – direct mail and internet (e-mail). The database mailing selections are based on NAR data, gender (demographics), and RFM criteria (purchase & consumption behaviour).

Interviews with indicated users exposed that currently customer data are missing though required by these users (user wishes) in order to better align their DM-activities with the customer. The kind of data needed to fulfil these wishes can be found in segmentation variables which enable organizations to execute their direct marketing activities and gain consumer insight. To meet the user wishes all three categories are needed – demographics, psychographics and purchase and consumption behaviours. These categories contain all sorts of customer variables however not all variables are predictors for fashion (buying) behaviour.

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Based on these user wishes and used theoretical approach one can conclude that the current customer data stored in the database are not able to fully support the DM-activities.

The use of customer data in the Mexx product design process is the second element of this research. The used theoretical guideline supposes that the following data are needed in a fashion design process - consumer characteristics and consumer behaviour, consumer’s preferred product design and characteristics, the use of a customer profile and an understanding of the design context. These data will lead to better alignment between product design and the existing customer.

The Mexx product design process exists of 13 consecutive steps, beginning from scratch and ending with the presentation of a new collection. In-depth interviews with designers and internal documentation revealed the following. Firstly, in this process customer characteristics and/or behaviour is not used. Single history (sales figures and retail performance) and fashion research are taken into account. Secondly, Mexx has no knowledge about the customer’s preferred product design and characteristics. Thirdly, officially consumer profiles are input for the design process however in practice the profiles are hardly used. Finally, designers should have knowledge about the design context, however no data is available on characteristics or behavioural patterns/lifestyle of existing customers. Concluding, customer data do not support the design process.

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Third element of this research contains a “process” benchmark study conducted in order to determine how and what kind of customer data other companies use in their DM-activities and/or product design process. The study confirms that companies indeed use customer data in order to better align their direct marketing communication and/or product design process with their current customers. Demographics, psychographics (lifestyle data) and purchase behaviour are used in direct marketing for two aims – better targeting and better mailing efficiencies. In case of using customer data in product design, companies use psychographic data – values and lifestyle data- to gather consumer insight and create a description of the customer(s). These psychographic data are gathered in different ways – third party data are matched with existing demographic database data and consumer surveys are used to gain psychographic data.

Based on the benchmark study the conclusion can be drawn that it should be feasible for Mexx to start with the correct registration of all customer purchases including the exact product, colour, size and date of purchase. Secondly, Mexx gathers the basic demographic data which the benchmark companies also register however as other companies link demographics and psychographics together Mexx does not make use of psychographic data. Though, the use of psychographic data will benefit the product-design process and the effectiveness of direct marketing communication.

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In order to reveal the required psychographic data at least 50 questions/statements are needed in order to be able to meet all required customer data. The current application form used for obtaining the Mexx loyalty card is not the right mean to post all these required questions. There are two other ways of generating the required data– buy or rent a data list from a third party or collect customer characteristics by conducting self an extensive consumer survey.

For Mexx, the latter will be the best solution because this way of data collection will fit the Mexx purposes and user requirements best. When executing an extensive customer survey it could be feasible to determine a relatively small number of questions (six till ten) that do a very good job in assigning individuals to segments. If this is the case, Mexx could consider putting these questions on the Loyalty Program Application form.

In addition, two questions could be removed from the current Application form – surnames of the member’s children and the member’s attitude towards Mexx product lines (women, men, xx or youth). These questions are superfluous.

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Chapter 1 - Mexx Company Profile

Mexx is an international fashion retailer selling apparel and accessories on a worldwide basis. This chapter gives the reader a short overview of the most important characteristics of the Mexx organization. Firstly, the Mexx history is outlined. Secondly, Mexx current situation in the market regarding the brand, competition, brand positioning, financial situation and supply chain will be discussed. Finally, the Mexx company strategy, company structure, mission statement and company culture will be considered briefly. In short, the next five paragraphs will give the reader a better understanding of the Mexx DNA.

1.1 Mexx: History

In the early seventies the founder of Mexx, Rattan Chadha, supplied department stores and wholesale dealers with clothes that were specifically designed and labelled for them. At the beginning of the eighties another business concept was chosen to increase the success. Two new apparel labels were launched, Moustache for men and Emanuelle for women. These apparel lines were coordinated collections and sold internationally (Mexx corporate profile, 2006).

The company was named Mexx in 1986 when the two previous brands, Moustache and Emanuelle were united with two kisses to form: M(oustache) + E(manuelle) + XX = Mexx. This was done in order to face a more family like style and to strengthen the image.

Since then, Mexx has grown rapidly and is now an internationally prominent company, employing close to 6225 people worldwide. The company has grown from a local player to a multi brand lifestyle company with about one billion dollar in revenue (Mexx corporate profile, 2006).

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Mexx milestones

1980 launch of emanuelle and moustache

1986 launch of Mexx = m(oustache) + e(manuelle) + xx

1995 restructuring Mexx International into a centralised organisation

1996 launch of first licensed products (Mexx fragrance, Mexx shoes, Mexx time) 1997 launch of babyMexx, Mexxsport and xx by Mexx

1998 first flagship store opens (antwerp) 2001 acquisition by liz claiborne inc. 2002 first mega-store opens (berlin) 2003 launch of retail stores in usa

2004 transition from mono-brand to multi-brand corporation

2005 new Mexx and xx by Mexx store concepts and roll out of Lucky Brand and Monet stores 2006 20 Years of Mexx

accessories and fragrance products. Their diverse portfolio of quality brands - available domestically in the US and internationally via wholesale and direct-to-consumer channels - consistently meets the widest range of consumers’ fashion needs, from classic to contemporary, active to relaxed and denim to streetwear.

Liz Claiborne Inc.’s portfolio includes 38 brands such as Liz Claiborne, Ellen Tracy, Claiborne for men, Juicy Couture, Lucky Brand and Monet. The majority of Liz Claiborne’s brands are sold in the United States. This company has a net sales of 4.994 billion USD (2006), owns 30 000 points of sale worldwide and has a 97% brand awareness in the US (Mexx corporate profile 2006).

However, Liz Claiborne Inc. noticed that growth in the US market was slowing down. By the acquisition of Mexx, Liz Claiborne Inc. has become a bigger international player in the fashion industry and opportunities to grow in Europe with their US brands. To get a strong foothold on European ground the expertise and distribution network of Mexx is used. In 2006 Mexx was responsible for circa 19 percent of the total revenue of Liz Claiborne Inc. Analyzing the sales figures outside the United States (international), Mexx takes 69 percent of the revenues for its account. The Mexx milestones can be found below in table 1.1

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1.2 Mexx: Current situation Mexx: the brand

As written above, Mexx is a global lifestyle brand, offering a range of fashion apparel and accessories for women, men and children, as well as non-apparel products and accessories (figure 1.1). The Mexx lifestyle brand has been successfully stretched to apparel related and non-apparel related product categories, completing the coordinated look and supporting the Mexx lifestyle, with the help of licensed products. By offering such an extensive product portfolio, based on the ‘life-style’ concept, the consumer can be offered all kinds of products.

As the company states, Mexx markets contemporary, coordinated and stylish collections for a multitude of user moments for fashion-conscious, urban-oriented consumers on a global scale.

Figure 1.1: Extensive portfolio Mexx (Mexx Corporate profile 2006)

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According to Mexx, part of its success to-date can be attributed to the ability to trade through a variety of business models (Mexx press release 2006):

• Wholesale 42%1 (uncontrolled distribution) - premium department stores

- concept areas

- shop-in-stores independents

• Retail 56%2 (controlled distribution) - company owned stores - high street concession stores - franchise stores

- concession shop in stores - factory outlets

• Direct 2%3 (home shopping) - mail-order catalogue - online eShop

The customer can find Mexx at over 9500 selling points, including 351 stand-alone stores (company-owned, concession and franchise) as well as 739 Shop-in-Stores and 72 factory outlets in more than 65 countries on 4 continents. Mexx employs 6225 people of 38 nationalities including 4425 in Europe and 1800 in the rest of the world.

The stand-alone stores follow one of the following five formats depending on the floor space (www.mexx.com):

• Mexx Mega Store (1000-1600 m2) • Mexx Family Store (500-1000 m2) • Mexx Lifestyle Store (400-700 m2) • Mexx Kids Store (150-200 m2) • XX by Mexx Store (100-150 m2)

1

Based on 2006 net sales

2

Based on 2006 net sales

3

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antwerp, belgium

1000-1600 m2sells all mexx lines as well as licensed products and accessories

mexx mega store

Figure 1.2: Mexx Mega Store Antwerp

Mexx Mega-stores offer all of the Mexx product lines, including Mexx Sport, XX by Mexx and the Mexx non-apparel products and accessories. The Family Stores offer Mexx Women, Mexx Men and all of the youth lines. The Mexx lifestyle Stores offer Mexx Men and Women. Mexx youth Stores offer Mexx Junior, Mexx kids, MiniMexx and BabyMexx. XX by Mexx Stores exclusively offers the line for younger trendier women. The first XX by Mexx store opened in Prague in 2001.

Mexx: competition

The Mexx brand can be described as contemporary and takes a position in the better price segment (figure 1.3). Mexx competitors in Europe are brands such as Esprit, Benetton, Massimo Dutti and Next.

When looking at the way Mexx is positioning the brand in terms of what the brand communicates, Mexx has chosen for a transformational positioning (Alsem, 2001: 325). This strategy, also named lifestyle or image positioning, centralizes the focus on

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Price

Bridge Gucci Armani Ralph Lauren Diesel

Prada Calvin Klein Gant Juicy Couture DKNY Burberry

Boss Max Mara

Better Joseph Next Liz Claiborne Lucky Jeans

Morgan Esprit Tommy Hilfiger Levi's

Kookai Mexx Nautica

Benetton GAP

Massimo Dutti

Popular Miss Selfridge H&M Marks & Spencer Lee

Zara C&A

Innovative Contemporary Classic Denim & Streetwear Lifestyle

Figure 1.3: Mexx brand positioning (Mexx Corporate profile 2006)

Mexx: Multi-brand positioning

By addressing different consumer segments via multiple brands and channels Mexx aims to become the leading fashion company in Europe. Since 2004, Mexx started to introduce some other Liz Claiborne brands in Europe by using existing distribution channels. The figure depicted below (figure 1.5) shows the multi-brand positioning in Europe. The several brands cover different lifestyle segments and price segments. In Europe one can find Mexx, Liz Claiborne, Monet, Juicy Couture and Lucky Brand Jeans in stand alone stores, premium department stores and in shop-in-stores.

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2001 2002 2003 2004 € 466 € 539 € 634 €₇₇₀ 2005 €₈₇₀ _{Revenu growth 2001/2005 in} millions of euros

17% cumulative growth rate per annum Price Bridge Better Popular

Innovative Contemporary Classic Denim &

Streetwear

Lifestyle

Figure 1.5: Mexx Multi-brand positioning (Mexx corporate profile 2006)

Mexx: financial situation

As mentioned above, Mexx generated a revenue of 948 million euro in 2006. In the years 2001-2005 the revenue reached a growth percentage of approximately seventeen percent per year (figure 1.6).

Mexx Europe Holding revenues include LCE business as of 2004

Figure 1.6: Mexx revenue growth in millions

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areas like Eastern europe and the Middle East are upcoming and can be considered as growth markets.

Figure 1.7: Mexx actual net sales by geography Figure 1.8: Mexx actual net sales by brand

Figure 1.8 illustrates the division of sales by the Mexx and the Liz Claiborne brands. As can be seen in this figure, ninety percent of the Mexx sales (870 million) are due to Mexx products. The Liz brands such as Monet and Lucky Brand count for 10 percent of the total sales.

Mexx: Supply chain

The supply chain sources and supplies products globally for Mexx as well as other LCI brands (Liz Claiborne, Lucky, Enyce, Ellen Tracy) operating in Europe. In general the supply chain sources and manages all raw materials worldwide. 100 co-makers in 23 countries across Asia and Europe are involved in the process.

Mexx products are manufactured in Europe (21%), Asia (76%) and South East Asia (4%). All the manufactured products are distributed to the European distribution centers in the Netherlands. The distribution center in Voorschoten has an area of 27500 m2 and an annual capacity of 35 million pieces. This is a state-of-the-art, highly automated flat pack distribution center.

Mexx 90% Liz & Other Brands

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Mexx delivers monthly collections according to different design and development cycles: product development, quality and production teams in production centers collaborate with each division to deliver ranges according to their annual schedule.

1.3 Mexx: Company strategy

According to Rattan Chadha, former CEO of Mexx Europe Holding BV, the passion to be the best, the focus on serving the needs of the customers and wholesale customers, and the enthusiasm to adapt to change have resulted in sustained success of the past years (MEXX News, July 2005).

For 2007, Mexx will be focusing on two principal strategies. The first is improving their sales productivity levels and the second is establishing the new brands (see paragraph 1.2) in their portfolio.

For the Mexx brand, Mexx is focusing on improving the consumer sales performance of the six product lines and the retail floor space dedicated to these lines. More specifically, Mexx is looking at the full price checkout and the sales per m2 of their retail and

wholesale stores, all of which will be key drivers in the expansion of Mexx’s business.

For the newer brands in the portfolio, Mexx will be focusing on Liz Claiborne, Monet Jewellery, Lucky Brand Jeans and Ellen Tracy. Mexx believes that all of these brands address European consumer segments with relevant and desirable product propositions and can contribute significantly to the future growth of the company. Together with these brands Mexx is entering a new multi-brand era.

1.4 Mexx: Company structure

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accessories and Mexx XX. Each division is responsible for their own budget, targets, sales, pricing, and style of the garments. Finally, licensing, merchandising and marketing can be seen as other separate divisions with their own budgets and targets.

1.5 Mexx: Mission statement and culture

Mexx: mission statement

A mission statement provides motivation and direction to employees. Mexx defines its mission statement as follows:

‘To become the leading fashion and accessories company in Europe by addressing different consumer segments via multiple brands and channels of distribution, focusing on core markets and to provide sustained premium returns to stakeholders’ (MEXX corporate profile 2006).

Mexx: company culture

The Mexx culture is characterized by its international focus; 38 nationalities are united within this multinational. The founder of this company, is characterized by his international focus; an Indian living in the Netherlands. The Mexx company culture can be characterized as open, innovative, fun, informal and creative. As Mexx states on its website:

“The MEXX philosophy is inspired by free-spirited, positive thinking individuals who are optimistic, sympathetic, open-minded, inspiring, non-conformist and fun. Simply said: Mexx is an attitude, a lifestyle, a kiss. Whether we are talking product or promotion, people or philosophy, buttons or buildings, we aim to sustain that creative energy in everything we do and produce” (www.mexx.com).

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MEXX CORPORATE VALUES

Passionate: strive to be the best Fun: have fun in what you do Entrepreneurial:

own your job Nonconformist: think out of the box Proactive: think solutions

Inspirational: search for personal growth Responsive: focus on the consumer

Conscious: respect your community

values is the fact that the original founder of the company will be leaving Mexx definitely at the end of this year. The values are mainly based on his personality and attitude in order to leave his inheritance and his guiding principles.

Figure 1.9: Mexx corporate values (Mexx Corporate values cd, 2006)

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Chapter 2 - Research design

In this chapter the research design will be discussed. Firstly, the initial management question, background of the research problem and the preliminary research will be introduced to the reader. Secondly, the research approach (the way this research is guided) is being explained in paragraph 2.2. Subsequently, the problem statement will be thoroughly discussed followed by the conceptual model. The problem statement is based on the initial management question, background of the research problem and the preliminary research.

After that, the theoretical framework is introduced in paragraph 2.4. In this paragraph the theoretical concepts used to conduct this research are centralized. In the following paragraph, the data sources and measuring methods, needed to acquire the desired data for every sub-question will be discussed. This chapter ends with the way of processing and analyzing the data and the manner of reporting.

2.1 Initial management question, background and preliminary research

Initial management question

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The immediate cause of this research was a request made by the marketing director of Mexx. He requested the MIU to research how Mexx could update their so called consumer profiles. These consumer profiles are descriptions of the Mexx target group (figure 2.1) which are mainly used for internal use to guide, among other things, the product designers.

Based on above-mentioned request, a first meeting with the marketing director was scheduled. During this meeting it turned out that the marketing director was not so much interested in the target group profile but in profiles of the actual Mexx customer based on real customer data taken out of the Mexx customer database. From updating consumer profiles the management question changed into a question on how to cluster Mexx customers in homogeneous groups in order to create profiles. Subsequently, the MIU asked the writer of this thesis to research this question and come up with a methodology on how Mexx should cluster its customers.

consumer profile

NATHALIE

27-year old modern women lives & works in a european capital city

independent, confident & social

optimistic & open-minded charming & humorous fashion conscious enjoys shopping

travels for work and pleasure

women

MAX

27-year old modern men

lives & works in a european capital city independent, confident & social optimistic & open-minded career-oriented, ambitious & talented charming & humorous

fashion conscious enjoys shopping alone

men _{consumer profile}

Figure 2.1: Mexx consumer profiles Mexx Men and Mexx women (Mexx Corporate Profile 2006)

Background of the problem

After presenting the management question, it is important to further analyze the management problem, which is mentioned in the management question, in order to be able to establish a comprehensive research question.

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Currently, the organization has already some own ideas about clustering. According to the marketing director, the clustering of customers should be founded on customer database data. At this moment Mexx collects customer data, by means of its loyalty program (Mexx Connect), which is stored in a database. Furthermore, Mexx feels that socio-demographic customer data is of no use, because these variables do not predict fashion or buying behaviour. Of interest will be consumer taste-level (likes and dislikes) in close correspondence with buying behaviour.

According to Mexx, there are a few departments that could benefit from customer clustering. Firstly, the marketing department itself could benefit from this method. By looking at consumer behaviour and profiling customers one can better and more effectively communicate with the (target) audience. Secondly, (product) designers could benefit by looking at likes and dislikes of customers and adapt their designing skills to customer requirements. Thirdly, merchandising (structure collections -styles, sizes and prices) could profit from clustering customers. Possibly in the future supply and demand can gear to one another based on the percentage of customers within a cluster with specific behaviour. For Mexx, customer clustering should give the company more internal guidance (ultimate goal).

Besides above-written ideas, Mexx posted some questions regarding how to describe a cluster, how to indicate a cluster as well as how one determines which customer is assigned to a certain cluster.

The above indicates that the development of a method to build up customer clusters is the company’s major interest. However, it is always up to the researcher to determine if the management question (problem) is relevant, researchable and appropriate.

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Preliminary research

The conducted research for Mexx can be typed as problem-solving research. Inevitable problem-solving research starts with a question placed by the client who initiated the research assignment (Leeuw, 2001:212). Often the researcher is not in the situation that one can accept the posted management question as problem statement. The problem statement has to meet the requirements of relevance, appropriateness and should be researchable. The above-mentioned Mexx management question forms the starting point of the preliminary research and should lead to a definite research problem statement.

In order to collect more data about clustering customers in homogenous groups several pieces of literature have been studied. Furthermore, the Mexx loyalty program has been analyzed in order to find out what kind of customer data are stored in the database at this point. A number of conversations and interviews have taken place with potential research result stakeholders in order to gain more insight in the problem at hand. In addition, seminars have been attended to get a better view of the fashion industry and a better insight in fashion consumer behaviour.

Based on the information gathered in the preliminary research the focus of this research moved to another direction. It came into view that ‘the method’ used to cluster customers was not the most relevant part to research. Preliminary research showed that ‘the method’ as research result was of less importance and is detrimental to the research relevance.

Interviews and meetings with feasible stakeholders of the research results revealed that the approach of how customer data collected via Mexx’s loyalty program can be of use within product design and direct marketing communication was of more relevance.

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2.2 Research approach

The ‘ballentent’ of De Leeuw will be used to guide this research (figure 2.2). The ‘ballentent’ gives a systematic overview of the most important aspects over which the researcher needs to take a decision in the research process (Leeuw, 2001:87). This model is a useful expedient in order to be able to make the choices that lay down the main features of the research approach. The main activities of the research process are summarized and integrated in this model. Methodological wise seen, the research approach is a group of interrelated decisions about all the 5 aspects of the ‘ballentent’.

Figure 2.2: ‘Ballentent’ (Leeuw, 2001:88)

The decisions should be taken about:

1. Problem statement: What do you want to produce and for whom? 2. Theoretical concepts: In which theoretical concepts do you want to

catch the situation? Which concepts will be used? Which conceptual model will you use?

3. Data sources: Where will you find the data? 4. Measuring methods: How will you get the data?

5. Analysis and report: How will you analyse the data and how will you present the results to Mexx?

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One can find the realization of these decisions in the next paragraphs.

2.3 Problem statement

In order to guide the research the following problem statement has been established. The problem statement explains what the researcher exactly wants to know and why. Or in case of making a design, what do you want to design and why? The statement establishes the desired research product, for whom you are researching, what are the quality aspects and research boundaries set up for the end-result.

A problem statement includes the research objective, research question and pre-conditions. The research objective and the question are based on the Mexx management question and the preliminary research mentioned above.

Research objective

Provide Mexx tools to better align product design and direct marketing activities for the loyalty program with the current customer groups.

To make the research objective operational the main research question has to be formulated. The main research question resulting from the research objective is:

Research question

To what extent can the customer data collected via the Mexx loyalty program support the product design process of Mexx Lifestyle and Connect direct marketing activities towards existing customers?

Definitions

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Direct marketing: A form of marketing targeted within one or more product/market combinations on obtaining and maintaining of direct relations between a supplier and its buyers. The marketing activities are based on knowledge of the individual (potential) customers; the use of the marketing instruments can be adjusted to the individual buyer. Main characteristic is the handling of direct communication (Hoekstra, 2003:19).

Mexx lifestyle: Mexx lifestyle includes two apparel lines designed by Mexx– Mexx Men and Mexx Women.

Mexx Connect: Mexx Connect is the name of the Mexx loyalty program. This pan-European program contains about 500.000 active members.

In order to contribute to the answer on the main research question the following sub questions have been identified. The sub questions can be divided in a diagnosis component and a design component according to the Diagnosis-Design-Change model of de Leeuw (2001:182).

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These sub questions, based on the above, can be defined as:

Sub questions

Diagnosis

1. Mexx Connect database

a) How are the current data, stored in the Connect database, collected? b) Which customer data are stored in the Connect database?

2. Direct marketing activities concerning Connect

a) Which direct marketing activities are currently executed?

b) Which customer data are used to execute these direct marketing activities?

c) What are the user-wishes that will enable the users to improve the direct marketing activities concerning Connect?

d) Which customer data are needed, taking into account the user-wishes, current situation and requirements of theory?

3. Product-design Mexx Lifestyle

a) Which steps are taken in the product-design process for Mexx Lifestyle? b) Which customer data are used within the Mexx Lifestyle product-design

process?

c) What are the user-wishes regarding customer data that will enable the users to improve the product-design process?

d) Which customer data are needed, taking into account the user-wishes, current situation and requirements of theory?

4. Benchmark

a) Which customer data are used by other companies that enable them to better align their direct marketing activities with their existing customers? b) Which customer data are used by other companies that enable them to

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Design

5. Customer data

a) How can Mexx collect the needed customer data?

Research preconditions

The problem statement contains preconditions that relate to the limitations (if not forced choices made in advance) regarding the followed research method and restrictions to make the research feasible (Leeuw, 2001:90). Furthermore, the research preconditions set clear expectations for Mexx as well as for the researcher. Preconditions can be divided in product and process preconditions.

Product preconditions:

• The research limits to the customers of the apparel lines Mexx men and Mexx women.

• The results/recommendations should be practical and useful for the organization.

Process preconditions:

• The research and the final report have to meet the requirements set by the Rijksuniversiteit Groningen, Faculty of Management en Organization.

• There always has to be a person (of the Mexx organization) available to answer questions, give information or help.

Conceptual model

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Figure 2.3: Conceptual model

Starting point of this research is the Connect database. If the right customer variables are stored in the database it will lead to customer knowledge. Customer knowledge has a positive influence on the fashion product design process as well as on the direct marketing activities Mexx executes (the two central paths in this research).

+

+ +

ADAPTED TO SPECIFIC CUSTOMER NEEDS

+ + + Connect database Product design process Direct marketing activities Customer knowledge Customer product satisfaction Effective and efficient communication Response mailing + + + + Fashion creativity & innovation Possibility of sale Customer values Customer loyalty + + Demographic variables

Purchase & consumption behavior

Psychographic variables

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When the direct marketing activities are adapted to the specific customer needs it will lead to effective and efficient communication and the response to mailings will improve. In the end this will increase the possibility of sale. In addition, centralizing customer knowledge in marketing activities will enable higher values and a better satisfaction of consumer needs.

The same goes for taking the specific customer needs and customer characteristics into account in the product design process, the customer values will increase together with the customer product satisfaction. In the end this will have a positive influence on the customer loyalty.

However, the big question is which customer data should be stored in the database in order to make above mentioned connections. Input for the database should come from database segmentation/selection variables divided into three categories; demographic variables, psychographic variables and purchase and consumption behaviour.

Furthermore, fashion creativity and innovation is structured and inspired by a higher degree of consumer intelligence.

The focus of this research will be on all concepts within the blue dotted line.

2.4 Introduction theoretical framework

In this paragraph the theoretical concepts used to conduct this research are discussed. The research has been build based on the before mentioned sub-questions and these theoretical concepts. They will be discussed successively in chapter three till seven of this report.

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information about/in the fashion industry and various statements about the handling of the consumer by the fashion industry. The entire supply chain should be more market driven in order to meet the needs and preferences of the consumer. The market-driven supply chain emphasizes on centralizing the consumer in marketing and design activities that will result in higher values and a better satisfaction of consumer needs, and in parallel higher efficiencies and profits for the industry. Additionally, the fashion creativity and innovation can be structured and inspired by a higher degree of consumer intelligence. This is an important input for this research (Stockert and Jacobs, 2004). In order to inform the reader about this line of thought, a theoretical intermezzo can be found between chapters two and three.

This research starts with disclosing the Mexx customer database. The data which are currently stored in the database are discussed based on the three categories Bult (1993) distinguishes. These categories are used to describe individual specific database selection variables. The current database will be analyzed with the help of demographic, psychographic and purchase behavioural variables.

In chapter four the current direct marketing activities and media for direct marketing, executed for the Mexx Connect loyalty program, are discussed based on the tools Hoekstra (2003) provides in her book “Direct Marketing”. In order to be able to evaluate the current use of customer data in the Connect direct marketing activities, the above described three categories of customer data will be used.

Part of this report are the wishes of the current users regarding the use of customer data. In interviews will be asked what the database should enable them to do. These wishes will be taken into account when determining which data are needed to improve and better align direct marketing activities with the current customer groups. However before doing this, the wishes will be first evaluated with the help of database segmentation theory.

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2003: 61). Goal of segmentation is to play in on the differences, which exists between groups regarding their reactions on different use of marketing communication instruments. According to Blackwell et al. the goal is to identify these groups of people with similar behaviour so that product or packaging adjustments or communication strategies can be adapted to meet their specific needs, thereby increasing the possibility of sale to this group (2001).

Because of the close correspondence of the categorization of database segmentation variables with the bases for segmentation given by regular market segmentation theory, the categorization of Hoekstra (2003), Blackwell (2001), Keller (2003), Alsem (2001) and Percy (2001) has been combined by the researcher in one table and applied in this research.

Altogether three categories of characteristics can be distinguished – demographic, psychographic and purchase & consumption behaviours. These three categories contain all sorts of consumer variables however not all variables are relevant to collect taking into account the user wishes and not unimportant the fashion industry/fashion buying behaviour.

Nevertheless, not only marketing communication can be tailored to a specific selected group, also products can be tailored to the needs and wishes of a specific group of potential or existing customers (Bult: 1993).

The latter is the second element of the conceptual model and therefore the product design department of Mexx Lifestyle is studied. In order to see how the product offer emerges and which customer data are used, the product design process is closely overlooked.

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concepts for success in the apparel industry is that the company should know its customers and provide the merchandise assortment desired by that customer when the customer wants it, and where he or she will purchase it ( 2002).

On the other hand, Press and Cooper (2003) will be used because of their specific focus on the use of research in (general) design processes. It appears that the lines of approach have a lot of similarities and complete each other.

Secondly, there will take place an evaluation regarding to what extent customer data are used by designers within the design process. To find this out, interviews have been conducted. Furthermore, insights given by Burns and Bryant (2002) and Jacobs (2004) are used.

In addition, understandings from practice (benchmark) will be used to gain more insights into the problem at hand. The processes regarding the use of customer data in product design processes and in direct marketing activities will be studied. Out of these cases will be evaluated which data are of help for the Mexx management problem.

In summary, wishes of the users, benchmark information and the handles theory gives us are used to determine which customer data should be collected in order to better align product design and direct marketing activities (concerning the loyalty program) with the current customer groups.

Ultimately, there will be given recommendations about the way Mexx should gather these customer characteristics. In order to make these recommendations, directions coming from direct marketing literature are utilized. There are two ways of collecting data- do it yourself as a company or buy/rent customer data from a third party. The best way for Mexx will be discussed in chapter seven.

2.5 Data sources and measuring methods

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measuring methods, needed to acquire the desired data for every sub-question, will be discussed.

Within practical research for management and organization six different sorts of data sources can be distinguished (Leeuw, 2001: 99):

• Documents (library, archives, secondary sources) • Media (papers, magazines, radio and television) • The ‘field’

• The simulated reality (laboratory; computer simulation and field experiment) • Databases

• And the experience of the researcher(s)

In this research documents, media, the ‘field’ and the experience of the researcher have been used to answer the sub questions.

Another element of the “ballentent” (figure 2.2) is the measuring method. Following the question where to get the needed research data, one needs to question how to get the needed data (Leeuw, 2001:103). This occurs by measuring and observing. Measuring is defined by- according to a strict procedure adding numbers and symbols to phenomenons. This strict procedure is named the measuring procedure. There are two ways of measuring; registration and measuring with a stimulus. By registration one means observation, studying documents, analysis of numbers and research reports. Measuring with the help of a stimulus is defined by surveys, interviews and test-and scaling techniques.

In the following paragraph and in table 2.1 below, the method of data collection and data sources will be specified for every sub question. One can distinguish two measuring methods, desk research and field research, which will be amplified below.

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as either internal or external. Internal data are those generated within the organization for which the research is being conducted. This information may be available in a ready to use format or these data may exist within the organization but may require considerable processing before they are useful to the researcher. External data originates outside the organization (Malhotra, 1999). Furthermore, statistical analysis and just thinking behind the desk belongs to desk research.

On the contrary, primary research is conducted from scratch. It is original and collected to solve the problem at hand. In this research, telephone and face-to-face interviews are carried out to gain more insight in the marketing and design process (field research).

Main reason for conducting interviews is the fact that there will be tried to reveal opinions and attitudes. In addition, the questions that have to be asked are quite a number, open, from time to time complicated, sore and explorative. All in all, valid reasons to choose for interviews and not for (for instance) a written survey. Disadvantage was the long period of time it took to arrange the interviews with several persons and the unavailability of several persons within the organization.

Approach face-to-face interviews

Face-to-face interviews allowed the researcher to go more in ‘depth’ and physical prompts could be showed. The interviews conducted in this research are semi-structured and consist of open forms of questioning.

The range of interviews with employees of the design department started with a pilot-interview and has been evaluated afterwards. As a result of this first pilot-interview a few questions, which appeared unclear or unnecessary, have been adjusted. The interview questions have partly a descriptive character and partly an explanatory character.

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Sub-questions Data sources Measuring methods

Chapter

1a. How are the current data, stored in the Connect database, collected?

1b. Which customer data are store stored in the Connect database?

Primary data: Mexx employees, database manager Secondary data: internal documents, books, internet Desk Research Interviews C 3

2a. Which direct marketing activities are currently executed?

2b. Which customer data are used to execute these direct marketing activities?

2c. What are the user wishes that will enable the users to improve the direct marketing activities concerning Connect?

2d. Which customer data are needed taking into account the user-wishes, current situation and requirements of theory?

Primary data: Mexx employees, database manager Secondary data: internal documents, articles,books, internet Desk Research Interviews C4

3a. Which steps are taken in the product-design process for Mexx Lifestyle?

3b. Which customer data are used within the Mexx Lifestyle product-design process?

3c. What are the user-wishes regarding customer data that will enable the users to improve the product design process?

3d. Which customer data are needed taking into account the user-wishes, current situation and requirements of theory?

Primary data: Mexx employees Secondary data: internal documents, intranet, articles, books, internet Desk Research Interviews C 5

4a. Which customer data are used by other companies that enable them to better align How are other companies dealing with the use of customer data (database) in product-design processes?

4b. Which customer data are used by other companies that enable them to better align product design with their existing customers?

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5a. How can Mexx collect the needed customer data via the loyalty program?

Primary data: DM companies, Answers to preceding sub-questions Secondary data: books, articles Desk Research Interviews C 7

Table 2.1: Sub-questions, data sources and measuring methods

Interviewees

In order to be able to answer the research questions several people have been interviewed. The majority of the interviewees are Mexx employees. The employees are chosen based on their function and level. In total 14 interviews with employees of the product design department and marketing department have taken place.

Furthermore interviews have taken place with the external database manager. What’s more several seminars, which have much ground in common with the used theoretical concepts, have been attended. Afterwards questions have been asked to the concerning lecturer. Finally, there has been made visits to several agencies, which occupy themselves with (market) segmentation and collecting lifestyle data.

Processing and analyses interviews

After conducting the several interviews, minutes have been made by the researcher. The qualitative data obtained from these interviews have been structured by grouping the information per survey question. The answers have been studied and compared. When appeared that answers to questions were unambiguous, these answers have been generalized. Finally, these answers are processed in this report.

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2.6 Analysis and report

In order to close the circle of the ‘ballentent’ (figure 2.2) the way of processing and analyzing the data and the manner of reporting should be discussed. The raw data should be selected, analyzed and reported in a way that valuable results become visible.

In this research raw material like interview minutes, documents, reports and survey results will be processed and analyzed in order to get relevant and reliable material. Resources of help can be statistical resources, simulation, modelling and studying the material (Leeuw, 2001). In this case modelling and studying the data are used in order to get relevant and reliable material.

The research results will be presented to Mexx in the form of a research report. Furthermore, a presentation of the results will be given to the Mexx stakeholders of this research.

The division into chapters of this thesis can be found in table 2.1. In the next chapter is the availability of customer data in the Connect database being researched.

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Theoretical Intermezzo

With the help of this theoretical intermezzo the researcher will elucidate why it is that important for Mexx to get to know the Mexx customer in order to satisfy this individual customer.

In addition, this intermezzo gives an up to date view of some recent developments in the fashion industry. Moreover, it touches several central elements of this research – use of consumer profiles, lack of consumer knowledge, need to satisfy the individual consumer and central focus on the consumer.

Furthermore, this intermezzo describes (in a broad perspective) the triangle between the position of the consumer, fashion designers and marketers.

A more client driven orientation

In a study called “European Consumer Outlook” from KSA (Kurt Salmon Associates, 2003) was found that the group of fashion consumers who know exactly what they want to buy represent 2/3 of the fashion consumers. The minority buys spontaneously because of price, fashion, location, convenience or other reasons. For fashion marketing people this is a very interesting result, because it shows that the marketing instruments have to aim at their target consumers far before they decide where to look to buy a certain garment. When this consumer crosses the threshold of sale, other influences become important. Brand loyalty, trust in the retail store and its private labels, the amount of money he wants to spend and other indicators play a major role.

In addition, interviews with consumers in England, France, Germany and Italy show that from the 2/3 of fashion consumers who know what the want to buy and are willing to spend money, only 50% can be satisfied. This reality check on the sales floor is quite a shock for the fashion industry.

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find the product are clear indicators that the logistic and the buying department misjudged the timing and the amount of people who would like to buy that specific garment. But fashion designers also misjudge the client. More than 50% of the non-buying consumers who actually want to buy, express that the garment doesn’t meet their taste and doesn’t fit- reactions which could have been found out if somebody of the fashion industry would have asked the consumer for his opinion.

Stockert (2004) state ‘fashion consumers, we like them, but we don’t love them’. Retailers like their wallets, but they don’t love them, because consumers are so unpredictable, suspicious and difficult. Everyday fashion shows the ignorance of the fashion consumer: everybody knows about the itching of labels in shirts and blouses which everybody cuts off – a waste of marketing money and a cut of the key value of the firm. Finally, has been discovered that when the expectations of the consumers are not met, most of the potential turnover is lost. This statement hurts, especially when the industry and retailers blame the consumer for holding back buying fashion.

According to Stockert (2004) the whole fashion industry needs a more client orientation, a more marketing driven approach. It means more knowledge about the fashion consumer’s needs and demands is required when they want to buy fashion.

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Figure 1: The push principle of the traditional fashion supply chain

For specific type of fashion firms, fashion leaders such as H&M, the traditional paradigm still works and will work in the future. The further the positioning of a fashion manufacturer or a fashion retailer is removed from a leadership position, the more it needs pull elements in its strategy.

The few fashion leaders in the world that are strong enough to dictate the trend, may be arrogant to some extent. These ‘unchained’ designers create fashion trends without asking the consumers what they want. In these cases, this is probably the right way to act. Otherwise the strength of innovation in the fashion industry would be damaged. But what happens to the thousands of fashion firms who do not belong to the fashion leadership elite?

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The consumers’ needs and requirements pull all the functions in the fashion industry: designer groups, buying offices, logistics departments, merchandise teams as well as marketing and sales personnel will aim their activities at these demanding clients to an increasing degree. Their success depends on how good these firms fulfil these demands. The result of this market driven pull principle from the consumer side will bring higher values and a better satisfaction of consumer needs, and in parallel higher efficiencies and profits for the industry.

Figure 2: The pull principle of the advanced fashion demand chain

According to Jacobs and Stockert (2004) the right mix of the chained (controlled, strictly managed) market and consumer driven demand chain and the unchained creative designer and product driven supply chain has to be found. Jacobs and Stockert (2004) don’t want to kill the fashion creativity and innovation, rather the contrary. However, they do believe that this creativity can be structured and inspired by a higher degree of consumer intelligence. The essence of fashion innovation is continuous product innovation, this product innovation is, in its turn, also continuously inspired by new lifestyles and new social movements.

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So even when is emphasized fashion firms have to learn more about their customers, one certainly does not want to nurture the illusion that this is the ultimate solution, so to say the end of the story. No, there will remain continuous learning from both sides.

Fashion businesses try to learn from customers, for example by looking at sales figures or at what happens on the street. But customers learn as well, by looking at each other, at fashion, at magazines, and also at role models, for example in the fields of show business of sports. All of this leads to continuous interplay, learning and co-evolution.

Although the fashion industry might learn more, at the same time the industry will never precisely know what customers want. Customers have a lot of needs and preferences they acknowledge, but they also have many they do not or do not yet know about. Why? First, because they are only partially rational. Second, because they are open to new offerings. And third, because they are influenced by their environment, of which they don’t know yet the future development. So all of us continuously learn, individually and socially, also about ourselves, by doing, trying, looking, listening and getting clues from all directions. In this way values, tastes and preferences are developed. As a basic insight remains that many people are looking for clothes and clothing brands with which they can connect both in an aesthetic and in a value sense: is this my kind of style, does it express my kind of values? Many people look for such connection. But also is known that despite the proliferation of brands and styles, many customers remain frustrated in this respect.

Concluded, Stockert and Jacobs (2004) propose a more market driven approach to fashion, using consumers as a source of ideas, knowing their needs, their ways of spending money for fashion, their priorities and their requirements. Companies should establish a value connection with their customers. The consumer should be more involved in the value chain.

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Chapter 3 - The Connect database

In order to be able to answer the research question, the data stored in the current database are analyzed. In other words; what can the database deliver at this moment? Based on this outcome the next step can be taken and the discussion can take place about to what extent the database supports the direct marketing activities for the loyalty program (Chapter 4) and product design within Mexx (Chapter 5).

In this chapter there will be discussed which customer data are currently stored in the database and how these data are gathered. The latter will be the starting point of this chapter and discussed in the following paragraph.

The content of this chapter is based on internal documents, interviews with Mexx employees, interviews with external parties, attended internal Mexx meetings and literature.

3.1 The loyalty program: Mexx Connect

Mexx launched its loyalty program in 1999 with the overall objective to increase the visits to Mexx stores by different activities that would also enhance the loyalty of the customer. Since 1999, 1.3 million customers subscribed for the program. Today there are approximately 500.000 active customers in the loyalty program4. The program is available for customers through stores in the Netherlands, Belgium, France, the United Kingdom, Ireland, Sweden, Norway, Germany, Luxembourg, Austria and Czech Republic (www.mexx.com).

Loyalty members profit from various privileges such as exclusive pre-sales, special offers, personal shopping advice and free alterations on new purchases. Registration for the Connect program is free of additional charges. To sign up for the Mexx loyalty program, named Mexx Connect, the customer has two options:

4_{An active member is being defined as a customer who bought an item and used his/her Connect}

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1. The customer completes an application form (Appendix IV) in the store (only allowed after purchasing a Mexx product). The store personnel send this form to an external party (Link2Biz) who facilitates the data entry. Link2Biz maintains the Mexx Connect database, in where all customer data are stored. 2. The customer signs up for the Mexx loyalty program via an online visit and buy to the Mexx eShop. At this moment subscribing via the eShop is only available for Dutch and German customers.

The loyalty program works as follows. The program has three levels to categorize members. Where one euro spend by the consumer equals two points (measured on a yearly basis).

• Connect member , 0-500 euro yearly spend

• Connect X-tra member , 500-1000 euro yearly spend • Connect X-llent member, over 1000 euro yearly spend

The collected points represent a cash value, which the members receive in the form of a Mexx-Connect cheque. To give an indication - 300 points represent a 3 euro discount; 600 points represent a 12 euro discount, 800 points represent a 24 euro discount and 1100 saved points represents a discount of 55 euros. These cheques can be used as payment method when doing a next purchase (Appendix V).

Members and non-members have access to the Connect pages on the Mexx website. Every visitor has access to general information on the program and its benefits, how to join the program, participating stores, current special promotion and conditions of the program.

After login Mexx Connect members can view their point status, view and alter address and personal data, request a cheque (only X-tra and X-llent cardholders), consult frequently asked questions and send a question by email (routed to the call centre).

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enrolled in the Connect program is it possible that they married or had a baby. The profile is most accurate at the time of enrolment. One should realize that on average ten percent of the consumers yearly moves. Research shows that through movements, deaths and registration errors the database ‘pollution’ increase till 29 percent (www.adformatie.nl).

As mentioned above, all data gathered via the application form or Mexx website is stored in a database; the Connect Database. At this time Mexx has established a database that registers about 500.000 active members. The database is maintained by an external company (Link2Biz) who designed this database according to the needs and wishes of Mexx. In order to keep the full right of say over the database, Mexx pays a fee to Link2Biz.

At this moment, the focus of the program is placed on keeping new customers -50% of all actives- active (not on gaining new customers), increase the duration of a membership and develop best Connect members into Xtra and Xtra into Xcellent members (Marketing Plan Connect, 2005).

3.2 The current available customer data

In order to find an answer to the research question, the current customer data stored in the database need to be analyzed. Bult (1993:19) distinguishes three categories of individual-specific database selection variables – demographic variables, psychographic variables and purchase behavioural variables. The database will be diagnosed according to these 3 categories.

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The first column of the table contains customer information on demographic and psychographic level, the second column contains purchase information and the third column includes predominantly data which is used to create mailings such as country language and greeting. In addition the third column encloses data such as email status, site password and Eshop synchronisation as well.

The focus in this research is put on the use of actual customer data (characteristics). Therefore, only the available database customer demographics, psychographics and purchase data will be discussed.

Analyzing table 3.1, the following customer data are relevant: Demographics

• Name, address, residency (NAR) • Gender

• Date of birth

• Married/living together yes/no • Has children yes/no

Psychographics

• Interest in Mexx Women/Men/XX/Kids Purchase behaviour

• Recency, frequency, monetary (RFM) • Connect points

• Store information

• IT purchase data

In the sections below, there will be discussed how these data are gathered together with some currently existing database problems.

Demographics

Do you know what you want to know?