Filene’s Basement: Inside a Fired Customer’s Relationship

CASE SUMMARY
Group 5:
Akshay Dixit (K06009)
Bensun Thomas (K06028)
Prateek Sabharwal (K06067)
Singaraju Ganesh SaiSarath (K06084)

The Filene’s Basement

Filene’s Basements’ Business Model
• Fast flow of inventory
• This reduced inventory cost.
• Automatic markdown method was used to price the product based on the date stamp.
• Provided customers with new kind of a shopping experience – bargain and thrill.

Automatic markdown
• The Date dictated the amount of discount received by a customer
• The discounts on a product increased with the increase in the time the merchandise
was on shop floor
• Faced initial criticism, people thought shoppers would not buy products in the initial
pricing cycle
• Was proved wrong since people were afraid the selected merchandise would be gone
if they waited.

Experience at Feline’s basement

• People lined up for hours before the sales
• Merchandise was displayed on tables and bins
• Difficult to find complete assortment
• Diverse products attracted both rich and poor
• Shoppers hid the merchandise hoping for it to be there till the next markdown.

2009
1998 Sold to Syms
Corporation
First Bankruptcy , after another
1989 Rescued by value bankruptcy
city department
Acquired by stores and then to Finally closed
Federal Buxbaum Group permanently in
1990’s department store 2011
and then by
Second most Campeau
popular tourist Corporation
attraction
1960’s
Generated
greatest
sales per
square foot
Diagram 1: The Filene’s Basement Story
Impact of Changes
• Increase in pressure over managers for increasing profits and sales
• Increase in number of stores further increased pressure on managers and staff
• Change in store staff frequently leading to customer dissatisfaction
• No track of information on shopping patterns of customers
• Low control over decision making at store level led to decrease in specialized deals for
customers

Norma Story - A story of the ‘Best Customer’

• Norma was a loyal customer for the past 20 years and was used to special treatment
from the staff
• She had special status as one of “The Regulars” and was a member of Filene’s
Basement Insiders club
• But in recent past things changed, Norma was no longer treated as a special customer
• Filene’s Basement eventually fired her for her “excessive returns” and “frequent
registered complaints”

Key reasons of change in behavior

• More pressure on managers to perform
• New employees not familiar with Norma
• Tight profit margins
• Evolved corporate Strategy
• Change of Ownership

Instances showing a change in relationship

• Lack of recognition from employees.
Instance: Norma is not entertained room by the employees and they refuse to treat her
special
• Excluding Norma from the Insider club
Instance: Norma is not invited to join the insider club at Newton Store
• Not provided with special treatment by the store manager or the CFO
Instance: Manager refuses to entertain or incorporate any suggestions suggested by
Norma. Further, the CFO suggests Norma to shop somewhere else as she faces too
many problems at their store

Reactions to the fallout

Norma refused to go to the court but got the story published in the media. And it followed with
2 different sorts of reactions from varied set of audience.
• Consumers having worked in retail talk about their own horror stories with problem
customers
• Customers otherwise are worried about the manner in which the companies are using
the data they are collecting about them.
Customer Centricity to Customer Firing
Reasons for the change
• Companies realized it is uneconomical to serve all the customers
• Companies started evaluating customer on the basis of revenue Vs Cost per customer
• CRM software helped analyze consumer buying behavior enabling them on customer
on one-to-one basis
• 30% of the customers are unprofitable.

• Giving Customers what they want

• Attracting and Delighting them in order to retain
Customer is the King them

• All Customers are not equal

Managing a portfolio • Offerings should be customized to reflect their
of customers personalized value

• Allowed companies to capture a lot of data about their

CRM Systems and customers
• CRM systems helped the companies to take
software personalization to the next level

• Customers could be divided in different tiers

Sophisticated CRM • This helped the companies to segment their
with analytics marketing efforts to the perceived profit potential

Diagram 2: Evolution w.r.t. Customer Centricity

Platinum

Gold

Silver

Bronze

Lead

Diagram 3: Customer Characterization based on Profit Potential

Norma and Filene’s Basement: The Early days
• The retail chain established a unique shopping culture by opening the Filene’s
Basement in 1970.
• This shopping was a “contact sport at Filene’s Basement” and customers were ruthless
to grab the most desirable merchandise.
• The Filene’s basement was opened in the suburbs and to some other cities also. The
company came up with the strategy to split designer shipments so that each store
received only a few items to sell.
• This actually made the task difficult for the consumers as they have to rush to match
and make a product set. Also, the customer faced issues as there were no fitting rooms
were available.
• People use to buy the approx. size to try them at home. This was not convenient for the
consumers as for the return of clothes they have to spend money as well as time. A
bartering system evolved among the consumers. For the culture developed it was
justified and appropriate for the consumer.

One of the Regulars

• “The Regulars” were the consumers who became the loyal customers and were always
the first in line for every sale. Most of the employees were also familiar with them.
• These regulars were also benefitted most of the time. They were given privilege that
other customers did not enjoy.
• Many times, the employees bent rule for them, granting pre-sales prices and sales
extension or peeks at just in merchandise that had yet to reach the floor. For more than
30 years the Norma was differentiated from the masses.
• The company also rewarded their regulars with special offers and events under their
CRM program, Filene’s Basement Insiders Club.
• Norma was very close to the Filene’s employees and she mentioned that “we were like
family”. She used to buy the presents for the staff on different occasions. This level of
the commitment was quite common in the Filene’s basement.
• These stories were even shared on the website. Norma actually helped the Filene’s to
grow. From a paying customer to serve as a collaborator, Norma’s role was extended.
Norma – From ‘Best Customer’ to ‘Fired Customer’

Analysis & Recommendation

Issues with Business Model

• Customers do not have time and facility to take judicious purchase decision which leads
to excessive return of products
• Business model encourages excessive use of return policy and pamper the customer to
the extent that it became their major pain points

Is firing customer the right decision?

• NO! Results in loss of customer and a potential loyal customer base and Distribution
network.
• NO! It received negative publicity because of firing Norma.
Alternate Course of action
• Rather than direct firing, use subtle measure to fire the customers indirectly
• Employ measures that discourage Free Riders from shopping in the store
• Change the return policy to discourage excessive returns of products
• Charge customers for the product returned or
• Keep a limit on the number of items that can be returned in a month or year.