Measuring Success: Both externally and internally

1. Measuring Success:Both externally and internally March 2003 SEARS, ROEBUCK AND CO.

2. Agenda Measuring external communication • Linking public relations to sales • Focusing on ROI Measuring internal change management communication • Scope of the Conversion • Measuring associate understanding and attitudes • Customer and financial measures • Conclusions

3. Keep it simple Revenue - Costs = Profit

4. Simplifying further... Marketing Communication Media Relations Events, Publicity, etc. Revenue Increases Crisis Communication Investor Relations Etc. Cost Control

5. Typically measurement... • Stops at awareness • Often stops short of awareness • Measures output. Not impact. • Is often compared to advertising • Ad equivalencies are the wrong measure • No measurement of impact, change in attitude or behavior

6. Do they believe? • Businesses want to measure behavior change -- Are they buying? • Are customers buying your products and services? • Are employees buying your messages?

7. Clipping and Message Analysis • Can be a useful management tool • Measures activity and output of PR group • Measures whether key messages are being seen • Helpful in gauging whether coverage is negative or positive • Identifies positive and negative bias of media • Can calculate cost per impression • But, it is not a measure of ROI or behavior change

8. Taking clippings further... • Link to changes in awareness, preference or behavior (purchase) • What is the impact on revenue? • What is impact on cost control, associate attitudes or other intermediate measures?

9. Effort that never gets printed, broadcast (0 impact) Most people never see the article or hear the broadcast (0 impact) Budget funds PR activity ($) Those not in target audience - not likely to purchase. (minimal impact) Percent of wasted effort Publicity (semi-controllable and measurable) Measure is circulation or viewers (MediaLink) News Releases Events Media calls, etc (Effort) (Difficult to measure) Percentage of effort results in publicity Target Audience Consumers who see or hear the publicity and are part of the intended audience for message (difficult to measure, but assumed to be a fraction of the circulation number) Businesses keep score with $ What is the relationship between a $ invested in PR and company revenue or profit? No impact on consumers “I still won’t shop.” Customers make purchase Measure is revenue $ (SPRS report) Consumers who take action as a result, and visit a store with intent to purchase (Traffic - no current measurement device) Consumers who have an attitudinal shift -- “I will shop as a result of that story” (measurable-- Oprah and BrandKeys) Those who read the article, intend to shop, but never follow through Those who don’t find what they need or want and make no purchase Subtract customers who purchased without benefit of the publicity (test market vs. control or incremental above baseline) (AdEffect) Subract cost of all investments, leaving profit $ tied to PR program. ROI is how much of this is generated for every dollar invested at beginning Measures existing

10. Does it work? • Can you identify changes along the path? • Is there a link between public relations events and revenue? • Two examples of how changes have been measured at Sears and how you can design a model for your business.

11. Background • One placement on the Oprah show involved providing Christmas gifts for foster children in a small Texas community. • Sears provided all the gifts for 100 children • Oprah exclaimed “We love Sears!” • Can this be measured?

12. Sears is high quality company • Slight positive shift following the broadcast • 65% agree vs. 58% • Shift came from all rating levels

13. Sears does good things for community • Following broadcast saw a huge shift to positive on this question • Almost a five-fold increase in number of those agreeing completely

14. Plan to shop Sears for Holiday • The show provided the incentive to move viewers from neutral to positive intent • Increased to 70% vs. 59% before show

15. “I plan to shop at Sears for the holidays.” • The Oprah PR placement provided the additional incentive needed to move some viewers from a neutral position to a positive intent to shop at Sears. • Neutrals dropped from 73 respondents to 52, and somewhat negatives dropped from 29 to 18. • The strongest negatives remained the same. • The positive side of the intent to shop increased from 178 to 210 respondents. Percent

16. …estimate what you’ll spend at Sears during this holiday season. • We saw earlier there was a positive shift in the number of people saying they planned on shopping at Sears. • About 10% increase in positive intent. • If we assume the mid-point for each range, and $600 for the over $500 data, then these 300 respondents represent an average of $195 per respondent after seeing Oprah, versus $140 before. • An increase of +39% per shopper in the amount they estimate they’ll spend at Sears. Percentage of Respondents

17. What was the impact? • Shift in attitude led to planned spending increase of $40-million • Discounted by 2/3 to account for intentions that never come to fruition, the actual spending increase may be about $13-million • Subtract costs and calculate ROI

18. Fashion Footwear and NYT • January feature placement in New York Times -- New York/New Jersey edition • What was the impact in that market vs. a control market and vs. national?

19. The New York Times

20. Fashion Footwear Results • Week following placement NY and NJ markets were up vs. year ago. • Chicago down • National down

21. Footwear Conclusions • A single placement in a credible publication made a dramatic difference in sales compared to both national and comparable market • The only variable that changed that week was the New York Times placement • Translated into measurable dollars • Cost of placement vs. incremental revenue increase gives ROI

22. Connecting the dots... • Two examples measure the impact of single “communication events” -- not the cumulative impact of entire program • The right events can have a significant positive impact • Activities and events which do not have positive impact are suspect • Impact can be either a shift in attitudes or actions

23. Measuring internally • Can the same principles be applied to an internal audience? • How do you define success in a large change management communication program?

24. Background • In late 2001 in Full Line Stores… • Announced 4,000 layoffs • Announced Productivity Improvements • Sears. Where Else? introduced • Morale is not at an all time high

25. Measures going in wrong direction...

26. Conversion Objectives • Improved customer satisfaction • Easier to shop • Easier to operate and easier to support store model • Clear lines of accountability throughout the organization • Improved execution on in-stock, in-store marketing, customer service • Improved profitability

27. Communication Principles • Open and honest • Share information as soon as it’s available • Focus on key audiences, while making information available very broadly • Credibility is key • No sugarcoating • No promises we can’t keep • Focus on the end result and how to get it • Use existing communication channels where possible; emphasize personal communication

28. Communication Objectives • Gain alignment among senior management for the changes that will be necessary • Create high awareness and understanding for: • Why change is needed • What changes will be made and why • Win support for the dramatic changes, despite announcements of layoffs and new job descriptions and accountabilities • Focus on new model: easier to shop, easier to operate

29. Communication Tactics • Identify and leverage credible channels • Senior leadership meetings - FLST initiated • One-on-one meetings with leadership • Town Hall meetings (existing and new) • PMO Website • Regular features in S Journal, S Update • Training meetings and support materials • Detailed conversion manuals • Communication materials provided to DGMs for cascading through stores organization

30. Communication Tactics (cont’d) • Issues and questions fielded in multiple ways, with response ASAP • Video Updates to field midway through conversion • In-store meeting materials for consistent messaging • Input into training materials to reinforce new store model of excellent customer service • Ongoing communication through newly defined MAP and Weekly Updates

31. Measurement • Baseline MOC results reviewed • Key questions pulled for ongoing pulse surveys • Surveys following major communication events • Weekly review of Q&A and Issues raised to identify gaps in communication program • Informal discussions within stores organization • Didn’t overreact to anecdotal information • Checked feedback against data

32. Performance Improvement Program Projects that have a direct impact on the store were grouped together into a synchronized field “Conversion” calendar Marketing Supply Chain Strategy Store & Field HR • Ad Production • PromotionalProfitability • Flow Optimization • Integrated Order Management • Liability Inventory • Lands’ End Initiative • Covington Roll out • Center Core • Home Fashions • Footwear • Appliances • Store & Field Organization • Store Activity • In Store Marketing • Labor Management • Sign Creation • e-Learning • e-Recruiting • Associate Services

33. Store Structure District Structure Region Structure Number of Stores Center Aisle Cashwraps ALL Signage and Fixturing ALL Four Zone Merchandising ALL Appliances 101 Center Core 543 Home Accents 557 Mattresses 32 Men’s Big and Tall 349 Open Sell Shoes 216 Tool Territory 149 Merchandise and Customer Assist Consultative Selling Center Aisle Cashiering POS Signing Ad Setup/Take-down Replenishment POG/ZOG Liability Merchandise Labor Management e-Learning e-Recruiting Conversion Scope Field Organization Service Levels Activities and Processes Store Environment Note: initiatives will be implemented in all stores except where a specific number is given

34. Communication Output • PMO website has had more than 2-million hits during conversion; Of the 24,000 visitors 23,000 are from the field. • PMO base conversion has been successfully implemented, and has been widely supported • Articles every month in corporate publications • Communication is becoming embedded as a core leadership responsibility in the stores organization • Web site is becoming an operational tool more than information only tool

35. Communication Results - Associates • Associate attitudes (all store associates) are more positive than they have been since 1998. • Understanding of strategy is higher than it has ever been.

36. Store management is even more positive ... • Assistant Store Managers and hourly leads feel good about the future, believe we are making the changes necessary to compete, and understand our strategy.

37. Customer feedback is also encouraging • Customers reacted favorably to the new store environment • Store revenues were on target for Holiday

38. Financial Benefits are on track • Conversion costs stayed on budget • Field operating costs met planned savings • Capital expenditures within budget • Communication had no incremental budget increase • Full Line Store profitability is up more than 30% • Sears posted record earnings in 2002

39. Productivity • Objective is to create a culture of continuous productivity improvement • Ongoing process of continuous improvement in efficiency and effectiveness • Ultimately, time will tell • Can we continue to improve both customer satisfaction and productivity?

40. Conclusions • Looking at measurement from the perspective of the CEO will help clarify what’s important • Establishing a logic model for communications and measurement of results is good start • Building evidence over time will help improve ability to make fact-based decisions about public relations and communication investments • In some areas (such as marketing public relations) we can remove the mystery of the craft and earn respect of management team on their terms • There is still much to do

41. Questions? Tom Nicholson Sears, Roebuck and Co. Tnich00@sears.com SEARS, ROEBUCK AND CO.