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Redefining Retail Excellence from product-centric to customer-centric

Redefining Retail Excellence from product-centric to customer-centric

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Published by Manoj Nakra
Retail, Excellence, Strategy Execution
Retail, Excellence, Strategy Execution

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Published by: Manoj Nakra on Jul 18, 2010
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10/25/2012

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Redefining Retail Excellence – from product-centric to customer-centricIntroduction
I was recently walking the malls doing market research for a new leather accessoriesbrand and visited nearly thirty stores in the course of a single day. A thought occurred tome. Just imagine walking into a mall with store names removed. Retail stores arebecoming more and more alike. Similarities abound not only in assortments (or lack thereof), presentation, and even in-store customer experience. As customers we have allexperienced a tepid sameness.So what is excellence in retail in such a monotonous environment? This question elicitsdifferent responses from customers and retailers. Customers respond to this question byidentifying where they would prefer to shop based upon previous memorable (or hassle-free) shopping experiences, and define excellence as availability of desired merchandiseat fair prices at convenient locations. Whereas retailers reiterate the five ‘rights’ of merchandising – having the ‘right’ merchandise at the ‘right’ price, at the ‘right’ time, inthe ‘right’ quantities, and at the ‘right’ place, and achieving targeted returns for theowners.Does the retailer perspective match the customer view? It doesn’t seem so based uponexperience. Retailers in the region are product-centric, and feel that their job ends byselecting what they feel is the right merchandise. Whereas we as customers are lookingfor shops sensitive to our needs or are customer-centric. Think of your favorite store andwhat draws you to it. The stores we like are the stores where we are engaged (more onthis later) from the time we cross the threshold to the time we leave, whether we make apurchase or not. And the stores we dislike are the stores where we experience apathy andunresponsiveness to our needs over the entire visit. Engagement for a customer is muchmore than recognition and eye contact. Shopping is like an expedition to fulfill a need,and has two distinct phases – the process of buying (search, evaluation, and purchase),and the post-purchase experience based upon actual possession of the product.Everything that occurs in a shop and eases the process of buying becomes a pleasantcustomer experience. And what if we are unable to find what we are looking for? It is notoften that we encounter a store salesperson that helps us, who possesses adequate productknowledge, makes an effort to understand our needs, identify alternative options, andpractice add-on selling, making shopping hard work. The post-purchase feeling of possession is also influenced by a sense of achievement of the expedition, of having gotgreater value than the price paid, a process to a great degree influenced by the in-shopbuying processes. Contrast the regional experience with visits to the same brand stores inEurope and the USA, visits which are often more fruitful in terms of product availabilityand more pleasant shopping experiences.Another dimension of our markets was highlighted when a faculty member from a world-famous business school visited the region. He observed that the marketingcommunication of most retailers seemed to be over-emphasizing price, with a somewhatlesser emphasis on other elements of the retail mix like width and depth of merchandise,
 
store displays, and store level staff interaction. The only products that seem to be immunefrom price competition were high-end luxury products, which often, as a part of strategy,starve the market to keep prices firm. An over-emphasis on price in the marketing mix isdictated by the regional selling structures. All distributors and retailers are franchisees,and are required to assume inventory risks of distribution. In an age of hyper-competitionin retail, with low barriers to entry into retail, where new products are launched in everycategory with shorter and shorter product life cycles, and where even hard goods becomelike fashion goods, price becomes a competitive weapon of choice to guard againstproduct obsolescence. The repetitive and dull advertising is also dictated by the fact thatmerchandising and promotional decisions are conditioned by the display and advertisingallowances retailers (and distributors) negotiate with the franchisors, a process in whichthe retailers and distributors often abdicate much of their stores (and brands) marketingand positioning responsibilities to the franchisors. In pursuit of sales growth, bothfranchisors and franchisees seem to be running out of ways to differentiate their brandsfrom competition reflected in focus shifting to price in advertising (for the franchisee) ortrivial issues like features and image (for the franchisor). We as customers, are oftenconcurrently bombarded with image and price-based communications, are unable toperceive a clear positioning of brands or retail stores in our minds.It needs to be emphasized that the current state of affairs is neither good nor bad, and is aproduct of our historical past. Retail evolves over time, the rate of evolution being drivenby competitive conditions in the market-place. Retailers in the region have been fortunatein having very high growth rates (nearly 30% compounded) over the past few years,growth rates which skew managerial attention towards issues external to the organization(e.g. managing growth by opening new outlets and ensuring product availability, etc.),and away from the internal issues of business (e.g. operational efficiencies, productivityof space, marketing expenditures and staff productivity etc.). This trend is not expected tocontinue forever and retailers need to gear up for the inevitable slow-down. A slowdownthat may be triggered by sudden availability of retail space (e.g. nearly 7-8 million sq ftof lease-able space in the Dubai Mall in a single year) reducing the barrier to entry of new brands into the local markets, and the rush of new retail investors and foreign brandsattracted by the dramatic growth of the past.So what should be the defining characteristics of successful retail in an over-retailedenvironment? It is my belief that the shoppers of today (and tomorrow), in this era of globalization of brands and commoditization of products, are smart shoppers. They arereasonably well informed about products they want to buy, and are able to compare andchoose products independent of brand, advertising, store, and salespersonrecommendations. Their shopping behaviors are difficult to classify using the traditionalsocio-economic behavioral criteria. They save money where they can (e.g. shopping inCarrefour), and concurrently spend on high priced brands for different needs (e.g. eatingout in a fancy restaurant or taking an expensive vacation or buying a Hermes handbagetc.). Retailers need to realize that in the future it will not be brands competing againstbrands but merchandise will compete against merchandise. Retailers will need to aim forstore differentiation, giving customers a reason to consistently choose one store overanother.
 
 
What needs to be done – redefine customer value
One needs to get back to basics. Retailers exist as an intermediary between franchisor andcustomers, and have traditionally approached their business with a mercantile, deferentialand compliant mind-set in front of the franchisors. They have placed a limited emphasisupon adding value to the product through domestic organizational capabilities. Increasedvolume of sales will now require retailers develop a more activist approach of using allthe elements of the retail-mix (merchandise, customer experience, retail format, location,and communication) to identify and explain (position) the store to customers. It will benecessary, within the constraints of the franchise relationship, to pull back the initiativeback from the franchisor. This shift in bargaining power is possible since the retailerunderstands the customers, their needs and shopping behaviors better than thefranchisors. And the actual service delivery is often something the franchisor will not do.So how does the retailer enhance service delivery? A consumer perception of value is thebenefits derived through the purchase less the burdens endured while purchasing. Thebenefits derived from a retail brand consists of two components – the value derived fromthe brand itself (that which will be available anywhere where the brand is sold), and thebenefits and services provided by the store. The latter consists of quality merchandise,caring personal service, pleasant store atmosphere, convenience and peace of mind (post-purchase evaluation). Whereas the burdens are the direct explicit costs (or price), andindirect costs like store employee’s with inadequate product knowledge, slow check-out,out-of-stock situations, sloppy and poorly merchandised stores. The retailer providesdiscernible value through saving time by offering the correct mix of products at aconvenient location, efficient completion of transactions, access to proper assortment toprevent visit to another location, etc. Retailers have traditionally focused upon brand-based differentiation (i.e. brand or product category not available elsewhere), or a price-leadership approach (i.e. same brands at a lower price). But only to a lesser degree aservice or personality augmentation (i.e. specific services and personality to distinguish astore based upon customer experience). Price is price but value is total experience. Thetragedy of the Gulf is that since the customer service is generally poor and merchandise‘looks’ the same from store to store, then customers seek the lowest price. But if retailersoffer customers a fulfilling experience a strong competitive advantage can be developedthrough loyalty. It needs to be borne in mind that service works only if the store hascorrect merchandise.A properly chosen and executed position (identity / image) in the minds of consumerswill be the most important competitive tool in tomorrow’s competitive retailenvironment. The linchpin of such a strategy will be products augmented through servicefor a targeted audience. This is very different from the present where retailers are oftendependent upon suppliers for product assortment, product selection and merchandisingrecommendations.
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