Redefining Retail Excellence – from product-centric to customer-centric Introduction I was recently walking the malls doing
market research for a new leather accessories brand and visited nearly thirty stores in the course of a single day. A thought occurred to me. Just imagine walking into a mall with store names removed. Retail stores are becoming more and more alike. Similarities abound not only in assortments (or lack thereof), presentation, and even in-store customer experience. As customers we have all experienced a tepid sameness. So what is excellence in retail in such a monotonous environment? This question elicits different responses from customers and retailers. Customers respond to this question by identifying where they would prefer to shop based upon previous memorable (or hasslefree) shopping experiences, and define excellence as availability of desired merchandise at 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, in the ‘right’ quantities, and at the ‘right’ place, and achieving targeted returns for the owners. Does the retailer perspective match the customer view? It doesn’t seem so based upon experience. Retailers in the region are product-centric, and feel that their job ends by selecting what they feel is the right merchandise. Whereas we as customers are looking for shops sensitive to our needs or are customer-centric. Think of your favorite store and what draws you to it. The stores we like are the stores where we are engaged (more on this later) from the time we cross the threshold to the time we leave, whether we make a purchase or not. And the stores we dislike are the stores where we experience apathy and unresponsiveness to our needs over the entire visit. Engagement for a customer is much more 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 pleasant customer experience. And what if we are unable to find what we are looking for? It is not often that we encounter a store salesperson that helps us, who possesses adequate product knowledge, makes an effort to understand our needs, identify alternative options, and practice 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 got greater value than the price paid, a process to a great degree influenced by the in-shop buying processes. Contrast the regional experience with visits to the same brand stores in Europe and the USA, visits which are often more fruitful in terms of product availability and more pleasant shopping experiences. Another dimension of our markets was highlighted when a faculty member from a worldfamous business school visited the region. He observed that the marketing communication of most retailers seemed to be over-emphasizing price, with a somewhat lesser 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 immune from 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 is dictated 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-competition in retail, with low barriers to entry into retail, where new products are launched in every category with shorter and shorter product life cycles, and where even hard goods become like fashion goods, price becomes a competitive weapon of choice to guard against product obsolescence. The repetitive and dull advertising is also dictated by the fact that merchandising and promotional decisions are conditioned by the display and advertising allowances retailers (and distributors) negotiate with the franchisors, a process in which the retailers and distributors often abdicate much of their stores (and brands) marketing and positioning responsibilities to the franchisors. In pursuit of sales growth, both franchisors and franchisees seem to be running out of ways to differentiate their brands from competition reflected in focus shifting to price in advertising (for the franchisee) or trivial issues like features and image (for the franchisor). We as customers, are often concurrently bombarded with image and price-based communications, are unable to perceive 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 a product of our historical past. Retail evolves over time, the rate of evolution being driven by competitive conditions in the market-place. Retailers in the region have been fortunate in 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, productivity of space, marketing expenditures and staff productivity etc.). This trend is not expected to continue forever and retailers need to gear up for the inevitable slow-down. A slowdown that may be triggered by sudden availability of retail space (e.g. nearly 7-8 million sq ft of 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 brands attracted by the dramatic growth of the past. So what should be the defining characteristics of successful retail in an over-retailed environment? 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 are reasonably well informed about products they want to buy, and are able to compare and choose products independent of brand, advertising, store, and salesperson recommendations. Their shopping behaviors are difficult to classify using the traditional socio-economic behavioral criteria. They save money where they can (e.g. shopping in Carrefour), and concurrently spend on high priced brands for different needs (e.g. eating out in a fancy restaurant or taking an expensive vacation or buying a Hermes handbag etc.). Retailers need to realize that in the future it will not be brands competing against brands but merchandise will compete against merchandise. Retailers will need to aim for store differentiation, giving customers a reason to consistently choose one store over another.
What needs to be done – redefine customer value One needs to get back to basics. Retailers exist as an intermediary between franchisor and customers, and have traditionally approached their business with a mercantile, deferential and compliant mind-set in front of the franchisors. They have placed a limited emphasis upon adding value to the product through domestic organizational capabilities. Increased volume of sales will now require retailers develop a more activist approach of using all the elements of the retail-mix (merchandise, customer experience, retail format, location, and communication) to identify and explain (position) the store to customers. It will be necessary, within the constraints of the franchise relationship, to pull back the initiative back from the franchisor. This shift in bargaining power is possible since the retailer understands the customers, their needs and shopping behaviors better than the franchisors. 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 the benefits derived through the purchase less the burdens endured while purchasing. The benefits derived from a retail brand consists of two components – the value derived from the brand itself (that which will be available anywhere where the brand is sold), and the benefits and services provided by the store. The latter consists of quality merchandise, caring personal service, pleasant store atmosphere, convenience and peace of mind (postpurchase evaluation). Whereas the burdens are the direct explicit costs (or price), and indirect costs like store employee’s with inadequate product knowledge, slow check-out, out-of-stock situations, sloppy and poorly merchandised stores. The retailer provides discernible value through saving time by offering the correct mix of products at a convenient location, efficient completion of transactions, access to proper assortment to prevent visit to another location, etc. Retailers have traditionally focused upon brandbased differentiation (i.e. brand or product category not available elsewhere), or a priceleadership approach (i.e. same brands at a lower price). But only to a lesser degree a service or personality augmentation (i.e. specific services and personality to distinguish a store based upon customer experience). Price is price but value is total experience. The tragedy 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 retailers offer customers a fulfilling experience a strong competitive advantage can be developed through loyalty. It needs to be borne in mind that service works only if the store has correct merchandise. A properly chosen and executed position (identity / image) in the minds of consumers will be the most important competitive tool in tomorrow’s competitive retail environment. The linchpin of such a strategy will be products augmented through service for a targeted audience. This is very different from the present where retailers are often dependent upon suppliers for product assortment, product selection and merchandising recommendations. Positioning guidelines
The consumers concern for value doesn’t mean that they won’t ever pay prices that allow retailer high margins for products augmented with service. Even for low margin functional goods like groceries it is possible to identify customer segments interested in specific augmentation for specific types of products e.g. Goodies in Wafi or the need of a complete traveling solutions store in a region where 60-70% residents travel. For high margin functional goods retailers will need to offer unique merchandise its customers want with distinctive services and personality for its target audience e.g. Godiva, Bateel, in-store battery change service in The Watch House (vs. Rivoli where even a battery change requires a drop-off). The best high margin opportunity will be in specialty stores in the new and emerging merchandise categories e.g. exclusive shirt stores. Contrast this with positioning that may cease to be relevant like multi-brand retailers like Grand Stores, Salams, Jashanmals, etc. need to think in terms of positioning their businesses rather than stores. Large multi-line stores do not offer a consistency of image across businesses in order to have customer appeal (particularly in an economy where the customers are pre-dominantly transient and a large proportion of the population is new). Presented hereunder are ideas to develop a distinctive positioning in the eyes of customers.
Idea Develop a distinctive assortment based on style, size and color Carry a percentage of experimental (products that you may not have purchased based upon experience) products. Offer frequent change of merchandise Offer distinctive merchandise How Positioning 101 Experiment with new and innovative products for customer feedback. Keep customer expectations alive through launches every month (e.g. Zara, Mexx, etc.). For distinctive image (e.g. Tavola – household products with the design element, Braun home appliances, The Living Zone, etc.) For example introduction of high-quality linen as a home brand. For example the region is ready for a Crate & Barrel or a Williams-Sonoma type of offering. For example Liz Claiborne or Gerry Weber etc. For example TableArt (soon to be launched) Rivoli boutique to offer all items to coordinate a table For example high-end watches, jewelry, etc. For example a Shoe City or Shoe Mart. The survival strategies for the local supermarkets e.g. category assortment suited for the local clientele or the gas station store for the hurried shopper. A Carrefour or a Lu Lu Center It is impossible to do comparison shopping in the domestic electronics business (except at Jacky’s). Plug Ins attempted to be a destination store but is
Private brands with discernible quality Product and product-line innovation – when what are perceived as loosely coherent product categories can be developed into a cohesive specialty store Edit assortments to cater to a particular segment – Coordinate merchandise for a specific need. Narrow specialized product-line – small selection of high price / high quality brands The category killer approach – offering the widest possible selection of every category stocked Offer merchandise tailored to a particular customer
The hyper market approach – narrow range and wide variety Large assortment in limited categories
still influenced by inadequate brands in key categories like TVs, appliances, etc.
Whatever positioning is attempted needs to be tested against five key criteria for it to be meaningful from the customers point of view – is the assortment dominant (can customers identify with it for meeting their needs), is the pricing fair, is the service at the store based upon a philosophy of respect for customers, and does the shopping layout, store signage, and customer service focused upon saving customer time and energy. Conclusion The key to success in retail in the next few years will be store differentiation in the minds of customers. The top two or three stores that will be top of mind when a customer need is triggered will be the winners in an over-retailed environment. To achieve this retailers’ will need to focus upon developing organizational capabilities of differentiating their stores to achieve store loyalty by giving customers what the want. They will need to start by making a strong statement in their merchandise category, and then make themselves different in a visual and experiential way in the minds of the consumers through service delivery, a process that will require a paradigm shift in the human resource management practices in the region.
© Manoj Nakra 2005