Retail Marketing Management
Welcome to the the Ivey HBA Retail Marketing Management blog. Retail marketing is an exciting, dynamic, important, and very visible aspect of the overall field of marketing. Throughout the year, students will be posting comments regarding contemporary retailing issues. Although this is intended to be used by Bus 4411 students, industry marketing professionals are also invited to join in if they like.
Tuesday, March 31, 2009
In the past, the online retail space has brought many concerns revolving around the safety, quality and experience of purchasing items on the Internet. However, with more advanced technology and online activities becoming the norm, online shopping may be just what the doctor ordered in times of a recession. Shoppers can be more meticulous and methodical as to what they are purchasing rather than being impulsive in the store.
In addition, many online fashion shopping websites selling multiple brands are ‘taking a more editorial approach’ by designing their pages to look like magazine spreads. Giving shoppers an enhanced experience and relates back to the many magazines where they saw the styles and clothing in the first place.
Although there are many concerns such as quality, sizing and fit, the online sites are become more user friendly with better technology to enhance the shopping experience. For example, sizing charts allow consumers to see what sizes they will be for each specific clothing item as many brands or even pieces of clothing sizes vary in fit. Moreover, each item of clothing is worn by a model so that shoppers can see how the clothing falls and can zoom in to even see the type of fabric the clothing is made of. This may not be as accurate as holding the product in your hand, however it is a vast improvement on the online capacities of the past.
Speaking to the retail value proposition of online shopping, there are many points to outline. First, the convenience factor is obvious. The information is at your fingertips. Rather than traveling to a physical store, searching through stock and worrying about the other shoppers around you, the online space allows consumers to accomplish the same tasks instantaneously. The online shopping experience acts as a brand or company’s own advertising. Consumers can learn more about the products, browse pictures, find complementary items and rate competitors within seconds Most advertising techniques are removed from the actual point of sale as billboards and commercials require actual travel time to the store. Conversely, online shopping immediate.
The selection online is vast and endless. There are many online shopping retailers to fit anyone’s preferences, whether it be high-end to budget to vintage to a specific company’s online store. Many store websites, such as Victoria Secret, actually contain greater selection than what retailers actually have in their inventory. Therefore, one can argue that the selection in the store is sub-par to that of the online space. In addition, first hand one can see the many price-points of similar items across different vendors. Therefore, consumers have the opportunity to be smarter shoppers. Companies can also foresee shipping and manufacturing quantities through pre-ordering. For example, if a clothing item does not hit the stores for another month, but is available online, the retailer can observe how popular the item is and how much to stock based on sales and store geography. Moreover, companies can learn to leverage the online retail space. For example, when the newest Harry Potter edition was published, consumers could reserve their copy to pick up in stores online prior to the date of release. This gave stores like Chapters an edge up on their other online competitors (Amazon) by giving them the ability to get consumers into the store so they could potentially purchase other goods.
Finally, the experience is much different than in the store. It may be difficult to replace the experience of touching clothing items and trying them on. A suggestion is to have comments as what the clothing feels like, the specific fabric count and where it is made in the description of the clothes so consumers have more information.
Clearly, the online retailer has a strong selection and convenience value proposition. Although, some think it is only a fad as consumers need to be in the store to make shopping decisions and purchasing, the trend for the future shows that consumers are getting used to the idea of online shopping (window or purchase) and enjoy the convenience and selection it provides.
Rarely do I ever buy from Starbucks. First of all, caffeine and ginger don’t mix well. Secondly, I perceive their products to be overpriced. Finally, I don’t enjoy the experience of having to translate my drink into some foreign language to a ridiculously cheerful and energetic barista only to then waiting in line. I guess I think that the whole thing is very irrational; if coffee is supposed to be a regular purchase, then what is all the excitement about? Why do they try to make it a show?!
I understand that if you like coffee, and you like the taste of Starbucks coffee, Starbucks works for you. And please don’t get me wrong; I absolutely love certain aspects of the Starbucks experience - notably the music and the couches. However, these things have nothing to do with the actual product they are selling! This is why, when I can’t focus at home, I head to Starbucks to do work. Most of the time, I just sit down and read cases without actually buying anything.
The other day, however, I found myself in the position where I was hungry and had no choice but to order from Starbucks; in a sense, I was forced. I walked through the entire process, step-by-step. By the end, my perception of Starbucks was altered.
Things started out as usual, at first. I had to decide on a sandwich. I was already bitter about having to shop at Starbucks because I knew that by the end of the transaction, I would be out by at least $12. It didn’t help that a friend of mine who used to work at a Starbucks told me last week that every day, Starbucks throws away its unsold food. This means that in 10 hours, this sandwich was going to have a price of zero, but I needed to pay $8 for it now if I wanted to satisfy my hunger. I grab a chipotle chicken even though I don’t like chipotle – probably because I’m subconsciously looking for another excuse to feel bitter!
When Dave the barista took over my order at the cash register, that’s when everything started to change.
“Do you want us to heat that up for you?”
“You do that here?”
“Yes! You can always heat up your sandwiches before eating them, here.”
“Okay. Thank you!”
When I get my sandwich back, he gives me change and I wait for my mocha. Dave is taking on the next customer in line as I wait. After just a couple of minutes of listening to Ray Charles, I grab my mocha and sit down.
They actually messed up my drink and gave me a regular mocha instead of a white mocha – but it took me a while to catch this, because I was too busy enjoying the music and thinking about the quote on the back of my cup! I had never noticed that before. It read:
“Failure’s hard, but success is far more dangerous. If you’re successful at the wrong thing, the mix of praise and money and opportunity can lock you in forever.”
I thought to myself, “I bet a lot of the people who order Starbucks every day would be touched by this quote.” Then, I read the French translation below:
“L’echec est difficile, mais le succès est encore plus dangereux. Si vous réussissez dans un domaine qui n’est pas le vôtre, le mélange es élogues et de l’argent recus, ajouté aux perspectives d’avenir andas ce domaine peut vous y retenir pour toujours.”
It’s funny how in the French translation, the emphasis is on being successful at the craft that you were meant to perform, whereas in English, the quote says “doing the wrong thing” – which implies a lack of integrity. When I read the quotes, the main message I took from each felt completely different. It’s interesting how the notion of perceived benefits extends all the way to differences in translations.
“What a great idea,” I thought. It made me want to order a drink next time I came to study just so I could read a quote that made me think. I kept sitting there, thinking about how nice it was to sit back, relax, and evaluate this quote, alone in a coffee shop, listening to great music, when I suddenly realized what had just happened.
I had ordered a sandwich I didn’t like. I was drinking a drink I didn’t order and didn’t find particularly tasty. I had paid over $10 for this meal. Yet, I was thoroughly enjoying myself – and picturing myself coming back and ordering from Starbucks again! All the things that come together to make Starbucks an experience had come together so perfectly for me that I still found myself having a great experience despite the fact that the products I ordered weren’t even that great.
I realized that this is exactly why people say that “Starbucks takes experience to a whole new level”. Before this, never have I ever purchased a product that I found dissatisfactory and still found myself hoping to come back to the store sometime soon. Had it not been for the friendly service, the music, the comfortable setting, and the extra effort that Starbucks goes to, to make sure that I enjoy drinking a coffee out of their cup, I would not have enjoyed myself – which led me to think, “Imagine how much I would have enjoyed it if I had actually gotten a good-tasting meal!”
By the end, Starbucks had won me over. I still don’t drink coffee, and I’m still somewhat price-conscious – so I’m not saying that I’m going to go back there regularly. However, the "at-home" feeling that I got from being taken care of by Dave, listening to soothing jazz music, sitting on their huge, comfy couch and letting my thoughts wander completely eliminated my initial perception of Starbucks as a huge, evil multinational that tries to rip people off. Even upon analyzing it now and realizing that that is how I was “sucked in”, I still want to go back – because I’m so impressed!! The degree of detail to which Starbucks management has gone in order to create a comfortable atmosphere for me has made the store very appealing and almost makes me feel as though they merit my business.
Thanks to this experience, I am now loyal to Starbucks.
Now, we sit in class and analyze companies’ RVPs twice a week, and we don’t struggle too hard with it. But think about when someone asks you to describe yourself with specific words. Not so easy? This type of identification for retailers can also be easily lost. GM is a great example of this. They believed a significant portion of their RVP was selection, but GM was unable to keep this focus and adapt it to move forward, ultimately leading to their downfall.
Now I’m not suggesting a retailer completely alienate their established RVP in the face of a crisis – quite the opposite actually. It is important for a retailer to really identify what their strong suit is, and move forward with that given what is going on around them. This direction ultimately encourages loyal shoppers to stay with you, and support your business. Remaining comfortable and stagnant, especially in a time of change for consumers, is really a step backward.
Lululemon - a company that has been analyzed to death in our class, is yet again a stirring example. After recently reading an article in The Globe and Mail, I was impressed with Lulu’s ability to really hone in on their strengths, and RVP to their consumers. I previously challenged the ability of companies to accurately identify their RVP, especially in a crisis-situation. However, as an outsider looking in, Lululemon was not only able to correctly identify what their RVP is, but also what it is not.
The key here is that Lululemon was not only able to pinpoint its RVP, but has used this as a starting block to creatively rethink certain areas of business that are not their overall focus. Instead of sitting on their market leadership and hoping it will carry them through the recession, Lululemon is taking the economic downturn as a challenge to find new opportunities within their RVP, and avoid getting lost in options outside their focus.
In the Globe and Mail article, Christine Day, current Lululemon CEO, identified the following as the actions that would be taken to cut unnecessary expenses, and focus on what differentiates them from their competitors in terms of their RVP.
1. Reining in the pace of new store growth
Considering convenience isn’t a strong element of Lulu’s RVP this is a prime example of remaining focused to what is important to the business, and the customers while cutting costs. Having a Lulu store at every mall is not what customers value, therefore store expansion can be put on the back burner while the more important areas of the RVP are exploited.
2. Offering twice as many free yoga classes
Not only does this type of customer appreciation move enhance the customer experience, it instills loyalty. Customer loyalty is crucial in times of economic strife, when a reported “68% of wealthy consumers say they have reduced their overall spending in the economic downturn.”
3. Invitation-only shopping nights
Allows Lululemon to target and reward their best customers, once again instilling further customer loyalty among the most important customer base.
4. Organic cotton clothing expansion, as well as other new items lacking in current assortment
Since selection is an important element of Lulu’s RVP, continuing to focus expanded efforts on this area keeps the RVP consistent, but progressive.
5. Keeping prices the same
Lululemon is aware that they do not compete or focus on price. At a time when many companies are willing to cut prices now for short-term gains, Lulu has remained true to their competitive advantage. I believe this maintains their brand image, and keeps them in check with their long-term strategy.
Overall, it is understandable that retailers may get lost in the their own customer offering. Trying to distinguish between who you are perceived as, who you think you are, and who you want to be, is very difficult. However, it will be the retailers that can not only recognize who they are, but what they are not, that will prevail. I believe this is even more important in the face of a crisis. Lulu provides an eminent example of a retailer that has this focus, and has used it to continually progress even in an extremely difficult economic time. Lululemon is definitely moving in a focused forward direction.
By: Mary-Jane Mastrandrea
On February 12, 2009 Microsoft confirmed that it is planning to open Microsoft retail locations. The goal of this initiative is “to create a better PC and Microsoft purchase experience for consumers worldwide.”[i] A retail presence allows Microsoft the opportunity to show customers the perks of having a windows computer, Xbox 360, Windows Mobile phone and Zune ---all within one location. With a focus on emphasizing the Microsoft experience, the company hired Wal-Mart executive and 25 year retail veteran David Porter to lead the venture.[ii]
Shortly after this announcement, industry analysts responded with great criticism of the Microsoft retail strategy. Historically, electronic producers have struggled to succeed in a retail presence. Companies such as IBM, Gateway, Sony, Nokia and Palm[iii] each offered consumers the opportunity to play and test electronic products. The result: these retailers enjoyed short-term consumer popularity before being phased out of their market share positions. With the exception of Apple, retail stores have been unsuccessful ventures for technology companies.
What is it about Apple that makes the consumers bite? The Apple store succeeds because it creates an experiential, idealistic world to showcase its products. Apple’s success stems from its ability to provide the customer’s lifestyle needs, filling a void whether it is entertainment, organization, technical capability or communication through a supportive and engaging shopping experience. It is truly a “your life can be like this” store.[iv] This strategy has created a record breaking retailer. Apple has earned over a billion dollars in sales since 2007 and is expanding steadily into international retail markets.[v]
Where the Apple experience and lifestyle is popular and breeds consumer expectations, can Microsoft really compete on experience?
The success of the Microsoft retail store is contingent on a retail value proposition which fills a need where a customer is currently not satisfied. The plans for the Microsoft retail stores are not currently publicized. However, as reinforced by guest speaker Bruce Reid, a company’s retail store will only be successful where there is alignment between the store strategy and the corporate strategy. Thus, experience is mostly likely the pillar quality in Microsoft’s retail value proposition.
Furthermore, a retail presence offers Microsoft to leverage its market dominant and highly profitable industry position and competed head-to-head with Apple. However, the success of this head-to-head competition is contingent on Microsoft’s ability to get creative as a competitor. Interestingly, as the retail store opening date approaches, Microsoft has taken a bold stance in its most recent advertising campaign and for the first time, acknowledges Apple as a competitor.[vi] The commercial (available at http://www.geeksaresexy.net/2009/03/27/microsoft-includes-apple-stores-in-tv-ad/) explicitly compares the prices between two similar products from the Apple and Microsoft brands. Although early in the retail development process, this advertisement hints that price may also prove important in Microsoft’s retail value proposition.
It will be exciting to witness the roll-out of the Microsoft retail locations. Microsoft will face further challenges of competing in a vast retail channel and against retailers such as Best Buy who are also its loyal customers. However, analysts also expected Apple to fail when it announced the decision to deploy a retail strategy in 2001.[vii] Perhaps contrary to analyst opinion, Microsoft’s retail “window” will be the one it masters.
At the time of the foundation the philosophy of electronic retailers was based on a limited amount of space, a limited range of products and generous profit of margins. Mediamarkt establish the first European consumer electronic superstore based on the new business idea of generous floor space, a wide range of products, narrow profit margin, but greater turnover.
Media world can be fully considered a category killer having 100 stores in Italy (mostly in the north) with an average of 2500 square meters per stores located in huge mall. It has got a high specialization in electronics, informatics, technology and white goods and an assortment characterized by a huge merchandise variety and assortment (good selection), prices are lower that the concurrent.
Media World based his competitive advantage on skills (employers specialized for each section to give suggest and opinion), supply (vast in terms of number of products and prices), placement (numerous store all over Italy), selling on different channel (pioneer in the e-commerce), innovation and prices.
About the value preposition they found on price and selection.
It usually have a very aggressive promotion campaign, based on periodical strong cut on prices usually made on the 20% of the products (growing to 30-40% on items like TV, digital cameras, white goods) pushed by different channel.
In late spring of 2006 they develop a massive campaign for the happening of soccer world cup. It was called ‘Media World word cup 2006, support Italy and win’. Anyone who has bought a LCD or plasma TV size at least 32” (only items on promotion), in case on win of the Italian team, was going to be repaid. More than 10000 TV were sold on this promotion, meaning a total value of 18 million € (an average of 1560€ per TV).
Italy won the world cup.
Were the creators of this campaign fired? Not at all!
First of all the campaign, fully approved by the shareholders, was covered. The refund was made by coupon of the same value of the TV purchased to be spent in the shop where the TV was bought and obviously the cost for the retail store is not the same as the value for the client because we have to consider the revenue for the retailer (so the hypothetical loss is less substantial). Moreover was done a partnership agreement with the supplier TV companies, guaranteeing them higher sales if joining this promotion, to share the risk or reduce the supply price.
As a matter of fact this idea was very successful: increasing of selling by 30% during that period (people that went in the store to buy a TV purchased also different items not on promotion captivated by the store) about the TV their selling were doubled in this period, increase of market share by 300%.
Looking at this data we can say that their concurrent suffered a big damage from this operation.
In the end Media World, considering that this promotion was offering the hugest jackpot ever, gained a lot of publicity because all the media where talking about that for several days, and moreover there was a large word of mouth that increase the awareness of the brand.
A very innovative and courageous campaign ended in what was supposed to be the worst result for the company, but even that very successful so that Media World conceived a similar one for the 2008 European Cup.
Exame, a well-known Brazilian business magazine
The Brazilian wholesalers´ margins are struggling due to constant demand of price discounting and fees by the big supermarket chains, as well as shorter delivery deadlines and an increase in the demands for promotions, sales on special dates, charges to keep the product in the best places of the shelter, subsidies and contributions in the opening of new supermarket stores. “A space in the shelter can cost us around R$ 10,000 (approximately $ 5,000)”, says the CEO of an important Brazilian food chain.
The huge concentration of supermarkets has given them more bargaining power in the supply chains; in 1997, the 5 biggest supermarket chains represented for 27% of sales, increasing to 39% in the beginning of 2001. Another factor is the surplus of supply of Brazilian products and the lack of differentiation between them, therefore retailers are indifferent regarding products “A” or “B”, taking into account that the quality is identical in both cases. These are two examples that have given the retailers more bargain power. Some retailers support the argument of their critical importance with the fact that around 70% of purchases decision take place inside the supermarkets, as a reason to increase the fees to the industry.
Some of the industries’ employees say that the retailers even have a Buyer’s Guide; which contains the following rules for the negotiation within the industries:
- Think about the vendor as your number one enemy;
- Never accept the first offer, let the seller beg: it gives more space for bargaining;
- Don’t feel sorry about the seller, play the game of the evils;
- Do not avoid the use of strong arguments, even if they are false. For example, telling the seller that their competitor has more products to offer and deliveries in a shorter period.
If these rumors say is true, we can say that the Brazilian industry is in a difficult bargaining position. Analysts of Booz-Allen consultancy see this phenomenon as an economic values transfer from the industry to the retailers. They estimate that between 15% and 20% of the industry value of sales stay with the retailers.
This also leads the industry to decrease investments in publicity and media, besides other strategic initiatives, decreasing the brand equity of the companies. It is estimated that 61% of the marketing investments made by this sector belong to the retailers, according to Interbrands, remaining too little money to invest in the brand.
The article that I came across in the DM News points out that shoppers, are cutting discretionary spending and shopping at low-priced chains such as Wal-Mart for necessities. In order to compete, others retailers are discounting aggressively, risking their profits and brand equity. A report from PWC on the future of retailing suggests that in spite of the recession, even if the economy was normal, retailers can no longer grow through expanding stores and the must learn how to increase sales in all the existing stores. Which begs the question, are there any alternatives?
The solution suggested in this article is as follows, “Take CRM, loyalty or point-of-sale data and use it to tailor the product selection for a store or group of stores to local needs is one way to drive sales on a per-store basis”. This is a concept that we might have touched on in class but one that definitely needs further examination. On one side the obvious rebuttal is by having a customized assortment of products in a store will eliminate all economies of scales for large retailers and increase costs. Though the case remains, this strategy is picking up steam because of the reality that there are fewer customers; there is less loyalty, so the need to be more focused in your assortment has become more important.
Some of the most successful retailers are looking to adopt this strategy. They are fulfilling the needs of their absolute core customers better than anybody else. Upon analyzing the data, once a program is in place to refine the product set, these retailers are extending the strategy to their marketing with Sunday flyers, which are also localized and support the in-store product selection. Creating this harmony between strategy, store and marketing has the potential to change the retail landscape. The goal is to not only drive sales but increase the value of the brand to their customer base.
For example, Macy’s began testing a localized product strategy last year called “My Macy’s.” With many of the retailer’s best-performing geographic markets also My Macy's districts; the company said in February that it would roll out the initiative nationwide.
The fact remains that regardless of how ‘risky’ or ‘expensive’ some retailers might deem this to be. As of now, it seems that they do not have much choice on the matter. With a poor economy and dwindling customer loyalty there must be changes. The customers require this customized and specific approach. Recession or no recession this is the evolutionary path of the retail environment. Especially when a big retailer like Macy’s takes the lead, it seems that it is only inevitable that everyone will follow suit. I believe that this is essential and it is a system that will make both the customers and retailers happier in the same regard.