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.
Monday, March 30, 2009
You manage a retail store or restaurant chain, a bank, a telecommunications company, or any other type of business for that matter. You have a magnitude of customers. Unfortunately, some of these customers are simply unprofitable. They may stay for three hours and only order one slice of cake. They may require an enormous amount of servicing. They might buy a large flat screen television for the Superbowl, only to return it a few days later.
While customers are usually good for business, unwanted customers can have a negative affect on bottom line profitability. Harvard Business Review estimates that, on average, 15% of all customers are unprofitable. The book, Angel Customers & Demon Customers, estimates that, in most industries, the best 20% of customers account for 150% of profits. The worst 20% typically lose money equal to 75% of profits !
After identifying these unprofitable customers the question remains: what do we do about them? Below are a few suggestions on how to increase customer profitability:
1. Stick to your core strengths: If a customer requests something outside of your competency, either refuse or outsource .
2. Raise Prices: McKinsey & Co. estimates that a 1% increase in price leads to an 11% increase in customer equity. 60-70% of customers are likely to accept this price increase. If the customer rejects the higher price, the unprofitable customer is lost—overall profits increase .
3. Lay Some Rules: If your problematic customers are loitering, post a sign informing them of a time limit. If they don’t spend enough, consider implementing a minimum purchase order amount .
But, what if the above suggestions fail? Then, it’s time to fire these customers! But how do you get them to leave? Below are some of my suggestions:
1. Be Polite, Tell Them to Leave: In my opinion, one of the best ways to get rid of unwanted customers is to tell them to leave as politely as possible—either in writing or in person, depending on the situation. They might get offended. Explain to them your decisions. For example, if they don't order anything but insist on loitering; tell them that tables are for paying customers only. Remember to be respectful. You don’t want these individuals to spread rumors that you don’t treat your customers well!
2. Screen Incoming Calls: If the customer is not of high priority, consider routing them to a low priority queue. If they choose to use the online method they’ve become profitable. If you lose them, your overall profits increase—win/ win!
3. Focus on the Purchasers: Try to keep window shoppers at a minimum. Instead, focus your time and energy on customers who actually buy something.
While customer divestment was once considered an anomaly, it is fast becoming a viable strategic option for many organizations . Sometimes it’s not about customer retention, but rather about making the tough decisions: firing your customers. Sometimes it’s time to say adieu.
by: Tommy Chan
My assistant’s eyes met mine. It was time. From the collection display, I selected a suitable teddy bear shell – a vehicle for my madness. From the nearby bin I plucked out a fabric heart - instilling the attributes of “extremeness” and “buffoonery” into it with my sheer will. I then placed the makeshift organ into the empty shell. Laughing manically, I watched as the machine ritualistically pumped its fluff into the bear, defying nature’s laws as it inflated my creation to life. Finally, driven by insanity that was matched only by my excitement, I looked into the black coals that were my teddy’s eyes. It told me his name was Mr. Bitterman Bertrum Beaglesworth. Unfortunately I lacked the money to buy him a birth certificate.
Build a Bear Workshop (BABW) is a retailer that sells the “create-your-own” stuffed animal experience. The firm’s motto – “where best friends are made” – literally describes its value proposition. BABW offers a unique RVP in that the shopping experience can be more valuable than the actual physical product. The building process of the bear involves playful steps that are designed to magnify the consumer’s building experience and emotional attachment to the stuffed animal, as illustrated above.
In contrast to Adidas’ build-a-shoe program and other experience focused selection projects, BABW has enjoyed success. The mass merchandising concept is used in perfect harmony with BABW’s product. Unlike short-cycled running shoes that are utilitarian in nature, stuffed animals garners emotional attachment and enjoys longevity and hording effects (I know this from experience). BABW has chosen a product that aligns well with a mass customization strategy. A stuffed animal is a personal item that generates value through emotional attachment and is not constraint by functionality. Its long product life-cycle is not an issue as additional units of stuffed animal are often complementary products to the original and do not serve as a replacement.
The retail store’s RVP experience component and the end product create value for different market segments. People can be drawn to this shop simply for the building process, while others for the end product. BABW can successfully reach diverse market segments due to this diversification between its RVP and product. Despite this, BABW’s core RVP serves a niche market, and growth will require an expansion of value creation for other market segments. This may be difficult as it forces BABW to compete where the competition’s RVPs are more suitable.
The experience that BABW offers is not inimitable. Whether this RVP is a source of sustainable competitive advantage that will differentiate BABW from the competition remains to be seen. BABW suffered a share-value decline in 2007. The initial success of this RVP was directly correlated with novelty of this experience, and the inflated performance disappeared with the fad. There is, however, no denying that BABW’s RVP still creates value for these niche segments within the market; BABW had a financially sound 4th quarter in 2008 (a holiday season where other retailers suffered).
· Canadian Website: http://www.buildabear.ca/
· Consumer Testimony: http://www.grandparentsmagazine.net/Articles/BuildABear.htm
· Analyst Article: http://seekingalpha.com/article/123713-build-a-bear-keeps-on-building?source=yahoo
At the beginning there used to be 13 stores located in the major Italian cities but the main one is the one of Milan. “La Rinascente” had always been one of the most profitable Italian retailer but from the start of the new millennium it had got several financial problems with a decrease of revenues until 2005, year in which it was taken over by some important companies such as Investitori Associati, Pirelli Real Estate, Deutsche Bank and “la Famiglia Borletti”.
The companies made a reorganization of this retailer that had taken it to recover its difficult situation giving to the department store a total revenues of 365,5 millions of Euro and increasing also the levels of direct and indirect occupation.
The companies made a strategic positioning, which impacted on the dealer with infrastructure changes, lay-out revisions of sales planning, a change of the goods and services offered to the client, with the goal to position the flagship store at the level of the international department stores.
Its RVP consists of selection. In this department store there is an incredible range of brands that give to people the possibility to choose between so many different products that include clothing, perfumes, household products and jewelleries, without going into every single store split in the city we can say that its RVP consist also on convenience. For people it’s more convenient to go into “La Rinascente” because they can find whatever they need in a single place. The retailer also care for high-quality products based on the fact that the company always chooses brands between a large number, trying to have the best ones on the store.
The introduction of prestigious brands like Gucci, Hugo Boss, Giorgio Armani and Dolce&Gabbana with their concessions, brought their know-how to the exposition and sales of the products belonging to the target of “accessible luxuries”.
The repositioning of “La Rinascente” brought also to the closing of some of the 13 stores, focusing all their efforts on the one of Milan.
In 2008 the company decided to start the restructure of the eight floor of “La Rinascente” of Milan, a floor used for conferences and administrative activities. In place of all these offices they opened a wellness lounge for the public: this big investment represents another demonstration of how the company wants to offer to its costumers a wide range of services. The starting of this wellness area is just another step the retailer is doing to complete and riqualify the services after the creation of a food market and catering with restaurants that overview on the big church of Milan on the seventh floor of the building and the opening of one of the most famous hairdressers of Italy, Aldo Coppola.
All these introductions made “La Rinascente” becoming not just a place to go shopping but also a place in which you can relax and feel entertained and thanks to this repositioning for “La Rinascente” it has started a real re-birth..
(For those who had an early Paddy’s day: in 1999, Coca Cola executives talked about experimenting a new technology in vending machines that could increase the price of a coke in hot weather, or, which is basically the same, lower it in cold weather.)
I need to say that I have been disappointed by the class reaction in the discussion; being liberal, neoliberal is for sure useful but the responsible managers that we are supposed to become can not simply have this cost/profit thoughts and we have to think about the sense and the long term impacts of our decisions.
I will not discuss to what extend it would benefit the company or on the contrary, harm the brand image. Both approaches are theoretically true, and worth consideration. I will talk about a technology that implement an automatic price discrimination and about the scandal of taking advantage of basic needs.
Why should it be such a scandal ? On an economical point of view, this technology is just a best way of following the law of supply and demand. Is the demand higher? The economic theories want you to increase your product price. Are you in a desperate need for a coke? Then you are willing to pay it a higher charge just because of this urgent need. Nowadays, very few products have fixed prices and you would event be surprised and even choked if it was not the case, you might even suspect the government to intrude in the business to ensure fixed prices. This price discrimination is even a kind of micromarketing, trying to tailor the prices to customer immediate needs.
So what is the difference between a coat that you would buy $60 more in the winter, and a coke that you would buy 10 cents more in hot weather?
The first difference comes from the fact that the process is automatic for the coke whereas the coat has been discounted after a decision of the store’s team. John S. Irons mentions it in its article (in the casebook)[i]: there is a huge potential in such an automatic pricing process on line and websites such as Amazon have already taken advantage of it. And the exhibit 3 in the casebook highlights the kind of uneasiness people have toward an intelligent machine whose process abilities would reach the one of a human being. We all want to be treated fairly and honestly, which a machine is not able to evaluate. Studies about behavioral pricing has “proved” that price expectations are highly variable depending on the context, and the feeling of getting a fair deal is one of the criteria that determine our price expectation in a specific situation. The automatic process ruins any possibility of insuring the impression of getting a fair deal. The coat is discounted by human beings for human beings after a thinking process, and it ensures, if not true fairness, at least more fairness than an automatic process.
The second difference is pinned on the opposition “basic vs non basic needs”. One can obviously argue that drinking a coke is no basic need. I will have to agree. Say then that we consider a glass of water. Everyone will agree that being charge 50 cents extra for a bottle of water, when it is the only thing available in the area, because and only because you are thirsty is unfair. And scandalous. This is called exploitation. I do not care how much the specific brand will be damaged ; my concern is purely moral. In economics, there are situations you can take advantage of, especially when they imply non basic needs. But there are borders you can not cross. The developing world is already struggling to have the “right for water” recognized as a basic human right; please don’t make it even harder for them by denying it explicitly in the developed world.
In these times of economical crisis and global questioning, globalization and economics are wished to be more human. I believe it can happen through a bunch of decisions of that kind.
Let’s first look into the Dutch coffee consumption culture. It appears that 70% of the consumers drink their coffee at home. This means that they make their coffee themselves instead of getting take-out which appears to be very common in Northern-America.
The other 30% drinks their coffee at work or at a café. Having a cup of coffee in a café is considered to be a social activity and should not be rushed. Therefore, a very small percentage of this 30% consists of coffee-to-go consumption. The only place where consumers purchase coffee-to-go is on train stations. Coffee at work is provided by the employer so people don’t need to go across the corner to get their shot of caffeine. 
Additionally, Dutch people are hooked on Douwe Egberts which is a brand that has been out there for more than a century. The brand has built a lot of brand equity and is truly embedded in the Dutch culture.
It can be said that Dutch coffee consumption is either considered to be a commodity; therefore consumed in bulk, or it is perceived as a quality product that you can enjoy in a social setting. Looking at the first type of consumption there seems to be an unwillingness to spend a lot of money on coffee. Key values are that the coffee needs to be regular without any frills and cheap. Especially the ‘cheap’ component is important for Dutch people. Therefore, they make the coffee themselves at home which saves money rather than getting it on your way back home at a drive-through for example.
The rest of this article will focus on the out-of-home market. This is because Starbucks might be more successful in that segment of the market as coffee-to-go is not embedded in Dutch culture yet. For the Dutch OOH market as a whole, the RVP is based on experience and price. People want to enjoy the company of their friends or family, while enjoying a nice cup of coffee. Paying a premium to have this cup of coffee in a nice mug and sitting in a comfortable chair is worth it.
So why would Starbucks work? Because the typical Dutch OOH consumer is exactly the type of customer that Starbucks had in mind when setting up the business model. Initially, the company focused on people that are willing to pay a premium price while enjoying their Starbucks in their store. They have nice furniture, wireless-internet, and other appealing features. However, as Starbucks became more and more successful the company tried to focus on more parts of the RVP, which shifted their attention away. Now many customers are not willing to pay this premium as a large portion of their revenues come from coffee-to-go. Since coffee-to-go is not a part of Dutch culture, Starbucks does not need to worry this pattern repeats itself in this market.
Why would Starbucks fail? Dutch OOH coffee market is saturated; which makes it difficult to penetrate the market. The company struggles finding a distributor. This can partially be explained by the market dominance of Douwe Egberts. In addition, coffee-to-go is not a trend that is embedded in Dutch culture and a culture change needs to take place first.
Moreover, I think there will only be a short moment of success for Starbucks. This can be explained by the fact that the American phenomenon is highly appealing for Dutch consumers. Now they can only see it in movies and tabloids where celebrities consumer the product. Eventually, the hype will gradually fade away because Starbucks needs to compete heavily with other big players in the market.
To conclude, if Starbucks is able to find a distributor it can become highly successful. In my opinion they should not try to position themselves in the coffee-to-go segment which they are pursuing right now. The company is negotiating with distributor Servex, to open some locations at the main train station of the Netherlands to offer coffee-to go. Instead of taking this strategy, they should concentrate on making it a premium coffee brand that people need to appreciate by taking their time to consume it. This fits best with the current Dutch OOH culture and is the most sustainable strategy. That means that the company needs to change its current strategy by serving the coffee in mugs instead of cartons assuming that it is coffee-to-go. Moreover, the coffee should be brought to the customer instead of the customer having to wait for it. Only then, it can be perceived less as a coffee-to-go brand. Whether Starbucks is willing to offer this to Dutch consumers is something they need to decide themselves.
Sunday, March 29, 2009
As we all know, consumer confidence is down and costs have increased causing many retailers to go out of business. Most importantly consumers are still spending money, but they have changed how they go through the selection process of shopping. Some things still remain true, such as shopping differences between genders and the need for retailers to understand their different purchasing habits. Retailers need to evolve with customers as their priorities change. In order to evolve with customers retailers have been forgetting to get to understand who is actually shopping at their stores, what is important to them and who is affecting their purchasing behaviour. Consumers are changing why they spend money, so successful retailers will be those who build their experience and brand around these key ideas.
In the case of Best Buy they found that the female audience influences 89% of all technology purchases. Women are more demanding of their retail environment, they need to feel respected in order to relax and open up to the idea of making purchases. This caused an in store renovation in Minnesota, as their store tended to cater towards male tendencies. When women are not as comfortable with the items they are shopping for, such as electronics, an environment that reminds them of home resonates well with women. Reducing the amount of metal over heading, painting the interior warmer colours, large mirrors, and clean bathrooms all make women feel at home and respected.
Retailers should make sure to not get stuck in their ways and pay close attention to changes in customer purchasing behaviour. Previously long aisles in big-box retailers such as Best Buy were used to keep customers in store longer by making them committed to walk down an entire 36-foot aisle. Instead Best Buy broke up aisles into shorter runs no longer than 20 feet to allow for more end caps. Just because customers do not get sucked into walking these long aisles does not mean that they will spend less time in store. Women see end caps as interactive stories, so not only will they spend more time in store but they will be more involved in their shopping experience because they can feel an emotional attachment to products.
In such volatile times retailers have to focus on more than the aesthetics and layout of a store. They will be much more successful if they can get shoppers to gain an emotional connection to products within the store. Retailers need to know in what format customers prefer to be educated. Best Buy found that women would go on line to compare prices and read about what they want to buy, so when they enter the store this information is not important to them. Women want to know how they react to the products in store and to be educated through demonstrations. In order to bring both of these features together Best Buy has created experience zones, where model rooms with targeted merchandise are set up in order to allow for live demonstrations that make shoppers feel at home. Women especially will spend money if they can gain a sense of how the product makes them feel, in these economic circumstances it is most important to make consumers purchase now. More stores like Jill’s Table have been letting customers kick the tires or utilize interactive displays that encourage pre-purchase use and testing.
For consumers experience is essential, but the importance of education is shaping how retailers present and extend product knowledge to create greater brand loyalty. Through these experience zones Best Buy is creating an atmosphere for learning and attracting customers. Relationships could be built through programs targeted to encourage loyalty, such as product–solving services and related classes. Even though an in store experience is targeted towards a gender that may dominate the purchasing decisions it does not mean that the other gender has to be excluded. Some segments may not know what they want until it is presented to them, such as the case with men at Best Buy.