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.

Saturday, February 7, 2009

Potential of Online Retailing

By: Pavla Grigarova

Although the state of the world economy is so poor, the biggest online retailer Amazon.com, Inc is experiencing its best period and describing the last Christmas holidays as the best aseason ever. A lot of retailers are recently in serious troubles, struggling with considerable losses, whereas Amazon is enjoying its high revenues.

Amazon.com, Inc is the America’s biggest online retailer, founded in 1994, launched in 1995 as an online bookstore. However, it started to diversify its product lines very soon and today it offers a wide range of products from music, movies, computer software to furniture, food, toys etc. Nowadays serves worldwide with special websites established for Canada, United Kingdom, Germany, France, China and Japan. According to Compete.com survey Amazon was able to attract more than 615 million visitors in the year 2008, which was e.g. twice as much as walmart.com.

Unlike other companies, which complained about their revenues during the holiday season, Amazon stated a 44% growth in sold items on its busiest day over the year 2007. Concretely, its customers ordered more than 6.3 million items on December 15.[1] Among the best selling products were included Nintendo Wii game console, Samsung's 52-inch LCD HDTV and Apple Inc.'s iPod touch. The surprising results reflected also in rise of the value of Amazons shares, which increased after the announcement of the last quarter of 2008 revenues by 14 %.[2]

The situation was not always that favorable though. It took quite a long time to Amazon to get from red numbers, as it did not make a profit until 2002. It was necessary to wait for the customers to gain trust in e-commerce. Finally after years of existence, Amazon obtained reputation for good prices, broad selection and convenience.

Question is whether these results are just success of this online shopping giant or if it indicates strength in online commerce in general. Most of the analysts state that the current economy is favoring discount retailers, both online and offline. Amazon is being compared to Wal-Mart in the online world, which was one of the few traditional retailers, whose revenue has risen this holiday season over the last one. In general, figures are not very pleasant. Online sales fell 2.3 % compared with the 2007 holiday season, while retail sales overall fell 5.5 %.

If speaking about online retailers' sales as such, they tend to grow much faster than those of brick-and-mortar retailers. However the difference narrowed this year. The explanation for this is because shoppers tend to go to stores for necessities and online for more expensive purchases. And in an economic downturn, consumers buy rather the most needed goods and save on more luxury items.

[1] http://finance.yahoo.com/news/Amazon-says-2008-holiday-apf-13918688.html
[2] http://finweb.ihned.cz/c1-33658780-temer-ctvrt-miliardy-dolaru-zisku-amazon-prijemne-prekvapil

Social Retailing. . . The Time is Now!

This week in class we discussed the science of shopping. We learned that people are more likely to purchase impulsively if they pay with a debit or credit card and that most of our purchases are unplanned. We learned that women are browsers and like to shop in groups, while men are impatient and want to “get in and out”. Both sexes are not a fan of lines. We also discussed how we could make the retail environment friendlier. Some suggestions were: to put things that guys like together, simplify the process, and to encourage women to shop with friends.

We also discussed how imperative it is to get consumers’ attention. While the average attention span of consumers continues to decrease (I know mine has at least!), I was surprised to learn that less than 40% of retailers have an online presence. In a world full of clutter, it would seem to me that retailers should have a good understanding of consumer trends — which includes buying behaviors both in-stores and online. Many retailers have mastered the science behind increasing in-store sales—through in-store promotions, product placement and lighting, to name a few. However, very few retailers have mastered the digital world.

Social media is increasingly changing the way that consumers think as well as the way that they make purchasing decisions [1]. Members of Gen Y (those born after 1978) are more immersed in online and mobile activities than any other generation, according to 2008 research from shopping comparison site PriceGrabber. Over 85% of Gen Y respondents claimed they participated in social networking, and 57% reported involvement with blogs [2]. To stay relevant, retailers must consider creating and implementing marketing strategies that involve social media. Retailers need to begin thinking about the online shopping experience and consumer buying behaviors with the same depth that they have given to in-store.

It would seem to me that retailers offering their products online would offer multiple benefits to consumers (such as: no lines, “butt space”, convenience, and not having to worry about the “wimp factor”) while also benefiting the retailer by generating increased revenues (consumers spend more when purchasing with credit cards). However, retailers may be reluctant to dive head first and make a significant investment in online infrastructure, as the current average conversion rate (converting a browser into a shopper) for e-commerce websites sits at around 2% [3]. Yet, this conversion rate is strikingly low because most online retailers are ignoring the social dimension of shopping—one which in-store retailers have been able to perfect. As discussed in class, at some stores, mirrors are placed purposefully outside the changing room to enable either a friend or a salesperson to come over and compliment a shopper on their outfit; where as, in the past online retailers have tailored their websites to the solo shopper. But, today’s shopper is dubbed a “social gatherer”—they are looking for more interaction with people when they shop online [4].In my opinion, the reason that online purchases, relative to in-store purchases is so low, is because we don’t have that reassurance that we need to buy the item. As social beings, we like opinions.

To address this issue, a very recent trend has emerged in the online retail industry: social shopping. Social networking is popular online. So is shopping. It makes perfect sense to combine the two. John P. Mello Jr., from E-Commerce Times says it best “online vendors of goods and services that ignore the social dimension of shopping are ignoring a potentially large revenue component and are leaving money on the table” [5]. I happen to agree with him. A retailer that is able to incorporate the social networking aspect into the fabric of an online retail store will surely be able to increase profits. Kaboodle (www.kaboodle.com), an online store, has led the way in social shopping. Not only does the website feature brand name products from leading retailers, it also incorporates a social networking environment. Shoppers are able to create a profile, and using the wisdom of crowds, users communicate and aggregate information about products, prices, and deals.

So, why would a retailer want to give a customer anything that could distract them from shopping? The answer is simple—shopping isn’t just shopping. The very nature of shopping is community-driven. Think about your last trip to the shopping mall. You don’t just go there to ring a cash register— they are places to go, to be seen and to see things. The online experience needs to be more social to reflect the changing needs of consumers—if it is; people are likely to spend more.

[1] http://www.emarketer.com/Article.aspx?id=1006593

[2] Ibid

[3] http://www.twistimage.com/blog/archives/social-media-and-the-reluctant-retailer/

[4] http://social-media-optimization.com/2007/06/social-retailing-the-future-of-retail-online/

[5] http://www.ecommercetimes.com/rsstory/57555.html

supermarket fashion

It seems that economic downturn can never get in the way of fashion. Industry observers forecast that the online fashion sector will grow to 13 per cent of the total clothing market and be worth £6bn by 2016. In spite of the downturn, online fashion retailer Asos has demonstrated the validity of forecast by recorded soaring sales. {1}While luxury brands such as Chanel have been suffering from the huge fall in their sales, supermarket giants are looking for their way to capture that loss.

After Wal-Mart showcased its new fashion brands in major fashion event- Fashion on the square 2008 in San Francisco {2}, the UK’s largest retailer Tesco announced at the end of January 2009 its brand new online own labeled fashion project, which is being spearheaded by clothing boss Terry Green and will look different to the retailer’s existing Tesco.com website.

How does proud fashion fit in low price driven supermarkets? Wal-Mart tried the traditional fashion way by launching a higher-priced range with promotion at New York Fashion week and 116-page feature in Vogue, which turned out to be unsuccessful {2}. While Tesco is trying to manipulate RVP with a new tool- online shopping, offering a broad range of selection, the convenience of shopping at home, and low price. Will customers buy the idea? Cheap fashion is not new to sophisticated consumers; brands like H&M, ZARA have been there for decades, what’s Tesco’s key leverage to compete with them? In my opinion, what Tesco is doing is by constructing a separate website and putting the fashion brands only available online, it tries to avoid the perception of buying fashion in supermarkets, which could be perceived as embarrassing by those consumers who can never buy fashion in supermarkets but can not afford to buy high priced items or not any more. By purchasing online at a non Tesco supermarket website, it feels nothing like buying fashion in supermarkets whiles the benefiting from low price. Moreover, different from the impression that average consumer have in mind, which is that in the fashion section in supermarkets, you can only have limited range of practical items, Tesco is offering a much broader range, adding value to the selection part of the new combination of RVP. Will Tesco’s effort appeal to its target segment? The result is soon to come.


Warehouse plans to phase out its one-stop shop Outlets

Author: Vaimoana Tapaleao
Article: Warehouse plans to phase out its one stop outlets
Source: NZherald.co.nz
Publication Date: Friday October 10th 2008
By: Bergen Graham

The article by Viamoana Tapaleao is about retail giant The Warehouse’s recent decision to phase out its one stop shop outlets. The decision has been made due to the outlets not achieving the results that the warehouse had originally planned for. The warehouse extra was opened with the intention of creating a one stop shop for consumers where they where able to combine their general Warehouse shopping with there supermarket shopping. The company aimed to achieve a 10% halo benefit in general merchandise and apparel by introducing groceries to their shelves. However after three years in the market The Warehouse has announced it will withdrawal from the market place.

The Warehouse Extra was New Zealand’s first store with an integrated food and non-food product range. These types of stores have seen huge success in other western countries like America and Canada, with Wal-Mart dominating over 35% of the US food marketplace in America [2]. The Warehouse however was not able to follow their success and this is mainly due to their inability to align their services with consumer demands. The retail value proposition (RVP) for the warehouse extra was convenience, price and selection; however it was unsuccessful in combining these three factors to create value within the market place.

The Warehouse Extra may have achieved convince by creating an umbrella store where you are able to buy both food and non food products in one store, but not when it comes to location and accessibility. The three Warehouse Extra stores in New Zealand are located in shopping malls and in industrial regions away from residential areas. This generally means that consumers have to travel quite far to get to The Warehouse and pass supermarkets on their way. In the article a customer quotes “you’ve got to drive out there that is another expense”. The increasing cost of transport and food prices in New Zealand has encouraged consumers to value convenience when it comes to location. The price and selection that The Warehouse offers is also not significant enough to motivate consumers to drive out of there way to buy there groceries specifically from them.

In my opinion the success of Wal-Mart in North and Central America can not be achieved in New Zealand’s market place, as there is just not the demand for it. Supermarkets are already so conveniently located within New Zealand and offer very competitive prices. There are also over five different types of supermarket chains that cater to most of the New Zealand’s differing market groups leaving little room for demand of a new store. Consumption patterns of New Zealanders are also different to that of Americans, who place more value on quantity rather than quality. Mega stores, like Wal-Mart, cater to this demand and are the reason why these types of stores are more widespread in the US market place than in New Zealand.

The business week magazine viewed on the internet at: http://www.businessweek.com/magazine/content/03_40/b3852001_mz001.htm (viewed Friday, 3rd may) [2]

The Green Cycle at Mountain Equipment Co-op

In response to: Mountain Equipment Co-op Ontario(TM) stores are now bullfrogpowered(TM), sourced from: http://www.newswire.ca/en/releases/archive/January2009/26/c2170.html

By: Joanna Reardon

Canada’s leading outdoor gear and clothing retailer is staying true to their roots. Mountain equipment Co-op (MEC) has long been a company focused on sustainable retailing – “We’re driven by passion, not profit. We continue to look for ways to protect
our wild spaces and reduce the ecological footprint of our business.” Their efforts over the past 2 years, as outlined in their Accountability Report, include donating 1% of all sales to support Canadian environmental causes, manufacturing products with more eco-friendly processes, reducing emissions from transit by lessening shipments and even promoting greener commuting among employees, and ‘greening their operations’ . The NewsWire article I came across reveals yet another step MEC has taken to reinforce their commitment to the environment. They’ve re-vamped their Ontario retail locations to be in line with their Western counterparts by adopting Bullfrog Power - Canada's only 100% green electricity provider. MEC stores are now completely powered by clean, renewable energy sources like wind and low-impact waterpower. So what does this all mean to their success as a retailer? Why, in economic times as uncertain as these would they invest in ‘greening their operations’?

Growing up ‘Granola’, I can certainly appreciate all that MEC is doing for me as a consumer and for the environment. Then I thought about the average MEC member and realized the proposition could not be better suited to us. Whether or not the Co-op is driven by profits, they’re doing something right. Sales in 2008 were higher than in 2007. Allow me to explain.

A MEC store is an outdoor-person’s Mecca. With a rock-climbing wall positioned prominently in the centre of the store and outdoor ‘toys’ of all kinds surrounding it, there’s a certain je-ne-sais-quoi when you enter the store. There’s no question that their RVP is experience and selection. So how does their newest sustainability initiative reinforce this RVP? The calm lighting and buzz-free power create an experience to mimic the tranquil setting of the outdoors. Customers’ experience is also one of empowerment by feeling as though they’re helping the environment by shopping at MEC. In addition, the product selection is augmented through eco-friendly design. The introduction of a new line identified with a Product Sustainability Symbol signals products to shoppers that are made with organic fibres, through cleaner processes. These products compliment MEC’s assortment while ultimately enforcing the customer’s ‘green’ experience.

Next, consider the fact that MEC is a private label. There is, as we discovered, an upside and a downside to this; however, it seems that MEC is reaping all the upside benefits. Customer loyalty is massive for this outdoor retailer. Because it is a Co-op, shoppers must be members in order to purchase at MEC. Not only is MEC offering a quality brand not available elsewhere, they’re inviting you into their exclusive club in order to shop. Higher margins are also a big plus – not only are they reflected in the overall profits, they allow dollars to be put into sustainability initiatives.

It's all a perfect little green cycle: customer loyalty and higher margins lead to additional profits, which are then translated to greater sustainability initiatives, which in turn lead to a better experience and selection for the customer, ultimately reinforcing customer satisfaction and loyalty. MEC is obviously positioned perfectly in the market to make the cycle work. While it may not be as obvious for other retailers, the benefits of being a sustainable company are real; and I as a consumer would love to see MEC’s practices mimicked across the industry and beyond.

Friday, February 6, 2009

Dunkin’ Donuts and McDonalds vs. Starbucks….Changing RVP?

By: Justin Hartnett

In class we have talked a lot about a company’s retail value proposition in terms of how it wants to position itself on the metrics of selection, price, convenience and experience. It seems that with a lot of companies, once they set and establish their retail value proposition, they more or less continue conducting business that way indefinitely. After all, wouldn’t constantly changing this cause confusion and possible backlash from your customers? For example, Costco, as a mass-quantity retailer, isn’t likely to start offering a better “experience” for customers at the expense of the price and convenience metrics it is renowned for. However, I recently read an article which suggests that in some industries, such as food and beverages, RVP’s are not always set in stone.

Dunkin’ Donuts, essentially the equivalent of Tim Hortons in the United States, is a coffee and doughnut retailer with about 5,769 stores in 34 states and has been primarily known as a lower-quality fast food retailer that generally appeals to price-sensitive consumers. About 63% of their sales come from beverages, with most of this coming from coffee. And with over 1.5 billion cups sold yearly, they are certainly among the leaders in the price-sensitive coffee market. At this point their RVP seems focused mostly on convenience and price. But surprisingly, the company has already created a separate premium coffee line to compete head-to-head with Starbucks, a company losing market share and profitability from product and store over-expansion.

One would think that it would be very hard for a fast food retailer appealing to price-sensitive consumers to also target premium coffee drinkers who might otherwise go to Starbucks. Does this strategy even stand a chance?

Recent results from a taste test suggest that of premium coffee drinkers in 10 U.S. cities, roughly 58% of consumers preferred Dunkin’ Donuts’ coffee versus only 42% for Starbucks! This seems incomprehensible for Starbucks, which had more or less created the premium coffee-drinking market when it was established. Two of the test markets, Los Angeles, where no Dunkin’ Donuts stores exist and Seattle, the headquarters of Starbucks were not considered advantageous originally yet the results suggest otherwise.

The bad news only gets worse with McDonalds also entering the premium coffee market by introducing its McCafe line, complete with cappuccinos and espressos. Now, two fast food retailers which previously would never be confused with higher-quality premium coffee have essentially modified their value proposition to steal market share from the struggling market leader. Both Dunkin’ Donuts and McDonalds have also modified their food product lines to be of higher quality, especially among breakfast foods to compete with Starbucks. These two fast food retailers have essentially placed more emphasis on the selection and experience metrics instead of the price and convenience ones that they are more known for.

If Americans can get premium coffee that tastes as good as Starbucks but at a cheaper price, what becomes of Starbucks? For the premium coffee drinkers who do not have a loyalty to any one particular brand and are slightly more price-sensitive, they may switch over to Dunkin’ Donuts or McDonald’s for their coffee fix, causing Starbucks to lose market share and sales. However, it’s fair to say that there will always be fiercely loyal Starbucks drinkers who are willing to pay higher prices for coffee that they believe tastes the best. Given the number of profitable locations across North America, this is definitely a sizable group.

Nonetheless, this is just an example of how retail value propositions are never really indefinite and can easily change in response to consumer preferences and trends. Starbucks now has two more competitors in the American premium coffee market that it probably never expected.

In terms of Starbucks locations in Canada, I wonder if Tim Hortons has any new plans up their sleeves.

The article can be found at this link: “Dunkin’ Donuts War on Starbucks”: http://articles.moneycentral.msn.com/Investing/StockInvestingTrading/dunkin-donuts-war-on-starbucks.aspx

Why Men are Better Shoppers

In our most recent class we debated whether women or men are better shoppers. It is widely believed that women are better shoppers than men. Most people seem to think that because women enjoy shopping more than men, they must be better shoppers. In my opinion, however, this could not be further from the truth. While I may be stereotyping or generalizing, I am simply writing about my experiences.

There are two reasons why I believe men are better shoppers. First, men are more effective shoppers. You may be wondering what it means to be an effective shopper. I believe that effective shoppers buy only what they need, and maximize the value of their purchases. In my experience with female shoppers, they don’t meet either of these criteria. When a woman goes into a mall because she needs a new pair of jeans, there is a pretty good chance that she will return home with three shirts, a purse and a pair of shoes; but no jeans. Plus, she already has five other shirts that look exactly the same. As a result, she will end up wearing her new shirt once and then bury it in her closet. Clearly, she is not maximizing the value of her purchase.

On the other hand, if a man goes into a mall because he needs jeans, there is no way he is leaving that mall without a pair of jeans in his hand. Not only will he buy the jeans, but he will wear the jeans as many times as possible. Furthermore, he won’t walk out of the mall with five other things that he doesn’t really need and will only wear once or twice. Clearly, based on the descriptions that I’ve given, men are more effective shoppers.

Not only are men more effective shoppers, they are also more efficient. I define an efficient shopper as someone who shops effectively while minimizing the time spent shopping. This means that an efficient shopper buys what they need, maximizes value from their purchase and does so in as little time as possible. From my experiences, when a woman walks into a mall, it will be at least a few hours until she leaves. Even if she finds what she wants in 10 minutes, there is no way she is leaving that mall within a couple of hours. Guys, on the other hand, do not waste any time. When a man finds what he is looking for, he is content to make the purchase and return home.

I will admit that in some ways, women are better shoppers than men. For example, men are often very lazy. As a result, they will sometimes buy the first thing that they see simply because they don’t want to look around anymore. This laziness can lead to men purchasing the wrong item or buying something that doesn’t fit. Another area where women have the upper hand is that they are more willing to talk to salespeople. It is often very important to talk to salespeople to get valuable information about certain products. By refusing to ask salespeople for help, men may not make the best purchasing decisions.

While women do have some positive shopping qualities, they are not as effective or efficient in their shopping as men. I think the best case scenario is for a man and a woman to go shopping together. The woman will ensure that they talk to salespeople and take sufficient time to buy the proper items. The man will insist that they only buy what they need and that they get out of the mall as soon as possible. Together they will be a much better shopper than either one would be on their own.

1) http://www.articlearchives.com/retail-wholesale-trade/retailers/1845590-1.html

2) http://www.brunel.ac.uk/news/pressoffice/pressreleases/2005/cdata/september/savannah

Carrefour Group, can be the new n° 1 retailer of the world?

By Laureen Barbier

For 40 years, the Carrefour Group has grown to become one of the world’s leading retailers. It’s actually the second largest retailer just after the giant Wal-Mart and the largest in Europe. In 2008, sales are estimated to € 97.6 billions. The group knows a solid increase in its sale during this year, especially in its growth markets such as China.
May Carrefour be able to surpass the giant Wal-Mart?

On the one hand, The Carrefour group is currently engaged to a new strategy: they focused on one objective, be among the three leading players in each market where the company is present. They drive their core competencies for growth. They have decided to withdraw the market: Poland, Spain South Korea, Slovakia, and the Czech Republic. Moreover, they have assured their position by way of tactical acquisitions in Brazil, Poland and Spain.²

This strategy leds to double the store openings in existing and emerging markets. The group, currently, operates four main grocery store formats: hypermarkets, supermarkets, hard discount and convenience stores. It has over 15,000 stores under company-operates or franchise.

Carrefour is undeniably better than Wal-Mart in certain aspects of retailing business. The former CEO Daniel Bernard (replaced in January 1st 2009 by Lars Olofsson) says: “They learn (Wal-Mart) from us in fresh food and merchandising”.
The most significant success and competitive advantage that Carrefour has is their presence in markets where the US giant was late to come into like Asia. For example, the Group has 100 stores in China, twice more than Wal-Mart.
"Carrefour is the world's most successful international retailer," says Jaime Vasquez, an industry analyst at Salomon Smith Barney in London, adding, "Wal-Mart has no track record outside North America." The French retailer has built its empire in over 29 countries. By contrast, Wal-Mart operates only in 10 countries.
In Addition, the Carrefour group puts its customers as the center of their objective. They simplified its organization, to give more independence and freedom to stores managers in order to adapt their business to the needs area. They have increased its service offering in order to expand the customer choice, to respond to different customer lifestyles.

On the other hand, Carrefour Group faced to challenges that may affect their current strategy of expansion.

Indeed, The Empire is shaking in its foundation, I mean, in the French Market
for few years, more and more French consumers have switched its favorite hypermarkets in favor to discount chains such as German’s Aldi and Lidl. With the current crisis, this challenge increase and the Group has reacted already with the development of hard discount stored Ed in France and Dia abroad. However is it enough to satisfied new consumer‘s habits? This new strategy hasn’t slowed the new competitors already set up on the outlet market. Some store sales had fallen at 4 %. . Carrefour sales slowed to 0.7% gain compared to 10% gain in 2008. And last month, the French retailer had issued a profit warning in response to falling demand from consumers and fierce promotions that it used to lure shoppers to its stores. °

Abroad, the situation changed and competitors appear. They have pulled out of some countries where it has struggled; and concentrated on key markets like Latin America and Asia. In fact, sales have slowed down in West European countries such as Spain which has boosted results last year .In China, the Group want to increase the number of store opening to boost sales because of the global recession.. The country knows ,for the first time, a slowing economic growth and the projections indicate that this situation will continue. When there is a crisis, people look to price. So the retailer has decided to drop prices and make more promotions in order to compensate. “Expansion in China is fine, but if you put it in a larger context the market still represents only a slow single digit percentage of sales,” said Christopher Hogbin analyst at Sanford C. Bernstein in London.³

Finally, even if the biggest French retailer has always failed to enter in last market where is not present: the US market, their final aim for the Group in a long term view, is to win the global commercial battle. And I think they are closed to reach this objective if the economic background doesn’t modify the rules of the retailing business.




Wednesday, February 4, 2009

Understand Your Customers….NOW!

Class this week was focused around the science of shopping – the way that consumers react to store layouts, product placement and packaging. In a world that is filled with constant distractions, it has become essential for retailers and brands to ensure that customers are aware of their products, that the products are visible, and that consumers are enticed or led to where the products can be purchased.

The average attention span of people in society decreases almost daily, which makes understanding consumer behaviour as important as advertising or promotions. Customer experience and the ability to capture the attention of customers is a prominent issue, but before capturing attention is possible, retailers must now focus on understanding where the customers will be, and how they will act, in order to ensure products are located in areas that consumers are likely to be in, and that buying patterns of certain customer segments are capitalized on through up-selling and strategically placing associated products together.

Retailers must now put themselves in the shoes of customers to ensure that buyers can not only find what they need, but that they are subjected to seeing what they came in for, or more importantly, what they did not come in for, but are likely to buy, based on the general buying patterns of studied target segments. Retailers cannot expect consumers to come into their stores and leave with merchandise that they had no intention of buying, if they don’t find a way of bringing the consumers to that merchandise, and making them believe that they need it.

Successful stores and companies have long studied consumer behaviour and buying patterns in order to maximize their efficiencies and profits, through catering store layouts and product offerings to customer demand and subconscious shopping behaviour. In today’s busy and technological world however, more in depth research can be done in order to maximize the shopping experience for customers, in turn maximizing sales for retailers. Most successful retailers are placing ever more importance on these trends, and are using technology to precisely predict consumer behaviour, in order to offer the best and most lucrative experience possible to consumers and potential consumers. Huge retailers such as Wal-Mart and Safeway have recently turned to virtual market researchers to better understand their customers. Red Dot Square Solutions has developed a virtual reality software solution which uses 3D simulations integrated with real-time eye tracking and analysis to help retailers and manufacturers test and design store layouts, promotions and product and pack designs.[1] These retailers understand the importance of catering to customer desires, but also to customer behaviours. More specifically, they understand the importance of understanding their target markets’ behaviours.

Understanding consumer thought process, as well general subconscious behaviour, provides retailers with a significant advantage, as they are able to precisely target those in specific target markets and capture attention. There is still a lack of importance placed on the study of consumer trends for many retailers, however the successes of some of the best performing retailers in the world truly shows the effectiveness of understanding consumer behaviour. Those retailers who have not yet taken an in-depth look at the way the layout of their store and their advertisements and promotions affect the behaviours of current and potential customers must immediately spend the time necessary to understand better understand their customers, and consumers’ behaviour in general, to better service and target consumers. Others have already taken the next step by scientifically measuring consumer behaviour trends; those who continue to negate the importance of these studies will not be able to survive in a retailing world where the majority better understand consumers, and run their businesses accordingly. There may be a tomorrow for those who don’t place an emphasis on the study of consumers, but retailers who strive to better understand their customers will slowly capture market share from the slower movers, through better positioning and marketing of products based on the understanding of the conscious and subconscious wants and behaviours of the modern consumer. Better business is by understanding and catering to customers; it is time that all retailers realize this, and reap the benefits.

[1] http://www.mrweb.com/drno/news9519.htm

H&M offers a value proposition that succeeds during recession

Hennes & Mauritz (H&M) is a Swedish clothing company established in 1947. The company's business concept has been to offer fashion and quality to customers at the best possible price. First, the company started with only women’s apparel but it has turned into a large chain selling men’s and children’s clothing and accessories. Unlike most retailers at the moment, H&M has succeeded to gain strong profits during the time of financial crisis. This is what makes H&M interesting: what is that they offer to consumers that appeals to them even during recession? How can H&M promise to create thousands of new jobs when others are sacking their employees?

H&M’s retail value proposition is centered mostly on low product prices and a good selection. But I would say that H&M is not successful at the moment only because of low prices: H&M is not only about that. H&M has created a strong brand that is associated with high fashion and top designers. Being associated with names like Madonna, Kate Moss, Karl Lagerfeld and Stella McCartney, H&M has really created something unique. The fact that a company is offering low price products, doesn’t necessarily mean that the brand has to be a cheap one too. H&M has put a lot of effort into building a brand associated with top fashion but yet has kept the prices low for most products. Most popular clothing brands from the same price range cannot be seen in small boutiques or runways in Italy like some of H&M’s products can be. H&M proofs how a strong brand can be built even if the company is mostly selling low price products.

Of course, nothing is only black and white and H&M definitely isn’t known as a luxurious brand in most countries. For example, when the Finnish fashion brand Marimekko signed a licensing agreement for fabrics with H&M in 2008, there were speculations about how the connection to H&M would affect Marimekko’s image as high quality brand. At the moment, I would say that Marimekko is feeling satisfied with its choice to work together with one of the blooming retailers in the fashion industry.

I would say that convenience is to some extent important to H&M’s value proposition too. Most of the shops are situated in shopping malls or conveniently in the center of a city. However, convenience is not what they’re offering to customers everywhere. For example in Stockholm, in the very heart of H&M business, H&M doesn’t serve clients with a one stop policy. There are several smaller stores in downtown Stockholm and you can’t get all styles and products from just one store.

To conclude, one of H&M’s keys to success has been its ability to offer low prices while staying flexible and building a strong brand. You don’t have to be similar in every country even though you are a large chain: some countries want more convenience; some may need more references with high fashion. H&M has understood how to serve different needs without compromising their core competence in economies of scale and low prices.

1. http://www.thelocal.se/17220/20090129/

Tuesday, February 3, 2009

Lululemon's Walking, Talking Billboards

In response to: Canadian Business Week Online, Toned and Ready: Lululemon Transitions

By: Rosalind Copp

In the Candian Business Week article, the author applauded Lululemon for their lack of traditional marketing and reliance on word of mouth. It is true, at first glance it is appears that the company has no marketing plan. They have not engaged in any traditional forms of advertising, they do not promote sales at their stores and they never have in-store promotions. They even renamed their internal marketing department, labelling it community relations. However, a company that is that successful has a clear and effective marketing plan. They want to appear removed from a traditional corporation with their yoga wear and healthy lifestyle. Traditional marketing and advertising would not fit with their brand image. Instead of pushing their products on to consumers they have made consumers come to them. Lululemon first began doing this by giving their products to people they feel represent their products the best. Yoga teachers and fitness instructors who sport their free Lululemon apparel in their classes and who advocate the products for their high quality have helped create to positive word of mouth and a buzz about the products in the yoga world. However, Lululemon cannot rely on yogis alone, their products must be appealing for those not into fitness to be as popular as they are. Thier mission is simple, let our symbol been seen as often as possible, and on as many people as possible.

By far the most influential promoters of Lululemon are the store employees. This is probably where the company invested the money they would have otherwise spent on marketing their products. Employees of Lululemon go through vigorous health training and do free yoga during their lunch hour. They are encouraged to eat healthy meals, they are not allowed to smoke and it would be a major faux-pas for an employee to ever been seen eating fast food in a food court or anywhere that they could be associated with the store and brand. Lululemon employees must embody what every Lululemon customer aspires to be, happy and healthy. Like the yoga instructors, Lululemon employees are the walking, talking billboards for the yoga products. Lululemon has relied greatly on word of mouth, and have ensured this by placing their products in the hands of the right people. As well, I would argue that any attractive girl who wears their clothing to work out in, or just for everyday use is a walking, talking billboard for Lululemon. The products themselves are created so that they accentuate specific areas of the female body and definitely are very flattering on some women. This is revolutionary for sweatpants which in the past have been unflattering and associated with laziness.

In order to truly understand the value of a pair of sweatpants that costs $90, women have to see them on someone else first. They have to see how good they look on someone else, and really want those pants (or sports bra etc) so they can look that good too. They will be willing to pay more if they can look as good as that woman they say in yoga or at the gym the other day. Women tend to check out other women more than men do, and they are way more likely to notice when another women is wearing something flattering or something they like. Advertisements alone focusing on a woman’s assets would not create a positive brand image for the company and consumers would probably be offended, but that is one of the things that people love about the pants. It would just be another advertisement where sex was used to sell something. It doesn’t fit with the brand image and it wouldn’t resonate with the consumer group Lululemon is trying to target. By having fit, healthy, attractive women sporting their clothing and working in the stores Lululemon is able to show off their products in a way an advertisement or mannequin never could.

The employees at Lululemon are not models, they are not stick-thin, they are healthy young women who give off a happy, easy-going vibe. The entire Lululemon store gives off this vibe. It is inviting and laid out in a way that’s easy to for women to browse. The store is completely wood in the inside many with fountains and bamboo trees; it feels like you are in nature, not in the mall. Finding your size is easy, the product is displayed on a mannequin on top of a shelf with each size having its on shelf below. This lets the women who know what they want able to get what they want quickly and get out. This also allows the store to make efficient use of lower shelves since women must scan down the shelves for their size. Lululemon has made full use of the otherwise forgotten wall space. For a shopper who is unsure of what they want, employees are knowledgeable in all the product areas and add a personal touch to the shopping experience by learning and writing down your name on the change room door. When employees check to see how something fits, they call you by your name, like your friend. You get a sense that employees there care, about their health, about the environment, about you.

However, again this is all part of Lululemon’s hidden but effective marketing scheme. Once you examine the store closer it becomes very apparent that everything is made to appear free-spirited and easy going but everything has a very specific place and purpose. The front of the store is where all the very bright, expensive and usually new items appear. There is no visible price, or signage telling you how much something costs as that would make the products appear of a lesser quality and the high prices would steer many people away. All the items at the front of the store are fashion items for working out, the necessities (sports bras, shorts etc) are located at the back of the store. This forces women who are also by nature impulse buyers to walk by all the bags, sweatshirts, and of course the pants in order for them to get to what they really need for working out. Interestingly, sales items are placed with similar items in the store (pants on sale with non-sale pants) instead of in one location or at the back. Also, sale tags are very small and most of the time not even noticeable on specific items. Lululemon never promotes sales, or holds a store wide sale at their retail locations nor does it promote the sale items within the store. They do not want women to browse a sale rack, they want women to buy the most expensive item possible and if they happen to fall upon a sale item then so be it, but they make it as difficult as possible to do so.

Lululemon’s latest non-marketing trick is the bags you receive when you purchase their clothing. The bags are environmentally friendly, and re-usable. They make perfect gym bags (far more fashionable than a duffle bag), and have the Lululemon symbol sprawled all over them with sayings like “live, love, do yoga” (inadvertent actual saying : “live, love, wear Lululemon”). The bags promote everything the brand stands for and they are useful. You get the feeling that you got something extra with the product you purchased. And indeed you have. Although you may have only spent $ 8 on a headband at the Lululemon, you now have also become a walking, talking billboard for the company.

Monday, February 2, 2009

‘Just Enough Operating System’


Today we discussed the concept of Mass Customization, where corporations find that perfect median between adapting to individual customers and still being able to manufacture at a mass level to realize the majority of the economies of scale. Some of the products we decided as a class that worked best customized were things like shoes, cars and computers (in the case of Dell). A recent article discusses the possibility of customizing one’s actual Operating System. There has been some personal customization from individual users, but they have often been unauthorized by the vendor. Can this be done at the mass level? A better approach is to create an environment using only the Operating System resources needed for a particular application set. This is known as JeOS (just enough operating system). The question is: How do we move to a JeOS environment? Particularly with Linux, although it has been designed to be customized, very few organizations take advantage of this capability. Linux's modular architecture is ideal for creating JeOS because it can be easily stripped down and modified.


Mass customization would be able to realize the benefits and efficiency of mass production, but with ability to tailor an OS for different use cases. And because this tailoring is achieved through the arrangement of standard Linux components, it is fully supported. Other advantages include:

  • Reduce Maintenance Costs
  • Strengthened Security
  • Greater Agility – helps IT reduce time required to deploy new servers

The future:

All that's needed now are tools to make mass customization a reality. We didn't achieve mass customization of cars until Ford thought up the assembly line. We need the equivalent of the assembly line in the OS world: tools that provide rapid, fully supported mass market efficiency, reliability and consistency, while allowing for individuality.

My thoughts:

When is it right to customize at the mass level? This is something that we discussed in class, and is Linux at a good place to do so? I would argue that this is most definitely a profitable and logical progression. This differs from some of the examples that we talked in class, because this actually makes financial sense. Companies would definitely go for a cheaper, easier to learn and easier to maintain system if that is all that they require. Where in the Adidas or even cars example the mass customization was being done purely for ‘looking cool’ or superficial reasons, here we see a more functional approach behind it. This parallels more of the customization that we saw in Dell. Where different users require different things from their computer, taking that one step lower, different companies require different applications in their Operating System.

For the multiple advantages discussed above this will work. The pressure is now on Linux on developing a system where then can build a manufacturing process which can accommodate this production method. What if they are able to? A question was posed today, that can this be a competitive advantage, especially with such large competition in the Operating System market? It was also mentioned in class today that it could not in fact be a competitive advantage most of the time, but this may be one time where it could be possible. The fact is that the Linux Operating System from a design perspective has an advantage that it has not currently been exploiting. Once Linux is able to create a method of mass customizing its Operating Systems they will have a clear edge over Windows or any other system. The following questions arise: Does Windows have the capability of doing this? How long will it take for other Operating Systems to match this personal-approach? How permanent can Linux’s first mover advantage last?

Regardless of the answer to these questions, this is a prime case of a product that is ready to be mass customized, and Linux is at the front of the line to be the first to do it.

Private Label Clothing During a Recession

During a recession, basic economics state that a slowing economy will lead to less disposable income for the average consumer. With shrinking disposable income, prevailing economic theory is that consumers will cut back on normal extravagant items and spend on goods of necessity; oil for their car, cheap food and health-care products for the family, and heating/air-conditioning for homes are all examples of goods the average individual will continue to purchase regardless of fluctuations in disposable income. Given its obvious absence from this exclusive list, the retail sector has relatively large exposure to any recession. While individuals need things like clothing or food, none of us actually need a particular style or brand, no matter how often young children complain to their parents. Taking an example like retail clothing, it should seem pretty obvious that during the current recession, people cutting their spending (which are most of North Americans) will purchase cheap, non-branded shirts and pants. Thus, private label clothing will thrive during a declining economy. That simple! Great, we’re done here.

Or are we? A recent Reuters article made mention of the fact that private labels are suffering a great deal from the current recession. As a result, brands are beginning to seize a greater percentage of floor space in department stores then beforehand. To steal a line from a popular TV show character, “what in the deuce is happening?”

There happens to be two forces at work here, both representing the typical usual suspects in any retailing transaction; consumers and retailers. Consumers don’t exactly behave the way that normal economic theory dictates that they would during a recession. Instead of what most people assume—that the average individual would spend less on each item of clothing for example—the average individual is instead cutting back on the quantity of what they are buying instead of purchasing cheaper clothing. With shrinking disposable income, the critical nature behind every single purchase purchase becomes magnified. Customers are now thinking “if this is my only purchase, I want it to be something special”. The type of clothing which would satisfy this thought process is most certainly NOT a generic private label piece of clothing. It is for this reason that one should expect recognized high-end brand names like Burberry, Canada Goose, Christian Audiger and even Prada or Gucci to continue to perform despite the harsh realities of the North America economy. These brands, and others like them, are instantly recognizable and carry a strong cache with the general public. That, of course, does not mean premium brands are positioned to succeed during these economic times. While it may sometimes be true, it is a foolish leap to assume that premium and instantly recognizable are always one and the same in the retailing world.

The other part of the equation is the retailers themselves. The basis for giving floor space to private label brands was their relatively high margins compared to normal premium brands. With discounts and sales pervasive across the retailing industry, this competitive advantage is shrinking giving retailers little reason to feature private labels as predominantly as before.
It is important to realize the true effect that the recession has on private labels and recognizable brands respectively; private labels are not necessarily counter cyclical, and brand names are not necessarily pro-cyclical. By understanding that these pre-conceived notions don’t always apply, retailers can better prepare themselves to effectively manage through a recession.

SOURCE: http://in.reuters.com/article/businessNews/idINIndia-37521320090119?pageNumber=3&virtualBrandChannel=0

A Shame Attached to Luxury

Written By: Courtney Lerman

There have been many articles written and news reports broadcasted that focus on the threat the current recession poses to retail sales of luxury goods. Naturally, when consumers feel their wealth has decreased or is threatened, they refrain from purchasing expensive non-staple items. As a result, many high-end retailers were offering significant discounts to try to move inventory through their stores over the 2008 holiday season. An interesting perspective on the future of luxury stores was presented in Rita Zekas’ article, “Thrift Store Chic” that was published in The Toronto Star on January 22nd.

Expensive retail stores focus their retail value proposition mainly on experience. Clearly prices are not a selling point and neither is convenience; people will pay high prices and travel long distances to shop at these upscale retailers. For some department stores, selection may be a focus, but the main reason these stores can charge astronomical prices is due to the customer experience.

Consumers will pay the $1,000 for a Gucci bag because it portrays a certain image. If this is so, then one may wonder why Prada shoppers have been requesting unmarked bags to carry their purchases. Zekas claims there has been a reverse of snobbism, “shoppers brag about what they snag at a low price”.

During a time when unemployment is hitting the middle class by the masses causing many to lose their homes, the positive experience associated with carrying a Chanel shopping bag has been whisked away – consumers are instead embarrassed. Shoppers have become weary of what others will think of their overindulgence and unnecessary spending when so many are suffering. Zekas describes this attitude as “a shame attached to luxury”. The main value proposition luxury brands had is threatened, and without this positive image, they have little to offer consumers.

Some retailers may hope this is temporary and as consumer confidence rises the “saving money” fad will end. However, there is evidence that this may develop into a long-term attitude. According to Tyler Cowen for the New York Times, a recession can alter cultural attitudes and behaviors for decades into the future. An example Cowen describes is the shift to inexpensive forms of entertainment during the Great Depression in the 1930s. Listening to the radio and playing board games were trends that rapidly grew during the depression and remained until the 1950s.

As consumers stay away from expensive brand named items out of fear of appearing overindulgent and unsympathetic, is there hope for luxury stores in the future? How long will this fad last? Will Burberry and Louis Vuitton be able to adapt? Without the positive experience associated with the brands and decreasing consumer wealth, it will be difficult for luxury retailers to maintain their sales figures.

The Toronto Star:
http://www.thestar.com/living/article/574815 - "Thrift Store Chic" by Rita Zekas published January 22nd, 2009

The New York Times:
http://www.nytimes.com/2009/02/01/business/01view.html?ref=business - "Recession Can Change a Way of Life" by Tyler Cowen published January 31, 2009

American Apparel…a clothing retailer or magazine shop?

I have to be honest. I am not an American Apparel (AA) shopper, however I have been exposed to their marketing and advertising techniques, have seen their stores pop up and I have done a few projects on their CEO Dov Charney and his dubious behavior. Only after reading about this most recent incident, do I feel they have made a grave error in judgment that may negatively affect their sales negatively incorporating experience into their retail value proposition.

The incident as described by the Globe and Mail[1] is as follows. A mother goes into American Apparel in Vancouver with her 13-year-old daughter, and the mother notices a BUTT magazine[2] hanging out of a backpack on a mannequin. What caught her attention was the cover of a naked man walking away. She took it out to look at and opened it to find a two-page spread of two males engaged in some sort of sexual act. The latter event really upset her; she ended up confronting the staff who immediately blamed corporate headquarters. I guess I should also mention that AA also sells copies of the magazine at their stores.

AA is known as a unique apparel company who manufactures solely in the US, and promotes a sweatshop free environment. Over the last 6 years or so they have developed a very controversial reputation with the CEO being known to walk around the office in his underwear, objectify and sleep with his female employees and the list goes on. As a company AA are known for their scandalous and revealing advertisements (many photo shoots done by Dov at his home in his basement), their store décor and the hipster retail employees.

The experience observed at retail shops, is developed primarily from the vision of its founders and leaders, and this totally applies for AA. In my opinion, while Mr. Charney’s personal behavior has not seemed to deter buyers, AA has taken the experience too far, and this may negatively affect their retail sales. It’s one thing to have highly sexual advertisements in magazines and on billboards promoting your merchandise, since consumers are constantly bombarded and desensitized to many of these images. However, to have BUTT magazine available to any of your consumers will and has really offended them on a personal level and passed their threshold of comfort. While there may be a fine line between pornographic and sexualizing images, companies should be aware that pornography is still considered taboo by many and will therefore not be accepted. AA targets mainly female consumers who range from young girls to their mothers. There are very few people that I know (girls or guys, mothers or fathers) that would feel comfortable walking into a clothing store and being exposed to pornography.

I am confident that consumers do shop ethically. Although many people can view AA as being ethical (based on their sweatshop free and manufactured in America motto), I think being exposed to pornography without asking for it trumps their super ethical supply chain.

The Globe and Mail attempted to contact both the Montreal and LA head offices of AA however did not get any response back.

Whether you shop at AA or not, I recommend that you read up on both their strategy and the CEO Dov Charney.


Sunday, February 1, 2009

Recession Proof, really?

In our first lecture the rebirth of convenience stores was identified a s a current trend in retail marketing, however conveniencestorenews.com warns that the recession will negatively effect gasoline, tobacco, candy and snack sales, all of which are convenience stores’ staples.[1] This got me thinking, do recession-proof retailers, or consumer goods actually exist, and if so what retail value propositions do these offer?

Gasoline and tobacco are considered inelastic goods, as demand is not sensitive to a change in price, however conveniencestorenews.com claims that there customers are selecting lower grades of gasoline, cheaper brands of tobacco and reducing the quantity purchased in a single transaction, in an attempt to spend less. It would be hard to argue that inelastic goods are not recession proof, however more specifically; it seems that the lower end brands of inelastic goods are the true recession proofs. The retail value proposition (RVP) they offer is the experience or use the consumer is seeking, along with price.

On the other hand, candy and snacks are usually impulse purchases and it seems feasible to assume that consumption of these goods will decrease in a recession as it is an easy, and obvious way for consumers to reduce their spending, for this reason I would argue they are not recession proof. However it could be argued that consumption of these products will increase during a recession as consumers substitute eating out or going out for a much cheaper night in with these goods, in this case the retail value proposition is price.

A retailer whom is thriving in the current economic climate is Amazon, who has just reported its most successful holiday season ever. The Chief Executive comments that this has been achieved because of Amazon’s relentless efforts to offer customers a great selection and low prices, including free shipping offers.[2] The products offered by Amazon are by no means inelastic, Amazon’s increased sales are a result of stealing market share from competitors, not because the category has experienced sales growth, therefore it is Amazon’s and not its goods’ RVP which is recession proof. Their offerings of price and selection and convenience are irresistible for consumers in the current climate.

It would hard to dispute that an RVP offering price in the current economic climate is attractive to consumers, the majority of which become more price sensitive during a recession, however in order for brands and retailers to recession proof their selves they must offer more than just low prices. Other elements of the RVP must also be on offer available to customers. Amazon have demonstrated that a retailer selling non-commodity and elastic goods can still thrive during a recession, they have done this by offering three elements of the RVP. It seems likely that convenience stores stocked with a wide selection of goods, including cheaper brands will do best as they can offer three elements of the RVP.

[1] Are C-Stores Recession Proof? http://www.csnews.com/csn/print/article_display.jsp?vnu_content_id=1003789103

[2] Profits Rise at Amazon as Shoppers Seek Deals. http://www.nytimes.com/2009/01/30/technology/companies/30amazon.html?scp=1&sq=recession%20proof%20retailing&st=Search