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 14, 2009

Shoppers/Murale's Venture Into Cosmetics

Throughout its existence, Shoppers Drug Mart has achieved remarkable success and has revolutionized the pharmacy concept in Canada. In the 1950s, Murray Koffler, Shoppers founder, sought to legitimize his pharmacies by making the atmosphere more professional (ex. Requiring pharmacists to wear white overcoats) and focusing on his core business, the sale of prescription drugs, over other products such as soda fountains which were removed.[1] Shoppers Drug Mart, established in 1962, began with a very simplistic concept that focused on products with essentially inelastic demand, prescription and over the counter drugs and subsequently cigarettes. Through its 47 year history, Shoppers has continuously added and revamped its product offering in order to cater to customer desires and become more of a neighborhood one-stop-shop rather than just a pharmacy. However, never in Shoppers history have they made such a departure from their successful store format strategy and their RVP as they are with their expansion into high end cosmetics.

Since 2001, Shoppers Drug Mart has aggressively entered the high-end cosmetics business and has achieved success. There were several strong reasons for this venture, including the lack of a dominant high-end cosmetics competitor in Canada as well as Shoppers already established and steady clientele it currently attracts. Stores have been renovated and have become much more upscale with the cosmetics department becoming a focal point of the store (many stores are designed so upon entering the store you must walk through the beauty boutique). Shoppers has increased their product assortment to carry not only premium brands but have developed their own high-end cosmetic private label called Quo. Nevertheless, arguably the most important strategic move they undertook was the appointment of Jurgen Schreiber in 2007 to become the new CEO of Shoppers Drug Mart Corporation. Schreiber was poached from Watson and Co. Ltd., a European retail giant, where he transformed their cosmetics department. Schreiber was strategically selected to become CEO of Shoppers due to his experience in retail and cosmetics, but also the extensive contacts he has established within the global cosmetics industry. Upon arriving at Shoppers, he used his connections to acquire new high-end product lines and forge new industry relationships, such as Shoppers recent contract to stock the Clinique cosmetic line (Shoppers became the first North America drugstore chain to carry the brand) and Gosh and Boots No 7. While the expansion into high-end cosmetics was occurring before Schreiber’s arrival, it is clear that he was strategically selected to take the initiative to a level that requires significant industry intelligence and connections.

As a result of the current economic conditions, one would surmise that Shoppers decision to carry discretionary products, such as iPods or high-end cosmetics, would be an extremely risky as consumers seek to minimize purchases; however, as other blogs have alluded to, certain premium products can still flourish in recessionary conditions. Cosmetics are a necessary female item that women will not do without and are essentially an ‘affordable luxury’. Despite current decreased spending by consumers, Shoppers has been able to steal market share and should be well-positioned in this industry once the economy fully recovers. Shoppers currently accounts for 20% of the $1.3 billion dollar Canadian market, increasing its market share threefold since 2003.

Despite this rosy picture for Shoppers retail stores, some industry experts are more pessimistic about their new stand-alone store called Murale. Focusing on selection and experience, Murale offers high-end cosmetic products and has well trained skin care professionals assisting in personalized service and care. Further, following their own structure in Shoppers Beauty Boutiques, Murale hires their own staff (unlike department stores who have staff hired by the brands they represent) to provide professional and unbiased opinions. Schreiber and the Shoppers brain trust felt there was a gap in the cosmetic market, as consumers were demanding greater access to premium products and were demanding greater service capabilities. With no dominant player established and with their increasing capabilities in their own Shoppers location, it was time to allow these acquired strengths in cosmetics to flourish on their own. Despite all this, some industry experts remain pessimistic about the launch citing economic factors and Canadian consumers purchasing behavior in regard to cosmetics. In general, Canadian’s don’t spend as much on cosmetics as either Americans or other global consumers. Further, both Shoppers and Murale will be competing to acquire market share in the cosmetics industry and will be stocked with many of the same product; a situation that could lead to sales cannibalization. While Shoppers benefits from their already established customer base and store traffic, Murale will need to develop this independently. Nevertheless, regardless of whether Murale becomes a successful retail outlet, it is clear that Shoppers will continue to expand its cosmetics business and will be well-positioned to become the dominant player in the high-end cosmetics industry upon economic recovery.

[1] http://en.wikipedia.org/wiki/Shoppers_Drug_Mart

Main Articles:

- http://www.theglobeandmail.com/servlet/story/LAC.20081129.RCOVER29/TPStory/?query=Shoppers+Drug+Mart

- http://investdb3.theglobeandmail.com/servlet/ArticleNews/story/GAM/20081129/RCOVERMURALE29

Friday, February 13, 2009

A Fresh Idea

In the first retail marketing class of the year, we discussed how Loblaws was named Canada’s top retailer in 2004 followed by the Wal-Mart Canada Corporation. However, as Wal-Mart increased its selection by moving into the realm of groceries, Loblaws had to fight back to provide an RVP of greater value to their consumers. This would help differientiate themselves from other grocery retailers. One may argue that these two retailers target different target segments. However in times of a recession, consumers tighten their budgets and become more price-conscious. Therefore, Loblaws customers may be pushed to switch to Wal-Mart for their grocery needs if they are already purchasing other goods there because it is more convenient and cheaper.

However, Loblaws has been able to hit back at Wal-Mart’s grocery intrusion by regaining some of their customer base with Joe Fresh. Joe Fresh is a low-cost, chic fashion line distributed in Loblaws stores. By giving Loblaws shoppers a more diverse selection of goods to choose from and changing the grocery shopping experience to include a clothing aspect, the company has brought greater value to its RVP. Furthermore, Loblaws has added price to its RVP by adding a low-price line of goods. Customers originally in the stores would purchase clothing in addition to their grocery items. Conversely, Loblaws would also draw customers who would shop there for the Joe Fresh line, but while in the store would purchase a couple grocery items out of convenience. These two instances together drive sales and attract new and more loyal customers because of the greater value in price, selection and experience.

To take advantage of the new business opportunity, Loblaws had to evaluate their corporate capabilities. How well did the top-retailer understand its current market and what they wore? There were many challenges, but as any good company do, Loblaws adapted and learned from their mistakes. For example, learning from experience, Loblaws has now cut their men’s Joe Fresh line in half. The company now understands that more woman than men shop for groceries for the family and that men do not gain the same pleasure from shopping for clothes, as do women.

As greater recessionary pressures hit the clothing industry, it is Joe Fresh who has actually benefited while others have failed. Consumers are looking for low-cost yet still chic, and trusted options. Consequently, fewer consumers are hitting malls because they cannot rationalize huge shopping sprees when the future of their jobs are on the line. However, a simple purchase while grocery shopping provides consumers with the thrill of updating their wardrobes at a guilty-free price. In addition, the mere fact that a consumer does not have to go out of their way to visit a clothing store makes the entire process more guilt-free. The convenience factor is key.

Taking advantage of this small luxury concept, Joe Fresh will unleash its own low-price cosmetics line. Research has found that during a recession, cosmetic companies experience a surge in lipstick sales and other small luxury cosmetics. These items provide a luxury experience to the consumer at a low-cost.

In closing, as Loblaws moves forward to take advantage of the recessionary times, they must fully understand their target market. By providing consumers with a more diverse selection of products, the retailer becomes a one-stop shop for multiple needs.

News article:

Thursday, February 12, 2009


* Federico wasn’t able to post, so I’m posting his work for him.
Gucci is an iconic Italian fashion and leather goods label, founded in Florence in 1921. Gucci is considered one of the most famous, prestigious, and easily recognizable fashion brands in the world. It now belongs to the French conglomerate company Pinault-Printemps-Redouts (PPR). Gucci recently opened a new 46,000 square foot store in New York City. This store is located in Manhattan on the 5th Avenue and it will sell all the fashion collections and accessories of the brand.

The shop has a wide area dedicated to jewelry, an exclusive VIP lounge on the third floor with its own dedicated elevator, a bar, and private show and dressing rooms.

This is not a normal shop, it is a work of art. Frida Giannini, the creative director of Gucci, commissioned the project to have elements such as the bronzed glass walls and a free-floating Italian marble staircase set against a rosewood backdrop. To make the store look like a work of art she hired world-renowned architects such as James Carpenter. One special request that she had was to have as much natural light as possible inside the building.

The exclusivity which encompasses Gucci is the key element in the Gucci experience, as experience is the element of RVP on which Gucci focuses. Without this experience of high class and luxury, customers would not be willing to pay such high prices for Gucci products. The experience Gucci desires to create is exemplified in its new Manhattan store. Obviously the purpose of Gucci to locate the store in the most luxurious part of Manhattan is to show to all the world that they are one of the most prestigious fashion brands and their goal is appealing people who are able willing to spend a lot for exclusive items. To play up the exclusivity of the store, Gucci hires employees who are capable of providing only the best customer service. Gucci’s employees who work on the floor are aware that customers are making fairly expensive purchases and hence have a long decision-making process to go through. These employees make customers feel special and as though they deserve the luxury items offered by Gucci. The high prices of Gucci also make the store seem more exclusive, as not everybody can afford them. To possess a Gucci item is to exude wealth and class – two qualities desired by most people. Yet another element which adds to Gucci’s luxury appearance is the scarcity of items in its store. Items are placed often only with one or two other items on shelves. This helps Gucci maintain a look of cleanliness and luxury. It also makes Gucci seem selective in the items it is willing to sell to its customers.

Gucci wants its customers to feel luxurious and valued from the time they look at the store to the time they walk out of its doors. Gucci’s newest store in Manhattan does just that, keeping in line with the experience portion of the RVP. Without such an exclusive experience, customers would not be willing to pay the prices asked by Gucci. However, Gucci puts great efforts into creating value through experience that customers find themselves returning to the doors of Gucci stores around the world every day.
Posted by Federico Bertini

The time-rich shoppers’ paradise

“When something is very Daslu, it means not only be dressed by the most fashionable boutique in Brazil, but to be part of a particular world.”

The Financial Times, New York, March 2004

Villa Daslu is a luxury retailer placed in the São Paulo City, Brazil, where you can find the most expensive and well-known world brands, as Prada, Luis Vuitton, Dior, Valentino, Chanel and Gucci, and some popular brands which you cannot find anywhere else in Brazil, like Gap and Banana Republic. Daslu just launched its new store, with an area of more than 200,000 square foot and about 118 clothing divisions inside the building.

As the store management says, it has the departments store variety, the size of a shopping mall and exclusivity of a small boutique. However, in contradiction with an ordinary shopping mall, where the customer has no difficulty to walk, the circulation in the newest Daslu store is very difficult; and this was done on purpose. One “department” finishes right on the start of the other and the stairs are not easy to found.

The reason of this layout is to make the consumers get lost in all the luxury products and spend their money. The goal of the managers is to make customers spend the most time possible in the store, that’s why you can find two restaurants, one champagne bar, a spa, a hairdresser and a wide sector of house decoration inside the store. There are sofas everywhere, with huge green areas, where the shoppers can seat and drink a coffee while they’re buying. However, if you want a specific clothe or brand, you can look for the 30 specialized girls that help you find whatever you want and more than 150 people working as sellers.

Analyzing the value proposition of Daslu, we can notice that it’s able to deliver high quality clothes at a very high premium price. Together with this, the costumers have their unique experience of care and entertainment during the purchasing process. There are golf cars that can carry you from the parking lot to the store and, if after buying you want to drink something or have your hair cut, one of the employees can carry you bags to the car. The first floor isn’t allowed for man, so the ladies can feel comfortable to try wherever they want and, if they want change rooms, there will be huge ones waiting for them.

People who buy at Daslu want more than a clothe, they want to be seen there! Girls want to tell their friends that they bought that dress at Daslu and enjoy all the services the store can offer during the purchase process.

But its RVP it isn’t strong just in the experience and the premium prices; as you could notice, it is also about selection. They have a strategy of a dominant assortment of the most well-known brands in the world, and, if the consumers are not satisfied with this, Daslu has its own brand as well, that as far as data had shown, didn’t cannibalize the other brands; it is just another opinion!
Concluding, Daslu is a retailer that knows how to differentiate itself from its closer competitors and to build a respectful catalog of brands in the store, being able to deliver the variety and depth their customers want, with experience and uniqueness, transforming it in a way of dressing. In my opinion, it is a successful retailer which knows very well its retail value proposition and delivers what its customers want with a great experience.

Is there such a thing as a ‘sweet spot’ in the middle?

By: Mary-Jane Mastrandrea

“Many rival retailers have reported their worst revenues in years; they’re cutting workers or shutting down entirely. Yet Amazon is thriving: It just had its best holiday season in company history, with profits up 9 percent over last year.”[i]
Amazon.com is a retail outlet operating solely online. The company has been credited with popularizing online shopping having started in the realm of books in 1995 and expanding its product offering to furniture, home furnishings, food, toys, apparel and electronics.
In the last decade, Amazon.com has weathered the storm of many online market competitors including Barnes and Noble, eBay and most directly, Walmart. What makes Amazon.com stand out is its ability to sustain its online operations and success where retail gurus such as Walmart online cannot. This prompts the question: How has Amazon.com has achieved such success in areas where big players can’t? Has Amazon.com found a ‘sweet spot’ in satisfying the online retail world?
Amazon.com has achieved sales growth through an expansion of its product lines. Offering thousands of products across the globe, the company thrives on its ability to offer an assortment of products as opposed to a specialty online niche. Furthermore, Amazon.com’s private label brand, “Pinzon” has fostered customer loyalty and is known for its quality assurance.
Amazon.com’s inventory management allows them to offer competitive prices to their products. As a large player, Amazon.com has the strength to apply pressure to its suppliers, and where inventory is purchased on demand, Amazon.com has the flexibility to pass on savings to its customers. This was evident in the 2008 holiday season where Amazon.com offered products through its website that were discounted by distributers “as demand was falling off a cliff, [Amazon.com] could get better rates.”[ii]
On ‘Black Friday’ in 2008, online sales saw an increase of 11%.[iii] This has been directly linked with the convenience experienced by customers’ ability to shop online as opposed to manage the chaos of typical retail shopping. Amazon.com prides itself with offering convenience through 24 hour accessibility to the website and delivery of products. Furthermore, Amazon.com values customer experience. Customer reviews are offered on all products and not edited by Amazon.com. This allows customers to feel as though they are permitted to honest product opinions from real buyers—where firsthand experience is more valuable than a sales associate.
In terms of retail value proposition, it is clear that Amazon.com has acknowledged all areas: Selection, Experience, Convenience and Price. However, as the company continues to dodge attacks on market share it is worth assessing if Amazon.com’s current retain value proposition is sustainable? Is Amazon.com attempting to satisfy too much? Are they too unfocused to maintain this level of success?
In terms of growth strategy, Amazon.com has achieved success through its addition of products and product categories. However, as Amazon.com begins to tiptoe into a realm of ‘over-selection’ the convenience of online shopping decreases. Consumers drawn to online shopping for its ease of use and simplicity could find themselves overwhelmed with a search for ‘towels’ yielding 50 results!!
Furthermore, the customer experience offered by Amazon.com could be easily replicated by a competitor. Customer reviews of products and shipping are not sources of a competitive advantage in the realm of customer service.
Finally, Amazon.com’s inventory purchasing strategy has hinged on its ability to seize sale opportunities with distributors in order to pass on lower prices to its customers. However, the company acknowledges that “real bargain hunters can almost always find better deals at Walmart.”[iv] What’s more, WalMart has higher sales than Amazon.com due to its physical retail locations and has the opportunity to apply even more pressure to suppliers to achieve even lower raw costs.
Amazon.com has hit a crossroad in the online retail world. Although seeking to satisfy all aspects of the retail value proposition has allowed Amazon.com the appearance of success, without a focused retail value proposition, Amazon.com will not sustain its position as an online market leader. It is only a matter of time before this ‘sweet spot’ goes sour.
[i] http://www.slate.com/id/2210620/
[ii] iBid.
[iii] http://news.varadinum.com/pricegrabbercom-releases-2008-black-friday-online-shopping-statistics.html
[iv] http://www.slate.com/id/2210620/

Other Websites Consulted

My Apple Store Experience

As a proud owner of a brand new MacBook I was recently able to experience first-hand what one could call the “Apple Store Experience”. Having never before owned an Apple computer (or any Apple product not called an iPod) and having never even been inside an Apple Retail Store, I wasn’t sure what to expect when I walked into a store that looked nothing like any other retail store I had ever been in. It only took seconds to realize that the store was selling the Apple experience as much as it was selling the product.

After briefly walking around the store and testing out multiple products I had no intention of buying, I switched my focus to the MacBooks. It was at this point that the Apple Store experience really began. I was assisted by an Apple Specialist, a highly knowledgably worker who instead of just explaining the basic components of the MacBook (such as memory details, battery life, etc), showed me how the different features of the MacBook worked. While it may seem like a trivial difference, actually seeing how the computer worked and seeing the differences between a MacBook and a regular PC was immensely helpful to me, as without this tutorial I would have had to waste countless hours figuring out the most basic functions of the MacBook. Even the checkout process is different at the Apple Store. Instead of paying at a cashier as you would at a normal retail store, a Specialist uses a handheld device called the EasyPay to process your order. This enhances the shopping experience as it eliminates the need to wait in line. Small details such as this add to the Apple experience as it makes the customer feel like they are buying a different type of product and that they are buying something more advanced then what you would find at a regular computer store.

Having such a strong focus on the customer’s experience is important to Apple as it allows them to charge premium prices for their goods as well as alleviate any fears customers may have about investing in a product that is often incredibly different from products that they have previously owned. It also strengthens the brand as it makes customers associate the Apple name with high quality service. When the customer remembers the high quality of the customer service they will connect that high quality to the actually Apple product and thus, the perceived quality of the product will be enhanced.

While Apple’s focus on the customer experience has generated much success, Apple is doing what any smart company would do; fight against complacency. Apple has recently announced that they will be reorganizing their stores. Apple is planning to switch their stores’ focus from the hardware to customer education. They are doing this by rearranging the stores so that signs and brochures telling customers “Why You’ll Love a Mac” will be the first thing the customer encounters when he or she walks into the store. Apple does not stop there with its focus on the Apple experience as the next section of the store “will focus on the iLife suite of software applications, and will provide information how they can contribute to a Mac user’s digital lifestyle”. These changes will make buying an Apple product feel more like a lifestyle choice rather then just a simple purchase, a feeling that Apple hopes will lead to greater financial success.

This switch should be especially effective in terms of attracting men to the store. The increased amount of information available will allow men to do more on their own and allow them to shorten the dreaded customer-sales person conversation. This change, as well as the large amount of products that are available to try out, makes the Apple Store a very male-friendly environment. However, women will not feel uncomfortable in the Apple Store, as they will find the strong focus on the shopping experience attractive.

It appears that Apple has found a winning focus. A focus on the customer and how the customer feels when he or she enters the store. With a strong track record and upcoming changes that will only further enhance the Apple shopping experience, it would hardly be a stretch to say the Apple can expect their success to continue in the future.




Sticking to the Plan – Costco’s Recession Success

By: Tommy Chan

Costco, the fifth largest retailer in the United States (second in Canada), is maintaining its focus on the low price component of their retail value proposition. The recent changes in the retail environment have caused many retailers to rethink their strategies. Costco, however, have only focused on improving on its initial retail value proposition and is having success in this recession.

Value is created by passing cost-savings down the value chain to the end consumers through a retail value proposition that offers low prices above all else - every component of the well-oiled Costco machine is carefully designed to lower cost, in alignment with the firm’s value proposition. Suppliers are given bare-minimal margins. Costco carries approximately 4500 SKUs, around 10% the amount of competitors (Wal-Mart & Target), for economies of scale advantages. Marketing and store decorations are practically non-existent. Margins on branded and private label items are 10% less than most supermarkets and 30+% less than department stores.

Costco’s retail strategy involves more than just price discounts. Costco warehouses are optimized to maximize sales. Luxury items are placed at the front entrance of the store to instil impulse buys. These product line-ups are rotated constantly to further encourage shoppers to buy them now. Food and other essentials that make up 60% of Costco’s sales are placed in the very end of the store. Comfort and ambience are virtually non-existent. To capture value from the end consumer, Costco charges a fixed membership fee and offers their products in bulk quantities. Both of these components decreases convenience but further improve the low prices. The stores’ set up clearly compromises convenience and experience in order to maximize sales and keep prices low.

This complete alignment towards a simple but effective strategy is the key to Costco’s success. There are many retailers with price-driven value propositions, but none as successful as Costco, whose commitment towards lowering cost in every aspect of the business gives them an operating efficiency that is hard to match.

Costco’s strategy relies on very precise management of cost, leaving their value chain vulnerable to any severe external changes. Up to this point, Costco is performing exceptionally in this recession despite external pressures on their position: supplier prices have increased; rival firms are vying for Costco’s market share; buyer demands are at an all time low. To compensate for these external changes, Costco has employed even more rigorous and innovative cost cutting techniques – i.e. round peanut jars were repackaged into cubic containers to reduce transportation, storage, and shelving expenses. By focusing on its operating efficiency, Costco has managed to maintain its retail value proposition.

While other retailers (Wal-Mart, Hudson Bay) are succumbing to the pressure of altering their core retail strategies to adapt to the new environment, Costco is stern on maintaining its tested retail formula. Can Costco continue to employ this same strategy and survive? The warehouse giant’s current value proposition clearly appeals to a sustainable market segment in a way none of Costco’s competitors can. With demand shrunk, large retailers like Costco are now defending their consumer base from competition. This creates a situation where Costco may have to continuously reinvent or improve itself to remain in the number one position of warehouse sales. Will Costco have to change its core strategy to survive?

I personally believe that with cost savings so fully integrated into Costco’s value chain, it would have been very risky for Costco to initiate changes in its value proposition. Neither consumers nor managers may react well to a sudden change in this fundamental component of Costco’s business plan. Furthermore, the changes within the external environment continue to align with Costco’s retail strategy and managerial preferences. While a price driven value proposition is not the only option to survive this recession, it is the strategy that best-aligns with Costco’s resources and capabilities. Strategic change should be anticipatory rather than responsive, but it should never compromise the alignment between a retailer’s value proposition and its internal capabilities. For now, as long as Costco maintains its discipline towards maximizing their retail value proposition, they will be successful.

· (Put Costco on Your “To-Buy” List, Kiplinger.com, 2008 ) http://www.lexisnexis.com/us/lnacademic/results/docview/docview.do?docLinkInd=true&risb=21_T5763071634&format=GNBFI&sort=RELEVANCE&startDocNo=1&resultsUrlKey=29_T5763071641&cisb=22_T5763071640&treeMax=true&treeWidth=0&csi=146142&docNo=1
· (Costco’s Artful Discounts, Business Week, 2008)
· (Managing Costco in a Tough Economy – Business Week, 2008) http://feedroom.businessweek.com/?fr_story=5d7681157aafa9ed796cb26519a17eaa07311398
· (How Costco Became the Anti-Wal-Mart – New York Times, 2005) http://www.nytimes.com/2005/07/17/business/yourmoney/17costco.html?pagewanted=all
· (The Perfect Storm, Super Market News, 2009) http://www.lexisnexis.com/us/lnacademic/results/docview/docview.do?docLinkInd=true&risb=21_T5751433499&format=GNBFI&sort=BOOLEAN&startDocNo=1&resultsUrlKey=29_T5751320980&cisb=22_T5751320979&treeMax=true&treeWidth=0&csi=257989&docNo=5
· (A Satisfied Customer isn’t Enough – Harvard Business School Press, 2006) http://www.bain.com/bainweb/publications/publications_detail.asp?id=24313&menu_url=publications_results.asp

What's Your RVP?

Evaluating Why Retailers Sometimes Turn Away Business

http://www.youtube.com/watch?v=g_rlhF8NmKE - skip straight to 8:40/10:49.

When I first saw this scene in Pretty Woman, I remember thinking “Why would they do that to her?” She literally told them that she had money to spend, and they would not let her. From a business perspective, it made no sense to me. Then again, I was 11.

Fast-forward 10 years. The other day in class, a peer of mine asked whether online dating could be considered “mass customization”. At first, we all laughed at the notion of one person being “customizable” to the masses. But his question got me thinking: if certain companies have “experience” as their RVP and treat people as their inventory… Can the customers begin to define the product?

Take a restaurant, for example. If the people they serve play a strong role in create an atmosphere that promotes their RVP, the restaurant that focuses on experience inevitably relies on their customers – not just in terms of word-of-mouth, but also in terms of complete ambiance – to deliver their product. This is exactly why some fancy restaurants refuse business from people wearing jeans. Why else would they say, “We won’t take your money”? Certainly not because they enjoy throwing away revenues. It’s because if they didn’t turn down that business now, they would risk losing future business by bringing those people in and disturbing the environment. By doing that, they are prioritizing the company’s long-term cash flows. This actually demonstrates that their priorities as retailers are intact!

So it all makes sense now; the saleswomen on Rodeo Drive didn’t want to drive out other customers or deter potential customers by waiting on the outlier. To them, it was obvious by the way Vivian dressed that she had much less expensive taste. Their average customers probably enjoy achieving a sense of “upper-classiness” when shopping in that store, and Vivian’s presence would steal from their experience.

The conclusion drawn that some people can contribute to a certain RVP, while others cannot begs the question: do we all have our own separate RVPs? I would argue… Yes! And I’m not just talking about our separate personality traits or what makes us unique.

What benefits do you think your friends get by hanging out with you? How often do you hear them say, “Wow, I can’t believe we got that great deal!” or “Oh, you’re not at home? Alright, I guess I’ll see you later.”? Do you think they call you up with something in mind and invite you out because they know you’d be down for anything, or are they bored out of their minds and just want do something – anything – as long as they don’t have to leave the building?

I know most people would say, “it depends” or “we all have a little bit of each RVP component”. But let’s face it: nothing is ever black or white, so the mere fact that we are more of one thing than another is something that companies can study and capitalize on.

And we’re seeing exactly that happen! Retail companies are beginning to target specific customer segments so nice and so heavily that corporate marketing strategies use customer relationship management techniques to literally drive certain people (perhaps the less loyal customers, or the ones who contribute the least profit dollars) out of their stores. It now seems evident to me that as marketing becomes more aggressive, our individual personality traits play a greater role in determining exactly which stores we are attracted to.

Here are some examples:

Price (Ivey accounting professor Chris Sturby – notoriously “frugal”. You will save money just by being around him.)

Convenience (The “hanging-out-in-residence” scene.)

Selection (Lovers of variety, as well as those with frequent and extreme mood swings.)

Experience (People who love to push the envelope.)

Some might argue “But we all bring out different things in each other; the RVP we bring to the table in relationships varies with the people who we are around.” This is true - and that’s exactly why some retailers get it wrong the first time. We don’t always portray our dominant traits right from the get-go. This is why retailers need to take the time to study and understand their customers prior to making predictions about whether or not they will yield significant cash flows in the long term.


Rationalizing Inventory Can Improve Your RVP

By: Laura Smith

It’s no longer a surprise to hear about the drastic reductions in consumer spending and changes in retail buying behaviour over the past year. People are buying less, less often and retail stores are grappling with the decision of what strategy to pursue in a time of economic recession. A recent article by McKinsey & Company recommends retailers, especially those with weaker financial health and/or high growth potential, to focus on reducing costs; specifically by improving their inventory management. Rationalizing SKUs can free up working capital and increase shop-floor efficiency.

However, given our discussions regarding retailers’ RVPs, some might argue that reducing the amount of inventory on hand reduces the store’s selection – which could be its major point of differentiation – and therefore creates a tradeoff between cost savings and lost sales. In my opinion however, retailers can successfully rationalize inventory, as long as they find a way to compensate through other aspects of their RVP. Take the women’s shoe store, FeetFirst, for example. In an effort to reduce inventory costs (holding, handling, obsolesce, etc.), FeetFirst now holds far less shoes in each store, but has introduced ordering and delivery right to the customers’ doorstep, absolutely free. This policy is consistent for every product within the store, even sale items. Therefore customers looking for bargain prices no longer have to settle for the remaining sparse inventory left in the store.

Even though FeetFirst has reduced the selection of shoes immediately available, they have essentially increased selection for customers who are willing to wait a few extra days. For many, this greatly improves their overall experience and perhaps even the convenience factor of FeetFirst’s RVP, given the shoes are delivered directly to their home. Also improving the experience is the increase in staff’s willingness to help, because that they now have the resources available to meet customer needs. Further, reducing inventory shortens the time staff have to spend on non-customer facing tasks and increases the time they have available to help customers. (Even when it comes to cutting costs in general, retailers are correct to focus on retrieving more from their existing sales resources, as opposed to just cutting labour hours).

The best aspect of FeetFirst’s new strategy is that it treats sale-shoppers as equally valued customers. As more consumers begin to count their pennies, retail stores need to greatly improve their ability to treat these customers with the same attention, and even respect, as other shoppers. Soon, most consumers will be appreciating the price aspect of the RVP above all others, and retailers need to adapt their store strategies to meet the large majority.

Given the proper strategy, retailers can improve their RVP and likely increase sales, while still reducing costs by rationalizing inventory. My guess is that if executed well, retailers should see a positive connection between inventory metrics (such as sell-through per period) and consumer retention and satisfaction levels (perhaps even purchase size and frequency). If customers are treated well, I think retail stores will be pleasantly surprised with their patience in waiting for that perfect pair of high-heel shoes.


The McKinsey Quarterly, Strategy. “How retailers can make the best of the slowdown.” Kotecha, A., Leibowitz, J. & I. MacKenzie, September 2008.

FeetFirst: Personal Experience

The Recession: A Chance to Catch Up with the Competition?

Kelly Hayles

While the recession has retailers consistently crying themselves to sleep due to poor sales performances as of late, perhaps they should take a more optimistic approach. Many retailers’ competitors are falling like flies, and if you can brave the storm, sunny skies may lie ahead with a clearer competitive landscape. This is the perfect time for retailers to step back, do their research, regroup, and come back with a winning strategy.

Let me put this into terms that most Ivey students can relate to as of now. You prepare yourself for an interview for what you think is THE perfect job to launch your career out of school. You waltz in, ace the interview and leave feeling confident and proud of your accomplishment. The next day, you receive the standard “I’m sorry but the competition this year was the toughest yet....we can’t afford to hire as many talented individuals such as yourself because of the recession...” email, and feel completely defeated. This is exactly how retailers feel when they get it wrong. They wonder where they went wrong, what they could have done to prepare themselves for the consumer. But what they don’t realize is that every mistake they’ve made leads them to learn a bit more about their consumer, just as the interviewee learns from their mistakes in an interview.

What can retailers do? Take the time to figure out what they’ve done wrong and push a strategy that focuses on combating their weaknesses.

In the article “Stealing the Spotlight”, several key observations about retail consumers and their needs are put forward. It’s time for retailers to focus in on what they’re doing and prepare themselves for the future; not just fight the demons of reluctant spending and consumer frugality of today. Consumers may be less likely to purchase certain items during this recession, but there’s always a way to get them to part with their hard earned cash; it’s just a matter of making sure you know what will make them do that.

The retail experience can be tantamount to driving retail sales. For example, it stated that approximately 69% of people said that a product demonstration influenced their purchase decision, and a majority of people said that conversing casually with sales people who were helpful and polite made them more likely to purchase. It may seem like an obvious suggestion to spend the time and money training your staff to make the retail experience pleasant, but it’s astounding how many companies neglect this key detail.
In short, companies should look to what their consumers want, what the competition is missing in meeting these desires, and decide how to focus strategically on meeting these needs. I think you’ll be astonished at how far a little bit of foresight can go, and begin to realize that the recession just might be a blessing in disguise for some clever retailers.


Stealing the Spotlight From Your Competitors, Jeff O’Heir
Dealerscope; Dec 2008; 50, 13; ABI/INFORM Global, pg. 54

Online Retailers are Holding Their Breath, Heather Cobun

Biological Product and Esselunga, an italian retailer

Woody Allen in on of his film to make on of his character very different from the normal people gave him the job of selling biological food. Nowadays in Italy biological food is everywhere: advertising on the street, advertising on TV that suggest people to hand to biological food, also a soccer team of the first division have tried a biological diet for one season.
In the end biological product became, during the 90's,very popular also in the supermarket.
Biological food are much more expensive, but they have a more natural taste, they are good for the health, and who produce them guarantee to have care about the natural environment and animals.
Italy is the European leader (and ranked 4Th in the world) in producing biological.
The Italian retail chain store Esselunga introduced the BIO culture in the Italian grocery store's market.
Esselunga is a very innovative company in Italy. It was the first grocery retail store chain in the country (an idea taken from the North America), the first to introduce online shopping and self-produced biological product (Esselunga BIO. Instead of Lob law's President Choice, Esselunga own brand are all made to have a cheaper price, many times the cheapest of the category, but as Esselunga BIO the quality is very high).
Nowadays 7 on 10 Italian people buy at least one biological product each time that they go to the grocery store (Italian people go to the there more often than Canadian one, at least 3 times a week).
The selling of biological food is incredible increasing (some product as a growth of 40% or 20% a year).
Esselunga with his own biological product is the leader in Italian grocery store.
Even if the brand is located just in some part of the north of Italy it has a turnover of 4,9 billion euros and controls the 9% of the Italian grocery distribution market. Its the 23rd largest Italian company, 4Th in the European retail sector.
Despite his dimension its still owned by the family and is not on the stock market (even if some indiscretion says that Tesco or Wal-Mart are going to buy it).
Altought its good food quality, Esselunga's power point is to have low price. The management say to be the cheapest grocery store in Italy and a lot of research confirm it. The most of its advertising campaign are focused on prices and on high-fidelity program that can make the costumer saving more money.
An interesting matter is that in the cities where both Esselunga and Coop (its first competitor) has stores prices are from 8% to 20% less than the national average.
In an Esselunga store for each type of product there is a sign on to advise the cheaper one (in Italy is not a common use), usually prices are very less that the one suggested by the producer (that normally is the lowest price that you can find).
So great quality and best prices, but not just that!
The location are very comfortable. The store are divided in "Sottocasa" and "Superstore". Sottocasa means close to your house. They are smaller than the superstore and are built in the city center and most populated area. They usually have a private parking,also if maybe not big enough for all the costumer, but in Italy the most of his competitor hasn't got it or if they do sometimes they apply a premium price on their business because they focus on the customer comfort.
The Superstore are very big location that sell grocery for about 90% of their business and then sell also other kind of product like electronics, book, newspapers and magazines, small household appliance, household goods). The choices of food in this places is huge so that you can find the same type of product in a lot of different prices and quality standard.
In the end I can say that each Italian city should have an Esselunga's store, unlucky who hasn't got it yet (like my home city!).

Wednesday, February 11, 2009

Getting the Most Out of Every Shopper

Based on what we recently discussed in class regarding the science of shopping this article gives some concrete examples of how the right in-store displays can persuade to buy and stresses the importance of marketing in the retail business.

Paco Underhill:

Is one of the first to study how people shop, has been running his own consulting firm, Envirosell, for over20 years. Considered as a retail marketing guru he gathers information for clients by videotaping and tracking shoppers in store over several weeks in time. His clientele already includes big names as Wal-Mart, Best-Buy or Gap and his recent findings are the following:

The newly frugal American:

American shoppers are generally complex, i.e. they are excitable but often creatures of habit, sensitive to influence but harder to manipulate and now they tend to consume more sparingly.

Furthermore he also noticed that people more often make decisions about what to buy when they are out shopping, not before.

Also in better times, when people selected items from the shelf, they usually purchased. Today the average amount of time shoppers spend in the aisles is increasing, by around 20% which can be explained by more careful reading of labels. Generally this might be a positive sign for retailers but at the same time customers tend to more frequently discard items in other parts of the store, particularly near the cash register.

Another interesting aspect is that stores also must get better in persuading existing customers to purchase more.


With all this in mind he gives some concrete examples how stores can do a better job through the right in-store displays based on recent observations in Manhattan’s Time Warner Center:

· Organic Food: Explanation is necessary, shouldn’t be too long but at the same time has to transmit that shoppers are buying something valuable. As these products are often more expensive it can also be tried to find creative ways of getting a customer to trade up. Example: “How cute are these”-sign for special potatoes.

· “Woman by the meat counter”: about 60 % of the time she spent there is after giving order. While she is waiting they can give her a lesson on what she could spend her money on next time. When something is written on a blackboard though it doesn’t have the same impact as on a display case glass. Why? Because writing on the glass suggests it’s new! It might be there 24/7 but it looks like someone might have written it 10 minutes ago.

· Pepper mills + sign about grinding fresh paper: Signs are important as the educate the shopper and often justify the price but generally the shouldn’t be longer than a 15 seconds read, which means about 30 words. In this particular case this one had 100 words and they could have than better again.

Basic Guidelines:

There are also some useful “Paco Underhill’s Retail Guidelines mentioned:

1. Shoppers use the area just inside a store’s entrance as a decompression zone. They won’t notice signs put there.

2. Americans naturally turn right as they walk further into a store.

3. Customers respond best when employees great them about a minute after they enter.

Conclusion + Thoughts:

This article may only present some primitive examples of what stores could improve through a minimum of changes and by minor effort. Still it shows once again that many retailers perform pretty much under their potential as they don’t take into account or simply don’t possess the knowledge how negative the impact as a whole can be. Marketing in retailing is often neglected and instead financial metrics seem to be the highest priority. But in order to be successful it is necessary to really understand your customer and investing time and money in professional market research and hiring marketing experts in general should not come to short therefore.

I think we leave in a society which is pretty easy to influence anyway and by knowing certain tools and applying them correctly retailers can certainly lift their performance.


· Business Week, February 9th , 2009 ; p. 45/46

· www.businessweek.com/go/09/shop → Report about Underhill’s videotape analysis