Price Discrimination and Loyalty Programs – A Deadly Combo

by Laura Smith

Interestingly enough, consumers often view loyalty programs very favourably – they love saving up their Optimum points for that big trip to Shoppers, or cashing in their Air Miles for a wonderful vacation. Yet, the concept of price discrimination frustrates many people - the thought of Coke being able to “take advantage of me” by charging more, just because it’s hot outside, is outrageous.

What may surprise many consumers is that these two strategies often work hand-in-hand and actually feed off of each other in order to maximize a company’s profits.

Price discrimination is based on the concept that consumers differ in their demands for a given good or service, and therefore can be charged different prices based on their willingness to pay. In order to segment consumer demand, companies often use characteristics such as geography, nationality, age, gender and purchasing history. Conveniently, loyalty programs are designed to capture this information exactly. Companies can analyze what products you buy, whether you pay full price or wait for them to come on sale, and how often you use discount cards or coupons to limit your spending. These criteria, as well as countless others, all add up to your willingness to pay, also know as your price elasticity. Once a retailer is able to track this metric, they can essentially use price discrimination tactics to capture every last dollar from each of their customers.

Imagine a grocery store in a higher-income area. Customers are monitored on their sensitivity to price increases as well as how well premium and luxury products sell. These customers can be charged significantly higher prices for the exact same products at the exact same grocery chain in another area of town, just because the company is able to exploit their price elasticity. Companies often send millions of different versions of a flyer in the mail, each offering different discounts based on the personal characteristics and buying history of the recipient customer. One tactic often used to get rid of “lead” customers is only offering special discounts to more profitable customers, while low-value customers are charged full price for the exact same item.

While it may not be a huge surprise that loyalty programs help in creating lucrative price discrimination strategies, an interesting insight is that the information available in the underlying distribution of customer demand elasticities is reciprocated in designing highly profitable loyalty programs. Meaning, once a loyalty program is able to produce sufficient information about consumer demand, this same information can be used to adjust the loyalty program to further maximize profitability. For example, the decision whether to have an expiring or renewable based program (duration), which rewards to offer and at what volume (number of reward-earning opportunities), etc. depends on the tradeoff between increased sales and redemption losses between higher and lower spending customers. These tradeoffs can be interpolated from demand data.

Therefore, if customers perceive loyalty programs as a way for a company to “reward” them for their repeat business, they should think again. Not only are loyalty programs designed to increase the company’s profitably, but they also aid in designing price discrimination strategies used to exploit your desire for certain products. This information can then be further used to adjust that beloved loyalty program into another tactic to increase their bottom line.

“Quantity-Based Price Discrimination Using Frequency Reward Programs” by Wesley R. Hartmann and V. Brian Viard, Stanford Graduate School of Business. January 23, 2006

http://www.rotman.utoronto.ca/marketing/Viard%20PRESENTATION%20PAPER%20-%20Quantity-Based%20Price%20Discrimination.pdf

“Price Discrimination”, by R. Preston McAfee, in Issues in Competition Law and Policy 465 (ABA Section of Antitrust Law 2008)

http://www.mcafee.cc/Papers/PDF/ABAPriceDiscrimination.pdf

"Do Supermarkets Price Discriminate?" February 25, 2009

http://www.paylessforfood.com/grocery-store-traps/do-supermarkets-price-discriminate/

Wal-Mart's Worst Nightmare

When I read the headline “Tesco: ‘Wal-Mart’s worst nightmare’” I was immediately skeptical of what was to follow. Was the author really talking about the same Wal-Mart that no retailer has been able to even approach in recent years? The same Wal-Mart that strikes fear into small businesses everywhere? My first thought was that the author must have a love for hyperboles, but after additional research I realized that this seemingly outrageous claim has merit.

Tesco PLC is much more then the online grocery shopping service that we discussed in class. Based out of Britain, Tesco is the number 3 retailer in the world behind only Wal-Mart and French giant Carrefour SA. While Tesco’s online grocery business is important to the success of the business, it is Tesco’s unmatched ability to manage multiple store formats that has been the driver of the company’s success. Tesco currently operates 5 different store formats in 13 countries, with each country presenting a unique challenge. The store formats range in size from convenience stores to hyperstores that sell everything from food to electrical equipment, clothing and house ware. In addition to these 5 formats, Tesco has a strong online presence that goes far beyond the firm’s grocery delivery service. On Tesco’s website you can download music exactly as if you were using iTunes and they have even opened up an online banking service. Now one would usually not associate banking with a massive retailer that made its name selling groceries, but Tesco has been able to take this service, and through proper marketing and management, turn it into a customer and profit-generating venture that currently none of its competitors can match.

So how does Tesco manage such a wide range of formats? The first step that Tesco takes when entering a new market is determining which format would be best suited to the market. One needs to look no further then Tesco’s entrance into the Japanese market to see the importance of carefully examining a market to determine the best-suited format. Before Tesco entered the Japanese market both Wal-Mart and Carrefour had already made unsuccessful attempts to penetrate the market through their traditional big-box format. In contrast to this strategy, and after a significant amount of research, Tesco determined that small, corner shops would be much more successful. Today, Tesco remains the only one of the three retailers to find success in Japan.

However, Tesco’s success is due to much more then just strong market research. The firm also has an extremely strong data management system. This system has similar benefits to Wal-Mart’s famed system in terms of inventory management and tracking, but the firm also uses the data for targeting promotions and tracking the effectiveness of their marketing efforts, arranging store layouts, and developing private label products. The ability to apply this data, collected by the Tesco-owned data-mining firm Dunnhumby, across all its store formats gives Tesco a competitive advantage over both its smaller and larger competitors. Large retailers such as Home Depot in the United States are only beginning to use this technology. Tesco’s previously mentioned private label is another advantage that it enjoys over Wal-Mart. While Wal-Mart stores are only able to generate up to 35% of sales from Wal-Mart’s private label, Tesco stores can generate up to 70% from their own private label. This is partially due to Tesco’s data management advantage as Tesco’s data analysis has allowed the firm to determine the specific price points that its consumers are willing to buy at. Tesco has taken this data and created successful products at every price point, ranging from discount-priced products to products that are priced at a premium to even the highest quality brands.

Tesco’s focus on the customer is also essential to the success of the company. Building loyalty and strong relationships with customers can be difficult for a firm of Tesco’s size but that has not stopped Tesco from making a strong push to build that loyalty. Tesco, like many other retailers, has a rewards card that customers can earn points by using. From the moment a Tesco employee is hired the importance of convincing the customer to use the “Clubcard” is stressed. This card is of such importance to Tesco not only because of the customer service benefits, but because it is so important in the collection of its consumer data and maintaining the firm’s competitive advantage. To further enhance the convenience (along with selection the RVP of Tesco) of shopping at Tesco, the firm has made the Clubcard usable for online purchases. In addition to this, Tesco has worked tirelessly to cut down on the time it takes to shop online. Since introducing its online services, Tesco has cut the average time spent placing an order in half. This has made online shopping more convenient and has made for an overall, better customer experience.

Tesco has recently begun its expansion into the United States through its convenience store format, a move that has certainly got the attention of Wal-Mart. To retaliate, Wal-Mart has opened up its own chain of smaller stores. While competing directly with Wal-Mart may be seen as business suicide by many firms, Tesco has the advantage of fighting Wal-Mart on Tesco’s own turf. It would have been much more difficult to penetrate the American market through the “Superstore” format, a format that Wal-Mart has mastered. By forcing Wal-Mart to open up stores using a format they have no experience managing, Tesco has put Wal-Mart in a position they have rarely, if ever been in; on the defensive. “Wal-Mart’s worst nightmare” doesn’t seem like such a stretch anymore.

References:
http://www.crm-daily.com/story.xhtml?story_id=63779&page=1
http://www.fairinvestment.co.uk/tesco_banking.aspx
http://books.google.ca/books?id=k48ADCLRtB8C&dq=scoring+points+how+Tesco+is+winning+customer+loyalty&printsec=frontcover&source=bl&ots=A2_YDj5XoZ&sig=3cmwr9jE-fQINdxkA6sX468aXYw&hl=en&ei=UVzOSZiaDpr4MIOX-Es&sa=X&oi=book_result&resnum=1&ct=result#PPA3,M1
http://www.retailwire.com/Discussions/Sngl_Discussion.cfm/12683

The Grocery Store Experiement: How to Please Your Customers

Discovering the variables that affect consumer decision making represents the holy grail of retailing in today’s world. In the article “How does Assortment Affect Grocery Store Choice?”, the authors purport to have done just that when it comes to discovering what consumers are looking for in grocery stores.

In a recent experiment, the authors tested several variables in what may affect consumer choices, such as store location, whether or not featuring advertising drove sales, and how assortment could affect purchasing decisions.

It became apparent that most important of these factors was store location, meaning that people are willing to spend more per item if the grocery store was located in close proximity to their home. Feature advertising was popular in affecting purchasing decisions on the part of loyal customers to the grocery store, but was not particularly effective in driving sales away from competitors. Also, assortment was important, but perhaps not in the way you’d assume; more SKUs actually confused consumers, and they’d prefer to have less SKUs in favor of a smaller assortment of products that add value to their purchasing decisions.

So what do these findings really mean for the retail industry? Retailers can carefully tailor their stores to consumers based on the desirability of the location in which they operate, the advertisements that they use to draw customers to particular products, and the products that they offer to make the customer’s shopping experience a pleasant and convenient one. After all, isn’t it the job of the retailer to customize it’s product offerings to the consumer?

It seems that lately, retailers have been focusing on what the competition is doing, rather than focusing on their internal strengths and weaknesses. In doing so, they manage to neglect the fact that they may be repeating the same fatal mistakes that the competition is making, and further frustrating the customer. It is important for retailers to listen to the consumer, make the appropriate changes to satisfy their needs and desires, and watch the money roll in the doors as they improve their operations.

Effects of a salmonella crisis on small retailers' customer relationships

In February 2009 layer chickens on three egg-producing farms in Western Finland were discovered to be carrying salmonella for the first time in almost 10 years. This incident launched both an extensive investigation into the reasons behind the discovery and huge media attention. If salmonella is found from any of the farms, their chicken will be disposed of and the eggs will be prevented from entering the market. This may cause problems to the smaller retailers as their only egg producer can’t deliver eggs for a while. Larger retailers are less affected as they have several producers. In this particular case the eggs never actually came to retailers and consumers, but let’s assume for a while that they did and consumers were exposed to real salmonella threat. Consumers would also be unable to buy eggs from smaller grocery stores because of lack of deliveries.

How are the small retailers and final consumers affected by this crisis? Do smaller retailers suffer more than large ones? Would consumers change a retailer because of such incident?

Smaller retailers’ RVP is often based on at least higher customer experience and price than the bigger retailers’. Even though the smaller retailers are the ones who are the first ones to be affected by the delivery issues and stock out of eggs due to the salmonella crisis, their customers might also be the ones with the highest loyalty to the store. Having the personal relationships with the small customers the retailers are more capable to explain the customers where the problems originate from and how they are being dealt with. The retailer could show his/her commitment to the business and customers by providing lacking products, in this case the eggs, from other stores or recommending other places to buy similar products. The loyalty of the customer doesn’t necessarily have to suffer, if the salmonella crisis is dealt with accordingly using the close relationship with the customer as an advantage.

On the other hand, customer trust is the basis of the small retailers’ customer relationship— customers often trust the products to be fresher, safer or even more luxury. In this sense, as expectations are high, a salmonella crisis could badly harm the image of the small retailer and the trust of a customer. For example word of mouth advertising that the small retailers depend on could be negatively affected by such crisis. However, I personally tend to believe that customers feel safer with a store that has a human face (small retailer) than a big box retailer. The small retailer’s ability to give a personal explanation and even an apology could build my relationship stronger with a small retailer. Whereas a big box store may have several brands and large variety in store, they cannot provide the consumer with the same kind of personal customer experience and level of trust as a smaller retailer can.

http://www.helsinkitimes.fi/htimes/index.php/domestic-news/general/5514-investigation-of-egg-farm-salmonella-incident-could-take-weeks

http://www.hs.fi/kotimaa/artikkeli/Salmonellaa+l%C3%B6ydetty+ainakin+yhdeks%C3%A4lt%C3%A4+kanatilalta/1135244346760

Ralph Lauren takes window shopping to a new level

Since sitting through my Advertising & Promotions class yesterday, with a guest speaker discussing interactive advertising, the changing role of the consumer in marketing has been on my mind. I started to think about how this applied to retailing, and instantly could recall many examples. The consumer is now an integral part of the retailing strategy of stores like Apple and Starbucks where the interaction with the consumer is critical. In fact, any store that incorporates experience into their RVP, is essentially integrating their consumer into their sales strategy. I decided to make this the topic of my blog, and started to search for stories to back me up, when I stumbled upon this gem about Ralph Lauren.

In the summer of 2006, Ralph Lauren brought a whole new meaning to the term ‘window shopping’, by installing touch-sensitive technology into their New York flagship store windows, allowing interactive window shopping 24/7. Consumers who tapped on the window pane at an item that they liked, would soon see the Polo.com website projected onto the window, featuring that item. They could then actually purchase the item right there and then, or opt to have their selection emailed to them for purchase at home later on.

The company introduced this strategy to coincide with the debut of their Wimbledon Tennis line. Since, they’ve used it with other line introductions like their Ski Gear line the following winter in Chicago, and the following summer in London, again paired with the Wimbledon tournament. Whenever this futuristic window is introduced, it comes in short spurts, likely to build hype around the store. It also comes in with additional sales channels, like kiosks at Wimbledon tournaments in addition to their store and online purchase points.

While this strategy seemed a little useless to me at first (why would someone purchase from a window online when they’re already at the store?) I realized that this is multi-channel retailing at its best! The company is integrating their different sales channels together, and at the same time integrating the consumer into the store experience. The windows are a call to the website and have the potential to drive sales there. The windows are also a more aggressive call for the consumer to come into the store, and make their purchase there. In addition, by creating an interactive window-shopping experience, the consumer becomes more engaged, and Ralph Lauren adds another element to their RVP with the experience component strengthened.

Results for this program have never been released, but the fact that it was recreated twice after its induction leads me to believe that it’s done okay. And even if it isn’t driving sales like crazy, it’s certainly not hurting them. It’s introducing yet another way to buy, making the shopper’s experience a memorable one, and at the very least it’s creating a lot of buzz and media airtime.

Works Consulted:
http://www.internetretailer.com/internet/marketing-conference/95883-at-ralph-lauren-window-shopping-hands-on.html
http://www.usatoday.com/tech/news/techinnovations/2007-06-20-ralph-lauren-window-shopping_N.htm

Lipstick sales rise when economies sink

February 10, 2009, Edmonton Journal
Author: Jennifer Fong
Blog Post: Courtney Hanmer

Similar to the economic situation today, the depression marked a period of severe financial stress and consumer spending cutbacks. However, one area that didn’t see purchase decreases but rather increases in consumer spending was lipstick sales. According the Nancy Upton, a marketing professor at Northeastern University, many people believe that this correlation reflects consumers “trying to make themselves feel better through small, indulgent, hedonic consumption.”[i]

Interestingly, this wasn’t a onetime effect either. In fact, after the tragic events of September 11th, Leonard Lauder, Estee Lauder chairman, recognized that the company’s lipstick sales were in fact skyrocketing. According to the New York Times it was then that Lauder began discussing the “Leading Lipstick Indicator” with the public.[ii] According to Nancy Koehn of Harvard Business School the overall, cosmetic sales increased by 25% during the decade of the Great Depression and doubled during the economic downturn that followed September 11th.[iii]

Even investopedia.com is recognizing this widespread term and has defined the lipstick effect as “an indicator based on the theory that a consumer turns to less expensive indulgences, such as lipstick, when she (or he) feels less than confident about the future. Therefore, lipstick sales tend to increase during times of economic uncertainty or a recession.”[iv]

I know you are probably thinking that this seems extreme and can’t possibly be accurate. I was of that opinion too, until I realized that my recent purchase of over $200 in make-up from Sephora may actually help support the leading lipstick theory. Frustrated that I didn’t have the spending money to plan an elaborate trip to Europe like many of my friends, I found myself wanting to splurge on something. The answer was clear - why not spend those precious dollars left at the end of the school year on cosmetics that will at least let me fake to the outside world that I’m still holding up.

Apparently this concept can be expanded to beyond lipstick and I don’t mean that other cosmetics are leading indicators as well. Changing spending habits is difficult but necessary in recessions. Kyle Murray, director of the University of Alberta's School of Retailing says that "an easy way to spend less but not stop buying is to buy smaller items, less expensive items, smaller indulgences--so buying a latte at Starbucks or new lipstick, rather than spending money on a new watch."[v]

The implication of the leading lipstick indicator is clear for retailers of a great variety. Strong retailers will highlight their retail value proposition by offering a wide selection of goods. Retailers that sell goods that can be priced at a premium but that don’t break people’s wallets will rise above during days of economic strain. These retailers will have recognized that the experience of shopping for self-indulgences is what draws people into their stores. On the opposition, the retailers that were once first-class but have now adjusted their RVP using price reductions will soon realize that they have also reduced their premium image, thus damaging their experiential offering.

In the end, I think we all look for those little luxuries that we indulge ourselves with, especially in times of economic turmoil. Whether your vice is cosmetics or another moderately lavish item, investing in these goodies will often leave you feeling like you’re still doing something special for yourself - even if that treat can’t be as magnificent as pre-recession purchases.

Sources:
[i] http://www.physorg.com/news152385593.html
[ii] http://www2.canada.com/calgaryherald/news/reallife/story.html?id=f34cbea7-dfca-40d9-bd01-a05254270c79
[iii] http://www.merchantcircle.com/blogs/Avon.Representative.203-506-4348/2008/12/Lipstick-Sales-Rise-During-Tough-Economic-Times/156381
[iv] http://www.investopedia.com/terms/l/lipstickindicator.asp
[v] http://www2.canada.com/calgaryherald/news/reallife/story.html?id=f34cbea7-dfca-40d9-bd01-a05254270c79

The death of the shopping mall as we know it....

At the risk of preaching to the choir, The Retail Marketing Management course has really struck a chord with me, if only for its distant ties to psychology (a hobby of mine) and its promotion of shoplifting (sort of kidding). Class time has been spent examining the psyche of various consumers and their shopping experiences. One thing we have not touched on however, is what happens when these singular experiences come together to form one larger customer shopping experience. What I am talking about—this larger experience-- is the traditional shopping mall, and what we are witnessing right now are the first steps towards its eventual demise.

The concept of a shopping mall is a tried and tested formula. Similar to a large retail store, the principal idea is to get the customers in for something specific, and through different practices, create impulse buys. Like a store features aisles, a mall features high and slim halls, designed to increase browsing and decrease exits. Often times I have found myself lost in a mall that I have even been to before, a product of a purposefully convoluted design. The result is usually a visit to many stores I had no interest in visiting in the first place, and unfortunately more often than not, a purchase of something completely useless. This is the retail value proposition of a mall to its stores. Unlike a mall would have you believe however, it has very little control over the quantity or quality of its customers. And therein lays the problem that shopping malls are currently facing.

The demise of the shopping mall has been a steady one for some time. Its very retail value proposition keeps people in the mall for too long during peak times, turning would be customers off from the overcrowding. The rise of online shopping has given those shoppers the option to shop in solitude from their own home. The recent economic recession has not helped matters, dramatically hastening the traditional shopping malls fall from grace. Historically, it has been the large retail and department stores which have served as “anchors”, drawing people to the mall. Many of these long time anchors are going bankrupt or closing locations.

A recent Boston Globe article pointed to The Independence mall, which is in financial trouble as a victim of the bankruptcies of Steve & Barry’s and Linens N’ Things. For smaller retailers in malls like that, the loss of those spill-over customers, as well as the effects of the recession on their own business, has lead to their closure as well. What is even more alarming is the fact that no new shopping malls have been built in the United States since 2006.

These days, it is not uncommon to see numerous empty storefronts at shopping malls across North America. I saw four of them myself in a brief visit to Masonville mall recently. A further issue is that retailers during recessions are at risk of being marginalized by the migration of many customers to either premium products or cost efficient ones. Traditional Shopping malls are facing the same sort of issues, and same risks of possible bankruptcy. As such, I think that outlet malls and high end, designer-brand-laden, smaller shopping centers are the future of malls, given their placement on opposite ends of the retail value chain. The eventual elimination of some of the traditional shopping malls is devastating for high-schoolers cutting class, but is inevitable given the economic and retail climate that exists today.

Jesse Silvertown

SOURCE: http://www.boston.com/yourtown/newton/articles/2009/03/22/ailing_malls_shopping_for_a_new_identity/?p1=Well_MostPop_Emailed5

Adidas redefines itself

Is the sports apparel manufacturer on a way to become a professional retailer?

“Adidas will no longer be only the sports apparel manufacturer you already know. With an aggressive expansion into retail we will come out as one of the leading fashion and sports retailers in the world.”

This significant change of mind was announced by Glenn Bennett, executive board member of the adidas Group, two weeks ago in Germany.

But, where is Adidas really heading for? Flagship stores, as we have seen them in the “mi adidas” case, are already in existence? So, what are the reasons for pushing into retailing that hard?

22, Avenue de Champs- Elysées, Paris, France- this is the euphonious address of the Adidas performance store in the French capital. Opened in October 2006, the 18,800 square foot location at Europe’s most expensive shopping boulevard represents Adidas new way of thinking[1]: On two floors, the whole brand does not only represent itself and create an even better brand image and recognition. Making it the most profitable of all Adidas stores in the world, this location really sells Adidas products. From customized high-end sport shoes to standard soccer jerseys of Beckham, Ballack & Co. The store reflects Adidas' full retailing capability.

But… that’s not all. Different to other brands, Adidas makes money in Paris. A lot of money. It is their most profitable store in the world!

Adidas seems to fear to leave money on the table if they do not enter the retailing sector. By defining itself more and more as a premium sports brand, margins increase consecutively. And if margins increase, nobody is willing to leave them to the WalMarts and Sportcheks.

Additionally, in a wholesale retail store environment Adidas would never manage to focus on their products. Limited space available and a presentation besides Nike, Puma and other brands is not any more what Adidas wants to be faced with. A presentation which carries the image, brand values and especially emotions is a “must have” under the new strategy.

Another reason for the interest in retailing is given by the emerging use of technology in their products, for example jogging shoes[2]. Those require increasingly knowledge in the selling process which might (only) be provided by their own sales representatives.

If we then add the firm’s perfect branding in Asia to the discussion, it is easy to see a strategy behind it: The company sets up a worldwide distribution and supply chain in order to sell the products they have manufactured. Fashion stores in Paris, megastores in Hong Kong and Shanghai. In 2008, adidas India opened 160 all-new retail stores[3]. That’s an average of one new store almost every second day. Get that!

Not yet convinced? Well, take another look to India. Nothing but silent, Adidas opened the “adidas Retail University” in order to educate (and recruit) highly-talented retail managers for their global expansion plans[4]. If this is not a serious indicator of a long-lasting approach to retailing, I don’t know whatelse. I just know that not only the ‘four letter sports brand’ (Glenn Bennett) should take it serious...

Sources:
[1] http://hugin.info/136610/R/1083206/188076.pdf
[2] http://www.btexpedite.com/files/2982007152030Adidas_Case_Study.pdf

[3] http://retailnu.wordpress.com/2008/06/09/adidas-on-expansion-spree-to-add-160-new-stores-in-2008/

[4] http://www.indianrealtynews.com/retail-market/adidas-with-its-new-retail-endeavor-in-india.html

Feinkost Käfer: From a single store to Europe's best event caterer

The biggest challenge for small, individual retailers seems to be the expansion into a network of branded stores from just one in the beginning. Having discussed Jill‘s Table and Sunripe Market Place, issues, such as how to duplicate excellent services and knowledge arise along with the question of who takes over the business in the future.
The German family business `Käfer´ is an impressive example of how a small store, selling wine and beer, can grow into one of Europe‘s most reputable event caterers.
Paul and Elsa Käfer opened a small store for wine and beer in 1930 in Munich, changing the assortment quickly into delicatessen and fine foods. Known for the excellent quality and knowledge of their products, Käfer took over the gastronomy of the two most well-known theatres in 1956 and 1963, the National Theatre as well as the Prinzregententheatre.
Paul & Elsa‘s children grew up in the family business and continued the expansion in the 1970‘s through opening the `Käfer-Schänke´ (bavarian, yet high-end restaurant) with a dependency on the Munich Oktoberfest.
Gerd Käfer (third generation) opened the P1 in Munich‘s most famous musuem- a club that is until now, the most famous club in Germany. Along with the publishing of a book about how to organize the most memorable events, such as birthdays, weddings etc. Gerd Käfer built the Käfer brand especially through the event organizing & catering business.
Offices were opened in Düsseldorf, Frankfurt, and Berlin to host events for companies, celebrities and political festivities.
Decisive for the success of every expansion step, was to ensure the quality, associated with the Käfer brand, as well as the close contact to clients through the family that always acted as single owner and management. The Käfer family was/is always directly associated with every business segment: Delicatessen, Event catering and Licensed products.
Michael Käfer (son of Gerd Käfer) is now owner and CEO of the Käfer group that includes 3 delicatessen markets, a license agreement with the Japanese department store Mitsukoshi, several restaurants in museums, operas & theatres, and airports, as well as the German Bundestag.
The main business is, however, the organizing and catering of festivities, such as the Bahrein International Circuit, the FIFA soccer world championship in 2006 and the Bambi award (the German Academy Award).
Since its inception, Käfer is not only known for excellent quality and outstanding service, but more importantly for the family behind it. What started out as Munich‘s most fashionable delicatessen store and caterer is now one of Europe‘s finest, still with a very individual image, party services.

Blackberry App World - A Wise Venture?

In response to the ever-growing popularity of the iPhone and the immense success Apple has had with its applications store it is not surprising that other mobile phone providers are following suit. Research in Motion (RIM) is currently preparing for the launch of Blackberry App World, a convenient location for BlackBerry owners to download applications ranging in price from $0 to $999.99. While a plethora of applications currently exist for BlackBerries, they are scattered around the web and can be difficult to find. Blackberry App World attempts to make this process simpler, while at a profit!

It is clear that RIM’s online store has been designed to compete more directly against Apple’s iPhone and Applications store – enabling RIM to offer similar applications, service, and experiences that current iPhone customers have come to value. This aim is a complete departure from RIMs historical operating strategy and success as RIM is attempting to compete in a new arena of mobile phone application products. RIMs BlackBerry products succeeded due to its RVP of unparalleled product experience that appealed to professionals; now it is trying to replicate the service and application structure of its main competitor to mimic their RVP and enhance the overall BlackBerry product experience. However, one must question whether the implementation of BlackBerry App World is strategically sound and whether RIM should compete against Apple in mobile applications.

On the surface it appears as if iPhone and BlackBerry customers are distinct and belong to different target markets with specific customer needs and wants. The historic stereotype of RIM has been that it is a corporate and professional phone, a device that IT departments of large corporations distribute to its staff due to its superior functionality. As such, typical users are seen as being older and belonging to more professional industries. Conversely, the iPhone is seen as a creative product, designed for younger and ‘hip’ users, and those belonging to more creative industries such as artistic professions. Furthermore, these consumers are technology savvy and intend on using their products in creative ways to maximize technological capabilities and product enjoyment. Consequently, mobile applications are a suitable product for iPhone customers as they are knowledgeable about the technology and benefits of application products, and that applications currently available are predominantly games and entertainment related which are well-suited for their younger and more creative clientele. Considering that the bulk of existing applications are games and novel applications, and considering the existing clientele of RIM, it does not seem likely that the current customer base will value existing application products.

RIM has attempted to attract new customer segments by appealing to their usage needs through the creation of new mobile products. For instance, RIMs relatively new touch screen phone, the BlackBerry Storm, was strategically created to appeal to the same customer segment that Apple’s iPhone targets. In expanding their series of mobile products, RIM has been able to attract new customer segments that definitely value BlackBerry App World. In growing these consumer segments, maybe it is necessary that RIM offer applications in order to entice business. Nevertheless, just as expanding the fleet of BlackBerry phones has made the product more appealing to certain segments, it has also made for substantial technological and functional differences between the different models of phones. As a result, Blackberry App World will only stock software designed for Blackberries with a 4.2 operating system and a trackball, alienating all other customers who may find these same applications appealing. Vendors will face enormous challenges as they develop software that is supported by all devices. This is a relative advantage of Apple as their vendors only need to worry about one operating system and hardware specifications. Beyond internal technological inconsistencies and their subsequent problems is the issue of smart phones graphical user interface (GUI) and the ease of use of software applications. Apple’s iPhone has a superior GUI that enables top-of-line picture quality and software capabilities relative to RIMs BlackBerry products. Will applications appeal to users, as well as vendors, that have inferior picture quality? Have the existing applications being sold faired so favorably due to the iPhone’s advanced operating system?

Another important issue to consider is vendor support. In order for BlackBerry App World to be successful, it needs to be supported by an extensive database of application products and committed vendors. These vendors are strained by the different RIM products that their applications must cater to in order to be operable. There could be further complications whether a vendor who produces applications for Apple could also do the same for RIM, or even if they could use the same application products. Vendor issues must be solved in order for Blackberry App World to be successful.

In my opinion, it will not be an easy transition for RIM in their creation of the Blackberry App World Store; however, although it may not be easy it may be necessary to safeguard RIMs future competitiveness in the mobile application industry. RIM must gain the capabilities in application distribution today so they can incorporate and be well-situated for success in the future. RIM cannot lose the opportunity to be innovative and appeal to creative users as their current competitive advantage with their current customer base, being a highly functional smart phone with QWERTY keyboard, is not sustainable as other phone companies have replicated these qualities. Without doubt there is an inconsistency between existing application products and RIMs current customer base. RIM will continue to benefit as they gain more users who are ‘creative’ and desire games and entertainment applications, but RIM must also secure new professional applications that are practical and can assist in the workplace. In order to do this, RIM must solidify strong relationships with high quality vendors in order to encourage them to develop professional applications. Furthermore, issues regarding compatibility and operating platforms must be solved if the Blackberry App World is to be a true success. This can either be done by making software applications compatible in multiple formats or standardizing hardware and operating systems moving forward.

Articles Consulted
- http://www.thewhig.com/ArticleDisplay.aspx?e=1463323
- http://www.wirelessindustrynews.org/news-mar-2009/1432-030809-win-news.html
- http://news.cnet.com/8301-1035_3-10189110-94.html
- http://apple20.blogs.fortune.cnn.com/2009/03/05/apples-app-store-25000-apps-and-counting/

IS ARCHITECTURE MARKETING?

After having spent three months studying marketing, I ended up thinking that I should look for the definition of marketing. If I understand correctly, marketing aims to maximize the commercialization of a product by adapting the future product to the needs of the market in order to attract potential customers. Neil Borden developed his concept of marketing mix consisting of four main elements: product, price, placement, and promotion. Two of these four components can interact with architecture: placement and promotion. Since the product needs a physical place to be sold, the construction of a building is necessary. Furthermore, this building can be a form of advertising since it displays the brand: its name and its environment. We tend to forget the importance of architecture in retailing, yet it is as crucial as the packaging of the product. In fact, architecture is packaging. Retailers have to overcome what I would call the Masonville syndrome. What does it mean? A simple concept, the Masonville syndrome refers to any ugly and mundane mall. I point out that on the website of Masonville Mall, we cannot find any picture of the exterior aspect of the mall. [i]

Even if we think that marketing is much more integrated by firms today than before, the nineteenth century can give us some lessons in terms of retail architecture. Department stores and shopping centers were often characterized by their beauty, their elegance and their majesty. Europe, and then the USA, became covered with these new cathedrals, such as Les Galeries Lafayettes in Paris, le Passage Pommeray in Nantes (pictured left), Galleria Vittorio Emanuele in Milan or Queen Victoria building in Sydney. Why did the owners of theses shopping centers decide to spend so much money in the building? Because it is profitable.

Commercial architecture is a field of architecture caters especially retailers and it strives to accomplish two goals. The first goal is to attract the consumer in the store and to urge him or her to buy. The second one is to build brand equity for the firm by creating a special environment in the store, because the store is a medium. A few criteria have to be taken into account in the construction of a building: consistent representation of the brand and atmosphere, readable signs, free movement of the people, and similar store design in all locations. The cosmetic firm L’Occitane en Provence with its South of France atmosphere or Hollister with its South of California atmosphere exemplify the issues of commercial architecture.

Focusing on the architecture and the design of a store is not a gimmick; it must be a major aspect of the strategy of a retailer. Some surveys testify the positive return on investment after the renovation of a store. For instance, I found a survey on 113 retailers of every size base in the region of Lyon, France. According to this survey, 99% of the retailers recognized that the renovation was positive or very positive, 80% of them had an increase of their turnovers, 56% recognized that their customers bought in average more, 76% thought that the profile of their customers was younger and more upper-class, and 40% intended to do a new renovation in 5-10 years.[ii] Broadly speaking, the consequences of the renovation were very positive in terms of sales volumes, customer traffic and brand image.

The renovation of the stores can also be undertaken part of a more general change in the marketing strategy of the firm. It’s particularly true for the French leader of men’s apparel, Celio. This retailer has been booming since its creation in 1985 and decided in 2006 to change its visual identity by trying to cater a young and urban market. Celio stressed on “male and strong” colors: red, black, and white. The logo was changed and the stores were transformed, as follows. Up to now, half of the stores have been renovated it has already affected the turnover of the firm, since turnover has increased from €350 million to €450 million between 2005 and 2007[iii].

Old Celio store and New Celio store

Unfortunately, these instances are not always very interesting architecturally speaking. A fine and original architecture can be expansive and is not very paramount for every business. A few sectors can afford such expenditures, like the luxury-sector. That is the reason why some luxury stores are brilliant pieces of architecture. I found, for example, this store with grass walls of a Belgian fashion designer, Ann Demeulemeester, in Seoul (pictured left). We can also think of the Apple store in New-York, which is minimalist and modern masterpiece. Malls should also focus on architecture. Their style can range from the swanky and kitsch of Forum Shops in Las Vegas to the modern Kanyion shopping center in Istanbul, passing by the original green Namba Parks in Osaka, or the Cour Saint Emilion village in Paris. The aim is to give an identity to your mall and to avoid the Masonville syndrome.

So, is architecture marketing? Probably, but actually, I just wanted to talk about architecture.

[i] http://www.masonvilleplace.ca/home/index.ch2
[ii] http://www.lyon-shop-design.com/pdf_reglement/principaux_resultats_enquete.pdf
[iii] http://www.celio.com/#/the-brand (in English)

Where are all the female friendly car dealerships?

As a soon to be recent grad, I am a woman in the market for a car. My requirements for a car mirror most men’s attitudes towards shopping for tableware: I want something that is affordable and comes in a pretty colour. Women are buying 54% of the cars sold in Canada and are a key influence on most car sales. Yet cars are primarily marketed towards men.[1] In light of today’s Acura case, I have proposed a few suggestions for car dealerships to make the experience aspect of their RVP one that is more female friendly:

1. Hire more female salespeople.

Women understand women. During a recent visit to a Honda dealership with my father, I noticed there were no female salespeople. That’s because women make up only 7 per cent of dealership workforce.[2] This is a huge disadvantage to dealers since 39% of women would rather deal with women in the car showroom. [3]Naturally, women understand what women are concerned about and are more attuned to female needs. For example, I am less concerned with horsepower but more concerned with good visibility, plenty of storage space and low operational costs. Female salespeople could highlight features and functionality that I care about. Further, women in general are more patient with customers. I’m about to make a big purchase I don’t want to be herded through the showroom like low-grade cattle. I want to be nurtured like Kobe beef, massaged into a purchase that I will feel very comfortable with.

2. Loosen up on the hard sell tactics.

We all know the stereotypical car salesman. Here’s an excerpt of a conversation I had with someone at Honda, after I had told them that I was waiting until I start work in July to buy a car:

Salesman: "If I make you a really good deal, would you buy the car today?"

Me:“What? If I don't buy it today, the deal won't be as good tomorrow?”

That's the kind of crap that offends people, especially women. When salesmen come on strong like this, it makes it seem as if they are trying to intimidate rather than educate, and women are particularly sensitive to this issue. I don’t want to feel pressured into making one of the biggest purchases of my life. I want to do research, make sure I’m getting the best deal, and talk to my friends! They’ll be able to tell me if the color is pretty! Salespeople should be patient and focus on building a relationship with female customers. Buying can be a lengthy process, so get my email address and send me information about upcoming deals. I’ll let you know when I’m ready for more commitment than that!

3. Sell to me! Not my boyfriend/dad/husband/brother!

I mean this third point literally. During this same recent visit to Honda, the salesman was talking to my father rather than talking to me, when I was the one who would be purchasing the car, which was made quite clear in the beginning. When the salesman instead chooses to target my male counterpart, they give me the impression that they don’t think I have the money or the brains to make the decision myself. If that’s the case, I’ll just bring my hard earned cash elsewhere. Salespeople need to understand that women are often the key decision maker. Try finding out her profession or her hobbies, then based on those insights, make tailored and relevant comments that will peak her interest. Even simple gestures like taking notes on a note pad from the conversation to pass on to the customer to bring home are very valuable for females.

All these recommendations stem from the fact that car dealerships are lacking in the experience aspect of the retail value proposition. I know this is a large generalization, and may not apply to the luxury brands market, but overall, the experience for women is far from spectacular. If a car dealership followed these simple recommendations, they would be flooded with women. Dealers don’t treat men who are looking for a Hummer the same as men who are looking for a Smart Car. So why treat women like men? Car dealers could effectively carve a profitable niche out of the market by simply treating women like valuable customers.

To all the car salesmen of the world: it’s time to cater to female demands. (No offence men).

[1] http://www.cbc.ca/news/yourview/2007/03/car_dealers_catering_to_women.html
[2] http://www.roadandtravel.com/newsworthy/newsandviews04/womenautostats.htm
[3] http://www.roadandtravel.com/newsworthy/newsandviews04/womenautostats.htm