Forget customer retention…. How do we get rid of unwanted customers?

You manage a retail store or restaurant chain, a bank, a telecommunications company, or any other type of business for that matter. You have a magnitude of customers. Unfortunately, some of these customers are simply unprofitable. They may stay for three hours and only order one slice of cake. They may require an enormous amount of servicing. They might buy a large flat screen television for the Superbowl, only to return it a few days later.

While customers are usually good for business, unwanted customers can have a negative affect on bottom line profitability. Harvard Business Review estimates that, on average, 15% of all customers are unprofitable. The book, Angel Customers & Demon Customers, estimates that, in most industries, the best 20% of customers account for 150% of profits. The worst 20% typically lose money equal to 75% of profits [1]!

After identifying these unprofitable customers the question remains: what do we do about them? Below are a few suggestions on how to increase customer profitability:

1. Stick to your core strengths: If a customer requests something outside of your competency, either refuse or outsource [2].

2. Raise Prices: McKinsey & Co. estimates that a 1% increase in price leads to an 11% increase in customer equity. 60-70% of customers are likely to accept this price increase. If the customer rejects the higher price, the unprofitable customer is lost—overall profits increase [3].

3. Lay Some Rules: If your problematic customers are loitering, post a sign informing them of a time limit. If they don’t spend enough, consider implementing a minimum purchase order amount [4].

But, what if the above suggestions fail? Then, it’s time to fire these customers! But how do you get them to leave? Below are some of my suggestions:

1. Be Polite, Tell Them to Leave: In my opinion, one of the best ways to get rid of unwanted customers is to tell them to leave as politely as possible—either in writing or in person, depending on the situation. They might get offended. Explain to them your decisions. For example, if they don't order anything but insist on loitering; tell them that tables are for paying customers only. Remember to be respectful. You don’t want these individuals to spread rumors that you don’t treat your customers well!

2. Screen Incoming Calls: If the customer is not of high priority, consider routing them to a low priority queue. If they choose to use the online method they’ve become profitable. If you lose them, your overall profits increase—win/ win!

3. Focus on the Purchasers: Try to keep window shoppers at a minimum. Instead, focus your time and energy on customers who actually buy something.

While customer divestment was once considered an anomaly, it is fast becoming a viable strategic option for many organizations [5]. Sometimes it’s not about customer retention, but rather about making the tough decisions: firing your customers. Sometimes it’s time to say adieu.

[1] http://fusionbrand.blogs.com/fusionbrand/2004/07/what_to_do_abou.html
[2] Ibid
[3] Ibid
[4] http://www.howtogetridofstuff.com/people/how-to-get-rid-of-customers
[5]http://hbr.harvardbusiness.org/2008/04/the-right-way-to-manage-unprofitable-customers/ar/1

Build a Bear Workshop: It’s ALIVEEEE

by: Tommy Chan

My assistant’s eyes met mine. It was time. From the collection display, I selected a suitable teddy bear shell – a vehicle for my madness. From the nearby bin I plucked out a fabric heart - instilling the attributes of “extremeness” and “buffoonery” into it with my sheer will. I then placed the makeshift organ into the empty shell. Laughing manically, I watched as the machine ritualistically pumped its fluff into the bear, defying nature’s laws as it inflated my creation to life. Finally, driven by insanity that was matched only by my excitement, I looked into the black coals that were my teddy’s eyes. It told me his name was Mr. Bitterman Bertrum Beaglesworth. Unfortunately I lacked the money to buy him a birth certificate.
Build a Bear Workshop (BABW) is a retailer that sells the “create-your-own” stuffed animal experience. The firm’s motto – “where best friends are made” – literally describes its value proposition. BABW offers a unique RVP in that the shopping experience can be more valuable than the actual physical product. The building process of the bear involves playful steps that are designed to magnify the consumer’s building experience and emotional attachment to the stuffed animal, as illustrated above.
In contrast to Adidas’ build-a-shoe program and other experience focused selection projects, BABW has enjoyed success. The mass merchandising concept is used in perfect harmony with BABW’s product. Unlike short-cycled running shoes that are utilitarian in nature, stuffed animals garners emotional attachment and enjoys longevity and hording effects (I know this from experience). BABW has chosen a product that aligns well with a mass customization strategy. A stuffed animal is a personal item that generates value through emotional attachment and is not constraint by functionality. Its long product life-cycle is not an issue as additional units of stuffed animal are often complementary products to the original and do not serve as a replacement.
The retail store’s RVP experience component and the end product create value for different market segments. People can be drawn to this shop simply for the building process, while others for the end product. BABW can successfully reach diverse market segments due to this diversification between its RVP and product. Despite this, BABW’s core RVP serves a niche market, and growth will require an expansion of value creation for other market segments. This may be difficult as it forces BABW to compete where the competition’s RVPs are more suitable.
The experience that BABW offers is not inimitable. Whether this RVP is a source of sustainable competitive advantage that will differentiate BABW from the competition remains to be seen. BABW suffered a share-value decline in 2007. The initial success of this RVP was directly correlated with novelty of this experience, and the inflated performance disappeared with the fad. There is, however, no denying that BABW’s RVP still creates value for these niche segments within the market; BABW had a financially sound 4th quarter in 2008 (a holiday season where other retailers suffered).
Resources:
· Canadian Website: http://www.buildabear.ca/
· Consumer Testimony: http://www.grandparentsmagazine.net/Articles/BuildABear.htm
· Analyst Article: http://seekingalpha.com/article/123713-build-a-bear-keeps-on-building?source=yahoo

A NEW LIFE FOR "LA RINASCENTE"

“La Rinascente” (the Re-birth) is one of the most important Italian retailer operating upscale department stores in the area of clothing and household products.
At the beginning there used to be 13 stores located in the major Italian cities but the main one is the one of Milan. “La Rinascente” had always been one of the most profitable Italian retailer but from the start of the new millennium it had got several financial problems with a decrease of revenues until 2005, year in which it was taken over by some important companies such as Investitori Associati, Pirelli Real Estate, Deutsche Bank and “la Famiglia Borletti”.
The companies made a reorganization of this retailer that had taken it to recover its difficult situation giving to the department store a total revenues of 365,5 millions of Euro and increasing also the levels of direct and indirect occupation.
The companies made a strategic positioning, which impacted on the dealer with infrastructure changes, lay-out revisions of sales planning, a change of the goods and services offered to the client, with the goal to position the flagship store at the level of the international department stores.
Its RVP consists of selection. In this department store there is an incredible range of brands that give to people the possibility to choose between so many different products that include clothing, perfumes, household products and jewelleries, without going into every single store split in the city we can say that its RVP consist also on convenience. For people it’s more convenient to go into “La Rinascente” because they can find whatever they need in a single place. The retailer also care for high-quality products based on the fact that the company always chooses brands between a large number, trying to have the best ones on the store.
The introduction of prestigious brands like Gucci, Hugo Boss, Giorgio Armani and Dolce&Gabbana with their concessions, brought their know-how to the exposition and sales of the products belonging to the target of “accessible luxuries”.
The repositioning of “La Rinascente” brought also to the closing of some of the 13 stores, focusing all their efforts on the one of Milan.
In 2008 the company decided to start the restructure of the eight floor of “La Rinascente” of Milan, a floor used for conferences and administrative activities. In place of all these offices they opened a wellness lounge for the public: this big investment represents another demonstration of how the company wants to offer to its costumers a wide range of services. The starting of this wellness area is just another step the retailer is doing to complete and riqualify the services after the creation of a food market and catering with restaurants that overview on the big church of Milan on the seventh floor of the building and the opening of one of the most famous hairdressers of Italy, Aldo Coppola.
All these introductions made “La Rinascente” becoming not just a place to go shopping but also a place in which you can relax and feel entertained and thanks to this repositioning for “La Rinascente” it has started a real re-birth..



www.wikipedia.org
Enciclopedia Treccani
www.corriere.it
www.rinascente.it

Why Coca Cola’s vending machines were, are, and hopefully will remain, scandalous.

(For those who had an early Paddy’s day: in 1999, Coca Cola executives talked about experimenting a new technology in vending machines that could increase the price of a coke in hot weather, or, which is basically the same, lower it in cold weather.)

I need to say that I have been disappointed by the class reaction in the discussion; being liberal, neoliberal is for sure useful but the responsible managers that we are supposed to become can not simply have this cost/profit thoughts and we have to think about the sense and the long term impacts of our decisions.
I will not discuss to what extend it would benefit the company or on the contrary, harm the brand image. Both approaches are theoretically true, and worth consideration. I will talk about a technology that implement an automatic price discrimination and about the scandal of taking advantage of basic needs.
Why should it be such a scandal ? On an economical point of view, this technology is just a best way of following the law of supply and demand. Is the demand higher? The economic theories want you to increase your product price. Are you in a desperate need for a coke? Then you are willing to pay it a higher charge just because of this urgent need. Nowadays, very few products have fixed prices and you would event be surprised and even choked if it was not the case, you might even suspect the government to intrude in the business to ensure fixed prices. This price discrimination is even a kind of micromarketing, trying to tailor the prices to customer immediate needs.
So what is the difference between a coat that you would buy $60 more in the winter, and a coke that you would buy 10 cents more in hot weather?
The first difference comes from the fact that the process is automatic for the coke whereas the coat has been discounted after a decision of the store’s team. John S. Irons mentions it in its article (in the casebook)[i]: there is a huge potential in such an automatic pricing process on line and websites such as Amazon have already taken advantage of it. And the exhibit 3 in the casebook highlights the kind of uneasiness people have toward an intelligent machine whose process abilities would reach the one of a human being. We all want to be treated fairly and honestly, which a machine is not able to evaluate. Studies about behavioral pricing has “proved” that price expectations are highly variable depending on the context, and the feeling of getting a fair deal is one of the criteria that determine our price expectation in a specific situation. The automatic process ruins any possibility of insuring the impression of getting a fair deal. The coat is discounted by human beings for human beings after a thinking process, and it ensures, if not true fairness, at least more fairness than an automatic process.
The second difference is pinned on the opposition “basic vs non basic needs”. One can obviously argue that drinking a coke is no basic need. I will have to agree. Say then that we consider a glass of water. Everyone will agree that being charge 50 cents extra for a bottle of water, when it is the only thing available in the area, because and only because you are thirsty is unfair. And scandalous. This is called exploitation. I do not care how much the specific brand will be damaged ; my concern is purely moral. In economics, there are situations you can take advantage of, especially when they imply non basic needs. But there are borders you can not cross. The developing world is already struggling to have the “right for water” recognized as a basic human right; please don’t make it even harder for them by denying it explicitly in the developed world.
In these times of economical crisis and global questioning, globalization and economics are wished to be more human. I believe it can happen through a bunch of decisions of that kind.

[i] http://www.argmax.com/mt_blog/archive/000251.php

Coffee-to-go the way to go?

Coffee places such as Starbucks and Tim Horton’s have become part of everyday life in Northern-America. Yet, in the Netherlands the presence of this type of “coffee-to-go” retail chain is extremely rare. This small European country has only two Starbucks locations: one in the terminal of the Amsterdam airport Schiphol and one at the headquarters of Nike. Both locations are difficult to access because you either need to have a boarding pass or to be a Nike employee. Therefore, it can be said that the country is “Starbucks-free”. It does not imply that Dutch people are against Starbucks. When searching the web you’ll find numerous, large communities that advocate the presence of this American coffee chain in the Dutch retail environment. What explains this “lack” in Dutch society?

Let’s first look into the Dutch coffee consumption culture. It appears that 70% of the consumers drink their coffee at home. This means that they make their coffee themselves instead of getting take-out which appears to be very common in Northern-America.[1]

The other 30% drinks their coffee at work or at a café. Having a cup of coffee in a café is considered to be a social activity and should not be rushed. Therefore, a very small percentage of this 30% consists of coffee-to-go consumption. The only place where consumers purchase coffee-to-go is on train stations. Coffee at work is provided by the employer so people don’t need to go across the corner to get their shot of caffeine. [2]

Additionally, Dutch people are hooked on Douwe Egberts which is a brand that has been out there for more than a century. The brand has built a lot of brand equity and is truly embedded in the Dutch culture.

It can be said that Dutch coffee consumption is either considered to be a commodity; therefore consumed in bulk, or it is perceived as a quality product that you can enjoy in a social setting. Looking at the first type of consumption there seems to be an unwillingness to spend a lot of money on coffee. Key values are that the coffee needs to be regular without any frills and cheap. Especially the ‘cheap’ component is important for Dutch people. Therefore, they make the coffee themselves at home which saves money rather than getting it on your way back home at a drive-through for example.

The rest of this article will focus on the out-of-home market. This is because Starbucks might be more successful in that segment of the market as coffee-to-go is not embedded in Dutch culture yet. For the Dutch OOH market as a whole, the RVP is based on experience and price. People want to enjoy the company of their friends or family, while enjoying a nice cup of coffee. Paying a premium to have this cup of coffee in a nice mug and sitting in a comfortable chair is worth it.

So why would Starbucks work? Because the typical Dutch OOH consumer is exactly the type of customer that Starbucks had in mind when setting up the business model. Initially, the company focused on people that are willing to pay a premium price while enjoying their Starbucks in their store. They have nice furniture, wireless-internet, and other appealing features. However, as Starbucks became more and more successful the company tried to focus on more parts of the RVP, which shifted their attention away. Now many customers are not willing to pay this premium as a large portion of their revenues come from coffee-to-go. Since coffee-to-go is not a part of Dutch culture, Starbucks does not need to worry this pattern repeats itself in this market.

Why would Starbucks fail? Dutch OOH coffee market is saturated; which makes it difficult to penetrate the market. The company struggles finding a distributor[3]. This can partially be explained by the market dominance of Douwe Egberts. In addition, coffee-to-go is not a trend that is embedded in Dutch culture and a culture change needs to take place first.

Moreover, I think there will only be a short moment of success for Starbucks. This can be explained by the fact that the American phenomenon is highly appealing for Dutch consumers. Now they can only see it in movies and tabloids where celebrities consumer the product. Eventually, the hype will gradually fade away because Starbucks needs to compete heavily with other big players in the market.

To conclude, if Starbucks is able to find a distributor it can become highly successful. In my opinion they should not try to position themselves in the coffee-to-go segment which they are pursuing right now. The company is negotiating with distributor Servex, to open some locations at the main train station of the Netherlands to offer coffee-to go[4]. Instead of taking this strategy, they should concentrate on making it a premium coffee brand that people need to appreciate by taking their time to consume it. This fits best with the current Dutch OOH culture and is the most sustainable strategy. That means that the company needs to change its current strategy by serving the coffee in mugs instead of cartons assuming that it is coffee-to-go. Moreover, the coffee should be brought to the customer instead of the customer having to wait for it. Only then, it can be perceived less as a coffee-to-go brand. Whether Starbucks is willing to offer this to Dutch consumers is something they need to decide themselves.


[1] http://socgeo.ruhosting.nl/html/files/ba-thesis/scripties/2004-2005/Bijsterbosch,%20Erik.pdf
[2] Ibid
[3] http://fastfoodnederland.blogspot.com/2007/01/starbucks-waarom-niet.html
[4] http://www.seattlepi.com/business/375003_starbucks15.html

Learning from Best Buy

As we all know, consumer confidence is down and costs have increased causing many retailers to go out of business. Most importantly consumers are still spending money, but they have changed how they go through the selection process of shopping. Some things still remain true, such as shopping differences between genders and the need for retailers to understand their different purchasing habits. Retailers need to evolve with customers as their priorities change. In order to evolve with customers retailers have been forgetting to get to understand who is actually shopping at their stores, what is important to them and who is affecting their purchasing behaviour. Consumers are changing why they spend money, so successful retailers will be those who build their experience and brand around these key ideas.

In the case of Best Buy they found that the female audience influences 89% of all technology purchases. Women are more demanding of their retail environment, they need to feel respected in order to relax and open up to the idea of making purchases. This caused an in store renovation in Minnesota, as their store tended to cater towards male tendencies. When women are not as comfortable with the items they are shopping for, such as electronics, an environment that reminds them of home resonates well with women. Reducing the amount of metal over heading, painting the interior warmer colours, large mirrors, and clean bathrooms all make women feel at home and respected.

Retailers should make sure to not get stuck in their ways and pay close attention to changes in customer purchasing behaviour. Previously long aisles in big-box retailers such as Best Buy were used to keep customers in store longer by making them committed to walk down an entire 36-foot aisle. Instead Best Buy broke up aisles into shorter runs no longer than 20 feet to allow for more end caps. Just because customers do not get sucked into walking these long aisles does not mean that they will spend less time in store. Women see end caps as interactive stories, so not only will they spend more time in store but they will be more involved in their shopping experience because they can feel an emotional attachment to products.

In such volatile times retailers have to focus on more than the aesthetics and layout of a store. They will be much more successful if they can get shoppers to gain an emotional connection to products within the store. Retailers need to know in what format customers prefer to be educated. Best Buy found that women would go on line to compare prices and read about what they want to buy, so when they enter the store this information is not important to them. Women want to know how they react to the products in store and to be educated through demonstrations. In order to bring both of these features together Best Buy has created experience zones, where model rooms with targeted merchandise are set up in order to allow for live demonstrations that make shoppers feel at home. Women especially will spend money if they can gain a sense of how the product makes them feel, in these economic circumstances it is most important to make consumers purchase now. More stores like Jill’s Table have been letting customers kick the tires or utilize interactive displays that encourage pre-purchase use and testing.

For consumers experience is essential, but the importance of education is shaping how retailers present and extend product knowledge to create greater brand loyalty. Through these experience zones Best Buy is creating an atmosphere for learning and attracting customers. Relationships could be built through programs targeted to encourage loyalty, such as product–solving services and related classes. Even though an in store experience is targeted towards a gender that may dominate the purchasing decisions it does not mean that the other gender has to be excluded. Some segments may not know what they want until it is presented to them, such as the case with men at Best Buy.

http://vmsd.com/content/best-buy-minneapolis?page=0%2C1

Fashion Retailing: Ignoring 62% of the Market?

By Lainey Shrom

A general assumption has been made in the fashion retailing industry that no woman over size 10 seeks out fashionable clothing. Given that 62% of American females are classified as overweight, this theory is obviously false, and I believe that upscale retailers are missing a major segment of the market by keeping their shelves clear of larger sizes. As discussed in class, many upscale stores, and even mid-market ones such as Abercrombie & Fitch, limit their selections to smaller sizes to prohibit the now average sized women from wearing their merchandise.

Given that retailers are fighting to grow profits, it is shocking that very few have jumped on the opportunity to tap into a growing market that is desperate for fashionable clothing options. If executed properly, retailers could realize success because of the competitive advantage it would gain by serving a segment that most other retailers are reluctant to. As well, given the limited choice set these women have for fashionable items, cultivating relationships with consumers and building loyalty would be quite feasible.

There are, of course, some retailers that serve these women, but their formats and RVPs are different, and undesirable by the majority of this segment. Currently, the most common channel for large sizes is the internet. These women, who already have a complicated relationship with clothes, are forced to purchase without trying on the items. Why should these women be denied the opportunity to shop in real live stores? Another option is shopping at discount stores. This is a popular option, as Wal-Mart is the number one retailer of plus size apparel in the US and Canada. Is this because women like doing their wardrobe shopping at Wal-Mart? Unlikely. They are settling for something cheaper when they would likely be willing to pay more for quality clothing from a retailer with an enhanced experience.

If one were to open a retail store dedicated to larger fashionable female clothing, simply offering the selection would not guarantee success. The entire store would need to cater to this segment’s unique needs. Staff would have to be knowledgeable and sensitive to concerns these women have with clothing in an environment that is strictly built for females. Suggestions for a store include: cultivating personal relationships with clients, wide aisles for browsing, and comfortable and secluded change rooms.

Forever 21 announced that it will be launching a junior plus size line this May. Before they are applauded for their efforts, it should be known that they are only launching it in a few of their stores, with the primary channel for purchases of this line still being the internet. Retailers still have a long way to go in terms of serving this market.

These upscale stores have decided that maintaining a particular “image” is more important to them than becoming accessible to a dominant and growing segment of the market. Is this alienation and “brand protection” worth the millions of dollars they are leaving on the table? I certainly hope so, because especially in these economic times where retailers are fighting for sales and margins, they are giving up a lot of market share.

Works Consulted:

Fashion Industry Ignores Average-Sized Women

http://www.thestar.com/living/article/607021

Forever 21 To Launch Plus Size Line

http://www.chicagotribune.com/chi-090303-forever-21-link,0,6708581.story