Developing Retail Markets In Rural India

When compared to US & Canada, Indian retail industry is at a primitive stage. It still lives in the mom & pop era. During most of the course I have been wondering if retail marketing principles could be applied in a country where even today 70% of people live in rural sector. In the last two months I have been discussing this issue with many people and have also been searching material on Internet, on how to develop retail Industry in the lower segment of economic pyramid.

If we look at developments in last ten years, small towns and villages in India have witnessed a sea change. With economic development, disposable income and subsequent spending habits have changed. Some of the facts highlighting it are:

- In 2001-02, Life Insurance of India (one of the two biggest insurance companies of India) sold 55% of its policies in rural India.
- 1 million mobile connections in rural India.
- 41 million Kisan Credit Cards issued (against 22 million credit + debit cards in urban India).
- Of 20 million Rediffmail (popular web portal of India) signups, 60% are from small towns, 50% of online shopping transactions from small towns.
- 42 million households in rural India availing banking services as compared to 27 million in urban sector.
- Rapid infrastructure development. In first 50 years after independence, only 40% villages got connected to road. But in the last 10 years another 30% of villages have got connected by road.

It is evident, rural India as an economy, has a lot of untapped potential. This reminds me of Walmart’s initial strategy of moving into small towns where they rapidly grew without much competition. Even Indian rural sector offers similar opportunity today.

Successful penetration into these markets will require retailers to understand unique consumer behavior of this sector. For example:
- People in rural sector buy less quantity but more frequently. They buy small packs because they have lower unit price, which they value more than economy packs.
- Rural population looks for value for money and not necessarily cheap products.

I have been thinking of possible marketing strategies for successful penetration in this market. I have talked to few of my friends who have extensively traveled or lived in rural India. Some of the possible marketing strategies to develop retail presence in rural India are as follows:

- Price will be the most important criteria in successfully penetrating in rural India. Discount stores stand a very good chance to succeed.
- Try to engage local people in terms of employment and personal selling efforts. Local people will be cheaper and more effective in penetrating a new market.
- Develop tailor made products that suit rural conditions. Currently products for urban markets are pushed into rural India. This has to change. Manufacturers will have to come up with smaller packs like sachets specifically made for rural India. Packaging should have messages in local language.
- Innovative financial programs to allow frequent purchases without having to pay in every visit. Retailers should develop mechanisms to collect at the end of the month.
- Last but most important, use existing village infrastructure to develop a retail store. Many villages have post offices with vacant space. This can be initially used to spread and penetrate rural market at a minimal cost.

There have already been some success stories of companies making successful roadways in the rural market. Though most success stories have been due to the efforts of manufacturers who have developed their own distribution network, it won't be long before retail chains start establishing their presence.

(Posted by Chinatsu)My experience in Location Development

In class, we discussed about location issue of LCBO and other retailers. Profitable location development is an absolutely important part of business strategy for any retailers.
I used work for a Japanese Hamburger restaurant chain, Mos Food Services (http://en.wikipedia.org/wiki/Mos_Burger). At that time, Mos had 1500 outlets in Japan (FYI: McDonald's has 1375 outlets in Canada).
I was in charge of site selection and location development for this national chain and opened more than 40 outlets over three year period.

Historically, site selection was solely dependent on the developers' "hunch". However, there is a trend for more quantitative method, which came from a reflection of the "hunch" method, which could damage a firm's profitability when it goes wrong. Some even say that it could be completely statistical / quantitative to assure the accountability of the process.
Mos was known as one of the earliest companies which introduced quantitative method into site selection and integrated it with qualitative method. From my experience, I would like to explain the site selection process, and why both quantitative & qualitative parts are important.

Site selection process
Potential market estimation
We heavily used GIS (Geographic Information System) to do this initial market screening. GIS can create visual presentation of demographic information, Mos's market penetration rate and such on a map, and calculate those data.
We identified potential new markets from calculation of statistic data such as certain age population, fast-food expense per household, and so on.
We learned about Geomatic Information in LCBO case. Similar information is available in Japan and it helps us doing this ballpark market calculation.

Focus market selection & Focus site point decision
Then, we went over the potential new markets with 20+ area managers. We conducted on-site research to see actual traffic situation in major roads, and collected information such as new road development and new large scale commercial facility openings in next 5 to 10 years.
After all the research, we identified specific site points in the market, and confirmed profitability of the points by statistical sales estimate.

Site search / development
Good location is always undersupplied. Area managers looked for sites located within ~500m reach from the point we identified at previous process. This process could take a few years. It takes a lot of relationship building and persistence...

Final Site decision
Upon the finding of new site, we conducted final analysis based on the particular site information and estimate sales statistically to confirm profitability.
The key consideration points are: 1.Demographics, 2.Traffic, 3.Visibility, 4.Size & Shape of the site. 3 and 4 are the qualitative aspects which eventually be translated into numbers so that they are included in the statistical model.
In every process, we used statistical model / analysis to assure objectivity and accountability of decision. However, various qualitative factors are taken into the final analysis.

Difficulties in site selection & location development

It is simply about the quality and accuracy of data. Most of quantitative data is based on various censuses. However, as privacy concerns increase in the society, less and less people participate in census. It would seriously affect on the quality of the data in future.

As we discussed in class, location affects on "Convenience" which is one of the aspects of RVP. And the sense of "Convenience" changes over time. Therefore, it is crucial and challenging to have a good understanding on what is considered as convenient NOW.
For example, as it is happening in North American market, commercial area is moving away from downtown to suburb. Even in suburban area, major roads are sometimes too crowded and could become inconvenient to access.
And as the size of car gets bigger as a result of SUV & Mini-Van boom, width of parking lot is increasing recently. There is a case like, based on the statistical model, 20 parking lots at width 2.5m are fine, but in the current changing environment, it might not be good (or convenient) enough.

Conclusion
Some say that location development can be completely quantitative process, and some are trying to establish a quantitative method.
It is important to assure the accountability of whole process as public companies, however, I believe that both aspects are important to establish a more viable process.
Those qualitative phenomenons silently appear, suddenly become a trend, and could damage attractiveness of a store. Since location development process could take a few years, developer must be aware of these little changes before they become a trend and can be recognized quantitatively. Therefore, qualitative research skills -- sometimes "hunches"-- are still inevitable for the process.
Also, considering the potential that census data could be less reliable in future (and conducting such mass scale research is not justifiable for a single firm), I would think developer's qualitative sense would be even more important in future.

Technology in Retail - A special focus on CRM!

We are discussing CRM and Retail and Analytics here from different perspectives. Let’s try to find out the correlation between CRM and Retail and Analytics. Rapid advancements in technology over the past decade have made it possible for retail managers to collect, condense and categorize information in a highly efficient manner. However, the ability of the decision maker to correctly interpret this information has improved very little. The accurate interpretation of information goes beyond the ability to correctly read rows and columns of numbers, percentages and absolute values. It begins with an understanding of where the information comes from, how it is obtained, and whether or not it is relevant to a particular business decision.

One problem retailers' face today is the impersonal, transactional nature of the shopping experience. In effect, customers pass through stores anonymously, forming little or no relationship with the retailer. Decision Support Systems (DSSs) offer a way to improve a store's effectiveness and efficiency and to build and direct their marketing strategy based on customer needs and preferences. Analytics form the core of DSSs often called CRM and Retail and Analytics, which help retailers, realize advantages in inventory management, buying, sales and marketing, and store productivity.

The retail landscape consists of a variety of players competing for a customer's business by constantly altering their merchandising mix while simultaneously differentiating themselves from competitors. The speed, at which decisions must be made today, along with the difficult market conditions of the current economy, means that the cost of failure is enormous. Success in this competitive world is dependent on attracting and retaining the most profitable customers. And that’s possible by using the perfect mix of CRM and Retail and Analytics.

Good CRM and Retail and Analytics systems allow users to explore the data and pursue a line of questioning without the penalty associated with traditional systems. Marketing must be allowed to be self-sufficient with respect to having a dialogue with the data in order to understand what the customers are saying.

For example, a leading retailer of hardware in the United Kingdom has been able to do that with CRM and Retail and Analytics. Instead of running complex queries that take hours, they can do them in seconds, changing the way they approach different marketing scenarios. The result is a complete change in how marketing looks at and uses customer data.

For instance, making catalog mailings more efficient by eliminating unresponsive customers was an early priority for this company because of the direct impact that the cost savings would have on the marketing budget. So the question became: which customers are unresponsive? Since the company sends its catalogs to small businesses across the United Kingdom, the answer required testing of ideas and a lot of different factors.
When responses to unknown questions are immediate, the depth of understanding is much deeper because more ideas can be tested, refined or even discarded. As a result, not only one profile emerged but several others that allowed marketing to tailor its mailing program even further using CRM and Retail and Analytics.

All in all, CRM and Retail and Analytics will serve to be the backbone of intelligent retailing decisions, in this era of increasing competition and choice for the customer. While CRM and Retail and Analytics ensure effective use of data which is collected, it also renders itself to the tasks of data collection and maintenance. The competitive advantage for retailers will be the ability to devise innovative means to capture data from customer touch-points cost effectively, and channeling such data into actionable insights through CRM and Retail and Analytics.

Detailed reports found in the following links.
http://www.crm2day.com/crm_retail/

Gray Market

"Gray Market" Components

An important issue, which is similar to that of retail and OEM parts, is that of so-called gray market components. This term is undoubtedly derived from the term "black market". Black market goods are ones that are sold through illegal channels; gray market goods are ones that are sold in ways that are not illegal, but not "official" either. They are being seen increasingly not only in the internal PC component market, but even with external components and even whole PCs. (In fact, they are in issue in all sorts of markets, not just computers.)

Here's how the gray market works. A manufacturer makes certain products for sale within a certain country; say the United States as an example. That company also manufacturers some of those same products, intending to sell them in other countries. Someone buys these products outside the U.S. and then imports them back into the United States for sale there. These items are considered gray market to distinguish them from the products originally made for sale within the U.S.

Why bother with this circuitous route? Cost savings. Manufacturers often sell the same products for less in the international market than they do in the domestic one. The products intended for export may be identical to the ones sold within the U.S., but may be of a somewhat different design in order to reduce cost. Distributors may be cut out of the supply chain, reducing overhead. There may also be other reasons why these units cost less than ones sold in the market for which they were intended. Not being an expert on import matters I cannot comment with certainty as to the reason for the price differences, but they do exist. (But I will say that there are many people who believe that the main reason for the higher cost of "official" products is simply that the manufacturers feel they can get away with charging more in some markets than others for the same products.)

Much as is the case with OEM parts, the people who buy these units have obtained them from a legal source (assuming all laws were followed), but one that is "unofficial". As a result, most of the issues associated with OEM parts will apply: the manufacturer will usually want nothing to do with these units. They won't want to provide warranty coverage for them, often won't support them or even answer questions about them! This means that the only warranty you have on this part is whatever the vendor offers, which may be only 30 days or less.
Some manufacturers are even fighting legal battles to keep gray market versions of their products from being sold. They claim that in many cases the gray market versions are different from the products they intend for sale in the targeted country, and that having both types confuses the market--and they are right about that. Like OEM parts, gray market items are often different from proper retail ones. They sometimes are built using lower-quality parts, or have a different design. They may have safety certifications particular to the country where they were intended to be sold, not where they end up after being re-imported.

What's worse about gray market components than OEM ones is that it can be even more difficult to tell gray market parts from ones that were sold through proper channels. The items often look absolutely identical. In some ways, the best indicator of a potential gray market product is a price that just seems too attractive: TANSTAAFL and all that.

The bottom line, as always, is to be sure of exactly what you are buying, and from whom you are buying. If you don't want gray market goods, the best way to avoid them is to shop from a reputable vendor that buys from official distributors, and resist the urge to shop for anything primarily on the basis of price.

What is "Single Brand Retailing"?

JUST WHAT IS SINGLE BRAND RETAILING?

The single largest reason why India lags China in FDI is because India till a few months ago did not allow FDI in Retail altogether. But with various powerful foreign CEOs and Presidents urging India to do so, India has opened its doors to FDI in Retail shortly before the World Economic Forum but not fully. It allowed FDI in “Single Brand Retailing” only.
http://www.businessweek.com/investor/content/feb2006/pi2006022_1223_pi015.htm
http://www.indianexpress.com/res/web/pIe/full_story.php?content_id=86587
http://www.ndtv.com/debate/showdebate.asp?show=1&story_id=162&template=&category=Business


What is Single brand retailing?
What this means is that you can soon buy Coach handbags and Manolo shoes in India, but Wal-Mart will have to wait. An explanation is attempted in the following link.
http://www.blonnet.com/2006/01/26/stories/2006012601070800.htm
Single branded retailers or brand retailers: These are essentially retailers that deal in exclusively one brand. The product category/range might stretch to anything that the brand covers. This group consists of single brand retailers like Aldo, Victoria’s Secret and multi product retailers like a store full of one single own brands – Sony, Apple, Nike, The Body Shop. Or think of a store that sells only Presidents Choice Products – PC Cola, PC Yoghurt, PC Banking. On the other hand the multi-branded retailers essentially are those who carry multiple brands under the same roof. These again include single product and multi-product retailers. For an example of the former category - a kayak store that just sells different brands of kayaks. LCBO, Loblaws, Sportcheck, Future Shop fall under the multi-product category.
As discussed in the course, the core value drivers for a retail space are products and services brand proposition, customer experience and expectations management. At the other end we have effective back-end operations, very efficient product refilling and state-of-the-art supply chain.

Intuitively the single brand retailers tend to score highly on all these parameters as compared to their multi-brand counterparts. The information flow is stronger and more efficient. The product/service evolves faster and is far more relevant in the context of a customer and the product turnover rate is generally higher. In categories like lifestyle (NineWest for example) this becomes a critical factor.
Multi-branded retailers are often faced with the classical marketing theory of selling whatever is produced. The control over back-end product development is not as precise as single-brand retailers. The basic flexibility is in the ability to juggle around with the designs and products of many different suppliers, essentially a reactive measure and relatively lesser customer-centric and more vendor-specific approach. Factors like most influential vendor, vendor with best margins, vendor with most lenient credit terms etc. start governing the decision-making process.

Brand Value DriversIn single-branded retail stores, there is integrity of concept, communication and product promise. The same brand promise is reflected in the entire set of products (shirts, trousers, shorts, skirts, Jeans, etc) and accessories (shoes, sunglasses, belts etc.). A consistent brand promise and delivery makes the single-branded retailers more efficient in expectations management.Moreover, at another level the communications effort is also more focused, efficient and effective. The multi-branded retailers are faced with the classical problem of identity. What are their core drivers? If they are catering to a particular segment, then what requirements of the segment are they catering to? If they are restricted to a particular product / category, then how broadly or narrowly do they define this category? How do they communicate this brand promise? Most important of all, how well are they managing expectations?A massive effort is required to streamline the entire product range around a core brand promise and then continuously deliver that promise, transaction after transaction, year after year.

Now to the most important aspect that drives a retailing success – Customer Experience. In experience, we are talking about ambience, quality of people, quality of service, delivery and display systems on the floor and the product etc. Things are moving away from uni-dimensional brand experience to functional benefits. This three-dimensional brand experience drives the core of experience in a retail store. Each interaction with the customer is a moment of truth for the retailer.Where a single-branded retailer scores over his counterpart is in being in better control of the various aspects of experience. Moreover, better control over their systems from product design to delivery and customer feedback about it – gives them greater flexibility and helps them in being up-to-date with changing customer trends.Both types of retailers might be at the same levels as far as study of customer tastes and preferences are concerned. Where they differ in is execution of this feedback. The single-branded succeed because of the control over the whole process. Moreover regional level customization also becomes easier once we are equipped with the right knowledge and once they have a grip over the nerve of the core customers.Single-branded retailers have a definite edge as far as drive towards customer ownership is concerned.

Finally, as far as back-end operations are concerned, better controls means better and more efficient delivery of the right product mix. Here we are talking about getting the right styles, designs at the right prices and making them available on time.

The evolution of the video rental industry – this movie is still being written…

With the rapid expansion of technology, the video rental business has gone through a drastic reformation over the last few years. Once a business dominated by the likes of Blockbuster Video and Rogers Video, we have seen a proliferation of new retail channels challenging the traditional model. A $20 billion industry worldwide, it’s no wonder new competitors are entering the mix. This tale is a good example of how multi-channel retailing can offer customers different user experiences (as described in the Note on Multi-Channel Retailing). Instead of “going to the rental store on Friday night to get a video”, internet based rental companies will deliver directly to your home, and these savvy new web companies are not bound by borders or physical constraints. All this change has resulted in a customer experience that has been constantly evolving, with video rental companies competing by using creative marketing strategies to draw in customers.

To fully appreciate the importance of retail marketing in this industry, we need to take a few steps back in time to review how the business model for video rentals has transcended time.

In the mid-nineties, the Blockbusters and Rogers Videos of the world were rapidly expanding, with retail value propositions (RVP) that offered customers the best selection and lowest prices on rentals. Many of the small, independent players just could not compete and went out of business. At the same time, DVDs were blossoming in popularity as VHS was fading out. Blockbusters and Rogers competed directly for customers by offering discounts on weekly rentals, customer rewards cards, and creating an “in-store experience” that included food and beverage sales to compliment rentals.

As DVD production expanded and technology fueled massive growth in the electronics industry, big-box retailers like Wal-Mart and Future Shop entered the market. However, these players did not enter the rental business, rather with their economies of scale and low cost strategy, they marketed DVD’s at a price that rivaled rentals. In part, their strategy was to sell “loss leaders”, items with none to minimal profits to lure customers into stores to buy more profitable items. We have seen the power of this type of strategy as discussed with Bruce Reid during the Best Buy case. Suddenly, consumers were questioning whether it made more sense to buy a new DVD for $15 - $25 or rent one for $6 - $8. For movies consumers planned on watching several times, purchasing the DVD appeared to be a better deal. This had an immediate impact on the video rental business, and forced Blockbuster and Rogers to change their marketing strategy. Rental prices became more competitive and DVD sales were introduced, allowing consumers to also buy new DVDs to minimize lost sales from the big-box retailers.

Just when it looked like the video industry couldn’t get any more competitive, internet-based video companies emerged, most notably Netflix, offering consumers the ability to rent DVDs online and have them delivered directly to their door. As described in the Note on Retail Convenience, internet-based stores offer the ultimate convenience since customers can rent or buy with minimal expenditure or time and effort. Netflix opened its doors in 1999 and is now the largest online video rental retailer in North America, with more than 4 million customers per month. Taking a quick look at their website you can quickly see why. Several of the 7Cs are in place, with good context and content, and the ability to complete transactions. It isn’t very interactive, but this type of functionality may not be necessary given the purpose of the site.

Netflix plans start for as little as $9.95 per month and enable consumers to browse a database of over 55,000 titles. Shipping is free of charge and there are no late fees, consumers can keep a movie for as long as they want. The only real barrier to internet based systems is that some people still don’t use the internet, however, with growing internet usage it is only a matter of time before the internet is used on a regular basis by a significant portion of the population to purchase products.

One must ask, how can Blockbuster compete? It doesn’t take a genius to realize Netflix has a lower cost structure with no retail stores (real estate and other assets) or employees. Well for starters, Blockbuster has once again changed its business model. In 2005, Blockbuster introduced its new “no-late fee” strategy as an attempt to keep customers in the store, partly to compete against Netflix, but probably more so to gain market share over Rogers Video. (I’d love to know which consulting firm was behind this idea!) Both of these retailers also entered the online video rental market. If you view either company’s website today, they offer similar promotions as Netflix. Blockbuster has the Movie Freedom Pass, an online subscription enticing consumers with the ease of home delivery plus one free in-store rental per week. As a customer of both stores, I have also noticed subtle differences in their merchandising strategies. It is difficult to rent a new release from Blockbuster because people hold movies for longer than they should (because of no late fees!) so I normally go to Rogers if I want to be assured of obtaining a new release. If Rogers doesn’t have a new release available, they offer the same movie free next time you visit their store. While Blockbuster has a better overall selection of rentals, Rogers has a better selection of new DVDs and made for TV series. Rogers also leverages Rogers Communications services by offering cell phone and cable TV products.

So what’s next for the traditional video retailer? Well, I think Blockbuster is in a really tough situation, with virtual stores gobbling up market share because of their versatile services, and big-box discounters squeezing profit margins because of their economies of scale. To combat these pressures, Blockbuster is trying to move forward with a two-pronged strategy, but I am not convinced this will allow them to achieve market focus in either domain.

With the emergence of video on demand, a technology that allows users to order movies directly through their cable services, this industry is becoming even more complicated. Perhaps this will offer the ultimate in direct marketing since cable companies will be able to track user tastes and offer suggestions for movies or advertisements tailored to each customer’s unique needs. Some suggest the winners will be the ones who can successfully execute on this technology first, stealing market share and locking in customers to long term contracts. It is hard to predict because as video on demand grows, undoubtedly some new technology will be developed to trump this offering. I think creativity and innovation in service offerings will play an important role. For example, a former executive of Blockbuster recently opened an online site that allows users to trade new and used DVDs, sort of like a niche version of eBay.

One thing is for sure, the retail stores of Blockbuster and Rogers will need to become more aggressive, both in reducing their cost structures and marketing their products to lure customers to their stores. I think we will see less profitable outlets close down and a greater focus on providing a “genuine customer experience” that big box and online retailers can’t replicate, similar to how boutique shops like Jill’s Table or others (who can’t compete on price) must operate.

How can you ensure your brand doesn't become a commodity?

With the increasing competition among companies and a variety of products available, it is more critical for high quality brands keep a higher price and retain the customers. People love wonderful brands, which commands a premium price and offers premium product and service. But more and more marketers are getting confused by tremendous of advertising and promotion campaign ends up to lower priced dump. It is dangerous shift because if your brand becomes a commodity, you probably won’t have a brand at all. The previously premium-prised products are suffering brand damned and be sold for much less on the shelves. Customers are inclined to enjoy convenient store’s “discount everyday” shopping, bundled cellular services and slim-margin flight traveling.
So how can marketers prevent brands from being commodities?
We also may list a lots of approached including manufacture’s “good, better and best” retail rule; product innovation; high-end non-discount retailers; and exciting in-store programs. Here I want to provide some thoughts focusing brands culture and customer relationship nourishment.

Design an exciting brand culture mix

By the mid-1990s, there were 100 fast food restaurants around Beijing, China. The convenience, efficient service, comfortable environment, pleasing music garnered funs. However, with the lack of variety, the curiosity from KFC and McDonald’s had faded and more and more people returned to their own extensive cuisine. The reason was culture differences. Fast food restaurants like KFC and McDonald’s are distinct American brands. Corporate culture couldn’t be tally understood and accepted here. Under this circumstances, both of the two brands understood that they have been learning to absorb elements of Chinese culture.
Since the summer of 2001, KFC has introduced many Chinese items into their menus. KFC preserved Sichuan Pickle and Pork Soup, Mushroom rice, and Tomato and Egg Soup. McDonald’s accommodated Vegetables and Seafood Soup and Peking Chicken rolls. In addition, the companies worked to modify the restaurant’s design with a traditional Chinese look during the 2004 Spring Festival. All these efforts demonstrated a dramatically increase of customer traffic and transaction.
When a brand’s strength is bleached, redesign and re-express business culture, with traditional, fashionable, or localized culture elements to cater the customers may develop distinct brand awareness and product differentiation.

After- sale relationship nourishment

Many marketers don’t understand that the biggest enemy of marketing and brand building is apathy. As we know, during the marketing campaign, customers are deeply valued and enjoyed all the prestige the brands offered. But after the sale, all the friendliness and caring attention are disappeared. Customers feel totally lost and confused due to the apathy attitude.
One of the most critical steps to avoid the brand to be commodity is provide follow-up caring attention after you set up a relationship with the customer through sale. Good product and service combined relationship nourishment are thought of brand rather than commodity. Constant contact your customers results in higher repeat consumption and longer loyalty retention. By calculating the lifetime value of a customer, you may see the huge difference between initial sale and repeat sales. Additionally, repeat sales means referral sales and will drive long mutual benefit.
For example, when you experience initial buying from Yves Rocher, a catalogue company, your name will automatically registered into the customer database and you will get follow-up ensure your customer satisfied and have no question with their product. They get in touch with you twice a month suggesting new items that may tie-in your original purchase. Once in a while, you may get surprise by receiving a gift card. People like this kind of loving contact because they feel they are recognized, informed, valued from hearts. That’s why the smart eagle-eyed marketers never close the deal with their customers but manage long term customer lifetime value successfully.
Of course, there are a number of ways to avoid commoditization. Many large brands actually manufacture for the discount market, or they provide private label, or corss-sale using different geographically brand recognition. But all in all, you never count on keeping your brand away from commodity is an once-in-all battle.

Canadian Retailers

Canadian Heritage as a part of the RVP:
Hudson Bay Company was recently purchased by an American textile company. How will this acquisition affect the store and its sales? Will customers continue to purchase products at HBC, or will they turn to other Canadian owned retailers such as Roots and Canadian Tire? Many Canadian-operated retailers feel that their Canadian heritage and ownership is a part of their Retail Value Proposition (RVP). Although heritage could be a differentiating factor when comparing identical stores with the same product assortment, customer service, and price structure, I don’t think consumers view heritage as a significant differentiating factor in their buying decisions. Hudson Bay Company is just one example of how the heritage was not enough to drive sales.

Access to Consumer Research:
Another factor that allows American run companies at a competitive advantage is their access to consumer research. Although Canadian customers do differ from Americans, there are enough similarities that the research conducted on American consumers can be applied when making decisions about the Canadian market. The large size of the American market allows them to afford bigger research budgets in order to assist their decisions. Furthermore, the American market is more competitive so their successful mangers who have been able to adapt to that hostile more aggressive environment are successful here. This is how stores such as Shoppers Drug Mart, or Canadian Tire which are exclusive to Canada, yet run by American investors and/or management have been very successful here.

Buying Power:
American operated retailers that enter the Canadian market often have large sales in the American market. This allows them large negotiating power when dealing with suppliers concerning negotiating purchasing terms and pricing.

Future of Canadian Mass Retailing:

I fear for the future of Canadian Mass retailers. The influx of American retailers, with their aforementioned advantages will draw consumers into their store and away from Canadian ones. The types of Canadian Mass retailer that will survive are those which offer a truly differentiated product and consumer experience, such as Roots. With the increased presence of large American retailers, such as Wal-Mart, within the Canadian retail environment, I fear that more Canadian retailers are endangered.

The New Food Merchandisers

Dollar stores and drug chains are rapidly expanding their assortments of both preserved and fresh foods, and are showing double-digit gains in the category. Dollar chains are aiming at the low-income consumer, offering economic prices of goods. Drug chains, too, are rapidly turning into food powerhouses. Unlike the dollar stores, the drug chains appear to favor national brands that its shoppers are used to seeing in traditional supermarkets. Since these two channels of distribution are growing from near-zero in the fresh food arena, they can be expected to show spectacular growth tracks in coming years.

Dollar chains are aiming at the low-income consumer, offering very low prices on staples such as cereal, milk, eggs, frozen dinners, cold cuts and other products in addition to their lines of canned and shelf-stable foods. Consumers typically buy what the chain offers, then fill in what it doesn't at traditional supermarkets or supercenters.

To date, the dollar chains offering products like milk have hit their price point by purchasing milk close to its sell-by date, then turning it rapidly. But at least some are negotiating with suppliers for a special size package just for dollar stores. The same will probably happen with eggs, butter and other perishables, as the chains position themselves as the source for food for the thriftiest of consumers.

The private label industry, which grew by leaps and bounds with the advent of warehouse clubs in the 1980s and 1990s, now looks at dollar chains as the next rapidgrowth frontier, and is in advanced development stages of products aimed directly at this channel of distribution. At the most recent show, held last fall, vendors displayed everything from canned mushrooms to barbecue and steak sauces to citrus drinks developed specifically for dollar stores.

Drug chains, too, are rapidly turning into food powerhouses, offering a wide but shallow offering of convenience foods, dairy, deli products and more, in addition to their traditional offering of snacks and beverages. The strategy here is to offer high-margin goods at convenience store prices, taking business from both supermarkets and convenience stores. Unlike the dollar stores, the drug chains appear to favor national brands that its shoppers are used to seeing in traditional supermarkets.

Since these two channels of distribution are growing from near-zero in the fresh food arena, they can be expected to show spectacular growth tracks in coming years. Dollar stores are growing in size as well as store count, and have the room to expand their offerings as their customers start seeing them as a primary source for food. Drug chains have considerably less square footage available for fresh food, and will have to edit their assortments accordingly, but the convenience market offers such robust margins in the food arena that they will be forced to carve out more space as time goes on.

A whiff of something special...

Several studies have highlighted the importance of a store environment on sales and customer satisfaction. Some of the important factors contributing to this include hygiene, colours, store layout, lighting and background music. Recently however, the effect of a store’s scent has also come under scrutiny. Bakeries, coffee shops, popcorn vendors and perfumeries often attract customers using their store’s scents which emanates strongly from the products they carry.

In the human mind, a pleasant smell is associated with all things good, whether mental, moral or physical. In fact, in Arabic, the word ‘Tayyib’ means both good and pleasant smelling. Our memories associated with smells never disappear. Enter olfactory marketing, an increasingly important trend which involves using scents in the retail environment to enhance a customer’s shopping experience. In the past, stores such as the Body Shop and perfume counters have benefited from the scents associated with their products. Other companies now hope to capitalize on this.

For years, marketers have researched the power of fragrances to bring out emotions in consumers. But until recently, few people have studied how smell influences shoppers in retail. One reason is that retailers and researchers agree that the effect of an ambient odor is powerful but complicated to predict. However, psychologists believe that smell is the most powerful of the five senses in strongly provoking strongly positive and negative emotional reactions.

Since marketing already attacks all our senses, the use of scent seems like a natural development. According to Pascale Charlier, president of France’s Parfum Indigo, ‘smell environments’ are very important. The objective of retailers is no longer to get customers to spend all at once but instead to build a comfortable shopping environment to encourage repeat visits.

A recent experiment in olfactory marketing was conducted in a Montreal shopping centre by Marketing Professor from the University of Montreal, Jean Charles Chebat. Discreet traces of a sweet citrus smell were pumped into the mall’s air. Customers did not consciously recognize the scent. Retailers however, smelt the difference- purchases that week increased by $55 to $90 for customers although the experiment was conducted in a traditionally slow buying period with no sales promotions being offered.

In North America and in Europe, supermarkets were among the first to use olfactory marketing. Most supermarkets are outfitted with a bakery to the front of the store since the smell of fresh bread is pleasing to many. The smell of whole coffee beans in the aisles also add to the shopping experience.

Other retailers such as clothing stores, shoe stores and even hotels are beginning to take this further by installing scent generating devices which emit ambient scents, not directly from the product. These matchings include the smell of suntan lotion in a swimsuit store or freshly cut grass in the golf section of a sporting goods store. Even in a recent trip to Disney, my favorite experiences were those involving multiple senses. I was immersed in the fragrance of fresh pine as I went ‘Soaring’ in Epcot. Also, the fragrance of dinner being served in Mickey’s 3D Philharmonic really left an indelible impression.

However, retailers must pay attention to certain considerations as this trend increases:
¨ The scent must be appropriate to the stores’ theme and products sold. For example, a candle shop should not smell like strong disinfectant.
¨ The scent should not be overpowering and there must be some neutral zones to avoid this.
¨ Care must be taken to avoid offensive scents since the customer may remember this more than the pleasant ones.
¨ Different islands within the store should have distinct ambient smells.

This is just the beginning for olfactory marketing. Companies such as Naturex and AromaJet are changing the competitive landscape. Electronic Technology’s ZNose may also enable super accurate scent reproduction. In time, customer’s nasal passages will continue to be filled with persuasive odours while retailers will be filling their bank accounts.

eBay Poland: even global leaders sometime fail to launch.

Last spring the global leader eBay opened its Polish branch. Polish internet users, familiar with the brand and experienced in buying and selling over the internet had huge expectations especially that the local e-commerce companies were already preparing to face undesired changes in the market outlook. We were hoping to see a miracle: witness how the giant is quickly destroying the very few existing on the market competitors like Allegro (80 % of the market share, 1 million bids in any given point of time in 2005) and Swistak.

The launch had been anything more than disappointment. Present on the press conference top managers from eBay headquarter lectured Polish internet users about eBay and the concept of using internet platform to trade goods, then presented the most basic version of the product. If we add to this picture the fact that company website consisted numerous grammar mistakes, did not add more value than the competitive platforms and became target of uncontrolled and illegal activities, it is not surprising that eBay reputation has been severely hurt. The opportunity cost – especially on the market that is growing approx. 80 % a year - is huge. Currently eBay Poland maintains third position in terms of numbers of bids placed (65,000) – almost three times less than the second in the rank, pretty much entrepreneurial Swistak. Allegro’s position (1.5 million, 5 million users visiting the website a month) seemed to be unreachable.

eBay has learnt its lesson the hard way. After one year the company replaced Polish general management team. Revolutionary changes have been introduced, including verification of buyers and users, control over all the activities related to selling and buying, Pay Pal, space for professional sellers. Marketing activities aiming to rebuild damaged brand intensified. Compare to other countries were eBay opened its local branches before Polish one (i.e. Singapore, Philippines), Poland will be the first where the full version of the platform is going to be implemented.

It is estimated that in 2006 value of goods traded over internet in Poland will reach almost 1 milliard US$. Polish economy is growing, inflation stabilized on unexpected low level, number of internet users is sky rocking. It is not surprising that the future of e-commerce seems to be bright and that eBay is thinking seriously about – more appropriate for this global giant – launch number two. Its new presented platform is superior to competitive ones. Moreover – high fees collected by Allegro created disappointment around the local market leader that eBay seems to be willing to take advantage from. With huge financial backup and broad experience I believe that eBay Poland has a chance to be a leader in 3 to 5 years.

The last reflection….. I was looking forward to see the big launch of Polish branch. Knowing local market I realized that with the right marketing buzz and well designed product eBay could be a leader very quickly. What I saw was shocking. Complete lack of preparation, unfamiliarity with the market needs, lack of professionalism. This launch has been a great lesson for me as well. It showed that does not matter how much experience we have, how much successful we already are – we have to approach every challenge with thorough preparation. In the current world easily we could only fail.

How much politics do we have in the grocery shopping ?

We all remember the rumor that was spread around the world after one of the Dutch newspapers published cartoons depicting the Prophet Mohammed. We witnessed manifestations that quickly escalated into fights between Muslim and Christians, Danish Consulates on fire, backlash in political relationships among countries around the world. As much as those reactions could be undesired, they were not surprising.

What surprised me greatly is that one of retail giants, world distribution group Carrefour decided to be a side in this global discussion.

Seeing this picture I cannot resist feeling more skeptical: what are the true motives and outcomes this global giant is interested in? Is it the social responsibility, peace, sense of fairness or solidarity? In the reality of global economy why only to undertake action Carrefour is promising? Why not to go further and stop merchandising products made by companies not sharing similar disapproval for everything what Dutch and perhaps selling their products in Holland? The main question is: is the action a sign of honest concern or just a cheap, cynical tactic to gain customer loyalty and popularity?

Carrefour Poland is known for very harsh way the company treats its employees. The lowest possible wages; disobey of labor law in multiple ways; strong position against creating / spreading labor unions and organizations. Some external factors like high (18%) mostly structural unemployment additionaly create convenient conditions for easy exploitation. Where is the social responsibility Carrefour is presenting otherwise?

Unfortunately in my example the company cannot gain any additional market share, customer loyalty or “maximize value for its shareholders”. It is not a flashy, hot topic that would be convenient to use. Who wants to know about 15,000 people working for Carrefour Poland for little over $ 250 per month?

Self-service makes life easy?

Following is the abstract from one article of Megan Santosus:

Retailers may think that self-service checkouts are a win-win proposition: Customers (they imagine fondly) can buy their stuff quickly and easily, while employees can be deployed more effectively elsewhere (or perhaps not hired at all). The problem is that self-service checkouts just don't work all that well. Unlike, say, ATMs or self-service gas pumps, they're not quicker and easier. They're slower and harder. And they aren't better for employees because those employees are now having to cope with annoyed, even irate customers.

Self-service checkout is a new idea. People always expected life changing in a positive way. It makes normal life more exciting. I personally try these self-service checkout several times. I would like to say this is a good shopping experience for me. You can try new technologies and figure out how you can make yourself be checked out by operating a machine. It provides the opportunity to serve yourself when you don’t want to interact with other people. It is always true that new things cause trouble for some people. But most of the time, after people getting familiar with new technology, they find the convenience new technology has brought.

Don’t get your consumer bored with your private label

Retailers are really pushing private label hard. They have been trying to convert products of other brands under their own brands as many as possible. Instead of pure merchandising, retailers participate more and more in brand management and product development process, gaining more power in the whole supply chain. President Choice is one of the most successful private brands. It is not just a cheap brand but represents high quality, sometimes even premium products. It also has high category coverage. When you get into the Superstore, you can find President Choice all over the store.

But is there too many of it? Will this less diversity get the consumer bored? Will the wide category coverage arise the conflict feeling when consumer choose products under the same brand, for example, food versus light bulb? I think these are issues that traditional manufacturing companies have been trying to deal with all the time. I think that maybe retailer should make some research on what is the ball park of the right percentage of single brand coverage in store. Retailer also can use different private labels to brand different kind of categories to reduce the band conflict.

Almacenes Exito – Successful at keeping Wal-Mart out of Colombia




Established in 1949 in Medellín, “El Exito” (Success) started out as a small retailer of fabrics and blankets, under the motto: “To buy well, in order to sell well and pay well”, which is still part of the company’s culture. During the 50s and 60s it continued to grow and become the low cost provider of good quality fabrics and tailoring. After Sears Roebuck left Colombia in the 70s El Exito took over their buildings expanding themselves to one of the largest retailers in the country and expanded from fabrics to start including food and other supermarket goods. In the 80s and 90s it expanded all over Colombia and became public in 1994. In 2000 El Exito bought Cadenalco, a major conglomerate of supermarkets and added El Ley and Pomona to its brands. This acquisition allowed them to have brands all over the positioning spectrum of price and quality.




But the Exito stores are the ones that have really kept Wal-Mart away from Colombia. Under their Big Box format that they pioneered in the 70s, they are very attuned to the Colombian needs and tastes. With very large sections of produce with over 70 kinds of fruits and over 130 varieties of vegetables, they really cater to the local market.



Their other categories are very wide and cover meat, poultry, fish, flowers, dairy, bakery, soaps, cleaning products, beverages, wines and spirits, appliances, furniture, textiles, perfumes, stationary, computers, stereos, sports equipment, music, books, toys, tools, and car accessories.

El Exito is an “Every day low prices” store that works continuously with its more than 4000 local and international suppliers. It has developed its own brand of products that have been awarded with national quality standards (Icontec) as well as ISO. They not only look for existing suppliers in Colombia, in fact they have just become the exclusive retailer for Budweiser in Colombia helping them enter the market. They are deeply committed to the community and the environment, and have continuously been certified with ISO-NTC environmental regulation compliances.



But perhaps what links them most to the community is the Exito foundation, which has established great programs to help the poorest people in the country. With food banks, education and health programs they act in all the cities in which they operate. With the program “Goticas”, (droplets), people donate their change at the tills for these causes which is then matched by the company. Last Christmas they reached 215,000 children with presents and meals.


It is hard to say how much of Exito’s success has been due to the imitation of Wal-Mart practices, but they have been successful at keeping them out of the country, and at competing with other hypermarkets that have entered the market such as Carrefour and Vivero. They have also improved on some of Wal-Mart’s main weaknesses such as community involvement, they have succeeded at creating great pride and loyalty towards the brand, and they have very good reputation as an employer.




Exito has also continued to innovate their formats and has created a complete online store (http://www.virtualexito.com/) where you can buy any of their products which will be delivered within 3 hours of purchase for produce and groceries and 2 days for electronics and furniture. The cost of delivery is about CAD$ 1.5. Interestingly they are targeting the site to the growing Diaspora of Colombians abroad. It is very easy to buy online from abroad and have the groceries delivered to their families in Colombia. Part of their future plans is to start distributing Colombian goods abroad too. They have an AAA bond rating, and growing profits and they keep developing their stores with services like chefs who do demonstrations inside the store and teach how to make recipes from around the world.

Could GM's "March Madness" promotion be a step in the wrong direction?

GM has announced today that it will be holding a “March Madness” promotion that will be tied to the NCAA basketball tournament. This promotion will be running through to April 4, and has been designed to offer customers up to an additional $1500 off the current rebates and existing incentive offers on models that have been on dealer lots in excess of 4 months.

Currently, GM has a 90 day supply of vehicles (industry average is 65) and has been looking for ways to clear out this old inventory. GM’s intention with the “March Madness” program is to allow dealers to create room for the new 2007 models under their new pricing strategy. GM spokeswoman Deborah Silverman said in a press conference today, “The new campaign corresponds with a “peak” selling season and is by definition an attempt to manage inventory.” www.detnews.com/apps/pbcs.dll/article?AID=/20060314/AUTO01/603140403/1148

GM denies that this March Madness promotion is a step in the wrong direction, as the company is trying to scale back incentives and rebates on 80% of its models. This scale back has resulted in an average decline in price of $1300 per vehicle as of January 1, 2006. “It's consistent with our strategy of using targeted incentives when they make sense," says Silverman. She also says that GM does not plan to offer the employee discount deals again this summer, and this March Madness promotion is a way to ensure they don’t need to…but is it sending consumer the wrong message? www.marketwatch.com/News/Story/Story.aspx/guid/GMaimstoharnessinventoryandavoidasummerblowout

GM has 7% less inventory than it did last year at this time, and with the 3.7% production decrease, GM is well on its way to posting a volume decline in March. Once GM has its inventory under control deals like this one should no longer be necessary, as long as GM sticks to its low incentive strategy.

The March Madness deal is limited in scope and is significantly less than in recent campaigns; however, I feel it could be sending consumers the wrong message. Although, GM is on track to spending significantly less on incentives than in the past (almost $1000 less per vehicle), they need to be consistent if they ever want the consumer to accept their new pricing strategy. By flip-flopping back and forth, the consumer is going to get confused and they are never going to know when GM is offering the bottom price, or when the price has been inflated to accommodate the incentive. As long as the consumer is unsure of this, they are going to enter the dealership ready for a fight.

GM’s financial position and market share decline is no secret to anyone. GM has been producing more cars than it can sell for a long time now. If GM ever wants to get back on track, it is going to have to stand behind its decision to cut incentives and offer a better bottom price. That means that GM should probably find a different way to get rid of the excess inventory without damaging the new brand image it is trying to develop. Instead of adding incentives, they could turn to the auction to get rid of these 2005 and 2006 models; allowing independent dealers to buy them at a discount and then sell them to their customers out of the GM spotlight. This way, GM would not have to advertise these huge deals.

If GM wants the consumer to believe in their product, then they are going to have to let them know they stand strong behind their bottom line pricing and stop offering huge incentives. Incentives do nothing but cheapen the brand. Four years ago, these incentives might have been necessary, but today GM can be proud of the fact that they produce a top quality vehicle and have received top honours in multiple JD Power rankings. In 2005, GM took the top 4 spots for mid-sized luxury sedans, beating out BMW, Mercedes and Lexus (JD Power rankings for 2005).

GM, and many other car manufactures have trained the consumer to shop for the incentive, not the car, and it’s time this type of mentality is put to a stop. If you take a look at the brands consumers believe to be high in quality, they don’t discount anywhere near GM’s discounts, if at all.

It’s going to be a tough uphill battle to change consumer perception and behaviour when purchasing a car, but I believe GM is the company that can make this happen…and the first step in doing this is to cancel “March Madness!”

Social Networking Goes E-Commerce

"We're the first social site to allow people to actually put items on their Web site without any hassles," TagWorld President Evan Rifkin told the E-Commerce Times. "How many people have bought something on eBay?" Rifkin asked rhetorically. "Quite a few. But how many people have sold stuff? That number is probably drastically different."

Somewhere between no-frills Craigslist and intricate eBay (Nasdaq: EBAY) lies the new e-commerce offering introduced by Santa Monica, Calif.-based TagWorld last week.
TagWorld, a high-energy social networking space launched last November, is combining the new service of free online classifieds, which includes images and personalized storefronts, with auction features.

The service adds a new word to the wired community's lexicon: "social commerce."

Haggling Allowed

TagWorld members can post items for sale in the new classifieds section, which can be searched by tag -- similar to a subject or catagory, keyword or zip code radius. Multiple images of an item can be included with the ad, as well as a payment model. Sellers can choose a fixed price or mark the item negotiable -- which allows buyers and sellers to haggle over a price.

PayPal is integrated into the site to make paying for items easier.

Items appearing in the classifieds can also appear in storefronts that members can incorporate into their personal Web pages.

Storefronts Without Hassles

"We're the first social site to allow people to actually put items on their Web site without any hassles," TagWorld President Evan Rifkin told the E-Commerce Times.
"If you go to Craigslist, they have a classified section, if you go to MySpace you can post a link, but this allows you to drag and drop a store onto my Web site," he explained.
The new service's ease of use and the fact that it's free should make it attractive to people who want to sell items on the Internet but don't have an ambition to be a Power Seller on eBay.

Merchants With Personality

"How many people have bought something on eBay?" Rifkin asked rhetorically. "Quite a few. But how many people have sold stuff? That number is probably drastically different.
"The reason is that it is kind of complicated to sell something on eBay," he continued. "It's not really easy."
TagWorld's storefronts have another advantage over doing business on eBay, Rifkin contended. They give a seller a personality because they're connected to a personal Web site.
"It's more of a community-driven sale than would be experienced on eBay," he said. "It's real peer-to-peer selling."

Attracting Attention

TagWorld's social commerce endeavor is another move to differentiate itself in a social networking market dominated by MySpace, according to Debra Aho Williamson, a senior analyst with eMarketer in Seattle.
"TagWorld is much, much smaller than MySpace," she told the E-Commerce Times, "so it clearly needs something to attract attention."
MySpace has some 56 million members; TagWorld, 787,000.
"They're going after Craigslist and eBay," Williamson observed. "The question will be volume. Craigslist has volume. The same with eBay. TagWorld is going to have to see if its current users are interested in this and if it will draw new users to its space."

Building Stickiness

Moreover, when it comes to ease of use, it doesn't get much simpler or cheaper than Craigslist, she added. "My husband put up a set of car wheels and got five people in two days saying they were interested in them," she said.

Troy Young, vice president of Organic, an online marketing firm with offices in San Francisco and New York, reasoned that TagWorld's latest e-commerce move is a natural extension of its community.

"One of the ways to increase the stickiness of a community is by surrounding users with the tools and features that make them want to stick around," he told the E-Commerce Times.

Atomizing Media

"If you think of integrating communication devices into a community -- as MySpace is doing with its new cell phone -- and extending commerce into a community, it makes them a more compelling long-term proposition for the user," he added.

Communities like TagWorld are part of a broader social trend, he postulated. "The media world is being reoriented around the individual," he said. "Individuals can not only publish now, but they can monetize, too."

"Blogging gave individuals a voice," he declared. "AdSense gave them pocket money. Both of them are spurring this wave of innovation that's atomizing the media

Why Retailers Should Do Customer Centricity Analytics

What do we get by customer centricity analytics in retail industry?

A. Analytics for Marketing
Customer Segmentation - By segmenting the customer base, the retailer can subject them to Target Marketing, thereby ensuring a higher share of the customer's wallet, in addition to meeting the customer needs. It also helps in understanding the changing behavior that fuels new product development ahead of competition.

Target Marketing - Retailers typically send out fliers to all households in a region where a product is being promoted. Each flier costs money in material, design, and postage. By creating a profile of a customer who has purchased the product in the past and treating such selected profiles as prospects, the retailer can identify customers who are most likely to respond. Thus Target Marketing helps in reducing promotion costs and improves the response rate.

Campaign Management - Campaign effectiveness Analysis helps in measuring the success or failure of a given campaign. Typical measurements include response rate, sales performance during the campaign/promotion and the number of visitors to the store during the campaign.


B. Analytics for Sales
Customer Profitability Analysis - By accumulating data on revenue from specific customers and assigning relevant costs (direct product costs, indirect customer acquisition costs and operational costs), Customer Profitability can be arrived at. Analysis of Customer Profitability helps in identifying the cash cows and providing appropriate services to retain them.

New Product Introduction -By analyzing customer purchasing habits and product movement, the retailer can get insights on customer preferences/tastes and introduce new products to meet these preferences.

Customer/Channel Affinity - Some customers are more likely to respond online than other channels. While others might be more receptive to literature that is delivered at their doorstep. Information about a customer's preferences to the channel aids in effectively reaching out to the target population.

Cross-selling and Up-selling - By associating products with customers, purchasing behavior can be analyzed. Thereby, products can be cross-sold effectively. E-Business analytics can help in identifying cross-sell and up-sell opportunities by analyzing purchase patterns and using sophisticated data mining algorithms.

Market Basket Analysis - The analysis of a shopping cart of transactions, with or without the identification of the specific customer, leads to a decision that is designed to impact the Customer's purchasing and buying behaviors. The retailer can also market products that are complementary to the current purchase.

Product Affinity - By analyzing customer purchasing habits, the dependency of the product on the season, region or demographical patterns can be arrived at. This also aids in product ordering, replenishment, inventory control and, more importantly, better control over visual merchandising, cross selling, etc.


C. Analytics for Customer Service
Customer Satisfaction Analysis - A study of data from sources like Complaints, Return of Products, and Inquiries helps in gauging the satisfaction of the customer with regards to the retailer's products and services.

Customer Loyalty Analysis - Data from the customer service sections helps in analyzing the loyalty of the customer. Another application of such data is Turnover Analysis.


D. Business Benefits
Price optimization - Though competition does have a tendency on affecting price, it is the customer's perception that ultimately decides the pricing strategy. Customer Analytics helps to measure and analyze customer perception, identify price elasticity and price sensitivity points.

Customer Loyalty - Better knowledge of the customer finally results in a host of services and products which are tuned for the individual customer. Improved one-to-one marketing results in repeat business from a loyal customer.

Effective Target Marketing - Target marketing helps to retain and communicate better with customers. This has proved to be a very effective tool since specific offers can be segmented to specific customers.

Cost Reduction - Cost reduction comes in various ways due to trimming high-cost customers, reduced inventories, improved purchasing and forecasting. Accurate accounts of prices, SKU's, and UPC codes, which in turn result from Customer Analytics, will result in more profitable stores.

Efficient Forecasting - Retailers need to move from supply-based forecasting to demand-driven forecasting. Noting the trends in Customers' purchasing can help in predicting sales. The retailers' purchases and inventory too can thus be forecast. Costly Out-of-stock and overstocked situations can be avoided, by fine tuning assortment policies.

Efficient Brand Management - A brand can only be positioned relative to a customer. The customer's behavior and other patterns help in managing the retailer's brands.

Maximizing Your Return on Marketing

Maximizing Your Return on Marketing
"Half the money I spend on advertising is wasted; the trouble is I don't know which half." -- John Wanamaker, the founder of modern department storesFor a long time, it was difficult to accurately measure and manage marketing effectiveness. Luckily, this is no longer the case. With advanced marketing analytics, retailers like you can make precise measurements to maximize return on marketing (ROM).World-renowned for their marketing campaigns, retailers like Neiman Marcus, Lands' End, and Wal-Mart.com use advanced analytics to gain a competitive advantage in customer intelligence. You can use such analytics to do this and more. By marketing cost-effectively, you'll not only beat the competition but you'll also see rapid paybacks and high return on investment (ROI).

Early and Fast Returns on Customer Analytics
Business gains from marketing come from diverse sources. And though many retailers achieve ROI (and ROM) relatively easily by pursuing common sources of business gain, it's with a first use of analytics that the rapid returns start coming in.In many cases, preventing common mistakes is enough to pay for your entire customer business intelligence (BI) system. As the CIO at one of the nation's biggest names in retail said, "It was worth it to us just to stop the really dumb errors."Areas that often provide a high and immediate ROI include:
1. Customer segmentation. Identify specific groups of customers by loyalty program status, demographics, recency/frequency/value, brand loyalty, and other dimensions so you can treat them and promote to them more effectively.
2. Personalized upselling/cross-selling. Automatically recommend to customers (or store associates serving customers) additional or higher-margin products that may appeal to them based on the product under consideration and historic data on that particular customer.
3. Promotion optimization. Accurately forecast the sales lift that a specific promotion will have and then balance the combination of sales lift and net margin to optimize return on that promotion.
4. Multi-channel customer service. Enable customers to easily order online and pick up or make returns to stores. Understand your best customers' online, store, catalog, and total behavior. New store location. Identify the characteristics of your best-performing stores and identify new locations that fit those criteria.
5. Loyalty program development. Develop and manage new loyalty program features that differentiate your program from others. Then measure their effectiveness and ROM.
6. Low-cost email marketing. Use highly targeted email campaigns, which are automatically personalized to each customer, to add value. Personalization increases both the effectiveness of each campaign and the volume of customers opting to receive emails.

Continuing Advanced Returns on Customer Analytics
Once you start seeing good returns from these areas, you can continue to achieve high-ROI gains from additional, more highly advanced analytics. Continuing improvements use the earlier investment in customer intelligence for even greater ROI/ROM.With areas of advanced ROM you can:
1. Segment customers by shopping mission
2. Calculate each customer's price sensitivity and attentiveness to certain types of promotions, and then target promotions accordingly
3. Personalize recommendations based on the customer's probable shopping mission, not based solely on the product under consideration
4. Optimize promotions considering the net effects a promotion has on related product sales and margins that will be cannibalized or gain a halo effect from that specified promotion
5. Optimize entire campaigns made up of a series of promotions
6. Identify the optimum format and promotional plan to use at existing store locations to increase comp store sales
While the ROI on individual and ongoing uses of customer intelligence for superior return on marketing is enough to justify investment, the greater gain is long term. More effective, highly-targeted marketing and customer service create a greater value for consumers.

Retail Finance: Retail or Finance ?

When one hears about retail (or consumer finance) it may come across as a separate industry or a subset of Finance. I have created this post to share my views by leveraging upon my experience of working with non banking financial companies such as Citifinancial and GE Consumer Finance. I have closely seen how companies “sell money” in order to earn interest to retail customers either through their own distribution channels or through traditional retail channels such as electronics dealers or car dealers.

A good example of how retail finance companies directly sell to consumers is through their branch networks for money products such as cash loans where the consumer can get a loan most of the times without a collateral. Where they use other traditional retail channels is by tying up with dealerships for electronics or cars amongst others. It is often not so simple. The finance company has relationships with manufactures as well. For every consumer product sold, the manufacturer and possibly the dealer will contribute an amount which reduces the net disbursement for the finance company. This boosts the IRR for the finance companies. The 0% finance schemes to the end consumer is a result of such tie ups. The finance company almost never lends money for free to the consumer.

What is really interesting is the involvement of new techniques in retail finance such as CRM where customer details and behavior forms the base for innovation and superior customer offerings. For example while at GE we had consumer durable (electronics) loans to customers on the books. Once that portfolio gained significant mass, the data was analyzed and a new product was developed for cash loans with differential pricing. Customers with great repayment patterns were offered higher loans at better interest rates. Congratulatory mailers were prepared and calls were made proactively made to the prospective existing customers. Even thought the margins on the original consumer durable loan was negligible these new offerings for cash loans offered us extremely high margins and were made to a much cleaner set of profile of customers.

An interesting phenomenon is the inclusion of banking or loan centers within retail or grocery stores such as Amicus within Loblaws. My summers at CIBC gave me an opportunity to witness how Amicus is just the face of the operations at the Loblaws outlets. The actual processing and servicing of loans is carried out by CIBC. Arrangements like this confirm my belief that retail finance is an integrated aspect and feature of the retailing industry.

Maybe we could see more discussions on this aspect either in the form of business school cases or other business forums. Whether it’s due to the increase in manufacturing companies and their desire to sell more with tie ups with finance companies or by the synergies created through associations such as Amicus, I see the customer as the real winner.

Talk of retailing and not of Wal-mart. Yes, something that is sending shivers down the spine of the financial companies is that retail giant is making slow but steady moves in financial services.

I look forward to the comments from my classmates and the professor on this post.

Thanks

Wal-mart courts India!

My post focuses on the world’s biggest retailer’s attempt to enter one of the fastest growing economies in the world. Buoyed by its success in China, Wal-Mart is now hot on India. Grocery stores or malls till now were not places familiar for people to shop. Malls have become more and more visible off late more than the grocery stores. Why is Wal-mart so serious about India? Booming economy, consumerism and middle class are some of the attractions. Not since Mr. Kenneth Lay and Ms Rebecca Mark came calling to sell Enron's plans to lead India out of darkness has the country seen such excitement.

John Menzer, president of Wal-mart, waved his little black wallet at everyone and said: "We sell this piece, sourced from India, at $17 a piece in the US. Our competitor sells it for $70." Now that is still value for money, considering that Wal-Mart in all probability would have bought that wallet for not more than the equivalent of $3. No wonder the big bottom-lines made its founder, Mr. Sam Walton, the richest man in the world and Mr. Warren Buffet its happiest investor

Opportunity

The real attraction of India is its retail inefficiency. More than 95% of retail sales in India are made through 12 million mom-and-pop shops, newspaper stalls and tea stands. Sales by modern retailers in branded, professionally managed chain stores are expected to climb more than 15% a year during the next decade.

Britain's Marks & Spencer Group, Dairy Farm International Holdings Ltd. and Dubai-based Lifestyle International have set up shop in India through franchises and joint ventures

Lobbying

Wal-Mart executives have been among the industry's strongest lobbyists. The company has used high-profile executive visits and pamphlets to preach to India's public and political leaders. About how international retailers can transform distribution systems and lower prices. Communist leaders are concerned foreign retailers will hurt the tens of millions of people dependent on small shops for their livelihoods.

Challenges
That is easier said than done in India, given its poor infrastructure. The company will likely have to build distribution systems from scratch and struggle with bad roads and power outages. It will also have to contend with new national retail chains, such as Shoppers' Stop Ltd. and Provogue (India) Ltd. When Wal-mart first arrived in China more than 10 years ago, it mistakenly stocked stores with bestsellers from the U.S. It quickly learned that the average Chinese consumer didn't have closet space for boxes of 40 rolls of toilet paper. India would offer similar kinds of learning opportunities as well.

I look forward to comments from my classmates and the professor on what they think about the giant’s latest move!

References:
Business week, WSJ and Business Line

Retail Location Decision for IKEA in China

IKEA China snapshot
Till 2006, IKEA has only three retail stores in China locating at Beijing, Shanghai and Guangzhou respectively, which are also the major cities in northern China, central China and southern China. Averagely, IKEA sells over 7000 items in each retail store and annual sales achieved USD1.2 billion.

Location decision is critical for retailers as it determines the access to customer and capital expenditure for retail stores. Moreover, it cannot be changed easily once decided. To select an optimized location, retailers have to valuate various factors and map out their strategy based on different regions in different countries.

As one of the biggest furniture retailers, IKEA demonstrated effective retail location selection localization in China. While in North American and Europe, IKEA normally sets up retail stores at suburb areas and still attracts high volume shoppers due to its nice and low price furniture, and high rate of private car ownership. However, IKEA’s location decision in China changes dramatically given the following factors:

Choice of major market area
From economic growth potential perspective, China is one of the emerging markets in Asian and almost all big retail players started entry into China market a decade ago. IKEA captured the trend and found its first store in Beijing in 1998. On the other hand, IKEA is doing 18% of purchase in China, and IKEA has the advantages of supplying China market locally.

Secondly, to further select cities in China, Beijing, Shanghai and Guangzhou, locating at Northern China, Central China and Southern China respectively, are selected by IKEA given their population density, purchasing power, income and spending levels.

Choice of type of retail area
With regard to preferred locations by shoppers, consumers in China demonstrate their own uniqueness. There are a few distinctive consumption behaviors comparing with consumers in North American.

Access to customer is determining factor for Chinese consumers. Most of people in big cities live downtown, and they center their activities from buying cloth, groceries to furniture all at downtown. Hardly would they drive to suburb as there are normally no facilities and shopping areas there.

Trading Area
IKEA’s site selection actually captures consumers who live and work nearly, as well as customer who stays at other district of the city. IKEA achieved this goal by only setting up one store at each major city. That is using the demand-gradient models to make the site selection decision.

Take the IKEA retail store in Beijing as example: it’s as large as 32000 square meters and locates at a central downtown area with high traffic and population density. IKEA built up a high rising building with over 5 floors with 1st floor as inventory space for hot sale items. The operation cost might be high but the sales volume makes up the expenses.

Future Retail Development Strategy
To further increase its sales in China, IKEA has selected a new location for its 2nd store in Beijing, it’s over 47000 square meters and located at nearby CBD area which is expected to be built as the flagship store in Beijing. Given the easy access to customers, high purchasing power and population density, IKEA would expect to double its sales in Beijing.

In conclusion, IKEA is able to localize its store to best fit the market requirement. It successfully pinpointed key retail success factors in major cities in China, which is convenience and easy to access so that IKEA achieves its milestone in Asian market.

Life springs up from the land of death

I was in Florida last week, a region best known for its old people, strip malls, and traffic. Florida is, unfortunately, not the last bastion of strip malls. The prevalence of strip malls is probably an indication of what most of the populated US will look like in not too long a time. While in Florida I had the pleasure of visiting TJ MAX with my girlfriend (obviously).

Basically, TJ MAX is a version of our Winners . . . on steroids. They have home furnishings, gadgets, shoes, and toys, but mostly, clothes. The hangers are literally filled with thousands of items from brand name designers . . . that are slightly irregular. The items are not so irregular that you get pants with only one leg or skirts with a hole in a back. In fact, usually, the irregularity is so miniscule that most people would never even be able to find it. AND TJ MAX and Winners both buy these items at enormous discount prices and sell them at a discount as well.

Both of these stores seem to be great examples of strong working business models. What I think is the most interesting part of these businesses is the struggle that they had to go through to become what they are today. Being a retail business, the marketing hurdle that they had to overcome was probably started by their original marketing campaign. I think it goes something like “Brand Names without the Brand Name Prices.” The problem is that it’s not believable initially. There is a mental hurdle that people need to get over about discount clothes and the thought that there is something wrong with those clothes.

As TJ MAX and Winners would see it, the value is proposition is obvious. For manufacturers, they can now sell items that do not pass quality control that they would normally throw away. Even if they only get a couple of dollars, it’s better than zero dollars. For the customers, it’s “Brand Names without the Brand Name Prices.” But it’s not without effort. If they can convince you to come to even check out a place like Winners, then you have to work to search through all the merch. It is a grueling search to find something that you would actually wear, which is where I think they have succeeded. Not only have they been able to have a great selection of great brands, they have also attracted the “Shoppers.” Shoppers with capital S, like my girlfriend Jaclyn. The only thing she loves more than finding the perfect piece is finding it for a bargain. Winners and TJ MAX enable that process.

And what is more amazing is that these Shoppers are now out there espousing the virtues of these stores and, I believe, they have crossed the tipping point.

Who else love Winners?

Self-Checkout: Improving or Diminshing RVP?

The controversy surrounding self-checkouts rages on, yet one thing seems certain: Self-checkout machines are here to stay. After a rocky introduction on US television in 1996, $161 billion of sales passed through self-checkout machines in 2005.

Retailer Perspective

A common belief is that self-checkout machines replace people thereby lowering retailers’ costs. Some debunk this theory. Consequently, the effect on costs, hence prices, is unclear. While the machines do take up less floorspace than regular lanes and reduce labor hours by requiring one employee per 4 machines, they also require significant investments in the range of $92,000 upfront and $15,000 per year thereafter.

These costs indicate that the returns for retailers are not obvious. Indeed, retailers may benefit more from redeploying staff from checkout to other experience-enhancing services, such as bagging, carting, and loading groceries for customers, thereby improving a store’s RVP. In fact, employees don’t have to fear layoffs since retailers currently have difficulty staffing their needs.

Stores such as Kroger, A&P, and Home Depot have introduced self-checkout successfully. Nevertheless, many stores have not succeeded in becoming self-service or are avoiding the change altogether. To improve their chances, stores can take measures such as making the self-checkout easy-to-use and providing attentive assistance. Special attention should be made to the process flow and security.

Customer Perspective

The speedy adoption of self-checkout by consumers has caught retailers by surprise. Indeed, many retailers underestimated both consumers’ comfort-level with technology and their dislike of manned checkout lanes. According to Carolyn McNally, Chief Marketing Officer for Pay By Touch, “Consumers are looking for convenience and speed and the most-disliked part of a grocery visit is the checkout lane.”

Surely this trend indicates a lack of understanding retailers had of their consumers. In particular, retailers did not appreciate that younger people do not value unsolicited personal interaction during shopping. Nowadays, a large proportion of consumers under 35 have become accustomed to purchasing items electronically via the web. In line with stereotypes, men are especially more likely to use self-checkouts because they have smaller basket sizes and typically hate shopping.

Resultantly, whether customers think self-checkout enhances or diminishes experience and convenience really depends. Self-checkout can provide many customers with a sense of greater control and privacy to improve their experience, and speed to enhance convenience. However, certain segments, including baby boomers who are accustomed to high service levels, will not appreciate the loss of personal contact. Self-service at gas stations is clearly a parallel: some people like to pay in the store where they receive personal service and an opportunity to impulse purchase, while others prefer no human contact. Either way, self-checkout at gas stations is not given a second thought nowadays and will likely have the same outcome in other retail sectors as more people become experienced with the machines. Certainly self-checkout has unearthed a latent segmentation of customers and retailers can no longer blindly ignore it. Self-service can be viewed as part of a store’s offerings and providing a choice between self-checkout and regular checkout increases the selection available at the store, further adding to RVP.

My Perspective

I personally enjoy using self-checkout machines and prefer them to manned checkouts. I especially like self-checkout over express checkout lanes, which I find aren’t much faster than regular checkouts. At the A&P at Cherryhill, you have to bag your own groceries at the express lanes; in this case, I have no qualms with performing the entire checkout process myself as I would opt for full control if I am to have any. To me any value of checkouts comes from bagging. Consequently, I don’t see the point in having someone earning minimum wage just passing boxes across a laser and then handing them to me. I can manage the scanning as capably, even for difficult items such as produce. Nowadays all produce is tagged making self-checkout straightforward. I will be happy to see even more advanced self-checkouts become as prevalent as ATMs or self-service at gas stations.

Factory Outlet Stores

In discussing multi-channel retailing, another venue which came to my mind was factory outlet centres. Ever since my first shopping experience at the Niagara Outlet in 1997, I have been a big fan of these stores. The lure of finding brand names at major bargains has prompted me to drive as long as two hours to get to my destination. In the following review, I will be discussing the way outlet centres used to be, how they are now and their future.

What is a factory outlet? An outlet store by definition is owned and operated by the manufacturer. Only the manufacturer’s brand of merchandise is sold in the store, at 30-75 percent below department store prices. The very first factory store was the Burlington Coat Factory. The “outlet” retailing strategy came about in the 1980s when there was an excess of coats manufactured hence the owners decided to open up sales directly to the public. The instant success quickly prompted many other retailers to jump on board resulting in a boom of outlet stores in the 1990s – 183 centres with sales of $6.3 billion in 1990 to 294 centres with sales of $11.4 billion four years later. Originally, development of outlet centres usually followed three general rules. First, the centres were located at least 30-35 km away from the manufacturer’s major wholesale accounts to avoid competition with the traditional shopping malls. Second, the outlets were located at “pass-by” locations such as on major highways and in close proximity to tourists’ attractions. Third, the factory stores were located near metropolitan markets if they did not have any regional mall competition nearby. As saturation of outlets occurred, the geographic boundaries appeared to be obliterating apparent by the establishment of some outlets within the same block of traditional malls.

How do outlet stores attract consumers? Decades ago, the lure of bargains alone was sufficient to attract bus loads of visiting tourists as well as local shoppers. It was no frill shopping – outlet shops were located in concrete buildings with cement floors with long rows of fluorescent lights and wire hangers holding merchandise on old-fashioned pipe racks. Today, with the emergence of discount retailers such as Wal-mart and frequent sales and everyday low pricing from traditional department stores such as Sears, price alone is no longer a competitive advantage for outlet centres. Starting with the looks, today’s outlet shops are architecturally designed to equal or surpass the finest local retail establishment. Marketing programs, which was avoided in the olden days for fear that they would hurt the traditional retailers, are now implemented full force. From direct mailing of coupons, various media ads, frequent shopper reward programs, outlet stores are promoting themselves no differently than the traditional retailers.

Why are outlet stores appealing to manufacturers? Factory outlets have provided manufacturers with a new venue to sell merchandise direct to the consumers. Cutting out the retailing middle men increases the profit for manufacturers, even at the discounted prices. Outlet stores provide an additional retail channel where manufacturers have complete control over merchandise assortment. In addition, the discounted prices allow higher-end brand manufacturers to reach price sensitive consumers who normally would not buy the merchandise in the department stores. In the beginning, outlet stores served as the depot to unload “seconds,” or imperfect goods, as well as merchandise that was overproduced or sent back unsold by retailers. Today many companies manufacture special lines for outlet stores, about 15-20 percent of total production. This strategy can actually bring about cost savings since it is a way to use up leftover fabric and maximize manufacturing capacity and efficiency. The concept of “seconds” sales is also vanishing as 95 percent of the merchandise being sold is first quality. In some instances, you can find the identical merchandise at the outlet as that in the regular store but at a much lower pricing.

The future of factory outlet stores -- Although the U.S. is the birth place of the factory outlets, data suggests that the sector has shown signs of decline (only two outlet projects opened in 2003 as compared to all time high of 43 in 1989), whereas there is still growth in the UK and Europe. Industry consolidation, sluggish sales, stiff competition and a public perception that the discounts are not worth the drive have all contributed to dampening down the sector’s once amazing growth rates.

Does this mean that factory outlets will eventually be extinct? I believe that there is a niche for outlet stores. What initially motivated me to drive at least half hour or more to get to these stores was the appeal that I can get brand names at bargain prices. While residing in Pennsylvania for a year, I did all of my clothes shopping entirely at outlet stores. I was able to afford brands such as Ralph Lauren, Kenneth Cole, etc. which normally would not be possible had I gone to department stores? When I came back to Canada, I was very disappointed with some of the so called outlet stores here. As an avid shopper, I felt cheated when the price of some merchandise was identical to those in the shopping malls. If the manufacturers use outlet shops as another venue to sell merchandise at regular prices, their business will not sustain. Consumers expect to find bargains when they shop at factory outlet stores, hence if there is no difference then the regular mall, then why would anyone bother to drive that extra distance. I think that outlet stores are excellent venues to sell left-over merchandise from regular retail stores and merchandise manufactured from excess capacity. The selling point must be bargain pricing. In particular, outlet centres should compose of higher end brands because consumers gain more satisfaction from being able to buy designer-label merchandise at discounts as compared to lower brands which they can get comparable items at stores such as Wal-mart.

Disney: stopping catalog, focusing on online business

The Walt Disney Company, will stop distributing a catalog that has filled the mailboxes of tens of millions of households for the last decade in this spring, and focus on online sales.

Disney isn't the first cataloger to cut back radically on its mailings in an effort to shift more business to the Internet. In 1999, Lands' End cut its catalog circulation by 9 percent; its revenue soon fell by nearly twice that percentage, in an experiment that many online executives still point to as evidence that catalogs are more critical to driving Internet sales than they may appear.

Paul Gainer, vice president of Disney Shopping, says 2006 is a much different selling environment online. Not only have high-speed Internet connections led to more aggressive online buying by mainstream customers, but search engines are considerably more effective in helping attract those customers than they were in 1999.

Last year Disney spent $18 million to mail 30 million catalogs. Half of the catalogs went to the similar groups as the previous year’s did. Disney had a 45 percent drop in phone orders. The number of customers who responded to e-mail and other online marketing messages increased dramatically.

The company tested various catalog mailing approaches in the last six months to analyze if it should keep the catalog operation running. But no matter the approach, online orders grew much faster than telephone sales. Now more than 80 percent of Disney Shopping's sales come online.

By eliminating the catalog, Disney will save $18 million per year. It will close a call center and eliminate many positions on catalog. The money will be used to buy search-engine advertisements, improve the company's e-mail marketing campaigns and develop a more extensive roster of third-party sites to help refer buyers to Disney.com. Disney expects ''consistent double-digit sales growth'' as a result of this switch, compared with just 5 percent sales growth in 2005.

However, the retailers who sell through the combined channels of catalogs, Web sites and physical stores achieve more customer loyalty and bigger profits than those that do not. Catalogs still play an important role in reaching new customers and simulating sales. Donna Hoffman, the marking professor of Vanderbilt University, indicated that customers who shopped using a particular retailer's stores, catalogs and Web site spent 15 percent more with that company than those who shopped through just one of those three components.

Even Amazon and eBay, the major online players, began to distribute catalogs in recent years. Fully getting rid of catalog would be very risky for Disney. And also, after getting rid of catalog business, the company has to restructure: e.g., cutting positions on catalog while increasing positions on online services. If one day the company wants to go back its catalog business, it would cost a lot of time and money.

It would be better for Disney to stop catalog gradually. In order to decrease the cost of running catalogs, Disney could:
1, Decrease the pages of catalog
2, Decrease the number of catalogs printed and mailed, stop mailing catalogs to those customers who already use online service
3, Cut call center staff if the telephone orders decreased too much

OTC Retail Audit in China

Status Quo of OTC Pharmaceutical Market in China

The OTC market growth is expected to be significant especially in Asia Pacific region. Frost & Sullivan estimated that the OTC market would reach up to $5 billion in 2005 at an average growth rate of 20.3 percent in China and let this country be the fifth largest OTC market in the world(1).

The rapid growth in China’s OTC market is fueled by government policies that favor the OTC drugs, for instance, the policies relate to national basic healthcare system, new drug registration hospital reforms and the intellectual property protection. Among some of the contributing policy initiatives are separation of prescribing and dispensing, healthcare insurance reforms, enforcement of GMP and GSP guidelines and procedures for OTC separating and prescription drugs(2).

OTC Retail Audit in China

The economic boom, better living conditions along with the health-conscious life attitude also stimulate the OTC healthcare markets in China. According to the OTC pharmaceutical retail audit from IMS-URC, the sales volume of eight main OTC categories (including Cold & Cough, Antipyretics & Analgesics, Multivitamin & Calcium Supplement, Dermatological and Gastropathic Remedies) increased 36% from 1999 to 2003 in eight key cities in China. The expansion of retail outlets in those countries provides the consumers easy access to OTC drugs. It is more convenient to buy OTC medicine in drug stores rather than in hospitals.

IMS-URC is the pioneer in the field of OTC retail audit in China. It conducts retail audit in 13 major cities and applies the stratified random sampling based on an updated annual Census Report in over 1000 retail outlets in China. The audited retail outlets are Western drug stores, Chinese drug stores, supermarkets, hypermarkets and retail clinics (mainly in Chengdu). IMS-URC provides monthly, consistent and standardized retail audit data to multinational OTC pharmaceutical companies and predominant local pharmaceutical companies. The raw data for collection is from monthly inventory records rather than from subjective estimation in retail outlets. The auditors go to retail outlets monthly to collect the information. IMS-URC tracks the market trend and competitors situations for pharma companies and gives marketing and sales people a useful and reliable tool to understand the up-to-date marketing situation and to monitor the sales performance. The main retail audit indexes include:

1. Monthly (Quarterly), YTD, MAT Sales Volume (Unit) and Shares (% of Unit)
2. Monthly (Quarterly), YTD, MAT Sales Value ($) and Shares ((% of $)
3. Purchase Amount (Unit), Value ($) and Shares
4. Average Price of SKU
5. Numeric Distribution and Weighted Distribution (Weighted by sales value)
6. Cover Days (how many days the medicine will be sold out)
7. Out of Stock Volume (Unit), Value ($) and Shares

China’s booming retail pharma market is undergoing tremendous growth. IMS-URC suggests that this trend will continue, with the retail sector maintaining a growth rate of about five percent more than its hospital counterpart(2).

Reference:
1. Frost & Sullivan Asia Pacific: Optimistic Or Ostensible – The OTC Industry in Selected Countries in Asia Pacific
2. World Pharmaceutical Frontiers: Unfolding China’s Consumer Potential

Is the Customer Always Right? A Tough Call...

In preparation for our discussion on Best Buy on Tuesday, I thought about this question (Is the Customer Always Right?) and concluded that while the answer is no, the unfortunate reality is that retailers often have to treat these customers as though they are always right. We’ve all heard the claim that a happy customer tells 5 friends and an unhappy customer tells 100. In our days of blogs, e-mail and forums, the reach of these unhappy customers can be extended exponentially. If the experience is bad enough, the unhappy customer builds a website and tells the world, recounting their dissatisfaction with airlines, websites, and any retailer coming to mind. With the easy access to blogs and forums, any dissatisfied customer can tell hundreds or thousands with virtually no effort. Out of curiosity, I did a search on the Internet and sure enough came across many forums on Best Buy where customers bash the store with ample details. As an example, please refer to the following site:
http://froogle.google.com/froogle/reviews?cid=fba553e088c7bd2e&range=2

My parents, who grew up in the 60s were definitely raised with the idea that “the customer is always right.” Customers are regarded as the most important element of any business, and so if they have a problem, it only makes sense to solve it. The conventional business theory is that if a company doesn't really look after its customers, they will move to a competitor. However, customers rarely make good service easy when they continually push for everything to be delivered at a lower price, which is exactly the way Best Buy’s “Devils” behave. In today’s environment where businesses operate under greater stress to drive growth and profitability, I don’t believe that anyone ever meant these phrases -- “the customer is always right” or “the customer is king” -- literally. Customers can be wrong just as often as anyone else. However, from the wealth of literature out there on the topic of “customer-centricity” and driving customer satisfaction, it seems that retailers are forced to believe that customers are always right and that keeping customers happy is a key business goal, no matter what.

Harvard published a fairly interesting article (March 2003 Issue) titled “Bottom Feeding For Blockbuster Performances” (available in the library for those interested) in which the author argues that “writing off a customer relationship simply because it is currently unprofitable is at best rash and at worst counterproductive.” The author argues that executives need to ask the question, “How can we make money off the customers that everyone else is shunning?” Specifically, the authors argue that companies should learn to assess the needs of supposedly unattractive customers and redesign their business models to turn a profit by fulfilling those needs. Once again, we see an underlying theme that businesses must always keep the customers happy and believe that “no customer is undesirable” because it is costly to think otherwise.

So, amid intense competition and the need to sustain growth and profitability, is it smart for Best-Buy to be weeding out the Devils? I certainly think so, because to me it is largely about business and common sense. If Best Buy sells at below cost to everyone, they wouldn't survive. They have to make a profit to compete with the Walmarts and the Dells, and this can be a tough challenge when every single day another 1% of their customers goes from “an angel” to “a devil”.

I think Best Buy’s new initiative makes sense but the transition must be managed carefully. In Exhibit 1 of the Best Buy case, the author provided an interesting anecdote where Brad Anderson, CEO of Best Buy, “had to apologize in writing to students at a Washington, D.C., school after employees at one store barred a group of black students while admitting a group of white students.” I think these are the kind of delicate issues that Best Buy needs to handle with utmost care or the discrimination strategy will only come back to haunt the Company.
One interesting article I found on the Internet introduced me to a book written by Larry Selden called "Angel Customers & Demon Customers." In this book, Selden suggests that retailers are not all always powerless over the “Devils” and that "Eventually, reluctantly, and very politely, you have to ask these people to go elsewhere.” [Please see article “The Customers is Always Right, Not Anymore” at http://www.sfgate.com/cgi-bin/article.cgi?f=/news/archive/2004/07/05/national1332EDT0564.DTL] Sometimes, maybe it is necessary to say goodbye to a customer, and to free the business up so more time can be devoted to take care of the good customers that are profitable in the long run. I definitely look forward to finding out what happened to Best Buy in the readings following the (A) case.

The transformation of bookstore retailing

Over the past two decades, bookstore retailers have reinvented themselves to from just selling a product to providing an environment for suburbanites, who are not necessarily looking to buy a book but want to have a collective experience of a coffee shop and a library. Retail business is getting increasingly competitive, with less than 50% of book sales coming from bookstores, while discount stores, toy stores, department stores and online book retailers like Amazon. Bookstore retailers had to take drastic measures to transform their value proposition.

Most bookstores have a strategically located floor space dedicated for popular coffee franchises like Starbuck in Chapters. The smell of coffee is very inviting for most bookstore visitors as coffee has become an increasingly popular drink over the past decade or two. Book signings in retail are also a very effective marketing tool, as increasingly popular authors are doing book tours across the major cities, like Bill Clinton and Jimmy Carter. Retailers have hired dedicated staff for event scheduling like book readings and signings, live musicians, children story times and chess tournaments.

Comfortable sofas can be found on the retail floor, encouraging customers to read some of the books that they might be interested in purchasing. The sales staff are equipped with online terminals and kiosks placed across the floor space, to respond to queries of customer regarding the availability of certain titles or suggestions. Loyalty programs like 10% discount for Chapters card holders have helped improve sales. Most stores also provide wireless online access for its customers, which is another tool to increase casual visitors. Like most mega retailers, mega bookstore retailers have moved into the Big Box format, and the bookstore retail floor space has quadrupled over the past 15 years. According to a recent study by Borders, 70% of the people entering their stores are browsers and do not have a specific book in mind. On the other hand, people who do know what title they want prefer to order it online.

This creates a dilemma for bookstore retailers. Should they focus on depth or breadth in their retail space? Should they focus on increasing their retail space or focus on increasing their online presence? Most bookstores are already using their websites for online sales, but competing against giants like Amazon is not a very viable strategy.

However, having the bricks and mortar retail space as well as an online presence can have some synergies. Barnes & Nobles uses its retail stores to collect customer email addresses, and sends information regarding new online products and promotions via email to existing customers.

The success of bookstore retailers depends on how successfully and cost effectively can they convert the browsers into customers. This would involve increasing the shop time for browsers. The more time they spend in the store, the greater the chance that they will end up making a purchase. Therefore, it is imperative for bookstore retailers to focus on promoting and emphasizing a ‘book culture’ rather than just product offering.

The Home World Group Part II

As previously introduced, The Home World Group is running a multi-operation business model: the hypermarket including furniture, groceries and daily necessities, home improvement chain stores, seafood restaurant and others (a school and a golf club). This uncommon business strategy has its advantages, but its weakness is detrimental if Home World does not respond well to the challenges and competitions from foreign giant retailers and other local Chinese retailers.

The challenges
Comparing with foreign giant retailers, such as Wal-Mart, Carrefour, B&Q and Ikea, the major problems of Chinese retail industry is its small scale and backward management, both of which increase Chinese retailer’s costs, which in turn reflected in their prices. For example, the sales revenue of Carrefour (China) in 2004 was USD 1980 million, more than double that (USD 892 million) of the Home World Group. Besides, after the Kingfisher plc (parent company of B&Q) acquired OBI’s Chinese business, B&Q became the largest chain store for home improvement and decoration materials with more than 50 stores in China. With their large scale, strong financing and advanced management, these global retailers will bring much more fierce competition after China opens its retail and distribution market.

Strategies to respond challenges
Aside from focusing on its current “concentrated development strategy” and other key successful factors, we recommend the follows for the Home World Group to improve its performance and competitive edge.

1. Merger and acquisition
Looking at the retail industry in China, we will find that it is a highly fragmented market. Therefore, one of the ways to survive the fierce competition is to establish chain stores to achieve economy of scale. By acquiring other retailers, especially in grocery and daily necessity stores, the Home World Group could further increase its market share and reduce costs by large scale of central purchase. As the Home World Group focused on second tier cities where so far, there is less or no competition from large retailers, the firm could acquire small local supermarkets with relatively low price and most importantly to take as much market share as possible to increase its competitiveness when giant retailers, such as Wal-Mart, march into smaller cities in China.

2. Going public
The Home World Group will need large amount of funding to support its expansion. Therefore, going public is one of the options to obtain financing for the firm. As China agreed to open the retail market three years after joining WTO, it is critical for the Home World Group to complete the acquisitions and build up its own strengths before foreign retailers enter the China market. Otherwise, the group will be likely a target of being acquired by those retailer giants.
Another reason for large amount of financing is that the group insisted on purchasing the land and building the store by itself. This strategy, on the one hand, reduces impact of the increasing rental on the future stores; on the other hand it substantially increases the demand for initial funding for new stores. Thus considering both factors, IPO is the best way to obtain large amount financing for the firm.

3. Alliances with strategic partners
In the home improvement and decoration market, the Home Way encounters strong competition from both foreign chain stores and domestic stores. Thus, forming strategic alliance with its upper stream and lower stream suppliers will substantially increase the competitive edge for everybody.

Aside from DIY, lots of people hire professional decoration firms in China. Therefore, if the Home Way establishes partnership with famous decoration firms, it will largely increase the business for both parties. Besides, the Home Way could also form partnership with major electronic appliance suppliers and furniture suppliers to establish a shopping complex to provide a “one-stop shopping” experience to attract customers who have limited time and require high quality of service.

4. Improvement of service and management
Aside from expansion to new markets, the firm should take whatever measures to maintain high customer loyalty to its existing stores to increase its market penetration. Surveys show that the top factors Chinese consider in deciding where to shop these days are convenience, followed by the spaciousness and comfort of stores and the selection they offer. Price ranks only sixth, according to researcher AC Nielsen. So, the firm needs to focus on providing better service and shopping experience for its customers. For example, at the moment, seldom supermarkets provide private label products, therefore, the firm could develop its own private label products with better quality and lower prices and make them the “destination products” to attract repeat customers.

The last but not the least, the firm needs to attract more industrial experts and studies the KSFs of those retailer giants to improve its management skills and to implement its corporate strategies more effectively and efficiently.

In a sum, the Home World Group will face the fickle customers with little brand loyalty, challenges to find decent staff and strong financing requirements. Only if the firm could get these issues right, the group will win the battle for the wallets of Chinese consumers.

TV shopping Channel: why they exist?

I am always wondering why the TV shopping channel exists. To me, TV shopping channel is a waste of time when I switch my remote control and a waste of channel resources. The 24 hours TV shopping channel is also a myth to me: what is its business model? Can the TV channel make profit? Can the products advertised on TV shopping channel be sold? Well, I did some research to understand this specific retailing channel.

Business model:
Most TV channels have two roles:
Distributor: Some TV shopping channels operate as traditional distributors: they source from manufacturer and sell to consumer. They collect commission from the good sold.
Broadcasters: They provide air time and other service such as presenter etc.
Most of the TV shopping channels has multi-channel strategy. They have catalogue and internet to compliment the TV shopping channel. I think this strategy is very appropriate to leverage the resources and maximize the access to the consumer as I believe the target consumer and consumer behavior of this three channels are quite familiar. At least, I think people who shop from TV have greater chance to shop internet and catalogue.

What are they selling?
I feel that TV channel always try to sell me something I don’t need. Actually, TV channel has a very focus selection strategy. The width of selection is medium with limited number of category. The depth is very low. And the TV channels don’t need to have high volume in stock because the fulfillment can be handled by the manufacturer directly. The main category they are selling are Jewelry, Kitchen or other home appliance, gifts, electronics, beauty, hobbies & leisure. Home improvement etc. I find out that there are some characteristics of these categories:
1. They are all occasion goods. They are not essential goods or services consumer needs every day. Why? I think it has something to do with the consumer behavior. I would explain below;
2. They are not established brand in local market and they need lengthy time demonstrate their product benefit and encourage purchase intention.
3. Many of the products are characterized in terms of the fun, comfort, relaxation and fulfillment they offer their owners. The aim is to create a sense of excitement and wonder. TV shopping is increasingly attracting housewives interested in new lifestyles that could breathe fresh air into their everyday lives. People who watch TV shopping late at night are also increasing steadily.
Home and personal appliances and other household goods, which together accounted for 40.4 percent of the industry’s total sales. Other items that are largely sold through TV home shopping channels include personal computers, apparel, sporting and leisure goods, healthcare products, and personal care products. In contrast, the main sales item for department stores was apparel (55.3 percent of total sales), and the best selling item for discount stores was groceries (28.3 percent of total sales), according to the same survey. (Source: Korea)

Consumer behavior:
It can easily tell the target consumer is woman when you look at all these category. They are women interested in improving the quality of their lifestyles with unique products. They are sitting in their couch comfortably and get inspired by the unique product benefit. People shops at TV shopping channel not because they need it like their grocery shopping, they shop because they want it. That’s the main reason I think why most of the category on TV are occasional goods.

How they sell?
Pricing:
Big discount and instant gift are common on TV shopping channels. I read a book wrote by David Ogilvy about a life of advertising professional many years ago. The most impressed comment I had in that book is he said that the best way to test the effectiveness of your advertising and promotion is Direct-marketing. I believed big discount and instant gift are among the top effective ways to sell. However, the overall pricing strategy of TV shopping channel is middle. They are not either discounter or high-end department stores.
Experience:
During a TV shopping program, the presenter typically emphasizes the product's uniqueness, quality and attractive purchasing conditions. Many of the products cannot be purchased anywhere else, adding to their lure. These include limited-production goods, regional products, collectors' items, and original (exclusive) goods.
TV shopping takes the form of "infomercial" programs lasting either 30 minutes or one hour or live broadcasts.


Future of TV shopping channels
I think the digital evolution will determine the future of TV shopping channels. As internet takes over the market share of retailing business, the more TV shopping channels can integrate with the internet, the more chances they can succeed. But I strongly believe the TV shopping channels won’t disappear soon as long as people still watch TV. Since I view watching TV is kind of family moment but internet surfing is individual moment, I believe TV will exist very long.

Like the personal TV launched by Rogers, I think the future TV shopping channels will like the “Metro Concept” stores showed in the class. It will become very personalized and customized. Like internet, TV shopping channels will become interactive thanks to current or future digitized broadcasts technology.

Brand Spaces Popping Up Everywhere

For those of you interested in better understanding the innovative use of space that is going on in marketing (and retail) right now, it is worth checking out some of the pictures and commentary at: trendwatching.com

Now, when is that beer store going to pop-up on my street?

Kyle

Jobs in Retail

For those of you thinking about a job in retail, or just wondering what types of retail careers are out there, take a look at: http://working.canada.com/retail/index.html

Kyle

Seasonality in retail sales

According to Statistics Canada, Christmas shoppers pushed retail sales to a strong close at the end of 2005 and an even stronger showing is expected for the beginning of this year.
In the past, December was a make it or break it month for retailers. But in recent years, November sales have proven to be important too, and January has become the key month. That's because retailers can't book a gift card sale until the card has been redeemed, and most redemptions take place in January.

Seasonality of demand has been a concern in the retailing business. The objective of most retailers is to maximize sales with the highest possible margin throughout the year. One fundamental obstacle to achieving this is that sales, and therefore profits, are skewed towards the fourth quarter of the year in the run-up to Christmas. This is particularly true of department stores, where it accounts for a third of turnover. Obviously anything that they can do to raise sales outside Christmas will help them to make more efficient use of their infrastructure of stores and warehouses etc as well as getting the most out of their permanent staff, who might otherwise not be fully occupied at all times of the year.

Retailers are trying to adopt innovative ideas to smoothen the sales throughout the year. Selling Gift cards during charismas season is designed to generate sales in the month of January and onward. A few regular techniques are: off season promotions, selling seasonal products and arranging special events/festivals.

Intensity of seasonality and skewed sales toward the forth quarter vary with type of retailers. For Jewelers, 4th quarter sales is nearly double the average sales in the remaining three quarters. On the other hand, not surprisingly, everyday necessities such as food and gasoline are not dependent on the holiday season.

In general, total sales grew by 6.3 per cent in 2005, up from the 4.7 per cent recorded in 2004. It was the third-best annual gain in the past decade. Last year's growth was in large part due to automotive sector sales which notably includes gasoline (soaring because of high energy prices) and new cars.

Online Marketing – Still a Long Way to Go?

More and more traditional retailers are adopting multichannels when they realized that the most valuable customer is the multichannel customer – the customer who researches and purchases products online and in stores or through catalogs. Given the promising prospects of online marketing and the special advantages held by traditional retailers as discussed in last posting, I would like to continue this topic and further discuss how traditional retailers can make their online marketing a “hit” and eventually outperform their pure-play peers.

Improve operation efficiency
The economics of online retailing are not working very well. In most categories, margins are not sufficient to cover high fulfillment and marketing costs. Traditional retailers must use their offline purchasing power to deliver cost advantages to their online operations. Although retailers continued to make operational improvements in their online business, they still need to make further progress in such areas as customer acquisition and retention cost, marketing efficiency, and order conversion rate.

Leverage the brand
Incumbents have advantage here with their well-develop brand recognition and trust. An online marketing research showed that consumers are more likely to purchase online with a well-recognized brand name. This inclination is associated with the sense of security when the consumers provide their personal information online. As a result, the incumbents, especially those with “big” brand names, should take advantage of it and enjoy a lower customer acquisition costs and higher conversion rates.

Create incentives
Given that the cost to serve a customer can be lower online than it is elsewhere and that the Internet offers opportunities to increase share of customer wallet, mutichannel players should encourage their customers to use the Internet. I read lots of criticism about free shipping stating that it will spoil the market and thus harm retailers’ bottom line in the long run. However, I would say free shipping is one of the most effective ways to entice customers online. To protect retailers’ profit margin, a little tactics serves well here – combine free shipping with conditions such as minimum order sizes. In fact, retailers report that consumers prefer free shipping to “percent off” promotions, even if the total amount saved is less.

Make the most of customer information
Traditional retailers have developed a rich customer base and strong customer relationships over the years, which allow them to anticipate their online customer needs in ways that no pure-play competitor could possibly match. By also collecting customers’ perspectives about online retailing and even their email addresses will enable traditional retailers to acquire valuable customer information for online operation in a cost effective way.

Exploit opportunities for partnering
Rather than play stand alone, traditional retailers might consider partnering. Partnering can speed execution, give access to critical skills, and generate additional equity from incumbents’ assets. I’m thinking that if a traditional retailer (who has a strong brand name but lack of online operation expertise) partners with a pure-play (who has critical online skill but lack of brand recognition), then both parties could leverage each other’s strengths and thus gain win-win results. Also, as we learned in the eBay case, traditional retailers could reach millions of customers in a cheap and effective way by partnering with prominent pure-play, such as eBay.

Coordinate across channels
Many multichannel retailers are increasing the level of in-store and catalog promotions for their online initiatives, and increasingly use Web sites to promote stores and offer catalogs. In addition, they are also widening their effort to collect customer email addresses during in-store and catalog transactions for use in later online promotions. The result has been not only an increase in the number of consumers walking into stores with Web-site printouts of what they intend to buy, but also an increasing willingness among online shoppers to contact customer service when a problem arises, rather than abandon the transaction.

Yet, moving online can trigger conflict between channels in areas such as pricing, assortment, and promotion schedule, etc. Incumbents need to consider their specific situation and find creative ways to avoid conflict within the company and its supply chain.

Above discussed touched several areas that I believe should be priorities when traditional retailers go online. Despite concerns about the economy and lingering skepticism about online retailing, what we are seeing now is the true integration of a new channel into both consumer behavior and retail strategy. Online shopping is no longer a novelty, and it is also no longer too small an issue for retailers to neglect. Although there’s still a long to go, smart retailers are taking more and more efforts targeting those multichannel customers and set the stage for business growth in the future.

Changing demographic and product selection

Frito Lay Canada Inc. is launching a new line of Asian inspired potato chips in Toronto and Vancouver market. Bags of wasabi- and spicy-curry-flavoured potato chips will be hitting grocery store shelves in Toronto and Vancouver this month, supported by a targeted marketing campaign in Chinese-language newspapers and television stations. In the Greater Toronto Area alone, South Asians annually spend $12.6-billion on retail goods and services and Chinese consumers spend $12.2-billion.

In the last two years, I have noticed introduction of products in grocery stores that are targeted to ethnic group residing the nearby area. Flat breads (chapattis), wheat flour (Atta) and spices, which are used by South Asian people, are available on the selves of grocery shops like No Frills and Price Choppers. This change is the result of changing demographic of metropolitan cities of Canada and the recognition of needs of ethnic group by retailers.

The annual dollar value spend by these group is too huge ($25 Billion) to be ignored by retailers. In this segment they face competition from small specialty grocery shops. These specialty stores serve ethnic population with products which are not available in regular Canadian stores. These specialty stores have grown in size and selection to increase average sales per trip. They have started selling products that is available in regular stores and are directly competing with them.

Regular grocery stores, to overcome this competition and reduction in number of sales trips in this segment, have expanded their product selection and started keeping products targeted to these ethnic groups. It has contributed to the convenience as well. Customers in this segment have to plan separate trips to regular grocery and specialty stores. By introduction of targeted product offering, retailers can reduce customer’s trips to specialty stores and provide one stop shopping at their shop.

This idea is becoming very successful and retailers are getting support from their traditional suppliers as well. Apart from Frito Lay, President’s Choice (PC) brand has also introduced products targeted to ethnic group.

The importance of site selection

As seen in the LCBO case, a strategic location is paramount to the success of the business. And this is true, whether the retailer is a specialty store or a wholesale club because success hinges upon knowing where your customers are. In defining a location, it is essential to know for example the community demographics and the number of retail establishments operating in a certain area. This is not a simple activity and even power-brand companies which are famous for their real estate expertise have faced failures. In Brazil, after a few years of operation, McDonald’s had to close some stores because it had opened spots in bad locations chosen when the company was still getting acquainted with the local market.

However, site selection is more than picking high-profit trading areas. Location-strategy can in fact be a pillar in a company’s overall strategy. One example of this is Wal-Mart’s expansion plan. The company achieved success by locating its stores in small towns in the South and the Midwest of the United States, where competition was minimal. This small-town orientation was adopted to compete with Kmart and other players that had cornered the market in most big cities. From the beginning, the stores spread from town to town, until Wal-Mart built a dense network of stores in the South and Midwest of the country. By choosing to be where its competitors were not interested, the company put into practice its saturation/ density strategy and the basis to expand to other parts of the US and to the world.

Another example of how site selection plays a major part in a company’s strategy comes from Brazil where commercial banks are extremely competitive and strongly depend on real estate development to expand their operation. In major cities like Sao Paulo or Rio de Janeiro, prime urban locations are difficult to find or usually take years to be vacant, so the scarcity of good sites has become an entry barrier to new players. In this context, having a strategy that encompasses the shortage of sites is vital, especially for foreign groups that intend to grow in this market. Thus when Banespa was privatized, one of the most coveted assets by the array of prospect buyers was its existing buildings in several prime locations since it was one of the most traditional banks in Sao Paulo state.

In a sum, location is a strategic decision and this process entails many dimensions, from consumer understanding and market screening to defining the retailer’s overall strategy. Although retailers usually make poor location decisions mostly due to lack of planning, this activity should not be taken lightly given the importance it has.

Beer Beer Beer

Evening... Russia vs Canada... cheering... beer...
Morning... Retail Marketing... blog... beer...

There is a very interesting review of the current trends on the beer market in Canada in terms of players, customers and marketing strategies. I found it in Sep. 2005's Food in Canada.

Canada has had an ongoing love affair with beer ever since Jean Talon built this country's first commercial brewery in 1668 in Quebec City. Later, those with a nose for the malty nectar eventually became Canada's beer barons. They include John Molson, who established his first brewery in Montreal in 1786; Alexander Keith, who founded a brewery in 1829 in Nova Scotia; and 11 years later Thomas Carling opened his Brewing & Malting Company in London, Ont. In 1847, Labatt entered the scene also in London, Ont.

Today those names remain prominent on the labels, synonymous with suds success in a market where Canadian consumers spend more than $11 billion a year on beer (representing domestic expenditure in bars, restaurants and at home), and dominated by two players - Molson and Labatt, both sharing about 90 per cent of coast-to-coast beer sales.

But over the past five years, the big brands have lost some of their equity in a market that's becoming increasingly polarized, says Chris Robertson, beer category manager for the Liquor Control Board of Ontario (LCBO), which carries over 300 beer SKUs (70 of which are from Ontario microbreweries), and represents about 17 per cent of retail beer sales in the province through its 598 retail outlets. "Consumers are either trading up to super premium-priced labels, or trending down to value brands, depending on the occasion," he says. "When quenching their thirst, many beer lovers believe a cold beer tastes much the same as the next, regardless of whose name is on the bottle. They're saying why pay $10 more for a case of 24?"

Teresa Cascioli, president and CEO of Lakeport Brewing Corp., agrees. Lakeport is a leader in the bargain beer sector with its flagship brands (Honey Lager, Pilsener and Lakeport Light) and the third-largest brewer in Ontario, headquartered in Hamilton. "We've seen a dramatic shift in the market over to quality ales that feature a lower price point," says the industry maverick, the first to offer a case of 24 at $24 (with deposit). "That's almost $12 less than top selling domestics like Canadian and Blue and about $20 cheaper than imports." Cascioli insists the price is not a gimmick and will remain in effect as long as customers are buying. "We're reaching toward a nine per cent share of the Ontario market. We're pleased, and our pricing strategy continues."

Cheap beer aside, a key driver splintering the beer market, says Robertson, is demographics. "One group is the Baby Boom Echo, young drinkers just coming into the market. They aren't as traditional or brand-loyal as older beer consumers. Having been raised on soda pop, energy drinks and spirit coolers, their tastes are less sophisticated than their elders who, having travelled the world and experienced more styles of beer, are more discerning in their beverage choices."

Imported products are also fracturing the stranglehold mainstream beer makers have historically exerted on the market. Beers representing 41 countries, including the Philippines, Singapore, Kenya and South Africa, are stocked on the LCBOs shelves, contributing to the government-run retailer's accelerating sales of (non-U.S.) imported brands reportedly up over seven per cent (YTD) over last year. "Europeans living in Canada come from countries with a very long history of beer making, and they want to continue savouring their native brews," says Robertson, noting that Poland's Zywiec brand now ranks among the LCBO's top 10 best selling brands overall.

The latest beer import statistics tracked by Agriculture and Agri-Food Canada show that Mexico is the top importer into this country (with over $80 million worth of brew docking here), followed by the Netherlands (at almost $75 million) and the U.S. (about $65 million). Total imports from all markets: $355 million.

Monica Treidlinger, spokesperson for the Food Value Chain Bureau of Agriculture and Agri-Food Canada in Ottawa, highlights the fact that while beer imports flood in, our exports are slipping. "Especially to the U.S., our major outside market, Canada's exports have slumped from over $380 million in 2001, to just over $300 million in 2004."

And domestic consumption of beer is also slackening, adds Treidlinger. From the beer barrel heydays of the late 1970s, when Canadian consumption was over 85 litres per capita per year, we went down to a more sobering 68 litres in 2004. "In short, aging boomers, once the largest chunk of the beer market, just aren't drinking as much ale, opting for other beverages such as wine and spirits when they're dining or entertaining family and friends," she says.
Concerned less (perhaps) with swallowing up market share than spiking up flat beer sales, recent product innovations and mega-mergers have again propelled the major beer suppliers into the public limelight.

Given mixed reviews on Molson's penetration of the craft brewing sector, industry pundits point out that the small brewery model does not scale up well, and the attraction of a "boutiquestyle" beer fades in large-scale production.

"The appeal of craft beers is their locality," explains Robertson. "They are promoted locally to satisfy local tastes." These brands proudly proclaim their production of handcrafted beer, made in small batches, inspired by the brew masters' own formulations, or by recipes handed down through generations. At the LCBO alone, notes Robertson, sales of craftstyle brands have soared 40 per cent over the past several years, although the sector currently sips up only about four per cent of the total Ontario beer market.

That could change as consumer awareness of the craft beer alternatives strengthens and the distribution channels widen for microbreweries across Canada. The recently formed Ontario Craft Brewers (OCB), an association of 25 microbrewers, is spreading the word about the provinces premium craft brewing sector and its brands.

"Our goal is a market share of about 12 per cent by the year 2014," declares Jim Brickman, who founded the Brick Brewing Company in Waterloo, Ont., in 1984 and is credited with pioneering the craft-brewing renaissance in this country. Also on the OCB board of directors, Brickman speaks for the organization, stating that his members now produce about 260,000 hectolitres (one hectolitre = 12 cases of 24 beers). "Our goal is to ramp up the volume to over one million hectolitres by 2014. And with total sales of craft beers growing up to seven per cent per year, we believe our estimates are attainable."

Five-year-old Steam Whistle Brewing is tooting its horn to attract drinkers. "We follow the European-style Pilsner in our products and a growing customer base is responding - we're into double-digit growth year over year," says Greg Taylor, one of the Toronto microbrewery s founders. "That's a reflection of a changing climate in the marketplace. Over the next decade, almost five million Ontarians will reach their prime consumption years (25 to 49) for premium beers. Our company is well-positioned to address the changing needs of the beer consumer, and we're doing fine in this fiercely competitive market."

Craft brewers are a breed apart, emphasizes Brickman. "We're in friendly competition with one another, but united in our passion for making the very best beer we can." Though he delights in nibbling at the heels of the major brewers, Brickman says: "As independent entrepreneurs, we're not chasing the mass market. This is our home base, and we know our customers. As brew masters, we've done our job if more folks sample our products, like them and want to buy more."

Cheers,
Andrey