Follow-up on Cerealicious Post

I recently received the following note from the Media Relations department of U.S.-based Cereality and thought it might be an interesting addition to my post on Cerealicious:

Allie...you might be interested to know a funny thing regarding your line:

"In a sense, the RVP of Cerealicious mimics that of Starbucks. Customers feel the value derived from the unique experience, convenience and customized selection overpowers outrageous prices."

When in a sense, Cerealicious has directly copied almost everything about their brand from Cereality Cereal Bar & Cafe in the U.S. (http://www.cereality.com/) -- from their retro logo, to the Chinese food buckets they use to serve to the white kitchen cabinets in their cafes...

In fact, Cereality began in the U.S. in 2003 and has been the subject of hundreds of press stories in the U.S. and in Canada -- including CBC Venture this summer where the producers showed -- item by item -- how various elements of Cereality's brand identity were copied. And, by the way, many of those elements have been trademarked in the U.S. and Canada. Cereality, by the way, is in discussions to bring their brand to Canada -- Rick Bacher, one of the co-founders, is Canadian.

And, just because you are writing for a Retail Marketing blog, you might be interested to see that Cereality won "Experience Stager" of the year in 2006 from the two consultants who wrote THE EXPERIENCE ECONOMY.

Zoom Systems

On March 14th, 2007, the federally mandated Wireless Number Portability (WNP) came into affect, requiring mobile phone providers to both release phone numbers to and accept phone numbers from competing providers. In more simple terms, if you hate your service provider, but you would hate to get rid of your cell phone number more, you can now switch carriers and take your number with you.

This news is especially welcome to business owners who typically have a considerable amount of equity invested in their phone numbers. However, no one was more excited about WNP then Richard Branson, owner of Virgin Wireless, who cheerfully staged his escape from his wireless provider, suspended in a cage above Yonge-Dundas Square last Wednesday. Virgin Wireless plans to steal market share from competing carriers by offering free phones and superior customer service.

Virgin was recently awarded the J.D. Power and Associates award for Highest Customer Satisfaction with Prepaid Wireless Service, but before last Wednesday, it did not matter how good their customer service was. The majority of consumers preferred to put up with inferior service rather than switch and lose their phone number, making the wireless industry in Canada one of the few industries left where Retail Value Propositions did not reflect customer loyalty. Thankfully, for consumers, WNP will finally force providers to improve their RVP to maintain market share. Cell phone providers will have to think of new ways to keep and attract new customers by lowering prices, expanding their product offering, offering looser contract terms and better customer service. (Finally, I am the person of the year after all, they should bend over backwards to keep me as a loyal customer.)

Considering all the hype, the question in my mind last Wednesday, as I shopped around for a new wireless provider, was where were the unsatisfied consumers industry experts expected to ‘jump at the chance to switch providers’. There did not seem to be any kind of mad rush to switch in any of the stores I visited. While I waited to get my new phone activated with a smug smile on my face thinking about how I had finally gotten revenge on my previous wireless provider for years of poor customer service, the absence of a stampede had me puzzled. Either I had picked the wrong provider again or, a more probable explanation, cell phone users are tied to their service provider because they are locked into service contracts, and the affect of WNP probably will not be seen in the short run.

This is good news for wireless carriers, especially Rogers and Bell, whom industry experts have predicted will feel the churn (switch) rate sting more than their competitors. There is still time to improve their retail value proposition to keep the customers they have. Bell and Rogers have already started to improve RVP by offering their customers free calling among fellow subscribers, but it may be too little too late for the more disgruntled consumers, like myself.

The good news for the consumer is that Wireless Number Portability will finally force wireless companies, who, in the past, could get away with shoddy customer service and terrible pricing schemes, to provide the level of service that we have come to expect in other industries in order to maintain customer loyalty.

~ Kristi

http://www.wirelessnumberportability.ca/english/index.html
http://technology.canoe.ca/Michetti/2007/03/14/3749252.html
http://www.canada.com/theprovince/story.html?id=cfb23f8a-6904-40df-bfc8-9f784db3e782&k=71723
http://www.thestar.com/Business/article/191289
http://www.crtc.gc.ca/eng/NEWS/RELEASES/2005/r051220.htm
http://www.ctv.ca/servlet/ArticleNews/story/CTVNews/20070313/cellular_number_portability_070313/20070313?hub=TopStories
http://lfpress.ca/newsstand/News/National/2007/03/14/3748305-sun.html

Food Fight?

We talk a lot about Wal-Mart in our class because it is not only one of the most significant factors shaping the retailing environment today, but because it is also one of the world’s largest corporations that shapes the general economies of virtually every country it decides to step into.
Wal-Mart Canada started in 1994 with the acquisition of the Woolco division of Woolworth Canada. Today, with 278 locations, they have established themselves as the predominant player in Canada’s big box retail industry. Critics classify them as a “category killer” because they essentially force the prices of good down so low that competing companies simply can not operate profitably. However their entrance into the grocery market has really just begun. Canada’s grocers watched, with nervous anticipation from the sidelines, the absolute havoc Wal-Mart inflicted on the US food retailing industry. It seemed like virtually overnight they went from a chain of mass merchandisers, to the largest grocer in the US, knocking down everyone who stepped in their way. Some retailers, like Win-Dixie Foods in the southern states went bankrupt; those that have managed to stay afloat have had their margins significantly depressed trying to keep prices competitive with the industry leading Wal-Mart. Each Retailer was really forced to look at their RVP and decide what was going to differentiate them from the every-day low price powerhouse. What was going to set them apart in the eyes of the consumer and ensure that they didn’t lose business to the ultra convenient and inevitably lower priced Wal-Mart.?

In Canada, Wal-Mart recently opened its first “Supercenters”; one of which is actually right here in London. These Supercenters are the single reason why Canada’s food retailers have been so nervous. Simon wrote last month about the trouble Loblaws has been having. Part of the problem is that they have lost touch with the customer as Simon was mentioning; another problem however is that they tried to completely revamp their whole organizational structure to be ready for when Wal-Mart started selling food in Canada. They centralized their entire distribution chain to lower their costs as much as possible. So far is has not paid off. Sobeys has also been feeling the pressure, reporting lower than expected earnings recently because of their constant price cutting efforts to stay competitive.

It seems as though the food retailers in Canada have decided that the selection, experience and convenience part of the RVP are not a choice, but a necessity in order to be a player in their market. Sure, Sobeys has their high end stores which cater to customers who are looking for that kind of environment; as does Loblaws and Metro. But the bottom line is: milk, eggs and bread are the same, whether you get them from the corner store, or from a large, brand new and high end Fortino’s. In fact most of the named Canadian grocers also get the majority of their sales from their big box or discount bannered stores. Wal-Mart has historically been able to pass off lower prices to its customer’s by having tough labor tactics, great negotiating tactics with its suppliers and its sheer size. What should scare the Canadian grocers even more than the “Supercenters”, is their sole purposed chain of grocery stores called “Wal-Mart Neighborhood Markets” which strictly sell food. As of late, the company has been opening this food format banner across the states and in some cases will build them directly next to their competitors in the market they choose to enter, virtually knocking them out of business. There is no question that if Wal-Mart wants to get into the food business full force like they did in the States, the traditional Canadian grocers are in for real trouble. For us consumers, the benefit will be lower prices; but for the grocery industry in Canada, Wal-Mart has the potential to be the ultimate category killer.

Jon

http://www.walmart.ca/

http://www.canadianbusiness.com/managing/strategy/article.jsp?content=20061106_82505_82505

Private Label Credit Cards: The Retailers Strike Back

For many retailers, credit card fees take a bite out of every transaction. For smaller stores, fees can exceed 3% of the sale price. For retailers who eke out a living from net margins that are smaller than 10%, VISA and Mastercard are a necessary evil.

But retailers are finding ways to fight back. Costco only accepts American Express, and some stores and restaurants charge an extra fee for credit card payments. One of the most common methods is the development of private label credit cards (PLCs). There are two primary formats. The first type requires a retailer to negotiate a service agreement with an outside financial institution. The retailer places their name on the credit card and markets to their client base with such incentives as “6 months – no interest” or “15% off on today’s purchase”. For small retailers, the private label cards generally shift purchases away from standard credit cards or from in-house accounts.

For Lyons Building Co., a building supplies retailer (like Home Depot) based in Sault Ste. Marie, every transaction made on their PLC has benefits to cash flow. Their financial partner, HSBC, pays Lyons a commission of 1% on every PLC transaction. However, the biggest benefits are from shifting customers from the standard credit terms of an in-house account. Getting customers to use their PLC means Lyons gets the cash immediately instead of 30-60 days later (depending on terms). This effect is even more important when considering popular promotions like “no interest, no payments for 6 months”. In a highly seasonal business like building supplies (75% of sales during the May to October period) financing such a promotion in-house could leave the company with a massive cash hole. Furthermore, HSBC also assumes the risk of any bad debts.

Lori Freiburger, Lyons’ controller, brings up another benefit of their PLC program - “It just means less work for us. We estimate that with sales slips, invoices, account statements and other issues, an in-house on-account transaction can require up to 10 staff actions. With our PLC, it’s just like a cash sale - only one step.” There is also the argument to be made that PLCs create customer loyalty and drive repeat sales. With a card from every major retailer in your wallet, the argument loses some of its appeal, but Lyons has found another way. HSBC allows Lyons customers to pay their PLC bills at the store. “That gets customers in the door, and it’s very rare that they won’t take a look around while they’re here,” Lori adds. The PLC program can cause some problems, however. HSBC is now responsible for delivering part of the customer experience. If customers have a problem with their payments or the service they receive at the PLC’s call center, it reflects poorly on Lyons and managers in the Sault feel the heat. In fact, two years ago, Lyons left their original partner (rhymes with “pretty-bank”) because of poor service delivery.

Amongst very large retailers and those who have had an in-house credit card for a long time, the more common system is to develop and maintain a financing division within the company. This allows greater control of all customer interaction and allows the financing arm to work more closely with marketing to develop a complete sales and promotion offering. The financing division can develop into a valuable asset for the company. In April 2006, General Motors sold a 51% controlling interest in their financing arm, GMAC, to a private equity group led by Cerberus Capital Management for $14 billion. At the time of the deal, the total equity value of General Motors was only $12.5 billion.

Lessons from buying a digital camera- Can the mom & pop shop survive?

Recently, with some reluctance I conceded that my prototype digital camera was just too clunky, too difficult and too old-school to use, and so I set out on a mission to buy a new camera. At the same time I came across an article in the Globe on Kodak cutting 30,000 jobs in an effort to switch and face the digital revolution.

This led to some reflection on the film/camera industry as a prime example of swiftly changing trends, disruptive technology, and the resulting impact on the industries and companies involved. I thought, boy manufactures have it rough: Investments, suppliers, labor and much more are all set up around a particular product. When that product is passé they are in trouble, big trouble like that which Kodak faces. I thought, hmm retailers, they aren’t a slave to a particular product; By their very design and purpose they can choose to sell only what the customer will buy and can change their assortment relatively quickly to adapt to consumer trends and changes in the market place.

However things aren’t so rosy for all retailers. My last camera I bought at a small regional seller. For this one I’m thinking of heading to Best Buy. What happens if when entire concept of a particular retail store becomes disintermediated. In class we have focused often on the stuggle of department stores and Lowblaws against Walmart. This is what we see happening every day more as big box stores push out the need for mom and pop retailers. More savvy consumers are using the internet to educate themselves and don’t need the one on one service offered by smaller shops and increasingly care about the every day low prices of Best Buy and Wal-Mart.

Today’s mom and pop shops face huge challenges. There are the issues mentioned above, and it seems each day their competitive advantages are becoming less and less. In many cases the same models of cameras and other products are sold at the mom and pop store as at the big box’s… just mom and pop can’t compete in price. Often people will come to the smaller store for good advice and one on one service, come to a conclusion about a particular model and then go purchase it at the cheaper national retailer. Sometimes these small stores loose out by not having the same breadth of product as bigger stores. They just can’t hold the same breadth of inventory and subsequently loose sales when customers come in seeking particular models. Finally, mom and pop shops that face the greatest strategic retailing challenges often are manned by those with the least business experience.

So, as a future business leader and student of retail marketing, what advice can I offer mom and pop, to help their shop survive?

Make it all about the experience and create loyalty. I hate the experience at future shop, where commission based agents shove useless insurance at me. I will gladly spend an extra $50 for a pleasant shopping experience where I feel the employees are there to help me make the best purchase, not help them fly to Hawaii.

Don’t be intimidated by the size of the competition. Know that you can compete you just have to examine where the big guys are failing to meet customer needs .The very size of Mom and pop’s shop leads to competitive advantages. They do not face the bureaucracy and corporate consistency required by Big Box. When I went to buy a new digital camera, I wanted to squeeze some value out of my old camera. Best Buy offered me nothing, whereas mom and pop shop offered a trade-in program for my camera. That alone took away the big box’s price advantage.

Be the best. The small independent retailer is comprised of experts who really care and know about the product in a way the hourly worker never can. They can provide individual attention and sometimes this can be enough to create loyalty so that customers will buy the same product at the mom and pop rather than leaving for the big box.

So where did I buy my digital camera? I got the camera at the mom and pop. I was frankly overwhelmed by the amount of products offered at Best Buy, and really needed someone to help me with this big ticket, high tech (for me) purchase decision. However my memory cards, I’m headed to the big box. My conclusion: there is a place for the mom and pop shop and I believe always will be. There is no doubt it is hard and many more will go under every year- I believe not because the concept is irrelevant today, but because often the management of these local establishments don’t know how to play up their advantages, and crumble from sheer big-box intimidation.


http://en.wikipedia.org/wiki/Disintermediation
http://www.lensandshutter.com/index.lasso?content=home
http://www.bestbuy.ca/catalog/group.asp?logon=&langid=EN&catid=20005
http://www.yellowpages.ca/search/?stype=si&src=&what=camera&where=london&x=0&y=0
http://en.wikipedia.org/wiki/Creative_destruction
http://www.globemoney.com/servlet/story/LAC.20070209.IBKODAK09/TPStory/Business
http://en.wikipedia.org/wiki/Disintermediation
http://en.wikipedia.org/wiki/Disruptive_technology

Online Grocery Retailing – the Secrets to Successful Home-Delivery

In our recent class on Kroger, we touched briefly upon the development of online-retailing. We saw the contrasting fortunes of Webvan in the US, and Tesco in the UK. Webvan, which was founded during the dot-com boom of the late ’90s, went bankrupt in 2001 without a penny of profit to its name. Tesco, on the other hand, continues to grow, achieving sales last year of over £1billion through over 750 000 regular online grocery shoppers.

Tesco leads the way in the UK grocery market with a 31.4% market share, giving it enormous advantages in terms of market presence and consumer awareness. Its nearest rival is ASDA (subsidiary of Wal-Mart) with 16.6%. Its home service delivery model is different from that of Webvan, which delivered groceries to consumers straight from lavish, specially built warehouses. In contrast, Tesco.com physically sends someone to the nearest Tesco store to hand pick the groceries, and subsequently deliver them to the consumer.

“More single person households, an ageing population, as well as more city-centre living are all factors affecting the changing face of retail in the UK.” ¹ (Andrew Higginson, Tesco Finance and Strategy Director)

Indeed, this delivery model works well for a company like Tesco because it already had the physical infrastructure (in terms of existing stores) to cover almost the entire population of the UK. As a result, Tesco.com has been able to expand its online service rapidly and with relatively little additional expenditure. Furthermore, high population density allows for many consumers to be serviced efficiently in the same delivery trip, thus spreading transport expenses over a large number of orders. However this model is not without its criticisms – because online shoppers effectively compete with shoppers in the actual stores for the availability of products, it is a common occurrence and great annoyance for a consumer to find that things they put into their virtual shopping basket are not present when their groceries are delivered to their door. Tesco’s delivery people try as best they can to replace these unavailable items with ‘substitutions’, and despite frequent complaints about this inconvenience (just ask my mother), Tesco’s online business continues to grow.

So, if people are unhappy about the way Tesco provides its online service, why are they not voting with their feet and changing their online grocery provider? Perhaps because, at this moment in time, there is no credible nationwide alternative. Other large chains that offer an online service, such as Sainsbury’s and Asda, have tended to copy the model employed by Tesco, but don’t have the experience or the customer reach to make a significant impression on Tesco’s sales (Sainsbury’s, for example, reaches only 71% of UK customers compared to 97% for Tesco).

However, an intriguing alternative has recently emerged. In the south of England, in a tremendously complex, £100million warehouse, thousands of internet customers are serviced by pickers walking vast aisles with a range of groceries numbering 20 times that of a large supermarket. When completed, the orders are gathered into ‘pods’ according to destination and loaded onto huge trucks. The trucks then deliver these pods to car parks all over the South East, where the pods are unloaded and then reloaded into delivery vans which, with the aid of satellite navigation, deliver the orders to individual houses. The company, called Ocado, is run by John Lewis, who also runs a supermarket chain in the south of England called Waitrose, which has a reputation for high quality products. The Ocado movement is gathering pace. In 2005 it overtook Sainsbury’s to become the second largest online grocery retailer in the UK, and also recorded it’s first weekly operating profit. As the number of users of broadband internet increases (the level is currently below 20%), the ease of use of online shopping will likely attract increasing numbers of consumers to the market.

It is interesting that Ocado appears to be succeeding where Webvan failed disastrously with a similar delivery concept. Perhaps this is due to it being several years later in a more developed market, or indeed due to the geographical discrepancies between the US and the UK, as we touched upon in class. Regardless, I think it is likely that the future will see Ocado eat into the market shares of its rivals. While many brand loyal and habitual consumers may stay with Tesco, the less powerful competitors such as Sainsbury’s and ASDA are likely to be seriously hit, unless they can clean up their acts through delivery processes involving fewer unavailable goods, substitutions and customer complaints.

¹http://www.tescocorporate.com/page.aspx?pointerid=DA49BE38CB2142D988B436E900B44B78
http://www.flexnews.com/pages/6607/Tesco/tesco_market_share_rises_314_uk_grocery_market_dj.html
http://news.bbc.co.uk/2/hi/business/4132302.stm
http://www.tescocorporate.com/page.aspx?pointerid=BE4318C3C9CB49C9866453F1CBAE1F1F
http://www.thisismoney.co.uk/news/article.html?in_article_id=398195&in_page_id=2
http://technology.guardian.co.uk/online/story/0,3605,766803,00.html
www.tesco.com
www.ocado.com

Martin H

MAGNUM SIZED: retail formats

I was emptying my half broken bus pass holder/wallet today when I found my beloved, yet expired Costco membership card. I’ve had this membership since the end of first year and I decided to dive my psyche and look into why I have become such an addict.

Store Size
Costco is MASSIVE; if you cleared the stock you could pretty much use it as an airplane hangar. The advantage of having such a large format is that Costco can stock up on their products and make sure that there are never stock outs, which would result in the customer being very unhappy, especially when they have made the long trip to the middle of nowhere. Their massive size also gives them an advantage in being able to place a large variety of products, making it a one stop shop for me, and as a student, going to one place where I can get everything I needed was a definite attraction factor.

Store Layout and Shopping Experience
Costco’s layout is quite “ghetto”; there are no decorations, no themes, no frills. Costco is just a warehouse with seemingly endless aisles of products stacked all the way to the roof, which is quite an overwhelming sight. The lighting is good and allows the customer to easily see the whole store and the products. There are no signs either, which seems to defeat the trend of making shopping easier for a customer. Conversely, navigating around the store is very easy and relaxing; in class we talked about the “butt brush” problem that female customers did not enjoy. Costco solves this problem by making the aisles wide enough for almost 3 carts to be moving side by side to each other! Additionally, one could go into a “main aisle” and be able to see the whole store without difficulty. To me it seems that Costco expects their customers to “learn” their way around and could navigate to different products areas with a blindfold on. This could be part of Costco’s strategy since as a member, they would be prone to numerous visits and eventually get used to the store. It also gives a special feeling that only members know their way around.

Product Pricing and Assortment
Costco’s main magnetic force to me is in their product assortment. Costco sells everything imaginable to my feeble mind, they have a deli, a bakery, packaged foods, fresh foods, hygiene products, and even clothes! They sell their products in bulk; maximizing my time my rations and supply to last a long time before I have to trek all the way their again; I could buy a box of 30 chicken breasts; a feat unheard of anywhere else. With my busy life as a student, I found this to be extremely beneficial and saved a lot of time. Selling in bulk allows Costco to lower their price/unit and reflect this upon the customer. Aside from being bulky and cheap, Costco manages to sell high quality products, to illustrate this point I once purchased a wool blue pinstripe jacket for $15; it looks and feels so good that it looks like I could have also purchased it at Holt Renfrew for $300.

There are many other great benefits of Costco, I will continue to be a loyal member and spread the Costco of bulky quantities, cheap prices and high quality!

Pricing Makes Perfect

Strategic thinking and planning are important, if not the most crucial, parts of a successful business.(1) H&M and IKEA have pursued similar strategies regarding branding through pricing for a long time. They have both headed for the inexpensive category in their respective field; H&M offers “Fashion and quality at the best price”(2), and IKEA aims for “Good design and function at low prices”(3). The Competitive Advantage Model of Michael Porter states that competitive strategy is about taking offensive or defensive action in order to create a defendable position in an industry, with the intention of coping successfully with competitors and generating a superior return on investment.(4) Especially in the Swedish market, H&M and IKEA have both headed for the competitive advantage of cost leadership, which in the end of the value chain results in lower prices offered to the consumers. However, I believe that IKEA, to a larger extent than H&M, also is strongly pursuing the strategy of competitive advantage through focusing on maximizing customer value.(5) IKEA has set out to be best in their category of smart-minded-furniture-sold-in-flat-packaging-for-a-relatively-small-charge and has made itself its first and foremost competitor when it comes to prices.

Furthermore, H&M and IKEA are both creating and sustaining the image of inexpensiveness through cost-awareness throughout the organisations and the low prices offered to consumers. They are creating an internal culture through behaviours and attitudes, which is a part of the brand building process. The public awareness of H&M’s and IKEA’s company policies gives credibility to the companies. In line with Malcolm Gladwell in “blink”(6), this also enables the customers to enter an H&M store or an IKEA warehouse thinking without thinking about the prices. You see the IKEA sign and you know the prices are fair. They have managed to establish a label in the consumer’s mind. This effects people’s perceived image of the company, which can be acted upon.

H&M have reached the point where the brand, partly because of its inexpensivess, but also due to its ability to quickly follow fashion trends, has become so strong that the price inelasticity(7) has increased to such an extent that the company gradually has been able to raise the prices. IKEA on the other hand is still lowering its prices. Does this mean that IKEA is not building its brand as well as H&M? I would say no. Is there no room for IKEA to increase its prices? I would say yes, but they have chosen not to for strategic reasons. While H&M is moving towards the middle-priced clothing companies’ competition and more shifting to bring value to consumers through up-to-date fashion, IKEA is putting a lot of efforts in sustaining its competitive edge through pricing, making it extremely difficult for competitors to match its prices. H&M uses its competitive advantage of cost leadership to gradually increase the prices, thus generating higher margins and more profit to the company, while IKEA uses its competitive advantage of cost leadership to decrease the prices as much as possible.(8)

To sum up, the efforts put in building a brand in a low price/low cost company can result in the company moving away from this position (H&M), or make the company strengthen this position (IKEA). In either case, in the short run, the brand and the perceived image of the brand is probably not affected. Only the future holds what the long term effects turn out to be. Finally, Tom Peters states that “/…/fools will compete on price – winners will find a way to create lasting value in the customer’s mind”.(9) Looking at H&M and IKEA and my reasoning above, the two strategies do not have to be contradictory. Rather, a combination seems to be successful.

References
(1) C.f. for example Robert, M., The Power of Strategic Thinking: Lock In Markets, Lock Out Competitors, 2000.
(2) http://www.hm.com
(3) http://www.ikea.co.uk
(4) Porter, M., Competitive Advantage: Creating and Sustaining Superior Performance, 1985.
(5) C.f. “The Law of Contraction” in Ries, A. & Ries, L., The 22 Immutable Laws of Branding, 1998, p.17ff.
(6) C.f. Gladwell, Malcolm, Blink - The Power of Thinking Without Thinking, 2005, Little, Brown and Company.
(7) C.f. chapter 3 in Perloff, J.M., Microeconomics, 2004.
(8) http://www.ikea.com/ms/sv_SE/about_ikea/press_room/press_release/national/katalog_2006.html (In Swedish though... sorry! I was not able to find it in English. It is a press release about IKEA lowering the prices on a lot of products when the 2006 catalouge was released.)
(9) Peters, Tom, on back cover of Aaker, A. David, Managing Brand Equity, 1991, The Free Press.


****************
Cecilia Lindau.

Apple TV - Apple is making big moves

Apple has once again used its cutting edge technology to broaden its product portfolio with the launch of Apple TV. Using Apple TV, you can watch all of your downloaded movies, TV shows, podcasts, photo slideshows and other material from iTunes. How exactly does it work? Apple TV connects to the HDMI port or component video/audio ports on your television set. You then simply download material from iTunes, and wirelessly sync the material from your Mac or PC to your Apple TV. From there, you can watch up to 50 hours of video using the accompanying Apple TV remote control.

The synchronization is one of the great features of this product as it allows you to wirelessly transfer your iTunes content to the TV. What makes Apple TV even more convenient is that it stays in sync in ‘real time’ with your home Mac or PC. Whenever you make changes to your iTunes, it automatically updates on Apple TV. Once it has been connected to your television set it is not necessary to make any further changes to the Apple TV.

Apple has proclaimed that this new product will bring consumers’ digital life and entertainment life together – this is exactly what Apple TV will do as it will allow users to access all of their entertainment needs through one medium. The launch of Apple TV represents an increase in the retail value proposition to the consumer as it offers more of a product selection. In the past, Apple has not offered any products that worked with television. This represents a move into a new market allowing Apple to diversify their product offerings and therefore product revenue streams. Branching out into this new entertainment segment will allow Apple to continue to grow and increase its presence in consumer electronics.

With the increasing trend towards purchasing more movies and TV shows online, Apple TV can act as a replacement product for DVD players found in the average household. Apple TV has the potential to completely revolutionize home entertainment through its convenience. Instead of going to the local video store, consumers can simply download and watch movies in the comfort of their own home. The ability to access all of your entertainment needs at home through your computer and Apple TV is a proposition that sounds very attractive.

Apple is in the midst of revolutionizing home entertainment. With Apple TV, consumers can bring their computer content to the big screen.

http://www.apple.com/
http://www.apple.com/appletv/sync.html
http://www.apple.com/appletv/connect.html
http://www.theglobeandmail.com/servlet/story/LAC.20070323.RAPPLETV23/TPStory/Business http://www.showbuzz.cbsnews.com/stories/2007/03/23/tv/main2599829.shtml

Today's online innovation is brought to you by the letter G

In class, we talked about search engine marketing (SEM) as part of the SMART Cooperative and Eddie Bauer cases. Although the discussion was very brief, the power and influence of SEM for website publishers and retail advertisers cannot be underestimated. I believe a deeper look into the world of SEM is warranted, and this post will explore how the traditional SEM pay-per-click model works, what new innovations that industry leaders like Google is introducing to the market, and the implications of these changes for retailers.

Amidst all the ubiquitous online services that Google offers absolutely free to the general public, one can easily lose sight of the fact that the overwhelming majority of the company’s revenues are made through its advertising business. Google has long surpassed its main competitors, Yahoo! and Microsoft, in advertising revenue and market share. Its strengths lay in providing a simple, highly functional but easy-to-use platform—much like most of its other online services—allowing advertisers and website content providers to come together in a mutually beneficial marketplace. For example, if a retailer wished to expand its online presence, it would bid on certain keywords that were relevant to its prospective customers. If the bid is high enough, then every time an Internet user searched for that keyword on Google, the company’s ad—a link and a short description—would appear prominently on the search results page. Alternatively, if the user was browsing an internet site that Google deemed to contain content relevant the keyword in question, the same ad would appear somewhere on the webpage. If the ad catches the user’s eye and he clicks on it, the retailer would be charged the price of their bid, and the money shared between the website that hosted the ad and Google. The reason that this simple model has been so successful is mostly because of Google’s advanced algorithms for determining relevancy—as the theory goes, if the ad has nothing to do with what the user is browsing or searched for, chances of it being clicked are slim to none. With Google’s PageRank technology first perfected for use in its basic search engine, the system ensures that any ad displayed will have a decent chance of being clicked on because it closely matches what the user is looking at or searched for in the first place.

This model, however, is far from perfect. The biggest complaint from all players involved is the prevalence of ‘click fraud’. Since advertisers are charged per-click, malicious competitors have been known to set up automated scripts that do nothing but ‘click’ on other companies’ ads in order to run up their marketing expense. Even users who click on the ad by accident or immediately leave the advertiser’s site cost the company the same amount as if they had actually been ‘good’ customers and followed-up their interest with a purchase, or at least an inquiry for more information. In this regard, Google has just announced a major overhaul of their SEM model to protect customers —in essence, the millions of advertisers that make up most of its revenue stream—from click fraud. It’s called ‘pay-per-action’ and its premise is simple: advertisers do not get charged unless the user not only clicks on the ad but follows through with a specified action, such as making a purchase or downloading a file of interest. This enhancement is expected to attract even more companies to advertise with Google, which means hundreds of millions more dollars pouring into Google’s coffers.

All this has two major implications. For Google and its competitors in the SEM marketspace, it shows that when it comes to the Internet, even the industry giant cannot afford to be complacent and rest on its laurels. Innovation, user feedback, and continuous improvement apply just as much to the world wide web as much as it does for traditional manufacturing or service companies. Secondly, for retailers who already have an established presence on the net or even the smaller players just venturing into the SEM world, this means greater control of their marketing dollars and more easily identifiable performance metrics. No longer will their marketing department struggle to justify their online spend by pointing to ambiguous metrics that attempt to capture ‘increased awareness’ or ‘website hits’. This new system will enable marketers to draw a direct correlation between marketing dollars spent on SEM and incremental increased sales that resulted from Internet browsers finding and buying from the retailer. We will have to see if Yahoo! and Microsoft resort to playing catch-up once again, or if they will roll out a breakthrough innovation of their own in this ever-evolving SEM market.

Sources:

Google's Out to Remake the Ad World Again

Where Is Microsoft Search?

The New YouTube

As an avid YouTube fan, I have found myself often choosing to watch videos on the internet rather than through traditional media channels. The convenience is unbeatable, their selection is vast, and it’s all free. Their RVP sounds unbeatable. That is until you try and find copy-written materials.

This is why I am excited for the new joint venture between the two largest U.S. media companies Newscorp (FOX) and NBC. The rival companies have joined together to combat the success that YouTube has had in the $800 million dollar (U.S.) on-line video industry, an industry that greatly threatens traditional media channels advertising revenues.

This new site will be launched with an enhanced value proposition to the consumer. The site will offer a wealth of network TV shows and movies in a copyright-protected environment, a selection of videos previously unavailable (for the most part) on-line. The site will not offer the same experience as that YouTube currently does, because it will not allow users to post their own original content. However, it will allow users to create their own videos from clips that are available on the site.

The important factor for marketers is that unlike YouTube, all shows available on the site will support ads. This means that companies advertising during television spots will be able to purchase spots when the show airs on-line as well. This presents huge marketing opportunities for retail companies as they can advertise to a consumer who is now able to make an impulse purchase. This is like a point of purchase display. A consumer who sees a retail product advertised during their television show can visit the advertising company’s site to complete the purchase (on an impulse) immediately. Even if the product is not one that is typically purchased on-line (a car for example), consumers that view an ad online have immediate access to a huge bank of information about the product or service and can quickly take the initial steps in the buying process.

New release movies will also be available through the site, including titles such as Borat and Little Miss Sunshine, but the companies have not released yet if movies will be free to users or available through some sort of pay-per-download arrangement. This extends the competition even further than on-line video hosting sites to any retail store selling/renting movies, such as Blockbuster and NetFlix. This site will also have the support of other online giants such as Yahoo, AOL and MSN, who have negotiated distribution agreements with FOX and NBC. Further, Viacom, who is currently suing YouTube for $1 billion dollar for copyright infringement, has publicly supported the site. This means a reliable supply of copyright protected content will be available for users.

Personally, as a likely member of the target market for this site, I am somewhat annoyed by the fact that my video will have ads in it as opposed to YouTube videos. Albeit, it will not stop me from watching them if I have missed a show I wanted to see on TV or a great episode of 24, that I want to watch again on-line. As for the pay-per view movie downloads, if priced correctly, could be a tremendous success. I believe that they have the potential to steal a great deal of business from companies like Blockbuster, especially as better technology arises allowing consumers to watch downloaded videos on their TV’s. The RVP of this site will be able to beat such retail outlets like Blockbuster or Rogers on every aspect. I greatly look forward to the day that I can order a movie on-line and can watch it on my TV all without leaving the comfort of my own home.

It is uncertain whether this site will be available in Canada due to current CRTC regulations, but it is clear that broadband is quickly becoming the new cable.

YouTube
www.youtube.com

Bradweek article
http://www.brandweek.com/bw/news/tech/article_display.jsp?vnu_content_id=1003561660

Businessweek article
http://www.businessweek.com/technology/content/mar2007/tc20070323_690765.htm?chan=technology_technology+index+page_today%27s+top+stories

The Globe and Mail
http://www.theglobeandmail.com/servlet/story/RTGAM.20070323.wxryoutube23/BNStory/Technology/home

Peekvid - A reference site that has some of the videos and movies that are likely to be on NBC's/FOX's new site. Note however, they are not a content provider, they just link to other sites who host the videos. I'm sure this sites existence is not for too long.
www.peekvid.com

Earth-friendly—Burt’s Bees
Burt’s Bees is one of the popular skincare brands in North America. Unlike other famous brands, it does not have any beauty boutiques. It does not spend too much money on marketing and advertising. What makes it so successful? In addition, in recent years, Burt’s Bees also expands their business into Asian market—Hong Kong and Taiwan. But, from my observation, the strategy of retail marketing in Asian market is somehow different from the one in North America.

Unlike other skincare brands such as Lush, Burt’s Bees does not have its own flagship stores and beauty boutiques. But, it is still convenient for customers to buy the products. Rather the retail network of Burt’s Bees is more ubiquitous than any other brands. Customers can easily buy the products through many grocery stores like Loblaws, drugstore chains like Shopper Drugmart, Farmer’s market like Farmer’s Market Ontario, and even in a university bookstore (as what I saw in University of Chicago). Furthermore, it provides on-line shopping in its website. Customers can also buy the products online easily. And the delivery time of goods is within three days. There is no doubt about its convenience.

Another successful factor of Burt’s Bee is about its product selection. The core value of Burt’s Bees is nature lover. The ingredients of products are ‘’harvested’’ from the nature. There are ingredients that you will never find in any Burt’s Bees product. Things like petroleum which can be toxic. Sodium Lauryl Sulfate, which is a harsh, aggressive ingredient used in certain beauty products. Almost 100% of the ingredients are extracted from the nature. In addition, it only uses natural colors in the products. Some of these include Beta-Carotene, Chlorophyll, Titanium Dioxide and Mica. These natural colors have been proven safe unlike many artificial colors that have been banned by the FDA over the years. It does not use nasty artificial preservatives like Methyl Paraben or Diazolidinyl Urea. The products contain only gentle, natural preservatives. And, the label of the products discloses exactly and fully how natural that specific product is. Many of the things it makes are 100% natural At Burt’s Bees, it scours the good earth to find the most natural and effective ingredients to produce the products.

Furthermore, the packaged goods industry is notorious for generating mountains of waste! But, Burt's Bees combats this in many ways to reduce our impact on the environment. Most of the products and packaging are created in part from recycled materials, or have been developed with re-use in mind, like our easy-to-recycle aluminum containers. Another unique way it helps protect the Earth is through Burt's Outlet! Sometimes a label is a little crooked, but that doesn't mean the product doesn't work perfectly well. Throwing them away wouldn't be earth-friendly, so it offers these products at a special price. It does not want to waste any resources.

Since the image of Burt’s Bees is very distinct and unique, Burt’s Bees can differentiate its brand among the competitors. This is one of the reasons of expanding successfully in Asian market like Hong Kong. There are only 19 Burt’s Bees concessions in the drugstores, Mannings and GNC. The retail network of Burt’s Bees in Hong Kong is less ubiquitous than that of in North America. Customers cannot find any of the products at grocery stores like Park’n or farmer’s market. In addition, the strategy of location is different. In North America, customers can find the products everywhere. But, in Hong Kong, the concessions are only located at the crowded area. The company will keep expanding the number of concessions and beauty boutiques doubly in the coming year. It shows that it becomes more and more popular in Hong Kong.

Another marketing strategy difference is about customer experience. In North America, customers buy the products in the retail stores or online without professional’s explanations beforehand. However, it is not the case in Hong Kong, As Hong Kong is a new market, and people are not familiar with the products and the brand. So, Burt’s Bees has to build a group of royal consumers and attract new customers from other competitors. The strategy emphasizes on building good relationship with customers. In Hong Kong, it focuses more on the customer services and care. So, there is no online shopping. But, Burt’s Bees has its own concessions and counters in each drugstore. It increasingly provides professional services in each counter where brand specialists will introduce the products and give explanations to customers. In addition, in order to give customers an immediate experience of the products, there are many testers of different products. Customers can try the products before buying them. These trials can attract more new customers effectively.

From the above analysis, the success of Burt’s Bee is due to the unique core value. The distinct value also helps the company to expand their business in foreign markets like Hong Kong and Taiwan. Due to geographical difference and cultural difference, Burt’s Bees has different marketing strategy in different countries. But, as mentioned above, the strategy used by Burt’s Bees in Asian market is successful to boost its image in Asia.


Reference
http://www.burtsbees.com/webapp/wcs/stores/servlet/OurStory?langId=-1&storeId=10101&catalogId=10751

http://myweb.hinet.net/home2/elly/BB.htm

http://www.skincaretrade.com/aboutus2.htm

Adding colours to a bookstore - Chapters

Chapters is a major banner under Indigo Books & Music Inc., which is one of the largest bookstore chains in Canada. One may say, bookstore is a bookstore, so how can a bookstore distinguish itself from its competitors and win businesses? It is interesting to see how Chapters did this.
We are first going to look at how Chapters creates RVP for book-shoppers. In terms of product assortment (selection), Chapters includes most kinds of books offered by other large bookstores like fictions, bestsellers and technology. In larger superstores the assortment for each category of books can be very broad, giving readers a variety of choices. When we look at the price, Chapters show no great difference with other booksellers.
What really attracts readers to come to Chapters is the shopping experience. Magazines and periodicals are usually near the store entrance for people who wish to grab and go. There are some luxurious seats inside the store, giving readers opportunities to relax and have a deeper look on the book before they make purchases. Some Chapters bookstores include a Starbucks or some other cafes, giving an environment for readers to read comfortably after they bought books from the store.
To further improve shopping experience and convenience, Chapters expands the product assortment into toys and music. One of the major customer groups to the bookstore is parents and guardians, who wish to educate their children well by encouraging them to read more. Chapters did a lot in catching this group, offering a fancy environment in the kid's books section for parents to stimulate their children's interests in reading. Chapters also put efforts in teaching parents how to encourage their children to read, through posters in their stores. This can be viewed as a long-term marketing strategy to maintain the market size of 'readers' in the future.
There's also a corner for selling the music and movies in the bookstore. Various kinds of music and movies are available but product assortment is not very deep due to limited shop spaces. However, this will attract some youngsters and music-lovers who are interested in getting some music or movies when they visit a bookstore.
Another important element added to Chapters’ bookstores is the selling of souvenirs, cards, and gifts. Many people buy books as gifts and adding other souvenirs for sale enables Chapters to become a good choice for people to buy gifts and souvenirs. In addition to improving shopping experience and convenience this also helps expand the target customer group for the bookstore.
Are there any possible elements can be added? Besides shopping online and loyalty programs that are already running, I think some activities of promoting reading are possible. For example, workshops on reading can be organized for parents to encourage their children to read more. They may also choose to cooperate with schools for reading rewards programme and book-report competitions. All these help building up a future customer base for books. In the short-term, broadening the assortment of books and continuing improving the environment in the bookstore will be the keys. How will bookstores change themselves in the market and what else they can think of to add? We can wait and see.

Reference:

www.chapters.indigo.ca

Success stories of 2 retail superstars

Below are the success stories of Hot Topic and Anthropologie. From delivering a superb customer experience to offering a selection catering specifically to a niche segment, each of these retailers has been successful in delivering a compelling RVP, and in turn, kept customers coming back for more.

Hot Topic – bringing Goth to mainstream

In class we talked about how companies used marketers to discover the next “trend”. By immersing into the social circle of the new “it” crowd, companies can thus better tailor their offerings to this specific segment. And Hot Topic was able to accomplish this perfectly.

Hot Topic, with its 418 stores in the US, has achieved $443 million of annual sales and consistently experienced double-digit quarterly growth. From welcoming signs such as “Come in or you suck”, the retailer success lies in its ability to target the rebellious 12 to 22 years old age group. From carrying brands such as Morbid Threads and Vamp, to playing extremely loud punk music in the background, the retailer has successfully created a world of punk and goth. At Hot Topic, employees are encouraged to report on the latest trends, buyers are paid to attend teen venues, and all managers must respond to the 1400 customer emails the store received each week. Further, all managers must read each of the comment card they received in order to make adjustments to their merchandises accordingly.

Moreover, the retailer has a surprising low markdown rate of less than 10% of sales. And this was again, achieved by understanding its customers. Teenagers are often less price-sensitive because they are spending their parents’ money. Thus, the retailer rarely sells its merchandise at discount. And the use of collectibles gift cards featuring popular images such as SpongeBob SquarePants and rock group Korn has further boosted the retailer’s bottom line.

Anthropologie – a lifestyle retailer

Anthropologie is founded by Richard Hayne, the creator of hip clothing retailer Urban Outfitters. Rather than focusing on the latest fashion trend, the lifestyle retailer offers unconventional merchandises targeted to professional women aged 30 to 45 years old.

Each of its 50 stores is unique and original from one another. The retailer hires two artists for each location in order to create a distinct image for each store. In Anthropologie, customers can find soaps and lotions in “The Washroom”, sheets and duvet covers in “The Boudoir” and other unconventional items, all in an effort to create a “thrill of the find” experience for its customers.

More importantly, customers spend on average $80 per visit, translating to approximately $600 average sales per square foot. This further illustrated the importance of delivering a compelling RVP, offering an above and beyond experience to your customer will guarantee the retailer a hefty profit in return.

COACH - One Company and One Brand with Two RVPs

For the past year and a half, Coach Inc. has been attracting attention from investors across North America as it has outperformed expectations for four successive quarters. Coach Inc. has two main retail formats, the first being their retail stores; and the other being their outlet stores. At first glance this combination appears to be no different from many other retailers/brands such as Tommy Hilfiger and Calvin Klein. Unlike Tommy Hilfiger and Calvin Klein, Coach has preserved their upscale image while simultaneously pursuing different retail formats. Coach’s success can be attributed to how they service their two customer segments by recognizing their distinct RVPs and tailoring their retail strategies to each segment.

For Coach’s high-end retail consumer, the RVP focuses on offering the newest and trendiest selections located within classy shopping environments. Their target consumers are the “fashionistas”; women of about 35 who are college-educated, single or newly married, and are typically employed. Her annual purchases average $1,100. In comparison, the upscale outlet RVP focuses on offering older or specifically made designs. Outlets receive new inventory less frequently and are located in large outlet malls. Their target consumers are women who are about 45 years of age, married, college-educated and employed, and spend an average of $770 on Coach products every year. The commonalities between these two segments are gender, brand loyalty, and the desire for a high quality product. I think it is these commonalities that enable Coach to use the same products in different channels, the key difference is the timing of their release into each channel.

Additionally, Coach’s ability to manage the differences between these two segments enables them to be financially successful. One main difference between their retail and outlet segments is the degree of consumer price sensitivity. Retail store consumers are ahead on the fashion curve and are seen as influential among their peers, therefore they are willing to pay more for the newest fashions, which requires high product turnover. Coach then uses outlet stores as a way to extend the shelf life of products that aren’t as successful or were over-produced. The potential dilution of brand equity is always a concern, as was demonstrated by the Tommy and CK examples previously mentioned. Coach has successfully avoided this trap by taking several measures. First, they make sure that all outlet stores are no closer than 60 miles to all retail locations so as not to cannibalize sales. Second, they ensure that there is no overlap between product assortments in both channels. Outlet stores only contain merchandise that is no longer offered in retail stores or is specifically designed for the outlet stores themselves. Third, each channel has a different target market, with differing RVPs, but both have enough similarities to offer some of the same products. Finally, Coach does not allow third party distributors such as department stores to discount their products, and any discounts in their outlet stores are usually no less than 25% of the original sale price. The strict adherence to this pricing strategy is one of the most important factors that enable Coach to preserve the exclusivity of its brand, and it keeps customers going back to the outlets. This creates additional exclusivity for the outlets as well, as it is the only source for discounts.

Overall, Coach’s unique strategy has proven very financially rewarding for investors, all while creating and growing their loyal customer bases. Their next plan is to upgrade their high-end customers to the ultra-premium segment through two new legacy boutiques in New York and Los Angeles that will carry exclusive products at higher price point. It should be very interesting to see them cover the entire spectrum and perhaps even manage another set of consumers, requiring a different RVP!

Sources:
BW 50: Coach's Split Personality
http://www.businessweek.com/magazine/content/05_45/b3958072.htm?chan=search

The Best Performers (2007)
http://www.businessweek.com/magazine/content/07_13/b4027401.htm?chan=search

Stock Information
http://phx.corporate-ir.net/phoenix.zhtml?c=122587&p=irol-stockquote


Press Releases - Coach Announces Plans for First Two Coach Legacy Boutiques
http://phx.corporate-ir.net/phoenix.zhtml?c=122587&p=irol-newsArticle&ID=958176&highlight=

Press Releases - Coach Reports Second Quarter Earnings Growth of 36% on a Sales Gain of 29%; Ahead of Analysts' Expectations
http://phx.corporate-ir.net/phoenix.zhtml?c=122587&p=irol-newsArticle&ID=952758&highlight=

Is Vending Machine Your Choice?

When you feel really cold and no coffee shops nearby, it is always good to have a vending machine in the corner of somewhere waiting to sell you a cup of coffee. In Canada, the majority of vending machines are used to dispense candy and pop. When it comes to the situation like you are hungry, will it be cool too if there is a vending machine selling hot and tasty Japanese curry rice to you?

Taking a look in Japan, vending machines are everywhere and selling almost everything. From snacks, pops, newspapers (just like in Canada), to what you can't find in Canada vending machines such as alcohol, ice-cream, cigarette, magazines, burgers, curry chicken, toothbrushes, toys, flower and pot, rice, shoes and even notes of lectures!

Vending machine does not limit to providing the product and giving convenience to the customers, but also the experience of having a glance at how the project is made.

One of the examples is the coffee machine in Japan. You can see from the screen on the vending machine the coffee making process. While you were watching the screen, you can also hear some delightful music from the machine! Isn’t it a very pleasant experience?

The assortment of products in vending machine across the North America is not as vase as Japan, we can still see special things appear in the vending machine in the States – iPod!

In case there are any plans to introduce new product assortment for vending machine in Canada, we have to consider a few things. First, how could company cope with the purchase return and exchange? Could people return and exchange in the vending machines, in the stores, or by mail? Secondly, vending machine sales are, to a certain extent, like online shopping, because you cannot touch the product yourselves and choose which one on shelf you would pick. Therefore it seems to be better for low involvement products and things that people had the experience using it. Thirdly, you have to consider whether the retail format is suitable for your strategy. Without an aligning or supporting strategy to back up the format of vending machine, you can never turn the revolution into a success. You have to identify the target segments and evaluate on them as well, to access whether it is matched or accessible to use the vending machines.

From my perspective, I’d love to have vending machines of more variety of products in Canada, or specifically in Ivey. I do not want to wait for the buses in the crazy winter to go to the grocery stores…. Will there be one day that Ivey students could do their grocery shopping just next to the Café inside Ivey? Hope so….

Baby Boomers – why so difficult to target?

Forth & Towne: A Case Example

Gap Inc. identified an underserved market in the apparel industry of ‘boomer women’, aged 40+ who will be nearing retirement in the next 10 years. In the fall of 2005 Forth & Towne opened to serve this market. Pressler and his management team focused on the experience element of the RVP, aiming for Forth to be a store where you would want to spend some time and feel inspired. (1) The store’s unique design of elaborate fitting ‘salons’ and a sophisticated ‘pink’ theme were implemented to compete against existing boomer retailers such as Talbot’s and Chico’s. Just over a year after its launch in February of 2007 Gap Inc. decided to close the chain – with 19 stores to be dismantled by June. With its resources and expertise in the apparel industry why did Gap Inc. have such a difficult time succeeding in catering to this desperately ‘underserved’ segment?

In the U.S., baby boomer consumer spending amounts to an astounding $2.7 trillion – more then 7 times Generation Y and X combined! (2) Baby boomers spent $42.7 billion on apparel last year, compared with teenagers who spent less then half at $20 billion. Retailers attempting to cater to this segment are forewarned of the importance of subtlety in all marketing efforts. Boomers, for the most part, are sensitive about their age and do not want to be branded in the ‘over 35’ box. It is also believed that boomers are after an experience – making Starbucks and even build-a-bear stores (for their grandchildren of course!) popular destinations for the boomer segment.

Why was Forth & Towne unable to serve this incredibly lucrative market? They definitely tried to offer an experience to their customer – working hard to create a sophisticated, unique in store atmosphere. What it seems to come down to is that subtlety thing – boomers do not want to be put in a box as boomers – and Forth & Towne’s message was NOT subtle. Their website read a mission of "a new generation of women, determined to find current, wearable fashions in fits that flatter. Women who have grown-up, grown into themselves, and want to look as fabulous as they feel." (3) Their existing branding was clearly geared toward the 40+ market but was there even enough emphasis on marketing and advertising at all? After reading several posts from women about the closing of Forth & Towne (4) it appeared that there was a lack of recognition that the store even existed. Women were pleased with the quality and designs of the clothes and those who did discover it were upset to hear of its closing. So did Gap Inc. pull out too soon?

Mature women do not purchase clothing as frequently or impulsively as their younger counterparts, making it harder for the new chains to show the kind of quick success executives hope for. (5) Since Gap Inc. was confident in Forth & Towne’s RVP spearheaded by its unique experience could some tweaking in advertising and promotion have saved the fate of the chain?

In the fall of 2006, AE launched a new line ‘Martin & Osa’ (6) for women over 40 (6). Retailers such as Talbot’s, Chico’s, and Williams & Sonoma continue to cater to this segment – proving that it is not impossible to directly target this group. It will no doubt be intriguing heading into the future to see if other retail giants will choose to directly pursue this group or continue as is and hope that the boomer women will, by default, continue to buy from their stores.

Sources
(1)http://businessweek.com/magazine/content/05_42/b3955100.htm
(2)http://retailtrafficmag.com/development/retail_sixty_something/
(3) http://blog.fastcompany.com/experts/ahanft/2007/02/gaps_forth_and_towne_debacle_b.html
(4)http://app.businessweek.com/UserComments/get_reviews?action=all&productId=637
(5)http://www.financialexpress.com/fe_full_story.php?content_id=156607
(6)http://www.martinandosa.com/

Cerealicious: the next Starbucks?

In April 2006, Cerealicious, Canada’s first cereal bar, opened at BCE Place in downtown Toronto. Throughout the summer, I watched as hundreds of suit-clad business executives wandering the downtown core proudly toting their Cerealicious take-out boxes. It seems founders Jennifer Ego and Tara Thorne-Simpson have stumbled upon today’s biggest fad in fast food: cereal to go.

Since its 2006 launch, Cerealicious has expanded to four locations in Ontario (the three most recently launched are on university campuses). Each location operates in a simple kiosk format. At only 250 sq. ft. per kiosk, Cerealicious should be able to capture relatively high sales per square foot. Clearly taking advantage of consumers’ impulsive cravings for cereal, the kiosks have been strategically located in high-traffic areas to maximize the conversion of browsers into buyers. Cerealicious also launched an office breakfast program and a catering service for children’s parties and business meetings.

Cerealicious is a retail concept focused on convenience, experience and selection. Surprisingly receptive to the concept are business professionals. Often too busy to eat a healthy breakfast before leaving for work, they value the convenience of being able to beat the traffic downtown and get their favourite breakfast cereal on-the-go. The experience is fun and unique, often invoking a sense of nostalgia for those revisiting favourite childhood brands. Ego and Thorne-Simpson have masterfully positioned the Cerealicious brand as more than just a breakfast solution, encouraging customers to visit for afternoon snacks. With 100% customization, customers can mix-and-match to suit their mood. The 40 brands of cereal (some healthy, some not) and toppings to choose from make the selection unbeatable. Knowing there’s always another brand to try, customers keep coming back for more. The average price is $3.50 for cereal, a topping, and a side of milk.

In a sense, the RVP of Cerealicious mimics that of Starbucks. Customers feel the value derived from the unique experience, convenience and customized selection overpowers outrageous prices. In fact, Ego and Thorne-Simpson have publicly announced their goal of developing Cerealicious into “the Starbucks of the cereal industry”.

This is an undeniably ambitious goal, which begs the question – just how sustainable is this soon-to-be cereal empire? Traditional market analysis tells us this business should fail: barriers to entry are low, the market is attractive to new entrants, and demand is dependent on a consumer fad. Despite these shortcomings, I have confidence in the strength of the brand and business model, and believe that national expansion is possible.

Using the owners’ chosen strategy of expansion through franchising, growth can occur quickly with minimal risk. Even within the crowded Toronto market, there is room for new stores because of the value business professionals place on convenience.

With diversification in retail channels and diverse market segments to target, opportunities for expansion are nearly limitless. If the novelty wears off among professionals in Toronto, Cerealicious can expand to other cities, other universities or focus on catering. Although unlikely the next Starbucks, I would peg Cerealicious as one to keep our eyes on.

Sources:
http://www.canada.com/nationalpost/story.html?id=92103849-f86d-4bc4-a1e4-5698d4d1a074
http://www.businessedge.ca/files/pdf/Sept2006/Edge_Sept1_06_MS_forwebV4.pdf

Websites:
www.cerealicious.ca

Pleasing the Investor (and our stomachs): the struggle to continuously improve same store sales

In the past couple classes we have discussed the need for retailers to continuously grow and show increases in same store sales. This metric is used across the retail industry regardless of whether you’re selling electronics, cars, or even pet food. Investors of all stripes carefully analyze same store sales increases to predict the growth potential of the company which relates to its stock price.

From the retailer’s point of view this forces them to invest significant, time, effort, energy, and money into harvesting as much as possible from existing locations. Organizations accomplish this usually in one of two ways: attracting new customers or increasing their share of wallet from existing customers. As we have come to discover in this course, increasing your share means that you are stealing it from someone else. A retailer near and dear to the hearts of many Canadian students, Tim Horton’s, has done an exceptional job of stealing share from competitors. While recently, Tim Horton’s has spent much time growing through expansion into the United States, they have also continued to grow same store sales. Most recently, Tim Horton’s has begun to steal share with the addition of the Tim Horton’s Breakfast Sandwich. The launch of this new product in 2006, led to an increase of same store sales in Q4 of 2006 of 9.3 per cent. With Tim Horton’s having a commanding 76 per cent share of the Canadian coffee and baked goods market, the only way to really increase same store sales was to have existing customers spend more when there.

The launch of this product has many lessons for other retailers expanding their offering. It is first important to recognize that the product in itself has not necessarily led to increased sales. Many others, such as Harvey’s and Subway have recently added breakfast sandwiches to their offering; however, these extensions were not as successful as the Tim Horton’s product. This is not simply because of a difference of quality between the products. Rather, this comes back to existing store traffic. With Tim Horton’s already receiving heavy store traffic during breakfast periods from coffee sales, they have a captive audience for this new product. Retailers such as Harvey’s and Subway, both focusing on lunch and dinner sales do not have access to the same traffic volume during morning periods. We also know that customers are creatures of habit, and will not regularly alter their shopping patterns. Thus, a new breakfast product is not going to take many customers away from their Tim Horton’s coffee to the Harvey’s across the street. As a result, if attempting to increase same store sales by increasing the existing customer spend, ensure that your new product will have an audience.

Another important lesson to note, is that simply because a retailer has a captive audience does not mean that they can add a new product and customers will buy it. In my last blog I wrote about Loblaw adding greater general merchandise into their product offering. In this case, while many customers frequent Loblaw for grocery purchases, the retailer has been unable to convince them to buy new products. This leads me to believe that it is important for product offering extensions to be consistent with your RVP. It is clear that a breakfast sandwich fits well with Tim Horton’s RVP of fresh, quality food, fast. It also fits well with their existing breakfast product offering of coffee and baked goods. The same cannot be said of Loblaw’s extensions. While food related products such as blenders, or dishes can complement the general grocery offering, it is difficult to show congruence with other products such as the “Joe Fresh” clothing line. While you might see me buying a Tim Horton’s Breakfast Sandwich in the near future, the only “Fresh” thing that I’ll be buying from Loblaw’s will be my fruit and vegetables.

Check it out:

http://www.usatoday.com/money/industries/food/2007-02-20-breakfast-wars-usat_x.htm
http://www.joefreshstyle.ca/
http://www.timhortons.com/en/menu/breakfast-sandwich.html http://www.newswire.ca/en/releases/archive/January2007/05/c3383.html http://www.businessweek.com/magazine/content/04_47/b3909094_mz017.htm

(Product) RED: Retail Fad or Sustainable Giving?

“NOT since the days of khaki colonialism has buying Africa been so sexy, so fashionable,” a quote from the NY Times proclaims (See NY Times). Lately, a lot of our discussions in class have revolved around the ethics of retailing such as manipulating the customer’s psyche, dynamic pricing, and the retailer’s ever-present need to grow. One issue that we briefly discussed was EcoOptions, a Home Depot initiative to take advantage of their consumer’s desires to help the environment. The campaign I plan to discuss is (Product) RED, a multi-company, multi-category retail initiative to allocate a portion of profits to buy medicine to combat AIDS, Tuberculosis and Malaria in Africa (See (RED) Manifesto). Companies that sell (RED) products include Motorola, Armani, the Gap (our favourite), Amex and the list continues. The question is whether this campaign represents a truly benevolent act, or is it just a fad that retailers are using to take advantage of the recent fashion of social consciousness.

As we discussed in class, fashion is usually determined by an influential person and then filtered down to the masses. Bono, lead singer of U2, is co-founder and adamant proponent of (Product) RED. Bono has recruited a plethora of celebrities to endorse the campaign through advertising and publicity stunts. Lets think. I wonder why his campaign was the one chosen to be adopted by retailers. Apparently celebrities have the power to make social consciousness fashionable. Sure maybe Bono is in full realization he is using his celebrity status to start a fad to help Africa through people’s purchasing behaviours. But does that excuse retailers for raising the prices on goods and then taking an unfair share of the extra margin? Gap jeans are normally priced at approximately $50 and are now sold as signature (RED) pants for $198. The Gap promises to donate 50% of their proceeds to AIDS relief – so that still means that the company is taking an extra $50 bucks (not for charity, just for profit) (See Michael Medved’s opinion).

From the retailer’s point of view, this campaign is fabulous, and to give Bono credit, the fabulousness is what leads to its sustainability as a cause. Not only are these retailers profiting, but by having this initiative in their stores, they enhance the retail value proposition by improving the customer’s experience. (RED) is an excuse for people to spend more and be immune to the feeling of guilt caused by consumerism. They feel that they have truly made a difference.

Is the potential immorality of this even the retailer’s fault? With the EcoOption campaign at Home Depot, the consumer was the one to evoke a change in their habits. With the (RED) campaign, the consumer is left with the experience of feeling socially conscious and, therefore, kills their desire to help out Africa in other ways. (Product) RED perpetuates the idea of social activism as a fashionable endeavour by linking it to consumerism and deafens its power as an avenue for change.

I guess in the end, my feelings are mixed with regards to (Product) RED. On one hand, it is better than not helping Africa at all and it also allows a retailer to enhance its retail value proposition, and therefore, improves the customer experience. On the other hand, it seems as if the money that people feel they are contributing to Africa, isn’t quite making it across the Atlantic. Retailers, and business in general, are beginning to pay increased attention to social issues (Body Shop and animal testing, Aldo and AIDS, MAC Cosmetics and AIDS) as this is a trend that won’t end soon.

Avoiding 'The Gap' Trap

During Monday’s class on Gap Incorporated we discussed the perils of retail popularity; particularly the overexposure and fall from grace that usually follows mainstream success in retail fashion.

Tommy Hilfiger, Jean Machine, and even the Gap are examples of very successful brands and retailers who have become victims of consumer fatigue. Sure fashion trends spike and recede, but must retailers go along for the ride? Is there a way to minimize this effect?

FOCUS Marketing Intelligence has a solution for retailers experiencing this post-fad decline– refresh, revitalize and reinvent! This is an area where the Gap had faltered, and consequently it has led to decreasing same-store revenues in 28 of the past 31 months (as of February 2007). FOCUS suggests that retail outlets have the following options to reinvent their retail brand:

• Refresh your brand’s packaging
• Revitalize your store landscape
• Reinvent and reposition your brand to reflect a particular customer focus as well as new global competition

In terms of implementing the above rejuvenation techniques, The Gap is 0 for 3. In particular, The Gap has struggled with the third recommendation – focus on a certain consumer group. In order to sustain growth following their outstanding performance in 2002, The Gap was forced to target everyone, daughter, mother and grandmother, in order to warrant all of the new Gap stores that had opened. Unlike stores such as Abercrombie and Hollister who maintain an air or exclusivity by keeping baby boomers out (pounding bass and dim lighting, anyone?), The Gap is welcoming everyone, but not speaking loud enough to any one group to get them to buy.

To build on past success and the established brand of the retailer, fallen stars such as The Gap should maintain their core retail value proposition (RVP) while refreshing the implementation of this RVP. New boxes, new layout? Yes please! This will improve the Gap’s fresh and casual experience and differentiate today’s Gap from the Gap of 5 years ago. A radically lower pricing or discounting strategy? The Gap should pass or risk furthering their financial strain and diluting their brand equity. A campaign targeted at 35+ women emphasizing the “forever young and timeless” message? This specific targeting may be just the right medicine.

Although FOCUS’ above recommendations are a step towards healing retail overexposure, when targeting the fickle teen and young adult segment with a heavily branded retail outlet, good luck and Godspeed. Mass success can be a mixed blessing, and also the beginning of the end. Abercrombie, AE and Hollister, I’m talking to you.

- Jayme



Sources:

Gap Incorporated

http://www.gapinc.com/public/Investors/investors.shtml



Canadian Business Online: Mind the Gap

http://www.canadianbusiness.com/columnists/zena_olijnyk/article.jsp?content=20070206_141507_5556


FOCUS Marketing Intelligence

http://www.customfitfocus.com/branding-3.htm

How to expand by adding a new brand

In the case about Gap, we discussed how finding new segments can enable grow when your current markets seem to be saturated. Gap’s portfolio consisted of three brands (Gap, Old Navy and Banana Republic). The Gap brand also had sub-brands like GapBody, GapKids and babyGap. Although these brands were supposed to have different images and price levels, the clothes were still, in many cases, very similar (some only differing by the label and the price tag). This means that the brands are competing with each other and there is a cannibalization of sales. Gap in particular gets hurt in this scenario because it is stuck in the middle of the other brands. The introduction of a forth brand didn’t help either. Why doesn’t this strategy work?

Let’s take a look at another example:

Last Friday, March 16th, H&M opened up their first store of a new concept, COS (Collection of Style), in London. The opening was a success and around ten more stores are planned being opened during 2007 in Germany, Belgium and Holland. COS’ idea to “combine sophisticated fashion (high quality, finish and fit) with unbeatable prices”, is obviously an attempt to move up to a higher fashion and price level and thereby reach a new market segment.

H&M currently have around 1300 stores in 27 countries and grow by 10-15 per cent per year. They can still grow in their existing markets (especially in the US and Canada) but they are also entering several new markets every year. But in some markets they are beginning to see slowing growth and they have to look for other ways to grow. But why will they be able to grow in a way Gap wasn’t?

During the last few decades, H&M have gone from providing cheap clothes to also including an increasing level of fashion. Fashionable clothes, fashion shows and special collections made by famous designers have built an image of having a high degree of fashion. By introducing a new brand, it can leverage this image. Furthermore, using H&M’s manufacturing and distribution systems and design team will also provide COS with a cost effective structure. COS’ business idea is very similar to H&M’s “Fashion and quality to the best price possible”, but aimed towards a higher price segment. They have simply managed to move from “mainstream” towards “a higher income-segment”, which with more fashion and higher quality will not be competing against the H&M-brand. Take a look at video links below to see how they have managed to differentiate the new brand and how well it was received.

Gap opened new stores because they need to grow - not because they actually had the competence to do it. The reason their brands are cannibalizing each other it that Gap does not have the knowledge to make something different enough from what they already have. Compare this to H&M who has managed to use its existing image and competences to actually create something different, and thereby expanding into a new segment instead of just adding another brand competing with its existing brand.

Sources:
http://www.hm.com/se/press/pressreleaser/mode__prfashion.nhtml
http://www.hm.com/se/omhm/nybutikskedjacos__factscos.nhtml
http://www.hm.com/se/omhm/faktaomhm/vrakoncept__concepts.nhtml
http://www.cosstores.com/

Pictures and video clips from the launch can be found on:
www.cosstores.com/press

Multi-channel retailing

As one of our previous cases was dealing with “Multi-channel retailing” I wanted to address this topic a bit further.
One of the things discussed in class was the importance /value of selling goods over various channels. According to that, different channels allow the customer to experience various advantages as the retailer is able to cater more to the different needs when using multiple channel formats.
“Cannibalization” among the channels was one of the concerns mentioned in class. However according to “Tang and Xing 2001”, there is no real prove that multi-channel systems in retailing would be “associated with cannibalization effects”. It’s even the opposite – if integrated well, the channels even mutually reinforce themselves, leading to higher customer loyalty and a higher exploitation of the customer potential. The benefit is also to approach other target groups and the different opportunities a retailer has when providing goods over various channels. In the case of Eddie Bauer’s internet channel it was the greater convenience + selection in sizes e.g.… Furthermore it’s pointed out that “integrated channel systems”, providing synergies, are more successful than ones that are “autonomous” of one another. This reflects in higher customer loyalty and more frequent purchases. However, in order to achieve these synergies, consistency in image and branding is required!
The internet as a newer channel gains more and more importance but besides its various advantages – it presents also various problems from the retailer perspective:
It threatens the relationship with the existing channels e.g.; this is especially true when items are priced cheaper over the internet than in the store which creates conflict with traditional commission-compensated sales personnel. “Staples” provides an example where sales made over “Internet-kiosks” (placed in their retail stores) would only accrue to the Internet sale’s division – which presents some kind of a “free-rider effect” as customers often still would use the store to get personal support but in the end buy the product over the internet-channel.
Home Deport which threatened its manufacturer of “Craftsmen” power tools to drop them as a supplier if they would not stop to undercut prices by selling it over an internet channel provides another example of a threatened relationship. A general problem from the retailer’s perspective is also that the introduction of additional channels leads to coordination problems as a higher communication (due to more decision-makers and a “greater dispersion of information”) is required. It’s more difficult to schedule, manufacture and plan inventories having various channels. In the case of Eddie Bauer e.g., when assortment was launched at a different time (due to a lack of coordination) within the channels this had led to confusion among customers.
Adding an additional channel can also “destroy traditional segmentation criteria”:
Retailers normally use different distribution channels to target various segments with separate marketing offerings – but this is undermined if these channels can be accessed by clients at the same time.

In conclusion it can be said that nowadays many retailers can’t abandon providing their customers with the convenience of a “multiple channel strategy” if they want to stay competitive.

Sources:
-http://www.arraydev.com/commerce/jibc/2005-02/schramm-klein.htm
-http://www.myoops.org/twocw/mit/NR/rdonlyres/Sloan-School-of-Management/15-810Introduction-to-MarketingFall2001/95528F10-38A3-4222-8515-BD17BA92EDF6/0/channelnotes.pdf
- http://crab.rutgers.edu/~ckaufman/JCMEshopping.pdf

Pricing Discrimination In Big Pharma

In our discussion of price discrimination, it became evident that some companies have perfected the art of fluctuating prices (airlines) while others have not (Coke). The prescription pharmaceuticals industry faces unique difficulties in their efforts to price discriminate:

Grey market pharmaceuticals- Ideally, a pharmaceutical company would be able to price to what consumers will bear in each market, even if those markets are in close proximity. However, a ‘grey market” often develops where drugs bought at lower prices flow back into the economies where the drugs are priced higher. This is a problem between the US and Canada; Canadian prescription drugs are often priced more cheaply due to our publicly funded health care. Americans then buy prescription drugs on cross border trips and through Canadian websites like Crossborderpharmacy.com. GlaxoSmithKline has responded by refusing to supply prescription drugs to Canadian pharmacies that export medicines outside Canada. This policy is GSK’s effort to maintain price discrimination between the USA and Canada, but I imagine it’s practical enforcement will prove difficult.

http://www.hospitalpharma.com/Features/feature.asp?ROW_ID=354

http://money.cnn.com/2003/03/13/news/drugs_canada/index.htm

Pricing to recoup research and development costs- The average cost of bringing a new drug to market is $800 million -$1 billion[i][1]. It is difficult to justify to consumers pricing levels that recoup these R&D costs, because only the relatively low production costs are evident to end users. Pricing to cover R&D costs has resulted in big pharma being portrayed as an unethical industry gouging sick people for the drugs they need. See: John Carey in Washington. Business Week. New York: April 30, 2001.


Inability to directly market or sell drugs in Canada- I think one solution to convey to customers the full cost of drug production/justify pricing is effective advertising. However, in Canada prescription drug direct-to-consumer advertising is regulated to the point of virtual prohibition.

This contrasts with the US, where direct marketing is permitted, with great success. A UBC health research study found that Americans (in Sacremento) exposed to specific drug ads were twice as likely as people in Vancouver to ask for these new brand name drugs. This inability to market directly to consumers means pharma must rely on doctors and pharmacists to convey a value proposition that justifies their pricing.

Pricing to beat generic producers of drugs- When prescription drugs go off patent, generic drug makers like Apotex or Watson Pharmaceuticals are quick to bring their own version to market at a lower price. Maintaining the branded drug pricing at a higher level than generics depends heavily on brand equity that is developed before the generic is launched.
The newest way branded pharmaceuticals companies are pre-empting competing generic drugs is through “authorized generics”. The branded company sells its branded product, but also licenses a generic company to produce the exact same chemical formula under their generic name. The branded pharmaceutical company profits from selling the same drug under their name and under the generic name- effectively, price discrimination.

Overall, the regulatory environment and public opinion are strong forces working against
Big Pharma’s ability to price discriminate and set profitable price levels. In the long run, ‘artificial’ protection of their ability to price discriminate, like legislation against generic competition and refusal to supply grey market providers, will be insufficient to maintain existing pricing strategies. I think more creative strategies, such as authorized generics, will have to be employed if Big Pharma is going to be successful in future price discrimination.

Advertising regulations for pharmaceuticals:
http://www.cmaj.ca/cgi/content/full/169/5/425
http://www.cbc.ca/consumers/market/files/health/directads/

Info on authorized generics:
http://www.fenwick.com/docstore/publications/IP/Authorized_Generics.pdf

Development costs for pharmaceuticals:
http://pharmalicensing.com/features/disp/1080562872_406814b87105d


[i] [i]

Marble Slab – A (Emotionally) Healthy Experience

Today, I visited the Marble Slab Creamery in downtown London. Expecting to see an empty shop on a cold March evening, I was instead greeted by a line extending nearly out the front door. Often, you see ice cream shops shut down in the winter due to lack of business. What keeps customers going back to Marble Slab in droves all year round?

Marble Slab has created a very unique experience for customers who visit their stores. Patrons start by choosing one of over 40 flavours of premium quality ice cream (or two if you want to mix), and then add a variety of “mixins” including fruits, candies, and nuts, which are mixed together on the company’s famous marble slab to create your very own ice cream flavour. We discussed mass customization in the Mi Adidas case – at Marble Slab there is an endless number of different ice cream mixes or flavours that you can create. Compared to a competitor like Baskin Robbins, 31 flavours just does not stack up to the wide selection a consumer can create for themselves at Marble Slab. Additionally, Marble Slab further differentiates itself by offering a variety of freshly baked waffle cones that I’ve yet to see anywhere else, such as Skor, Oreo, or even a waffle bowl. With its innovative value-added cones and unlimited combinations for product selection, Marble Slab engages customers in the buying and customization process, making it an enjoyable experience and enhancing the store’s RVP.

Marble Slab’s store itself is a big selling point. In the Sunripe case, store format and experience were key factors in attracting customers to buy into its premium products. At Marble Slab, customers are treated to a candy shop feel, as jars of Smarties, Brownies, and other delicious treats surround the store. The colourful signage and decorations also give you the sense of being in the type of old fashioned ice cream parlour you would find on a small-town street corner. We briefly discussed in class how the Coke brand’s classic history may be one reason for consumers’ strong emotional association with the brand. I believe Marble Slab’s store layout succeeds in soliciting those types of positive emotions, as a person may associate going to Marble Slab with childhood memories of visiting the local candy shop, for instance. These emotional associations are key to the store’s RVP, as customers can relate to the experience it is selling.

Unfortunately, the experience and selection Marble Slab provides does not come without a price. I would guess the average ticket per customer is $6.00, as most customers choose at minimum one flavour and one mixin. With an average store size of 1000 square feet, Marble Slab is making approximately making $300-$350 per square foot in annual sales, a fairly respectable number considering most specialty retailers in the U.S. make on average $400 per square foot. Despite its high prices, Marble Slab continues to grow. Its unique RVP has given it great success in America, with growth evident as stores are opening up as far away as the United Arab Emirates.

- Jason C.

Sources:

http://www.marbleslab.com/
http://en.wikipedia.org/wiki/Sales_per_unit_area

Retail Marketing Innovations: The "Starbucks" of Pharmacies

During this course we have been studying different retail cases of companies that work in different sectors, but we had not talked much about a very fast growing industry in the last years: pharmacies. Regarding this sector I would like to analyze one pharmacy that is introducing new practices over the past four years and is implementing a retail strategy that is giving amazyng results.

PrairieStone Pharmacy was founded in 2003 by three entrepreneurs with a high knowledge of the industry. The chain has around thirty pharmacies in Minnesota and Michigan. The main purpose of the pharmacy is to put the pharmacist in front of the customer and remove the barriers that currently exist between patients and pharmacists, because they think that is the place where the pharmacists belong to.

I would say that the stratregy of the chain is based on using new technologies that allows them to offer an added value product to their customers. This added value could be divided into three main points in order to understand the needs that they are covering:

1- Customer Service: Each pharmacy has an automation process which is quick and ensures accuracy and safety by running each presentation. This is good not only for these reasons but for the fact that the pharmacists has more time to be in touch with the customers and helping them in any question (because they don't have to be counting pills).

2- Convinience: The pharmacies of this chain are smaller than the rest in the U.S. but they can carry the same number of medicines because of the technology they use. This different design explains the convienience and again the proximity with the pharmacist (always near to the clients).

3- Efficiency: Again the new technology is the reason of differentiation of PrairieStone because they are more efficient than the others, in consequence they can offer lower prices in certain prescriptions.

This strategy is totally reflected in the recent product that the chain is offering. The product is called Daily Med and in my opinion is a very simple but pretty effective solution to a problem the customers have in this sector. Medication errors respond to billions of dollars in hospitalizations, doctor visits and missed days of work.

DailyMed consist on putting the patient monthly prescription into single-dose packets for every day so the patient doesn't have to worry about selecting the pills every day what obviously has a higher risk of making a mistake on the prescription.

This solution helps specially to seniors and handicap (for example blind people) and make everything much easier for them. Moreover, as the pharmacists check the prescription every month they can discover if there is any problem with the drug-mix of the patient and allows as well to advise the customer about cheaper alternatives.

I really think that the model this pharmacy chain proposes, fits in the retail value proposition (high experience on the managers, high convenience, high selecetion with innovatives options and not high prices) we have been talking the last three months in class, using a new and fresh look on their pharmacies and offering the customer a significant added value on the products they consume using new technologies in order to avoid high prices.

Finally, I would like to highlight that this model would fit perfectly in Europe, where this kind of initiatives are not yet developed and for example the fact of using small stores format is something that would be accepted in the European culture, where they prefer that rather than huge superficies.

- Gerard

http://www.prairiestonerx.com

Redefining their Roots

In the past few classes we have discussed some proprietary retailers going through a number of issues with their brands such as The Gap and Eddie Bauer. Well Roots is another interesting case of a retailer with a strong brand history that has found itself in a bit of a predicament going forward.

Roots started out in 1973 as a retailer of high quality leather goods and casual clothing and have since expanded. Their sponsorship of the Canadian Olympic team from 1998 to 2004 improved their brand and overall business a great deal, allowing them to expand into many lines such as fashion and sportswear. These lines have not had success lately, and much like The Gap and Eddie Bauer, Roots is in a bit of a ‘fashion limbo’. There is not much differentiation for them in the fashion market, which is exacerbated by the fact that they have tried to maintain their high price point. "Roots is analogous to good quality, Canadian-made leather products. Their foray into [fashion] was questionable anyway," says Vince Guzzi, vice-president of brand strategy at marketing consultancy Watt International1. As we talked about in class, it is difficult to compete with the H&M’s of the world that are providing ‘fast fashion’ at reasonable prices, and Roots witnessed this firsthand.

Company founders Michael Budman and Don Green have recognized the need to shift focus following the Olympic buzz and are moving the company’s product assortment back to its original lines; fine leather goods and casual clothing. Fashion is moving away from sport casual to dressier, designer clothing and there does not appear to be a place for Roots here. Leather goods accounted for 15% of sales in 2006 and Budman wants to eventually get this figure to 40% of sales, with hopes of increasing leather goods to 20% of sales in 20071. One thing I’ve found very interesting is how Roots has decided to change their retail format along with this change in focus. Budman found that stores were too large and is now opening up smaller boutiques averaging 2000-3000 square feet, which he refers to as ‘rightsizing’ as opposed to downsizing1.

Roots is essentially moving from a general merchandiser to a specialty shop and I think this is a good move. Seeing the problems faced by Eddie Bauer and The Gap shows how difficult it is to compete in this market, especially since they have been specializing in this market throughout their history, while Roots is a relatively new competitor in fashion. By decreasing the size of their stores they are able to provide a more intimate customer experience while still providing enough room to showcase their products. A common metric discussed in class is sales/square meter and it will be interesting to see what happens as Roots divests from the larger stores and moves into smaller areas. I think they are making a great move away from fashion and back to their forte of leather goods, and the move to boutiques makes sense with this new product assortment.

-- Chris Petit


Sources:
1 - http://www.canada.com/nationalpost/financialpost/story.html?id=f7f7cdf2-4b43-4a80-85d0-cc1eb3f390f3&k=62771

http://canada.roots.com/

Dynamic Pricing at the Movies

Whether you know it or not, at some point in your lifetime, the passenger sitting beside you on an aircraft paid much less than you did. This is the magic of dynamic pricing, and following its introduction by American Airlines in 1979, society has become accustomed to paying different fares(1). Theatre chains are banking on this latter point as they look towards dynamic pricing to help save their business; a night-out at the movies is less appealing thanks to shorter DVD release dates and cheap home-theatre solutions. So in the near future, don’t be shocked if the woman sitting next to you in Harry Potter paid less than you did.

There are many similarities between airlines and theatres that make dynamic pricing feasible. When an airplane leaves the gate, or when a feature-presentation begins, every seat that’s empty is lost revenue. To combat this, airlines often offer last-minute deals for less than the cab fare to the airport. This is thanks to the small marginal expense associated with each additional passenger. There are only so many good seats in an auditorium, leaving everybody else shoved in the back or breaking their necks upfront. Once these good seats are taken, moviegoers generally opt for the next showing. Consequently, much like an airline, look for theatres to significantly discount tickets at last-minute to fill those empty rows.

Demand for a particular flight typically increases as the date nears, and the same can be said of movie showtimes. Every year there is at least one blockbuster that generates a following to the point of fans waiting overnight in line. This high demand is in stark contrast to the turnout for movies like Gigli. In class we spoke of how the internet has propelled the existence of dynamic pricing. Theatres plan to use this medium as a means to offer advance ticket sales weeks before the movie premieres. Thus, fans shaking to see the next Spiderman will get the lowest opening day prices compared to the clueless couple that shows up five minutes before it starts.

In class we looked at a simple formula for dynamic pricing in the beverage industry; but in reality, these formulas are much more complex. Most businesses state modelling demand functions as one of the hardest processes going. In fact, the proposed pricing formulas for movie-theatres encompass over 50 different variables. Kyle’s research on the weather’s effect on buying behaviours leads to one example: if it rains, theatres can expect to see attendance double on any given day. Naturally, this is one of the variables in their model, as well as anything from average regional income to current gas prices.We spoke in class about reference pricing and how consumers use it to base the “fairness” of a particular transaction. But can any of you tell me the average price of flight AC103 from Toronto to Vancouver? Airlines use such a complex formula to the point that customers never know what an appropriate price for flights should be, and theatres are not far from getting to this point.

Although price discrimination has always existed in theatres, movieplexes are now looking to grow on what the airlines started, in hopes that their customer base will also become accustomed to the complexities of dynamic pricing.

1 http://www.cse.psu.edu/~bzhao/overbook_paper/YMAA.pdf

Dynamic Pricing and Revenue Management
http://revenue-mgt.section.informs.org/download/RevenueMgmt06.pdf
http://www.managingchange.com/dynamic/yieldmgt.htm
http://en.wikipedia.org/wiki/Yield_management
http://ieeexplore.ieee.org/xpl/freeabs_all.jsp?tp=&arnumber=1261369&isnumber=28193

that's haute...

Recently in class the topic of high fashion came up, or as it likes to be called - "Haute Couture." The term Haute Couture originates from the French language and is translated as 'high sewing' or 'high dressmaking'. The name alone indicates that the utmost attention and care goes into the creation of the garment in question.

Currently, the retail industry is home to ten official Haute Couture Houses of Fashion:

1. Armani Prive
2. Chanel
3. Christian Dior
4. Christian Lacroix
5. Dominique Sirop
6. Givenchy
7. Jean Paul Gauthier
8. Valentino
9. Jean - Louis Scherrer
10. Franck Sorbier

As of Spring 2007, there are three invited houses:

1. Elie Saab
2. Giorgio Armani
3. Valentino

In order to use the term 'Haute Couture', the Ministry of Industry in France has set out guidelines indicating what it takes to be called 'Haute Couture'. The following is the most recent list of requirements as of 1992.

• Design made-to-order for private clients that require one or more fittings.
• Have a workshop (atelier) in Paris that employs full-time a minimum of fifteen people.
• Present to the press in Paris each season (spring/summer and autumn/winter) a collection of at least thirty-five runs comprising outfits for both daytime wear and evening wear.

It is interesting to note that although these fashion houses pride themselves in being labelled ‘haute couture’, the “thirty five runs” described above are rarely sold. They rely heavily on being commissioned to do garments for celebrities and important political leaders. The main source of income for these houses is their “prêt-a-porter” or ready-to-wear line of clothing, perfumes and accessories. These items are less expensive, but generate a higher return on investment. The ready-to-wear line still provides the generic consumer with the image and status of the ‘haute couture’ that they long to be associated with.

In class we tried to determine what exactly these Houses of Fashion are trying to sell. We came up with ideas such as image, brand and status; and I agree completely. However, I would like to argue that it is these houses who are actually setting the fashion trends and that the clothes that we wear are influenced by their design. In turn, because the retailers we frequent are unable to design and create as unique, creative or detailed (as "couture" if you will) clothing; our retailers at the street level end up overlapping their designs and eventually lose the identity they have tried to create for themselves, ultimately because they are basing it on someone else’s initial vision. However, stores like H & M have mastered what I like to call “faux couture”. They have been able to design edgy, creative and unique clothing items at a low cost so that consumers can reinvent their look multiple times as the clothing is so versatile and inexpensive. H & M have been so successful because of their strong and well formulated RVP. They are able to provide consumers with a wide variety of fashion forward clothing selections at a reasonable price in convenient urban locations – resulting in a true European fast fashion experience. Maybe ‘faux couture’ isn’t as ‘faux pas’ as we thought?

Sources:

http://en.wikipedia.org/wiki/Haute_couture

http://www.fashion-era.com/haute_couture.htm

http://www.infoplease.com/spot/fashionside1.html

http://www.diplomatie.gouv.fr/label_france/ENGLISH/DOSSIER/MODE/MOD.html

Format Matters!!

If you want some evidence that store format can have an impact consider a recent situation where Shoppers Drug Mart (who as we discussed in class have put a large focus on revamping and focusing on their cosmetics section) have been granted continued rights to sell Dior and Givenchy products while other similar drugstore retailers were denied rights. There is currently a lawsuit from Sears who are claiming that they will be significantly impacted since rival Hudson's Bay Co. (who was also granted the rights to sell the products) will be left with an effective monopoly on those items. It would be interesting to compare the store format and layout of both The Bay and Shoppers vs. Sears and London Drugs Ltd.

“Two major pharmacy chains, London Drugs Ltd. of Richmond, B.C., and Jean Coutu Group (PJC) Inc. of Longueuil, Que., also claim that Christian Dior and Givenchy have denied them access to their products in favour of Toronto-based rival Shoppers Drug Mart Corp. Gwendoline Allison, a lawyer for London Drugs, said those cases could be heard after the Sears case, although she didn't rule out the possibility of the three cases being heard together.”

For more information on the lawsuit refer to:
http://www.theglobeandmail.com/servlet/story/LAC.20070314.RGIVENCHY14/TPStory/?query=perfume

The Future of Pricing

Retailers today are starting to face the same pressures that the airline industry was facing not too long ago. Competition is becoming so fierce that businesses continuously have to invest in lowing prices. The airline industry took a very hard hit when it found itself doing anything to fill the plane; even if it meant pricing irrationally. Eventually, dynamic pricing was credited for saving the airline industry. For retailers, dynamic pricing technology can ensure they move profitably into the future.

Retailers in Europe such as Costco, Metro and Carrefour are already starting to implement dynamic pricing systems. The extent of their success is reflected by stores such as Metro, who have tried the technology in a few stores, and then gone on to implement it other stores. The company leading the charge in supplying this technology to retailers is Pricer (www.pricer.com).

Pricer provides the screens to display and change prices as well as the software to calibrate perfect prices. Demand for retail items fluctuates. Stores are busier on the weekend than they are during the week. Likewise, evenings are busier than mornings. By having the ability to change prices, stores could increase their profitability by always displaying the optimal price to maximize profitability.

Most large retailers have computerized POS systems to keep track of inventory. If merged to work with dynamic price tags, supplies could be even better managed. Normally, when a retailer needs to get rid of excess inventory, they lower prices. This problem may not be realized by managers for a long period and products may have to be sold at a loss in order to clear them out. With a computer system monitoring supplies, prices can be lowered continuously to ensure products are cleared out when management wants, at the highest prices possible.

When the inventory of an item starts to deplete, a dynamic pricing system could help to avoid stock-outs by increasing its price, consequently decreasing demand. Even though customers may have to pay more for a product going out of stock, at least they do not have to be turned away. This ultimately increases customer satisfaction. Customers are also more likely to go to a store if they believe there will not be any stock-outs.

Stores with dynamic pricing systems can also benefit consumers by staying open 24 hours. It would just mean increasing prices to reflect the lower demand during the off hours.

The advantages of having the perfect price on every product mean no more lost revenues from wrong guessing about what prices should be. In the end, both retailers and consumers can stand to benefit from increased profits, fewer stock-outs and open longer hours. As retailers in Canada begin to see the benefits being derived from dynamic pricing being used in other countries, they better take notice if they want to stay ahead of the curve.

Apple’s Fifth Avenue NY Retail Store – More than a Branding Effort?

Initially, I thought Apple’s Fifth Avenue New York store wouldn’t be able to different itself and I dismissed it as a common branding effort. However, after we examined how other retailer’s of similar products were being forced to close stores (CompUSA 128 stores & Circuit City 70 stores) and how Apple stores had high sales per square foot ($4032 on average with this particular store estimated at 3 times that), I decided that perhaps I should attempt to determine this store’s RVP.

I did not have the resources to actually visit the store, so I can’t comment on the impact of their specific format, but I did manage to do some on-line research to help estimate an RVP. I learned that the store aims to “offer an unprecedented level of service” by operating 24 hours a day, 365 days a year. While this was convenient, I was still not convinced that this really differentiated them since many Wal-Marts sell iPods and are open 24 hours a day.

Further research convinced me that the store actually did offer a unique experience since it boasts a “combined 45-foot Genius Bar, iPod Bar and The Studio where they [customers] can get face-to-face support, free advice and work on creative projects at any hour of the day or night.” Having never owned an Apple product myself and finding them relatively expensive, this type of service and expertise is something that I would appreciate if I was looking to make a purchase.

Another thing that would be important to me as a customer would be selection. I was pleasantly surprised to discover, “The new store offers more than 100 Macs and nearly 200 iPods for customers to try before they buy, as well as the world’s largest assortment of accessories.” World’s largest selection? I would definitely say this constitutes strong selection! Additionally, I was drawn to the fact that you could try their items before purchasing them which to me, strengthens the experience and value that they offer.

I was not able to find any data regarding pricing; however, I assume that it must be comparable to other retailers and their website for legal reasons. Although they would therefore be restricted in competing on price, I still feel, that overall, they have a strong RVP.

After completing my research, I concluded that the 5th Avenue Apple store did offer something more than a “cool” glass cube storefront. They have a distinct RVP and to be honest, I couldn’t contest that “Apple’s Retail division generated more than one billion dollars in revenue during the 2005 holiday shopping season, solidifying the company's position as one of the fastest-growing retailers in the world.” Whether it was intended as a branding or genuine retailing effort (or both) it is clear that the store is a success! The real question is - will their RVP be strong enough to overcome a threat to Apple’s “cool” trendy status? Until I actually experience the store firsthand, I am undecided.

Resources:
For more photos of the store go to: http://www.appleinsider.com/article.php?id=1757
For more info on Apple refer to their site: http://store.apple.com/1-800-MY-APPLE/WebObjects/canadastore?cid=AOSA20000014807
For more info on this particular store refer to Apple insider and articles such as this one:
http://www.appleinsider.com/article.php?id=1757

Window Shopping - No Longer an Inexpensive Hobby

Recently in class we discussed how unique store formats have the ability to attract diverse consumer segments, to differentiate themselves from the competition, and to draw mass media appeal. After watching a television special, I was reminded of another store feature that has the ability to create a similar reaction – the retail store-front window.

Often while walking on a commercial street, pedestrians are unable to read a store’s sign as it arches way above their visual field. Store windows therefore provide a secondary tool to grab shoppers’ attention, by peaking their curiosity and tempting their senses with attractive color palettes and top of the line merchandise. Some stores are satisfied putting posters in their windows, or even tolerate nude mannequins waiting to be outfitted. Other stores, most notably high-end department stores, use their windows as a creative canvas to appeal to the consumer’s imagination. These windows provide a glimpse into the store’s category but more often, a glimpse into a fantasy reality that is far removed from the store’s merchandize. To some, a window’s display can sometimes be more like a visual representation of a hallucination filled with robotic figures, glamorized outfits, and bizarre combinations of anything and everything from fashion to furniture to kitchen appliances.

Similar to a store’s exterior design, store-front windows vary greatly from one retailer to the next. Yet alternatively, store-front windows differ from the exterior as these temporary displays provide retailers with the unique opportunity to continuously re-invent themselves, while constantly strengthening the perception of their brand. The cost of changing a window display is drastically lower than reconstructing the face of a store, yet viewing the visual extravagance created by stores such as Barney’s New York, Bloomingdales and Holt Renfrew might beg you to differ.

The most noteworthy displays are created by luxury brands during the holiday seasons to attract high-end shoppers. Specifically, windows created by luxury retailers in New York, during the holidays generate mass media and have wide appeal to a number of consumers aside from their regular clientele. Great hype and large crowds gather to witness the Christmas window reveals, which successfully attracts potential shoppers who would generally avoid shopping in these expensives stores during the regular season. Displays for high-end retailers can cost in the six figure range, which may sound absurd to some, yet marketing executives fully support this fee as “a three-month branding effort that cost[s] less than a magazine or TV ad campaign—and can have broader impact.” Simon Doonan, creative director at Barney’s plans his holiday displays a year in advance and sees the window displays as defining how the Barney’s brand is perceived. Tim Wisgerhof, the designer of Saks' holiday displays admits that although it may be very difficult to gauge a display’s direct sales results, the brand identity created for customers is critical. Retailers like Saks want to build long term relationships with their shoppers and be remembered year after year for their displays during the holiday season.

Technology has unsurprisingly also entered the store-front scene, when in November 2006, designer Ralph Lauren installed a 67inch touch screen into their display. The screen enabled shoppers to buy merchandise that was inside the store, 24 hours a day. Do I sense shopping of the future…?

Source:
http://www.businessweek.com/innovate/content/nov2006/id20061123_572925.htm

J.C. Penney Makes Every Day Matter

In its attempt to attract younger shoppers to its stores and provide a more convenient shopping experience, J.C. Penney has gone above and beyond to reinvent its image. The 105-year old U.S. department store has seen sales increase by 7.4% to $6.66 billion over the quarter ended Feb. 3 due to strong strategic alliances, development of its private label brands, ambitious advertising and promotional campaigns using its new slogan “Every Day Matters”, new store openings, and experimentation with different store formats and layouts.

Two of the more interesting changes that J.C. Penney is undertaking as part of its “Long Range Plan” strategy include its new store formats and layouts. Between 80 and 90 per cent of new store openings over the next couple of years will be in a free-standing, single-level, off-mall format. Similar to the Kroger case we discussed as a class, this new format aims to improve convenience for shoppers by offering them more points of access. The off-mall department stores are approximately 100,000 square feet in size, and are intended to attract mid-week shoppers by providing a ‘neighbourhood’ presence that offers convenience and accessibility. These stores serve as compliments to the existing mall stores, which continue to be weekend and holiday shopping destinations.

The new-format stores also have wider aisles, new lighting designs and centralized customer service centres – all of which help customers easily locate major store brands of clothing and home merchandise. J.C. Penney is also experimenting at many of its new stores with Sephora beauty boutiques, Paul Mitchell hair salons, an all-occasion portrait studio, and expert in-home decorating services. As well, customers can place orders and pick up internet or catalogue purchases from the store’s Solutions Desk.

J.C. Penney is not the first department store to test off-mall formats. Other U.S. mall retailers such as Sears and Federated have also been experimenting with the new formats to keep up with shopping trends favouring more freestanding units and strip centres. Shoppers don’t have the luxury of leisurely shopping as in the past, and J.C. Penney is reacting by changing its image and offering shoppers a new experience. By launching these new formats, J.C. Penney is enhancing its convenience to shoppers, and is better positioned to compete with increased competition from department stores such as Target and specialty retailers like Abercrombie & Fitch.

Despite its recent success, J.C. Penney still needs to work hard to keep customers coming back. Although J.C. Penney may now be one step ahead of U.S. department store competitors such as Macy’s and Dillard’s, its new format and layout changes can, and likely will be imitated in the near future. However, due to J.C. Penney’s cognisance and successful adaptation to changing shopping trends, I am confident that it will continue to find new ways to enhance its value proposition.

- Merridyth

Sources:
http://www.businessweek.com/investor/content/feb2007/pi20070222_309102.htm?chan=top+news_top+news+index_investing
http://abcnews.go.com/Business/story?id=2896040&page=1&Business=true
http://www.bizjournals.com/dallas/stories/2007/02/26/daily2.html
http://www.fibre2fashion.com/news/company-news/jc-penney/newsdetails.aspx?news_id=31444

The Disappearing RVP

Hasan earlier blogged about the transformation of a bookstore’s retail value proposition to continue meeting the needs of their customers and differentiate from competitors. Bookstores have done this by increasing selection and creating a more intimate customer experience. One thing that has helped bookstores is that their core product, books, has had very steady demand and little or no threat of obsolescence. A related industry, music retailers, is quickly losing their RVP and is facing the threat of an obsolete core product.

Two music retailers facing this situation have been in the news recently for declining financial results. International retailer HMV’s same-store-sales companywide are down 3%, and profit forecasts have been cut in half. Canadian retailer Sam The Record Man has closed one of their four locations, and hinted that the worst has yet to come.

To evaluate this scenario and look for possible solutions, I want to look at the reasons for the decline and evaluate HMV’s three-year RVP “transformation plan”. Product obsolescence, specifically shrinking demand for physical CDs, due to digital formats is what most people point their finger at as the reason for the demise of music retailers. But in reality, digital music purchases only make up 3% of total music sales according to the International Federation of Phonographic Industries. Illegal downloads are also commonly blamed, but total music sales have only dropped between 3-4% in 2006. The real problem affecting HMV and Sam’s is that specialty music retailers only accounted for 44% of CD sales in 2006. Online stores, like Amazon, account for 11% and superstores, like Walmart and Futureshop, account for 26%. Like most online stores, the RVP of online music stores is focused on the long tail of the market by offering an enormous selection of music. The RVP of superstores is quite different; they carry a small selection of popular titles at discounted prices that are convenient for consumers to add to their shopping carts. The question facing specialty retailers is: how can they position their RVP to be competitive while also finding new revenues to compensate for declining CD sales?

HMV’s chief executive Simon Fox believes he has the solution for his chain's 421 retail outlets. His transformation includes:

- Establishing a loyalty card program for frequent purchasers

- Starting an online social networking site for music and film enthusiasts

- Allowing customers to download music and play video games in store

- Increasing online sales to 20% of total sales

These ideas are encouraging and will make them more competitive. However, I do not believe these are substantial enough changes to the RVP to maintain or gain market share from the other retailers. Bookstores drastically changed the atmosphere, demanded more from suppliers, increased selection, and consolidated the smaller stores into big box stores which quickly became a destination for customers. As the largest specialty music retailer with access to a lot of capital, Fox is in a position to consolidate the industry, similar to Chapters, and really transform their RVP to become a destination for entertainment seekers of all types. Instead he has chosen to focus on a different channel (online), implement loyalty cards which have very little impact on the customer’s value proposition, and move into the entirely new business of social networks!

-Simon

Sources:
BBC News, 'Top dog' HMV no longer leads pack.
The Age, Pain of a music industry in transition.
CBC News, Sam no longer the recordman in Halifax.
Scotsman.com, HMV revolution may be too little, too late.

Visit HMV UK Online.

The End of an Era?

Starbucks has always been known for its groundbreaking techniques in retailing. Unlike coffee chains before it, Starbucks was able to turn its coffee shops into destinations where friends meet and students sit for hours on their laptops. This company boasted its knowledgeable sales staff, and prided itself on its understanding of its main consumer base. However those days are over. Starbucks’ main consumer is no longer the individual who savours exotic coffee and wants to spend hours in the store. This company now appeals to consumers who are on-the-go, and need fast, efficient service.

In addition to the shift in its consumer base, Starbucks’ brand image has changed as well. Rather than being viewed as a coffee connoisseur, Starbucks is perceived as a corporate machine that is more concerned with streamlining its stores and creating profit, than it is about delivering a unique customer experience. Those who have been Starbucks customers from its onset believe that Starbucks has become overexposed due its vast number of distribution channels. Initially Starbucks products were only available at its coffee shops, whereas it is now available in book stores, grocery stores and airports.

As a result, Starbucks has decided to take a “back to basics” approach and revamp its image to locate it initial consumer value proposition. However, there is much scepticism regarding whether Starbucks can actually revamp its image and recapture its initial lustre and appeal.

Starbucks’ situation shares many similarities to the Eddie Bauer case. In class we contemplated the potential dangers of pursuing too many sales channels, as this can result in cannibalization. To overcome this, companies have attempted to offer different products through each channel. However, doing so makes it difficult to maintain a consistent brand image through each of the channels. Much like Eddie Bauer, Starbucks did not realize that its image among consumers has changed over the years. While Eddie Bauer was no longer viewed as the store to get staple apparel, Starbucks is no longer viewed as the place to enjoy a relaxing cup of high quality coffee. By being overexposed, Starbucks slowly deteriorated its brand among its major consumer and lost its unique ambiance.

Although Starbucks is attempting to regain the distinguishing factors that attributed to its initial success, I believe that it may be too late for this effort. It takes years to build a brand name, and Starbucks will be unable to undo the damage to its brand without radically changing its strategy, and affecting bottom line profitability. By changing its strategy and attempting to revitalize its image, Starbucks will have to divest some of its channels as they have caused Starbucks to become a commodity.

I believe that this is more of a publicity stunt than an actual promise. Rather than making a sincere effort to regain its image, Starbucks is using its “back to basics” strategy to remind its customers of what it used to represent. The past is the past. Starbucks should look to the future and embrace its new consumer base. Starbucks should do what it does best; isolating its most popular consumer group, selling the products that they like, and customizing these products to meet their needs.



Sources:
http://www.forbes.com/opinions/2007/03/02/unsolicited-advice-starbucks-oped_meb_0302unsolicited.html

From e commerce to retail

E commerce is not only an alternative to retail but is used to improve retailers’ offer as we see in “Eddie Bauer” case. I think that channels are not to be opposed but are rather complementary as shown by the recent move from e-commerce businesses entering classic retail in France. The consistency problem retailers have while entering internet are in fact far lower than that faced by internet players going to “real” stores…

Last June in France www.pixmania.com, a company selling electronic goods transformed one of its depots into store of 400 m² displaying a small assortment of 2% of its SKUs. Web stations enable customers to browse the entire selection and order in the store. Products can be either delivered or taken from the store a couple of days later. It was followed by www.Cdiscount.com , the largest e-retailer in France that created the same kind of store.


What is the need for e retailers to build stores ?
While e-commerce advantages are easy to perceive, I thought it was more questionable to have the opposite approach.
E commerce virtually enables any company to reach thousands of people 24/7 and requires low capital investment.
In terms of retail value proposition, e commerce offers the widest selection, and is also the most convenient way for customers to shop: home delivery, no closing time (which in France is even more important considering the legislation).

The only missing aspect of the RVP is customer experience… Customers need more than a picture to decide over buying a computer, they want to see and if possible, try. Going into retail is a means to attract the 47% French consumers that consult a website to compare and choose before buying in a store.


What are the issues these businesses are going to face ?

The investment cost to build the stores should be lower because infrastructures and brand image already exist like in Pixmania’s situation. Moreover, websites have a huge amount of information about their visitors and customers they can leverage to choose the stores’ location as we saw in the LCBO case.

They can also leverage their expertise on the web to have more interactive stores. Cdiscount is updating the prices with its website for example.
The choice of displayed items is really important: they have to be best sellers if only 2 to 5% of SKUs are shown.
Entering retail therefore implies recruiting new competencies for shelf arrangements, promotion, etc. Planners is going to be more and more important because decisions take place a longer time in advance and are less reversible. Whereas a bad promotion can be removed in a click from the website, you must remove the goods in the store.

By doing this move, e-retailers are going to loose flexibility. I believe they need to focus their efforts on planning, and merchandising otherwise they might not achieve high rotation which is currently their main competitive advantage and enables them to offer lower prices… under such circumstances the marketing improvements from leveraging website expertise will improve their customer experience.


http://www.lsa.fr/article/page_article.cfm?idoc=73733&navartrech=3&id_site_rech=16&maxrow=7http://www.lsa.fr/article/page_article.cfm?idoc=74594&navartrech=2&id_site_rech=16&maxrow=7

Best Buy: The Best By Far in Consumer Electronics

In today’s case, Kroger’s, we examined a company that uses a broad array of retail formats to reach a diverse customer base. Best Buy has taken an extreme approach to the concept of matching retail formats to the consumer.

In 2003, Best Buy’s CEO, Brad Anderson, decided that the company’s mission of serving “the smart, but confused customer” was too broad. Using customer purchase data, Anderson was able to segment Best Buy’s most profitable customers into five distinct categories (http://www.customersarealways.com/2006/03/best_buy_changes_its_business.html). Customer segmentation is nothing special, right? Well, Anderson went a step further and decided to focus each individual Best Buy store on only one or two of these customer segments. He told employees in each individual store who their store’s primary audience was and then challenged each store to focus on only this audience.

An example of Anderson’s strategy in action comes from a store in Westminster, California. A typical consumer electronics store has similar products adjacent to one another, but in this store, products are bundled together. For instance, a printer may be displayed with a digital camera, while a GPS device may stand with a laptop and cell phone. You may be asking yourself “How does this make any sense?” Well, this store was designed to serve the independent business owner. Employees decided that an independent business owner would want to see how different products could be linked together to make their jobs easier. Each display bundle is targeted at a different type of business owner (e.g. there are certain bundles for realtors and certain bundles for independent contractors). The result has been amazing as the Westminster store saw 36% comps (http://www.investorwords.com/1015/comps.html) after adopting Anderson’s strategy.

The success doesn’t stop in Westminster. In store after store, the discipline of trying to serve only one kind of customer has generated positive comps ranging from 25 – 35%. Forbes named Best Buy the Company of the Year in 2004 and noted that the organization was spending $80 million a year “rebuilding stores, adding to staff, and upgrading wares” as part of this “customer centricity” initiative (http://www.forbes.com/free_forbes/2004/0112/138_2.html).

There are three steps that I see as keys to Best Buy’s success: First, Anderson understood his company served a variety of core consumers, with each segment desiring a different experience from Best Buy. Second, by challenging his employees to focus on their store’s primary audience, he cultivated his employees’ expertise in looking at the world through its customers’ eyes. He wanted the people closest to the customer to understand what that customer’s desired experience was. Finally, Anderson empowered his employees to redesign stores to fit with their primary audience’s preferred experience.

The case can be explained in terms of RVP, specifically the experience category. The retail format is the manifestation of the retailer’s value proposition. Hence, by allowing employees to tinker with its retail format, Best Buy empowered its front line to make its RVP more relevant to its customers. As a result, Best Buy is the best by far.

-Andrew Rapsey

I first learned about Best Buy’s unique approach to its stores while reading The One Thing You Need to Know by Marcus Buckingham (http://www.amazon.com/One-Thing-You-Need-Know/dp/0743261658).

Why Wal-Mart failed in Germany

I was thinking of the reasons why Wal-Mart is so successful in America but not able to reach the same level of success when expanding to countries like Germany e.g.

According to a research paper and my personal assessment the main reasons seem to be the following:

Germany’s retail market is facing intense competition – especially discounters like “Aldi” and a large number of others like “Metro”, “Globus”, “Kaufland”, “Lidl”, “Marktkauf” or “Penny” provide high entry barriers.

Wal-Mart Germany was not able to deliver a “value-proposition” which was really attractive to consumers – by neglecting one of the most important factors “consumer satisfaction”. According to a study by KMPG, the customer satisfaction (for discount retailers) for Aldi Group (being ranked at 1st place) is nearly 10% points higher than the one for Wal-Mart.

Wal-Mart approaching the German market with a traditional U.S. centred view of customer service was not successful as this market has different consumer preferences. To give an example – the famous “10 foot-rule” and “greeting” of customers in bigger retail-formats made customers feel uncomfortable; they even felt hassled by being approached by “strangers” within the store. Most German customers prefer to shop by their own without having staff assistance (until they ask for it).

As one might think Wal-Mart’s success is being the price and cost-leader; in Germany however, it was beaten by far by the existing very successful “Aldi” in this area. Reasons for this: Lack of Wal-Mart’s buying power in the German market as Wal-Mart had to introduce mainly domestic brands to meet consumers’ demand.
Several independent studies conducted (like by the highly influential consumer protection agencies http://www.stiftung-warentest.de and by “GFK” furthermore showed that Wal-Mart (having a reputation as a low-price discounter) was not even cheaper than traditional retail-stores (focussing more on quality). Furthermore these competitors like “Rewe” and “Edeka” matched the price reductions in certain areas which were taken by Wal-Mart.
Wal-Mart’s positioning with “everyday low prices” thus could not really convince consumers.
Discount-retailers, especially “Aldi” are furthermore not only renowned for their low price but also offering very high freshness and quality at the same time in their assortment.

Opening hours: In America 24/7; in Germany these opening hours are very much restricted. Most shops are not allowed to open in the late evening or on Sundays. Thus Wal-Mart could not create this additional “convenience” it offered successfully to American customers.

Wal-Mart is traditionally a non-union employer in contrast to all bigger German employers which require unions included in the Board. Disregarding common labour working practices regarding payment, benefits and “fights” with these unions, etc. created a lot of bad PR and high fluctuation in staff.
Furthermore Wal-Mart was not willing to adapt to a couple of German’s laws and regulations. E.g. it ignored the “Act Against Restraints of Competition” – this German Antitrust legislation makes sure that companies with superior market power do sell goods only occasionally for a price below the cost of the product.

Furthermore, from my own experience German (also Austrian and Suisse) consumers are quite loyal to their domestic companies and products, which might have created another barrier for Wal-Mart as I assume that Wal-Mart was not able to offer its whole assortment accordingly.

Unwillingness to adapt to local procedures and habits and even the management’s resistance to learn German (company language in Walmart Germany was English!) will also will have played a certain role.

Retail experts furthermore claim that with the current size of German’s Wal-Mart, the needed economies of scale (A minimum annual turn-over of €7.7) are not possible to achieve. To reach critical mass – Wal-Mart would have to grow 2.5 times. However, organic growth is not possible as at the best locations, competitors are already well-established.

In my opinion as the product assortment, and also the size of products offered are not always appealing, Wal-Mart will have to adapt a lot more to domestic consumers’ preferences, carrying an assortment with brands and goods consumers are already familiar with. Furthermore as the organic growth is hard to achieve – Wal-Mart might have to undertake costly acquisitions or to look for cooperation to achieve the needed volume in order to being competitive. Also a different positioning is required!

Last but not least - according to the study, Wal-Mart lacked the innovative approach to “shaking up the extremely competitive German retailing sector”.

If you are interested in the academic study conducted by members of the University of Bremen (Germany) it’s a 35 page PDF-sheet file available under: http://www.iwim.uni-bremen.de/publikationen/pdf/w024.pdf

THE FUTURE OF RETAIL LOYALTY PROGRAMS

The popularity of customer loyalty programs is increasing dramatically. For instance recent surveys indicate that “among multi-channel retailers without an existing loyalty program, 43 percent planned to introduce some kind of program within the next year” (Hogenson). Unfortunately this trend may not necessarily be a positive one, as “Only 22% of consumers find retail loyalty programs important in creating loyalty” (Alamgir). One explanation for this statistic is that most loyalty programs follow a ‘me-too’ approach adapted from other retailers in the industry. This approach offers little competitive differentiation when implementation and program maintenance costs are taken into account. Another perceived weakness with these programs is that they are too ‘program-centered’ rather than ‘customer-centered’, and therefore do not consider factors that truly influence customer buying behaviours. Therefore to create a successful loyalty program retailers need to increase the level of their program’s customization in a variety of areas.

The future of retail loyalty programs appears to be focused on tailoring to target consumers rather than implementing broad programs such as Air Miles. This shift towards customization is likely to create successful loyalty programs for several reasons:
· It enhances customer loyalty by offering desirable benefits thus increasing customer satisfaction
· It accounts for implementation costs and incremental revenues
· It provides information that can contribute to other operational areas of the organization
· It effectively uses existing information technologies to enhance organizational strategy
(Alamgir)
Ultimately what makes a customized loyalty program more financially successful is its ability to service the needs of each functional department within an organization.

When developing a program it is critical that it fits well with the overall strategic direction of the business and with consumers’ preferences. There are many options when it comes to choosing the form of a loyalty program. A formalized program is recognized by the customer, usually in the form of point cards, discount cards, rebates and third party currencies. In contrast internal programs are integrated into business operations, in effect concealing it from consumers. A particular example of an implemented internal program is Aritzia’s ’hidden’ loyalty program. This program creates a profile for each customer which records every purchase they make and the total revenue they contribute to Aritzia. When large transactions are made, Aritzia follows up with the customer by sending out a post-card with a personalized hand written message. These customer profiles also enable Aritzia to offer major discounts to their most loyal customers on consumer appreciation days. These appreciation days encourage spending while satisfying the customer with savings they would not have received otherwise. This loyalty program also fits well with Aritzia’s strategy to position themselves as a high-end, service oriented retailer.

Another critical aspect of the increasing customization of loyalty programs is the involvement of retail suppliers. Many firms that produce consumer packaged goods are increasing their level of participation and collaboration with retailers. This is so that they may locally target their consumers with the most effective loyalty program rather than a standardized national rollout. The adoption of customized loyalty programs at the Coca-Cola Co. demonstrates that they understand that “customer satisfaction depends on strong relationships between customers and the retailers that carry their preferred brands.” (Sean Seitzinger, Director of Retail Marketing for Coca-Cola Co.)

Overall, it seems that traditional loyalty programs are losing their appeal. Retailers are finding new and more efficient ways to reverse this effect through increased levels of customization, unique program formats, and greater involvement from suppliers.

Sources
Choosing the Right Kind of Retail Loyalty Program
http://retailindustry.about.com/od/loyaltycrm/a/uc_msa1.htm
Loyalty Card Programs Refocus on Customer Satisfaction
http://www.crmbuyer.com/story/38699.html
Beyond the Card: Shaping Next Generation Loyalty Programs in Retail
http://www.fairisaac.com/NR/rdonlyres/D2350BB9-30BE-4549-ABF5-3E22ADF79E6A/0/RetailLoyaltyWP_MFM_3.pdf

TESCO plc: The most successful retailer in the world?

There’s a lot of different ways to measure success in retailing, but perhaps the most fundamental measure is share of wallet. Market share measures performance against direct competitors, but share of wallet measures how well a retailer performs against all consumption choices. For retailers that transcend traditional market boundaries and offer an expansive range of products and services, share of wallet may, in fact, be much more meaningful.

By any set of financial measures, Walmart is a standout. In the United States, in 2006, $1 out of every $17 in total retail sales was spent at Walmart. In other words, nearly 6% of all retail purchases are made there. As impressive as this is, it is nowhere near the global benchmark set by TESCO in the United Kingdom. In that market, £1 out of every £8 in retail sales is spent at TESCO facilities. At slightly more than 12%, TESCO’s market concentration is double that of its American-based rival.

Although TESCO and Walmart share many similarities - both companies are known as discounters with everyday low pricing. Both companies do not feel bound by their traditional retail categories. Walmart has moved from soft and hard goods towards groceries. Alternatively, TESCO began as a traditional grocer but has now diversified to become a leading retailer in such diverse categories as books, home entertainment and patio furniture.
The differences, though, are also stark and are primarily related to variation in the underlying retail environment in the U.K. and the U.S. In the U.K. a large proportion of retail transactions takes place in central “high-street” shopping districts. People make more frequent trips for smaller quantities of groceries. Many people walk on a daily basis to their neighbourhood grocer. Acknowledging the wide range of behaviours exhibited by their customers, TESCO has developed a multiple-format strategy. Their four current formats are: Express - less than 3000 sq. ft; Metro – 7000 to 15000 sq. ft; Superstore – 20000 to 50000 sq. ft; and Extra – 60000 sq. ft and larger. TESCO’s implicit goal is to be the most convenient option regardless of your preferred shopping habits. Smaller formats also allow TESCO to establish a presence in much smaller communities. By contrast, the large size of a Walmart store limits their ability to enter marginal markets.

TESCO has also been much more flexible about using acquisitions to achieve growth. Faced with a weak presence in Scotland in the early 1990’s, TESCO bought William Low, a Dundee based supermarket chain of 57 locations. New retail developments are relatively rare in the United Kingdom. Walmart’s strategy of building stand-alone locations, which then frequently form the anchor of new big-box development, would certainly run afoul of Britain’s local councils.

TESCO’s aggressive acquisition and format strategy has enabled the company to achieve a density of sales that is unmatched. Despite this market dominance, by adapting and responding to customer’s shopping habits TESCO has frequently won “Britain’s favourite retailer” accolades.

Visit www.tesco.co.uk for more infromation

A Retail Experiment

Clinical research? That's in aisle four

How can retailers improve the shopping experience? This is a question that has been frequently asked in our Retail Marketing class.

As discussed in the "Science of Shopping" class, many are studying contemporary shopping in situ, CEO's are regularly walking the floor and developing intuition through observation.

In the March 5th ROB in Globe & Mail, it is reported that Quebec City's Laval University is in the process of setting up North America's first “supermarket school”. This is a retail experiment where a fully functioning retail outlet on (or near) campus will be run by one of the province's major grocery chains and double as a research/teaching facility. This lab will allow researchers in food processing, nutrition, marketing, management, retail operations, industrial relations and other disciples to enjoy the benefits of a vast, working laboratory, said Paul Paquin (vice-dean of research at Laval's faculty of agriculture and food sciences.

There are several grocery giants interested in bidding for this privilege. Included are Sobey's Inc., Metro Inc., and Provigo Inc. This is the first, one-of-a kind retailing experiment that if successful, will emerge in other areas and could be very beneficial for retail students and experts to gain new insights on the industry and make improvements to existing operations.

“It will be a state-of-the-art facility with the ability to accommodate all the latest electronics, computers, satellites, and do research in everything from high-tech shopping carts and cash registers to consumer psychology and retail-management.”

Are more real-time retail laboratories going to emerge in the future? I believe so. As stated in class, most buying decisions are made on the floor, therefore, retail leaders need to be on the floor observing and measuring too.

http://www.theglobeandmail.com/servlet/story/RTGAM.20070304.wschoolll0304/BNStory/Business/home

What's Victoria's Secret?

As a Canadian I have a somewhat limited exposure to Victoria’s Secret being that the nearest bricks and mortar store is at least a road trip away. Until last week my perceptions of the store were driven by my online shopping experience the annual fashion show, and dreaming with friends of that massive shopping spree whenever I next made it down to the US. From this my understanding of the Victoria’s Secret brand was ‘sexy for the professional woman’- sexy from the models and reputation for lingerer and professional from the type of clothing predominate on the website and catalogues.

This perception that I have of Victoria’s Secret stems from the Retail Value Proposition that they have created. Selection- specifically strong branding- is the main focus. However, the power of the brand, in addition to and driven by events such as the fashion show, truly makes Victoria’s Secret an exciting shopping experience and a destination store. Such were my thoughts last week when I found myself in Boston, MA and with a few friends, placed “visit Victoria’s Secret” at the top of my must-see list along side monuments of comparable historical influence such as the site of the Boston Tea Party.

On this Retail Marketing field trip, I was surprised to find myself extremely disappointed by the bricks and mortar Victoria’s Secret store. The selection offered did not meet my expectations, and as a result my experience suffered. Additionally, as to the experience, the store offered less atmosphere or customer service than a local La Senza and was more in line with regular department store lingerer department, although smaller. What struck me more than my unmet expectations was the incredible inconsistency I felt between the brand exhibited in this store versus what I had experienced through the website, catalogue, and promotions such as the fashion show.

In class Bruce Reid expressed the crucial lesson that alternative distribution channels and technology such as websites should act to support the core activities of the company rather stand alone. Sales figures indicate that indeed this is how Victoria’s Secret functions (60% of sales are from store, only 30% from catalogue/website). However, I feel that the website/catalogue virtual store front of Victoria’s Secret is increasingly not just a way of improving convenience for shoppers, but rather a core pillar of the company’s positioning, and perhaps even its best aspect.

Reflecting on my relationship with Victoria’s Secret I conclude that the original store form- bricks and mortar- needs to evolve as has the website positioning. Consistency of experience will always be a challenge for multi-channel retailers but in this case the store is in need of revamping so that the experience, driven by such great branding, lives up to shopper’s expectations. That being said, Victoria’s Secret has much going for it. I love browsing the website and receiving the catalogue; just next time I travel to the states, shopping Victoria’s secret won’t make the list alongside significant cultural designations, or other US stores for that matter.

http://en.wikipedia.org/wiki/Victoria
http://www.victoriassecret.com/

Rebekka Keough

iTunes video blog

The Reinvented Showroom

The internet has changed how almost everyone in retail operates their business. The retail automotive industry is no exception. The trend in the car business is a drastic decrease in show-room traffic coupled with a significant increase in online traffic, reflecting a change in the way consumers are shopping for cars. Instead of visiting local dealerships to pick up brochures, kick the tires, and feel out the dealership, customers are doing extensive research online before ever darkening a dealership’s door. Consumers are able to call on more dealerships via the internet then they could feasibly visit in person, allowing them to obtain multiple vehicle quotes and compare prices and consumer feedback to narrow down a short-list of dealers whose showrooms they will actually visit. First impressions - whether through the dealership’s website or online correspondence with a sales representative – are increasingly created online. Websites and email correspondences have become extensions of the traditional showroom. As a result, dealers that devote a substantial amount of capital to improving websites and developing strict online lead management practices are seeing positive contribution from their online business, while dealers slow to change the way they do business to reflect the change in the way consumers are shopping are baffled at where their showroom traffic has gone.

Since the internet has given consumers access to larger pool of automotive retailers allowing them to shop around with ease before purchasing, it has become increasingly important for dealers to retain the customer base they already have. Almost every new car dealership in Canada has a full-fledged customer retention team dedicated solely to keeping current customers. The most profitable dealerships in Canada – realizing the significant cost of acquiring new customers - contribute their success to a tireless focus on customer service and satisfaction that ensures customers will keep coming back year after year.

However, good customer service is not something new for Canadian dealers, the vast majority of them place significant emphasis on customer service. Top performers realize that they need to differentiate themselves beyond good customer service in order to achieve top sales volumes. Brian Jessel BMW in Vancouver is an example of a top performing retailer who has reinvented his showroom to better cater to his target market, differentiating himself from other high-end competitors. Brian Jessel BMW reflects ‘what the BMW lifestyle is all about’. From the ///M café featuring grilled paninis and gourmet deserts, to the stylish BMW Lifestyle Boutique this dealership is meant to be an experience from the minute you walk in the door. Even the detailing department, renamed ‘The Vehicle Spa’ fits into the high-class lifestyle that BMW owners are accustomed. The dealership is also convenience focused with a wireless enabled business lounge overlooking the service bay, to enable customers to continue with their regular workday while their vehicle is serviced. When it is all said and done, it still comes down to dollars and cents, and no one in their right mind would operate a dealership like a local Starbucks if it was not profitable to do so. Brian Jessel BMW is the number one volume BMW dealer in Canada. It seems that along with emphasis placed on online lead management, a reinvention the showroom to cater to the vehicles target market and make the experience inside the dealership an enjoyable one that encourages customer retention will be the key to achieving top sales in the retail automotive industry in the future.


-Kristi J

http://www.canadianautodealer.ca/index.php?option=com_content&task=view&id=74&Itemid=3

http://www.futurelooks.com/?m=show&id=274

http://brianjessel.bmw.ca/en/pub/home/home.aspx

Making Banking Friendly

So far this year we have evaluated retail marketing strategy and decisions predominately pertaining to selling goods. The one factor that these stores or companies ultimately rely on is their consumers wealth, and more specifically, disposable income. For as disposable income rises so does the likelihood that such consumers will increase their purchases of such luxury goods as vintage wines and customized Nikes. This is why I have found the evolving marketing strategy by several large retail banks to be particularly interesting and relevant to retail marketing.

Over the past several years banks have been making the transition to becoming much more user friendly. This shift in their retail value proposition to the consumer from a once complicated, expensive (high fees), and time consuming to one where the consumers satisifcation is paramount and customer satisifaction is a crucial metric to measure a banks performance. Retail banks have also begun to broaden their RVP by increasing the selection of their products while simulatanuously increasing the depth and quality of their service.

Evidence of such behaviour can be readily seen by several banks including: Bank of America and TD Canada Trust. A recent article in Brandweek describes how Bank of America has recently embarked on a completly new marketing campaign launched at this years Academy Awards (where advertisment spots are typically taken by cosmetics and fashion companies). The new campaign advertising Bank of America as the bank of opportunity will use vaious types of mediums to appeal to new clients, including hitting the streets of 15 U.S. cities with "wake up to opportunity" coupons for a cup of coffee from a variety of retailers.

Furthermore, Bank of America's merger with MBNA last fall, the bank has taken steps towards becoming a more mass market offering. The addition of MBNA's clientelle and unique products broadens Bank of Americas appeal to consumers. The marketing executives at Bank of America even used youtube (viral marketing) to spread the news and benefits of the merger by singing a rendition of U2's "one".

TD which was one of the first banks to differentiate themselves on their high levels of customer service has recently introduced a new prodct called home equity loans. The marketing of this product is of particular interest because it revolves around depicting all the various luxury goods and dreams that a family would want. Then the commercials go on to explain that you too can have the money to buy such fancy goods if you take on a home equity loan. Essential this product is the same as re-mortgaging your house (supposing you own it outright) to generate some liquid cash.

Both the increase in service and breath of products offered have greatly increased the level of customization by these retail banks - another important change they are undergoing. While not in the same context as designing a pair of your own Nikes, these banks such as TD now allow consumers to construct their ideal portfolio of stocks, savings accounts, mortgages and loams, to best fit their desired level of risk and preference. Money can be transferred effortlessly between various accounts whenever the user desires all from the comfort of their own home, with as little or as much help as desired.

The evolution of retail banking is particularily important because it will continue to discover new ways to generate consumer wealth and increase spending money by consumers everywhere. Banks that traditionally were focused on saving ones money have transitioned to marketing their potential to how they should be spending more money and that they are as BNS's slogan says "richer than they think".

- Nick Senst

Youtube clip of BofA exes singing U2's one rendition
http://youtube.com/watch?v=0qAuqq1LFnU
Brandweek article on BofA's new marketing plan
http://www.brandweek.com/bw/news/recent_display.jsp?vnu_content_id=1003549661
Bank of America
https://www.bankofamerica.com/index.jsp
TD Canada Trust - Home equity lines of credit
http://www.tdcanadatrust.com/mortgages/home_equity.jsp
https://www.tdcanadatrust.com/custserv/JDpower.jsp?referer=https://www.tdcanadatrust.com/index.jsp

Not Your Typical Dollar Store

Picture yourself walking into a traditional mom and pop dollar store. Small aisles with merchandise scattered everywhere. Now picture yourself in a dollar store with a store layout closely resembled that of a typical Wal-Mart. And this dollar store could be found in India.

The first California’s My Dollarstore was opened in 2004 – the first big-box retailer to tap into India’s $ 300 billion retail market.

The emergence of dollar stores has been a growing phenomenon, both in the US and aboard. Though mom and pop dollar stores have been around for decades, we have seen the rise of larger format dollar stores, with large chains such as Family Dollar Stores and Dollar Tree Stores Inc. locating stores across the US. California’s My Dollarstore is a relatively new player, with their first store opened in 1999. Since then, the company has grown to a $30 million retailer, with 50 franchises in the US and 200 franchises aboard.

As most dollar stores in the US sell discounted merchandise at $1, items in My Dollarstore in India are premium priced at $2 (due to transportation and import tariffs). Further, My Dollarstore’s stores are located in prime retail space at the newest malls in order to better target the growing middle-income class in India.

My Dollarstore has wide aisles, with red-white-and-blue decorating scheme emphasizing the American Dream. Employees are dressed in company’s uniforms and are fully trained to answer questions about the viability of discounted products. Typically each store houses 10 times the number of employees than that of their US stores. My Dollarstore can afford to do so because labor is extremely cheap in India, with wage rates 11.5 X below US’s minimum wage.

So far, My Dollarstore’s future in India is promising. Their wide selection of US household products has been extremely popular as locals are becoming more westernized. Furthermore, the store has exceeded customer expectations with their money-back guarantee, no question asked policy. Thus, it was no surprise when most of the 42 My Dollarstore outlets in India were able to generate 3X as much traffic as their average US store.

However, on a caution note, My Dollarstore’s success in India could be threatened when Wal-Mart and other foreign retailers enter the booming India market in the coming year. Though store manager Mr. Krishnamurti argues that it would take a while for new entrants to fully understand the Indian customer, I argue that given the relative scale, experiences and capabilities of these new entrants, they can succeed in India in a very short time. Although Wal-Mart failed to deliver their proven concept in Germany and South Korea, they had learned their lessons and could even mimic My Dollarstore’s operating strategy in India. Wal-Mart compete in all dimensions of RVP except for experience, but an customer in India may not care about the shopping experience as much if Wal-Mart can offer the same merchandise at significantly lower prices.

For more details, visit:
http://www.post-gazette.com/pg/pp/07023/756119.stm