#1?

Imagine you are a manager of a European or North American company. What associations would the word “China” evoke in you? Many managers would say that they see China as a threat. And for many industries, Chinese competition truly poses a serious problem. On the other hand, there are many industries that perceive China more as an opportunity than a threat. Especially producers of luxury goods seem to be almost crazy about getting into the country or about expanding there. Brands like Luis Vuitton or Tiffany&Co are opening new stores all over the country. New 2200 sqft Tiffany store has been opened just recently in Chengdu, one of the fast growing centers in the country.

So why is it that so many luxury retailers are trying to get there? One could argue that all this is happening thanks to the fast economic growth of the country, better standards of living and generally improving economic conditions. This is, without doubt, true. Chinese economy has been growing at a rapid pace of 10% for the last couple of years and conditions have improved. But is GDP growth really such an important indicator for a luxury retailer? I would say yes, but growth alone is not enough. There are certainly other aspects that have to be taken into consideration.

First of all, China has 1.3 billion inhabitants. Even a very small percentage of population represents immense market possibilities. In Chinese case that means more than 300,000 millionaires and annual spending on luxury goods of US$6 billion. Ok, now we know that there are many prospective customers. What might be even more interesting is to take a closer look at these customers, their behaviour and lifestyle.

One of the important things in Chinese society is status. People do not hesitate to wear luxurious clothes, watches or jewellery, quite the opposite. It is very important for them to look good in public. Besides, rich people (not only in China) usually care more about their status and appearance than other people. As a result, they tend to buy top high-end products. Another cultural aspect that is attractive for luxury brands is gift giving. Gift giving is very common among business partners. Needles to say, these gifts very often fall into a category of luxury goods.

Worth mentioning is also the fact that western luxury brands are widely recognized in China. These brands are established in the market and have been building their image for decades. Even if there was a Chinese competitor, he wouldn`t have many chances. Western brands already have a good selection and services and it is probably impossible to compete on price in the luxury segment.

So does that mean that all luxury brands should expand into China? Of course not. There are many potential dangers. China is still very far from matured markets like Japan, US or Europe. The truth is that not every company is making big money in China. However, according to some studies, China will become the second largest luxury market in the world by 2015. It is not so difficult to guess which country will be number one by 2030.

Links:

http://www.chinaretailnews.com/2008/03/17/1082-louis-vuitton-will-open-new-shop-in-suzhou/

http://www.insideretailing.com.au/articles-page.aspx?articleType=ArticleView&articleId=2487

http://www.hkicpa.org.hk/APLUS/0710/p24_29.pdf

http://www.atimes.com/atimes/Asian_Economy/EC15Dk01.html

Retailers Enter the Blogosphere

More and more retailers are moving online to pursue the internet as part of their multi-channel strategy, but many are not taking full advantage of the power of the internet. They simply transfer content from traditional channels, re-using catalogue content on their website (i.e. Eddie Bauer) or uploading flyers. Retailers do not seem to be creating much new content for the internet, and are recycling ideas and methods from traditional channels instead of adapting them.

A retailer that has taken advantage of the internet in an interesting way is the upscale, speciality department store, Neiman Marcus (NM). Instead of simply creating an e-commerce site, the retailer took their internet presence a step further and created a blog. Their blog offers up to the minute insights on fashion news and trends and is updated several times a day. This give their products a story beyond item details and price, and consumers are probably more receptive to this kind of marketing that sells the product without being too obvious (and in a way that benefits customer looking for the latest trends).

Blogging is a great way for retailers to reach their consumers and take advantage of the internet’s capability to publish items immediately and at low cost. If a product is mentioned in a post as a new trend, such as the new shaded chandelier or brightly coloured dresses, it is subtly linked to their e-commerce site where the item can be purchased online. NM uses their blog to make the company’s thoughts and fashion vision readily available, and a representative states that many readers come back and visit the site everyday. This indicates the blog offers something its readers/customers value, and shows that blogs can help build customer loyalty since readers may get hooked and check back frequently. Blogs can also build credibility, and has probably enhanced NM’s image as a trendy retailer up-to-date with the fashion industry. Retailers try and communicate a personality through their RVP, but a lot of this personality is lost online as consumers scroll corporate looking websites. Blogs can give the retailer a unique voice that cannot be communicated through a corporate website, helping consumers connect with the company on a more personal level.

With all these benefits, it’s surprising more retailers aren’t jumping on the blogging bandwagon. But blogging must be done carefully, and it takes a significant company commitment. Companies must formulate a blog strategy and get buy-in from senior management, who may want to spend the time, money and effort elsewhere. Content must be regularly updated/sensored, which can take significant resources. Some retailers may simply not see the value in blogging or do not understand the relatively new concept. But there are many positive aspects of retailer blogging, and in the future, it would be interesting to see if other big retailers could utilize blogs to enhance their online presence. Who knows, perhaps the Loblaws Blog or Best Buy Blog will soon be discussing the latest trends in food and electronics.

Links:

Neiman Marcus Blog

http://insite.neimanmarcus.com/

Article on NM Blog

http://www.smartbrief.com/news/aaaa/industryPR-detail.jsp?id=01367019-459A-42E5-B257-D3ADF8A70511

To be yourself is all you have to do!

Brand managers increasingly find themselves playing the role of David in the escalating battle against the Goliath retailers of the world.Many fast moving consumer goods companies have resorted to “collusion” or “avoidance” strategies to try to stay alive. These strategies, despite some local success, might backfire and encompass huge risks for premium brand manufacturers. Here is why:

· Producing for retailers further reduces manufacturer’s power vs. retailers and reinforces the risk that already exists of consumers considering products to be identical. It automatically creates some level of acceptance for premium brands to play in niche positioning with small volume and high margin compensated by scale coming from retailers supply. This gives consumers less reasons to stick with the brand and start showing more versatile purchase behaviour.

· Tiering strategies with portfolios that move away from premium only to a spectrum of high to low end offerings makes consumers more confused. They have more difficulties accepting high tier prices for the same brands. As they move to low tier, high tier products become niche and low tier brands lose in differentiation and consumers become less brand loyal.

· Exiting low involvement categories to high involvement categories through external growth and acquisition is simply delaying the issue instead of fixing it. It’s only natural that private label brands will move into high tier brand territory to keep their expansion rate. This is what we see happening with the president’s choice brand in Canada and in the beauty care category in Tesco UK.

These strategies are inefficient and are fairly short term focused. In my opinion, the only viable strategy for the brand manufacturers in the long term is to win the joker of the future battle which is what consumer preference is all about. The consumer is and will be the decisive ally in the future for the success of premium brands. The only way to drive consumer preference is through relevant differentiation or uniqueness.

Distinctiveness is the main driver of the premium brand win in terms of purchase intent. As we move toward higher loyalty to retailer brands, distinctiveness continues to show the highest potential in terms of stopping the erosion of premium brands’ purchase intent. No other brand attribute, physical or not, could show such power. It will be more and more difficult for premium brands to differentiate physically vs. retailer brands. Small physical superiority is unlikely to be decisive for consumers in low involvement categories. The challenge many premium brands are facing today is concerning their capacity to develop a continuous flow of innovations that make them distinctive yet relevant to consumers. Intangible but relevant brand uniqueness seems to be the most realistic way premium brands can create superior value for consumers. In conclusion, playing the retailer’s games can easily backfire and endanger even more premium brand businesses being forced into niche positions. It is only by brands being unique and building on strong brand equity on an ongoing basis that David, can once again, beat Goliath.


Sources/Articles/Notes/Additional Readings

· Retailization: Brand Survival in the Age of Retailer Power ; Lars Thomassen (Author), Keith Lincoln (Author), Anthony Aconis (Author)
· “ Retail Power: Making Or Breaking The Brand ”; Brian Moore, EMR-Namnews
· WARC – “The Brand Squeeze” Keith Lincoln
· “Will private label drive out manufacturer brands?”; Helen Passingham-Hughes, Admap, October 2004, Issue 454, pp.56-57
· “Brands, be yourself!”, Driss Farissi, ESOMAR, Retail Conference, Budapest, April 2005
· “Brands, retailers and consumers. Are we moving towards a new equilibrium?”, Judith Passingham and Stephan Buck, ESOMAR, Marketing Research, Edinburgh, September 1997

• Hard times for retailers: how strong brands can helpPeter Walshe, WARC.com Exclusive, February 2008

The Switzerland is greatly well-known for its banking sector; UBS is undoubtedly among those that help to maintain this reputation worldwide. Its global business groups comprise private banking, investment banking and asset management, while its mainstream activities in Switzerland consist of retail banking and commercial banking.

UBS financial services for students that are studying at college or university and undertaking a course of training are among the best in the country. Its well-famous UBS campus program is providing advantageous services for students under age of 30. Students beneficiate a charge free account maintaining, preferential capital rates for UBS personal account Campus and UBS saving account, free UBS Credit Cards and UBS Maestro Cards Campus. What makes UBS different from other local competitors such as BCV, owned by a majority by the Vaud province, is its comprehensive services for its clients, regardless their revenue streams. From a personal experience, I could attest that their day-to-day activities are undeniably in line with their mission and core values proposition. They demonstrate an attentive listening of customer needs and objectives, and then provide a tailored service up to the expectations. I was quite astonished when I went through a meeting with one of theirs advisors, how elaborately he paid attention to my questions. I left the room with a feeling that they really care about me at an individual level and moreover I would not be cheated afterwards over extra charges for holding these two credit cards.

A year a go I got their e-banking offer, since I was living in Lausanne and all my account details from the bank I received at my parent’s house, now I could check round clock from anywhere via internet the balance of my account, the details of pending or executed account credits or debits and any transactions done with my credit card. This new service adds a convenient aspect to their previous offerings and enhances the odds of getting a greater loyalty from its customer base.

Recently they are partnering with others retailers, such as Apple, to develop loyalty among its youth customer base. The offerings include UBS song cards, which you could get in exchange for UBS points, Euro<26>

UBS added to its offerings, Islamic Finance, financial products and services that are ruled by Sharia. The entry into this segment allows UBS to capture this large idle market essentially composed by wealthier middle-east clients. What makes this type of financial services different from others provided in regular western banks is that under Sharia-compliant terms UBS has no rights to invest client’s money in prohibited products such as tobacco, alcohol, etc. Providing such services create a perception of greater choice among UBS products and services and it builds as well a stronger exit-barriers for clients.

Is the Modern Department Store Dead? Sears gives us good reason to think so

Sears has a branding problem, again. Even our very primitive in-class market research tells us so. No one could really identify what the Sears brand stands for, is it a discounter? Is it premium? Are the products any good? No one really knows, at least in our age group.

Sears has tried to “revitalize their brand” more times than I can count. Maybe the problem is that Sears really doesn’t focus on doing what it does very well, which is building strong brands. Although I personally am not extremely loyal to any of the brands Sears offers, it turns out that people do go to Sears to specifically purchase Kenmore appliances, Craftsman tools, DieHard batteries, and Weatherbeater paint, at least in the US. If Sears ever wants to see the ‘Sears’ brand ‘revitalized’ they need to start by making their exclusive brands traffic drivers. We’ve seen many private labels (Loblaw’s - President’s Choice) actually drive traffic to the retailer, thus establishing a pretty unique competitive advantage. So maybe Sears should invest a little more into the branding of these ‘exclusive’ labels, instead of separating them into separate business units, as new owner Edward Lampert intends to do. Brandingstrategyinsider.com has this to say about this new restructuring:

I'm not sure what that means, but to me, it looks like big trouble if their big-name brands, such as Kenmore and Craftsman, can cut deals with other retailers. It could spell the end of the Sears brand as we've known it for all these years.
The only problem with these great brands, and something we pointed out in class, very few consumers want to go to a mall to buy tools or appliances. Department stores that are everything to everyone are dying in this new age when consumers can use the internet to purchase pretty much anything in a matter of minutes from the comfort of their own home. So how can Sears ever hope to survive? They need to move out of malls. Sears Holding Corporation also owns Kmart, another struggling retailer. The upside is that these Kmart locations are mostly standalone outlets, which is just the type of real estate Sears needs to expand to “off-mall” outlets and close some of the underperforming mall locations. Mall construction (in North America) is not exactly growing right now, and even though malls might hate to lose their ‘anchor’ stores, they could potentially replace this space with stores that are more profitable. Already Sears has announced plans to renovate 400 standalone Kmart stores into a new format called Sears Essentials. The Sears Essentials stores will combine Kmart's strengths in food, drug store merchandise and cosmetics, pharmacy, and garden centers with Sears' more valuable brand and its expertise in appliances (Kenmore) and hardware (Craftsman). Each store costs $3.5 million to renovate, and Sears had an EBITDA (free cash) of $3.6 billion across their 3,800 stores in North America. This means (VERY roughly) that each store generated $964,000 in free cash, and these renovations could pay back in ~3.63 years. These “off-mall” outlets could be the only thing that could allow Sears to compete with more competitive retailers, but only if ‘Sears Essentials’ stores offer a unique experience with brands that drive customer traffic, and a focused message to consumers so they’re not confused about what these stores offer. While Sears still has a chance to compete with Target and Wal-Mart, we will probably look back at Sears as a case study of the downfall of traditional mall department stores.

• http://www.brandingstrategyinsider.com/2008/02/sunset-for-sear.html
• http://www.signaturestrategies.com/brand_managment/helping-to-salvage-the-sears-brand/#more-102
• http://www.mitchglaser.com/journal/2005/11/is-sears-stumbling.html
• http://www.suntimes.com/business/blogentries/index.html?bbPostId=Cz290B4vVAv5JCzBS41378pZ3nBDWDDSvl8N8KBBco9bphS2Vn&bbParentWidgetId=B9SEXdhTrKjs1CLxDiTQ8rY
• http://www.brandweek.com/bw/news/spotlight/article_display.jsp?vnu_content_id=1003725938
• http://biz.yahoo.com/prnews/080228/aqth056.html?.v=37

RFID Technology: The Future of Retail

We have previously discussed in class the Metro “future store” concept located in Rheinberg, Germany and it is my personal conviction that the technology used in the future store will soon spread to virtually every type of retail selling consumer goods within the next ten years. In fact, Metro AG announced on March 4, 2008 that it plans to implement the RFID technology in 200 more stores. By adapting RFID tags, retailers can significantly enhance key aspects of the RVP: selection and customer experience.

For selection, the consumer will benefit because retailers’ inventory levels can be better managed with RFID technology and thus stock-outs are reduced. Wal-Mart already utilizes this technology to better manage inventory levels as the handling of incoming goods is accelerated and the entire supply chain becomes transparent. A critical factor in spreading the adoption of RFID technology is to get manufacturers on board in order to have the RFID tags on each individual product. The Metro stores have had strong support already from major CPG firms such as Kraft and Procter and Gamble as they see the mutual benefits of the technology. They CPGs state that they are very interested in the ability to address consumers individually at the shelf. The amount of data that can be gathered by CPGs with the RFID chips with regards to consumer behaviour at the shelf is invaluable to further advancing category management and optimizing shelf facings by each individual store and each individual aisle.

The consumer will also reap benefits from an enhanced shopping experience. As seen with the Metro grocery stores, the shopper can be addressed individually from their shopping carts and depending on what products are already in the cart and the shopper’s location in the store complementary products can be recommended to the consumer. However, this type of experience enhancement is not limited to grocery stores. The department store Galleria Kaufhof in Essen, Germany has already experimented with RFID technology by fitting 30 000 SKUs in their men’s fashion department with the technology. Instead of being assisted by a sales person when looking for clothes, men can utilize “smart dressing rooms” where all the shopper needs to do is bring one item of clothing into the dressing room. The RFID tag then sends a signal to a screen where the shopper is automatically shown the price of the item, all available sizes and colours in the store, and suggested complementary clothing items. Thus, the entire shopping experience can be done from inside a dressing room!

There is also the possibility that retailers can use RFID technology in order to implement dynamic pricing based on in-store stock levels. Although highly beneficial for the store, there would most likely be extreme consumer backlash particularly for necessity items such as groceries. The Metro stores in Germany have already had some public backlash for the current use of RFID technology but I believe that eventually consumers will realize that RFID tags make shopping easier and thus as more stores adapt the technology, RFID tags will become ubiquitous.

http://www.spychips.com/metro/overview.html

http://www.future-store.org/servlet/PB/menu/1007148_l2_yno/index.html

Shoppers vs. Loblaws – The Competition Heats Up

On March 5th, Shoppers Drug Mart announced its intentions to increase its interest in the Canadian grocery business by launching a line of organic products under the private label “Nativa” later this year. Nativa will include more than 170 non-perishable organic food products that will compete directly with Loblaws’ PC Organics food line (which includes both perishable and non-perishable goods). This decision is largely seen as a corporate reaction to Loblaw’s recent announcement that it will continue to expand into Shoppers’ core business of health & beauty and pharmaceutical items.

My initial reaction to this news is: “Great defensive move, Shoppers! Loblaws, how do you continue to get yourself into these messes?” After the whole incident with Wal-Mart moving into Canada, I thought Loblaws had finally figured out that the best way to remain competitive in the grocery industry is to focus on their core grocery business. This is a distinct advantage to Loblaws, since Wal-Mart and Shoppers seem unwilling to stock a large amount of perishable products. However, every few years, Loblaws seems to lose sight of their core business and become tempted by higher margin items. Previously these higher-margin items were furniture and clothing (to compete more directly with Wal-Mart), now this seems to be beauty and pharmacy (to compete with Shoppers).

So why do I think that this was a good move on Shoppers’ part? Not only will this decision continue to threaten Loblaws’ position as the dominant food retailer in Canada, but this also attacks one of Loblaws’ most valuable differentiation points, its president’s choice private label. Since Loblaws’ dominance in the organics market and the private label food market are fairly uncontested at this point, Shoppers is working on developing both an organic brand competitor (ouch!) and building up their own private label portfolio to compete with President’s Choice (double ouch!).

However, I think the main question here is, “What does this mean for the customer? How does this affect each retailer’s value proposition?” I think this is where Loblaws wins back a few points. Specifically, thus far, Loblaws has done a much better job of getting its customers to purchase health and beauty items than Shoppers has at getting its customers to purchase grocery items. I do believe, however, that this has come a little bit at the expense of the customer – customers didn’t necessarily want furniture and clothing, but Loblaws put them in anyway. Customer confusion may have been created, but customers at Loblaws have now become accustomed to purchasing non- grocery items. And while Shoppers has been stocking food items for the past few years, food items have never been a major focus for the company.

So far, Shoppers has rolled out its Nativa product line in a pilot which was considered “very successful”. I think that if Shoppers is able to effectively convince its customers to buy into this new product line, Loblaws will have to reconsider their new retailing strategy – yet again! Unfortunately, President’s Choice and the organics line are categories that are too important for Loblaws to lose their dominance in.

References:
http://www.financialpost.com/story.html?id=355062
http://www.canada.com/saskatoonstarphoenix/news/business/story.html?id=c6fbbe7a-28c7-4d48-bc2c-1eddbab813b6

Starbucks - an "affordable luxury" during a recession?

We’ve all heard about the economic turmoil that is sweeping the United States. The subprime fiasco and resulting credit crunch bodes rather poorly for the American economy. The possibility of a looming recession can’t spell good news for U.S. businesses… including retailers. However, it should be mentioned that some retailers are feeling the squeeze much more so than others.

Take Starbucks, for example. The coffee giant has been put under considerable pressure as consumers are forced to tighten their wallets and become more price-sensitive. Recently, its CEO announced plans to turn around its ailing business by making a number of tweaks to the firm’s retail value proposition. The company intends to close a number of underperforming stores. While this is probably an intelligent move from an overall financial perspective, it will serve to decrease convenience for customers living in areas affected by store closures. Abroad, the company plans to increase the number of new store openings. With any luck, this will increase convenience to overseas customers and help to drive brand awareness and adoption.

Other modifications to the RVP will be attempts to broaden the selection while enhancing the customer experience. The firm announced that it will be introducing a number of new beverage flavours, as well as making a foray into the lucrative energy drink market. The company hopes that an increased selection will be sufficient to bring customers into the store during an economic downturn. On the experience side, Starbucks aims to create a personal connection between the customer and the Barista by lowering coffee machines to permit the parties to see each other face-to-face.

Personally, I’m sceptical that the changes Starbucks is making are sufficient to keep it profitable during a recession. The capital markets seem to agree with me, as the company’s stock dropped 4% following the announcement of the revised strategy. I believe that Starbucks is refusing to address the root of the problem – price. Increasing the numerator of the RVP is definitely a step in the right direction, but without addressing price, Starbucks is heading for choppy waters. The company maintains that its products are “affordable luxuries”. However, the facts indicate consumers think otherwise – store traffic has plummeted in recent months. Frankly, I think they need to drop their prices. It’s true they’ll take a hit on product margins, but hopefully they’ll be able to keep volume stable enough to make some coin when all is said and done.

Reference:

http://www.reuters.com/article/newsOne/idUSN1932070520080319?rpc=92&pageNumber=2&virtualBrandChannel=10150

Does Aldi’s entry on the swiss market represent a real threat for the current grocery market leaders?

The german deep discounter Aldi, after expanding in 15 countries has entered the swiss market in 2005. Now, they only have 58 stores on the swiss territory but are planning to expand to all the country. The swiss market is actually controlled at 70 percent by two discounters Migros and COOP. The swiss grocery market is a mature market and the only way to gain market share is by winning it from the competition, so do the two current swiss leaders have to worry about Aldi’s expansion?

Aldi is a deep discounter which has presence in about 15 countries and revenues of about 29.3 billion euros (about 45 billion dollars). Everything at Aldi is made to keep the costs as low as possible, that’s their basic concept. They mostly have private labels with a very limited number of national brands and make no effort on packaging and in-store display as all the products are presented on the palettes.

The number of SKUs available at Aldi is also limited, the maximum SKUs carried per unit are 800 which limits the selection but allows aldi to have smaller shops than the other supermarkets carrying the same amount of products. These stores are usually between 800 and 1000 square meters and are often located near shopping centers and malls where retail units of this size are common.

Aldi’s target market was, at the beginning, families with low income and large households but their popularity expanded to all kind of households because of the good quality of their product despite the low price.

Aldi’s main competitors in Switzerland bet on a completely different RVP. Migros, the number one in the country, bases it more on experience and convenience. The Migros shops offer a great display and offers product tasting. They offer in nearly all the shops fresh bakery, a deli and a food take-away service. Most of the shops are located either in the center of the cities or villages or in suburban shopping centers. There are 3 kinds of shops at Migros, targeted for different locations M (smaller stores with limited number of SKUs), MM, MMM(suburbian malls, really big stores) Their selection is limited as like Aldi, Migros carries a lot of private labels and unbranded products and have a very limited number of national brands. The fact of having lots of private labels and unbranded products allows Migros to have low prices for Switzerland but don’t have Aldi’s bargaining power with the suppliers making their costs probably higher than their German competitor.

The other big competitor for Aldi in the swiss market is COOP which RVP is based more on selection as they offer a lot of national brands and also some private labels and some COOP branded products. COOP is present in outer city malls and has smaller convenience stores in the cities and gas stations. Due to the presence of national brands in their assortment shopping at COOP is in average a bit more expensive than Migros.

Since Aldi entered the Swiss market, both Migros and COOP, reacted differently. Migros expanded the M-budget line (see article of February 18) while COOP launched a similar line of products named “Prix Garantie”. Both companies also reduced their prices. According to LSA, both companies reduces their prices (Migros: -25.8% COOP:-31.7%). Migros also acquired “Denner” a swiss discounter.

In conclusion, I think Aldi is in a good position in Switzerland for a few reasons: the first one is that they take advantage of a social situation which sees the creation of a poorer middle class because of the increase in the cost of living in Switzerland and the high costs of the real estate in some parts of the country which creates a class of people who are more price seekers than in the past. They also don’t have to fight a potential “fear” of private labels or unbranded products as Migros has always had this kind of assortment but the M-budget brand is really trusted in Switzerland and known for the good quality of their products. I think Aldi can become the 3^rd power on the market but will not be able to compete for the 2 first places.

Out of the Box Retail In a Box

With 6,407 people per km², Hong Kong has the 3^rd highest population density in the world. For them, space is always an issue, even when it comes to retail. Though there are many large shopping malls located across the country, retail stores can also be found in shopping complexes filled with little boutiques the size of an Ivey study room. When retail space is so limited, much of the strategic science of retail is thrown out the window; rather the focus is on the optimization of space.

In the recent year, there has been a growing popularization of a unique retail format known as “display case stores.” Inside, these small stores house display cases stacked from floor to ceiling, covering each of the walls. Each of these display cases are individually rented out to those who want to put goods up for sale. The idea is to optimize the space and fill it with as much product as possible. Consumers can enter the boutique and browse all of the different display cases for items available for sale. This type of retail format has attracted many young entrepreneurs because the cost of renting a display case is low and any overhead or management expenses are minimal. Store owners or hired sales clerks manage the transactions for all of the display cases, eliminating the cost for renters to pay wages for their own employees.

However, the “display case store” format seems to follow some faux-pas of retail, yet have still achieved great success. For example, the problems Sears face today are partly because consumers don’t understand what the retailer stands for. There appears to be no focus or no specific positioning in who they are targeting nor what their specialty or competitive advantage is. Similarly, these “display case stores” have no positioning or specialty. They can sell anything to everything depending on what the renters decide to place in their box. Therefore, there may be a display case selling Hello Kitty collectibles next to one that sells cell phone accessories. Sometimes, even within one case, you will see differing products. However, this variety also makes up their RVP of selection, which creates the attraction for consumers. Customers are attracted by the broad selection of items available despite the incoherence. It creates the feeling of anticipation for customers, not knowing what you will get or what you will find. Each display case is different; each “display case store” is different.

There is also no particular organization in the store layout. Store management cannot strategize by placing certain attraction-grabbing items at the front and necessities at the back in order to draw a customer throughout the store. Strategic layout planning is almost impossible because each vendor is able to choose which display case they want and what products to place inside of the box.

Despite the incoherence and the lack of strategic store layouts, consumers are still flooding into “display case stores” and more are opening up. The question is whether not following these rules of retail will be sustainable or is it a trend that will go away once the novelty wears off.

Link: Display Case Store Popular in Hangzhou

The New Upscale Retail – The wave of the future?

As North America continues to move towards large merchandisers such as Wal-Mart and Target and retail formats move towards a more modern appearance, retailers are forced to adopt these new retail trends to remain competitive. However, in some parts of Asia trends are moving in a different direction. In Japan, shopping is everywhere and leans in favour of luxury. The shopping experience takes place in malls, but these malls exhibit magnificent buildings made of glass and steel and designed by star retail architects such as Jun Aoki, a renowned Japanese “super-architect”.

The physical manifestation of the RVP is told through the retail format in which the retailer chooses. As Marshall Field’s Chicago store in 1902 embodied luxury, magnificence, and scale in that time with Tiffany chandeliers, live orchestras, and fresh flowers throughout, Japan seems to be rivaling this with their own malls in our time. Boasting a centerpiece with a descending spiral, reminiscent of the Guggenheim Museum, this spiral ensures that every shopper starting at the top of the mall will eventually pass through every store.

While North American retailers become more cognizant of time-constrained customers, Japanese retailers discount the time issue and instead enhance the customer experience by recognizing the power of atmosphere. Not only are their buildings glorious, but these retailers entice customers by integrating unusual store designs and providing entertainment where customers can soak up a concert on a rooftop amphitheatres in-between purchases.

Closer to home, the North American market is becoming saturated with an influx of big-box merchandisers and discount retailers. However, Los Angeles is moving toward the other end of the spectrum and revisiting the trend of upscale retail. Downtown LA is set to begin construction on a $2-Billion Frank-Gehry-designed residential and shopping plaza. Building of this development is slated to happen next month, despite warning bells ringing “no sales” in many upscale retailers in the US. American banks are reporting that though retail same-store sales were up 2.2%, these sales were driven by discount retailers – “If you took out Wal-Mart’s numbers, it would basically be flat”. Upscale department stores, such as Macy’s and Bloomingdales saw its sales drop by 8.6% and upscale jewelry and apparel retailers were reportedly given the cold shoulder this holiday season.

The tightening economy south of the border brings us to question whether LA is making a move in the right direction in building a massive $2-billion upscale mall and residential development in their downtown core. Just because the trend is exploding in Japan does not mean that the same success will be garnered in the US. Japan has the resources and support from their retail consumers to launch their majestic upscale malls and renowned upscale retailers such as Tiffany and Co., Gucci, and Christian Dior are responding to these changes by opening their own mammoth stores that offer not only shopping, but bars, restaurants, and spas in their outlets.

It is evident that some customers are seeking the old-fashioned upscale retail experience that shoppers were accustomed to in the 1900s. In my opinion, the US does not seem to bear the market for such extravagant endeavors, considering the state of the market at this time; however, who is to say that the reemergence of these magnificent malls will not make a strong comeback. The theory that “if you build it, they will come”, may not be a far cry for the future of upscale malls in the North American marketplace. If Japan can do it full force, why not North America?
http://www.nationalpost.com/life/travel/story.html?id=360147
http://www.bizjournals.com/southflorida/stories/2002/01/21/story8.html
http://www.latimes.com/news/local/la-me-grand18mar18,1,364431.story
Note on Retail Formats (by: Krista Morrison & Kyle Murray)
Note on the Retail Value Proposition (Krista Morrison & Kyle Murray)
411 PowerPoint Slides:
“Multiple Retail Formats and Online Grocery”
“The Rise of Retailing – Department Stores”

Pop-up in the real world

One of the hottest trends in retail industry in recent years has brought many brand stores that popped up in random places and soon disappeared. Many retailers have experimented with the so called guerrilla stores with mixed success. But where does this idea come from? These pop-up stores have been around for centuries, everybody’s favourite garage sales, small stands that still tour many European countries and pop-up at one place for the weekend before moving on to another city for the weekend to come. These however offer mostly gift items, handmade products or generic food and beverages. The new and hype pop-ups are here to promote brands, to stamp one’s mind and usually serve as an extension of more traditional retail format.

It all started in 2003 when Delta airlines invented it’s no frills airline and branded it as Song. It aimed to create the feeling of Song culture and offer its customers the Song experience in a way following the example of Apple stores. Both New York and later Boston locations were more about creating buzz than actual points of sale and even though they sold travel gear and tickets, the look of stores created a lot of confusion with the customers.

Whether Song stores helped to develop the brand for new airline or not, it certainly created a lot of buzz. Not surprisingly many stores followed soon. Nike or JC Penney, European low cost airline easyJet opened its beach club in Netherlands for the summer of 2004, Comme de Garcon built their whole brand around guerrilla stores all around the world, and Target scored big by extending its format portfolio with pop-ups and was coined the “King of Pop-up retail” by trandwatching.com.

What is the hype all about? Even without much advertising these small retail units which popup all over the world unannounced excel at something advertisers are trying to do with large budgets. They succeed at creating the sense of urgency. Because of their temporary character, shopping at popup stores is “either now or never”. There is no rethinking, there is only action. Plus they are relatively cheap and allow brands to reach out into remote areas. "It's a test market. It's a great way for retailers to put their feet in the water before they jump in," says Faith Hope Consolo of Garrick-Aug Store Leasing.

On top of that they bring brands to lives. They offer a cheap way for etailers to materialize and step out into offline world. amazon.com, bluefly.com, style.com and others already chose this path to step into the real world. The Wire magazine also popped one up and offered its readers opportunity to try and purchase all they read about during Christmas of 2006.

What else can we look forward to in the future? With so many retailers trying to squeeze into the virtual world where setting up a store is so cheap and trying to leverage the both world presence, pop-up retail could be a way to “countestrike” and unplug the ecommerce giants. Maybe we will one day see whole eMalls popping up in the real world offering yet another unique way to browse the web.

Sources

Cult Case: Popping-Up
USA Today: Retail stores pop up for limited time only
The New York Sun: Wired Magazine Becomes Holiday Retailer
trendwatching.com: “POP-UP RETAIL”
BusinessWeek: Pop-Up Stores: All the Rage
theage.com.au: Don't blink or you'll miss the latest trend — pop-up stores

The Dynamic Pricing Game: Win, Lose, or Draw?

Seated in front of my laptop, contemplating how best to capture the ‘essence’ of retail in my latest blog, I am battling an online addiction. No…it isn’t facebook. Instead, my vice takes the form of numerous travel discount sites, each offering different fares for my pending flight to Europe, and each changing their rate by the day, hour, or even by the minute!

With equal parts frustration and excitement, I feel compelled to independently seek out “the” best deal. Inputting various travel dates, alternating departing and destination airports, and even searching the web for online promotion codes, I have become consumed by the dynamic pricing game.

But what are the rules of this game? Who are the winners, and who are the losers? After conducting some research, I realized that nowhere is dynamic pricing more evident than in the multitude of 3rd party websites that act as distributors of other companies’ goods and services. Portals such as Expedia, Orbitz, Amazon and Ebay utilize Adam Smith’s market mechanism to match supply with demand.

Priceline.com has even gone so far as to allow users to “Name Your Own Price” on flights and other travel related purchases. Users enter a dollar amount for which they are willing to spend (on say a roundtrip flight to London), and Priceline then negotiates with its partners to see if any are willing to fulfill this offer. In 2000, Priceline even attempted to extend this “Name Your Own Price” policy to grocery products and gasoline1. The catch, (of course there’s a catch!) is that consumers cannot specify in advance which brand they prefer. Rather, they select a generic product category (such as Bran & Raisin cereal), and are subject to purchasing whichever brand is returned.

When looking at the RVP of these dynamically priced 3rd party retailers we can see the offering is quite unique. While face-to-face interaction and customer service are virtually non-existent on these sites (generally relegated to a list of FAQ or a daunting 1-800 line), the customer experience is still highly engaging. The variable nature of the pricing model makes the process highly interactive, and encourages the customer to form an emotional attachment to the 3rd party retailer. Essentially, the site becomes the customer’s partner in attaining great deals.

Both selection and convenience are forfeited for price. The hours invested searching online may be likened to a Sunday morning spent cutting coupons. Savings gained may be small ($2.59 on a box of cereal), or significant ($200+ on a transatlantic flight). However, given the volatility inherent to dynamic pricing, risk exists that the core component of this RVP (the win of landing a great deal), is eliminated due to high demand.

So how does this game play out? It appears there are no consistent winners. Consumer gains come at the price of time and choice, and are not always guaranteed. Manufacturers are able to move surplus supply without having to openly advertise lower prices. However in doing so, they lose control of brand perception, and in the case of portals such as Priceline, the value derived from brand equity.

With dynamic pricing creating pendulum shifts of power, it appears as though I won’t be breaking this addiction anytime soon…. unless facebook starts offering flight deals!

Lauren Roberts
___________________________________________________________________
1While cash flow issues eventually shut this leg of the business down, the idea was well received by customers and garnered stock prices of $104/share at its peak.


http://nymag.com/nymetro/news/bizfinance/columns/bottomline/1778/
http://www.priceline.com/Customerservice/FAQ/howitworks/air.asp?session_key=400011AC410011AC2008032023502229b400162932&plf=pcln
http://pcworld.about.com/news/Oct052000id31121.htm
http://www.internetnews.com/bus-news/article.php/477561
http://digitalenterprise.org/auctions/auctions.html
http://www.news.com/2100-1017-240700.html

The Future of Catalogs in an Internet World: Marginalization or Collaboration?

Unsurprisingly, catalogs are still immensely popular today, as the older, habitual generation is often far more comfortable with paper than the internet. But in a world of e-mail, e-commerce, and e-catalogues, will direct-mail catalogues continue to play a significant role? After all, in ten years, why would any internet savvy consumer browse a paper catalog?

Yet retailers are still pursuing the development of print catalogs. 78% of retailers surveyed by Direct Magazine listed catalogue sales growth as a business priority, compared with 73% listing online sales growth.[1] And these are not just retailers targeting older generations - retailers such as Victoria Secret[2] and Spiegel Shoppers continue to develop their catalogs businesses. In fact, catalogs thrive in markets as diverse as apparel to home décor to books.

To understand why retailers continue to believe in the long-term value of catalogs, we must look at the role that catalogs play in the RVP of retailers as opposed to the online channel.

Catalog shopping adds to the shopping experience[3] because it is a more tactile activity. Consumers of all ages, often nervous about buying items online for fear that they will not be as they appear, are somewhat reassured by being able to flip through pages, mark them up, and talk to a order representative on the phone. Furthermore, catalog shopping is a fairly passive activity as compared to going online. A catalog sits on the coffee table and reminds the consumer to purchase / order, whereas the internet requires the consumer to remember the store on their own and actively seek out products.

Catalogs also enhance consumer perception of selection.[4] E-catalogs have the ability to showcase a wide range of SKUs cost-effectively, but print has the advantage in aesthetics. Print images simply look brighter, glossier and bolder than those on a computer screen and enhance the perception of the product. Print catalogs can also reach consumers more easily than e-catalogs due to spam filters.

Given these advantages, it seems that retailers will be forfeiting significant consumer value by abandoning catalogs. But how do retailers use catalogs so that the online and print efforts are not duplicated, but rather complement one another?

Since print has the benefit of being aesthetically-pleasing and acting as a "purchase" reminder, it makes sense for today's catalogs to focus on brand-building and setting the general image and tone of the brand for that season. Catalogs must move towards streamlined “magazine-like” formats with storylines, themes and moods[5] and “hybrid” sale catalogs.[6] The new, less bulky catalog simply “hooks” the customer on to the feel of the brand’s selection, and then refers them to the website (which is increasingly accessible and cost-effective) for a full range of SKUs and other product details.[7]

Through this technique, perceived selection is maximized because consumers are exposed to the full aesthetics of the product as well as access to a wide range of SKUs. Convenience and experience are similarly maximized, as consumers are exposed to multiple means to view and order the product.

As such, it is certainly possible for retailers to have the best of both worlds!

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[1] Schultz, Ray. For Catalogers, Print Rules. Jul 1, 2005. www.directmag.com

[2] Victoria’s Secret. www.victoriasecret.com

[3] Murray, K. Retail Value Proposition. Richard Ivey School of Business

[4] Murray, K. Retail Value Proposition. Richard Ivey School of Business

[5] Lee, Louise. Catalogs, Catalogs, Everywhere. Business Week. New York: Dec 4, 2006. , Iss. 4012; pg. 32

[6] Hybrid Sales Catalog: Promoted as a "sale event" on the cover, but the catalog combines offerings of sale prices on seasonal categories with full pages of regular priced, higher-margin basic merchandise.

Barry, Curt. Clear It Out. Multichannel Merchant. Stamford: Feb 2008. Vol. 25, Iss. 2; pg. 1

[7] A popular example of this is make-up retailer Sephora – www.sephora.com

Other Links:

The U.S. Market for Catalog Shopping. Packaged Facts. March 1997. www.marketresearch.com

The grocery store of YOUR Future

As you step through the threshold of the automatic double doorway and into the entranceway, you detect a slight hint of lavender – neurologically tested for its soothing emotional effects. Another set of automatic double doors quickly part as you’re hit with the all-encompassing olfactory experience of freshly baked loaves of bread. Sky blue walls (blue has become associated with steadfastness, dependability, and loyalty[1]) and faux-wood floors (to maintain your assumption that this is an eco-friendly store) guide you on this sensory-driven retail journey. You see, this is the grocery store of your future; the smells, colors, and layout have all been scientifically orchestrated to provide you with the most comfortable and profitable (for the grocery store at least) shopping experience beyond your wildest dreams. You control everything from the light bulb luminosity, and the mock-hardwood floors, to the shape of the displays, and what’s displayed in them. Yes each and every product (not just product category, but product) is placed in accordance with your preferences as determined from the market research, as well as the subconscious stimuli each product category hopes to achieve.

As neuroscience and scientific retail management each continue to progress, I can’t help but notice the potential partnership between the two. Take something like a CPG, combine it with an aroma therapist, and top it off with a neuroscientist and you can produce the truest form of customer oriented shopping. Having similar products placed within our 180x100 degree view span isn’t enough. “Your store” should be designed through a combination of researched sensory stimuli, as well as general buyer preferences. In my estimation, retailers should be worried about a 5^th ‘P’, Psychology.

The shopping experience is supposed to be just that – an experience. Nora Volkow, a prominent drug addiction researcher in the United States, claims that if you are hungry and you get a whiff of a delicious hamburger, your dopamine skyrockets[2]. Dopamine is a neurotransmitter which is involved in emotional arousal, motivation and experiencing pleasure.[3] Is it any surprise that the bakery is beside the front door? As psychologists learn more about the brain, and uncover the framework which stimulates many of our automatic functions, it’s a clear fit with what retailers claim to be trying to do: giving the customer what they want. If retailers are already trying to exploit natural human tendencies (i.e. the desire to turn right), what’s stopping them from going the next step and exploiting the neurotransmitters that determine those natural tendencies? It seems to make perfect sense. Certain colours, smells, sounds, and textures will all evoke different subconscious responses, and these can be targeted to achieve the retailers’ ultimate value proposition – your comfort, which equates to their profit.

---

[1] Color, Psychology and Marketing. Precision Intermedia. 2001 – 2008. http://www.precisionintermedia.com/color.html

[2] McGowan, Kathleen. Addiction: Pay Attention. Psychology Today Magazine, Nov/Dec 2004. http://psychologytoday.com/articles/

[3] Passer, Smith, Atkinson, Mitchell, Muir. Psychology: Frontiers and Applications. Transcontinental Printing Group. 2003. Page 94.

Coping with the recession by going online

The slowing U.S. economy and a worldwide rise in gasoline and food prices is causing problems to many retailers, especially those with a niche product. Yet, their competitors, who are selling similar products online, seem to be doing fine. Web retail sales are growing at double-digit rates and this trend is expected to continue, despite of the weakened economy. It is quite difficult to recommend a smaller retailer, who is struggling with all his might to survive, to suddenly move into e-commerce. However, many larger companies have their retail websites set up, but seem to underestimate the demands of the online shoppers. I believe, it is viable for these retailers to concentrate on this channel, especially if their high street stores are not doing well.

To be successful, it is crucial to know more about the customers and to be able to comply with their needs and expectations. A recent study indicates that the price is no longer the only variable, according to which an e-shop is assessed. Online shoppers are no longer willing to make tradeoffs. Apart from the obvious benefits of online shopping – convenience, a large selection and a competitive price – customers have high expectations, when it comes to site and delivery experience. Clear information on delivery charges and the possibility to track the progress of the items ordered is considered as more important than shopping from established websites, well-known brands or having a large variety of goods. Another key factor is a clear arrangement of the website. From my own experience I can say that it is very frustrating to search for a common product under very general and unclear headings only to find that a mouse is listed under a heading “convertible devices” and an iPod is referred to as “black electronics”. The availability and load time of the website are important as well.

Surprisingly, many web retail sites selling electronics or apparel do not meet the above requirements very well. For example CircuitCity.com and BestBuy.com have ended up in the middle rankings of a recent report evaluating top 100 online retailers on customer satisfaction. Circuit City has been experiencing sluggish sales in the last few quarters and is searching for a way, how to get back into black numbers and catch-up with its main rival Best Buy. I believe that this company could improve its market position by ensuring that its e-commerce channel meets the needs and expectations of the online shoppers. This might be quite demanding though, since shoppers can compare their experience with the sites such as Amazon.com, which sell electronics as well and have a very good ranking.

From my point of view, this recommendation could be applicable for some other retailers, which are having a tough time due to lower consumer spending and need to cut costs and gain new customers in order to stay "in the game".

Sources:

1. http://www.msnbc.msn.com/id/23508057/
2. http://www.vnunet.com/vnunet/news/2208802/tesco-steals-christmas-web
3. http://www.news.com/8301-10784_3-9888859-7.html?%5E$
4. http://www.theretailbulletin.com/news/delivery_transparency_key_to_good_online_shopping_experience_04-03-08/
5. http://www.msnbc.msn.com/id/23548101/
6. http://www.msnbc.msn.com/id/23548101/
7. http://www.internetnews.com/bus-news/article.php/3680921

RVP: Emphasis on Experience

It is important to remember that when executing a strategy, retailers should not try to focus on all four aspects of the retail value proposition, but instead excel at one to be successful. Many businesses have shown us this: Wal-Mart in price, Avondale’s in convenience, Sephora in selection, and The NBA Store in experience. Though we have been learning about the great expansion of retail experiences all over the world, North America is no stranger to this strategy either.

The NBA Store opened almost 10 years ago in New York City. And the strategy of focusing on experience was in place even before the store was built. When designing the 35,000 square foot store, the feeling of being on the basketball court was very important. The lower level of the store houses a half-court shooting area with a full size net for anyone to come in and shoot a few hoops while shopping. The store is two stories high, but you won’t see the traditional escalator anywhere, as they have built a ramp 170 feet long designed to move you from one floor to the other. The floors are all hardwood and the same style as on a basketball court.

The layout of merchandise is not in traditional straight aisles like many retail stores (we don’t walk like Egyptians), but feels more like an exhibit, where you are walking into different sections of the store and able to see different products. It’s easy to forget where you are in the store, but the layout naturally leads you through many areas of the store. Pat Pecora showed us how customers don’t move through the whole store, and The NBA Store has found a way to change this through store layout. Their heavy focus on experience however, means that something else needs to give. Prices are very high for merchandise. I think that many of the people shopping here would be willing to pay higher prices though, mostly for the experience but also the selection. They claim to have the biggest selection of NBA and WNBA gear in the world. The niche product means that fans of the NBA would be willing to pay more for their favourite team’s garb. And, as many tourists frequent this area of New York City, they are probably willing to pay more money on discretionary items while they are away on vacation.

Merchandise is only one way that they make money, however. In fact, on their website, www.nba.com/nycstore, there is more emphasis on the events that they can put on rather than the products they are selling, including birthday parties, corporate events, fundraisers and more. These events are hosted right in the store.

Other in-store experiences round off the shopping event. People are able to compare their hand sizes with those of NBA stars, stand beside life-sized NBA players’ pictures to compare heights (I didn’t even come close), play video games and watch game highlights on a Jumbotron. If their timing is right, customers might get the chance to see one of the many celebrities (mostly sports stars) or concerts performed right in the store.

Most importantly though, is not what The NBA Store offers; it is what they understand about their business. They realize that they can charge premium prices for average products because they offer a large, exclusive collection and a very unique experience. They know that their best strategy does not mean focusing on all four aspects of the RVP, but investing in one that the target customers want.

Online Source: www.nba.com/nycstore

I suggest taking a look at the site and the virtual tours of the store.

Challenging The Status Quo & Winning

Ten Thousand Villages is a not-for-profit retailer (I had no idea either until I started my research!) that works with over 100 artisan groups in more than 30 countries in Africa, Asia, and Latin America to bring consumers fair trade jewelry, home décor and gift items. They operate just like any other retailer, but use 100% of their profits to increase purchases from artisan partners and expand its domestic distribution channels. Ten Thousand Villages is growing at more than 20% per year, expects to double sales in the next five years, and recently launched an e-commerce website to support the sales of their retail locations. How is Ten Thousand Villages managing to compete and prosper amongst rising levels of competition, considering that most not-for-profits are assailed for operating inefficiently compared with for-profit firms?

Product Selection: Customers now have a choice between supporting a company’s stock price or a company that ensures third world artisans receive the respect and dignity that comes from working hard and earning fair value for their work. Ten Thousand Villages has isolated and secured a growing segment of the economy that values social integrity from the companies they engage. Although most companies would argue that they live by the same values as Ten Thousand Villages, customers are beginning to see through the ‘smoke and mirrors’ and ultimately challenging companies to do more, as more than a third of consumers find it hard to determine which products are best for society. 83% of consumers claim that a company’s social responsibility is a key consideration before making a purchase (up 4% from last year), and are no longer content with the fact CPG firms and retailers generally contribute no more than 1-2% of pre-tax profits to social initiatives. 63% of consumers have bought fair trade goods in the last year, and Ten Thousand Villages has made product selection the very center of their RVP. Little confusion exists around where the profits go at Ten Thousand Villages, and consumers are showing retailers that they are willing to trade in an entertaining or convenient shopping trip for the opportunity to help those in need.

Education: A persistent challenge for Ten Thousand villages is that many consumers are still unaware of the fact that Ten Thousand Villages is a fair trade retailer, and there the company requires directing their marketing efforts towards education. Currently, Ten Thousand Villages accepts volunteers, rotates fair trade markets around cities and towns without a Ten Thousand Villages, and enlists the help of popular fair trade advocates as guest speakers. Fair trade markets introduce the concept to prospective towns, volunteers garner powerful word of mouth advertising, and guest speakers educate and generate passion within the consumer. Impassioned volunteers trump any loyalty program or traditional form of marketing, so perhaps profit driven retailers should take a lesson from the not-for-profits.

Social integrity is becoming increasingly important to the North American consumer, but retailers are starting to lag behind consumer expectations, which leave them with a teetering and vulnerable customer base. Fair trade retailers, whether for profit or not, are on the rise and may pull the rug from underneath those retailers who fail provide a real benefit to the world.

Related Links:

http://www.tenthousandvillages.com/

http://www.solutions-site.org/artman/publish/

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

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=901863

Multi-Channel Management: Should Retailers Integrate Strategies?

Consumers now they have the option of online purchases, catalogue as well as shopping online and picking up in-store, so to remain competitive, retailers must accommodate these changes and augment their traditional retailing strategies. Before with our Eddie Bauer case, we struggled with the question whether or not there should be different strategies for each channel. However, I do think having an integrated multi-channel system will enable bundling as well as cross-selling opportunities for most retailers.

Wal-Mart and Target are among the most heavily trafficked e-commerce Web sites. Retail chains accounted for about 40% of online sales in 2004 compared to just over 25% for pure-play Internet retailers. One reason traditional retailers are going online in droves is the shift in consumer spending from stores to the Internet. In 2000, Internet sales represented 0.9% of total retail sales, according to the US Department of Commerce.

Personally, I do a lot of my research online whenever I have a big purchase to ensure high product knowledge before I even step in the store. That is why I believe retailers should closely match their on-line marketing to their in-store marketing. However this strategy will widely differ on the nature of the retailer. An example would be a technology store that sells computers, it is a product that requires a lot of emotional and time investment, and most people would probably be more comfortable researching it online and comparison shopping before they enter the store. However, in clothing such as the success of Victoria Secret, different merchandise is purchased through catalogue/online than in store. The concept of researching online first is not gender related, BIGresearch polled over 7,300 US consumers and 74% of both males and females say they occasionally or regularly research one or more products online. Retailers who focus only on in-store shopping risk losing incremental sales opportunities as both men and women are equally engaged in this dynamic.

I also believe there is this big push for retailers to integrate their online shopping channel with in-store because it enhances their RVP. The convenience aspect is greatly enhanced when retailers utilize cross channel techniques such as allowing customers to buy online and pick up in store because now the customer knows their product is in the store and does not have to worry about delivery dates/shipping costs. This eliminates the inconvenient consequence of arriving at a store and the product being out of stock as well as solves the dilemma of lost in mail products or being at home to sign a delivered package.

Sophisticated online shoppers, many of whom are also the biggest spenders, expect their favorite retailers to offer a satisfying cross-channel shopping experience, whether it is to browse print catalogs before buying from e-catalogs, order goods online followed by in-store pickup or research online prior to making store purchases. Cross-channel shoppers spend, on average, 14% more than single-channel shoppers, according to Jupiter Research. And Web research influences 20% of store sales, says Forrester Research.

Without integration, the needs of these cross-channel shoppers would be unserved and retailers could lose this highly profitable target market. Will every retailer integrate? We’ll have to wait and see.

Links:

Retail Firms Treat Web Customers Best

Online Research, Offline Buy

Online Retailers Choose Between Everywhere to Nowhere

Multi-Channel Shopping: The Rise of the Retail Chains

CPGs' Influence on the RVP

“Experience is the way of the future,” Pat Pecora said this Monday. Of RVP's four aspects, experience is what will differentiate successful retailers. CPGs depend on retailers for sales. If they want to influence a retailer’s RVP to make their own products stand out, will they be able to?

CPGs have varying levels of influence when it comes to the RVP. Though final pricing decisions rest with retailers, CPGs can push a price upward based on wholesale prices because they are familiar with retailers’ traditional mark-ups; the manufacturer’s suggested retail price can hint at final price as well. Trade spending and other incentive programs can encourage price cuts.

For selection, manufacturers can sway retailers’ breadth and variety decisions with new products, new lines, or SKU rationalization. If the CPG is the retailer’s category advisor, influence can extend outside of the company’s products to the entire category. Depth can be increased using volume discounts. Though shelf space, storage, and receptivity to advice limit how much a CPG can manipulate selection, many methods influence are available.

Affecting convenience has more constraints. CPGs can design products for convenience in terms of bundling, such as Kraft’s Lunchables, or in terms of serving size, such as Crystal Light’s on the go sticks. End caps can be purchased to improve in store accessibility. CPGs have little say over where the stores are located, which is a major factor of convenience; their influence on this aspect of the RVP is not as powerful as it is over price and selection.

Experience is the hardest aspect for CPGs to direct. They can relay information via packaging, advertising, and POP displays, but consumers will only read so much. An in store employee can provide relevant information, attention, and service to the consumer. Cosmetic companies do this well in major department stores. However, tighter margins and more distribution outlets make this strategy unfeasible in grocery.

Traditionally, CPGs do not dictate the store’s atmosphere. However, Kraft* has decided to ignore these boundaries for premium Starbucks coffee grounds in grocery. In order to affect the customer’s coffee buying experience, Kraft implemented the Center Store Café concept in 400 select grocery stores in the United States. They installed their own shelving and lighting so that shopping in the coffee aisle becomes similar to shopping in a coffee café.

Will it work? The most recent public results (August 2007) say testing results are “encouraging.” There are limitations to the idea, however. Full retailer buy-in is unlikely and unwanted. Installing the fixtures will disrupt the store; some stores may not sell enough premium coffee to warrant the hassle. Kraft may not wish to roll this out to every store either if incremental sales do not generate a satisfactory return, a likely scenario in discounters such as Food Basics.

It is unreasonable to believe that one idea could solve the critical experience issue at so many different retailers. Kraft has at least has started to find creative solutions to influencing the future’s most important RVP component.

*Kraft distributes Starbucks coffee grounds to grocers and mass merchants.

Sources:
http://www.retailwire.com/Discussions/Sngl_Discussion.cfm/12358 http://www.creativemag.com/groconline.html

Redefining Convenience

Think of the last time you walk passed a vending machine – what did it sell? Pop and snacks. What else could it be, right? Interestingly, the Japanese have really taken the application of this technology to the next level, selling consumer goods across multiple categories such as consumer electronics, perishable food products, cosmetics, and clothing, etc. In the major cities where urban dwellers are time-starved, human capital and floor space are extremely expensive, vending machines are employed as a mainstream retail channel in Japan. According to national statistics, there is basically one vending machine to every 5 people!

So why are they so popular in Japan? Convenience! You can basically get anything from anywhere twenty-four seven. From hard liquor to life lobsters, from digital cameras to even used undergarments. The product assortment is broader than what you can ever imagine. As well, you can make purchases with or without cash; these next generation vending machines accept all sorts of payment medium such as debit card, credit card, and smart cards (similar to a Tim Card). Plus, some of them are equipped with ID card scanning technologies to prevent children from acquiring adult goods such as cigarettes, alcohol, and pornography.

To maximize the convenience factor and effectively reach specific target customers, merchants strategically place their vending machines at the optimal locations to maximize sales. For instance, vending machines that sell fishing baits are located at the most popular docks and fishing areas. In major motel districts, vending machines that sell alcohol and energy drinks are placed adjacent to the ones that sell condoms, providing customers with another kind of one-stop shopping experiences. Moreover, for customers who prefer to have minimal staff interference and public attention, vending machines can make their shopping experience a less stressful one.

Instead of solely making cash transactions, vending machines nowadays are also used to conduct promotions and enhance customers’ shopping experience at the same time. Many vending machines are uniquely shaped and designed to attract consumers’ attention. Some of them even have LCD displays to excite customers’ senses and facilitate their product selection process. Interactive videos, in-depth product descriptions, and other pertinent information are readily available at the users’ demand.

For the reason that automatic vending machine is a widely-adopted, mature technology in Japan, they are relatively cheap in the country. Coupled with the elimination of labour related costs and other fixed costs, the added convenience is offered to consumers only at a slight premium. In fact, products sold by vending machines are typically cheaper price compared to ones sold at conventional c-stores.

This ultimate combination of customer value has helped many businesses to achieve strong market penetration and realize significant profit margins simultaneously. Moreover, without the reliance on physical retail stores, vending machines can allow businesses to gain additional market penetration in even remote or less populated areas. It would be interesting to see how this technology will evolve and eventually swamp North America in the next 10 to 15 years.

Additional Photos:

1. http://www.photomann.com/japan/machines/
2. http://www.darkroastedblend.com/2007/09/vending-machines-craze-in-japan.html

YouTube Links:

1. http://www.youtube.com/watch?v=8fdz69vjSCk
2. http://www.youtube.com/watch?v=LT1dGtoa8gI&feature=related
3. http://www.youtube.com/watch?v=fBorZetbAKo&feature=related

The Rise and Fall of Retailing—Now and Beyond

The current state of the US economy has led to decreased consumer spending in the states, and panic stricken retailers. And while the fight to stay afloat may seem over, there is still an upside—it’s what they call, the cyclical rise and fall. The industry can make a strong comeback if retailers capitalize on 2 major factors that will impact their RVP’s going forward.

Avoid Commoditization
In recent years, many consumer products have become much more affordable due to efficiencies in manufacturing and the increased use of technology that have driven down the cost of production. The result is that most consumers have come to expect lower prices and premiums are increasingly difficult to justify. For example, fashion retailers like H&M carry a large stock of trendy items at lower price points and focus on volume sales. Because new items are constantly arriving in store, a lot of inventory is marked down and made even more affordable. It is not unusual to find tops and accessories for $8 or less! H&M has made it very hard for retailers with less inventory turnover to compete, as prices remain stagnant for a longer period. A few savvy retailers have fought back by making the clothes themselves secondary to the retail format and customer experience in order to attract buyers. Abercrombie & Fitch is one example where dark lighting and models create a unique in-store atmosphere that appeals to a younger demographic. The resulting image of the company and the customers (who buy from A&F) is distinct and inimitable and therefore a premium on its products can be justified. More and more retailers are going to have to cultivate their own experience to ensure decent profit margins and to prevent their product from becoming a commodity.

Focus on Services
Increased commoditization has left more money in the consumers’ pocket and therefore more to spend elsewhere. There is an opportunity for retailers to expand their selection to include services. Services are higher margin and build brand equity and loyalty, given that they are complimentary to the existing product mix. For example, Loblaws introduced PC Financial in 2001 as a way to balance out the low margins on grocery products. The President’s Choice brand was gaining popularity and the introduction of online banking and credit cards solidified the private label’s legitimacy. PC financial is very complimentary to the rest of the product assortment as points can be earned towards free groceries through use of the credit card. It also adds to the idea that PC conveniently fits into all areas of one’s life—food, home and garden, pets and finances. Moving into services will also follow demographic changes: baby boomers are ageing and are falling into a convenience-centered lifestyle. As a result, their reliance on services will increase in all industries and retailers must be cognizant of that in order to compete effectively.

Thinking outside and the box and looking beyond the products themselves to customer experience and services will require retailers to become excellent marketers. Intangible benefits cannot speak for themselves and so retailers need to push their brand and uniqueness to the consumer much more forcefully than before. Leveraging brand identity, beyond awareness, will be the key to success in retail going forward.

Resources

Kamcity Library. 2008 Global Powers of Retailing.
http://www.kamcity.com/library/articles/deloitteglobal08.htm

H&M Canada
http://www.hm.com/ca/#/startpagedefault

Abercrombie & Fitch
http://www.abercrombie.ca/anf/index.html

President’s Choice Financial
http://www.pcfinancial.ca

Size Battle...Are They Really Competing?

Look into big malls. It would definitely be very easy to locate such stores as Ann Taylor, Loft, and Gucci. Finding other stores carrying technology gadgets, toys, books and other ‘fancy’ items are not too difficult to find either. Moreover, the typical mall would also house A&P, Shoppers’ Drug Mart, Dollarama, or many other stores of the same kind as to make such place a one-stop shopping experience for customers. However, if one looks carefully into big pool of giant players, a small mom-and-pop store also exists in the mall.

It wonders me a little to see such small grocery stores—carrying so few lines of items—compete against big supermarket operators. In fact, the first grocery store that caught my attention was standing just 2 stores away from A&P’s entrance (Sherwood’s Forest Mall Branch). However, after looking carefully into its RVP, I realized that this should not be of any surprises. The ant and the giant are not competing against each other at all.



Supermarket and in-mall grocery store, though carry similar lines of goods, are in fact very different. Each draws different types of customers and thus possesses its own unique set of RVP. In relative to grocery stores, supermarket carries so much more variety and is able to compete on price due to economy of scales arising from its larger operation. However, whether it stands for price and/or quality or not depends on individual corporate strategy. Moreover supermarket has its own target group that may or may not be the same as that of the mall it locates in. In another word, it relies on drawing mall stroller as much as serving its existing target group of customers.

On the contrary, the customers who shop at small mom-and-pop stores (within the mall) are, by large, the passer-bys or mall strollers that purchase out of immediate consumption. Since these stores are known to serve immediate consumption, their assortment is usually altered to include more ‘food’ items or other items that appropriately serve that kind of need. Therefore it is not surprising to see cigarette, telephone card, and newspaper nicely displayed within the store. Non-food items such as soap or detergent that one could find in typical grocery stores outside the mall would never be seen in such store inside the mall. After all, there is no reason to store this kind of goods any way.


In addition to the ‘type’, the package size also matters. One would probably find $.99 Toritos in small mom-and-pop store rather than in the supermarket (in there you would instead find a $3.99 that you could enjoy for 3 days). Lastly, inclusion of service into its definition of assortment also distinguishes it from supermarket. Some small grocery stores also offer fax services, photocopying services or other simple services that would never be available in the supermarket. This ‘service’ area, at least in my opinion, is worth more improvement and emphasis to be developed into a key advantage over large supermarket operators.

Pictures from:
http://images.google.com/images?gbv=2&hl=th&q=ann+taylor%2C+store
http://images.google.com/images?gbv=2&hl=th&q=a%26p+entrance

Big Mall = Big Success?

China – one of the world’s fastest growing economies - is facing an intense growth in the retail industry. Evidence of this can be seen through the number of malls that are popping up in China. It now has over 400 malls and large-scale retail spaces, with 200 more under construction in Beijing alone. This is partly due to the run-up of the 2008 Olympics in August, as Chinese consumers are eager to try a taste of Western-style superstores and big brand name products. But this is the right move for the retail industry or are they heading for trouble?

Already, four shopping malls in China are larger than the Mall of America. Two are even bigger than the West Edmonton Mall in Canada, which just surrendered its title as the world's largest shopping mall to a mammoth complex in Beijing. And by 2010, China is expected to be home to at least seven of the world's 10 largest shopping malls.[1] With this, it is not surprising that a lot of investors find this industry a gold mine. It seems like these shopping malls have it all – the world’s biggest retail spaces, replicas of seven western tourist destinations, floors of branded international fashion, and even multinational food courts.

But what all these malls are missing is shoppers with money to spend. Mall developers planned on attracting 100,000 visitors a day, but instead draw only about 10,000 on a good day, more than a year after opening their doors.[2]

So what’s the problem? Location does not seem to be the reason, since most of the malls are located in the thriving cities of China. It may be partly due to the fact that they are all close by to each other, with some only 50 miles apart. However, the main reason is the type of consumers. The Chinese are savers more than spenders. Usually, they save about half of their income, and after deducting living expenses, there is not a lot left to spend on brand name products. Another reason is that many urban residents, especially older residents, still likes to shop locally and simply can’t afford the high prices.[3] Even with the younger Chinese visiting these mega complexes, it still won’t be enough to support this retail construction boom.

How, then, can retailers solve this problem? Even though China is considered a fast-growing economies, retailers cannot assume that the type of consumers there will be the same as in Western countries. Retailers will need to do in-depth market research in order to understand the behavior of Chinese consumers. Consumers may not even need the ‘biggest mall in the world’ or one that offers the best experience, they may just need a simple affordable mall that meet their needs. Sometimes ‘gold mine’ opportunities blind retailers to what they were supposed to offer, which may eventually lead them to big failures rather than huge successes.

---

[1] http://www.iht.com/articles/2005/05/24/yourmoney/mall.php?page=1

[2] http://burnickblog.sovereignsociety.com/2007/04/disneyland_vega.html

[3] http://burnickblog.sovereignsociety.com/2007/04/disneyland_vega.html

http://www.atimes.com/atimes/China_Business/JB09Cb01.html
http://www.csmonitor.com/2007/0828/p01s01-woap.html
http://www.iht.com/articles/2007/04/17/business/mall.php

Wal*Mart: the story behind the : )

Remember that "Theory of Stuff" video? It talked about the 'true price' of a calculator. Did the $7.99 really take into account the manufacturing of the product halfway across the world. Does eight bucks reflect the fuel need to bring the calculator over the ocean? Eight measly dollars gives you a device that transforms solar energy into the ability to multiply 78 by 62. How on earth is this possible?

The answer is simple. Scale.

And no other retailer uses economies of scale to greater advantage than Wal*Mart Stores, Inc. With over 6,600 stores worlwide, and sales over $344 billion in revenues (guess how much is pure profit?) - Wal*Mart is not only the top retailer in the world... it's in a category all of it's own.

Once upon a time, there was pickle manufacturer. The manufacturer made a distribution partnership with Wal*Mart. And Wal*Mart, as part of its Everyday Low Prices promise to its customers, sold a gallon of pickles for $3.97. Customer's couldn't resist. Pickles for an entire year for half the price of a quart at the nearby grocer. 12 pounds, too big to carry with one hand, an abundance that symbolized everything Wal*Mart stands for. Selection? Experience? Convenience? All three are were exemplified in that gallon jar of pickles. But above all else, the Price of $3.97 is what Wal*Mart - and its mass of customers - fell in love with.

Pickle sales went a little crazy. Vlasic, the pickle manufacturer, became the top-selling brand in America. Over a few short months, it's sales grew exponentially. Even as its profit-margins shrank by millions. A few years later, Vlasic closed shop and went out of business.

For you see, that's the hidden cost of "everyday low prices".

This post won't touch on the numerous unfair-labour-practice, gender discrimination, and environmental damage lawsuits against the retailer. I won't talk about Wal*Mart's "A Manager's Toolbox to Remaining Union Free"... or the fact that - while the company takes 3.5% of its $344 billion sales dollars as pure profit, the majority of its employees are earning a-lower-than-subsistence living wage - won't be explored.

But the crux of the matter is that Wal*Mart isn't inherently evil. That's why I - and so many others - have such trouble finding absolute fault with the retailer. Wal*Mart complies (on most instances) with the law. They are fair when dealing with suppliers. Cold, harsh, blood-sucking some might say - but always fair.

And Wal*Mart has brought us the world.

Once upon a time salmon was a delicacy enjoyed by the rich. Today, Wal*Mart offers a pound of Chilean salmon for $4.84, making it accessible to the common man. As pointed out in a post below, it brings exotic Indian fashions to the average Canadian consumer. It sells us 140,000 different items (talk about variety!), things that have to be shipped over oceans or flown across skies, from halfway across the world. Because of Wal*Mart, you can have a salwar kameez for a measly $20.

But Wal*Mart has amassed an unprecedented amount of power. It's values shape entire economies. Twelve years ago, there were no salmon in Chile. Today, Wal-Mart buys a third of the nation's $1.5 billion salmon export. From subsistence fishermen and agriculturists, Chileans by the droves have gone to work in Salmon farm-factories. Farms that pollute the oceans with a toxic quantity of salmon fecal matter. Factories where workers work from dawn to dusk under supremely clean (Wal*Mart wouldn't want our food contaminated) but ethically revolting labour conditions.

So, what Wal*Mart chooses to do with this power is what ultimately defines the corporation. Will it raise the price of salmon 25% (from $4.84 to $6.05 - are you willing to pay $1.21 more?) and provide livable wages, safe work conditions, and environmental sustainability for the Chilé salmon farms? Or will it choose to continue spending the bare minimum it has to - thus keeping its largest group of employees (sales associate) below the poverty line? Everyday Low Pricing versus... well, fairness, economic and environmental sustenance, morality... whatever you want to call it.


Sources/Links/Related Articles:

The Wal*Mart You Don't Know (excerpt from The Wal*Mart effect): http://www.fastcompany.com/magazine/77/walmart.html?page=0%2C0

Global Fishiness (excerpt from The Wal*Mart effect):
http://www.salon.com/tech/books/2006/01/23/walmart_effect/index.html

Wake-Up Wal*Mart: The Real Wal*Mart effect:
http://wakeupwalmart.com/facts/

Some Uncomfortable Findings For Wal*Mart (BusinessWeek article):
http://www.businessweek.com/bwdaily/dnflash/oct2005/nf20051026_8916_db016.htm

When the Best Isn't Good Enough

What drives consumers today to pay 28 dollars US for a one-pound rose petal-flavored Boulé Marshmallow Sampler at Dean & DeLuca, 480 dollars for a limited edition, frosted glass water bottle adorned with Swarovski crystals, or 5000 dollars for a leather-encased Reserve Edition ThinkPad laptop with dedicated support staff and sold by invitation only? Listed on Trendwatchers.com as one of the top eight trends expected to dominate 2008, it is the phenomenon of Premiumization: the upscaling of products or services to contribute to a luxury RVP.

Central to any effective RVP is a competitive assortment strategy. With the marketplace becoming increasingly saturated and consumers becoming more expectant, retailers are seeking to add differentiated products to their assortment. For the premium-segment consumers, this means finding elaborate ways to satisfy the wealth that is burning holes in their pockets more than ever before. The link between luxury goods and status has always been prominent, but because average consumers are increasingly able to access premium products, the bar has been raised and an ultra-premium category is on the rise. Under what other conditions would the market accept Renova, a company that sells fashionable toilet paper for 3.50 dollars a roll, available in a multitude of colors?

Take, for example, the premiumization of bottled water. A trend that has trickled down from Hollywood that revolves around the idea that “you can tell a lot about a person by the bottled water they carry.” Where Pellegrino or Perrier used to occupy the premium position, suddenly status-obsessed consumers began opting for even better. Selling for 15 to 20 dollars US, Evian released the limited edition Palace bottle which has a custom designed pouring top and is complemented by a stainless steal coaster. Pushing the limits further, Tasmanian Rain is water that has been captured “on the pristine north west coast of the island of Tasmania, Australia.” It has been collected “just minutes from where the World Meteorological Organization records the world’s purest air.” A specially designed catchment facility accumulates the water after traveling eastward through the air over Antarctica and 10,000 miles of ocean.

The most key dimension of the RVP that premiumization affects is customer experience. For example, the premiumization of coffee is nothing new. It has been accepted into mainstream culture with the advent of Starbucks, and has led to a larger offering of a “third place”, or a location apart from home or the workplace where consumers can relax and enjoy a high-priced latté. On a smaller scale, carrying the white Starbucks coffee cup as you walk down the street contributes to your sense of status, as the brand association shapes your experience.

Premiumization: credible or outrageous? Like it or not, as long as consumers are coveting these products and setting the bar for acceptable consumerism, there is no industry or product that will escape a premium version.

- Sydney Dundas

For more information, visit:

· http://www.trendwatching.com/trends/8trends2008.htm
· http://www.canada.com/saskatoonstarphoenix/news/weekend_extra/story.html?id=a328c555-8174-4900-84fe-370ca8962304&k=7059
· http://www.boston.com/business/blog/filter/2007/12/premiumization.html
·http://www.reportbuyer.com/consumer_goods_retail/shopping/shopping_trends/masstige_super_premium_consumers.html

The "L" Word

Let’s talk about loyalty: that elusive ideal many retailers seek to achieve. It is believed that building loyalty creates more profitable customers over time. [1] Loyal customers are associated with lower service costs, decreased price sensitivity and increased average spending compared to the costs of attracting and retaining new customers. [2] Gaining loyalty, therefore, is seen to be an attractive source of sustainable competitive advantage for retailers.

It is, however, becoming increasingly difficult for retailers to identify which customers to target with their loyalty programs. Generally, a small percentage of customers generate most of the company’s sales.[3] Yet, as we saw in our classroom discussion on private labels, the most loyal customers are not necessarily exclusively loyal. It is very likely that the most profitable customers of one store are their competitors’ most profitable customers as well.

Thus, the goal for most loyalty programs should not be exclusive loyalty but rather increased repeat business among current customers. This will maximize the benefits of a loyal customer base. In a fiercely competitive marketplace most loyalty programs targeting repeat business are easily replicated.[4] The benefits of loyalty programs become short-lived as consumers divide their business among retailers once again. It becomes increasingly important, therefore, to identify which loyalty programs are effective (and which ones are not).

We know that increased market share and customer loyalty are driven by customer satisfaction and the value shoppers place on the RVP of the retailer (Sears Elf case discussion). However, many customer loyalty programs are focused on rewards which do not enhance either one of these drivers. Let’s take the example of Air Miles at Shell[5]. The incentive rather than the product would drive consumers to choose Shell over a competitor. The program simply adds a reward to a regular purchase. While this can obviously encourage consumers to return to the retailer (Yay!) once the incentive is taken away, the prime reason for ‘loyalty’ disappears (Boo!). Furthermore, I doubt that loyalty would continue as competitors replicate the program and customers become divided once again. This type of loyalty program clearly does not build sustainable competitive advantage.

A more successful implementation of a rewards scheme is the GM card. Customers build up points with the card in order to eventually purchase a GM car. In this scenario, the product is the main focus of customer interaction and the incentive serves to enhance its value. This type of customer loyalty is directed towards the product and is vulnerable to competitive imitation only insofar as the product is itself. Therefore, it is a more stable form of competitive advantage.

I believe that the most successful customer loyalty programs (dependant on rewards schemes) are those that effectively support the value offered to customers by the retailer. Tying the loyalty program to customer satisfaction provides consistency and promotes desirable behavior. This type of loyalty program is also less vulnerable to copy-cat programs.

Just remember - it is always better to be a little more careful using the “L” word!

References:

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[1]http://www.ccc.agsm.edu.au/papers/researchBriefings/A03_Paper_RB002GDowling_CustLoyalty.pdf [An interesting discussion on Customer Loyalty]

[2]Ibid.

[3]Ibid.

[4] http://www.theretailbulletin.com/news/retailers_split_on_loyalty_20-02-08 - [An article describing the effects of this phenomenon among UK retailers]

[5] http://www.canadaloyalty.com/Programs/gas_bar_programs.html [A site that highlights most loyalty programs currently in place in Canada.]

Influential Women…and their checkbooks.

Sleek hardwood floors, comfy leather chairs designed for customer comfort, brighter lighting and modern decorative displays set out over 63,000 square feet of merchandising space are now greeting shoppers in the newly designed Canadian Tire stores that are now opening. Today, there are just as many female shoppers strolling the aisles of the iconic Canadian retailer, and it's not because they've all suddenly developed an affinity for hardware and tools. Rather, Canadian Tire, as well as other retailers of traditionally male-dominated categories, from electronics and financial services to video games, have made a play for the fairer sex. As a result, they've been able to swell their customer base, and thus, their profits, and in many cases, they are even charming men in the process.

“The style of the new store is a deliberate move to try to attract more female shoppers”, said Mark Foote, head of marketing for the hardware retailer. It replaces the old-style format that typically featured a dense display of merchandise in boxes stacked high on shelves between narrow shopping aisles. “That style”, said Foote, “tended to appeal best to the male shopper and children up to the age of 14 years. But we've never been a good enough store for mom …she's been there, but we've designed the store more around dad." According to Foote, female shoppers have traditionally represented 50 per cent of foot traffic in their stores, but only 35 per cent of consumer spending. Research conducted by the company showed women "were not inspired enough to really want to shop for some of the things we think we can sell," he said. “Three years ago, the company began its push to change those figures, looking to add 20-per-cent growth to its bottom line”, noted Foote. Attracting the female shopper proved the key to achieving that revenue target. "It all comes down to the assortment, the fixtures [and] the shelving which are just more appealing to the female shopper," explained Foote.

Canadian Tire's plan to attract more female shoppers is based on good business. Eighty-five per cent of all retail purchases are either directly or indirectly influenced by women, according to John Torella, a senior partner with J.C. Williams Group, a retail consulting firm.
So how's it working? Female shoppers now account for over 50% of transactions at Canadian Tire, and the Canadian retail chain continues to outperform the U.S., where recent third-quarter results saw the average ticket increase 6.1% to US$58.92.

"I think what Canadian Tire is finding out is what most retailers know, which is that the female is the chief purchasing officer of the home," Torella said in an interview. According to Torella, trying and succeeding to attract women shoppers is a huge challenge. Success will depend on the in-store experience -- how the merchandise is displayed.

"It's not just a rack of items. You've got to show it in use. You've got to dramatize it. You've got to romance it," Torella explained. "Women place a lot more importance on the shopping," Torella elaborated. "Men are buyers. Women are shoppers."

Target market assessment is critical to the success of a retail company. We’ve learned this year that women have a huge impact on buying and that most women are actually the decision makers in the purchasing department of the household. Finally, retailers are noticing this trend and have decided to take action and adapt their retail marketing strategies to attract these decision makers into their stores and offer them the experience they are looking for. They have learned to cater to their target market’s need, resulting in increased customer loyalty and retention. So far, this new approach seems to be working advantageously for the retail outlets….they are attracting the influential women, and their checkbooks.
Marketing Magazine 2008 http://www.marketingmag.ca/magazine/current/feature/article.jsp?content=20060508_67052_67052
Strategymag.com http://www.strategymag.com/articles/magazine/20060201/where.html?word=target&word=man%5c
The Vancouver Sun 2005 http://www.lestwarog.com/newsArticle-995.html

5 down, 95 to go

In 2001 Apple decided to take the plunge into the retail channel, and opened 2 stores in the United States. The move was partially in response to a declining market share, but primarily due to the poor marketing of Apple products by its retail partners. To lead their retail expansion Apple hired former V.P of retail at Target Corporation, Ron Johnson, who left Target after successfully redefining its retail strategy. At the time of the expansion Apple commanded a 5% share of the personal computer market. They believed that the other 95% of consumers didn’t even consider Mac’s because they had never experienced the product. Apple strategy was to gain control over the retail selling experience to convert dissatisfied P.C users.

Consistent with Apple’s products the retail stores are designed to simplify and enhance the presentation and marketing of their products. When the strategy was first pursued “we had four products, two portables and two desktop computers." Johnson faced the dilemma of having only four products to fill the 6,000 square-feet stores. "And that was a challenge. But it ended up being the ultimate opportunity, because we said, because we don't have enough products to fill a store that size, let's fill it with the ownership experience."[1] Although Apple now carries a full line of computer and music products, the basic layout of the stores hasn’t changed. The store is brightly lit with big windows and the distinct Apple icon to attract passing traffic. The computers, I-Pods, and other accessories are perched on simple tables, which put the focus squarely on the products. The computers are fully functional and hooked up to digital cameras, I-Pods, and printers, so customers can create something and fully experience the product. Overall, the retail experience is non-abrasive and interactive which has generated positive feedback from customers.

A key aspect of Apple’s retail experience is the quality of their store level employees. At the opening of a store in California, Ron Johnson joked that it’s harder to become an Apple store employee than to get into Stanford University.[2] One reason is that Apple has the unique advantage of having an enormous following of dedicated customers who are willing to accept lower wage jobs to be a part of the company. Furthermore, Apple carefully selects their staff as they invest over 80 hours of training into each employee. The most differentiating feature of Apple’s retail store is the level of customer service provided by the Mac Geniuses at the genius bar. Apple customers can bring in their products and ask any technical question about their Mac. If the Genius cannot answer their question, there is red phone behind the counter with a direct line to headquarters in Cupertino.[3]

Fast forward 7 years and Apple now operates over 200 retail stores worldwide. Although their share of the personal computer market hasn’t grown, many attribute the dominance of the I-Pod to Apple’s retail exposure. Apple was able to effectively manifest the company’s retail value proposition into their retail format, and as a result the stores feel like an extension of their product.

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[1] http://www.ifoapplestore.com/the_stores.html

[2] Ibid

[3] http://www.ifoapplestore.com/stores/chernev_case_study.pdf

Do Buy in Dubai: Enhancing the Retail Experience through Entertainment

According to a marketing campaign promoting the emirate as the ultimate leisure and shopping destination of the world, “Dubai” and “Do-buy” are one and the same. Dubai is positioned as the world’s fastest growing retail market, with around 2.2 million square feet of retail space currently under construction. Growth in population and an increase in tourist inflow have led to the demand for all types of retail space. Second only to Hong Kong, the UAE ranked as one of the highest locations for recreational shopping, where 30% of local respondents shopped once a week for “entertainment”.

Dubai has revolutionized the concept of mall shopping. Customer experience is taken to a new level, where malls are not just shopping centres but community centres that offer visitors leisure and cultural attractions as well. Take the Ibn Battuta mall for instance (which I had the opportunity to visit while I was in Dubai this past January). I was shocked and amazed walking through each different themed wing of the mall; each based on the travels of the 14th-century explorer through North Africa, Egypt, Persia, India, China and Andalusia. Shoppers are taken through a virtual history lesson as they browse Sunglass Hut, or have a bite to eat at KFC.

Probably the most well-known of all malls in Dubai for its entertainment factor is Mall of the Emirates, which houses the first indoor ski resort in the Middle East. Although I was initially attracted to the 400+ North American and European retailers at MOE, what actually brought me to the mall was the opportunity to experience Ski Dubai firsthand. Because I was already at MOE, I ended up spending more money and visiting stores I otherwise probably wouldn’t have, had I not wanted to go to Ski Dubai.

Retailers are benefiting tremendously from a new generation of malls that are using entertainment to enhance the experience for customers before they actually enter the retail stores. Increased traffic is created due to a high percentage of shoppers which are drawn to the mall solely because of its other attractions. Although retailers do not have direct control over this traffic, they are benefiting because it results in a larger pool of potential customers already in the building, walking by the store and possibly entering and purchasing products. By providing entertainment in the mall, shoppers are kept in the building for longer and are likely to purchase more.

As Pat Pecora, our guest speaker from SC Johnson mentioned the other day, the future of retail is turning more and more towards enhancing the customer experience in order to gain and maintain lifelong loyalty. This applies to retailers and malls alike. Future plans for the upcoming Dubai Mall involve building the world’s largest aquarium, the world’s largest gold souk (open market), a 22-screen Cineplex and an Olympic-size ice rink. The grandiosity of these plans for enhancing the customer experience at the mall doesn’t seem to be ending any time soon, and that doesn’t surprise me. Because in Dubai, too much is never enough.

http://www.canada.com/victoriatimescolonist/story.html?id=b203a248-9098-4ac7-8155-c46b3196c9a9&k=86180

http://archive.gulfnews.com/supplements/commercial_properties_2007/more_stories/10175243.html
http://www.shoppingcenterbusiness.com/articles/MAR06/story9.shtml

http://www.chicagotribune.com/business/chi-sat-notebook-retailmar08,0,155581.story

http://www.emirates-re.com/system/main.php?pageid=2343&articleid=10761

A STORE IN THE PALM OF YOUR HANDS

I’m having dessert at Milestones with a friend and as we finish, I say “Let’s go see a movie!” She replies, “It’s opening night. The lines will be huge. There’s no way we’re getting tickets.” She suggests getting on the internet to buy tickets. I whip out my blackberry and realize that I have no printer, so I wouldn’t be able to print the tickets.

This unfortunate situation could have been avoided if I knew about RepeatSeat. RepeatSeat allows customers to purchase tickets using their cell phone’s internet browser. No credit card transaction is required – the price of the tickets would show up on next month’s bill. More importantly, a barcode would be sent straight to the phone! This barcode would be scanned before I enter the theatre, and I could skip the long lines on opening night.

M-COMMERCE
Most people are familiar with E-Commerce, making business transactions through the internet. M-Commerce (Mobile-Commerce) is a specific type of E-Commerce that uses mobile technology. In other words, it lets you make business transactions over your phone. With the growing use of cell phones, M-Commerce seems almost inevitable, so who will take advantage of this opportunity first and who will do it the best?

REPEATSEAT & CINEPLEX
Started by entrepreneurs in Calgary, RepeatSeat first provided ticket services to the Calgary Flames. As their success grew and their technology became more advanced, they secured a deal with Cineplex Odeon for their mobile ticketing services. An initiative with Bell Mobility, RepeatSeat allows Bell subscribers to use text messaging to purchase tickets that get sent directly to the phone and billed to the next phone bill. RepeatSeat seems to be the company that has taken control over the M-Commerce ticketing market in Canada.

Clearly, RepeatSeat provides Cineplex customers with paramount convenience. Instead of purchasing tickets at the theatre or on your laptop, you can purchase tickets anywhere you go, so long as you have your cell phone handy. There is a slight fee with using RepeatSeat, but as technology advances, I suspect that fee to become negligible. Using RepeatSeat’s services, Cineplex can provide convenience for customers, while still mainta

ining their emphasis on their selection of movies, and the experience of watching a movie on the big screen. Although most people would agree that Cineplex’s RVP centres around experience, having a convenient way to buy tickets will definitely drive ticket sales.

THE FUTURE OF M-COMMERCE
RepeatSeat has explored other avenues for M-Commerce, such as airlines and sporting events. However, there is a lot more potential for M-Commerce. Imagine using your phone to buy a Tim Horton’s coffee. You skip the line to pick up your coffee that has been made for the time you requested in your order, and all they had to do was scan your phone. As online shopping dominates and M-Commerce gains popularity, retail stores may only act as a “pick-up” store because the entire retail experience will exist in the palm of your hands.

Sources:

RepeatSeat: http://www.repeatseat.com/index.asp

Cineplex Listings with RepeatSeat: http://www.cineplex.com/Theatres/TheatreDetails/4F8D1583/SilverCity_London.aspx?topsearch=T|T

M-Commerce: http://searchmobilecomputing.techtarget.com/sDefinition/0,,sid40_gci214590,00.html

RepeatSeat & Cineplex Announcement: http://www.repeatseat.com/newsEvents/CineplexJump.pdf

Social Responsibility as a Significant Differentiator

In the past year, goods imported from China have received even more negative publicity than usual. Most notably, the discovery of children’s toys which were covered in lead-based paints shocked the country and raised outcry for greater import restrictions and regulations. The retailers which stocked these toys managed to escape much of the public backlash, blaming poor Chinese manufacturing standards. But at some level, each of these retailers is and should be held responsible for its supply chain, and the corners which are cut within it.

The side of the story that us North Americans were not exposed to was that that very same cancer-causing, lead-based paint was being applied by workers in China who were not provided with effective safety equipment, worked in poorly ventilated areas, underage in some cases, and rarely receivers of fair wages. These working conditions have been created, if somewhat indirectly, by major Western retailers’ constant push for low costs. In favor of these low costs, many companies have traditionally turned a blind eye to these substandard labour conditions.

Growing operational transparency accompanied by increasingly easy access to information has led some of these retailers to take a much more socially responsible stance, in the hopes of building consumer trust and loyalty. Many retailers have gone above and beyond current government mandates in order to promote themselves as being responsible corporate citizens. In this way they are generating strong, positive publicity for themselves, while pushing other corporations to be more socially responsible.

Nike is one of the leading retailers in this regard. They have been victimized in the past by rumors that they endorsed slave labour after it was revealed that many of their factory employees were not provided basic rights. In response to the consumer backlash, Nike has worked to turn this image around, and as of 2007 was ranked as the third most responsible corporate citizen in the world, according to Business Ethics magazine. Nike has just undertaken its first annual comprehensive review of Chinese manufacturers which act as suppliers for Nike. They publicly displayed the results, which included the finding of many falsified documents regarding employee wages and also discovered many cases of underage workers. Nike has penalized manufacturers which are in violation of new Chinese labour laws and has gone even further by developing an educational program for workers in these manufacturing countries to inform them of their rights. This program will have been implemented in every factory which supplies Nike by 2011.

Socially responsible retailing has become a way of providing increased value to an ever growing segment of worried consumers. Entire business models are beginning to spring up based on the sole advantage of offering responsible products and services. Our final case, OQOQO, is a perfect example of this, wherein the creator is attempting to create environmentally sustainable clothing, produced in socially responsible settings. While price is often sacrificed in these scenarios, the differentiation created and brand loyalty developed is a significant advantage that has been historically proven to overcome the slight price increase. Consumers of these organizations are granted greater peace of mind in the knowledge that they are supporting socially responsible corporations. It is this improved experience which will continue to drive social improvements in manufacturing countries.

Sites of Interest:

Business Ethics 100 Best Corporate Citizens 2007

Nike finds problems in China

Poor Working Conditions Plague Guangdong

Working Conditions in China: Just and Favorable?

Probe Sheds Light on Working Conditions in China

Going Green Has Never Been More Fashionable

The world’s most expensive wedding was held in 2004 by steel tycoon, Laxhmi Mittal, for his daughter Vanisha. Costing an astounding USD$60 million, it spanned six days and boasted a bridal party that wore over fifty custom-made outfits. For today’s bride planning her big day, while it may not be as extravagant as the Mittal celebration, there are many things to consider including venue, food, flowers, and most importantly, the bride’s outfit. With the wedding industry generating billions of dollars each year, vendors are looking for new ways to differentiate themselves in this increasingly competitive market.

The next big idea: eco friendly wedding dresses.

As environmental awareness grows in today’s society, more brides are looking for ways to reduce the impact their celebrations have on the ecosystem. All the travelling done by guests, and the products and outfits purchased for one day’s use does add up to create a huge impact on carbon emissions and general waste production. Bridal wear designers are capitalizing on this ever conscious consumer by targeting the “eco-bride” and offering her the option of wearing a “green wedding dress”.

Green wedding dresses, are for the most part, dresses made of fair trade and organic materials such as cotton, linen, hemp, and peace silk [1]. They also do not contain many of the chemicals that dresses are doused in to avoid wrinkles and stains. Furthermore, the manufacturing process is conducted in an eco-friendly manner to ensure minimal environmental impact during production. Some designers go so far as to tag each garment with its specific carbon footprint value. They then donate a portion of the sale proceeds to carbon reduction organizations based on the size of the footprint.

Considering the description so far, most people would expect some cotton fabric potato sack shaped garment. However, savvy designers like Deborah Lindquist, Olivia Luca, and Christina Hurvis learn to balance being both fashionable and environmentally conscious. Their couture designs are trendy, award winning runway fashions. These designers also cater to those looking to get custom made pieces.

The “green wedding dress” is an innovative way of creating a new niche in the market by generating demand for environmentally friendly bridal clothing. It also offers a justifiable reason to charge a premium for the garment since there are very few retailers who cater to this concept. Furthermore, it allows designers to grow their business while minimizing the impact their operations have on the environment.

This is an amazing and innovative product for which demand is sure to increase as environmental awareness continues to soar in our society. As this increase occurs, designers such as Lindquist, Luca, and Hurvis will have the first-mover advantage, with an established brand presence and efficient supply chain management.

When that special day comes around for all you ladies in class, be sure to consider buying your dress “green”.

To learn more about designers offering “green” collections, please visit:
http://www.deborahlindquist.com/
www.olivialuca.com/home/studio
http://www.couturesf.com/

To learn more about peace silk, please visit:
www.aurorasilk.com/info/peacesilk.shtml

To learn more about green weddings in general, please visit:
www.greatgreenwedding.com/
www.ourgreenweddinglist.com/

[1] Peace silk, not widely known, is the ethical process of extracting silk from the cocoon of a silk worm. The current method of processing is to boil the cocoon, kill the worm, and extract the thread. This is done in an effort to shorten the process times of silk production. Peace silk manufacturers do not allow the killing of the silk worm, and rather wait for the worm to emerge as a moth before conducting the extraction process on the empty shell.

PepsiStuff Snuffed

By now I’m sure most of you have seen Pepsi’s commercial featuring one of the hottest singers (and my crush since 1998), Justin Timberlake, that aired during the Superbowl in February. What you might not be aware of is the trouble that this commercial has instigated for Pepsi in the ensuing months. No, Justin didn’t rip off any articles of clothing à la Janet Jackson at Superbowl XXXVIII. PepsiCo is the only one to blame for this gaffe.

Pepsi’s commercial starring Justin was the launch of a new U.S. national marketing campaign, Pepsi Stuff. The gist of the campaign is for customers to collect codes from Pepsi products, needing a total of 5 codes to earn 1 free MP3. Pepsi has shipped out to stores a total of 5 billion drink containers that include codes, making this campaign worth $1 billion and Amazon’s

largest-ever marketing partnership.

The campaign is an obvious effort by Pepsi to tap into a new marketing channel – digital sales. The partnership with Amazon seemed to have a lot of potential for both companies involved, but what Pepsi didn’t anticipate is the backlash they have received from their traditional bricks-and-mortar retailers.

Wal-Mart and Target compete directly with Amazon’s media and electronic business while Amazon’s growing grocery business competes with major supermarkets. As one can imagine, they weren’t excited to promote one of their biggest competitors in their own store!

Since their reaction, major changes have been done to the packaging of Pepsi’s products.

“…Amazon’s name has been banished from the front of Pepsi bottles carrying the promotion – rendering it invisible in supermarket aisles to passing shoppers. Similarly, Amazon’s logo is on the back of the cardboard multi-pack cartons of cans that are stacked on the shelves of mass discounters and supermarkets, next to the product’s bar code and nutritional information.”[1]

Pepsi is not alone in facing such a dilemma.

“Jeff Smith, retail consultant at Accenture, argues the tensions reflect underlying challenges for Pepsi and other brands in adapting the traditional way they communicate with retailers to accommodate new digital selling and marketing channels.”[2]

Evidently, it isn’t as straightforward as one would hope to cross marketing channels and capitalize on the latest trends in digital media. Other brands need to learn from PepsiCo’s mistakes and consider the effect on their largest distribution channel before getting overexcited about new opportunities.

So can traditional brands be successful in the digital selling channel? I believe it’s possible, but only if they partner with their traditional retailer that has the online service they want to exploit. Lest we forget, Wal-Mart does have its own music download service.

[1] “Retailers Clash with Pepsi Over Free Music” FT.Com. March 16, 2008. http://www.ft.com/cms/s/0/eba1f64e-f388-11dc-b6bc-0000779fd2ac.html?nclick_check=1

[2] ibid.

Other links of interest:

Bollywood Calling?

It appears to be so, as Wal-Mart launched a traditional South Asian clothing line across 16 of its Canadian stores on February 27, 2008. This new line is designed by Ranka Enterprises, an existing supplier of Wal-Mart, which is run by Canadians of Indian descent in Markham, Ontario. To celebrate the introduction of the new line, dubbed “Bollywood Signature”, there was a large fashion show held at the Brampton East Wal-Mart location. The new line is comprised of 9 different salwar kameez outfits, traditional apparel of pants, a top and a scarf.

While this is seemingly an excellent idea of ways to appeal to the ethnic backgrounds of customers in specific communities, there seems to be a disconnect between this and the traditional shopping experience of South Asian women. Being of South Asian descent, I can attest to the fact that most women choose to buy outfits like this for special occasions. Price is not as big of a factor as is the uniqueness of the product. However, I can also recognize that many women of South Asian descent also wear this type of apparel on an everyday basis, and in that case, price becomes of far more importance. This segment is not the majority within the target market of South Asian women as a whole, but Wal-Mart will still be dealing with a significant amount of potential customers. Additionally, as the outfits are priced at $79.97, this makes the product even more appealing, as other outfits with a similar amount of handiwork generally command a price upwards of $100.00. On an interesting note, as Wal-Mart is a large employer of immigrant women, the new line was presented to their workers in these specific stores for input, and was subsequently approved. Not only has Wal-Mart presented another way to appeal to customers, but integrated their employees into this decision, something Wal-Mart is not known for.

Wal-Mart has once again stayed true to its RVP of offering a wide selection of products that customers desire at a low price and convenient location. Not only will women be able to shop at Wal-Mart for something that was previously only available in South Asian owned stores, this makes the entire experience much more convenient. As most South Asian stores are all located closely together, it can sometimes be inconvenient for consumers to trek to their specific areas. This move may not attract a significant amount of new customers to the store, but it will likely increase the purchases of existing consumers. While many despise Wal-Mart for their big-box mentality, Wal-Mart can be commended for continually expanding their selection to better serve the customers in the areas in which they operate.

Sources:

http://www.bharatwaves.com/movie_news/article-12057.html

http://www.newswire.ca/en/releases/archive/February2008/21/c4449.html

http://www.weeklyvoice.com/site/index.php?option=com_content&task=view&id=3040&Itemid=66

http://www.paklinks.com/gs/showthread.php?t=279386

The greatest thing since popcorn chicken... Pop-up retail.

Everything in life comes and goes… childhood, birthdays, vacations, etc. Trends also come and go, influencing our buying behaviour in a certain way for a given time period. If the products we buy and use seem to come and go, why can’t the stores that sell them do the same? Actually, retailers are starting to appear and vanish as if part of a magician’s act. Temporary retail exhibits are popping up all over the world. Not surprising, this emerging retail phenomenon has been coined “pop-up retail.”

Due to the influx of brand names in today’s society, marketers are desperately seeking ways to break through the clutter and separate themselves from competitors. Pop-up retail is an alternative marketing technique that enables marketers to do just this – connect with customers. Pop-up retail initiatives emerge unannounced, temporarily attract an audience of shoppers, and then disappear. These initiatives can come in many different forms. Some retailers seek out vacant storefront in a city and take over the space temporarily. Target operated a temporary 1,500 square foot store in Rockefeller Center for six weeks to celebrate the launch of a new line of women’s clothing. Other retailers pitch tents at events, create exhibits on busy streets, or drive mobile units across town. This past holiday season, Proctor & Gamble installed luxury washrooms in New York’s Times Square that enabled holiday shoppers to use the facilities for free and test out the latest Charmin Ultra products.

Through whatever pop-up medium a retailer decides to employ, the main goal is not to sell product, but rather to “sell” a targeted and memorable brand experience by enabling customers to touch, feel, try, and use a product. Pop-up retail initiatives are an unbeatable way to create hype and buzz about a brand, a special promotion, or a new product line. The spontaneity and the “limited time only” appeal of pop-up initiatives will get people talking. What retailer wouldn’t want free word-of-mouth advertising as a bonus?

Today, the mall concept does not mean what it used to mean to shoppers. According to an industry expert, malls are trying to “reengage people and trying to get people back in more often.” Retailers are desperately trying to make their store locations a place where shoppers can get involved with their brand. As a shopper, I like to be delighted, entertained, and educated. I like to get the impression that a retailer is working hard to “win” me over as a loyal customer. Through unconventional pop-up initiatives, a retailer can revolutionize their RVP by upgrading their customers’ shopping experience. The pop-up experience not only creates a lasting impression on customers, but also enables them to gain an understanding of what the brand truly stands for, which they can then accurately convey to others. The ability to create and retain loyal customers more effectively than competitors is every retailer’s goal, and pop-up retail initiatives may just be the breakthrough retailers have been waiting for. The question may then become… who can pop-up the best?


Resources:
www.brandrepublic.com/login/News/479954/
www.vmsd.com/index.php/channel/43/id/11572
www.trendwatching.com/trends/POPUP_RETAIL.htm

Best Buy Canada: "Dual Brand" Strategy

Over the Christmas break, my family’s computer crashed, so I decided to hit the Boxing Day sales in order to find a good deal on a new one. I spotted a great deal from FutureShop, but it was already sold out. Luckily, Best Buy had the same model in stock, so I was excited to get an even better deal through Best Buy’s price match guarantee. But I was told that Best Buy doesn’t honor the guarantee on some of FutureShop’s prices because they own FutureShop. While ticked off, I was also kind of curious about Best Buy’s strategy especially since the two stores happened to be right across the street from each other.

In March 2001, Best Buy acquired Future Shop for $580 million. By purchasing FutureShop, Best Buy immediately gained a strong foothold within the Canadian marketplace, as FutureShop already had an established distribution network and strong brand name with Canadian consumers. But the most interesting part of Best Buy’s strategy was their decision to continue to run FutureShop as a separate nameplate and also proceeded to launch new Best Buy stores at the same time.

At first glance, I thought the idea of operating two separate retailers that did the exact same thing was really inefficient and costly, but when I thought about it more and more, I realized that Best Buy created a monopoly in big box electronic retailing and most Canadians don’t even realize it.


Consumers often only take the time to look at the prices of one or two major competitors, before deciding where to purchase products. So, by operating the two largest specialty electronic retailers in Canada, Best Buy has essentially created a false sense of competition within the marketplace. I know that when I go to purchase any electronics I generally compare the prices of FutureShop and Best Buy before I ultimately decide to purchase from one of them. So either way the company is getting my money!

The company has also done a good job of differentiating the two nameplates. Best Buy emphasizes its branded “Geek Squad” in-house repairs services, while FutureShop is the only one of the two that sells appliances. Both stores offer a different customer experience, as FutureShop offers a more proactive sales experience while Best Buy offers a more interactive grab-and-go experience. Yet, the company has still has found operating efficiencies by leveraging capital investments, supply chain management, advertising, and merchandising.

Overall this "dual brand" strategy has been quite successful for the retailer, as it has been able to double the market share that Future Shop held before the merger from 17% to 30%. Equally impressive, Best Buy’s market share in Canada doubles that of its US stores. So could other retailers learn from Best Buy’s "dual brand" success in Canada?


When deciding to expand abroad, Best Buy successfully leveraged the internal capabilities of FutureShop in order to penetrate the Canadian marketplace. But they also have created a strategy that tricks consumers into believing that they being savvy price conscious consumers, while in the end still forking over their money to Best Buy. So long as Best Buy is able to maintain synergies between the two nameplates and keep costs low, they seem to have found a winning "dual brand" strategy.

Sources:
http://en.wikipedia.org/wiki/Future_Shop
www.futureshop.ca/companyinfo/content/default.asp
www.cbc.ca/consumers/market/files/money/extended_warranties/bestbuy.html
http://library.corporate-ir.net/library/83/831/83192/items/246115/bby_ar07_w10K.pdf

Eco-Friendly... The Way of the Future?

With Easter just around the corner, Cadbury has revealed their newest chocolate concoction: the Treasure Egg. Instead of their typical advertisements featuring the ‘clucking rabbit’, Cadbury has gone a step further and promoted it as the eco-friendly choice. That’s a new one: eat chocolate and save the environment? The company claims to have reduced their use of plastics and cardboard by over 75% and 65%, respectively. This translates into 2000 trees saved! That’s just what I need: another excellent excuse to eat chocolate.
It seems nowadays every company is eager to participate in the eco-trend, but is it sustainable? Research claims that it is. According to LOHAS Consumer Trends Database 2007, US consumers who believe sustainability is a permanent trend outnumber those who don’t, two-to-one. Nearly 80% of those surveyed expected companies to be mindful of their impact on the environment. Another study run by Information Resources Ltd, discovered that 50% of US consumers consider at least one sustainability factor when selecting products and services, while 30% actively searched for eco products. This trend is particularly relevant in older consumers, who are more likely to have the time to seek out eco products, and the resources to afford their premium prices. This market is willing to sacrifice low price for high-value experiences. According to one report, 40 million baby boomers use their purchasing power to buy environmentally-friendly brands.
Will companies actually benefit financially from this trend? Absolutely – in 2004, Canadian firms earned $18.5 billion in sales of green products and services, an increase of almost $3 billion from 2002. For example, the detergent market, notorious for its flat sales, has recently begun developing and promoting eco-friendly products. These green products represent only 2% of the detergent market, but have experienced an increase of 66% in sales in 2007 alone. Costs can dramatically decrease as well; PC power management software can cut energy costs by $20-60 per computer. This translates to approximately seven-figure annual savings for large enterprises.
Nike is one of thousands of companies worldwide that are putting efforts into addressing these environmental concerns. Earlier this year, Nike introduced the eco-friendly Air Jordan XX3 shoe that is produced using ‘environmentally preferred’ materials and recyclable scraps from Nike’s own production facilities. They are competitively positioned to take first mover’s advantage in this industry, and make incredible revenues from environmentally conscious consumers. Their RVP emphasizes providing a positive experience that leaves consumers feeling better about sacrificing selection and paying a premium price. By purchasing these shoes, the consumer is able to feel that they helped improve the environment, while also being part of a very popular and positive societal trend.
This is one of the few shining examples of the positive impact of corporate America on society. Once the ‘go green’ trend becomes more main-stream, the product prices should decline slightly in order to target us cash-strapped students. For now, I’ll just do my part and buy a Treasure Egg… or 10.

- Rachel Cooper

Sites of Interest
http://www.cadburyschweppes.com/EN/MediaCentre/PressReleases/Cadbury_Eco_Eggs.htm
http://www.environmentalleader.com/2008/01/08/50-of-consumers-consider-sustainability-when-shopping/
http://www.environmentalleader.com/category/todays-trend/
http://www.nikebiz.com/media/pr/2008/01/08_Jordan23.html
http://www.cbc.ca/news/fortunehunters/trends/2008/01/the_eco_trend.php
http://www.environmentalleader.com/2007/06/26/ceos-getting-consumers-to-buy-green-not-easy/
http://www.environmentalleader.com/2008/02/05/top-10-reasons-to-green-it/

No Boys Allowed: Enhancing the RVP Through Exclusivity

When we talk about experience as a component of the RVP, we often define it with respect to the store or company itself (i.e. the quality of interaction with the staff, the location’s ambience, etc.) It’s less obvious that fellow consumers can serve to impact a customer’s buying experience as well, often to an extent that defines it as completely positive or negative.

For example, I remember several female friends telling me how awful a local neighbourhood gym was. I had gone there myself many times and was confused as to how they came to this conclusion. The building was recently constructed and well ventilated. The facilities and equipment were brand new and top of the line. The staff and trainers were consistently polite, friendly, and knowledgeable. It turned out that their negative opinion of the location had little to do with the gym itself. The area attracted a large and young male demographic, that “hogged the free weights, talked and yelled loudly with each other, and occasionally tried to flirt with female members”.

Various companies have taken note of this trend in recent years, and have responded by differentiating themselves based on the customers they accept. The most obvious examples are women’s only gyms such as Curves, Mademoiselle, and others that house their own female-only areas. Entrepreneurs have taken this concept a step further and expanded into other industries as well. Pink Ladies is a taxi company that was founded in the UK, and operates by accepting only female passengers and strictly hiring female drivers[1]. Other examples include female only hotel floors and train cars, as well as women’s only beaches[2]. Aside from instances where privacy and safety play a role in the comfort of the use of the service, more conspicuous examples have emerged as well. Raiffeisen has recently opened the first “Bank for Women” in Austria, with focus of emphasizing the qualities that women are believed to value in a banking experience (play area for children, trendy lounge-like interior, conversational interaction with female-only employees)[3].

While some have hailed this trend as a milestone for female recognition in the marketplace, others have described it as overtly sexist and exclusionary. In fact, the matter has been brought before the courts. A Montreal man has recently filed a complaint against Curves with the Provincial Human Rights Commission, citing gender discrimination[4].

Legal issues aside, there are over 2,000 women’s only health clubs in the US that serve 2 million female members[5] . Personally, I believe that this serves as a strong testament to the concept that companies are able to generate a positive response from the market by selecting exclusive segments. The trend has existed for a long time in many other respects, such as retirement golf course communities that are only open to adults over 50. In an increasingly competitive and dynamic economy, I think it’s legitimate for companies to differentiate their RVP in a way that enables a segment to receive service in a manner it desires, but that is otherwise unavailable elsewhere. If the free market readily embraces this phenomenon with the magnitude that it has, then it is a good indicator that added value is being delivered to end consumers. However, the application of this concept likely has a limited scope to buying experiences where demonstrably different gender needs play a role. I’m not very confident that opening a women’s only gas station will land me on the cover of Fortune any time soon.

---

[1] http://www.pinkladiesmembers.co.uk/who-are-the-pink-ladies.php

[2] http://women.timesonline.co.uk/tol/life_and_style/women/article1980375.ece

[3] http://www.springwise.com/financial_services/banks_for_women/

[4] http://halifax.metronews.ca/index.cfm?sid=34246&sc=89

[5] http://www.selfgrowth.com/articles/ladue2.html

‘Retail Renting’ or Fraud? Merchants Fight Back on Returns

Some of you have probably done it before. Bought an item, either worn or used it for a short period of time and then returned it. Or you specifically shop at stores with lenient return policies, a major element of convenience in a retailer’s RVP. I am a member of the latter group. Two years ago I bought a new digital camera at Costco. My purchasing decision was mainly based on value, but I was also driven by Costco’s ‘no-questions-asked’ return policy, which allows products to be returned after any period of time. After less than a year with the product, the picture quality was diminishing. Instead of contacting the manufacturer for a repair under warranty, I immediately went to Costco to exchange the product with the intent to re-purchase the same one. Since product lines are constantly updated, I was unable to buy the same camera, but I was able to buy a better one. The price? About $100 cheaper. Although my intent was not to partake in what industry experts refer to as ‘retail renting,’ in principle I did.

The prevalence of this practice is astonishing. Customers are purchasing large screen plasma televisions for the Superbowl and buying gowns for one occasion only to return them the next day. These consumers see themselves as ‘smart shoppers’ but the industry is calling it unethical and fraudulent. Its affect on profits is significant and cost U.S retailers almost $11 billion last year. Many of these products are returned months after purchase, and are no longer sold on shelves. When retailers accept them for return, they either cannot be sold or must be sold at a significant discount. Returns also require employee time for re-stocking, which could better be used to create a new sale.

Has the ‘customer-is-always-right’ concept gone too far? Why do so many shoppers feel entitled to return used items that they no longer desire? To combat this practice, many merchants are strengthening their return policies through shorter return periods, imposing restocking fees, demanding receipts, and keeping a database to track customer returns. Formal wear merchants, a frequent target of returns, are reacting by placing merchandise tags in visible areas to make it difficult for customers to conceal them during wear.

And Costco? After two decades of generous return policies costing over $100 million per year they have recently enacted a new return policy limiting the time frame for technology returns. When asked why the change took place, the CFO claimed that the ever-evolving electronics market was coming out with newer, better, and faster products at lower prices. When someone returned a product after a few months, Costco no longer sold the same model, and customers could find something better for a lower price and pocket the extra money, creating losses for the company. Sound familiar to my experience? Although Canadian locations have yet to follow this policy, I doubt it will be long. And how will it impact a retailer’s RVP? Perhaps a stricter return policy will diminish convenience, but return fraud such as this affects end prices, which may be reduced through less fraud, something that I look forward to. Retails renters beware; your time is coming to an end.

Sources:
•http://www.boston.com/business/articles/2008/02/18/retailers_crack_down_on_serial_returns?mode=PF
•http://www.msnbc.msn.com/id/17350641/
•http://www.naplesnews.com/news/2008/feb/20/i-way-saying-customer-always-right/

One Baby Step for PC Organics. One Giant Leap for Loblaws.

Wondering what the next retailing trend is? Look no further than the nearest baby. Like many other babies these days, she is probably wearing clothes made from organic cotton. If truly chic, she’s inside a bamboo crib and was just moisturized with 100% all natural shea butter.

Driving this trend are loving mothers who believe protecting their children from harmful toxins is the new standard of parenting. These moms, and dads for that matter, are avoiding anything “unnatural” - especially where food is concerned. In fact, in a savvymom.com survey, 94% of mothers said they preferred to buy organic foods for their family, but price was a barrier.

Price notwithstanding, amid reports that children who eat organic have lower levels of pesticides in their bodies, there has been a 20% annual surge in organic baby food sales. This, compared to declining conventional sales, and almost double the growth rate of other organics.

Loblaws has taken notice. Recently, Canada’s largest retailer has lowered prices on all of its PC Organic baby food to at par with regular baby food items. The move lowers prices by an average of 10% across the board. It’s unlikely that Loblaws will turn a profit on these items, and yet it’s a brilliant strategy.

First, the price drop is only on their own private label, which creates a compelling reason for customers (mostly women who love their children) to remain loyal or switch to Loblaws. This is difficult for other chains to replicate.

Second, the decision effectively targets profitable organic consumers. These customers routinely pay 20% above average on their groceries, and most are young females in between 25-34 - which also happens to be the peak years to have your first child. These customers will certainly be in need of affordable organics for their babies.

Finally, this strategy may convert less profitable average consumers into organic purchasers, because of store layout and entry level pricing. In most Loblaws stores you’ll find the organic section on its own, a place where most consumers don’t venture. However, the baby food section just happens to be adjacent to it, which will undoubtedly drive traffic upwards. Consider this, along with the fact that mom’s will find difficult the decision to switch back to non-organics as their children age , and you can see why losing money on a couple jars of baby food makes a lot of sense - it’s a loss leader.

It’s too early to tell whether this strategy will be a profitable one for Loblaws, but the theory seems like a winner. Organic consumers will stay and pay 80% more on other goods to get a 10% deal on baby food. Also, the average consumer no longer has any barriers to purchase organics and may end up converting in the long term. Finally, the private label makes it exclusive and customers will actually switch to Loblaws to get it.

This is likely the first baby step towards many organic products intended for loving mothers.

Links:

http://www.allbusiness.com/retail-trade/food-stores/4268442-1.html

http://www.marketingmag.ca/daily/20080109PM/topstory.html

http://www.associatedcontent.com/article/588149/presidents_choice_organic_baby_food.html?cat=22

http://www.thestar.com/article/296373

http://www.greenrightnow.com/2007/09/27/a-cool-trend-for-baby-organic-frozen-food-cubes/

A Winning Formula

Skincare companies spend millions of dollars each year on marketing and advertising programs aimed at convincing consumers that their lotions, creams and gels will miraculously tighten, brighten, lift and rejuvenate. How, then, has a skincare company established well over a century ago succeeded in competing, and even prospering, given that it engages in absolutely no paid advertising?

Kiehl’s was founded in 1851 as a family-owned, old-world apothecary and pharmacy in New York City. Since then, the company has attained cult status among its loyal and growing customer base as the maker and retailer of over 200 highly sought after prestige skincare products. Described by industry experts as “decidedly unglamorous,” “no-nonsense,” and “quirky,” Kiehl’s has experienced double-digit growth for the last ten years – all without investing in advertising to promote its brand and products.

Kiehl’s success can be attributed to the company’s commitment to delivering a unique, personalized and superior customer experience, the essential element of the company’s Retail Value Proposition. The “cornerstone of Kiehl’s customer-service philosophy” is its extensive in-store sampling program which distributes more than 12 million product samples each year to current and prospective customers alike. According to former Chief Financial Officer, Klaus Heidegger, the company spends an estimated $1.5 million annually on samples of Kiehl’s products. In-store, the sampling program is supported by highly knowledgeable staff that is well trained in providing exceptional customer service.

Kiehl’s has also placed significant emphasis on developing its already vast product selection. In recent years, the company has responded to customer demands and added to the variety and breadth of its assortment by introducing product lines specifically for men, babies, sun protection, anti-aging, and pet care. Nevertheless, Kiehl’s has honoured its roots in skincare and carefully avoided weakening its Retail Value Proposition by straying into categories such as cosmetics.

Kiehl’s understands that convenience is not essential to the success of its brand or retail strategy, so the company intentionally engages in a “very small distribution [system],” which entails offering Kiehl’s products at a handful of specialty stores and only 20 free-standing, company-owned retail outlets across North America. Furthermore, as Kiehl’s manufactures and sells luxury skincare products, it makes sense that the company’s products retail at a premium price.

In 2000, cosmetics and skincare giant L’Oréal acquired Kiehl’s for $100 million at a time when its sales where less than $40 million annually; however, L’Oréal has known better than to begin playing with Kiehl’s winning Retail Value Proposition. Philip Clough, a longtime veteran of L’Oreal’s Professional Products division and President of Kiehl’s from 2004 to 2007, has contended that “customer service [is] the key driver of the brand’s success and the element that dictates its rate of expansion going forward.” It would appear that the future of Kiehl’s retail strategy lies in the source of the company’s success to date: sampling to drive sales.

For more information, please see:

Kiehl's Website

www.kiehls.com


“Profitable Player: Kiehl's” by Jennifer Vilaga

FastCompany, 19 December 2007.


“Minimal Hype Nets Max Buzz at Kiehl's” by Stephanie Thompson

Advertising Age, 5 April 2004, Chicago, Illinois, Vol. 75, Iss. 14.


“Kiehl's” by Susanne Hiller

National Post, 5 July 2003, Don Mills, Ontario.


“Ad Budget: Zero; Buzz: Deafening” by Hilary Stout

Wall Street Journal, 29 December 1999, New York, New York.

Under Armour Takes Top Honors in 2007 "Retail Store of the Year" Awards

Previously Under Armour could only be found in athletic retail stores such as Sport Check, National Sports and other retailers. Their products were among the midst of many other athletic brands including Nike, Adidas and Reebok. However, due to Under Armour’s continuous strategy to innovate, learn and interact with customers, they have chosen to offer full-line Under Armour retail stores providing customers with a brand specific environment.
Under Armour is a leading developer, marketer and distributor of performance attire, footwear and accessories. CEO Kevin A. Plank, developed the product in 1995 after his experience of coaching the University of Maryland’s football team. He was tired of his player’s having to change their drenched cotton t-shirts during games and set out to create a clothing line that would be lighter and drier.
Under Armour’s moisture-holding synthetic fabric is produced in many different designs and styles to bear every possible weather condition. Their products are sold worldwide and are worn by athletes at all stages, from youth to professionals. Developing products to match their entire customer’s needs they offer vast breadth and large product assortments. Although they charge premium prices this product supports premium performance and people are willing to pay. The sports apparel industry is dependent on innovation and Under Armour continues to work on their mission “to make all athletes better” via this route.
The new Under Armour retail stores allow customer’s to experience the brand as soon as they enter the store through what looks like a stadium tunnel mimicking them walking into a sport’s stadium. As well, there are high definition sport’s images shown on screens along with music to replicate the adrenaline and thrill of entering a packed sports stadium. As each customer steps into the Under Armour store, they are stepping into the Under Armour world that has previously been portrayed in their advertisements. This brilliant retail strategy allows them to translate the feeling of the Under Armour brand to a physical store location. Similar to Apple’s retail stores, they will also serve the as a marketing tool to build the brand and continue to infuse it with emotion, intensity and performance.
Under Armour is certainly another leading retailer when it comes to a healthy integrated retail value proposition. Everything that Under Armour does must meet their performance criteria, be authentic and remain true to their brand. Having this mindset is a successful model that more retailers should strive for.


-Lynsey N. Boam




Under Armour Website:
http://www.underarmour.com/
Fox Business:
http://www.foxbusiness.com

Best Buy has had enormous success since its creation in 1983, having had rapid growth with more than 1050 stores operating in the US, Canada and China. It is the largest speciality retailer of consumer electronics in the US and Canada, taking up 17% of the market. However, when big discount stores like Walmart and Target decided to enter their market, in addition to younger savvier customers shunning the store as they were looking for larger selections and a hipper experience, Best Buy decided to experiment with something new.

In late 2004, Best Buy decided to open an experimental store called Escape in a swanky neighbourhood of downtown Chicago. The store was targeted towards “young gadget geeks”—technology obsessed, young professional males with disposal income and a desire to own cutting edge electronics. Instead of Best Buy’s typical RVP stressing low prices, Escape was about offering customers a unique shopping experience, unrivalled by any other electronic retailer in the market. In addition to the experience, Escape’s RVP placed importance on selection, claiming they “didn’t deal in yesterday’s electronics” and carried only Best Buy’s high-end products as well as brand new products that no other North American retailer carried.

The store’s atmosphere connected to the target customer’s life and reflected their lifestyle. The store was labelled a “post-work, pre-bar” 3600-sq-ft hangout which resembled nothing of a typical Best Buy. The store was located in an old brick police station and was designed to look more like a night club than a retail store. The store contained a snack bar, four differently themed videogame testing rooms (“pods”) equipped with comfy furniture and high end TVs. Each pod could be rented out by the hour for VIP parties or competitions and for $10 customers could buy a membership, giving then access to member only-events, discounts and chance to buy newly released games/gadgets before other customers.

Unfortunately, in January 2006, Best Buy closed the doors of Escape. It would be unfair however to label this venture as a failure. Going into this, Best Buy knew the store’s concept might not be profitable or sustainable, but decided to experiment with it in order to learn more about their customers and what/how they like to buy. By offering customers this unique experience, Best Buy was attempting to build a community, where every transaction was just the beginning of a relationship with the customer instead of the end. And from these relationships, they had the opportunity to gather an enormous amount of feedback from customers and learn what keeps people coming back to a retail store. Now Best Buy can take the lessons it learned from Escape and transfer them, on a smaller scale, to improve the shopping experience for customers in other Best Buy stores. They are striving to move away from being the biggest to the best by placing more importance on customer experience in their overall RVP. They are giving customers more of what they want and as a consequence gaining a competitive advantage over the other discount retailers.

2004 Year in Review: Best Buy circles the test track Ellen P Gabler. Minneapolis St. Paul Business Journal. Minneapolis:Dec 31, 2004. Vol. 22, Iss. 30, p. 3

Can Best Buy Get Geekier? With a new concept store, the electronics giant tries to lure more young nerds. Rob Levine. Business 2.0. San Francisco:Jun 2006. Vol. 7, Iss. 5, p. 30

http://www.esidesign.com/flash/projects/pr_escape.html