#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