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Redefining Retail Excellence from product-centric to customer-centric
Introduction
I was recently walking the malls doing market research for a new leather accessories
brand and visited nearly thirty stores in the course of a single day. A thought occurred tome. Just imagine walking into a mall with store names removed. Retail stores arebecoming more and more alike. Similarities abound not only in assortments (or lack
thereof), presentation, and even in-store customer experience. As customers we have all
experienced a tepid sameness.
So what is excellence in retail in such a monotonous environment? This question elicits
different responses from customers and retailers. Customers respond to this question by
identifying where they would prefer to shop based upon previous memorable (or hassle-free) shopping experiences, and define excellence as availability of desired merchandise
at fair prices at convenient locations. Whereas retailers reiterate the five rights of
merchandising having the right merchandise at the right price, at the right time, inthe right quantities, and at the right place, and achieving targeted returns for the
owners.
Does the retailer perspective match the customer view? It doesnt seem so based uponexperience. Retailers in the region are product-centric, and feel that their job ends by
selecting what they feel is the right merchandise. Whereas we as customers are looking
for shops sensitive to our needs or are customer-centric. Think of your favorite store andwhat draws you to it. The stores we like are the stores where we are engaged (more on
this later) from the time we cross the threshold to the time we leave, whether we make apurchase or not. And the stores we dislike are the stores where we experience apathy and
unresponsiveness to our needs over the entire visit. Engagement for a customer is much
more than recognition and eye contact. Shopping is like an expedition to fulfill a need,and has two distinct phases the process of buying (search, evaluation, and purchase),
and the post-purchase experience based upon actual possession of the product.
Everything that occurs in a shop and eases the process of buying becomes a pleasantcustomer experience. And what if we are unable to find what we are looking for? It is not
often that we encounter a store salesperson that helps us, who possesses adequate product
knowledge, makes an effort to understand our needs, identify alternative options, and
practice add-on selling, making shopping hard work. The post-purchase feeling ofpossession is also influenced by a sense of achievement of the expedition, of having got
greater value than the price paid, a process to a great degree influenced by the in-shop
buying processes. Contrast the regional experience with visits to the same brand stores inEurope and the USA, visits which are often more fruitful in terms of product availability
and more pleasant shopping experiences.
Another dimension of our markets was highlighted when a faculty member from a world-
famous business school visited the region. He observed that the marketing
communication of most retailers seemed to be over-emphasizing price, with a somewhatlesser emphasis on other elements of the retail mix like width and depth of merchandise,
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What needs to be done redefine customer value
One needs to get back to basics. Retailers exist as an intermediary between franchisor andcustomers, and have traditionally approached their business with a mercantile, deferential
and compliant mind-set in front of the franchisors. They have placed a limited emphasisupon adding value to the product through domestic organizational capabilities. Increasedvolume of sales will now require retailers develop a more activist approach of using all
the elements of the retail-mix (merchandise, customer experience, retail format, location,
and communication) to identify and explain (position) the store to customers. It will be
necessary, within the constraints of the franchise relationship, to pull back the initiativeback from the franchisor. This shift in bargaining power is possible since the retailer
understands the customers, their needs and shopping behaviors better than the
franchisors. And the actual service delivery is often something the franchisor will not do.
So how does the retailer enhance service delivery? A consumer perception of value is the
benefits derived through the purchase less the burdens endured while purchasing. Thebenefits derived from a retail brand consists of two components the value derived from
the brand itself (that which will be available anywhere where the brand is sold), and the
benefits and services provided by the store. The latter consists of quality merchandise,
caring personal service, pleasant store atmosphere, convenience and peace of mind (post-purchase evaluation). Whereas the burdens are the direct explicit costs (or price), and
indirect costs like store employees with inadequate product knowledge, slow check-out,
out-of-stock situations, sloppy and poorly merchandised stores. The retailer providesdiscernible value through saving time by offering the correct mix of products at a
convenient location, efficient completion of transactions, access to proper assortment toprevent visit to another location, etc. Retailers have traditionally focused upon brand-
based differentiation (i.e. brand or product category not available elsewhere), or a price-
leadership approach (i.e. same brands at a lower price). But only to a lesser degree aservice or personality augmentation (i.e. specific services and personality to distinguish a
store based upon customer experience). Price is price but value is total experience. The
tragedy of the Gulf is that since the customer service is generally poor and merchandiselooks the same from store to store, then customers seek the lowest price. But if retailers
offer customers a fulfilling experience a strong competitive advantage can be developed
through loyalty. It needs to be borne in mind that service works only if the store has
correct merchandise.
A properly chosen and executed position (identity / image) in the minds of consumers
will be the most important competitive tool in tomorrows competitive retailenvironment. The linchpin of such a strategy will be products augmented through service
for a targeted audience. This is very different from the present where retailers are often
dependent upon suppliers for product assortment, product selection and merchandisingrecommendations.
Positioning guidelines
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The consumers concern for value doesnt mean that they wont ever pay prices that allowretailer high margins for products augmented with service. Even for low margin
functional goods like groceries it is possible to identify customer segments interested in
specific augmentation for specific types of products e.g. Goodies in Wafi or the need of acomplete traveling solutions store in a region where 60-70% residents travel. For high
margin functional goods retailers will need to offer unique merchandise its customerswant with distinctive services and personality for its target audience e.g. Godiva, Bateel,in-store battery change service in The Watch House (vs. Rivoli where even a battery
change requires a drop-off). The best high margin opportunity will be in specialty stores
in the new and emerging merchandise categories e.g. exclusive shirt stores. Contrast this
with positioning that may cease to be relevant like multi-brand retailers like GrandStores, Salams, Jashanmals, etc. need to think in terms of positioning their businesses
rather than stores. Large multi-line stores do not offer a consistency of image across
businesses in order to have customer appeal (particularly in an economy where thecustomers are pre-dominantly transient and a large proportion of the population is new).
Presented hereunder are ideas to develop a distinctive positioning in the eyes ofcustomers.
Idea How
Develop a distinctive assortment based on style, size
and color
Positioning 101
Carry a percentage of experimental (products that
you may not have purchased based upon
experience) products.
Experiment with new and innovative products for
customer feedback.
Offer frequent change of merchandise Keep customer expectations alive through launches
every month (e.g. Zara, Mexx, etc.).
Offer distinctive merchandise For distinctive image (e.g. Tavola household
products with the design element, Braun home
appliances, The Living Zone, etc.)Private brands with discernible quality For example introduction of high-quality linen as a
home brand.
Product and product-line innovation when what
are perceived as loosely coherent product categories
can be developed into a cohesive specialty store
For example the region is ready for a Crate & Barrel
or a Williams-Sonoma type of offering.
Edit assortments to cater to a particular segment For example Liz Claiborne or Gerry Weber etc.
Coordinate merchandise for a specific need. For example TableArt (soon to be launched) Rivoli
boutique to offer all items to coordinate a table
Narrow specialized product-line small selection of
high price / high quality brands
For example high-end watches, jewelry, etc.
The category killer approach offering the widest
possible selection of every category stocked
For example a Shoe City or Shoe Mart.
Offer merchandise tailored to a particular customer The survival strategies for the local supermarketse.g. category assortment suited for the local
clientele or the gas station store for the hurried
shopper.
The hyper market approach narrow range and
wide variety
A Carrefour or a Lu Lu Center
Large assortment in limited categories It is impossible to do comparison shopping in the
domestic electronics business (except at Jackys).
Plug Ins attempted to be a destination store but is
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still influenced by inadequate brands in key
categories like TVs, appliances, etc.
Whatever positioning is attempted needs to be tested against five key criteria for it to be
meaningful from the customers point of view is the assortment dominant (can
customers identify with it for meeting their needs), is the pricing fair, is the service at thestore based upon a philosophy of respect for customers, and does the shopping layout,
store signage, and customer service focused upon saving customer time and energy.
Conclusion
The key to success in retail in the next few years will be store differentiation in the mindsof customers. The top two or three stores that will be top of mind when a customer need
is triggered will be the winners in an over-retailed environment. To achieve this retailers
will need to focus upon developing organizational capabilities of differentiating their
stores to achieve store loyalty by giving customers what the want. They will need to startby making a strong statement in their merchandise category, and then make themselves
different in a visual and experiential way in the minds of the consumers through service
delivery, a process that will require a paradigm shift in the human resource managementpractices in the region.
Manoj Nakra 2005
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