Friday, December 19, 2008

Blurry Assortments – Convenient or Confusing?

I was in Bed, Bath & Beyond this weekend to pick up a new shower curtain liner for the kids’ bathroom. It had been a while since I’d been in the store. At first, everything looked familiar, but as I rounded the first corner, I had an eerie feeling that I had somehow ended up in the wrong store.

There were shelves full of…toothpaste, toothbrushes, shampoo, conditioners, hair care products. In other words, it looked like I was in the drugstore. What’s going on?

Earlier this year, we did research with homeowners to find out where they go to buy products across a whole bunch of home improvement, repair and care categories – from plumbing supplies to paint to live plants to home cleaning supplies. We found that Lowe’s appeals most across more categories than hardware stores or Home Depot and saw that these types of stores do well in several categories of “consumables”. Like Bed Bath & Beyond, they use these faster turning and impulse categories to get people in the store more often, and also use these items to increase the average ticket.

Clearly, BBB and stores like it are looking for ways to be useful for more occasions than the rare times we are shopping for linens or furnishings for bedrooms, bathrooms or kitchens. BBB's move into home cleaning products was probably an attempt at increasing shopper frequency. Based on this last visit, I’d guess the move flopped since that department is now shoved in a corner and dramatically smaller than it used to be.

So, we have BBB, Lowe’s, Home Depot and Ace Hardware stores (and probably others!) offering and adding consumables typically found at drug and grocery stores. Meanwhile drugstores like Walgreens and CVS continue to offer and add small appliances and other small durable goods often found at home stores. Best Buy just started selling iPhones and Wal-Mart is rumored to start later this month. Wal-mart already offers a broader assortment than any of the stores I’ve mentioned. More category killers are running into the Wal-mart juggernaut.

All this got me thinking about how retailers should approach extending into new product categories and about who has done it well.

To extend into new product categories effectively, a retailer has to address unmet or under-met needs of current customers with products and services they can credibly offer to meet those needs. Amazon and Zappos come to mind as interesting examples. Both started out selling a single category of merchandise – Amazon started with books and Zappos started out selling shoes. What they really sold was a great customer experience. This platform has allowed both online retailers to move into new categories. Amazon now rivals Wal-mart for assortment breadth. And Zappos has moved into clothing, handbags and accessories.

For the offline world, I have to think harder. Stay tuned for my POV. Which store-based retailer do you think has extended into new product categories well?

Monday, December 15, 2008

Tapping Into the DIY Zeitgeist

One way homeowners are saving money is by doing more themselves. Whether it’s making improvements inside and outside their homes or fixing the things that are broken or don’t work right, it looks like many people are (re)discovering their handiness.

That said, many of us don’t feel very handy – we didn’t learn when we were growing up, and many of us have convinced ourselves that we’re too busy to do it, even if we had the skills.

The SF Chronicle recently reported that “buying hardware doesn’t have to be hard.” Bay Area Consumers' Checkbook magazine and Checkbook.org asked thousands of local consumers to rate their hardware-store experience. Checkbook then did an exhaustive price survey of 170 area stores, both independents and chains.

Their results confirmed what we have seen in our own research with homeowners consistently all year, and as recently as last week:
  • Independents are best for advice - for people like me who don’t know what we’re doing or what we need to in order to accomplish it.
  • Big box stores are best for variety both within and across categories of merchandise
  • Independents can be competitive on price, but you have to work harder to make it pencil out – either buying enough to qualify for a discount or use their card or be in their program
People like the idea of supporting their local stores and appreciate the fact that their local, independent hardware store has folks working there who can answer questions and who know their stuff. Now that cheap is chic, the independents are having a particularly tough time. Stores like Ace Hardware and True Value are seen as less competitive on variety and on price, and fall lower down on customer’s list of places to go to get what they need.

The advice and help they offer may not be enough to make the independent store the first stop for most home improvement or repair shopping trips, but they are the only real advantage these stores offer as the economy has cratered. The growing popularity of doing-it-yourself may provide a ray of hope for independents, as events like the Maker Faires and sites like Etsy.com gain traction.

Maker Faire (www.makerfaire.com) is a two-day, family-friendly event that celebrates the Do-It-Yourself (DIY) mindset that is put on by O’Reilly Publishing, owner of Make Magazine. Over 65,000 people attended the Bay Area Maker Faire this year and the magazine has fans around the world, with a paid circulation of 100,000; its Web site gets 2.5 million visitors each month. The publisher held a second Faire in Austin, Tex., in October this year. Here’s what the NY Times reported was one attendee's take on the event’s appeal: “Things like Maker Faire give people hope. Creativity is the best expression of humanity.”

Etsy.com (www.etsy.com) is an online marketplace for buying & selling all things handmade. According to Quantcast, traffic at Etsy was at an all-time high of almost 2.5 million unique visitors/month in November. Looks like giving homemade is “in” this holiday, even if it’s not made in our own homes!

Seems like the independents might be find a lifeline by connecting the dots here.

Friday, December 5, 2008

The Ways Consumers Are Shopping Smarter

Coupons have always seemed like a hassle to me. I’ve never been organized enough to keep track of them. In this digital age, it seems like coupons should be stored electronically on my card or my record at the stores I shop, so the savings happen automatically instead of my having to keep track of another piece of paper.

With the economy the way it is, I may be learning a new skill. Stuart Elliott’s story in the Dec. 5 issue of the NY Times proclaims the humble coupon as this season’s must-have. The story quotes Lance Saunders EVP and head of account planning at Campbell Mithun in Minneapolis, an agency owned by the Interpublic Group of Companies “Thrift is the new normal…There’s no stigma to getting anything on discount. Instead, there’s a sense of pride.”

In research with homeowners this week, we asked what they are doing to save money these days. Nearly everyone said they are paying attention to the coupons they get in the mail, find online or in newspaper inserts. In fact, more than ads, it’s the coupons they are remembering and using.

Our findings are consistent with data from the Coupon Council of the Promotion Marketing Association. Up until two years ago, coupon penetration had declined steadily since 1992. In 2006 it increased to 86% of the population saying they used coupons and it went up again in 2007 to 89%. Preliminary results for this year indicate a jump to 94% penetration!

Our findings are bad news for those who make their living from traditional advertising. Seems TV, radio and print ads are not getting through the noise of the season and the economic gloom and doom.

According to our research, here's what consumers say they are doing more than ever to save money:
  1. Doing it themselves
  2. Deferring it
  3. Comparison shopping for the best deal
  4. Relying on coupons
  5. Scouring the internet
Most of the people we talked to get coupons even if they’re not in a store’s loyalty program. They get them in the mail, the newspaper, email, or go online and print them out. They seem to manage the paper flow just fine. I'm still hoping a digital form will catch on. What about you? Are you clipping coupons yet?

Thursday, December 4, 2008

Malls Giving Way to New Formats

The tough economy has been well-documented. Still, it’s stunning to see the number of mall retailers that have disappeared this year alone. Gone are: Sharper Image, Fortunoff, Linens ‘N Things, Boscov’s, Steve & Barry’s, Mervyn’s, Circuit City, Shoe Pavilion, CompUSA and Goody’s.

According to an Oct. 6 report in the Wall Street Journal the vacancy rate at malls in the top 76 U.S. markets rose to 6.6% in the third quarter, up from 6.3% in the previous quarter, and its highest level since late 2001. Strip malls and family and lifestyle centers are also vulnerable to changing consumer preferences. Their vacancy rate climbed to 8.4% in the third quarter from 8.1% in the second quarter. That marks the highest rate since 1994, and these numbers are surely going to increase as the worst holiday season in a generation plays out.

The whole idea of the shopping mall may be losing relevance as consumers seek out greater shopping accessibility, more merchandise uniqueness, local sourcing and other priorities. The NYTimes reported on Nov. 11 that the nation’s second-largest mall owner disclosed that it might default on some of its debt obligations. General Growth’s most prominent mall holdings include Water Tower Place in Chicago and the Fashion Show mall in Las Vegas.

In fact, the Economist reported earlier this year that so many malls have died or are dying that a new hobby has appeared: amateur shopping-mall history. Like many esoteric pursuits, this has been facilitated by the internet. Websites such as Deadmalls.com and Labelscar.com collect pictures of weedy car parks and empty food courts and try to explain how once-thriving shopping centers began to spiral downward.

While malls are struggling, retailers like Tiffany’s, Home Depot, and Best Buy among others, have been experimenting with smaller format stores. FAO Schwarz launched stores-within-a-Macy’s store by this Holiday, instead of free-standing stores.

They’re experimenting with other formats, as well. Pop-up retail continues to grow. Victoria’s Secret went on campus to reach students at 23 colleges across the country with its Pink brand. J. Crew signed a 4-month lease on The Liquor Store building in Tribeca in August.

And a new form of pop-up retail has emerged. From Zoom Systems, some call it automated retail, others call it the next generation vending machine. There are nearly 800 Zoom Shops located in airports, malls and retail stores in the US and Japan. Zoom Systems offers retailers added branded distribution in high traffic, attractive locations they couldn’t profitably put a store on. Consumers are exposed to the brand in an attractive setting, and generally buy to fill an immediate need for a specific usage occasion (e.g., a gift, for personal use on an trip).

Currently, iPod, Proactiv Solutions, and Sony are among the brands sold through Zoom Systems. Sharper Image couldn’t make it in its own stores, but this would seem like a way that brand could live on. Brookstone also seems like a candidate.

In addition to established bricks and mortar retailers, the concept seems perfect for manufacturers and direct sellers who don’t have a physical presence. A Zoom Store could be an opportunity for both brand building and a revenue generation for e-tailers like Amazon or Drugstore.com and maybe even for Mary Kay, Avon, or Tupperware, though care would have to be taken to avoid alienating the troops.

Seems like a natural to put a Zoom Shop in markets where established brands are considering opening their own distribution. Expect to see more Zoom Shops popping up as brands look for low cost ways to test the waters and build awareness.

Monday, December 1, 2008

How Low Can They Go?

This Thanksgiving, we did things a little differently at our house. Usually, we play late night charades after dinner Thursday and have a round robin tennis tournament on Friday. This year, we were with the other side of the family, and didn’t play any games at all. We spent a lot of time visiting on Thursday, slept late on Friday and went to see Transporter 3 at the mall in LA.

After the show, we stopped in a few stores to take the pulse of Black Friday in LA. Most crowded by far was the Nordstrom Rack. We went in looking for deals on jeans for my teenage daughter – preferably True Religion, though Joe’s Jeans or Lucky Brand would do. No big bargains to be had. On any of them. Even the deals being heavily promoted as bargains were not much different from their every-day-low-price prices. And the styles that were available were definitely not the hip ones.

Despite all the hype about markdowns, we didn’t see it at the Rack on Friday. Much to my daughter’s disappointment, we left with only a few long-sleeve T-shirts in hand and saved our money for another day. As the Sacramento Bee reported last week, "Even with the desperation discounting already, the shoppers who will save the most will do it by waiting until Sunday, December 21, when it reaches its peak," according to Strategic Resource Group, a retail consulting firm in New York.

My takeaway? Retailers are going to have a hard time selling off-trend merchandise this season. Even at a discount, we expect good stuff. So, merchants that took chances on a look or an item may get burned. Gap used to do this a lot, and mark down its way out of the inventory overhang.

Not this year. If it’s off-trend in any category, it’s going to sit on the shelf. People want the wii fit, not a wii wanna be. They want the brands they know and trust to make them feel taken care of, not knock offs which just remind them they're poorer.

This holiday, customers will line up and put up with a lot of hassle for the right goods at the right price. If you don’t have them, they may not buy what you do have…at any price.

Saturday, November 22, 2008

3 Winners with the Coming Stimulus Package

I was in Illinois, Indiana and Michigan this week, and everywhere I went, the economy was a main topic of conversation. With a fiscal stimulus looking likely, I got to thinking about the implications for brand positioning and potential winners. Here are my top 3 picks for the industries that will gain renewed respect from the new administration’s policies, and the brand with the best opportunity to capitalize on each.

1. Manual work and the people who do it will be seen as our unsung heroes

I believe that the new administration’s plans to put people to work on a large scale will include public works projects – fixing our crumbling bridges, highways and power grid, and building new ones. Lots of the folks out of work are in construction and building trades, and in manufacturing (automotive and otherwise). They have the required skills, and are among the people David Brooks referred to in a Nov 17 article in the NYTimes about “the formerly middle class.” They work with their hands and are used to physical work indoors and out.

The brand best positioned to capitalize on putting these people back to work: Carhartt, the preferred provider of outerwear for people who need durable protection so they can work in dirty, dangerous conditions.

2. Federal civil service will become respectable again

In addition to rejecting the anti-intellectualism of the Republican campaign, on Nov. 4, voters said loud and clearly that they need more and better service from their Federal government. From energy policy to health care policy to international policy – the vote affirmed our need for capable and committed people to work in the Federal government. The Obama transition team has already demonstrated its intent to recruit the best and the brightest (back) to Washington, D.C. Now, it’s corporate America (and the financial services and insurance industries, in particular) that is seen as the source of waste, fraud and abuse of our tax dollars, and the Federal civil servants are there to rectify the situation.

The brand winner here: it’s hard to say – I think it could be the Office of Personnel Management which will be tasked with filling the dangerously depleted and demoralized ranks of the Federal civil service.

3. Community service will become more a part of our lives and career paths

A new generation is entering the workforce that views community service as a normal career (or life?) stage. According to the Cone 2006 Millennial Cause Study, "61% of millennials, (defined as those born between 1979 – 2001), feel personally responsible for making a difference in the world." Whether they start out as teachers, do community service after hours, or expect to take a sabbatical in order to do it, more private sector workers are seeking opportunities to “give back.”
Brand winners: Teach for America has gotten a lot of press for its novel approach to enabling Millennials to give back, and may be the big winner here.

This renewed interest in community service may also be an opportunity to renivent a tired brand like The United Way – which could allow a more varied experience to more potential do-gooders than Teach for America can. Not through the athletes who currently promote it, but through regular, inspired individuals – Millennials, boomers, and others – participating in innovative programs serving diverse populations and causes.

----------------------------------

As I look at the list, it seems like an indictment of the Reagan Revolution. Finally! I began my career as a macroeconomist in the Carter Administration, and I served during the first year of the Reagan administration. When Ronald Reagan came to office, it was a depressing time to be a Federal government employee – our motives for choosing Federal employment were viewed suspiciously, and naively aspiring to “do good” was not enough. With a few exceptions, it's been that way ever since.

Happily, that was then and this is now.

Thursday, November 20, 2008

The Problem(s) with Sears

I’ve always liked Sears but have never bought anything there. I bought a lot from Lands’ End before it was acquired by Sears (when my kids were younger), but nothing since. It’s not that I actively avoid Sears. When we bought our house it had a Kenmore washer and dryer, and we looked there for appliances when we remodeled, but bought elsewhere.

What’s wrong with Sears?

According to Sandra Jones' story in Tuesday’s Chicago Tribune, “as Americans worry about their jobs, debt and homes, they are buying less of the goods Sears sells: appliances, tools, tires and clothing.” The economy is hurting all retail, and at least the first three categories are particularly affected. But I think there’s more than the economy that’s undermining Sears.

Sears has a super portfolio of brands in the hard and soft goods categories – Craftsman, Kenmore, Lands’ End. Not being familiar with the rest of their assortment, I went to the website.

Once on the site, I went to check out their Juniors department with my 16-year-old daughter in mind. The Juniors department makes it easy to shop by brand. Why didn’t I know they carried Levi’s? Because of the strength of Craftsman and Kenmore, I think of Sears as essentially or at least primarily carrying its own brands in all departments. Years go, Mervyn’s tagline was “We’ve got the brands.” I guess that made me think that other moderately priced stores (like Sears) didn’t.

Problem #1: People don't know Sears carries major brands.

The top of the Juniors landing page features 3 ads promoting different sales. Below that is the “Shop These Popular Items” section featuring…socks. Not just socks, but a package of white tube socks, an Adidas 3-pack of white below-the-ankle sports socks, and 2 different SKUS of Support Therapy socks. Support Hose for Juniors! What are they thinking? Even if these items are good sellers to Juniors (which seems hard to believe) they deposition the rest of the assortment as seriously not on trend, and reinforces my image of Sears as frumpy.

Problem #2: Sears' (web) merchandising needs help.

Realizing that I might have found a replacement for the soon-to-be dearly departed Mervyn's where I buy my teenage son’s Levi’s (he wears 539’s), I clicked on Young Men’s next. No easy search by brand here. In my experience, guys are as brand conscious as girls, if not more so. They shop by brand, and so do the women who shop for them, but the Sears site seems not to acknowledge this.Once I found the Levi’s, I saw a very limited assortment and no 539’s. When I entered “Levi’s” in the search bar, I came to a Levi’s branded landing page that allowed me to select by customer type, and then by type of clothing – this worked great. But why not have a search by brand option or a Levi’s tab or link instead of relying on customers to use the search bar?

Problem #3: Sears doesn't understand how its customers shop (or at least doesn't show it does).

Beyond the web experience, I wonder if the assortment is just too broad to be represented by a single brand. I do find the juxtaposition of flat screen TVs and bicycles with wine, laundry soap, just-released hardback books and specially promoted few apparel items all under one roof at Costco to be like a treasure hunt. Power tools, washing machines and tires just don’t do it for me.

I’ve always suspected that Kenmore and Craftsman would do better with more distance from the Sears brand, and vice versa. It’s great they have their own websites, which don’t even mention Sears. Do they really belong on the Sears homepage? In the Sears circulars? Maybe the quickest way to make Sears relevant is to cut the chord and make the softer side of Sears more credible.

The Uber Problem? Sears' hardgoods brands overshadow the rest of the Sears offering and customer experience.

Meanwhile, I worry that the story Danielle Novy, reporter for BNET wrote recently may be right – Sears may be on thin ice…that's about to crack, and it won't be due to global warming!

Wednesday, November 19, 2008

Home Town Feeling

I was married in my mother’s wedding dress. She got it at Bullock’s Wilshire, and I had it hemmed there 33 years later. The fantastic art deco, totally L.A. facade housed a high-touch store that was an institution in its day. Bullock’s Wilshire is gone now. So are Bullock’s, Robinson’s, I. Magnin and a whole host of local department stores I grew up with in Southern California.

I was sad when they disappeared. Starting in the early ‘90s, retailers began centralizing corporate functions to wring costs out of their far-flung store operations. Store managers lost control over inventory, and their stature within their organizations began to diminish. Like the computer game Pac-Man, department stores gobbled one another up in search of economies of scale.

In hindsight, it looks like they should have taken a closer look at the intangible assets of the acquired businesses. The goodwill on the company’s balance sheet was largely overlooked in favor of short term cash flow improvements. Too bad. Now it looks like the pendulum may be swinging back.

The Chicago Tribune reported Sunday on Macy’s move to resurrect some of its “retired” brands, including Marshall Fields in Chicago. According to the story, "the steps are part of a pilot program in Chicago and a few other markets where the department store chain is attempting to customize its stores to local tastes after a two-year effort to 'Macy-ize' the hundreds of regional department stores it bought in 2005."

As a team from Bain & Company pointed out in their 2006 article in the WSJ, success at local customization “hinges on getting the balance right: Too much localization can cause costs to spike; too much standardization leads to stagnation.”

So, what are the dimensions that lend themselves to localization? Merchandise assortment, sizing, pricing, store design, and naming all make sense to tailor to the people and the place. Restaurants and grocery stores have known this for ages: McDonald’s serves bratwurst in the Midwest and pineapple in Hawaii.

Banana Republic loads up on small sizes in West Coast stores that cater to Japanese visitors. Origins is another example of a brand that has tailored some products for specific geographies, like its High Elevation Hydration Cream sold in the Denver-area stores. Estee Lauder, Inc., owns Origins, and a huge number of other cosmetics brands (Clinique, Estee Lauder, MAC, Aveda, Prescriptives, Bobbi Brown, and more). Most are offered in the cosmetics department of most department stores – it’s hard to tell one store from another.

What’s unique about the Macy’s situation is its robust portfolio of department store brands that have deep roots in distinct local markets. Selectively bringing back some of those brands can lend real local credibility to the chain and go far to break up the tedium of homogeneous shopping that characterizes today’s malls. As the ‘shop local’ movement accelerates, look for Macy’s to resuscitate more of these retired brands.

Friday, November 14, 2008

A Lump of Coal?

I’m a December baby, and growing up, I always felt gypped at the holidays. Looks like I’ll have company this year. Consumer confidence suffered its steepest monthly drop on record in October according to the Index of Consumer Confidence, as the worst financial crisis in generations continued to take its toll. That can’t be good news for anyone looking forward to presents in December.

This time of year, lots of studies are being released about what holiday sales will be like. Here are the answers to five questions on the minds of gift givers, recipients, and retailers.

Who’s still on the list? The Marketing to Moms Coalition reported this week that 62% of women are asking friends and family to forgo buying them a gift this year due to the economy. And while they plan to cut back on gifts to colleagues and neighbors:
  • 96% said they won't let a bad economy stand in the way of giving gifts to their kids

  • 86% will give gifts to their parents

  • 85% will give gifts to their spouse or partner (Stay out of the dog house, guys!)
I haven’t seen any reports on men’s holiday shopping plans.

How much will we spend? Late last month, Deloitte Consulting released the 2008 findings from its 23rd Annual Holiday Survey. It showed that almost six in 10 consumers (59%) expect to reduce their spending this holiday season. Higher food and energy prices were the top two reasons for spending less, outpacing the economy and job uncertainty. Consumers expect to spend an average of $24/gift, slightly less than last year, and a total of $532 on gifts this year, down from $569 last year.

What gifts will we buy? For the fifth straight year, gift cards are expected to be the top gift purchase. Nearly 2/3 of consumers plan to give them. Over half of all consumers plan to give clothing and almost 40% plan to give CDs or DVDs.

Where will we buy them? According to the Deloitte Survey, with economic concerns high, the survey showed that value-oriented stores are at the top of the consumers’ list of shopping destinations. More consumers say they will shop at discount/value department stores, warehouse clubs, dollar stores, outlet stores, and off-prices stores. That means stores like Walmart, Costco, Kohl’s, Ross, Dollar Stores, Big Lots are likely winners. No surprise there.

What will the experience be like? With company budgets tighter than ever, expect to find fewer salespeople and helpers in the store or on the phone. Online customer support may be better than usual as multichannel retailers make choices about which channels to support, and online is arguably more cost effective for them. In an effort to manage costs, most retailers have been fairly conservative about inventory so out-of-stocks are more likely. That means it will be more risky than usual to wait for price reductions. Retailers are anxious to get shoppers to show up and will be relying on coupons and store circulars more than ever. Redemptions will be high as consumers are eager to save wherever they can. And in-store lines to check out may be longer than usual as people are shunning credit cards and paying with cash, which can take more time to handle than a credit or debit transaction these days.

All in all, it looks like consumers are still planning to spend - and spend smarter - on gifts this holiday. The trick for retailers, online and off, will be to make it easy and affordable for them to buy.

Wednesday, November 12, 2008

Brand Value in a Down Economy

The economy is on everyone’s mind – where it is now, where it’s going, and how it’s affecting individuals, businesses and countries.

The folks at YouGovPoliMetrix recently fielded a survey – the BrandIndex survey – to research the effect the economy is having on consumer perceptions of brand value. The data were collected between Sept 1 and Oct 27, and Ad Week reported on the results in its Nov 4 issue.

The survey found that the five brands with the highest perceived value right now are: Craftsman, History Channel, Discovery Channel, Google and Rubbermaid. Brands with the worst perceived value today are: MTV, Hummer, Red Bull, AIG and Abercrombie & Fitch. Additionally, the survey found that over the past two months, brand value perception scores have increased for Microsoft, Starbucks, Verizon Wireless, Folgers, and Bath and Body Works, while they decreased for AIG, Wachovia, Washington Mutual, Foot Locker and Merrill Lynch.

Here are my takeaways from a review of the brands consumers perceive as the best and worst in terms of brand value right now:
  1. Conspicuous consumption is out; self improvement and DIY are in

  2. Value doesn’t mean cheap, but the price better be justified

  3. Management's track record matters

  4. Familiar, tried and true brands are reassuring in these uncertain times

  5. Consumers are paying attention to advertising
The survey also measured brand value perceptions by category. Home improvement stores is one of the categories hardest hit by the housing meltdown, so it’s particularly interesting to see how consumer perceptions of brand value have been affected there. The YouGoPollMetrix survey found that Brookstone and 99 Cents Only currently have the worst perceived brand value in the category and Home Depot and Lowe’s have the best.

Our own category research at Brand Amplitude over the past year has shown consistently that consumers perceived Lowe’s as better than Home Depot on every dimension we asked about. From selection to knowledgeable advice and friendliness of service to speed at check out to the number of sales people on the selling floor to store layout to price to value, Lowe’s beats Home Depot, hand’s down.

I’ve written before about Home Depot’s challenges. Though the company scores well for consistency across customer touchpoints, our research shows that its messaging misses the mark. They don’t deliver on their “You can do it, we can help” tagline. And as outlined above, they fall short on multiple aspects of the customer experience compared to Lowe's.

The housing slump has hurt home improvement centers hard, and both Home Depot and Lowe’s have scaled back expansion plans in light of the soft economy. Given Lowe’s huge perceptual advantage, it makes sense that the company is not confining itself to a value message right now. Instead, Lowe’s just announced that it plans to tout its in-store shopping experience to drive consumers to its stores this holiday season. Smart move!

Friday, November 7, 2008

When Good Enough Will Do

We’ve always told our kids to do their best, no matter what. When they were younger, they actually listened and tried. Now that they’re teenagers, they laugh at the suggestion. They know that they can do well by doing far less than their best much of the time.

Like parents everywhere, marketers are into superlatives. We typically use lots of them in positioning products and companies – “brand (name) is the best at (benefit) because it is the only brand with (3-5 proof points) to deliver on that promise.” Whether it’s the fastest, the best, the biggest, the safest, the easiest, or the most comprehensive – marketers are always trying to convince customers that the superlatives apply to their product uniquely.

But these times are not typical. And most of those superlatives do not fit customers' current reality. In a Nov. 6 article in Business Week, Ben Steverman reports that “as the U.S. faces a serious economic downturn, many Americans are seeking out the cheapest possible option when buying necessities.” The article features four stores that are thriving in this economy: ultra-discounters like Dollar Tree (DLTR), 99 Cents Only (NDN), and Family Dollar Stores (FDO), and Wal-Mart.

I wrote earlier this year about value becoming tablestakes as the economy softens. That got me to rethinking the conventional wisdom that customers actually would always prefer the best if they could afford it. I’m pretty sure that’s not uniformly true across all categories – now, or ever.

Private label goods are the classic example where good enough will do. Private labels succeed by sitting on the shelf beside the more expensive brand name products they copy. In countless categories including office supplies, breakfast cereal, over-the-counter cold and pain medicines, diapers and other paper products, private label has captured significant market share. Those share gains were made in better economic times than we’re currently experiencing. No wonder Ad Age recently proclaimed in an October 29 story that “it’s going to be a private label Christmas.”

In microeconomics, we learn that the marginal cost of going from 80% accuracy to 100% accuracy is often greater than the cost of getting to the 80% solution in the first place. Is the additional 20% accuracy worth the required expense? Often, customers are not willing to pay the price. Even when the economy is not in the dumps. Why?

Software and systems design have a concept called the Principle Of Good Enough (POGE). We lay people call it “quick and dirty” design. The basic idea is to put a partially complete solution or product in the market rapidly, gauge the response, and tweak it based on actual feedback from users. I guess it’s the “dirty” part that implies something less than perfect. POGE is the logical foundation on which most software and web development is based. The principle seems to apply to a temporary stage in product development whose end goal is the continuous improvement of the product.

Similarly, there are circumstances where good enough is all that’s required and no further quality improvement is expected or necessary. Non life-threatening conditions – the types that retail walk-in clinics are designed to treat – are a perfect example. These clinics typically provide a limited range of "get well" medical services, such as allergy or flu relief, and also treat uncomplicated minor conditions, such as bronchitis and ear, urinary tract, or sinus infections. The success of urgicenters and retail walk-in health clinics are proof positive that in some situations, some customers do not feel they need the Mayo Clinic – they simply require prompt treatment by a competent practitioner.

These examples show that in some contexts, customers appreciate good enough as an intermediate stage to progress through. In others, they value it as an end-state. The lesson here: efficient design is smart design – smart retailers start by getting to good enough, taking their customers’ temperature, and deciding whether and where to go from there.

Wednesday, November 5, 2008

Customer Targeting in a Down Economy

In this election, as in 1992, voters told anyone who would listen that “it’s the economy, stupid.” The stock market is down, decimating millions of 401Ks and IRAs. And Reuters reported on October 17 that the University of Michigan Index of Consumer Sentiment showed "consumer confidence in early October registered its largest monthly decline in the history of the survey." With consumer spending off, retailers are bracing for the worst holiday shopping season since the NRF began surveying consumers about their planned holiday spending in 2002.

To understand the impact of the current state of the economy on consumer shopping behavior, Acxiom and BIGResearch teamed up in September to take a fresh approach to customer segmentation. Based on integrating survey data information, they reported this month finding four elements that stood out as key shopping behavior drivers:
  • Past purchase behavior and future intent
  • Importance of price
  • Shopping trip preference
  • Type of store shopped most often
Using this approach, they found that one-third of consumers are resisting being affected or are unaffected by the state of the economy. They appear more disposed than other segments to respond positively to improvements in their financial situation. These Potential Rebounders are most likely to loosen up on spending as the economy improves, and consist of three distinct segments: Savvy Spenders, It’s My Life and Protecting the Dream.

In addition to Potential Rebounders, BIGResearch found the market is comprised of two other groups of consumers: Status Quo and Digging In. As their name suggests, Status Quo segments have not changed their behavior in response to the economy. Among those who have not changed their spending behavior, there is one high-value segment that is continuing to spend unabated despite the down economy. Called Full Spend Ahead, these consumers resemble the three Potential Rebounder segments, and positioning for those three should appeal to this segment, as well.

Together, Savvy Spenders, It’s My Life, Protecting the Dream, and Full Spend Ahead consumers represent nearly 50% of the market. This is good news for retailers who are paying attention, and for their customers. It suggests that retailers can position themselves to attract and retain these high-potential customers regardless of store format. They make purchase decisions based on multiple factors including need, price, assortment, service and convenience, and the right mix varies on a case-by-case basis.

Zappos is one retailer that is not waiting for a turnaround to address the themes that resonate with these most attractive customer segments. The company’s “Powered by Service” positioning speaks directly to customers who want an efficient shopping experience, and the retailer offers lots of brands to choose from. The company uses a similar service message – “making customer service fashionable” – in its recent extension into apparel. Zappos conveys a value message by emphasizing free shipping both ways, and free 365 day returns.

Look for other, alert retailers to follow Zappos lead and stake their claim to the Potential Rebounders and Full Spend Ahead segments that will lead the way out of the current downturn.

Sunday, November 2, 2008

What Healthcare Can Learn from Multichannel Retail

In the ‘80s I was part of a team of consultants that explored retail healthcare concepts for a client. The idea was to evaluate the market for healthcare services and identify situations where consumers would be willing to visit a self-contained clinic to have their medical needs addressed. We showed back then that health care delivery was broken, and that market innovators could provide breakthroughs in the health care delivery experience profitably.

Launched in the early ‘80s, Urgent Care Centers came of age in the ‘90s. These centers are a response to the long times patients typically have to wait to get an appointment at traditional medical practices, and their emphasis on convenient,"good-enough" care makes them an alternative to hospital emergency departments. They fill a need and spawned other health care service delivery innovations.

In-store retail clinics appeared in 2000. Typically staffed by nurse practitioners, these clinics provide diagnoses and prescriptions on a walk-in basis. They repackage medical services available in traditional physicians' office. The core of the concept is a limited range of "get well" medical services, such as allergy or flu relief, which account for the bulk of these clinics' revenue, demand and profitability though they also treat patients who have uncomplicated minor conditions, such as bronchitis and ear, urinary tract, or sinus infections. According to a July '06 report prepared for the California HealthCare Foundation, retail clinics proliferated rapidly, and were forecast to total more than 1,500 by the end of 2008. The market has been largely driven by small start-up chains, such as MinuteClinic, RediClinic and Take Care Health Systems, which run the outlets under agreements with retailers and have had few formal ties to the medical establishment.

As reported in June ’08 on Nurse.com, “Even if we are not in-network with a particular insurance company, the choice is there for a $59 out-of-pocket expense compared to a co-pay of $75 to $100 for an Emergency Doctor visit, where you may have to wait for hours to be seen for an ear infection,” says Anne Pohnert, RN, MSN, FNP, manager of operations for MinuteClinic in Northern Virginia and Washington, D.C. The affordability and convenience of these clinics encourage patients to receive care early, which promotes early treatment and better outcomes.

According to the Convenience Care Association’s 2007 research, in-store and other types of convenience clinics have a 98% patient satisfaction rate. In contrast, patients do not rate hospital care as highly. Business Week reported late last month on research by the Harvard School of Public Health that found only 67% of patients said they would recommend the hospital where they were treated. According to the researchers, “part of the onus is on patients to improve care: Patients need to be proactive -- ask questions. The more engaged patients are, the better the care they will receive and the better the care all of us will receive, because they will drive the change for better systems of health care."

Patients are indeed becoming more assertive about their own care as health costs shift to consumers. It’s clear that different needs are best addressed in different settings – in our family alone, we’ve been to the ER when our daughter broke her leg skiing and when she hyperextended her elbow playing softball. We’ve gone to an urgicenter when my son got a spider bite on his eyelid while we were on vacation. We’ve gotten flu shots at our local Long’s pharmacy.

As healthcare consumers, we all want options that work in respectful, convenient and qualified settings. Specialty retailers like Williams-Sonoma, Patagonia and Lands' End learned long ago that their best customers were multichannel buyers – that is, they shop the brand in their own stores, online, through catalogs, and through their channel partners.

Multichannel healthcare is part of the answer to today's high-cost, broken health care delivery system. Look for savvy providers and insurers to follow retailers’ lead and find ways to offer their patients a variety of experience alternatives and care in a variety of settings.

Thursday, October 30, 2008

Is Local Better?

We live in Mill Valley, CA, four miles north of San Francisco in Marin County. In our town, there’s a definite bias toward supporting local merchants and products. Smith & Hawken got its start here, and so did Banana Republic. At the holidays, even the parking meters take a vacation so shoppers can park free like they do at the mall up the highway. In terms of store names and ownership, Mill Valley commerce is diverse, and that adds to our town's character and personality.

But Ad Age got my attention when they reported yesterday that "it’s going to be a private label Christmas." Most private label merchandise is sold in chain stores – near us, that includes Safeway, Whole Foods, Molly Stone’s, Target, and Costco (no Wal-Mart nearby). In general, people buy private label goods because of the savings relative to branded goods. Consumers typically don’t know where private label products come from – part of their lower cost stems from avoiding the expense of telling the story of the individual products.

Based on its research, IRI predicts that big-box stores like Wal-Mart and Costco could be the big winners this holiday, possibly drawing shoppers from department and specialty stores by convincing consumers they can save enough on food to cross the aisle and shop for gifts, as well. Guess that makes the local specialty stores downtown more vulnerable than usual this holiday season, and the local grocery stores, too. Besides free parking, I’m guessing there will be more holiday festivities this year to draw people to the local shopping district.

But what does local really mean? Does it refer to the store’s ownership structure? Or its involvement in the community? Can a big box store be local? Is there a distance that defines what’s local? Is it the distance from the customer’s home to the store, or from the source of the products to the shelf, or both?

In the fresh food category, Wal-mart defines local as grown in the same state as it's sold. Whole Foods considers local to be anything produced within seven hours of one of its stores, and says that most of its local producers are within 200 miles of a store. For Seattle's PCC Natural Markets, local is anything from Washington, Oregon or southern British Columbia. Frankly, of the three, I think Whole Foods gets it closest to right.

According to a story this week by Julie Schmit for USA Today, “the ‘locally grown’ label is part of retailers' push to tap into consumer desires for fresh and safe products that support small, local farmers and help the environment because they're not trucked so far.” And for some consumers, being locally grown is now more important than being organic.

Farmers' markets are seen a source of local fresh produce, meats and cheeses, and they're on the increase. Last month UDSA reported that the number of farmers markets in the United States has nearly tripled over the past 15 years to 4,385. We have seven a week just in Southern Marin County.

USDA and others are careful to point out that locally grown food is not necessarily safer than food from farther away. But it seems consumers are not satisfied with government assurances about the safety of the food supply, and they like the greater ripeness that sourcing locally affords. In some respects, “Organic” and “Green” have become short-hand for “Safer” and "Better." Sounds like “Local” is the newest addition to that list of reassuring words.

Look for a push for standard definitions and certification of “locally grown,” and a move to track and report on the handling of fresh food from source to shelf as people increasingly think about what’s on their plate and how it got there.

And back in Mill Valley, I expect merchants large and small to continue trying to figure out how to capitalize on our passion for all things local.

Tuesday, October 28, 2008

Too Much Email!

I am a boomer and for the last 10 years, email has been my favorite way to communicate in writing. However, nowadays, my email box is exploding – as the holidays approach, it’s looking more and more like my offline mailbox: stuffed, mostly with mail I am not interested in, much of which I never requested. I have my SPAM protection set to the highest level Yahoo affords, and it catches the truly offensive stuff. But I am receiving more, and more is getting through. Sound familiar?

According to the Pew Internet & American life Project, 92% of email users define spam as “unsolicited commercial email from a sender they do not know or cannot identify.” A quick look in my Junk folder from today shows I have received email from senders whose names are more like reiterations of the subject line than a sender. I received an email from “Oprah Breaking News” with the subject: “Oprahs #1 Superfood”, and one from “Flat Stomach Pill” about “Get Japanese Skinny! New Discovery shows...” OK, so there’s a pattern here - more than one marketer thinks I’m interested in weight and nutrition. I'm a boomer woman - no big insight there.

Point is, these emails hide the sender’s real identity – for all I know, they could actually be from the same sender. This type of sender naming convention makes it hard to block since it is email specific – I can only block it after I know the sender, i.e., after I’ve received the email. Odds are, the next email from that sender will be promoting another unwanted product or service, and the “from” will reflect that offer.

The Oprah email and others like it are designed to imply an endorsement, but I'm pretty sure Oprah has nothing to do with the Superfood email sender. How many emails have you received offering a gift card from a well-known store, but that is not from the store? I wish I could block these emails.

Unsubscribing is apparently a high-risk activity. While reputable emailers have a working unsubscribe function, they‘re not the ones to worry about. Yahoo recommends that to avoid spam, users should “never respond to the spam email's instructions to reply with the word 'remove' unless you trust or know the sender. Many spammers use the 'remove' or 'unsubscribe' links as a ploy to get you to react to the email. This may alert the sender that your email address is open and available to receive mail, which greatly increases its value. If you reply, your address may be placed on more lists, resulting in more spam.”

So, what alternatives do we have? A few family and friends have resorted to spam blocking software. But a recent Forrester study found that as unsolicited commercial e-mail volume increases, consumers are beginning to turn to social networking sites, texting and other communication channels. I’m not a technophobe – I’m experimenting with Twitter, I’m on Facebook, much to my teenagers’ dismay, and I’m text messaging. But so far, for me they just don’t compare to a long, full-text, late-night email.

Saturday, October 25, 2008

Now That Cash Is King (Again)

It's official: Bloomberg reported earlier this month that the record expansion that began in 1992 is over and consumer spending fell at an annual rate of 2 percent in the third quarter. Consumers are shell-shocked – and spending dramatically less these days – as we bear witness to the continuing crisis in the credit and housing markets.

The drop in consumer spending is definitely affecting retailers. “Americans tend to resort to cash in troubling times” according to credit expert Howard Dvorkin and reported earlier this week in Money Magazine, “and they spend 30% less when paying cash than when paying with a credit card." So, retailers are seeing lower transaction volume and lower average tickets. E-tailers are being hit worse, since cash is not an option for purchasing online.

Even the most gung-ho Web enthusiasts are spending less online according to a 10/24 report on Yahoo! Tech News. Desperate to goose their sales, e-tailers are sending email more frequently. Internet Retailer's recent survey of 174 Web retailers, including those that operate stores, found nearly half have increased the number of monthly e-mails they send compared to a year ago.

At the same time, or as a result, consumers are becoming annoyed with e-mail in general. As unsolicited commercial e-mail volume increases, Forrester reports that consumers are turning increasingly to social networking sites, texting and other communication channels. Ironically, while e-tailers are more dependent on email than ever, they are also reducing its effectiveness and speeding the adoption of Web 2.0 social networking tools.

The payments industry is also hurting as a result of the shift to cash. All credit card company stocks are down sharply.

What changes should consumers expect to see in the purchase experience as a result of declining retail sales and credit card volume? Here are my predictions:
  • More sellers and merchants accepting PayPal online and off, creation of new PayPal payment tools and solutions like the PayPal Pay Later option introduced in May, and introduction of new solutions like eBillMe
  • Return of the layaway plan, the ultimate loyalty program. While Wal-Mart phased it out in 2006, Kmart, TJ Maxx, Marshalls and Burlington Coat Factory, have reintroduced layaway plans this year, and I suspect others to follow
  • Emergence of sites like recently launched eLayaway.com, luring consumers with iPod Touches for “as low as $42.23 a month”
  • Banks and credit card companies offering double points for gas, groceries, and other sweeteners to get us to use our cards!
  • E-tailers conducting more frequent, richer promotions to entice online shoppers to continue spending/shift more of their spending online
Do these changes have staying power? Mastercard, Visa and American Express are not standing still. Look for them to fight back with new payment products of their own. Same goes for Facebook, Twitter, and Meebo, et.al.

Between new payment products and Web 2.0 social networking solutions, we have some good tools to take our minds off the economy and the election, at least for a few mintues.

Wednesday, October 22, 2008

Reinventing the Mall Experience

Up until recently, there has been a logic to the pattern of retail bankruptcies. In February of this year, Sharper Image, Lillian Vernon, Fortunoff – sellers of stuff we don't need - declared bankruptcy. The second wave included Linens ‘N Things, Bennigan’s, Steak & Ale and Mervyn's - sellers of stuff we could easily get at places we like better. All three entered bankruptcy in July. That same month, Fortune reported the third straight quarter of contraction for retail, according to Northern Trust economist Paul Kasriel. So retail technically was in recession.

With the entire economy now having joined retail in the dumpster, all retailers are vulnerable. The recently announced liquidation of Mervyn’s is just one more proof point that "Value" has become tablestakes and survivors will be the retailers that get the greatest productivity out of their assets – people, product, brand, and store.

As CNNMoney.com senior writer Parija B. Kavilanz, reported on October 16, “with thousands of stores closing in the economic downturn, the increase in empty space at the nation's shopping malls is leaving a hole in the hearts of once-vibrant communities.” And in some malls, store occupancy rates are reportedly falling below 75%, according to RCS Retail Real Estate Advisors.

For mall operators, it's time to find creative uses for all that space and ways to drive mall visits. Back in March, Kavilanz reported that CBL & Associates Properties, which owns about 80 malls nationwide, gave "a directive to its leasing folks to go out and pursue non-traditional retail uses both for its enclosed and open-air malls.”

According to the International Council of Shopping Centers (ICSC), spending on entertainment and self-improvement services tend to be fairly recession-proof. So, we are now seeing malls embrace those categories. They are experimenting with new movie theater concepts including some featuring oversized "love seats for two," wine and cheese bars, and medspas for a quick afternoon Botox fix. The number of mall-based medspas alone has jumped to about 2,500 from just 450 in 2004!

And, in what now looks like great foresight, Westfield Mall leased 145,000 square feet on the fifth and sixth floors in its San Francisco Centre to San Francisco State University to use for its downtown campus. This brings visitors to the mall during non-peak hours, and reviews on Yelp suggest the concept is a winner.

One thing is clear: The mall experience can't be just about shirts, slacks and shoes anymore.

The good news? Maybe our malls will become less cookie-cutter like and have more variety and more local appeal. There’s a chance that local tastes and preferences will be reflected in the new tenants and uses that malls attract. Anything that gets away from the homogeneous mall experience of the last 10 years would be an improvement!

Sunday, October 19, 2008

Haggling Over Price Not Everyone's Favorite Way to Shop

We have a friend – I’ll call him Richard - who negotiates with everyone on everything. He even once got a car dealer to throw the tie he was wearing into the deal. No joke. For him, it was sport, and he did it in a way that was natural…for him.

No doubt, there are lots of people like Richard who enjoy auctions and haggling over price. Ebay got its start as an auction site, and the idea of the garage sale has fueled the company’s identity from the outset. I have bought and sold a lot of stuff on Ebay – I bought a brand new MacBook on Ebay while standing in the Apple store waiting my turn for service. I bought a Bestey Johnson dress there, and I’ve sold lots of tickets to Giants baseball games there, too.

But I don’t enjoy haggling over price – I find it somewhat degrading, particularly for the seller. And I don’t like online auctions, either. They take too long to play out, and odds are that someone will bid more at the last second, meaning I’ll have to go find and buy the item somewhere else, anyway.

I prefer Ebay’s fixed price feature for both sides of a sale. And apparently I’m not alone. Brad Stone reported in a recent article in the NY Times, on the brewing e-commerce war between Ebay and Amazon. In the article, Ebay’s leadership admits that its unwillingness to embrace the fixed price side of e-commerce is a strategic miss that has contributed to the company’s current difficulties.

That got me thinking about ways retailers can sell more by letting the rest of us in on the price savings that some die-hard negotiators, like Richard, manage to finagle. Shangby.com is an interesting new site that does this by appealing to both people who enjoy haggling, and those who want to buy at a fixed price what has already been negotiated by a fellow shopper. CEO Steve Bell estimates that less than 10% of shoppers will bargain with a supplier, and Shangby provides tools that support the negotiation process including a live video conversation with the manufacturer or merchant facilitated by a Shangby concierge. For the other 90+% of shoppers, the site makes the merchandise available to all comers at the negotiated price and highlights the savings that the price represents.

So, the best-priced merchandise on the site is all stuff that a shopper actually bought, not just stuff that a merchant thought s/he could sell. And all shoppers benefit from the haggling one shopper took the time to do.

When I met with Steve, I asked about scalability. Turns out Brad Stone asked him the same thing as he reported a year ago in the NY Times . The folks at Draper Richards and G-51 saw enough potential to get past that issue, and funded the business.

Shangby’s value proposition seems to me mostly about undercutting Wal-Mart on price. Perhaps because of its focus on price, the site and format shortchange the cultural experience that I believe is possible here. In fact, I first told Steve Bell what I later told WorldOfGood.com – that there was a great opportunity to bring the romance of different cultures to life through the site and to feature more evocatively and less commercially the stories behind the merchants and the merchandise

That said, there is a kernel of an idea here that any e-commerce site, including Ebay, should appreciate.

Thursday, October 16, 2008

Being Big and Local – An Exercise in Creativity

My in-laws once owned a drugstore in Seaside, California, where my father-in-law was the pharmacist and chief merchant. He used to special-order merchandise for his customers, and knew them by name and their orders by heart. Back then, big chain stores and department stores did the same thing, and each store was run by a powerful store manager.

Over the last two decades, most retailers have been wresting that control away from store managers and shifting it to centralized departments in the name of cost controls and consistency of experience, but something may have been lost in the process.

In previous posts, I’ve speculated about the challenges facing big brands at a time when consumers want their shopping experiences to feel “special” and not mass-produced. That was before the economy took a nose-dive. Now, I think people are outright scared, and they want to know that the people they deal with understand and care about them. At the same time, leading retailers are pursuing initiatives to “get local."

So, is the pendulum swinging back in favor of store managers? It surprises me to say so, but I have to answer "maybe."

Macy’s recently announced its My Macy’s initiative to "design and merchandise stores to reflect local tastes. The program will shift more decision-making to the local level, tapping ideas from customers and sales associates." According to a Chicago Sun-Times story last week, in Chicago the initiative aims to woo back loyal Marshall-Fields customers, lost when Federated acquired their favorite retailer and retired the brand. In Pittsburgh, it’s aimed at reengaging fans of Kauffman’s, which was also obliterated by acquisition, according to a September story in the Pittsburgh Tribune-Review.

Keeping those names may have been the best way to retain loyal customers in those markets. It’s an expensive proposition to bring in local merchandising managers and buy and warehouse region-specific inventory to recreate the home-town feeling those brands gave customers.

In a variation on this theme, some retailers will introduce a few high-profile items into their assortment to speak to local tastes and needs. That’s one direction Origins is exploring. As I mentioned in a story last month, Origins has created unique products that address the effects of Denver’s mile-high atmosphere on a woman’s skin and is testing them in a few of its company-owned Denver stores. If they test well, Origins could offer them to area retail accounts to help them get local, or keep them for itself to give customers in Denver a reason to come to their stores.

What can retailers do to go local without incurring the inventory and personnel costs of store or market level merchandising and logistics?

Best Buy recently opened a store-within-a-store focused on musical instruments and music lessons. The concept could do a lot to promote the company’s "local-ness," depending on how it’s implemented.

The company has a great opportunity to get local across a whole host of categories by becoming a channel for local instructors. Some instructors might even choose to sell instruments or teach in the store. The key to appealing to them is to acknowledge they are small business owners with a passion for their area of expertise and arguably less interest or ability in marketing.

This approach could apply to several categories of current Best Buy merchandise – from cooking to computer programming to web design classes. And it could make the music lessons idea work, too. In the way it supports and showcases local class providers and promotes their connection to Best Buy, the company could ensure that the providers’ “local-ness” rubs off on its own brand.

The beauty of this approach is that it does not involve payroll or inventory expenses. It hinges on a creative approach to execution. And that should be music to any CFO's ears!

Monday, October 13, 2008

Good Service – Is It Too Much To Ask For?

As the economy falters, more people are working harder for every dollar, and parting with it ever more reluctantly.

The Deloitte Research Leading Index of Consumer Spending tracks consumer cash flow as an indicator of future consumer spending. The index has been falling since October 2007 and fell again last month. "Consumers in nearly every income group are being more cost-conscious," said Stacy Janiak, Deloitte's U.S. Retail leader.

In this environment, what’s happening to customer expectations? Our tolerance for shabby service is going down. According to RightNow’s third annual Customer Experience Impact Report issued earlier this month, we expect more as we spend more carefully. They found that in 2008, a record high 87% of consumers stopped doing business with an organization after a bad customer experience, up from 68% in 2006. They also found that even in the current down economy, 58% of U.S. consumers say they will always or often pay more for a better customer experience.

What are the implications of rising customer expectations despite a tight U.S. economy? First, companies should think twice about cutting customer service. Second, they should look at who is getting high marks for customer service and understand what they are doing right. Last, they should look inward and evaluate what they can be doing better to meet rising customer expectations.

So, which brands get customer service right? In March 2007, Business Week published its first-ever ranking of 25 client-pleasing brands. The Top 5 on Business Week’s list include: USAA, Four Seasons, Cadillac, Nordstrom and Wegman’s. All those are commendable and expected.

More recent, interesting and revealing are the findings from the third annual National Retail Foundation-American Express Customer Service Survey conducted by BigResearch in January 2008. The survey of 8,800 consumers found L.L. Bean delivers the best customer service in all retail formats. Internet-only retailers Zappos.com, Amazon.com, and Overstock.com came in second, third and fourth. I haven’t purchased from L.L. Bean in years (preppie is not my look anymore and my kids aren’t into it, either), but am a fan of Zappos and Amazon, and customer service is a big part of why.

Zappos makes it easy and risk free to buy from them. By not charging extra for standard shipping (in either direction), they eliminate some of the biggest barriers to online shopping – the hassle, disappointment and cost of returns. When I’m unsure what size shoe I need, I buy two pairs. That way, I get the right size, I get a return postage-paid envelope and all I have to do is drop the extra pair in the mail and wait for the refund to hit my credit card. And, they do surprise free shipping upgrades.

CEO Tony Hsieh tells customer service stories that rival the urban legend about Nordstrom allowing a customer to return tires (which the store never sold). One story is about a customer who was traveling on business and didn’t know where to call to have pizza delivered to his room. He called Zappos and asked for help. The Zappos customer service rep got the necessary information, placed the order and had the pizza delivered. Of the company’s 10 core values, #1 is: Deliver WOW through service.” And they do!

And Amazon is a definite favorite in our house. The site is fast and easy to use, and they have an ever-expanding assortment to choose from. Because we buy so much from them, all our shipments are upgraded to next day at no extra charge. This week’s Sunday NY Times profiled Amazon’s long road to surpassing Ebay in market capitalization. “While E-Bay was buying into classified advertising, online payments and Internet telephony, Amazon spent hundreds of millions of dollars building its brand as a trusted retailer — hiring customer service representatives and returning money to customers when transactions went awry.”

Together, this data is a wake up call for retailers and others. The economy is tough and getting tougher, and brands known for great customer service should be better able to ride it out.

Saturday, October 11, 2008

Improving the TB Rays Fan Experiene: Lower Ticket Prices, Increase Fun

Last week I wrote about the Tampa Bay Rays' turnaround. The team’s performance was stunning this year, going from worst to first in their division, and beating the White Sox in the American League Division Series. And as Alan Schwarz of the NY Times wrote last week, the turnaround was carefully crafted and patiently pursued. Home game attendance this year was up 12 points to 53%, but the team played to a house that was only half full. I ended that story wondering whether this year's performance and other changes are enough to guarantee that the team plays to a fuller house next year.

The baseball insider in my family (my 13 year old son) is sure the Rays' attendance problem is due to the stadium, and that they are going to go ahead with plans to build a new one. Apparently, fans in Tampa and St. Petersburg agree that the stadium is the problem. In an August 29 article, St. Petersburg Times reporter John Romano shared some of the suggestions he received from fans about what it will take to boost home game attendance. Far and away, the #1 complaint mentioned was about Tropicana Field’s location and facilities. Price came up a lot, too, and as the economy grows shakier, all teams as well as StubHub should be concerned about season’s ticket renewals.

While my son and the fans may be right about why Rays home game attendance remains so low, the brand marketer in me wonders if a new stadium is really the Rays’ best solution. As mentioned in my story last week, the Rays have already made many of the changes on the retail CEO turnaround checklist – new management, new talent, new name, new logo and look, improved facilities.

I believe the team still has more cost-effective ways to increase attendance (and revenues) than building a new stadium. Blaming the stadium is an easy out – a new stadium should be a last resort – it’s expensive and disruptive.

The fan experience sitting in a stadium that’s half empty can't be good. We never go into empty restaurants – we assume the food must be bad. Getting butts in seats at Tropicana Field may be more important in generating the kind of excitement that builds an enduring brand franchise than generating revenue off each ticket sale.

According to Team Marketing Report, the Rays’ ticket prices and the cost of a fan visit to the ballpark are among the lowest in Major League Baseball at $17+/ticket in 2008. I suspect the average may not be as meaningful as the actual prices – the least expensive seat at Tropicana Field is on the Upper Deck and costs $14 at "prime" games, a Baseline Box Seat at a “prime” game cost $38 last year and a Lower Infield Box Seat cost $70. Those are expensive tickets, no matter what the Team Marketing Report says about relative prices to other teams. In Tampa and St. Pete, the relevant comparison may be the Yankees A+ Team across town, where $6 buys the best seat in the house.

Rays management can sell and do more to facilitate the sale of partial season’s tickets rather than requiring fans to commit to 80+ home games a season. They can lower ticket prices and rely more on concessions, merchandise sales and parking fees to generate the same or higher average spend per fan visit. They can do goofy stuff at the game to engage the crowd and humanize the Rays brand. In short, they can create a more affordable, fun and compelling fan experience that will build loyalty, increase the amount spent per attendee per game, sell more tickets and fill the stands.

So, before taking the plunge on a new stadium, the Rays might want to take a page out of the Durham Bulls playbook, and make the Tampa Bay fan experience more like what the Bulls offer in terms of price as well as the fun factor. If that doesn’t work, there’s always Plan B.

Friday, October 10, 2008

Tools to Help Us Pick Out Products - Do They Work?

Most stores’ tech investment has focused on lowering labor costs and inventory expenses for management. Here are three new tools intended to improve the shopping experience for consumers by helping us choose merchandise that’s “right” for us.

Tool #1- Scentsa: I love perfume. I always have. There are 8 different fragrances in my medicine cabinet right now, and I bought half of them myself. I always appreciate receiving perfume as a gift because I find the perfume department overwhelming, and once I test one fragrance, they all begin to smell the same. So, I’m not very adventurous when it comes to fragrance I select for myself.

The latest issue Stores magazine has a story about a state-of-the-art custom program developed especially for Sephora stores called Scentsa Fragrance Finder. Scentsa will be tested in 20 of its 190 stores. Clients can use Scentsa to locate a fragrance favorite or discover a new one. It sounds perfect for me! I envision it working like Amazon’s recommendation engine – people who like Jo Malone's Vetyver also like Acqua di Parma's Colonia Assoluta. I haven’t tried Scentsa in person yet, but hope to get to a Sephora soon to check this out. Score one for Sephora.

Tool #2 – COOL: As food safety issues have cropped up (pun intended) in the US, China, and elsewhere this year, consumers have become understandably anxious to know that the food they eat is safe. With the weakening of the regulations designed to protect consumers, we rely increasingly on growers and retailers to pick up the slack. Some consumers buy organic produce as a way to screen out harmful food.

Another approach meant to improve our shopping experience – country of origin labeling – (COOL) went into effect this month. As the Wall Street Journal reported last month, supermarkets and other big food retailers are now required to display country of origin labels on meat, produce and certain kinds of nuts. Though supposedly intended to create accountability in the food supply, it’s clear that protectionism played a big part in the push for mandatory food labeling. And it's unclear that knowing the country food is from makes it any safer, and there are plenty of cases of e.coli in domestically produced food. As a result, I’m not sure this one’s a winner.

Tool #3 - Digital Ad Displays: I am not the primary shopper in my house, but I do a substantial minority of the shopping for our family. In some categories (groceries) I am a mission shopper – I want to get in and out, I know what I need, and I generally stick to the list. In other categories, I wander around looking for inspiration. Sometimes I find it in the merchandise displays, sometimes I’m inspired by what other customers are buying. Plenty of times, though, I wander around touching the merchandise but uncertain or unmoved. Sound familiar? If so, the latest incarnation of in-store digital ad displays may help.

Businessweek.com reported last month that “stores and restaurants are now starting to use the technology for real-time promotions, instantly tailoring their sales pitches to match individual customers' selections or variations in product availability.”

While I’m not looking for any more ads in my life, I can see how the right type of ad could be helpful when I’m wandering around a store empty-handed. According to the In-Store Marketing Institute, “70% of [purchase] decisions are made in-store.” So, ads that can inspire us, for example by showing us how to put a look together effortlessly, can help us choose and help stores make a sale. A short “how-to” could be just the thing.

Thursday, October 9, 2008

Tampa Bay Rays Makeover Delivers

It’s October. And in my house, October means we’re watching even more baseball than we do the rest of the season. Major League Baseball is in its high season.

Like Retail, baseball is full of statistics. MLB tracks everything. And that got me wondering about the handful of stats lay bare the connection between the Tampa Bay Rays performance on the field, the fan experience of the team, fan loyalty and the team’s financial success. In measuring team success on the field and with fans, three statistics tell the story: a team’s win/loss percentage, its home-game attendance and merchandise sales.

Of the teams left in the pennant race, the Rays are clearly this year’s biggest story. For the past six years, the Rays have had one of the worst win/loss records in baseball – between 2002 and 2007 they averaged .388. They have also consistently been in the dumpster when it comes to attendance – worse at home than on the road. At home, their attendance over the same time averaged only about 33% of capacity.

Faced with six years like this, what would any self-respecting retail CEO do? Get a new chief merchant? Overhaul the brand and the merchandise? Run a new ad campaign about being "new and improved"? Remodel some stores and close others?

The Rays did most of the above over the last offseason. They hired a new manager, nearly doubled their player payroll and made several key trades and free agent signings, changed the team name (from the “Devil Rays” to the “Rays”), introduced a new logo (from a fish to a ray of sunshine) and new team colors (dropped green, leaving Oakland as the only team in major league baseball with green in its palate). And major stadium renovations and upgrades were also undertaken in both 2006 and 2007.

And lo and behold, 2008 has been a different story. The Rays are in the playoffs with the third best win/loss record this year. At .599, they are behind only the Angels and the Cubs. And this year for the first time, they played their home games in a stadium that was consistently more than half full. In addition, team merchandise sales are up 75-100% compared with last season and another 25-30% since the Rays secured a postseason spot according to Mark Fernandez, Rays senior vice president and chief sales officer.

Though congratulations are due the team for this huge improvement on all fronts, attendance did not improve as much as the team’s performance on the field did. Their win/loss ratio at the end of the regular season was up 48% over 2007, but home game attendance was up only 30%. Moreover, attendance in the second half of the season when it was clear the Rays were in contention for the pennant race was up only 24% over last year’s second half.

So, what will it take to get Rays regular season home game attendance above 50% next season? The team’s playoff performance should have some carryover effect. What do you think the Rays should do this coming offseason to further boost attendance in 2009?

Friday, October 3, 2008

Best Buy Looking to Musical Instruments & Lessons for Growth

In my house, we have a lot of stuff from Best Buy. In the last year alone, we bought a red Samsung front-loading washer and dryer, a floor model 72” Mitsubishi TV, wireless routers, storage drives, Go-Phones, a car stereo, and countless XBOX 360 and PS3 video games there. (Actually got the game players at Costco and Amazon.) We’ve also had the Geek Squad to our house a few times.

Besides the fact that we have too much stuff, what are the common themes here? We go to Best Buy for electronics, convenience, somewhat technical stuff and/or when an in-person comparison of alternatives, a live demonstration, or the opportunity for techie questions and answers is important.

So, where does a big brand that dominates its traditional category look for growth? In Best Buy’s case, probably lots of places within (e.g., airport kiosks, as E-commerce Times reported in August, for one) and outside the cut-throat consumer electronics category.

The South Florida Sun-Sentinel reported today that Best Buy is opening the first of six 2,500 square foot store-within-a-stores in South Florida carrying more than 1,000 guitars, bass drums, keyboards, recording equipment and other instruments and accessories. The current plan is to sell instruments and teach music in a total of 85 Best Buy stores.

How big a stretch is it to parlay Best Buy's business selling mostly consumer electronics and accessories, including home-recording equipment and pre-recorded music, to selling and servicing musical instruments and offering music lessons in the store? Our work in the music category suggests that while the business is ripe for consolidation, this is a pretty big stretch for the Best Buy brand.

About 10% of adults and kids took music lessons last year. When asked what makes a class great, most people say it’s the instructor, and 65% of people say the best way to find an instructor is through word of mouth. All of this makes the business of selling instruments and classes look like an interesting place for a roll up. No doubt, that’s what attracted Best Buy when scanning the landscape for growth opportunities.

In our house, we have a collection of six electric and acoustic guitars and a mandolin (in the picture), mostly from Guitar Center and Bananas, and everyone in our family plays. My kids take lessons from Jesse – he comes to our house. He’s a musician, a friend, a teacher, and a lot of fun to be around. Importantly for my teenage kids, they think he's cool.

Will Best Buy be able to attract the great local guitar teachers, like Jesse, who tend to be musicians themselves? Will consumers buy classes and instruments through mass channels that are not steeped in music cred already? Will they take music lessons in the store? Or will Best Buy have to become a referral service for local instructors who teach away from the store? How would they mitigate the inherent liabilities?

The homogeneous consumer electronics big box experience is not a good fit with the personality-driven business of musicians who teach and wanna-be musicians who take classes. The store-within-a-store is essential to any chance of success. Probably needs a separate entrance, too – like Macy’s Herald Square is considering for it’s teen business as reported by Fortune last week.

I think it’s a long shot that Best Buy will be successful on the music instruction end, and it’s the instructors that give the store selling instruments its authenticity. I’m all for experimentation – and they can’t all be hits. Though I don’t like betting against Best Buy, this is one idea I think will be a miss.