Friday, September 12, 2008

Scrambled Merchandising

You've seen it all around you - now there's a term for it. Scrambled Merchandising refers to a practice by wholesalers and retailers that carry an increasingly wider assortment of merchandise. It occurs when a retailer adds goods and services that are unrelated to each other and to the firm's original business.

It used to be that you went to a drug store for drugs, hardware store for hardware, a pet store for pet food and a grocery store for groceries. Now you can buy groceries at the drug store, find pet food at the hardware store and get anything you want at Wal-Mart or Target, not to mention Zappos or Amazon.

The Consumer Electronics Association presented at RetailVision results from a recent consumer survey about buying preferences: 25% would be willing to buy consumer electronics products from Starbucks, 30% from Ikea, 40% from Bed, Bath & Beyond and almost 60% from Home Depot. What does this mean for category leader Best Buy? For Radio Shack? For Circuit City? How can any retailer facing inroads from non- traditional competition protect its turf and retain its customers?

The answer lies in understanding how people make decisions about where to shop. Our research says there are generally two main considerations: the likelihood that the store will satisfy the requirements (i.e., Selection) and the availability of knowledgeable help (i.e., Expertise). Price, location, and loyalty are usually secondary. Last year in researching the home center market we learned that people go to Home Depot when they feel pretty confident about what they're doing because Home Depot has the best selection. Conversely, when help is needed, consumers will trade off a little selection to make sure they can talk to a real person who knows what they are talking about. In category after category, we have seen this same basic tradeoff.

So, should Best Buy be worried about Home Depot moving into electronics? Hardly. For Home Depot to make a go of it, they'll have to change a lot. Top priority would be to get more employees in the stores to answer people's questions. The folks at Home Depot are friendly enough and if you can find them, they are actually helpful. Problem is, for cost reasons, employees are few and far between at most Home Depots. Even though we're comfortable buying CE, we still have questions, or unique situations that require talking to someone. As long Best Buy keeps innovating the customer experience, they should be able to defend against scrambled merchandising.

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