2 Reframing Retail Strategy Major drawback of traditional retail thought…Retailing ≈ Merchandising ≈ Goods (Tangible Offerings)One “constant” of retail success:Improvement in “choice” increases customer satisfactionEg, East Germans’ “choice” enhancement after the Berlin Wall Fell 1989Satisfaction drives repeat purchasing, and thus profitability
3 Three Eras of Retailing Timing is idiosyncratic with regards to country and cultureSome are still in era oneGoing to market ~ “To Market”Generally prior to 1900“Marketing to” customersGenerally after 1900“Marketing with” customersLast couple of decades, yet degree of use is limited
4 “To Market” Retail success largely seen as resulting from: Distribution, ande.g., Plentiful and timely suppliesInventory managemente.g., Fully stocked shelves of new merchandiseLargely why retail was synonymous with “the city”Limited transportation/travel and communication infrastructure limited assortment capabilitiesi.e., the 3 major constraining factors on retail at the timee.g., Macy’s (NY) included apparel factory to supply rather than rely on a supply chain – even in New York city which was “large” at time
5 “Marketing To”Many transportation & communication constraints alleviated with 20th centuryPaired with retailer success, many leveraged infrastructure enhancements and began replicating via chain storesBut chain operations brought own set of issuesLarge capital investments & concurrent success of many dominant department stores pushed chains to focus on lower prices and promotion of these lower pricesLower price means more transactions in order to maintain profit levels.Retailing becomes more about efficiency & selling than service & uniquely solving customer needs
6 “Marketing To” (cont.) The “earn & turn” mass merchandising formula: Function of three (3) tasks:Locate in low-cost areas to minimize operating costsFocus on high-turnover goods backed with low price & promotionShift work to the customer ~ self-service lessens employeesIn essence, the “Retail Resource Trinity” Model
8 “Marketing To” Creates an Efficiency Trap Mass merchandising leads to an “efficiency trap”In trying to be attractive to all, it’s ideal for no one…So where’s the retailer’s differential advantage?The trinity-model is easy to copyConstantly seeking to improve profitability requires constant improvement in:Retail space productivityRetail inventory productivityRetail labor productivityResource efficiency becomes the goal over resource effectiveness as price becomes the deciding factori.e., The Retail Resource Efficiency Cycle
10 “Marketing With”Represents a significant shift in retail management thinking & strategy creationTwo major areas of changeA shift in the way retailers view and manage firm resourcesAn era of active collaboration & long-term relationships between retailers, suppliers, customers, & other stakeholders (employees)
11 “Marketing With” & Resource Management Operand versus Operant ResourcesOperand – those that humans act upon or do something to in order to create an effectBy very nature can be exhausted or depletedEg, natural resources, equipment, fixtures, merchandise, etc.Operant – those that can act on or produce effectsRather than being depleted can be grown or expandedOften intangible, yet the reason why harder for others to copyEg, employee skills, competences (knowledge), capabilities, etcOne proxy – price to book ratio5.08 ratio = $4.08 generated in intangible for every $1 in tangible
12 “Marketing With” & Long-term Relationships From “One-to-Many”…“Classical” marketing (i.e., Marketing To)Viewed all stakeholders as essentially operand resourcesExtract as many concessions/benefits from prior to depletion in most efficient manner possibleCommon examples of one-to-many marketing include:Broadcast media,Employee manuals,Standardized procedures for all employees & suppliersTaken to the limit one will run out of suppliers, customers, employees as all are seen as exhaustible
13 “Marketing With” & Long-term Relationships To “Many-to-Many”…“Service-Dominant-Logic” marketing (i.e., Marketing With)Recognizes that all stakeholders can be proactive, both positively & negatively, in affecting retailer success (i.e., operant resources)Views customers, and more broadly all the retailer’s stakeholders, as central to the retailer’s long-term successThe remaining marketing- and retail-mix variables are only important to the extent that they help to better meet needs/wants of stakeholdersRecognition spurred largely via the presence of many-to-many communication networks (e.g., Twitter, Facebook, etc.)
14 A Service-Dominant (SD) Logic or Mindset Service is the cornerstone of SD Logic & corresponds to:The application of knowledge & skills, through deeds, processes, & performances, for the benefit of another.Thus, service involvesDoing something of benefit for others (i.e., stakeholders)Interaction because deeds, processes, etc. aren’t done in isolationApplication of knowledge & skills that are unique, operant resources which establish the basis for one’s differential advantageService is not simply the opposite of a tangible good; it’s the reason for the good in the first place
15 Three Forms of Service Service as a Transcending Concept Service can be provided in three (3) primary forms:Directly (most common view)Indirectly Via a GoodGoods have a job they perform (i.e., help you perform a job)Thus, all goods are service appliances that create solutionsWhat are you buying when you purchase a drill bit? A toaster?Via EducationEducation & demonstration enables the customer to better use and experience the product purchasedCooking demonstrations at Williams-Sonoma enhance ability to use cookware at home.
16 IHIP Characteristics & SD Logic Traditional-services marketingViews services as distinct from goods & in possession of less desirable characteristicsIHIP:Intangible, heterogeneous, inseparable, & perishableSD Logic adopts perspective that all market offerings should strive to have & highlight IHIP characteristicsWhat are you buying when you buy…A BMW automobile (a good), orJewelry from Tiffany’s (a store)Brands etc. are IHIP, else they’d be commodities
17 The “Traditional” vs. SD Logic Perspective Traditional Services Mktg.SD LogicServices are:Heterogeneous b/c each customer receives something differentInseparable b/c they are provided & consumed simultaneouslyPerishable b/c they can’t be inventoriedGoods are:Homogenous b/c standardizedSeparable b/c produced away from customer in factoryNonperishable b/c they can be inventoriedGoods are also IHIP:Heterogeneous from the customer’s perspective b/c each uses & experiences differently & uniquelyInseparable b/c there’s no value until they are used, and in use, one co-creates value with the producer simultaneouslyEG – An iPad’s value is Apple’s service provided when you use so location is separate, but not the service provisionPerishable b/c of obsolescence, recycling, sharing, etc.Services need not perish if viewed from the customer’s experienceEducation doesn’t perish (hopefully)
18 4 Principles of SD Logic Service is the basis of exchange What is exchanged in the fish & wheat example?Not a good or output, but processes and skillsPeople are always co-creators of valueJust like the kitchen appliance (i.e., used to create value), all goods are used to create some type of valueAll people are resource integratorsCustomers integrate market resources, often from several retailers, with public & private in order to create an experienceEach person determines value uniquelyEveryone experiences products in use differently, & even families will each experience a shopping occasion differently
19 Customer-Centric Retailing Most marketing & retail decision-making “puts the customer first,” but…Customer-centricity goes to the extremeThe customer & his/her daily life informs all firm decisionsThus, the goal is to enhance densityThe best combination of resources that are mobilized to a time & place for a particular individual to solve one’s problems or enable one to pursue opportunities at an optimal value or cost.e.g., Google, Amazon, The Coca-Cola Freestyle Vending Machine, etc.The “Customer-Consultant” or “Buying Agent”Greatest opportunity for the future of retail is becoming an advisor of density and integrator of resources.
21 EngagementThe degree to which customers interface, experience, & connect with various actors (retailers, etc.) in the economic systemInterfacingCorresponds to every interaction between the customer and retailerGoal is to make each as pleasurable & easy as possibleExperiencingThe cognitive & affective responses resulting from interfacingGoal is to understand how every interaction leads to a pleasurable experienceConnectingThe degree of bond that a customer has as a result of one’s interfacing and experiencing with a particular retailer.
22 Co-Production & Co-Creation Customers actively participate in creating valueTwo avenues for actively producing value:Co-productionA continuum pertaining to the degree to which the customer is actively involved in the performance of the retailer’s core activitiese.g., from entirely self-service (including checkout) at the highest extreme to personal shopping, etc. at the otherImportant to note that there will always be some degree of co-production, but it might be quite minimal*Co-creationEveryone who purchases or uses a product* is a co-creator of valueValue is the knowledge, skills, etc. imbued in a product & experienced in useCo-creation is at the heart of what value truly is received.
23 Relieving & EnablingValue stems from not only co-production and co-creation, but also the degree to which individuals are relieved and/or enabled via a product*RelievingThe degree to which other tools, people, informational aids, etc. assist in eliminating certain tasks or making them easierEnablingThe degree to which other tools, people, etc. assist one in the performance of service for themselves or others that they would otherwise be unable to performe.g., One-stop shopping, in-store banking, cooking demonstrations etc
24 DialogueCustomer-centricity views advertising and promotion as a service and tool for building and maintaining relationships – not a means to sellDialogue marketing involves learning togetherRequiresOpenness & a sharing/assisting mentality in communicationsActive involvement in the community one’s seeking to reachCommon examples includeExternallySocial media networks and blogsInternallySocial networking and other collaborative tools for not only employees but also suppliers
25 Value Propositions Again, A statement of the tangible and/or intangible results one receives from shopping at & using the retailer’s products*Forget the “holy grail” of price & economic valueUnderstand “value” from the customers’ perspective (in use)How do they use your products to create value?What other products (resources) do they integrate with yours to create value?What are the total costs (not necessarily financial – e.g., time, social, etc.) to the customer in using your products?How does the value proposition resonate with your other stakeholders (e.g., are employees excited about uniquely serving the customer)?
26 Developing a Learning Mindset Failure isn’t always a bad thingOften believed to be a “control” issueManagement/employee control need not be “lacking”“Sticking to the plan” could be to blameFailure offers learning & enhancement opportunitiesThree Different Types of Learning:Single-Loop LearningDouble-Loop LearningTriple-Loop Learning
27 Single-Loop Learning Learning via a single source of feedback In the context of a management plan:“Learning” through corrective action which is triggered whenever the retailer recognizes it’s performing below some pre-established target goal.SPM example:If ROA target is set at 16% but current operations are yielding a ROA of 10% and PM of 4%, corrective action is needed.What’s the easiest corrective action?Boost one’s AT from 2.5 to 4 (see Ch. 2 on how both numbers were determined*)But recall how doing so could boost “stock-outs” (our “Stock-Out” math problem*)
28 Double-Loop Learning Learning via a double source of feedback In the context of a management plan:Learning through introspection wherein the retailer elicits feedback on not only whether it is meeting targeted goals, but also if the goals/measures it has chosen to go after are the appropriate, or “right,” ones in the first place.SPM example:Recall our “what is profit” discussion…Just like profit figures need context (e.g., from sales of what? ~ PM),Determining what metrics to go after need careful thoughtIs focusing on margins (e.g., PM) instead of simply dollar figures good enough, orPerhaps one should use ROA, which includes more of an efficiency component, butCould too much attention to ROA push one to “gamble” by playing with AT, …
29 Triple-Loop LearningLearning via questioning the appropriateness of the current business model & reframingUnlike in single- and double-loop learning, the retailer asks not only“are we doing things right” (i.e., single-loop), and“are we doing the right things” (i.e., double-loop),But also“what is the right business model ”Triple-loop learning underscores the idea of reframingConsider future changes in form, time, place, & possessionWith constant attention to one’s value proposition and why customers choose to shop one’s store
30 What You Should Have Learned… Chapter’s Learning Objectives Describe the three eras of retailing and what distinguishes them.Define service according to a service-dominant logic and explain the four principles of service-dominant logic.Explain how customer centricity is essential in contemporary retailing.Discuss the central importance and imperative of continuous learning in retailing.