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Chapter 14 Reframing Retail Strategy

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1 Chapter 14 Reframing Retail Strategy

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 satisfaction Eg, East Germans’ “choice” enhancement after the Berlin Wall Fell 1989 Satisfaction drives repeat purchasing, and thus profitability

3 Three Eras of Retailing
Timing is idiosyncratic with regards to country and culture Some are still in era one Going to market ~ “To Market” Generally prior to 1900 “Marketing to” customers Generally after 1900 “Marketing with” customers Last couple of decades, yet degree of use is limited

4 “To Market” Retail success largely seen as resulting from:
Distribution, and e.g., Plentiful and timely supplies Inventory management e.g., Fully stocked shelves of new merchandise Largely why retail was synonymous with “the city” Limited transportation/travel and communication infrastructure limited assortment capabilities i.e., the 3 major constraining factors on retail at the time e.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 century Paired with retailer success, many leveraged infrastructure enhancements and began replicating via chain stores But chain operations brought own set of issues Large capital investments & concurrent success of many dominant department stores pushed chains to focus on lower prices and promotion of these lower prices Lower 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 costs Focus on high-turnover goods backed with low price & promotion Shift work to the customer ~ self-service lessens employees In essence, the “Retail Resource Trinity” Model

7 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 copy Constantly seeking to improve profitability requires constant improvement in: Retail space productivity Retail inventory productivity Retail labor productivity Resource efficiency becomes the goal over resource effectiveness as price becomes the deciding factor i.e., The Retail Resource Efficiency Cycle

9 The Retail Resource Efficiency Cycle

10 “Marketing With” Represents a significant shift in retail management thinking & strategy creation Two major areas of change A shift in the way retailers view and manage firm resources An era of active collaboration & long-term relationships between retailers, suppliers, customers, & other stakeholders (employees)

11 “Marketing With” & Resource Management
Operand versus Operant Resources Operand – those that humans act upon or do something to in order to create an effect By very nature can be exhausted or depleted Eg, natural resources, equipment, fixtures, merchandise, etc. Operant – those that can act on or produce effects Rather than being depleted can be grown or expanded Often intangible, yet the reason why harder for others to copy Eg, employee skills, competences (knowledge), capabilities, etc One proxy – price to book ratio 5.08 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 resources Extract as many concessions/benefits from prior to depletion in most efficient manner possible Common examples of one-to-many marketing include: Broadcast media, Employee manuals, Standardized procedures for all employees & suppliers Taken 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 success The remaining marketing- and retail-mix variables are only important to the extent that they help to better meet needs/wants of stakeholders Recognition 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 involves Doing something of benefit for others (i.e., stakeholders) Interaction because deeds, processes, etc. aren’t done in isolation Application of knowledge & skills that are unique, operant resources which establish the basis for one’s differential advantage Service 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 Good Goods have a job they perform (i.e., help you perform a job) Thus, all goods are service appliances that create solutions What are you buying when you purchase a drill bit? A toaster? Via Education Education & demonstration enables the customer to better use and experience the product purchased Cooking demonstrations at Williams-Sonoma enhance ability to use cookware at home.

16 IHIP Characteristics & SD Logic
Traditional-services marketing Views services as distinct from goods & in possession of less desirable characteristics IHIP: Intangible, heterogeneous, inseparable, & perishable SD Logic adopts perspective that all market offerings should strive to have & highlight IHIP characteristics What are you buying when you buy… A BMW automobile (a good), or Jewelry 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 Logic Services are: Heterogeneous b/c each customer receives something different Inseparable b/c they are provided & consumed simultaneously Perishable b/c they can’t be inventoried Goods are: Homogenous b/c standardized Separable b/c produced away from customer in factory Nonperishable b/c they can be inventoried Goods are also IHIP: Heterogeneous from the customer’s perspective b/c each uses & experiences differently & uniquely Inseparable b/c there’s no value until they are used, and in use, one co-creates value with the producer simultaneously EG – An iPad’s value is Apple’s service provided when you use so location is separate, but not the service provision Perishable b/c of obsolescence, recycling, sharing, etc. Services need not perish if viewed from the customer’s experience Education 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 skills People are always co-creators of value Just like the kitchen appliance (i.e., used to create value), all goods are used to create some type of value All people are resource integrators Customers integrate market resources, often from several retailers, with public & private in order to create an experience Each person determines value uniquely Everyone 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 extreme The customer & his/her daily life informs all firm decisions Thus, the goal is to enhance density The 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.

20 The Customer as an Operant Resource

21 Engagement The degree to which customers interface, experience, & connect with various actors (retailers, etc.) in the economic system Interfacing Corresponds to every interaction between the customer and retailer Goal is to make each as pleasurable & easy as possible Experiencing The cognitive & affective responses resulting from interfacing Goal is to understand how every interaction leads to a pleasurable experience Connecting The 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 value Two avenues for actively producing value: Co-production A continuum pertaining to the degree to which the customer is actively involved in the performance of the retailer’s core activities e.g., from entirely self-service (including checkout) at the highest extreme to personal shopping, etc. at the other Important to note that there will always be some degree of co-production, but it might be quite minimal* Co-creation Everyone who purchases or uses a product* is a co-creator of value Value is the knowledge, skills, etc. imbued in a product & experienced in use Co-creation is at the heart of what value truly is received.

23 Relieving & Enabling Value stems from not only co-production and co-creation, but also the degree to which individuals are relieved and/or enabled via a product* Relieving The degree to which other tools, people, informational aids, etc. assist in eliminating certain tasks or making them easier Enabling The 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 perform e.g., One-stop shopping, in-store banking, cooking demonstrations etc

24 Dialogue Customer-centricity views advertising and promotion as a service and tool for building and maintaining relationships – not a means to sell Dialogue marketing involves learning together Requires Openness & a sharing/assisting mentality in communications Active involvement in the community one’s seeking to reach Common examples include Externally Social media networks and blogs Internally Social 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 value Understand “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 thing Often believed to be a “control” issue Management/employee control need not be “lacking” “Sticking to the plan” could be to blame Failure offers learning & enhancement opportunities Three Different Types of Learning: Single-Loop Learning Double-Loop Learning Triple-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 thought Is focusing on margins (e.g., PM) instead of simply dollar figures good enough, or Perhaps one should use ROA, which includes more of an efficiency component, but Could too much attention to ROA push one to “gamble” by playing with AT, …

29 Triple-Loop Learning Learning via questioning the appropriateness of the current business model & reframing Unlike 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 reframing Consider future changes in form, time, place, & possession With 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.

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