Category Archives: Retailing

Online Retailing – How Profitable are Impulsive Shoppers?

Impulsive shoppers are customers of online retailers that don’t think twice to buy a product online. For that reason they are targeted by most online retailers. However, the same characteristics that make behaviour of certain customers impulsive, may also affect their post purchase behaviour.

So let’s have a look at impulsive shoppers. Who they are? What motivate then? And how online retailers should manage them?

What is impulsive shopping?

Impulse shopping occurs when a consumer experiences a sudden, often powerful and persistent urge to buy something immediately 1. Impulsive shopping is part of the consumer buying behaviour process. Yet it differs from the traditional model, because impulsive shopping in contrast with ‘normal’ shopping is usually unplanned.

Who are impulsive shoppers?

How many times have you returned from the shopping center with products you don’t need or didn’t intent to buy. Similarly, when the doorbell rings and you receive a packet, and shockingly only remember then that you’ve bought something online only a couple of weeks ago.

Don’t stress, you’re not alone. It is estimated that impulsive shopping in the USA accounts for 80% in sales of certain product categories 2. Also that impulsive buying is more prevalent with new products. Here are more facts about impulse shoppers 2:

  • Gender – women tend to be more impulse shoppers than men;
  • Age – people under 35 years are more impulsive shoppers than older persons;
  • Culture – individualistic people are more impulsive shoppers than people living in collectivist cultures.

The mood and personality traits of people also affect their urge to do impulsive shopping. People with positive moods love impulsive shopping. In the same way, people with negative moods may use impulsive shopping to feel better 2. Also, people who enjoy a pleasant experience whilst shopping, tend to be impulsive shoppers 2.

A study to investigate the relationship between personality traits and compulsive shopping indicated the following 3:

  • There is a positive relationship between people with emotional instability (anxiety, moodiness, irritability, and sadness) and impulsive shopping;
  • People that are more imaginative, cultured, curious, original, broad minded, intelligent and artistically sensitive are more likely to display Impulsive-buying behaviours;

So that’s your impulsive shopper. No let’s do business with them!

Targeting and managing impulsive shoppers

If you take into consideration the traits of impulsive shoppers that were discussed under the previous heading, you may match your product, brand and content with you customer’s gender, age, culture, mood and personality.

However, to target and manage impulsive shoppers successfully, you need to know their shopping behaviour. It’s therefore very important to gather and analyse your customer’s data. Or, if you are a start-up, buy external data (customer lists) to analyse and use.

You can create a profile of your impulsive shoppers using the answers that the data provide. So, you need to communicate brands, products and content to the customers you target to trigger their urge to shop. Also important is to find out where they hang out online (social groups, Facebook pages, etc) to publish your content there.

How profitable are impulsive shoppers?

“As of now, e-commerce has already become a part of our online agenda, mainly because of how easy and hassle-free it is to go shopping online”, said Catalin Zorzini from Ecommerce Platforms.

The internet has made it easier for people to shop. Everything is so simple. You’ve got large variety products to choose from and it’s easy to compare prices.  After all, the sale is just a click away. Retailers have never had is so good…

But, there is the other side. Now the customer has received the stuff he bought online, it’s a week later, and he decided the buy was a bad decision. So, after reading the retailer’s return policy, he just do that – return the product.

And now your impulsive buyers that you’ve spend many dollars to find on Facebook, is costing your money. The solution – rather build a solid relationship with loyal customers. Loyal customers that are impulsive shoppers are profitable.

Conclusion

Every shopper is unique and therefore behaves differently under similar conditions. Nevertheless, the internet gives us the opportunity with big data and web analytics to know each customer personally and how he behaves when he is shopping.

Best is to make every impulse shopper a loyal shopper by personalizing their content and product offering.

Read also: Hi I’m you emotional customer. Can you please help me?

Notes

1 Verplanken, B. and Sato, A. 2011. The psychology of impulse buying: An integrative self-regulation approach, Journal of Consumer Policy, 34(2):197-210.

2 Kacen, J.J. and Lee, J.A. 2002. The influence of culture on consumer impulsive buying behaviour, Journal of Consumer Psychology, 12(2):163-176.

3 Shahjehan, A., Qureshi, J.A., Zeb, F. and Saifullah, K. 2012. The effect of personality on impulsive and compulsive buying behaviors, African Journal of Business Management, 6(6):2187.

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Pixabay

 

Targeting a Niche Market is a Way for Small Online Retailers to Sidestep Big Competition

The market dominance of the online retail giant Amazon.com and multi-channel retailer Walmart is a huge barrier for anyone who wants to start selling products online.  As a result, the big retailers can be found anywhere online. They offer a large variety of products at ridiculous low prices. Moreover, they promise to deliver products within a couple of days of ordering. And they take the return of products in their stride. So, how on earth can you, as an owner of a Shopify or Woo Commerce website, compete with Amazon and Walmart? The answer is to develop a niche market for your business.

What is a niche market?

A niche market is a small market segment with customers that have specific interests or needs 1. Contrast that with a mass market where retailers such as Amazon and Walmart target as many people as possible. As a result their product offerings are wide and deep and they target generic audiences all over the world. These large retailers that compete in mass markets seem to have unlimited financial resources to enjoy a sustainable competitive advantage with all aspects of the retail mix.

But, you don’t want to compete with Amazon or Walmart, do you?  Therefore it may be worthwhile to consider a niche market.

The characteristics of a niche market are as follow: 2

  1. The customers in the niche have a distinct set of needs;
  2. They will pay a premium price to the firm that best satisfies their needs;
  3. A niche is not likely to attract competitors;
  4. The niche marketer gains certain economies through specialization; and
  5. The niche has size, profit, and growth potential.

So, it’s looking good thus far! But how can you develop a niche market for your business?

How to develop a niche market for you retail business

Although niche marketing and market segmentation seems like the same thing, there is a fundamental difference. Market segmentation is a top-down approach, stating that it is “the process of breaking a large market into smaller and more manageable sub-markets.” By contrast is niche marketing a bottom-up approach, meaning that “the marketer starts from the needs of a few customers and gradually builds up a larger customer base.” 2

Five important elements of a niche market are: 2

  1. Positioning – offer a product that satisfy a unique need with the segment;
  2. Profitability – customers in the segment must be willing to pay a premium for your product or solution;
  3. Distinct competence – you should quickly be seen as an expert by the customers in the niche market;
  4. Small market segments – means that you can focus on the customers’ needs and pickup more quickly on developing trends;
  5. Adherence to the marketing concept – the philosophy that firms should analyze the needs of their customers and then make decisions to satisfy those needs, better than the competition.

Next you must communicate with customers in you market niche.

Niche marketing

Many small and new retailers choose to operate in niche markets. They deal mostly in specialized or unusual products which cannot be found easily elsewhere like departmental outlet or supermarkets. These retailers need to be found in places where it is easy for customers to seek them out.

One of the places where customers can search for special products is the internet. Astute marketers in a niche market can, by using the right digital marketing tools, get right in the faces of their target audience.

The ability of online retailers to help customers locate, evaluate, and purchase a far wider variety of products than they can via traditional brick and mortar channels is an important characteristic of the internet channel. Active search tools allow customers to easily locate products they know they are interested in. Even more, they can help them to identify products they weren’t previously aware of. 3

Customers that are seeking unusual products are more likely to join online communities on social media sites with relevant topics. As a result, retailers may not only find and learn from customers in on social media, but positive feedback about their brand may lead to more site visits.

A great idea for retailers is to create discussion groups on their own websites. Get a couple of known influencers to publish or interact with your audience. This may give your brand an ‘expert’ states in the niche market. Equally important is regular and informed communication (a newsletter via email) to keep the attention of your special group customers.

Benefits of Niche Marketing

Kirsten McCormick in TriveHive lists the following benefits of niche marketing:

  1. Enhanced Customer Relationships. A small customer base has its benefits. So, when you are engaging with fewer people, you can focus on the quality of those engagements and on nurturing your relationships.
  2. Reduced Competition. When you have a highly specific product or service, there will be less companies out there with the exact same offering.
  3. Increased Visibility. Increased visibility is a benefit of niche marketing that not only leads to more customers but can also improve your online presence.
  4. Word of Mouth Growth. Another benefit of niche marketing is that it is very word-of-mouth-friendly. Indeed, people in a niche tend to be in frequent contact with others in that niche, which means more opportunities to get the word out about your business.
  5. Honed Expertise. Niche marketing requires more concentrated practice in one area, so it can really fine tune your expertise in a shorter time period. Hence the benefit of niche marketing is that it enables you to become an expert or thought leader in your niche.
  6. Less Resources. One important part of effective digital marketing is identifying and understanding your audience, which requires an investment of time and money on data and analytics tools. The benefit of niche marketing is that because you are confined to a specific person and a specific need, less focus is required on digging into your data to understand and keep up with their needs.
  7. More Fun. Businesses don’t always pick their niche and pursue it. Oftentimes, they accidentally find their niche in the process of serving their target audience.

Disadvantage of niche marketing

Because the customer base of a niche market may be small, the potential for the retailer to grow her business can be limited. However, says Ash Ome in DigitalDevelop.net “Despite a few disadvantages, the niche marketing with drop ship has so many advantages that will surely take your small business towards success.”

Concluding

The retail industry is in the midst of disrupting events that are shaping its future. Most Brick and Mortar retailers are adding the online channel to their business. At the same time are Pure Play online retailers adding physical stores to the business.

And then there is Amazon.com. But the answer remains to get a niche market for your business. That’s especially true for the millions of Shopify and Woo Commerce drop shipping retailers trying to make money in the online channel…

Read more: Thinking About Competing With Amazon.com? Think Again…

Notes

1 Choudhary, S. 2014. Rooting by niche marketing, International Journal of Advanced Research in Management and Social Sciences, 3(10):84-91.Contrast

2 Parrish, E.D., Cassill, N.L. and Oxenham, W. 2006. Niche market strategy for a mature marketplace, Marketing Intelligence & Planning, 24(7):694-707.

3 Brynjolfsson, E., Hu, Y.J. and Smith, M.D. 2006. From Niches to Riches: Anatomy of the Long Tail, MIT Sloan Management Review, 47(4):67-71.

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Product Returns may Destroy Small Online Retailers

Product returns is getting unaffordable for most small online retailers. However, online retailers who don’t accept product returns will hardly sell any products – especially if it is clothing. That is because retailers need to accommodate the risk of their customers for buying their products online.

A reasonable return policy will give online customers ‘peace of mind’ since they can return products that they don’t like or can’t use.  Yet, this reassurance that retailers give their customers usually comes at a high price.

Retailers spend big money to get unwanted products back from their customers because the “last mile” of fulfillment needed to be reversed. As a result retailers must arrange for the collection of unwanted products from customers.

Also they need to dispose of the products or, alternatively, refurbish, restock and resell them through their own channels or through an inventory liquidator. And they’re losing lots of money and time in the process.

Moreover, there are criminals that can use your lenient product returns policy to their advantage. The costs are sadly for your account…

The cost and occurrence of product returns for online retailers

The occurrence of product returns is indeed a big headache for online retailers. Adam Minter, a columnist at Bloomberg reported recently that about 25% of all the products that are sold online are returned. And, continues Adam, 50% of these returned products are clothing.

In fact, online retailers have little choice but to offer lenient return policies to their customers. They can’t expect buyers to take the risk of buying clothes or shoes online that doesn’t fit. Moreover, the shape and color of clothing looks sometimes much different in real life as what it appear on a computer screen.

Therefore some online retailers receive as little as 15 c to a Dollar spent back on returned good (Bloomberg).

Reasons for product returns

So why is the incident of product returns so high with online retailers?

  1. Customers aren’t happy with the merchandise because it looks and feels different as what they have expected;
  2. With clothing, it may be the wrong size or colour;
  3. It may be an unwanted gift from somebody;
  4. Or it may be that a wrong product has been send;
  5. Or, more sinisterly:
    1. The customers are wardrobing – they purchase the product, use the item once only to return it again to the retailer (e.g. an expensive evening gown);
    2. Sometimes criminals return stolen goods to retailers that are willing to accept goods without a receipt.

How can online retailers solve the product returns problem?

The occurrence of product returns can impose substantial costs on online retailers. If the returns are getting out of hand, it may even cause the closure of the retailer. Here are some suggestions to tackle the problem:

  • Get a physical store – if you are a pure play online retailer or if you plan to include the online channel in your retail start-up. A Bricks and Mortar store can serve as a place where online customers can return their purchases and gives them a chance to try and buy other product in the store.
  • Use outsourced drop-off spots – it’s a service that most Logistic Service Providers offer;
  • Identify those customers who tend to abuse your return policies. Don’t sell anything to them. However, make sure you don’t penalize customers who have legit reasons to return their products.
  • Make your return policies more stringent. You will most probably have fewer returns and unfortunately also fewer sales. Your customers won’t take the risk of buying your products online if they can’t return it.
  • Charge for returns. It seems the logical answer to all your product return problems. However, one comment read the following “Unless amazon takes away free returns I doubt anybody else will be able to.” And that says it all…
  • Incorporate the cost of your returns into your pricing. You can do it only if you run your business cost-effectively. If you price your products too high, your customers will find the same product at a better price online.

Concluding

Much has been said about how the advent and growth of online retailing have caused the demise of Brick and Mortar retailers. The huge cost of product returns may however prove to be the greatest leveler in the retail industry.

It’s no surprise that pure play online retailers, for example Amazon, are now acquiring physical stores.  They’d realized that their customers need to feel and fit their products and a Brick and Mortar store may at the same time serve as a collection hub for returned products.

Lastly, if your competitor doesn’t charge for product returns, so should you.

Read also: Order Fulfilment in Omni-Channel Retail – the “Last Mile Delivery” most Retailers Fail to Complete

Note:

Laseter, T.M. and Rabinovich, E.  2011. Internet retail operations: integrating theory and practice for managers, CRC Press.

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GetThatWholesale.com

Hi, I’m your Emotional Customer. Can you please help me?

There’s an emotional customer in all of us. In fact, emotional experience connotes the whole range of our feelings, including anxiety, fear, apathy, euphoria, depression, sadness, anger, and grief 1. I’m sure we’ve all experienced some of these feelings as a result of our emotional state.

Our emotional state is important because it affects our decisions before and while we’re shopping 2. And all retailers need to know it…

Now, picture yourself as an emotional customer. So, one morning you wake up, and, getting out from the wrong side of the bed, and you feel miserable. But wait, maybe it’s the perfect day to go shopping, I’m sure I’ll feel better…

You’ve made an emotional decision because – hey you’re only human…

The shopping behavior of an emotional customer

Of all the behaviors we possess, the decision to go shopping is one of our most purposeful 3. Apart from buying the products that we need, we also shop to experience entertainment, recreation, social interaction, or intellectual stimulation.

Although purposeful shopping suggests that we should do thinking and planning before purchasing, that’s not always the case. Most of us still relies on our “gut feeling” when we decide to go shopping.

So, in spite of us being so clever and having all the info, technology and tools, we mostly cope with our lives by making emotional decisions. “Decisions cannot be made solely based on logic as they may have pros and cons on both sides and simply may be too complex”, suggests Kane Simms in Guided Selling.

Now retailers need to depend on their customer’s “gut feeling” to make their shopping experience a memorable one…

Selling to an emotional customer

Every customer that walks into your store is in a specific state of mind. Indeed, Robert Taibbi in Psychology Today lists the six most common states of mind as follows:

  1. Rational. This is the gold standard, the middle of the road, the prefrontal lobes fully engaged; where you use emotions as information.
  2.  Anxious. We all know this one. It’s about the future, the what-ifs, disasters and butterflies in the stomach.
  3. Depressed. If anxiety is about the future, depression is often about the past – mistakes, regrets, roads not taken.
  4. Angry. We plot revenge, we say over and over how unfair this is, in place of anxiety’s butterflies this is a raging volcano.
  5.  Fear. Anxiety is worry; everyday fear (not battle-zone fear, surgery fear) is often tied to easily-activated little-kid fears. It’s here where you feel intimidated by someone even though in your rational mind you realize there’s no sane reason to.
  6. Rebellious. Like fear, there’s usually a little-kid element to this as well. There’s resentment and a bit of passive-aggressiveness or simple digging in of heels.

How do retailers cater for the states of mind of an emotional customer?

To create a store atmosphere conducive to buying, a retailer should establish in the consumer a frame of mind that promotes a buying spirit.

A fix retail setting may be perceived differently by every individual customer entering the store. It has mostly to do with the store’s psychological environment. In essence, a store’s psychological environment is the mental image of the store produced in the customer’s mind 4.  Also, our emotional reactions can be guided by sensory information.

Here’s how a retailer can use sensory appeals to affect a favorable store image and a pleasant shopping environment for an emotional customer 4

  • Sight Appeal. The sense of sight provides people with more information than any other sensory mode. For example: Lighting is used to highlight merchandise, sculpt space and capture a mood or feeling that enhances the store’s image.
  • Sound Appeal. Sound can either enhance or hinder a store’s buying atmosphere. For example: music in supermarkets affects the average time spent in the store.
  • Touch Appeal. For most products, personal inspection (handling, squeezing, and cuddling) is a prerequisite to buying. Before buying a product, the average consumer must at least hold it, even if it cannot be removed from its package. The chances of a sale increase substantially when the consumer handles the product.
  • Taste Appeal. For some food retailers, offering the consumer taste appeal might be a necessary condition for buying. This is often the case with specialty foods such as meats, cheeses, and bakery and dairy products.
  • Smell appeal. Smell has the greatest impact on our emotions and retailers add fragrances to enthuse a certain mood in shoppers. For example, some retailers are using a chocolate scent at the entrance of their stores in an attempt to entice customers to enter the stores.

However, for retailers to use sensory appeals to influence the mindsets of their customers there need to be customers in their stores. Physical retail stores are losing most of their customers to the online channel.

How does the online retail channel appeals to an emotional customer?

Just as with the retailer owning a physical shop, the online retailer wants to create a pleasant emotional online experience for her customers. Indeed, everything about your website – from the colors to the copy – should work to arouse the emotions of customers, according to Virginie Kevers in Emolytics.

The online channel doesn’t (not yet) offer a way for retailers to use sensory experiences like touching, smelling and tasting to influence the buying behaviors of their customers. However, the use of visual and audio sensory experiences can, with the help of a variety of online marketing tools, help convince customers to buy products online.

That’s not all. The internet is an ideal platform for customers that are highly involved in the purchasing process. These customers are interested in gaining more information about the product and processing product information in greater detail, presumably because they are more concerned about making the right decision 3. Therefore, an emotional customer’s need for intellectual stimulation can be taken care of by online retailers.

The online social media platforms are great for the emotional customer to announce her state of mind: : She’s rational; anxious; depressed; angry; afraid or  fed-up. Wow, here the savvy retailer may get to know his products and customers better with little effort…

Concluding

There’s no doubt that your customer’s state of mind has a huge affect on where and what she buys. Because we are all customers, I think we can easily relate to that. It’s a pity that the contribution that physical stores made in catering for the emotional needs of their customers is diminishing. That’s because of the massive closures of physical retail shops.

However, the online retail channel offers additional and more focused opportunities to satisfy the emotional needs of retail customers. And, together with that, can retailers now communicate personally with their emotional customer, online of course.

What is next? Only time will tell if retail customers will bond emotionally with robots and other AI devices. Then again…

Read also: The Joy of Shopping

Video: 8 Emotional Triggers That Get Customers To Buy


Notes

1 Goetz, C.G. ed. 2007. Textbook of clinical neurology (Vol. 355), Elsevier Health Sciences.

2 Sherman, E., Mathur, A. and Smith, R.B. 1997. Store environment and consumer purchase behavior: mediating role of consumer emotions, Psychology and Marketing, 14(4):361-378.

3 Puccinelli, N.M., Goodstein, R.C., Grewal, D., Price, R., Raghubir, P. and Stewart, D. 2009. Customer experience management in retailing: understanding the buying process, Journal of Retailing, 85(1):15-30.

4 University of South Africa 2009. Course in Retail Marketing and Merchandising, Practical Merchandising, Only study guide for CRMM02-X, Centre of Business Management, Pretoria.

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Wikimedia.org

An Icon Department Store Closes its Doors in South Africa

Another department store has lost its battle to stay open. “The end of Stuttafords: After 159 years, ‘Harrods of South Africa’ shuts shop” screams a headline in The Sunday Times.  Wow, so after almost 160 years of guts and glory, Stuttafords has decided to throw in the towel.

What a shame, some of us would think. However, think again. Most people probably didn’t even notice that they are gone… and that’s maybe the reason why they are gone…

Department stores around the world are closing down in heaps. Let’s consider why? The marketing mix (or 4Ps), which is a foundation model in marketing, may help us to explain what went wrong with department stores.

The Marketing Mix (4Ps) as a tactical marketing tool for a department store

In marketing practice, the 4Ps have endured because they provide the four fundamentals of marketing planning and management 1. The 4Ps represent the following 2:

  1. Product – this is the bundle of benefits that the seller offers and the customer receives. The particular set of benefits on offer will appeal to a specific group of customers;
  2. Price – this is the total cost to the customer of adopting the product;
  3. Place – is the location where the exchange takes place;
  4. Promotion – is the marketing communication package used to make the offer known to potential customers, and persuade them to investigate it further.

When I did my reading on this subject, it was quickly evident that department stores start using the 4Ps as strategic marketing tool long before McCarthy 2 introduced his 4P model to the world in 1960. In fact, since the opening of the first department stores in the nineteenth century, retailers had to decide what products to sell to their customers and where to make them available. A department store owner needed to sell her products at the right price and then motivate customers to visit their stores again or to buy more products.

So, after all these years of cumulated business experiences, what went wrong with department stores?

The Products of a department store

Products are at the heart of a department store. As a result, department stores usually are arranged into specific departments carrying lingerie, perfumes, men’s clothing, and so on. Thus, the stores have long aisles with shelves full of products that are arranged by categories. The shelve racks carry only a handful of products with recognizable brands e.g. Levi jeans, and masses of home brand products. But is this what their customers want? Not really.

Because of the lack of customer focus, department stores have lost share to specialty apparel retailers that offer narrower but more focused, easier-to-shop, lifestyle-relevant assortments 3. The growth of specialty stores targeting midlife, up-market women has been particularly problematic for department stores because they precisely target the department store’s traditional core customer…

Apart from losing customers, department stores have a 40% overlap. Same old, same old says Phil Wahba in Fortune: “A shopper can visit four department store “anchors” under one roof and it won’t take long for an expert eye to notice that they were selling much of the same merchandise.” Department stores failed lately to recognize what products their customers want.

Pricing with department stores

As far as the pricing of their products goes, most department stores found it hard to let go of their conventional habits. They accumulate masses of products every year only to sell them later at heavy discounted prices.

Maya Mikhailov, co-founder and CMO of GPShopper described in QUARTZ this discounting dilemma of department stores: “Focusing on meeting quarterly budget expectations has caused retailers to overload on sale-based strategies. This means that American shoppers are addicted to regular discounts, and retailers are paying a heavy price in the form of breaches of trust and brand dilution.”

But this’s not only the commodity-like products that department stores are discounting. The luxury brands are now also in the discount cycles of department stores.

“How desperate are department stores to get shoppers in the door and spending money?” asked Laura Northrup in Consumerist. According to Laura, department stores tried discounting prestige makeup for the first time. She wrote “Like drugs of abuse, discounts are addictive and can require ever-escalating dosages to get the same effect that you got when you first started using them. This has prompted established brands, like as Michael Kors to stop supplying department stores with their products.”

Rather than discounting themselves to obsolescence, department stores should think and do smaller. “Successfully selling a smaller line of products rather than letting a larger line linger into discount obscurity is the new way of doing business” suggested Maya Mikhailov (QUARTZ).

The Place where department stores do their business

The biggest problem with the place where department stores do their business at is that their customers are shopping elsewhere. Also, shopping malls, the bastion of department stores, are getting out of favor with retail customers.

“Shopping malls, once ruled by stores like Macy’s, J.C. Penney, and Sears, are seeing fewer visitors as consumers see them as overpriced and inconvenient. With many U.S. malls on a downward slide, some analysts predict nearly 33 percent will be closed within the next few years” wrote John Houck, contributor at Inquisitr. But closings shopping malls are not their only concern…

The online retail channel has ‘opened new doors’ for the competitors of department stores. Just like Amazon, who has been quietly putting pressure on retailers that specialize in apparel and fashion as it pushes into the market once dominated by brick-and-mortar stores (John Houck, Inquisitr). Some industry experts believe the online giant will own almost 20 percent of the U.S. clothing market in four years.

Now let’s consider the Promotion element of the marketing mix for department stores

Promotion at a department store

Not so long ago, a department store exploited its location, its quality of service and its quality range of products to convey its marketing message. However, the market environment of the department store has changed disruptively over the past decade or so. The bad news is that this changes will continue. Sadly, the department store failed to react to it.

During the past ten years the exponential growth of online shopping was facilitated by advances in ITC and digital technology. Just think of the impact that broadband WiFi and affordable smartphones had on the retail industry…

And it hurts department stores. They’re wondering where their customers have disappeared to, and they seem reluctant to go and find them. If you look at the numbers, you’ll know where their customers are – they’re shopping online. Though the U.S. retail average growth rate in the first half of 2016 was just 2% for total retail, it was 16% for e-commerce (Jonathan Camhi, Business Insider).

Changes in the demographics of the department stores’ customers have affected them badly. The middle class, who in the good old days made up the bulk of a department store’s customers is contracting writes Helaine Olen in Slate. In fact, some of those former middle class folks are now upper-middle-class folks. And those whose income went the other way, are favoring more inexpensive options.

So department stores remained with the middle class – which is not visiting their stores. Well, the rest is history, as the saying goes…

Concluding

Bricks and mortar retailers, many that are now battling to stay open, can take note of what is happening with department stores. Using the 4Ps retailers may consider the following tactics:

  1. Product – less is more, make them unique and part of a positive customer experience;
  2. Price – know what your customer value and don’t sacrifice your brand – give your customer a reason to pay a premium price;
  3. Place – know your customer’s preferences. Follow them where they hang out. Online presence is a must;
  4. Promotion – know your customer better so that you can personalize your marketing message.

Remember that the principles of marketing stay the same, in spite of all the disruption that is taking place in the retail market.

Read also: The State of Retail 2017 – The Unstoppable Force of Change

Notes

1 Donovan, R. and Henley, N. 2010. Principles and practice of social marketing: an international perspective, Cambridge University Press.

2 Blythe, J. 2009. The Marketing Mix, In: Key Concepts in Marketing, SAGE Publications, Inc.

3 Whitfield, M.B. 2004. Department Stores: Smarter Strategies, Chain Store Age, 80(8):26A

Images

  1. Business Live
  2. StaticFlickr.com

The State of Retail 2017 – The Unstoppable Force of Change

What is the state of retail in 2017? What are the movers and shakers doing? And are there any retail stores left to close?

You can hardly keep up lately with all the news, good and bad, about the state of retail. News about customers shopping more online, and using mobile phones to do so. The expansion of Amazon.com to the physical retail channel and Walmart’s effort to mimic Amazon’s online business are also headlines.

Reports of thousands of retail stores closing in the US and elsewhere keep industry commentators and opinionists busy. Many suggest that retail technology may help to stop the rot…

Let’s look further at the matters that influenced the state of retail during 2017.

Retail customers continue to shop more online

There is no doubt that more retail customers are shopping online. The U.S. online sales are expected to reach more than $459 billion in 2017, rising 14% from last year and accounting for 12.9% of the anticipated $3.56 trillion in total retail sales, according to Forrester Research.

And retailer customers shop more online using mobile devices. In fact, according to Justin Smith, CEO of OuterBox,. He said that significantly more people are accessing the web from a tablet or smartphone than a desktop, and they’re doing it with more eCommerce intent than ever before.

The online shopping experience clearly has a major effect on eCommerce sales: The Forrester 2016 Customer Experience Index found that digital retailers delivered 17 positive experiences for every negative one, compared with just 13 among traditional retailers.

Amazon.com is making big moves while Walmart is trying to stay relevant

Amazon.com has made huge progress towards establishing Bricks and Mortar businesses during 2017. According to Dennis Green, writing in the Business Insider, Amazon.com has opened bookstores in major cities like Seattle, Chicago, and New York. He says that the stores operate exactly the same as Amazon’s online bookstore, since they allow visitors to browse a curated selection similar to how it appears on the site. There are currently 11 stores open, with two more on the way.

Even more significant was Amazon.com’s acquisition of natural foods store Whole Foods. Whole Foods was already a national chain with more than 450 stores, but with the power of Amazon behind it, it has the potential to be something even larger (Business Insider).  By the way, Amazon.com paid $13.7 Billion for Whole Foods (Bloomberg). However, with the acquisition of Whole Foods, Amazon.com was entering Walmart’s territory.

So what was Walmart doing during 2017? “Walmart has an annual turnover of $170 Billion and has largest share of US grocery retail sector by far” writes Phil Whaba in Fortune. That means that they really needn’t have to worry about Amazon.com, or do they? Walmart is worrying, and doing something about it…

Walmart is taking the battle with Amazon.com on the latter’s own soil – ecommerce.  “The e-commerce competition between Walmart Stores Inc. and Amazon.com Inc. is heating up, and Walmart executives are saying “bring it,” with plans to continue investment in its online and multi-platform capabilities” reported Tonya Garcia in Market Watch.  For the second quarter, e-commerce sales, which include purchases that are shipped to customers’ homes as well as transactions that are fulfilled in stores, such as the online grocery service, were up 60%, conclude Tonya.

But what was happening with the other retailers during 2017?

The apocalypse of retailers

The apocalypse of retailers refers to the closing of a large number of American retail stores since beginning in 2016, according Wikipedia. There was no respite for the industry as the apocalypse of retailers kept going on during 2017. Derick Thompson (The Atlantic) suggested that there are three explanations for the demise of America’s storefronts:

  1. People are buying more stuff online than they used to.
  2. The USA built way too many malls.
  3. Americans are shifting their spending from materialism to meals out with friends.

However, there are different opinions about the severity of the apocalypse of retailers. Glenn Taylor in Retail Touch Points writes that the retail apocalypse is more like a retail transformation. He suggests that while many retailers remain in flux, it appears more brands are getting the right tools in place to engineer a turnaround. Some commentators recognize that retailers shouldn’t seek the answers for the problems outside their organisations…

Matt Townsend, Jenny Surane, Emma Orr and Christopher Cannon suggested in Bloomberg that the problems with US retailers are of their own making: “The reason isn’t as simple as Amazon.com Inc. taking market share or twenty-somethings spending more on experiences than things. The root cause is that many of these long-standing chains are overloaded with debt—often from leveraged buyouts led by private equity firms. There are billions in borrowings on the balance sheets of troubled retailers, and sustaining that load is only going to become harder—even for healthy chains.”

If the retail apocalypse can be countered by turning your company around, which usually involve spending more money, but there is no money, well then…

So, will retail technology keep the retail apocalypse in check?

How did retail technology affected the state of retail during 2017?

The adoption of the latest retail technology is proposed as one way to stop the demise of retail stores. Especially is the use of learned machines, data, and virtual- and augmented reality seen to make the in-store shopping experience of customers more pleasant. That, some says, will bring the feet back in the stores.

“With shoppers’ expectations rising, the proliferation of data and new touch points, and increasing competitive pressures, retailers must focus on delivering the most relevant customer experiences possible in order to succeed”, concurred Jeff Barret in Inc. That’s where the problem is with retailers – they have the data, but they don’t know how best to use it…

“Many businesses are failing to make the most of the technology available to them, gathering only a tiny fraction of the available data. They are using valuable manual resources to process and analyze the data they do get and presenting the findings in an incomplete or unnecessarily complicated way”, writes Patrick Reynolds in his blog eTech.

Thus, although retail technology was around during 2017, it seems that most retailers missed the opportunity to use it effectively.

Concluding

Now you might be asking: “What will the state of retail be in 2018?” It may be ‘same old, same old’ or a barrage of new pleasant (or unpleasant) surprises. I don’t know. May it is time that we go back to our customers and ask them. I’m sure they will know the answer…

Happy 2018!

Images:

  1. Georaph.org.uk
  2. Pixabay.com; Pixabay.com
  3. StaticFlickr.com

Read also: Crossing the digital threshold – adding Clicks to Bricks for sustainable retail outcomes

Retail and Climate Change – A Devastating Reality

Tuesday, October 10, 2017 in Durban. It was a lovely spring morning…; then suddenly, all hell broke loose. More than 140 mm (5 and a half inches) rain fell in a couple of hours. With that, strong winds uprooted trees and demolished roofs and sheds. For me, retail and climate change met when the massive container ship MSC Ines disengage from her mooring to block the entrance of the Durban harbor channel to shipping.

What if the entrance of the harbor remains blocked for a long period of time?  That may simply means that most retailers in South Africa may soon run out of merchandise. But that’s not all. Most of the warehouses were flooded and damaged in the storm, also not helping. Can you imagine grocery stores with empty shelves and frustrated customers?

This is an extraordinary scenario where retail and climate change have met. But where else do they meet…

Retail and climate change are meeting in the stores

Remember the good old days when we still had seasons? I mean like summer, winter, fall and spring? Maybe the days are gone when winter clothing fashion shows caused a stir late summer and visa verse with summer fashions.

I suppose that’s way Arthur Zaczkiewicz asked in WDD: “Is Climate Change Killing the Seasonality of Fashion Apparel Retailing?” According to Arthur, one easily noticeable effect of the impact of climate change on fashion apparel and retail are sales of outerwear. Last year’s lack of “sweater weather” caused by record warmth during October, November and December, resulted in excess inventory of sweaters, jackets and coats.

In fact, results from a doctoral study done by Islam Molla (2016) 1 in the US revealed that change in temperature affects the impact of wholesale sales on retail sales during the months of June, July, and August. Therefore retailers need to implement some strategic managerial decisions to reduce their inventory as well as their cost, suggested Molla.

But climate change is not only affecting the fashion retail.

Retail and climate change – a challenge to keep food on the table

An even bigger threat of climate change concerns food security. Most of us has probably experienced shortages of certain food groceries because of a severe drought or flooding. In South Africa, for example, the recent drought had caused the price of meat to rise with about 17% since January 2016 (Colleen Goko, Business Live).

Some foodstuffs can become scarcer or disappear altogether. This may be because climate change makes it more difficult to grow crops, raise animals, and catch fish in the same ways and same places as we have done in the past (EPA). Should we get used to grocery stores displaying half empty shelves?

What about the effect that climate change has on infrastructure?

Infrastructure, retail and climate change

Retailers are heavily depended on workable infrastructure to get customers into the stores and to fulfill orders. Storms and temperature extremes can damage or destroy infrastructure. Indeed, that’s what happened in Durban recently.

Apart from the harbor entrance that was blocked, roofs were blown off warehouses and factories. As result thereof, merchandise were damaged and production at several factories ceased. Roads were destroyed and power lines were swept away. Moreover, the signal towers of mobile phone networks were damaged.

Indeed, retail and climate change met in a devastating dance that day…

Regulating climate change

So, climate change can’t just carry on disrupting our lives forever one should think? No, we all have a government to make laws to contain the beast. But how will the regulations and laws affect us?

To begin with, the laws and regulations to reduce the effect of climate change were introduced halfheartedly and not globally. Even the USA recently backtracked on the Paris accord. The Paris accord is a voluntary treaty that allows signatories to set their own pace of decarburization, so long as it is consistent with limiting global warming to 2 ᵒC.

If the leading nations don’t care about climate change, then not only retail but the existence of humankind is in danger…

Concluding

It seems that much had been said about climate change, but little has been done. I suppose it had do with egos and politics. Should we as retailers not start introducing steps to minimize the effects of our businesses on the climate? Maybe then retail and climate change can dance to a different tune…

Note:

1 Islam Molla, M. 2016. Impact of weather on US apparel retail and wholesale sales, Doctoral dissertation, University of Missouri–Columbia.

Images:

  1. Maritime Executive
  2. Flickr.com
  3. Wikimedia

The Value Proposition for Bricks and Clicks Retailers

I’m not aware of one retailer that does his/her business without customers. Indeed, retailers that have plenty of loyal customers enjoy a competitive advantage and are doing well. So, how do they do it?  Retailers with a clear and effective value proposition at least know who their customers are, what they want and need and why are they coming back. Above all, retail customers can also be found online…

With the advent of the internet and subsequent social media networks, the way that retail customers interact with retailers, products, and patrons has changed. In fact, in today’s tech savvy society, shoppers have access to brands 24/7, from websites to mobile apps to storefronts. Therefore Bricks and Clicks retailers (retailers that use both the physical and online retail channels) need to develop a value proposition for their store and online customers.

What is a value proposition?

A value proposition is an entire set of experiences, including value for money that an organization brings to customers 1. Importantly, customers may perceive this set or combination of experiences to be “superior, equal or inferior to alternatives”.

The customer value proposition can also be explained by this equation: value = benefits less (-) costs. The equation suggests that customer value comprises positive consequences (benefits) and negative consequences (costs). When customers perceive greater benefits than sacrifices, customer value is created 2. Perceived benefits and costs for retail customers are shown in the Table below.

Customer perceived benefits Customer perceived costs
Transactional – lower prices, lower interest rates; Monetary – maintenance costs, running costs, disposal costs;
Relational – product quality, service support, delivery, personal interaction Learning costs – time and money needed to learn how to use a product;
Functional – finding the right products, convenient shopping hours. Logistics costs – delivery costs, time to deliver.

How do customers perceive value?

Customers perceive value on the benefits of the product or service they receive. Consequently, as the environment changes, and the customer experience and their needs change, the value they seek also changes. Before the advent of the internet, retailers that had the most knowledgeable sales persons were valued by customers, especially when they shopped for specialty products. However, nowadays, in the digital era, customers can not only get comprehensive product information online, but they also can read product reviews and compare prices.

Retailers need therefore to communicate their value proposition also in the online channel, through their websites and in social media networks.

The value proposition for online customers

Retail customers are rapidly engaging in the online channel. Indeed, there are, according to Dr Dave Chaffey, Smart Insights, 27 Apr, 2017, 2.8 billion active social media users. With these billions of social media users, retailers are no longer in control of customer relationships. Instead, customers and their highly influential virtual networks are now driving the conversation, which can trump a retailer’s marketing, sales and service efforts with their unprecedented immediacy and reach 3.

Kumar and Reinartz 4, 2016 said the following about how customers perceive value online:

For many online services (e.g., Google Maps, Facebook), customers are not expected to pay in monetary terms. The core benefit is free of monetary charge from the end user’s perspective. The monetization comes mainly from advertising revenues, with ads targeted at narrow segments or personal individual profiles. However, in the context of digitization, a new cost related aspect has been emerging.

“Customers now have to understand the value of the personal information that they will give up in this exchange. Thus, customers pay in terms of less privacy instead of monetary outlays. In fact, some customers value privacy of personal information privacy so much that they would be willing to pay to preserve privacy – this then creates a market for privacy” concluded Kumar and Reinartz 4.

What if you don’t have a value proposition yet?

The purpose of retailers is to create value for their customers. Therefore a value proposition equates to a positioning statement because it defines “who is the target customer?” as well as “why should the customer buy it?” and “what are we selling?” 2. According to Rintamäki, Kuusela and Mitronen, 2007, a value proposition should:

  • Increase the benefits and/or decrease the sacrifices that the customer perceives as relevant;
  • Build on competencies and resources that the company is able to utilize more effectively than its competitors;
  • Be recognizably different (unique) from competition; and
  • Result in competitive advantage.

GetToGrow mentioned the following advantages of a value proposition

  1. Gives direction. A value proposition gives you direction by defining your ideal target audience right up-front, and then identifying and understanding a core need that you look to satisfy with your planned solution.
  2. Creates focus. A robust value proposition gives you and your team focus by identifying the fundamental initiatives, activities and aspects of your business that will have the greatest impact on meeting your defined target audience’s needs.
  3. Breeds confidence. Confidence comes from knowing that you’re making a difference to the people that you’re serving, that you’re doing so in a way that’s meaningful to them, and that your actions are aligned to delivering an overall remarkable experience.
  4. Improves customer understanding and engagement. By grounding your solution in an understanding of your audience and their specific need, you can engage with them in a much more compelling and effective manner.
  5. Provides clarity of messaging. The value proposition frames not only how you’re creating value for your audience by addressing a core need, but critically why your solution is better than what they are currently doing or using, or versus whatever else is potentially out there that could do so.
  6. Increases effectiveness of marketing. By truly understanding your desired customers and their core need that you’re solving for, you’re able to focus on the channels and vehicles that are most relevant, and will effectively communicate the benefits and advantages of your solution.

Concluding

Retailers that know and understand their customer’s needs, want and wishes the best can communicate a superior value proposition to them. By using ‘big data’ or your internal sources of customer data, your firm’s value proposition can be customized and personalized. However, care should be taken not to infringe on the individual’s privacy.

Further reading:

Implementing Social Customer Relationship Management in Retail

Video: Value Propositions and Positioning

 

Notes:

1 Hassan, A. 2012. The value proposition concept in marketing: How customers perceive the value delivered by firms–A study of customer perspectives on supermarkets in Southampton in the United Kingdom, International journal of marketing studies, 4(3):68.

2 Rintamäki, T., Kuusela, H. and Mitronen, L. 2007. Identifying competitive customer value propositions in retailing, Managing Service Quality: An International Journal, 17(6):621-634.

3 Heller Baird, C. and Parasnis, G. 2011. From social media to social customer relationship management, Strategy & Leadership, 39(5):30-37.

4 Kumar, V. and Reinartz, W. 2016. Creating enduring customer value, Journal of Marketing, 80(6):36-68.

Image:

Flickr.com

Webrooming and Showrooming – Buying Behaviors of Retail Customers in Virtual and Physical Environments

Webrooming and showrooming are popular jargons that describe how retail customers use different combinations of online and physical channels to search for information about products, corroborate this information and make the purchase 4. These customers are tech savvy and they use their mobile phones to great effect to help them to decide what to buy where and at what price.

Both Bricks and Mortar retailers and Clicks Only retailers were slow to react to the changes in the buying behavior of their customers. However, Bricks and Mortar retailers are now adding the online channel to their business and Clicks Only retailers are opening physical stores. The adoption of the omnichannel by retailers couldn’t happened sooner. Hence Bricks and Clicks retailers…

Brain Eisenberg, quoted by ClickZ said that “Retail does not exist without an online component and online retail isn’t as cost-effective if you don’t have a brick-and-mortar component.” “We’re connected all the time through the phones in our pockets, but we live in a physical world”, said Eisenberg.

Webrooming and showrooming

Showrooming

Most of us has done showrooming at least once before. Showrooming is when you visit a store, saw a product you like, but then purchase it online instead of from the store 1. According to Douw G Steyn, author at Bricks2Clicks, the advent the internet has led to the adoption of innovative digital technology and the rolling out of broadband mobile connectivity.

At the same time, consumers quickly learned how to use mobile devices to compare products and prices when shopping 2.  These tech-savvy consumers are changing the fundamental consumer-retailer relationship and showrooming is fast becoming a problem plaguing the retail industry.  In the past few years, as online shopping exploded and smartphones became the norm, the showrooming phenomenon — consumers using their phones to comparison shop in stores — seemed poised to gut the revenue of offline retailers.

The real hurdle, though, is pricing writes Ann Zimmerman in the Wall Street Journal 5. “Lower prices are one of the main reasons people pick Amazon and other internet-only emporiums over traditional retailers” said Ann.

Machavolu and Raju, 2014 6 advice retailers to do the following to counter showrooming:
  1. Adopt a Collaborate-and-Coordinate business model. In today’s business set-up, manufacturers and retailers, both are working in different silos and eventually end up contending against each other. But it will be fine if both operates together to offer customized solutions that exactly suits their shoppers’ needs.
  2. Treat customization as the mantra for success. Customization programs can only be successful when retailers believe they are a key areas of focus for all their staff. Treating the programs as only a ‘side task’ may result in mediocrity and leave the retailers worst off than before.
  3. Lay emphasis on customer experience. The new age customers want themselves to be part of the process while the product is being planned, developed or delivered, hence companies must focus on getting their customers involved in doing so.

Luo, et al (2014) 2 have identified two measures that retailers can take to influence shoppers’ intention to showroom, namely 1) to reduce the online-offline price difference and 2) to improve the level of employee knowledge competency. Webrooming is nowadays recognized as an opportunity that retailers can use to counter the showrooming phenomenon.

Webrooming, which is similar (but opposite) to showrooming is a manner which customers use to help them in making their buying decisions.

Webrooming

Webrooming is the opposite of showrooming.  Showrooming is when you’re standing in a store, and you pull out your smartphone to see if you can get a better price online. However, webrooming is when you’re searching online, check what item you like and go to the store to pick it up 3.

“Webrooming is actually nothing new. Since the early days of online shopping, more people have researched their shopping online than have actually bought there”, says Emily Adler in Business Insider. Emily highlighted results from a recent report from BI Intelligence:

  • Webrooming is more common than showrooming. In the U.S., 69% of people practice webrooming, while 46% do showrooming.
  • The data shows that millennials prefer webrooming. For electronics, shoes, sports equipment, and cosmetics, more millennials say they prefer to webroom, rather than research in store and then buy online.
  • Amazon remains the No. 1 place where showroomers end up making their purchases. But it’s an even more popular destination for webroomers who ultimately buy elsewhere.
  • Only recently have Bricks and Mortar retailers begun to capitalize on webrooming. They’re using tactics like knowledgeable sales staff, in-store pick-up of online orders, in-store Wi-Fi, and smartphone discounts that nudge showroomers to buy in-store.
  • New initiatives for the connected in-store experience keep popping up: tablets and mobile phones used as register systems. Also robotic arms that deliver clothing into dressing rooms, and beacon hardware, which powers in-store maps and automatic hands-free payments.

Concluding

It seems that retailers are starting to catch up with the buying behavior of their tech savvy customers. Whether their customers are webrooming and showrooming , the retailer’s main goal should be to get the sales through their businesses.

Notes:

1 Quint, M., Rogers, D. and Ferguson, R. 2013. Showrooming and the rise of the mobile-assisted shopper, Columbia Business School, Center on Global Brand Leadership.

2 Luo, Q., Oh, L.B., Zhang, L. and Chen, J. 2014. Examining the Showrooming Intention of Mobile-Assisted Shoppers in a multichannel Retailing Environment, In PACIS (p. 141).

3 Nesar, S. and Sabir, L.B. 2016. Evaluation of Customer Preferences on Showrooming and Webrooming: An Empirical Study, Al-Barkaat Journal of Finance & Management, 8(1):50-67.

4 Flavián, C., Gurrea, R. and Orús, C. 2016. Choice confidence in the webrooming purchase process: The impact of online positive reviews and the motivation to touch, Journal of Consumer Behaviour, 15(5):459-476.

5 Zimmerman, A., 2012. Can retailers halt ‘showrooming’, The Wall Street Journal, 259:B1-B8.

6 Machavolu, M.S.K. and Raju, K.V.V. 2014. Showrooming: The Next Threat to Indian Retail, MITS International Journal of Business Research, 1(1):1701.

Image:

Flickr.com

Thinking About Competing With Amazon.com? Think Again…

Competing with Amazon.com may prove to be a difficult if not an impossible challenge. You are up against an extraordinary company led by an extraordinary leader.

“Your margin is my opportunity”, dares Jeff Bezos, the founder, chairman, and chief executive officer of Amazon.com. According to Jessica Stillman, contributing for INC. , Jeff sees a competitor’s love of margins and other financial ‘ratios’ as an opportunity for Amazon. Says Jeff: “The competitor will cling to them while he focuses on absolute dollar free cash flow and slices through them like a hot knife through butter.”

The migration of Amazon.com from a sole online retailer (Clicks Only) to physical locations (Bricks and Clicks stores) is perceived by many retailers, big and small, as a threat to their existence. However, incumbent retailers can learn much from how Amazon.com conducts their business. Amazon.com is now an omnichannel retail giant that makes the most of the opportunities that digital technology in the new economy offers – showing the way for others to follow.

George Parker has recently converted from an Amazon hater to an Amazon admirer. George writes in Business Insider: “But perhaps the thing that impresses me most about Amazon’s unconventionality is its ability to structure its business model in unexpected ways. Because of the massive volume of product it sells 24/7/365, Amazon maintains 80 enormous warehousing and fulfillment centers scattered around the known universe.” Amazon.com is an uncompromising competitor with an unconventional business model.

How on earth can retailers compete with that?

Where is Amazon.com coming from?

Amazon.com was founded during 1995 and started as a website selling only books. They started out as an online bookstore and grew patiently but significantly to be the world’s largest online retailer. Being one of the few companies that survived the “dot.com” crash during 2000, Amazon.com made their first yearly profit during 2003. Net profit came in at $35 million, or 8 cents per share, compared with a net loss of $149 million, or 39 cents per share, in 2002 (Quora.com).

NASDAQ reported Amazon’s net income for 2016 was an impressive $2.37 billion. This income was mainly coming from its online retail business. RetailDive recently reported that Amazon dominates online sales traffic with an equal or greater share of sales compared to all other e-commerce sites combined, when measured across 11 retail categories. Indeed better than all the rest.

What is Amazon doing now?

Amazon.com is on a buying spree in the Bricks and Mortar retail market. They’ve also came to realize that adding Bricks to Clicks is the future of retailing. Richard Kestenbaum, contributing for Forbes concurs: “Now even Amazon has recognized that online alone is not going to work. In order to succeed in grocery, there will have to be a symbiosis of online and physical stores.” There seems no stopping from Amazon buying Bricks and Mortar retailers.

Competing with Amazon.com is getting more difficult. The Seattle giant launched a radical assault by acquiring a brand-name high-end grocery chain with 456 stores in the U.S. (436), Canada (11), and the United Kingdom (9). Whole Foods also owns three distribution centers (Brad Thomas, Forbes).

So, Amazon is now becoming a true Bricks and Clicks retailer and you will most probably have to compete with it. What are Bricks and Clicks retailers up against when competing with Amazon?

Competing with Amazon.com – the last crusade or new horizons for retailers?

Amazon’s business model is a formidable one, with deep moats on multiple fronts that make it tough for competitors to gain ground. The only way to stop Amazon is to either beat AWS [free Amazon Web Services], which holds a commanding lead in the cloud platform market, or replicate Amazon’s multi-layered Prime strategy [offering tons of benefits on Prime memberships]; (Leo Sun, The Motley Fool).

Kavadias, Ladas and Loch, (2016) have identified six recurring features in the business models of companies (also Amazon.com) that were successful in transforming their industries:

  1. A more personalized product or service – many new models offer products or services that are better tailored than the dominant models to customers’ individual and immediate needs. Companies often leverage technology to achieve this at competitive prices.
  2. A closed-loop process – many models replace a linear consumption process (in which products are made, used, and then disposed of) with a closed loop, in which used products are recycled. This shift reduces overall resource costs.
  3. Asset sharing – some innovations succeed because they enable the sharing of costly assets, e.g. Uber shares assets with car owners. Maybe independent retailers can share assets across the supply chain – what about sharing warehouses, or delivery services?
  4. Usage-based pricing – some models charge customers when they use the product or service, rather than requiring them to buy something outright. The customers benefit because they incur costs only as offerings generate value. The company, on the other hand, benefits because the number of customers is likely to grow.
  5. A more collaborative ecosystem – some innovations are successful because a new technology improves collaboration with supply chain partners and helps allocate business risks more appropriately, making cost reductions possible.
  6. An agile and adaptive organization – innovators sometimes use technology to move away from traditional hierarchical models of decision making. In order to make decisions that better reflect market needs and allow real-time adaptation to changes in those needs. The result is often greater value for the customer at less cost to the company.

Independent or small retail chains need to “think outside the box”. Maybe you should pool your resources and thereby establishing a critical mass to counter the likes of Amazon.com. Also, your location and local knowledge may be a substantial niche – be the first to explore it!

Concluding

Competing successfully with Amazon.com will probably be not viable for independent or small retail chains. Best is to learn Amazon successes and failures and use that knowledge to compete locally in a niche market.

Further reading: Amazon.com and Walmart – Set to Face Off in the Omni-Retail Channel Space

Note

1 Kavadias, S., Ladas, K. and Loch, C. 2016. The transformative business model, Harvard Business Review, 94(10):90-98.

Image

Flickr.com