A more appropriate strategy

The growth in online is a direct correlation with the degree of dissatisfaction consumers experience with traditional retail.

Initially there may have been an element of experimentation, but slowly new habits are being formed – and traditional retailers are being put out of business. By the same token, there are likely to be many eCommerce start-ups that come and go without ever registering their presence in the market place, so it is not all one-sided.

What is happening?

Most pundits (me included) and most practitioners intuitively feel there will be a continued future for brick-and-mortar retail based on our understanding of consumer psychology.

Most of us understand that the difference is the quality of the experience. Most of us think there are certain categories where the web will play a limited role in facilitating the transaction and enriching the experience – without supplanting it. (E.g. fine dining.)

In the next year or two the retail landscape will continue to be remodelled – and a concomitant amount of pain.

How are retailers responding?

In this state of flux, retailers are responding in a variety of ways, but I will consider three only:

  1. CHARGE: Some retailers think that it is a viable strategy to charge consumers for the ‘experience’ (and the value-add) of being able to try on in-store, get product advice – before heading of to buy online
  2. REPLICATE: Retailers attempt to replicate their physical stores in an online environment; or by trying to bolt on a functional eCommerce site to their existing operations.
  3. SWITCH: Others give up or think about switching to online only, being seduced by the low capital investment and lower overheads. 

How should retailers be responding?

A more appropriate response to the three approaches listed above would be:

ONE: CHARGE

The difference in prices between only and offline does not seem to be more than about 10%-20% in most cases – after accounting for delivery costs.

In any event, price comparisons are really hard to make.

For instance, Harvey Norman charges the same price online/offline ($600) for the one product I tested. The Kogan private label brand is 30% cheaper at $400. On the manufacturer’s website the RRP is $800.)

Retailers should ask themselves if the experience/value the store-visiting consumer gets is worth 10-20% more. I don’t think charging $10 to try on a pair of shoes is going to be hugely successful.

But, in principle, if you are charging $10 more then the consumer must value the benefit they get from the in-store experience at $10 or more.

This is a brutal test – and if consumers are walking out the store after ‘using’ you to go and buy online, then they have just valued your service at less than you thought it was worth.

TWO: REPLICATE

I wrote about it last week in the post titled the big squeeze. In the current climate there is only room for the very big/very cheap or the very specialised – as I termed it an ‘extreme niche’.

It obviously depends on the category somewhat but generally speaking you would be better off securing a hero product and going after the global market in an extreme niche than trying to be all things to all people. (I am still waiting for Harvey Norman to call ;-))

THREE: SWITCH

Don’t get your hopes up. It is actually not that easy to find a supplier who will provide a pure-play online retailer with a product. They can (and increasingly) do that themselves, so why would they need you?

You may not have rent to pay, but believe me, if you start running the numbers on distribution costs you will be unpleasantly surprised.

And there are many other costs that are ongoing which are often forgotten in the set-up phase. It is hard work to constantly tweak the site and practice SEO. Pretty soon you will be employing someone to simply answer emails. There is a good reason why the margin between online and offline is (in most cases) only 10%-20%.

IN SUMMARY

We can bemoan the fact that our world is changing, we can slate the consumers for being disloyal or stupid or we can lobby the government to punish the etailers with some extra charges and levies.

Or we can do something constructive about it.

Like creating a smart strategy. Like re-designing your customer experience. Like re-training yourself and your staff. Like taking a few risks.

One of my favourite marketing philosophers wrote this not so long ago:

Interest rates are super low, violence is close to an all time low, industries are being remade and there's more leverage for the insurgent outsider than ever before in history.

The status quo is taking a beating, there's no question about it. That's what makes it a revolution.

And then again…

So stop thinking about how crazy the times are, and start thinking about what the crazy times demand. There has never been a worse time for business as usual. Business as usual is sure to fail, sure to disappoint, sure to numb our dreams. That's why there has never been a better time for the new. Your competitors are too afraid to spend money on new productivity tools. Your bankers have no idea where they can safely invest. Your potential employees are desperately looking for something exciting, something they feel passionate about, something they can genuinely engage in and engage with.

The sad thing is, most people will just click to the next blog. What will you do?

Have fun (anyway)…

 

Dennis

 

Dr Dennis Price consultants to the retail supply chain to perform better and grow their presence in retail with the right skills, strategies and systems.