Jan. 12, 2011
The holy grail of strategy for any firm, but especially retailers, is to create a concept that is so different and compelling that it renders competitors irrelevant — and then to implement that concept in such a way that core customers are bonded and the competitors find it hard to copy or react.
Innovative offerings from a variety of industries have attempted to create niches that were protected from competition. Brands such L.L. Bean, REI, Walmart, The Body Shop, Muji, Tokyo Hands, IKEA, Zara, H&M, Enterprise Rent-A-Car, Best Buy Geek Squad, Whole Foods Market, Subway (its low fat menu), Apple, Zappo's and dozens of others have been able to maintain a distinctive offering that attracts an extremely loyal customer base.
How? Are there any common characteristics that these brands share? Although each is different with respect to strategy and context, it is possible to observe some factors that are associated with successful new retail concepts. Not all are always present but there are cases in which the absence of even one can be fatal. The resulting eight guidelines are meant to be provocative.
They have a clear vision
Firms with successful new retailing concepts tend to have a strong vision that connects to a core customer group. There is clarity around the offering, the identity of the target group, and the value proposition. All the brands noted above certainly have this quality. Enterprise-Rent-A-Car, for example, focused on the need to support the car repair industry with rental cars, which implies outlets spread throughout a city rather than having an airport focus, a system tied to insurance companies and repair shops, and an ability to deliver cars to users. Tokyo Hands is a one-stop store for the hands-on customer who wants the stimulation of a puzzle, a wood working product, or a decorating challenge.
There is a theory in marketing that if you connect with a core segment, as long as it is of reasonable size, you will tend to have not only a sales base but a clear message and a set of nodes that can communicate and advocate for your concept. A clear vision makes that connection.
They evolve the offering
Most successful new retail concepts evolve over time, especially during the early days. They do not arrive out-of-the-box but benefit from changes which can be refinements or major changes in the vision. IKEA, Zappos.com, Best Buy, L.L. Bean, Whole Foods Market all started small in scope and ambition and expanded the vision as they got traction and found things that worked. IKEA discovered outsourcing assembly to customers when an employee had to remove the legs for a table to get it in a car. Zappo's changed from assortment to service as the key value proposition. Best Buy’s policy of serving customer rather than selling components was implemented over time. Pret-A-Manger, the enormously successful U.K. sandwich chain, refined the concept over five years when it was still a single storefront.
Retailers have a unique ability to experiment, try out many concepts with modest investments, and wait until one hits. The Limited tried out many concepts within an existing store and created chains such as Bath and Body Works and Structure out of those that showed promise. With different locations, experiments are doable not only to refine the concept but to tweak it, keeping it fresh and ahead of competition.
The main reason that new retailing concepts fail may be execution. The successful ones have been able to execute. That means they have been able to deliver the value proposition consistently and profitably.
The fast fashion pioneers, Zara and H&M, developed systems to conceive, create, make, and deliver products on a real time basis. Whole Foods Markets has the ability to source and handle organic foods. IKEA has footprints, a presentation system, and a customer-assembly offering they can deliver behind that would be almost impossible to duplicate. Excellence in execution means that needed resources in the form of people and capital have been accessed and that capabilities and process have been put in place. The result is formidable barriers to competitors.
They develop a strong culture and set of values
In part because retail execution involves service and unique offerings, it is hard to maintain excellence over time. It is too easy to see the offering decline or become fuzzy. The successful new retail concepts are almost always accompanied by extraordinarily strong culture and values that provide energy and direction in the early years and support the vision and its execution as the business matures.
Zappos.com has been guided by ten values which include delivering "Wow" service, being a bit weird and acting humble. Best Buy’s Geek squad is about fun, humor and taking the stress out of dealing with computers and entertainment systems. A vision-driven organizational culture has enormous power to make the strategy succeed. Because the culture involves values, programs and leadership, it is hard to copy.
They deliver emotional and self-expressive benefits
Most of these successful new retail concepts have gone beyond functional benefits to deliver emotional or self-expressive benefits. Muji, one of Japan’s top four retailing brands, is the no-brand brand and is all about simplicity, natural, moderation, humility, calmness and self-restraint. Muji is anti-glitz and delivers self-expressive benefit to those that are beyond buying badge brands and have the right values about sustainability. Whole Foods Market is a way to express a love of food using natural and organic ingredients.
They address a real unmet need
Developing a new concept is hard enough with wind at your back. Many of the new retain concepts benefited from a market force often based on a visible and meaningful unmet need. There was an opportunity. The Geek Squad and the Apple Store captured the unmet need to avoid the frustration of installing, using and maintaining computer and entertainment systems. Tokyo Hands addressed the need for a do-it-yourself segment to have a one-stop store that supports that desire.
Many firms saw a trend emerge after they had gotten traction and were poised to grow. Whole Foods Market saw a growing interest in organic and natural foods when they were established and it was late for others to climb on the bandwagon from a brand and capabilities view. Muji benefited from an interest in sustainability and a withdrawal by some from the glitz of designer brands.
A successful retail concept needs to scale. Expanding the footprint is difficult because it is costly, because it can involve adapting to a business with added complexity, and because a good concept is visible and others can run with it in different geographies. Several, such as Whole Foods Market, have scaled by buying like-minded companies with local strength. Others, such a Subway, have used a franchising model. Most have used a combination of cash flow streams and external financing to expand. In any case, there has to be a proven model to scale.
They integrate social and environmental programs into the brand
It is remarkable how many of the successful new concepts incorporate social or environmental programs into their offering. They, of course, have the advantage of creating a brand rather than adapting an established brand and thus can credibly build this dimension into it. Whole Foods and Muji have broken through with visible substance and are seen as sharing the values, interests, and even the lifestyles of an important customer segment. Muji is all about environmental sensitivity in their offerings and, in addition, they developed a set of three large campgrounds that allow people to enjoy nature that is undisturbed. Best Buy’s "Greener Together" program implements their programs around recycling and sustainability. The tagline "Whole Foods, Whole People, Whole Planet" reflects the many programs at Whole Foods Market such as using farmed seafood standards, wind power for an energy source, and reusable grocery bags.
Many of these factors, while not unique to retailing, have a higher incidence in this category. Few other categories have as many opportunities to test, learn and evolve as retail. Further, retailers have so many variables with which to work, including location, ambiance, selection, visible policies and customer interaction.
David Aaker is vice-chairman of the global consultancy Prophet and Professor Emeritus of Marketing Strategy at the Haas School of Business, UC Berkeley. He is the author of "BRAND RELEVANCE: Making Competitors Irrelevant," and has based his research on dozens of case studies. (Photo by That Other Paper.)