The term "consumer-centric" has been bandied about in retail a lot recently. What does it really mean to be a consumer centric retailer? Obviously, it means to be focused on a consumer's point of view and their interests. Yet, retail has historically focused on merchandising and selling products when consumers come to the store or website.
To survive, retailers must profitably sell products. But today, omni-channel is the new retail normal. It’s not a question of either/or. To be successful long term retailers must essentially become schizophrenic and master the art and science of both consumer and product centricity.
Sometimes you are just "gob smacked" with a breakthrough idea
While traveling Europe this past week, I once again ran into the term "gob smacked." It is not a common expression in the West or in Asia. But, there is no better term to describe something that literally stops you in your tracks and makes you take notice. In writing this post I was reminded of a past blog where I used the term "gob smacked" in relation to getting people's attention through visualization.
When I ran across Don Peppers visualization of critical success factors to compete successfully, well, I was completely gob smacked by his elegant simplicity! So many retailers and vendors are fixated on just category management and SKU profitability. Yet consumer studies show that the world is quickly changing to the empowered consumer and the need to establish relationship with them. Peppers artfully argues that successful companies need to do both simultaneously.
Peppers Model explaining the duplicity of consumer + product centricity
Central to Peppers model is the juxtaposition of consumer and product dimensions:
"So first we should visualize a "marketing space" defined by the customer needs a business can satisfy (the vertical dimension) and by the number of customers it has (the horizontal dimension). Then we can map customer centricity and product centricity on the same diagram."
The value of this approach is that it inherently defines the core competencies of strategically competing in today's omni-channel world. Success is not choosing one over the other; it is being able to both manage and measure product sales and consumer relationships.
Don Peppers Model for explaining the synergy of consumer and product centricity
Product centricity … essentials and pitfalls
In my work with retailers and consumer product manufacturers, I experience many clinging exclusively to product centric marketing of the past. You can see it in the typical metrics used to measure the business and success criteria. Product centricity is reflected in scorecards focused on:
Unit sales volumes
Product mix sold
Customers reached and markets penetrated
Year over year growth of product sales revenue
Market share by category
There is nothing inherently wrong with a product centric focus. In optimizing their business, retailers need to analyze the profitability generated by each product (GMROII). They also need to analyze assortment mix and category management to optimize the total revenue and profit per sq. meter of space. Whether it be a bricks and mortar store or ecommerce, the retailer must be selling the right mix of products or the consumer simply has no reason to come. And, the most successful retailers are constantly engaged in product and assortment analytics to improve both the offering and the profit of selling through to consumers coming to make a purchase.
Consumer centricity … what share of a consumer's life are you participating in?
Unlike products and merchandising, consumers are experiential. They have memories about their experience in physical and virtual stores. Through social media they share their experiences with everyone they know!
Simply put, consumer centricity is about "share of wallet," not market share. Successful retailers today are focused on "life time value" – how many needs they can satisfy for each consumer, especially the most loyal ones Product centricity is about acquiring market share through the sum of product purchases. Success in consumer centricity is achieved by acquiring consumer relationships and optimizing them over time. It is not about "market basket" just today, but share of household value and use over time.
In the sage words of Don Peppers …
A product-centric competitor focuses on one product at a time and tries to sell that product to as many customers as possible.
A customer-centric competitor focuses on one customer at a time and tries to sell that customer as many products as possible.
It's not a matter of either/or, but how to do both well simultaneously
The results of Amazon and other successful e-tailers are not a fluke. They have done a masterful job of taking market share through optimizing their "long tail" assortment of millions of SKUs. They are the epitome of how to sell more things to consumers. Yet, at the same time, Amazon has created a superior experience focused on the consumer relationship. In addition to making it very easy to buy today, Amazon is a master in the art of following up and appealing to consumer needs and passions. CRM (Customer Relationship Management) is a core strategy and competency.
Many of the big box retailers were born in a bricks and mortar heritage of product centric selling. Some of the biggest retailers in financial trouble continue to execute category management strategies of rearranging products, assortments and fixtures almost like "deck chairs on the Titanic". The absolute telling metric is declining footfall traffic indicating that many consumers are not returning. If retailers only focus on selling products profitably, today they are missing opportunities to create and fulfill solutions and selling to the same customers tomorrow.
Consumer centric will be a success factor for omni-channel retailing
Inherently, bricks and mortar retailers have been steeped in a tradition of product centric retailing. For that matter, most consumer products companies have built their business on selling products to the masses. If market share or volume drops, the classic response has been to run more promotions and/or reduce price. In many categories this race to the bottom on price has climaxed with barely acceptable margins to break even.
In the new normal of omni-channel, survival will be highly dependent upon:
Making an acceptable profit on the products you sell today
Maximizing relationships to draw back consumers again and again to purchase
Don Peppers perhaps summarizes the duality required for success in his visual metaphors:
Tracking a customer relationship is like watching a movie in progress, while tracking your product sales involves taking snapshots of the business situation at different times.
The successful omni-channel retailers do both simultaneously extremely well!
Chris H. Petersen, PhD, CEO of Integrated Marketing Solutions is a strategic consultant who specializes in retail, leadership, marketing, and measurement. He has built a legacy through working with Fortune 500 companies to achieve measurable results in improving their performance and partnerships. Chris is the founder of IMS Retail University, a series of strategic workshops focusing on the critical elements of competing profitably in the increasingly complex retail marketplace.