Brick-and-mortar's inherent advantage: In-store relevance
By Julian Farbstein, dunnhumbyUSA
Let's face it. Shopping online will continue to be a convenient and affordable option for customers. Increasing sales tax for online purchases or implementing procedures to prevent showrooming are well-intentioned efforts for retailers trying to compete, but they are also working against a shopping experience that the customer obviously values.
Brick-and-mortar retailers can't compete directly with online-only giants and their endless selection or low prices. They need to come to terms with a new retail game, one in which the customer determines the rules of engagement. Matching online prices or bulking up product SKUs will be not enough to keep pace with a growing Internet retail population.
Smart retailers are working toward a vision in which every customer feels that their individual preferences, wants and needs are a priority from the minute they walk into the store. Smart retailers are leveraging their natural resources by engaging store associates, surprising and delighting customers through "real" experiences and learning which tactics resonate on a store-level. Instead of losing relevance with customers by preventing them from using the tools that make their experience more rewarding, brick-and-mortar retailers should focus on their inherent advantage -- the ability to be locally and individually relevant through the products they sell, how they sell them and the experience of buying them.
Delivering a relevant shopping experience is about giving customers the opportunity to shop the way they love to shop. Realizing that vision requires fundamental tactics, where relevance should play an essential role:
1. Building customer loyalty at the shelf
While online retailers can recommend products based on purchase history, brick-and-mortar retailers can adopt more sophisticated approaches for delivering relevance at the shelf. A good customer experience allows customers to have the right choices instead of unlimited choices. The best assortments have been curated by the retailer to give customers the right choices to satisfy their needs while providing a convenient shopping experience.
Maintaining a relevant assortment requires retailers to move away from evaluating shelf performance based solely on sales or profits. Through customer data, retailers have a high-resolution view on those products often purchased together, those products that serve the same need and the degree to which one product is more replaceable, or substitutable, than another. By understanding those products that loyal customers really value, and protecting those products at shelf even though they may underperform in sales can often be the difference between keeping a loyal customer and encouraging them to shop around the corner or online.
Retailers need to allow space for flexibility at both the product and category level based on how important both are to loyal customers. Products and categories that are the most relevant should be easily accessible and displayed to reflect how a customer uses those products with other products. For example, providing the ingredients for a grade-school lunch, such as baby carrots, juice boxes, peanut butter, jelly and bread can offer fast-moving families a more convenient and rewarding in-store experience.
2. Pricing and promotions made personal
The growth of online channels makes it even more complicated for customers to find the best value. Between traditional circulars, direct mail, email, Facebook and Twitter, customers are faced with an ever-expanding influx of pricing messages. Cutting through this clutter requires a pricing strategy that can deliver relevance in both price and value perception. A regional or local pricing strategy can make it more financially viable to be priced lowest where it is needed, but not being lower than needed in markets with less competition. Customer data can be used to go a step further, and have the right prices on the right items to improve price perception.
The right prices can drive price perception; but the right communication of these prices can drive value perception. Knowing how your customers perceive value allows a promotional investment to become more relevant and drive a higher ROI. If customers are on a strict budget, they may be looking for the lowest price on the shelf. If customers want the best value but can stretch their budget, they may look for multi-buy deals or larger pack sizes. With more ways to digitally connect and communicate with customers today, there is more opportunity to be relevant on a highly personal level. Promotions can now be delivered based on the preferences and habits of the customer, allowing the retailer to fine-tune their campaigns to reach the right audience whether that's through listening, browsing, or watching.
3. Creating relevance that is scalable
Implementing individual assortment strategies for hundreds of stores is not an efficient or logical strategy for a large retailer. A store-level assortment requires three things: customer behavioral data, a great customer segmentation strategy and commitment of the organization to manage execution. Pinpointing the right assortment strategy for each store begins by looking at the unique shopping behaviors of the customers that shop at that store through the data. Stores that share similar customer dimensions in terms of price sensitivity, lifestyles, ethnicity and geography (urban or rural, climate) can then be grouped together to make activation financially viable. So, for example, several stores could have an assortment strategy that appeals to moderately price sensitive, urban dwellers that frequently purchase authentic Hispanic food, even in 30-degree weather. This type of strategy allows relevance to become measurable, so that the organization can understand opportunities to increase sales that may not be visible from an enterprise-level analysis. Measurement at the store segment level, both quantitative and qualitative, can be an incredibly powerful tool for the enterprise to systematize success and learnings across the business.
That being said, the need to be locally relevant is a critical point of difference for brick and mortar over online channels. Store operations need to be flexible enough to accommodate local brands and locally-made products. Beyond the data, customers need to be able to impact assortment and feel that they have the ability to do so. Asking customers if they found everything they need is one route, but a lot can be accomplished through surveying the local market or communicating that message via in-store display.
4. Getting customers to believe "This is MY store"
Relevance can turn customers into loyals and inspire them to become advocates for your brand. A relevant and rewarding shopping experience can take many forms, whether it's product-related or operational. Brick and mortar retailers have at their disposal the ability to deliver rewarding "real" experiences in-store such as product demonstrations for exclusive new items, gourmet sampling, in-store fashion consultants or meal-planners, and solutions to expedite the checkout process.
A locally relevant store shows its human-side: it solicits customer feedback, collects canned goods for families in need and cheers for the home team. Engaging in the local community through philanthropic efforts, activism, disaster relief, business chambers and employment can make a big difference in a community's perception of a retailer. This also involves keeping store associates top of mind during product launches and educating them on who their customer is and what they value. Staff engagement can be a tipping point for customers, helping brick and mortar to boost relevance and brand advocacy even further, and, therefore, increase sales.
A great shopping experience means different things to different people. With many customers in each store, striking the right balance to be relevant to many without compromising the needs of another group can be difficult. To maintain relevance on an ongoing basis, stores must seek to understand customers and the degree to which they value convenience, use digital coupons, consolidate trips, entertain or tend to be early adopters of clothing and fashion trends or tech devices. While technology in-store can have mass appeal, many customers still value their weekly conversation with their friend behind the register over a faster self-service process. A store that evolves along with the customer, innovates as technology progresses yet never loses sight of the individual customer needs is positioned for retail greatness.
According to The Wall Street Journal, online sales still represent only 8 percent of total retail sales in the United States. Although today's customer has the ability to visit a store and then find a better price online, the physical store experience is still clearly valuable and offers a wealth of opportunity for retailers. Engaging a customer so that they spend one more dollar, one more time in your store over a virtual or physical competitor is an outcome of customer loyalty and relevance. The problem is not the customer or your competitor but strategies that are chronically aligned against the needs and wants of the customer. As Terry Lundgren, Chief Executive of Macy's, said recently, the real question retailers should ask is "How do we make them feel as comfortable and ready to buy in our stores as they do online?"
Julian Farbstein is vice president, client solutions at dunnhumbyUSA, responsible for leading the development and deployment of pricing and promotion insight, strategy, tools and processes. (Photo courtesy of Walmart.)