Article
Retailing of a different color
Customers are coming to expect more personalization and choice, and retailers need to be able to accomodate them.
October 5, 2009 by Troy Carroll — CEO, Intava
"Any customer can have a car painted any color that he wants, so long as it is black."
This famous quote by Henry Ford sums up his view of how his company came to be a market success. But contained within Ford's story is a warning and a promise of new opportunities for retailers today.
At the founding of Ford Motor Company in 1903, cars were a high-end, expensive luxury item — out of reach for the vast majority of people. By 1915, Ford's Model T was selling for $290, while average annual income per worker was $687. The company had quickly reached Henry Ford's goal of producing a car the average worker could afford. Ford realized that by offering only one car model in one color, his company was able to simplify production, reduce costs and improve quality. By 1921, Ford Motor Company commanded 61 percent of the U.S. car market.
But I want it in red
Less talked-about and lesser known is what happened next. While Ford continued to focus on cost reduction and quality improvements, General Motors focused on providing consumers affordable cars and choice. In the 1920s, they began to eat into Ford's market share by offering cars in a variety of styles and colors. Cars were becoming a personal statement as much as a mode of transportation, and Ford paid dearly for realizing too late that the market had changed. By 1950, General Motors' market share stood at 50 percent, while Ford's had been reduced to a mere 20 percent.
In market after market, we see the initial success of a few products give way to an explosion of consumer choice: Television programming, portable music players, pet food — the list goes on and on.
Retailing is not immune to this phenomenon. In the 1980s and 1990s, retailers like Walmart and Best Buy used the same price/choice recipe employed by General Motors fifty years earlier. They assembled a larger, quality assortment of goods under one roof and offered it at low prices, meeting consumers' growing appetite for affordable choice.
Today, driven in part by the Internet, where everything is available, customers are coming to expect more personalization and choice. And retailers are responding. Take for example Macy's announcement last year that it would reverse course and abandon standardized assortments for items based on local tastes. Or consider Walmart's announcement earlier this year that it would open Hispanic-focused stores with more options catering to that demographic.
The need for choice is especially problematic when you also consider stores are not getting any bigger. The battle being waged in grocery, for example, is between small-format stores. The combination of increasing demand for product choice and fixed (or shrinking) store sizes means retailers face an increasingly difficult challenge in a world where anyone can go to Nike's Web site and design his own shoe from scratch.
'The long tail' of green
In his October 2004 Wired Magazine article, "The Long Tail," Chris Anderson explores how the Internet enables companies to make money by offering extensive product variety that caters to every obscure taste. With limited shelf space, retailers' brick-and-mortar operations have been bystanders to this phenomenon. Although their Web operations have seized on the concept, in-store shoppers have limited options to browse extended inventories.
Many retailers offer access to their Web site from kiosks within the store, but this approach completely ignores human nature. Jane Smith does not load the toddler into the minivan and drive several miles to use a Web site. Additional product choices have to be presented in ways that are compatible with the way people shop.
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The good news for retailers is that we finally are seeing technology that brings the long tail of products into the store in compelling ways. For certain products, this is done by bringing some of the manufacturing process into the store. Examples include custom invitations, greeting cards, and t-shirts, where customers design and order their products from user-friendly kiosks and pick up the finished goods within an hour.
For most items, extended product selections can be presented much more effectively through engaging interactive systems. While retailers like Best Buy long ago deployed customer kiosks throughout the store, today larger-format interactive screens can be placed near individual product lines. If a customer cannot find the item they want, a touchscreen clearly advertises the availability of further selections for ordering on-the-spot. This arrangement is more compatible with the way people shop and seamlessly integrates in-store and online inventories. It also provides a platform for brands to reach shoppers with extended product information.
Used properly, these new technologies are breaking down the differences between in-store and online shopping experiences and enable brick-and-mortar retailers to do things online retailers cannot.
The 20th century began with mass production that gave way to customized products and much more consumer choice. Likewise, the 21st century began with mass retailing that is already giving way to offerings more tailored to an individual's tastes. The opportunity is for retailers to embrace this trend and use the available tools to reach more customers more often with the products they want.
Troy Carroll is CEO of Intava.
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