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Chapter 14 Reframing Retail Strategy. Reframing Retail Strategy. Major drawback of traditional retail thought … Retailing ≈ Merchandising ≈ Goods (Tangible Offerings) One “constant” of retail success: Improvement in “choice” increases customer satisfaction

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chapter 14 reframing retail strategy
Chapter 14

Reframing Retail Strategy

reframing retail strategy
Reframing Retail Strategy
  • Major drawback of traditional retail thought…
    • Retailing ≈ Merchandising ≈ Goods (Tangible Offerings)
  • One “constant” of retail success:
    • Improvement in “choice” increases customer satisfaction
      • Eg, East Germans’ “choice” enhancement after the Berlin Wall Fell 1989
    • Satisfaction drives repeat purchasing, and thus profitability
three eras of retailing
Three Eras of Retailing
  • Timing is idiosyncratic with regards to country and culture
      • Some are still in era one
    • Going to market ~ “To Market”
      • Generally prior to 1900
    • “Marketing to” customers
      • Generally after 1900
    • “Marketing with” customers
      • Last couple of decades, yet degree of use is limited
to market
“To Market”
  • Retail success largely seen as resulting from:
      • Distribution, and
        • e.g., Plentiful and timely supplies
      • Inventory management
        • e.g., Fully stocked shelves of new merchandise
    • Largely why retail was synonymous with “the city”
      • Limited transportation/travel and communication infrastructure limited assortment capabilities
        • i.e., the 3 major constraining factors on retail at the time
        • e.g., Macy’s (NY) included apparel factory to supply rather than rely on a supply chain – even in New York city which was “large” at time
marketing to
“Marketing To”
  • Many transportation & communication constraints alleviated with 20th century
    • Paired with retailer success, many leveraged infrastructure enhancements and began replicating via chain stores
      • But chain operations brought own set of issues
        • Large capital investments & concurrent success of many dominant department stores pushed chains to focus on lower prices and promotion of these lower prices
        • Lower price means more transactions in order to maintain profit levels.
          • Retailing becomes more about efficiency & selling than service & uniquely solving customer needs
marketing to cont
“Marketing To” (cont.)
  • The “earn & turn” mass merchandising formula:
    • Function of three (3) tasks:
      • Locate in low-cost areas to minimize operating costs
      • Focus on high-turnover goods backed with low price & promotion
      • Shift work to the customer ~ self-service lessens employees
    • In essence, the “Retail Resource Trinity” Model
marketing to creates an efficiency trap
“Marketing To”Creates an Efficiency Trap
  • Mass merchandising leads to an “efficiency trap”
    • In trying to be attractive to all, it’s ideal for no one…
    • So where’s the retailer’s differential advantage?
      • The trinity-model is easy to copy
        • Constantly seeking to improve profitability requires constant improvement in:
          • Retail space productivity
          • Retail inventory productivity
          • Retail labor productivity
    • Resource efficiency becomes the goal over resource effectiveness as price becomes the deciding factor
      • i.e., The Retail Resource Efficiency Cycle
marketing with
“Marketing With”
  • Represents a significant shift in retail management thinking & strategy creation
    • Two major areas of change
      • A shift in the way retailers view and manage firm resources
      • An era of active collaboration & long-term relationships between retailers, suppliers, customers, & other stakeholders (employees)
marketing with resource management
“Marketing With”& Resource Management
  • Operand versus Operant Resources
    • Operand – those that humans act upon or do something to in order to create an effect
      • By very nature can be exhausted or depleted
        • Eg, natural resources, equipment, fixtures, merchandise, etc.
    • Operant – those that can act on or produce effects
      • Rather than being depleted can be grown or expanded
      • Often intangible, yet the reason why harder for others to copy
        • Eg, employee skills, competences (knowledge), capabilities, etc
      • One proxy – price to book ratio
        • 5.08 ratio = $4.08 generated in intangible for every $1 in tangible
marketing with long term relationships
“Marketing With”& Long-term Relationships
  • From “One-to-Many”…
      • “Classical” marketing (i.e., Marketing To)
    • Viewed all stakeholders as essentially operand resources
      • Extract as many concessions/benefits from prior to depletion in most efficient manner possible
      • Common examples of one-to-many marketing include:
        • Broadcast media,
        • Employee manuals,
        • Standardized procedures for all employees & suppliers
      • Taken to the limit one will run out of suppliers, customers, employees as all are seen as exhaustible
marketing with long term relationships1
“Marketing With”& Long-term Relationships
  • To “Many-to-Many”…
      • “Service-Dominant-Logic” marketing (i.e., Marketing With)
    • Recognizes that all stakeholders can be proactive, both positively & negatively, in affecting retailer success (i.e., operant resources)
      • Views customers, and more broadly all the retailer’s stakeholders, as central to the retailer’s long-term success
        • The remaining marketing- and retail-mix variables are only important to the extent that they help to better meet needs/wants of stakeholders
      • Recognition spurred largely via the presence of many-to-many communication networks (e.g., Twitter, Facebook, etc.)
a service dominant sd logic or mindset
A Service-Dominant (SD)Logic or Mindset
  • Service is the cornerstone of SD Logic & corresponds to:
    • The application of knowledge & skills, through deeds, processes, & performances, for the benefit of another.
      • Thus, service involves
        • Doing something of benefit for others (i.e., stakeholders)
        • Interaction because deeds, processes, etc. aren’t done in isolation
        • Application of knowledge & skills that are unique, operant resources which establish the basis for one’s differential advantage
    • Service is not simply the opposite of a tangible good; it’s the reason for the good in the first place
three forms of service
Three Forms of Service
  • Service as a Transcending Concept
    • Service can be provided in three (3) primary forms:
      • Directly (most common view)
      • Indirectly Via a Good
        • Goods have a job they perform (i.e., help you perform a job)
        • Thus, all goods are service appliances that create solutions
          • What are you buying when you purchase a drill bit? A toaster?
      • Via Education
        • Education & demonstration enables the customer to better use and experience the product purchased
          • Cooking demonstrations at Williams-Sonoma enhance ability to use cookware at home.
ihip characteristics sd logic
IHIP Characteristics & SD Logic
  • Traditional-services marketing
      • Views services as distinct from goods & in possession of less desirable characteristics
    • IHIP:
      • Intangible, heterogeneous, inseparable, & perishable
    • SD Logic adopts perspective that all market offerings should strive to have & highlight IHIP characteristics
      • What are you buying when you buy…
        • A BMW automobile (a good), or
        • Jewelry from Tiffany’s (a store)
      • Brands etc. are IHIP, else they’d be commodities
the traditional vs sd logic perspective
The “Traditional” vs. SD Logic Perspective

Traditional Services Mktg.

SD Logic

Goods are also IHIP:

Heterogeneous from the customer’s perspective b/c each uses & experiences differently & uniquely

Inseparable b/c there’s no value until they are used, and in use, one co-creates value with the producer simultaneously

EG – An iPad’s value is Apple’s service provided when you use so location is separate, but not the service provision

Perishable b/c of obsolescence, recycling, sharing, etc.

Services need not perish if viewed from the customer’s experience

Education doesn’t perish (hopefully)

  • Services are:
    • Heterogeneous b/c each customer receives something different
    • Inseparable b/c they are provided & consumed simultaneously
    • Perishable b/c they can’t be inventoried
  • Goods are:
    • Homogenous b/c standardized
    • Separable b/c produced away from customer in factory
    • Nonperishable b/c they can be inventoried
4 principles of sd logic
4 Principles of SD Logic
  • Service is the basis of exchange
      • What is exchanged in the fish & wheat example?
        • Not a good or output, but processes and skills
  • People are always co-creators of value
      • Just like the kitchen appliance (i.e., used to create value), all goods are used to create some type of value
  • All people are resource integrators
      • Customers integrate market resources, often from several retailers, with public & private in order to create an experience
  • Each person determines value uniquely
      • Everyone experiences products in use differently, & even families will each experience a shopping occasion differently
customer centric retailing
Customer-Centric Retailing
  • Most marketing & retail decision-making “puts the customer first,” but…
    • Customer-centricity goes to the extreme
      • The customer & his/her daily life informs all firm decisions
      • Thus, the goal is to enhance density
        • The best combination of resources that are mobilized to a time & place for a particular individual to solve one’s problems or enable one to pursue opportunities at an optimal value or cost.
          • e.g., Google, Amazon, The Coca-Cola Freestyle Vending Machine, etc.
      • The “Customer-Consultant” or “Buying Agent”
        • Greatest opportunity for the future of retail is becoming an advisor of density and integrator of resources.
  • The degree to which customers interface, experience, & connect with various actors (retailers, etc.) in the economic system
    • Interfacing
      • Corresponds to every interaction between the customer and retailer
        • Goal is to make each as pleasurable & easy as possible
    • Experiencing
      • The cognitive & affective responses resulting from interfacing
        • Goal is to understand how every interaction leads to a pleasurable experience
    • Connecting
      • The degree of bond that a customer has as a result of one’s interfacing and experiencing with a particular retailer.
co production co creation
Co-Production & Co-Creation
  • Customers actively participate in creating value
    • Two avenues for actively producing value:
      • Co-production
        • A continuum pertaining to the degree to which the customer is actively involved in the performance of the retailer’s core activities
          • e.g., from entirely self-service (including checkout) at the highest extreme to personal shopping, etc. at the other
          • Important to note that there will always be some degree of co-production, but it might be quite minimal*
      • Co-creation
        • Everyone who purchasesoruses a product* is a co-creator of value
          • Value is the knowledge, skills, etc. imbued in a product & experienced in use
        • Co-creation is at the heart of what value truly is received.
relieving enabling
Relieving & Enabling
  • Value stems from not only co-production and co-creation, but also the degree to which individuals are relieved and/or enabled via a product*
    • Relieving
      • The degree to which other tools, people, informational aids, etc. assist in eliminating certain tasks or making them easier
    • Enabling
      • The degree to which other tools, people, etc. assist one in the performance of service for themselves or others that they would otherwise be unable to perform
        • e.g., One-stop shopping, in-store banking, cooking demonstrations etc
  • Customer-centricity views advertising and promotion as a service and tool for building and maintaining relationships – not a means to sell
    • Dialogue marketing involves learning together
      • Requires
        • Openness & a sharing/assisting mentality in communications
        • Active involvement in the community one’s seeking to reach
      • Common examples include
        • Externally
          • Social media networks and blogs
        • Internally
          • Social networking and other collaborative tools for not only employees but also suppliers
value propositions
Value Propositions
  • Again,
      • A statement of the tangible and/or intangible results one receives from shopping at & using the retailer’s products*
    • Forget the “holy grail” of price & economic value
      • Understand “value” from the customers’ perspective (in use)
        • How do they use your products to create value?
        • What other products (resources) do they integrate with yours to create value?
        • What are the total costs (not necessarily financial – e.g., time, social, etc.) to the customer in using your products?
        • How does the value proposition resonate with your other stakeholders (e.g., are employees excited about uniquely serving the customer)?
developing a learning mindset
Developing a Learning Mindset
  • Failure isn’t always a bad thing
    • Often believed to be a “control” issue
      • Management/employee control need not be “lacking”
      • “Sticking to the plan” could be to blame
    • Failure offers learning & enhancement opportunities
    • Three Different Types of Learning:
      • Single-Loop Learning
      • Double-Loop Learning
      • Triple-Loop Learning
single loop learning
Single-Loop Learning
  • Learning via a single source of feedback
    • In the context of a management plan:
      • “Learning” through corrective action which is triggered whenever the retailer recognizes it’s performing below some pre-established target goal.
    • SPM example:
      • If ROA target is set at 16% but current operations are yielding a ROA of 10% and PM of 4%, corrective action is needed.
        • What’s the easiest corrective action?
          • Boost one’s AT from 2.5 to 4 (see Ch. 2 on how both numbers were determined*)
          • But recall how doing so could boost “stock-outs” (our “Stock-Out” math problem*)
double loop learning
Double-Loop Learning
  • Learning via a double source of feedback
    • In the context of a management plan:
      • Learning through introspection wherein the retailer elicits feedback on not only whether it is meeting targeted goals, but also if the goals/measures it has chosen to go after are the appropriate, or “right,” ones in the first place.
    • SPM example:
      • Recall our “what is profit” discussion…
        • Just like profit figures need context (e.g., from sales of what? ~ PM),
        • Determining what metrics to go after need careful thought
          • Is focusing on margins (e.g., PM) instead of simply dollar figures good enough, or
          • Perhaps one should use ROA, which includes more of an efficiency component, but
          • Could too much attention to ROA push one to “gamble” by playing with AT, …
triple loop learning
Triple-Loop Learning
  • Learning via questioning the appropriateness of the current business model & reframing
      • Unlike in single- and double-loop learning, the retailer asks not only
        • “are we doing things right” (i.e., single-loop), and
        • “are we doing the right things” (i.e., double-loop),
      • But also
        • “what is the right business model ”
    • Triple-loop learning underscores the idea of reframing
      • Consider future changes in form, time, place, & possession
        • With constant attention to one’s value proposition and why customers choose to shop one’s store
what you should have learned chapter s learning objectives
What You Should Have Learned…Chapter’s Learning Objectives
  • Describe the three eras of retailing and what distinguishes them.
  • Define service according to a service-dominant logic and explain the four principles of service-dominant logic.
  • Explain how customer centricity is essential in contemporary retailing.
  • Discuss the central importance and imperative of continuous learning in retailing.