Wednesday, March 15, 2006
shift: the future face of retail - discussion
This may go over like a lead balloon, but on my flight to San Jose this morning, I had a brief moment of clarity that I thought I'd run by ya'll. Is this something worth exploring in more detail? (ed. apparently yes - see comments)
Pretend you're a big-box retailer. Now look at the following five "value propositions" and rank them in terms of most important to least important:
2. Community (your ability to participate in / be associated with local events and local identity)
3. Customer service
5. Customization (your ability to serve local and niche markets)
You would immediately pick out #1 and #4 as your top two value props. You'd flirt with #3, but it wouldn't be one of your core competencies. If you're Target, you'd add #5, just because you're trying to be the "hip" big-box store, and your branding naturally aims you at the "hip" demographic.
Now pretend you're a local community retailer and do the same exercise. You'd naturally gravitate to #2, #3 and #5, knowing that you can't compete on #4. You'd flirt with #1, but only if you delivered a specific named service, such as dry cleaner, drug store, coffee shop, or if you were a specialty retailer serving a unique local need (e.g. comic book store in a college town).
Gross economics have driven the success of the big-box retailers; simply put, more SKUs in greater volumes translate into greater convenience at lower costs for consumers. But when asked, most consumers readily admit that they would prefer to give their custom to a local retailer, but they don't - because the smaller, local retailer can't match the convenience of greater selection with the lure of lower prices.
Let's take it as read that in 2006, the retail merchant trade demands that anyone who cares to play in it successfully needs to be in tune with trends, knows how to merchandize, has a passion for the product, etc. But how can you compete when price is positioned as the differentiator?
The answer is you don't - you break open your Value Innovation toolbox and you find a way to compete in a way that delivers value in a new, exciting and compelling way. For retailers, it requires a shift in how local business is done, and one key catalyst for that shift will be technology.
I would argue that the availability of and aggressive use of three specific technologies is going to change the face of retail, giving local community vendors the ability to compete against the big-box retailers if they modify their business practices in a coordinated way to adopt them.
These three technologies play together - shared affinity programs + shared marketbasket data analytics + shared feedback systems. Done well, and done in real-time, this would arm local retailers with the same sort of visibilty the big box stores have into buyer behavior.
"But how does an individual vendor compete on cost?" you ask.
"By making the four other value propositions so much more compelling, picking select loss-leaders, and leveraging on-line vendors to complement your own stock. Local retailers need to think of themselves as a team - and act like a team."
To that I'd add the extra spice of "scarcity marketing", but that's just me.
(photo borrowed from an Engadget post, and included here in a moment of whimsy)
labels - work