by Kyle B. Murray
Selling is harder today for stores that don’t discount. Independent art materials stores must depend on other factors – like individual service, product knowledge and a unique selection of merchandise – to attract and keep customers. It’s not just “build it and they will come.”
“The retailer’s field of dreams is more a field of battle,” notes Bryan Pearson, CEO of the firm LoyaltyOne, a global supplier of customer loyalty programs. “With Target and Walmart, rue21 and Lowe’s expanding their presence both online and offline, emerging merchants are finding it hard to approach the consumer in a way that doesn’t simply revert to fighting a market-share war where the common weapon is price.”
But a new book by Kyle B. Murray, The American Retail Value Proposition presents strategies that focus on customer needs rather than price. In the book’s forward, Pearson writes, “At its core, successful retailing is still about the customer. It is about developing a carefully crafted strategy to address that customer’s needs, and then executing it precisely across the many dimensions available to the merchant.”
In the following book excerpt, Murray discusses the importance of getting customers to buy, counterbalanced with giving them what they value most – time-saving convenience.
At a general level, consumers’ purchase decisions fall into one of three categories. First, there are those they make before they enter the store. For example, they might have a shopping list that includes specific items – such as “no pulp” Tropicana orange juice in a 1.9-liter container, relaxed-fit jeans from Gap with a thirty-inch waist and thirty-two-inch inseam, or a size six pink Nike hoodie. Upon entering the store, customers navigate directly to the shelf containing the product they want to purchase.
The second type of purchase is planned at the general category level – for example, orange juice or jeans or a child’s hoodie. With a general plan, customers head to the section of the store – or the store within a shopping center – that offers those particular products for sale. They then choose from among the available products.
The third type of purchase is unplanned. For example, while traveling toward the orange juice, customers might pass by the bakery and spontaneously decide to purchase a loaf of freshly baked French bread. Similarly, they might be waiting in line to pay for the planned Nike hoodie when their daughter convinces them she also needs a new headband. A store employee can also generate unplanned purchases by recommending a top to go with new jeans.
As it turns out, these unplanned purchases are critical to retail success. As Paco Underhill says in his book, Why We Buy, “If we went into stores only when we needed to buy something, and if once there we bought only what we needed, the economy would collapse, boom.” From a retailer’s perspective, this means that what happens once the consumer gets into a store drives a substantial share of that store’s revenue. Put another way, the in-store environment is a critical component of the retail value proposition.
To better understand how in-store environment affects consumer decisions, it is helpful to think in terms of the probability of the three general categories of purchasing. In other words, on a particular shopping trip, what is the probability that a consumer will make (1) an unplanned purchase, (2) a generally planned purchase, or (3) a specifically planned purchase, and what factors within the store environment influence these probabilities?
Recent research has begun to answer these questions. In a particularly insightful project, Jeff Inman, Russell Winer, and Rosellina Ferraro examine data from the grocery industry. The results clearly demonstrate the critical importance of in-store factors on consumer decision.
One of the most important determinants of the probability of purchase is the time spent shopping. Inman, Winer, and Ferraro find that the longer customers were in the store the more likely they were to make an unplanned purchase. This is consistent with what other retail market researchers have discovered in their observations of in-store consumer behavior and is not particularly novel news for most retail managers. However, some retailers are more successful than others at implementing changes to their store environment to encourage longer shopping trips.
Grocers, for example, have simultaneously slowed and enhanced the shopping experience by putting cafés and coffee kiosks into their stores. In doing so, they have found that customers are less rushed, more relaxed, and more likely to enjoy grocery shopping. As a result, customers who buy a coffee tend to stay in the store for a longer period and spend more money.
At the same time, research and common sense dictate that just spending more time in a store is not necessarily going to drive sales. What matters is what the customer does with that time. In the grocery store example, the customer who buys a coffee during a shopping trip slows down and spends more money. However, the grocer could also have increased the time spent in its stores by reducing the number of open cash registers. Fewer cash registers would have created longer line-ups, which would have ensured that most customers – other than those who abandon their carts and leave – would spend more time in the store.
However, time spent waiting is not productive time; in fact, the longer people wait in line, the less satisfied they tend to be with the overall shopping experience. Increasing the time consumers spend in line is unlikely to increase the amount they spend on their current shopping trip, and is likely to reduce the probability that they will return for future trips.
Herb Sorensen, founder of ShopperScientist LLC and author of Inside the Mind of the Shopper, argues that retailers need to focus on increasing shoppers’ efficiency. Specifically, he says that retailers should minimize the time it takes a shopper to spend a dollar. Sorensen believes that seconds (spent in-store) per dollar of sales is the most important metric in retailing. Essentially, he contends that retailers should focus on connecting consumers with the products they want to buy as efficiently as possible, even if the consumer did not plan to buy those products before entering the store. In other words, retailers want customers to spend more time in their stores, and they want that time to be spent efficiently – that is, both maximizing the total time spent in the store and minimizing the seconds spent in store per dollar of sales generated.
This is a balancing act. For some McDonald’s locations, efficiency might mean bright lighting, plastic seats, and meal combos that encourage an accelerated dining experience. For other McDonald’s locations, it might mean fireplaces, more comfortable seating, and less intense lighting.
To a large extent, discussions about store locations, formats, and in-store designs are really about making the shopping experience convenient for consumers. In a world where many consumers are time-starved, an easier and more convenient shopping experience is a more valuable one. Convenience is not as simple as proximity. Instead, it comes from ESE – that is, how the retailer designs the environment, selection, and engagement components of the retail value proposition affects how convenient the experience feels to the consumer. These components are not independent of each other.
Dr. Murray is a Professor of Marketing and the Director of the School of Retailing at the Alberta School of Business. As a consultant, he has worked with such organizations as the Consumers Council of Canada, General Motors, Industry Canada, Johnson and Johnson, Leger, The Research Intelligence Group, LoyaltyOne, and Microsoft.
From The American Retail Value Proposition: Crafting Unique Experiences At Compelling Prices by Kyle B. Murray Copyright © University of Toronto Press 2016 reprinted by permission of Rotman – UTP Publishing