Friday, June 7, 2013

Brick & Mortar v. e-Retailers...Heed the Need for Change

Brick & Mortar vs. e-Retailers...Heed the Need for Change


Change is an arduous task.  When one, no many, have been doing things a certain way for years...and makes it all that much harder to accept change.

For change to occur, one first needs to accept that change is a necessity.  Once accepted, don't delay...spring into action, then review and retool if needed.  It's basic Six Sigma strategy.

Note to the "physical" retaill store community....STOP trying to compete on price.  The time to change is now.

Brick & Mortar retail will never be able to compete against the web retailers on price.  The facts are conclusive:  due to lower costs, web retailers can profitably sell products more cheaply than physical stores — and with a few clicks, it's often more convenient for customers to buy online.  

Retail stores have been trying mightily & creatively to fight off the emergence of the low-price web retailer, but with little luck.

Target is a perfect example.  Over the holidays Target announced that their stores would a "match any price" offered by the online retailers such as Amazon, Best Buy & Walmart.  It is now a full time store policy.  Wait, doesn't Target also have an online web site?  Sure, and that's just the point.  Why fight it?  Just realize that the two buying experiences are different and position yourselves to win in BOTH.

Recently we've had a multitude of conversations regarding retail vs. online orders, and the changing consumer preferences.  This hot topic has many large retail companies searching for answers, as they try to compete in this e-commerce space. 

So how does a retail store, indivdual or a large chain, compete in BOTH spaces?  Whether you are an office supplies store, print shop, book store or cosemetics do you remain competitive?

The answer is "Omni-Channel" marketing.

In his June 3rd HBR Blog post, "Brink & Mortars (STILL) Can't Beat The Web On Price, author Rafi Mohammed proclaimed the following:

"When first challenged by the on-line retailer, brick and mortar stores responded with a nebulous rebuttal of "we'll offer better service" as a counterweight to their price premiums. That hasn't worked very well.

Next some retailers (like the Target example above) have tried a Hail Mary tactic: "We'll match the best price you can find on the Internet." The logic here is that without the price-match guarantee, the retailer was going to lose the sale, so sales gained by this policy are incremental revenue (which results in gross profit as long as the price at least covers merchandise cost). The downside is customers become trained to play the game of checking prices on the Internet first, which has negative long term effects — you can't make money when more and more of your customers start paying incremental prices.

The allure of cheap web prices has recently blossomed due to mobile phone apps that direct users to a lower price on the same product, generally at an Internet retailer. Many of these online retailers offer free shipping and, for the moment at least, many don't charge sales tax (which at 9.25% in Chicago, for instance, adds up). These apps encourage "showrooming," the practice of customers checking out merchandise in physical stores and then purchasing at a discount on the web.

Brick and mortar retailers need to realize that selling the same products as established web retailers do, even with price match policies in place, is not a viable long term growth strategy.  The following four categories of merchandise create reasons — hence, value — for customers to visit stores:

Well-branded, highly differentiated, and exclusive: This was a centerpiece of Ron Johnson's plan for J.C. Penney — a strategy that I argued was brilliant but ultimately derailed due to other factors.
Non-exclusive with a twist of differentiation: Adding some type of uniqueness — even to common products — creates value and minimizes price comparisons. Target tried this last year, but no reports have since surfaced regarding its success.

Non-exclusive and non-differentiated but at a discount: With showrooming, manufacturers benefit from consumers being able to see and touch their products in physical stores. I've argued that stores should demand a physical store equalizer discount from manufacturers so at the very least, they can profitably compete on price against web retailers.

Non-exclusive, non-differentiated, no discount, but advantageous to buy at a store: Some products are easier to purchase in stores. Fashionable clothes, for instance, benefit from being tried on prior to purchase. The lower the product price, the less likely the web vs. store price differential will result in showrooming. "It's only a 10% difference" is more manageable on a $100 product than, say, a $1,000 one.

The optimal merchandise assortment is a mix of the above products as well as generic items that are also available at Internet retailers. And counter-intuitively, these generic products can be priced higher than what web rivals are charging. How is this possible? First, a large segment of customers simply prefer to shop in stores. As gas stations do, retailers can charge more for "full serve." Just as important, even discount-minded customers drawn to stores for unique products may out of convenience pick-up a few premium-priced generic products. After all, how many times have you visited a grocery store to purchase loss leaders but ended up loading your cart with products that aren't deals?

This is the KEY point of Rafi's article....
"The brick and mortar vs. web battle has long been portrayed as one based on price. Viewed through this lens, physical stores simply can't win — it's time to forget about competing on price. Instead, the mantra for brick and mortar success should be "creating and capitalizing on value." Stores should offer products that provide reasons for customers to visit stores, leverage this differentiation to sell additional generic products, and focus on customers who prefer shopping in stores." does all of this apply to the concept of Omni-Channel Marketing, and what exactly is it?

Wikipedia has a great description, as it relates to retailing:
"Omni-Channel Retailing is very similar to and an evolution of, multi-channel retailing, but is concentrated more on a seamless approach to the consumer experience through all available shopping channels, i.e. mobile internet devices, computers, bricks-and-mortar, television, catalog and so on. Retailers are meeting the new customer desires by deploying specialized supply chain strategy software."

Omni-channel is definitely an iteration of multi-channel, and the good news is that this part of our industry has a tremendous amount of white space; nobody is doing a particularly good job, and that means opportunity, hopefully for our current and prospective customers. 

Reign Print Solutions is focused on helping its clients properly balance the communications, so that their "customer experience" is seamless. With awareness of what a consumer is doing, marketers can start to tell a continuous story that plays out whenever and wherever the consumer interacts with their brand. The premise here is that customers and targets are going to move from platform to platform on a regular basis, often to perform the same task, and that they have expectations that their behavior in one place will influence the experience in another.

In future posts we will provide more specific examples of Omni-Channel Marketing Solutions, and how these concepts may help you compete in the ever-morphing world of e-commerce ordering.  Clicks vs. Bricks, as we fondly refer to this "customer experience" model.
The focus, truly, is on maximizing the customer experience...regardless of which channel they are visiting.  "Differentiation" and relationships with the end customer are the keys to success.

If you'd like further information, please contact either Bill or Sean @ Reign Print Solution's offices ~ 800.853.3552.