The retail industry is having an identity crisis. Most brands are retailing in silos, and they’re lacking a master retail strategy for today’s digital age. In this opinion piece, Lee Naylor, managing director of The Leading Edge (an Enero Group company), assesses the retailer’s dilemma – how to the tackle online, loyalty and price wars…simultaneously.
There’s a three-way Catch-22 at hand, and with consumers changing their habits and preferences day-to-day, the message on where to spend resources couldn’t be more convoluted. With online shopping becoming more prominent in people’s repertoires, retailers are finding it difficult to adapt to changes in customer behaviour and harness customer loyalty. Woolworths in particular is struggling with their loyalty program, with UBS suggesting this was due to being behind Coles and Aldi in delivering low prices.
Then there’s the physical shop front. Despite the continuing uptake of online shopping, does online just appear to be winning? It would seem so, given the huge brand and relationship-building aspects of the international giants opening up their shop fronts all across the country – H&M, Sephora, Zara, and most recently, Debenhams. Whilst competitive pricing for perceived European luxury items are proving popular with shoppers, former incumbents such as Dick Smith and Borders closed up their physical stores, unable to compete with international online offerings.
This would suggest the future of retail to be basically an online discounter. Is it an internet-driven race to the bottom? The answer – it depends on whether you’re interested in the end customer.
The old value equation still holds true – the customer weighs up what they get for what they pay. In retailing, where the majority of the same products can be bought through different retailers, who offer similar experiences, then price will be a key differentiator. Given that most retailers are also equally convenient and that online can make it (in theory – as it doesn’t always hold true!) even more convenient, then price would be the deciding factor as everything else is constant.
So, how do retailers move beyond price? It still has to be around differentiation, either through product, range, experience, location or convenience – but that’s only part of the story. Differentiation for differentiation’s sake doesn’t work – it has to be grounded in what the consumer and shopper wants. The difference between these two groups is crucial. Consumers will determine the products that they want and the shopper gets to determine the factors that drive retailer choice – convenience, range, experience and price. In some cases the consumer and the shopper will be the same person, in others it won’t. By understanding the needs of both groups and creating meaningful differences in these areas, you tip the value equation in your favour.
But here is the other kicker – we have tendencies to be fickle as both shoppers and consumers. We change our minds depending on how fluid factors are – our consumption occasions or missions. That means that a “one size fits all” does not work. One day I may be an internet shopper, the next day I may be in my local shopping mall.
Retailers have to really embrace an omni-channel strategy to make it easy for customers to shift between these states. They need to offer me what I want, when I want it, and in a way that is different to others. The blending between online and bricks and mortar means that these are mere channels – the retail banner should shine through whichever way the customer chooses to shop. We can then decide a “fair price” to pay for this unique retail experience. This is differentiation that moves you from having to rely on price.
The upside is that differentiation is also what breeds loyalty – loyalty through discounts and price is like paying someone to be your friend. You’d like them to be your friend because of who you are, not because you slip them a few bucks.
Retailing has to move beyond the price lever – which isn’t easy in an environment where we have trained shoppers to believe discounts and promotion is king. Those who are brave enough to do so, ground this in what is important to customers, and embrace the omni-channel environment are likely to be the ones who end up with our loyalty.