Retailing - Getting it right from customers perspective!

Looking at the normal value chain of activities, retail is actually a very complex business to be in. Both manufacturers and consumers, which lie at either ends of the value chain, enjoy a great level of discretion when it comes to decision making. Manufactures to a great extent have the freedom to choose or alter their target customers, change product formulations and most importantly, have margins under their control. Consumers on the other hand are the czar of their own wish. They can choose which products, which brands, what quality, what price and from which points (retailers) to buy.

Stuck between them are the bewildered retailers having little choice available from either side. They have to stock the goods which customers want to buy (even if they offer low margins where other higher margin options are available) else they fail to build patronage amongst them. In most cases they have to stock what existing set of manufacturers produce (even if that is not something their customers are exactly looking for).

Add to this the increasing competition both from existing domestic players and the likely entry of global giants, lives of retailers is in anguish.

A lot has been written and researched on what they should do in order to sustain the wrath of competition and maintain profitability. But what all has been done till now, is limited to what retailers should do with whatever limited resources they have. This school of thought though is wise on judgement and suggestions, but fails to undertake the customers’ perspective. Retailers often state that they understand their customers and they conduct researches to know what they are actually looking for, but most of them fail to act upon it.

All the research and understanding remains on one side and retailers act for short term profits losing sight over what is required in long run to survive i.e. customer advocacy.

Let us try to see the situation from a little different angle and see what goes around in a customers’ mind when it comes to choosing and patronising a retailer and also see what the implications for retailers are.

Customers always look for experience and choose a retailer who can provide the experience they truly desire. They never buy only a product but along with it all the attributes in terms of service, store image and other related intangibles which form an attractive whole. In some cases the whole is something which the customers never know or even fail to express, but they become happy when they get it.

Retailers can concentrate on creating such an experience by touching all five senses of customers. Attract their vision with state of the art display & decoration, mesmerize them with the music they love, win them with cosy feel & comfort they fall for, enthral them with pleasing aroma and let them taste the excitement you have created for them. Do it all and they are madly yours.

Customers normally see or consider shopping as a way of self expression. They evolve in their life with new habits, changing tastes, advancing lifestyles, emerging aspirations and thus their expectations from shopping as an act and retailers evolve too.

With all this, it becomes imperative for retailers to stay relevant to them. Customers are never going to go to retailers and tell them the changes they expect, it will always have to be the retailers to keep the track of the change in customers lives.

To face this challenge, retailers will have to continuously research & understand the ‘changing customer’ and operationalise this understanding by incorporating required changes in their store positioning & imagery, store personality, store emotions and relationships it wants to build with customers.

Another interesting thing about customers is that it is very difficult to please but very easy to annoy them. This is to an extent that even a little undesired or unpleasing act done by retailer will ruin years of efforts and investment put into building a happy customer.

It is important for retailers to understand that customers are no kids and they hate being told a new story every other day. They expect consistency of experience every time they visit a store. Imagine a retail store which has long positioned itself as a low price retailer with average level of services (RVP). Customers learnt and imbibed this RVP with their interactions and experiences with the store. One fine day, the retailer changes its positioning to a quality store with above average prices. Customers will feel a bit disheartened but will try to adjust with the new positioning due to their long & satisfying relationship with the store. Sometime later, the retailer again changes its positioning to a high quality high price retailer, but this time customers are not likely to adjust, they may unpatronize the store or in worst case spread a bad word of mouth about the store.

It has implications for a retailer in the context that it should very thoughtfully devise a positioning strategy and stick to it until some mammoth factors forces it to change. The retailer will have to strike a fine & delicate balance between staying relevant by changing and resisting the temptation to change its positioning often to prevent disdain amongst customers.

I stated earlier that customers are not kids and hate being told newer stories, but there is one more side to it which says that customers are just like kids and expect parenting behaviour from their retailers. It has been observed that in a rush to attract more & more new customers, retailers fail to maintain relationship with their existing customers.

In a country like ours where online shopping has not gained much wide acceptance and physical shopping at stores is still an inseparable part of daily life; customers can be understood as very emotional beings who shop with less of reasons and more of heart. They establish a sense of bonding with the places they shop and expect similar involvement from the retailers. In such an environment chasing new customers and giving little regard to the existing ones is like parents starting to love the new born baby and forgetting the whereabouts of their earlier kid. It does not seem to be much acceptable and retailers must understand that existing customers are the biggest asset they have created and belittling them for new ones is a sure shot strategy for a business failure.

All said than done, understanding customers was and always will be a complex process and retailers will have to think like customers, if they want to stay in business.

Strategies- Combinations are IN!

Mahindra & Mahindra (M&M)...(Shift from Acquisition-to-Product development based  expansion strategy)

The news states that on 4^th, July,2012 M&M’s automobile division has inaugurated an Rs 100 crore R&D centre in Pune for its two-wheeler segment. M&M has now presence in every type of automobile segment ranging from two-wheeler, cars to air-planes.

 But its foray and expansion into two-wheeler industry is worth noting. M&M has adopted two expansion strategies in a row to tap this segment and establish itself as a competitive player in an already hyper competitive two-wheeler industry.

Strategy 1- (Merger and acquisition) M&M acquired Kinetic brand of scooters to gain quick entry in to the two-wheeler business. It helped the company to quickly establish itself and gain customer base leveraging on already successful products of Kinetic. After establishing itself initially, now the company has made a shift in expansion strategy and has turned inside for growth impetus/momentum.

Strategy 2- (Product Expansion) As stated in the news article also, the company is now heavily investing in its own research and development capacity to undertake ‘disruptive innovation’ and roll out clutter breaking products in the market.

This depicts that it is not necessary for a company to stick to any one type of expansion strategy. Instead it a wise for companies to thoroughly analyse its environment, its competitive standing, resources & capabilities, to choose a strategy or a combination of them in order to make inroads towards the top. And M&M is a perfect example of this; it has proven this phenomenon with the huge success it has got in SUV segment of cars. (There too it followed the same two strategies of acquisition and later product development).

Co-Creation...A strategic alternative to acquisitions and vertical/horizontal strategies

For companies who wish to control a larger part of their value chain or wish to eliminate uncertainty or reduce dependence on value chain partners (suppliers, distributors), vertical or horizontal integration is the best way available.

But such kind of integration either through takeover or acquisition involves lot of costs and risks. I was wondering if there is any other less costly/risky alternative to it and I came across a research article published in a leading economic newspaper about co-creation. Co-creation is the process wherein you involve your stakeholders like customers, suppliers, distributors and even other unrelated firms in the very act of developing products and delivering them.

After reading more about co-creation and the processes which it follows, I believe it is the best alternative to risky & costly strategies like vertical integration through acquisition of supply chain partners. In co-creation you bring various supply chain partners on a common platform and give them the responsibility to create an ecosystem, the ultimate aim of which is to deliver maximum value to customers at minimum possible cost. When every partner feels the ownership and a stake in the ecosystem, he contributes to it for his/her own benefit and thus the costs involved in establishing control system vanishes.

Another major advantage of co-creation as a strategy to better manage the entire supply chain is that you expand the canvas of creativity. You as an organization need not restrict your endeavours to those core competencies which you own; you can easily and effectively acquire additional competencies by simply co-creating or co-building them with right organizations.

A perfect example of it would be development of TATA Nano. The company involved all stakeholders’ right from suppliers, customers, employees and distributors in the process of co-creating a breakthrough product and this resulted in a huge success which we admire.

Although there is not a one co-creation model which suits all, but one thing is for sure that it is the best alternative to traditional strategies of acquisitions/takeovers and is the only way we can build enterprises of tomorrow.

Well next time you think of gaining new competencies or more control over your supply chain, don’t think about mergers and acquisitions. You have a smarter way of doing it.      Co-create it.

Strategic Intent (The Indian way...)

Having read examples of western organizations going out of their way and stretching their resources to accomplish big, I was wondering if there are any Indian organizations too which fit to the ‘Strategic Intent’ philosophy. Then I came across a news article (19, July, 2012) talking about Dainik Bhaskar (Daily Hindi Newspaper) having tied up with HBR (Harvard Business Review) and Time magazine for content sharing.


 After studying about the group in detail I found what I was looking for. Dainik Bhaskar Group is certainly an Indian organization who has reached a position which was beyond the scope of its available resources in earlier days.


 - Building layers of competitive advantage: It started and revolutionised Hindi newspaper industry by offering newspaper at lowest price of just Rs 1 per day. Later when other competitors followed the suit, it launched 14 regional versions to build a national brand and differentiated itself. Competitors again imitated its strategy, but this time DB launched itself in regional languages throughout the country. Definitely a perfect example of building layers of competitive advantage


 - Searching for loose bricks: When DB launched, publishing industry was highly fragmented in nature and many local players existed. It found this loose brick as an opportunity and promoted itself as a national brand. Operating on national scale and serving many regions simultaneously, gave DB advantage in content gathering and also economies of scale which it leveraged to cut input costs of materials like paper, ink etc.


 - Changing the terms of engagement: DB did not choose to operate like existing players, rather it chose to launch itself with a bang. Where existing players charged their subscribers on per day basis and made collections on monthly basis, DB for the first time in India launched yearly subscription plan at heavy discount and also for the first time in offered free gifts with these subscriptions. This new way of engaging with customers proved successful and DB gained huge readership base in very less time.


 - Competing through collaboration: This is a recent step which DB has taken, it has collaborated with HBR and Time magazine for content sharing for its Sunday edition. This step will give it an unprecedented differentiated positioning of a’ modern Hindi newspaper’ and an additional competitive advantage.