Satisfying the Grocery Shopper

What stands out when you compare your shopping experience at various supermarkets these days? One thing jumps out at me... how my groceries are bagged. At most supermarkets, someone throws all my groceries in bags, without any rhyme or reason as to how products are placed. If I've forgotten my reusable bags, then I always have to intervene, lest they put 2 items per plastic bag and fill my carriage with hundreds of nearly empty bags. Regardless of what types of bags they use, I am sure to find several things crushed at the bottom of a bag when I get home.

Now, let's compare that experience to the checkout counters at Whole Foods. There, we see incredible attention being paid to how products are placed in bags. The associates take great care to insure that products do not get crushed in the bags, and that berries and other small items don't spill in the bags. Of course, you might say that Whole Foods can afford to offer such service because of their higher prices and gross margins. However, I wonder... Does it really take more time for the Whole Foods associates to get me through the checkout counter? It seems to me that they are just as efficient as any other supermarket, yet they offer a much better experience. Whole Foods just seems to be taking the time to train their associates more carefully, and perhaps monitor them more effectively. Yes, this does involve some extra expense, but the results in terms of enhanced customer satisfaction are likely to be quite substantial.

I write about this small element of the grocery shopping experience only to point out that the checkout counter often is a defining moment in our retail experience these days. Often, it is the ONLY time that we interact with a store associate, given that most retailers are largely self-service these days. Thus, the checkout counter interaction is a critical moment where retailers can set themselves apart from their competition. It's also a moment when retailers can cause the consumer experience to deteriorate dramatically. Too many retailers, it seems, have focused on making the checkout process fast, cheap, and efficient. However, they have done so at the expense of actually creating a satisfying "closing" experience for the shopper as they head for home.

Keith Murray: Guest Post on Flagship Stores

Professor Keith Murray read my post on flagship stores the other day, and he offers this insightful commentary expanding upon my earlier analysis. In this post, Keith explains how retailers can make the most use of their flagship locations. If you like what you read, check out Keith's own blog at: keithmurrayonbiz.com

Corporate flagship, or“boutique,” stores provide something better than simple profitability! Let’s count the ways!

A day or so ago, Mike Roberto spoke to the need for and importance of company “flagship” stores—say, like The Apple Store, or The Brookstone Store—in major urban locations to be measured on different terms that just profitability. And, he’s exactly right: they are special, they do “cost” a great deal, and—the important point of his blog—don’t typically show much in the way of profitability.
However, that does not mean that they are devoid of other attributes of high value, indeed, they are unique in many ways and should be exploited for exactly those kinds of benefits. Here are some of those factors that speak to this POV that come to mind:

[1] Use the boutique store as a place to gauge customer feedback. Trained [i.e., trained in subtlety, and under-the-radar interview techniques] personnel should routinely be seeking out customers—and particularly new shoppers and brand adopters--to see what attracts them to a product or product feature as naïve prospects. Even though most any brand or product line “owns” a relatively small market share, product and brand managers nonetheless become jaded into believing that they understanding their buyers and prospects; however, that is never quite the case. New market segments are appealed to over time and refining the product/brand relationship as well as the “position” is necessary—a boutique company store is a perfect place to do exactly that.

[2] Video capture of new customer experiences is a great way to exploit the location. Shoppers are usually in a carefree mood and, thus, in a mental state to take the time and to demonstrably react to what sometimes amounts to their first encounter with the product/brand/firm. Videography can be done up-front and formally as well as with hidden cameras—and, with proper authorizations by shoppers—provide the basis for future product or promotion planning by corporate staff somewhere else in the world; also, it could provide a reservoir of actual footage for testimonial ads/commercials in the future for research, planning, and promotion.

[3] Testing lab for future pricing or promotional evaluation. Boutique stores are perfect places—in large part because they are staffed with above-average corporate staff/managers/representatives—to try out promising price breaks or deals, point of purchase signage and offers, etc. While the results of such tests would not be perfectly projectable from a national perspective—data should be pretty promising in terms of what one might want to test more rigorously with a more representative sample of interest; after all, boutique stores in NYC or convention centers in major cities would, by their very location and crowd-draw [e.g., at the very places regional and national meetings are taking place] provide a sample that is fairly heterogenous and geographically distributed.

[4] Stage for major news events, new product launches, etc. Because boutique stores are generally “busy” with shopper traffic, they provide a ready-made, interested, and interesting audience that can serve as a back-drop to key media events and press-conferences. The realness, the frequent excitement that’s “in the air” at such a boutique store is just the right place to make an announcement that is considerably more promising, media-wise, than a sterile, stogy corporate press room in Stamford, CT, or Mountain View, CA.

Clearly, this is not necessarily a complete list of all of the positive attributes associated with a corporate boutique store, but is a start. Can you think of any others that were not mentioned? It’d be great to learn what they might be in a follow-up comment from savvy readers of this blog!

Wall Street Journal To Charge for IPhone Access

Last week, the Wall Street Journal announced that it would begin charging for mobile access, such as through the iPhone app. It's an interesting move, given that this newspaper bucked the trend back in the early days of the web by charging for its online version. All other papers made their online content free; How's that working out for them? The Wall Street Journal has adopted a very successful strategy to date, offering some articles (such as its op-ed pieces) free, but keeping much of the investigative news available only for paid subscribers. I think they will be an interesting test case for the smartphone market. Of course, the key factor remains that the Wall Street Journal offers a very unique, differentiated, high quality product. Thus, willingness to pay for the Wall Street Journal exceeds the perceived value of most other newspapers. At this point, some major city papers have so diminished their content that they don't have something unique and valuable to offer consumers.

For more on the Wall Street Journal's strategic choices vis a vis the Internet, past Chairman of Dow Jones Peter Kann penned an excellent article the other day. It's worth reading because it explains the rationale for the WSJ's decision to charge for online access many years ago.

The Flagship Store

If a retailer is going to have a flagship store in Manhattan, then it has to think carefully about the purpose of that location. All retailers in places like Times Square are paying enormous amounts of money per square foot for rent as well as build-out costs. Many do not operate these stores profitably; they run these retail locations in Manhattan for marketing and advertising purposes. However, too many retailers do not take full advantage of the flagship store concept. They are not creating a powerful brand-building experience. The flagship NYC store is a tremendously cost venture, yet it's also a unique opportunity to bring a brand to life and to emotionally connect with millions of consumers per year. Before putting a flagship store in NYC, companies need to think carefully about how that retail location could and should look differently than their other retail outlets. The purpose of the Manhattan store is different; thus, the experience, atmosphere, and even product selection should be tailored to the distinctive purpose(s) of a flagship store.

Nintendo Slashes Price of Wii

Nintendo has announced a response to recent price cuts by Sony and Microsoft. The Wii will now retail at $199, a 20% reduction in price. They are timing the price cut to coincide with the release of a new Super Mario Brothers game - a smart strategy. One might ask: How can these gaming companies reduce price so substantially? Are they eating into their profits in a significant way? Well, we have to remember two things. First, to some extent, we have a razor and blades business model here. You want to get those consoles into people's homes so that you can them sell them a stream of games at a healthy margin. Second, a substantial cost reduction takes place during a video console technological generation, as firms come down the learning curve and achieve scale economies. Those cost reductions can be very substantial. Thus, prices may be falling, but margins may actually be stable or even improving over time, because the costs come down as cumulative volume of production rises.

Article in Ivey Business Journal

I have just published a new article, adapted from my latest book, in the the Ivey Business Journal, from the University of Western Ontario's business school.

Teen Retailers Cater to Moms

The Wall Street Journal has an interesting story today about teen retailers such as Aeropostale now catering more to moms as opposed to simply focusing on the teens who wear their clothes. The story indicates that some teen retailers recognize a need to focus more on moms during this economic downturn, because the parents ultimately control the purse strings, and they have become more cautious about spending on high-priced clothes for their teen sons and daughters. Interesting, Abercrombie and Fitch indicates that they are making less of a shift toward focusing on moms. That firm will continue to be "all about the senses" with music and a general atmosphere that is much more focused on the teen than the parent. So, we have a clear divergence in strategies, which will make for an interesting horse race... which strategy will work best? It's unclear, of course, but I think there is a clear risk to targeting moms, which is that a brand can become "uncool" to teens very quickly. While focusing on parents may be useful during the economic downturn, there may be long term detrimental effects on the brand positioning.

There's a more general lesson here... retailers always need to be aware of who the actual decision-maker is when selling their wares, as opposed to the person(s) who will be using the products. Sometimes, gaining a better understanding of the consumer decision process can be very powerful. In the case of home improvement, for instance, Lowe's made much headway against Home Depot by targeting women, who often are the key decision-maker on home projects, even though the husband may be the one buying and using many of the construction materials to execute the project.

Mitigating Buyer Power

One worry for many fast moving consumer products companies (FMCG) has to be the continuing consolidation of the retail sector in the U.S. and many other nations. That consolidation has resulted in a substantial increase in power for the retailers relative to the consumer products companies, e.g. Wal-mart and others have huge leverage. What can companies do about this buyer power issue? Well, they could just resign themselves to a future of lower margins, or they could try to cultivate and enhance their alternative routes to market. What do I mean by that? Well, firms often have other channels where they sell their goods, and in some cases, the margins available in those channels are far superior to the mass merchandiser/large grocer channel. Companies need to think creatively about how to drive sales in those channels, many of which may be conducive to higher margin, impulse sales to consumers. Companies also should try to think about how they might offer mass customization of their product via the internet, thereby providing yet another outlet for getting their products to consumers while driving higher gross margins. For instance, companies can offer various forms of personalization via the web (think messages on product labels or the products themselves, monogramming, custom sizes, etc.). All of these efforts to cultivate alternative routes to market mitigate the growing buyer power that consumer products face from the consolidation of the mass retail channel.

Temporary Stores at Toys R Us

Toys R Us has announced that it will be opening a series of temporary stores specifically for the upcoming holiday season. 80 of the temporary stores will be pop-ups located within shopping malls. More than 200 additional locations will be temporary "store-within-a-store" toy sections located in their Babies R Us locations. The move is quite interesting, because it clearly seeks to grab market share in this down economy, particularly given the demise of several other toy retailers (including KB Toy, which operated in malls primarily). As this article mentions, it also sets up a clear battle between Toys R Us and Sears, who will be a key competitor within the shopping malls.

For me, this move raises some interesting questions regarding the break-even analysis behind this strategy, and reminds us of the importance of considering opportunity costs in any such analysis. How much revenue must these generate to offset the costs? Remember that the "store-within-a-store" outlets within the Babies R Us stores are not "free" by any means. Opportunity cost must be considered. By taking floor space away from baby products, the company is foregoing potential baby product sales. That represents a key opportunity cost of this strategy. More generally, making this concept work hinges on Toys R Us' ability to keep the fixed costs of this initiative as low as possible, particularly with regard to set-up and tear-down. Clearly, the toy market has undergone much consolidation in past years, and the battle for market share has been intense. Look for more interesting battles with this latest creative initiative by Toys R Us.

Top 50 Education Bloggers

Here's a new list of the top 50 education blogs. For some reason, I like the list! :-)

Disney Fan Convention

Last week, Disney held its first-ever fan convention at the Anaheim Convention Center in California. Thousands of Disney fans purchased tickets to attend the "D23 Expo" - named after the year in which Walt Disney arrived in Hollywood to launch his career as a filmmaker. It surprised me that Disney had never done this in prior years. Like Apple, Disney has a loyal following among a group of incredibly dedicated fans. The key word is fans... great companies like Apple and Disney don't just have customers; they have fans. Creating a special experience for those folks helps to deepen loyalty, provides a direct channel of communication with key customers, and provides a unique and exciting way to launch new products and services. Reflecting on Disney's example, every company should ask itself three questions: How can I transform my customers in true fans of our company? How can I cultivate a special relationship with those fans? How can I create two-way communication with those fans so as to improve my company?

Great Boards

Barry Bader published the full-length version of his interview with me in this month's edition of the Great Boards newsletter. Click here to access a PDF version of the piece.

Industrial Policy vs. Attractive Business Environment

Many states, in desperate hopes of boosting their economies, have resorted to industrial policy as a means of promoting economic development. By that, I mean the states have tried to focus on particular companies or industries, and have used financial incentives to help promote activity in those firms or sectors. Such efforts may work on occasion, but in general, they have serious shortcomings. First, industrial policy presumes that a few bureaucrats in a state government office know what the future will hold, i.e. which firms and sectors have the most promise in the future. What if they are wrong? Second, such economic development plans offer opportunities for political meddling and even rampant corruption. Third, such efforts may lead to a lower cost of doing business for a few firms or sectors, but the state government has to make up for that lost tax revenue in some way. Some of that may be made up by higher economic activity, but often, states find themselves raising overall tax rates while pursuing targeted tax breaks for specific companies. The higher marginal tax rates depress overall economic activity, and thus, the state's economic development policy does more harm than good.

Economic growth generally benefits from efforts to expand the tax base while lowering marginal rates. Thus, states would be better off finding ways to lower the cost of doing business for all firms, and letting entrepreneurs and innovators discover which sectors are most attractive (rather than state politicians). In contrast, many economic development policies today find states shrinking their tax base through selected breaks and special deals, while raising tax rates for all other firms. State after state is pursing such wrong-headed economic development policies.

Of course, I'm not suggesting that states shouldn't provide any assistance to firms who are trying to expand facilities, jobs, etc. I'm just suggesting that states shouldn't be in the business of trying to decide which sector will be the "hot" one in the coming years, and which ones should be favored over others.

Eight Years Later

Hopefully, we all took a few moments today to reflect upon the events that transpired in New York, Pennsylvania, and Washington, DC eight years ago. My heart goes out to the families of the victims. Please keep them in your thoughts and prayers, along with all the troops who remain in harm's way while defending our liberty.

Genius for App Store

Steve Jobs informed the public that Apple had extended its Genius software, first introduced for iTunes, to its iPhone app store. With more than 75,000 apps on the store, it's clearly difficult for consumers to discover interesting new items that might appeal to them. Genius may help them to find apps that could be most useful to them. It will be interesting to see if this increases the volume of paid apps downloaded from the app store. Will Genius induce people who typically focus on the free apps to perhaps upgrade to related paid apps that could provide an enhanced experience for the consumer? If so, Apple and outside party app developers could win from the introduction of Genius.

As an aside, if Blackberry tries to emulate Genius, it will face a daunting challenge... namely, the algorithms that drive programs such as Genius benefit greatly from having a huge sample size. Thus, Apple has a substantial advantage over Blackberry in being able to develop accurate algorithms for Genius. NetFlix has this same advantage, by the way, over Blockbuster and others... because it's database from which its recommendations are driven is so large and diverse.

Disney Buying More Video Game Developers

Disney announced today that they have acquired Wideload Games, a small but highly respected video game development firm based in Chicago. Why has Disney acquired and built a series of internal game development studios in recent years? After all, many entertainment firms simply license their characters to the major video game producers, and collect healthy fees for those licensing arrangements? Those deals enable media firms to capitalize on video game opportunities without sinking huge amounts of capital into internal game development efforts. After all, creating a great video game can cost more than $20 million. The answer for Disney is quite simple: They like to control their brand and their characters. Licensing arrangements abound at Disney, but in some circumstances, they come to the conclusion that such deals do not provide them enough control over the quality and the experience that they offer their customers. In the language of academics, we would say that the transaction costs associated with working out and managing a complex licensing arrangement become too large at some point, more substantial than the coordination costs of managing the business internally.

Krugman vs. Cooley: Why Economists Got It Wrong

Paul Krugman wrote a piece for the New York Times magazine this weekend on why economists did not foresee the meltdown of 2007-2009. Krugman criticizes the many economists who have a strong faith in markets, arguing that their faith in the efficiency of markets led them to miss the potential for the current crisis. Thomas Cooley makes a strong counterargument on Forbes' website today. Krugman's article is quite lengthy, while Cooley's is clear and concise. They are both worth reading though.

Bill Belichick: What Most Leaders Won't Do

Over the weekend, New England Patriots coach Bill Belichick traded Richard Seymour, one of the franchise's very best players over the decade. Seymour had starred on each of the team's three Super Bowl championship teams since 2001. In return, the Patriots received the Oakland Raiders' 2011 number one draft choice. Now, Seymour is not the player that he once was, but he still contributes significantly on the field. Trading him away may have weakened the Patriots a bit in the short run, but without question, the trade benefits the team substantially in the long run. That number one draft choice received in return for Seymour has the potential to be a cornerstone player for the team for another decade.

Far too many sports teams hang out to the aging stars for far too long, or they wait until they have started showing a considerable decline in skills before trading or releasing the player. Very few coaches and general managers have the guts to make the type of trade that Belichick just made, despite the fact that is a major positive for the long run. Most coaches simply won't make the short term sacrifice. Belichick, of course, does not have to worry about job security. He has a tremendous track record and the complete trust of his boss, Patriots' owner Robert Kraft.

CEOs and other business leaders could learn from this episode. I would argue that few executives have the courage to make the type of move that Belichick just made. Personal loyalties, coupled with incentive structures that heavily emphasize short term performance, tend to cause leaders to shy away from making the short run/long run tradeoff that Belichick just made. However, sustaining competitive advantage over the long haul requires just these types of tradeoffs at times.

Starting from Scratch

Bob Eckert, CEO of Mattel, offers some advice for leaders in Fortune magazine. In the article, Eckert recounts a conversation with his CFO, Kevin Farr, shortly after he took the helm as chief executive. Here's the excerpt from that article:

Kevin said to me, "Well, Bob, if we had a blank sheet of paper, we probably wouldn't pay a dividend." He was telling me to be open to starting over instead of building on previous decisions. We'd been paying a dividend of 36¢ a share every year, and we were borrowing money from banks to pay dividends to shareholders, which doesn't make a lot of sense. When Kevin said that to me I said, "Well, we do have a blank sheet of paper. Let's do the right thing." So we cut the dividend to 5¢ a share. The day we announced that dividend cut, the stock price didn't go down, it went up.

Academics describe how many organizational strategies, structures, and processes prove to be highly path dependent. In other words, past practices constrain future changes in many ways. Eckert reminds us that path dependence need not always be a fact of organizational life. As a leader, you can sometimes start from scratch. You do need to question whether a practice continues simply because "it's always been that way around here." Having said that, leaders need to balance a urge to start from scratch with the understanding that too many changes at once can throw an organization into turmoil. Thus, leaders need to be selective about the instances in which they choose to hit the "reset" button.

Peter Osborne Blogs About My Book

Consultant Peter Osborne, a specialist in public relations and negotiation, offers his commentary about my book on his blog today.

Wal-Mart Paying Via Check Cards

Wal-Mart announced that it will stop issuing paper checks to employees who decline to utilize direct deposit. Instead, it will issue debit cards to those employees. The company estimates that it will save more than 257,000 pounds of paper per year through this initiative, given that roughly half of its employees still receive paper checks at this point.

The news articles indicate that government agencies such as Social Security have begun making a shift to debit cards as well. I found that particularly interesting, given that the other day, I received another copy of my "Social Security Benefits Statement" in the mail. I seem to get these statements periodically, despite the fact that I have nearly forty years until I hit retirement age. As I received my statement the other day, which is several pages long, I wondered how costly these mailings are for the federal government. The waste in paper and money must just be incredible. It makes you wonder whether past attempts to "reinvent government" really made a substantial difference.

Book Review

Harvey Schachter reviewed my book, along with John Maxwell's new leadership book, in yesterday's Toronto Globe and Mail.

Competition among Debt Rating Agencies

Professors Bo Becker (Harvard) and Todd Milbourn (St. Louis) have conducted a new study examining the impact of competition on the performance of credit rating agencies (S&P, Moody, Fitch). They discovered that increases in competition tend to be associated with higher ratings. Moreover, they found that competition tends to reduce the correlation between credit ratings and bond yields. In short, it seems as though companies use enhanced competition to shop for good credit ratings. Fitch's emergence as a more prominent competitor plays a big role in the study. Presumably, their effort to gain market share, coupled with the two major players' efforts to rebuff Fitch's advances, leads to friendlier ratings for debt issuers. The study provides useful guidance for policymakers, as they try to improve the information available to investors in the debt and equity markets. Some policymakers have presumed that competition would increase rating quality/accuracy, but Becker and Milbourn question whether that will indeed be the case.

Story-Telling

Wharton Professor Stewart Friedman has a great blog post on the importance of story-telling as a leadership capability. He outlines six key elements of an effective leadership story. It's a must-read for leaders at all levels.

Depression?

Carnegie Mellon Professor Allan Meltzer published a very good article in the Wall Street Journal this week, in which he compares this economic downturn to past recessions.