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+++ S P E C I A L R E P O R T +++
"Differentiation In Retailing"
By Jan Owens
September 22, 1999
 
Moderator's Comments


Hi All:

We have a special report today from Jan Owens who brings another perspective to E-Tailer's Digest -- an academic viewpoint, with a real world and practical approach to differentiation. We are honored to have such a distinguished colleague as a member of E-Tailer's Digest, and I want to thank Jan for writing this report.

George Matyjewicz, C.M.O.
Moderator, E-Tailer's Digest

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Differentiation in retailing involves distinguishing your retail offering from your competitors in a way that creates added value for the customer. The caveat to all marketing: The emphasis must be placed on what your TARGET customer sees as added value, i.e. what your primary customer indicates is IMPORTANT to a "successful" purchase, AND what is actually NOTICEABLE to him/her.

Because there are many components to successful retailing, differentiation can be approached through many venues. Similarly, because there can be many customer segments with different priorities in different purchase situations, a retailer has to have a clear picture of the hot buttons for the target customer. When any trade-offs are made in how retailing resources are deployed (more selection? faster service? unique items? lower prices?), the decision should be made with astute knowledge of the target customer's reaction. While retailers should try to perform well on many fronts (it's a competitive marketplace, to say the least), it is important to devote resources for differentiation in ways that are most meaningful TO YOUR CUSTOMER.

'Sorry to sound pedantic -- sometimes I come across a retailer who is spending a lot of time in ways that are not terribly important to the target customer, and ignoring a gaping lapse in something that is. In such cases, one of the hardest things is to convince them to do the few important things very well, and the rest reasonably well. If they try to do everything for every customer, the result is often mediocre value for everyone.

But to be more constructive, I've grouped some general ideas in retailer differentiation in the main venues that retailers work in. Please let me know if there is any topic I can follow-up on.

PRODUCT: I am still a strong believer that nothing else will matter if you don't have the right products for your customers. That said, many merchandise mixes begin to look alike across retailers with greater reliance on name brand manufacturers. If differentiation by product seems to be really impossible (e.g. if customers perceive that all area grocers are the same), then differentiation will default to other issues like convenient location, prices, providing other services, etc (more about those below.)

But NOT SO FAST! Even retailers that are seemingly alike can create product differentiation strategies through what can be seen as "private label" products and related services. This does not always mean large-production, high-promotion store brands such as Master Choice or overtly branded items (although many have been successful.) There are successful instances of relatively low-cost items that show astute knowledge of local tastes or shopping needs. In the grocery area, our local chain (an A & P/Food Emporium affiliate) comes out with all manner of take-away foods, colored in Packer green and gold (frosted cakes, jelly bean mixes, colored popcorn) or otherwise appropriate items (football-shaped foods; Packer T-shirts.) This has made the grocery a party stop and very busy on Sunday mornings.

Deli-counters and in-store florists with a talented staff also have a competitive advantage if they are attuned to the tastes of lucrative segments. For example: some provide low salt/low fat prepared meals, AND ADVERTISE THIS SERVICE. Otherwise, customers may assume that the dishes are the overly-salted stuff that they have come to expect from the competitors. (The lack of this service in the Midwest rankles many, especially senior citizens.) Similarly, a few unique floral arrangements in the case signify a product that isn't just a run-of-the-mill bunch.

Gift and apparel stores have done well with "private label" items sourced from local crafts people. This does not have to be an all-or-nothing merchandise strategy: a few special items can elevate the general impression of the store. I've noticed a number of small retailers in this and other countries distinguish themselves by contracting with local crafts people to add a few special things to a merchandise mix that might have to rely on mass-market suppliers in other ways. One way to find them is to visit crafts fairs to see if there are suitable suppliers. Another is to check out local arts instructors -- some have skills that they are willing to turn into side-income; others know various arts/crafts associations that they can suggest. (For example, local art teachers have provided jewelry, paintings, and other items for sale everywhere from gift shops to coffee shops to apparel shops.)

For example, a few gift and apparel shops find a local designer to come up with a unique emblem, or a limited, evolving line to make the customer feel the uniqueness of shopping at that store in that locale This does NOT mean slapping "La Jolla" on a mass-market design seen everywhere from Hawaii to the Caribbean. Unique products can range from relatively inexpensive silk screened T-shirts to embroidered logos on various items to hand-painted silk scarves (I particularly remember one artist who specializes in hand-painted zodiac and galaxy-like designs on silk scarves and wraps for the many stargazers who come to Big Sur.)

Still other product differentiation strategies focus on understanding total customer needs. A local shop in town specializes in bridal and evening wear, but also knows that their customers are not named Trump and most have a rather casual life/work environment. To accompany the apparel that is sold, the retailer sells fairly inexpensive evening bags in a wide range of colors to complement the clothes, as well as inexpensive "dress-up" jewelry. That is, she makes it easy to put together the "special" outfit without too much pain. She also contracts with local seamstresses to provide a few evening wraps, i.e. the impulse add-on that also allows the purchase to be unique. That is, by being perceived as solving the total product problem in this purchase situation, the retailer both increases sales and is perceived as the place to go for such needs.

The retailer can also attempt to provide a very deep selection in an important product category. However, this strategy can require a lot of resources tied up in inventory or inventory management to provide this level of selection (even in online retailing). For every Nordstrom's shoe department that manages to work well, there is a Toy's R Us that pays a price for deep selection when many customers are after a few hot toys. But it can work if the retailer can manage a well-chosen niche where competitors are not too close at hand (e.g. a bird supply store, everything from seed to specialty feeders to books to bird watching expeditions.)

Finally, being very good at predicting where the customer is going distinguishes the retailer as one to keep track of. One dance instruction school makes regular visits to the coasts to see what is going on in the clubs, and is the first to suggest new moves to its customers. Further, they keep track of what the local dance bands are playing, and where, to provide the "total product" to customers.

One branch of a chain retailer keeps its small open-to-buy account for the trends that it feels its central buying organization might miss, but allows it to be perceived as a place that is still relevant to the very-changeable young adult market.

PRICE: the obvious: customers notice competitively low prices. However, some retailers also distinguish themselves by a well-kept markdown corner. While no retailer likes to markdown merchandise, the items that are good but not moving can be assigned to a well-identified area in the store (e.g. in one china and tableware store, it's a basement area with good directional signage. For one mid-to-upper range department store, these are designated areas for markdowns.) Customers learn that they should stop by, even if the retailer is not perceived as a discounter. There are many other ways to distinguish yourself on price (e.g. free returns,) but the viability of these strategies depend a lot on the retailer's cost structure, and are some of the easiest options for competitors to copy.

PROMOTIONS: whatever reminds customers that this specific retailer knows what they want. The e-tailers who have contributed to this newsletter have highlighted one very good example for small retailers on a budget: the post-card using a customer mailing list. This can highlight how the retailer's new merchandise specifically addresses upcoming needs, e.g. football season, back-to-school, vacations, lack-of-time services, etc.

LOCATION/DISTRIBUTION: obviously, the most convenient location for what the customer wants to purchase will distinguish it from competitors. However, recognize that some customer segments will go out of their way to find the "right" product in certain product categories. Also: recognize purchase behaviors that may cluster: a number of stores in urban areas have learned to stay open after the early movie shows let out to catch those who want to extend the evening, but not go to a club. And I don't even want to think about the bakery in a certain Indiana city that is right across the street from a Catholic Church, but is CLOSED on Sunday (I respect religious sentiments, but some things verge on civic duty....)

SERVICE: This area is so wide-ranging, and aspects can be so costly or so inexpensive, that it is critical to understand what might attract or repel customers so much that they patronize the retailer or vow never to return again. Especially as merchandise lines blur, and retailers cross-merchandise some product categories, service issues come to the fore.

Many center on the intangible experience: easy shopping, ordering, delivery, returns, etc. that make shopping with A PARTICULAR retailer a pleasure -- the purchase is made as desired, without the "expense" of hassle and frustration. As online retail studies have shown, many sales are lost due to cumbersome processes and failures (e.g. I'm about to abandon Travelocity since they've added a pop-up window that locks up my machine.) Similarly, shoppers have abandoned real stores when they couldn't find someone to answer a question, make the sale, or find lines too long. Others have abandoned stores that always felt too crowded, dressing rooms were inadequate, etc.

In part, I cheer online because I see a real need to provide home delivery for many customer groups (too busy; seniors who can't or shouldn't drive; handicapped groups; etc.) For the half-busy like me, I'd like to see an adaptation of the fax-in menus that some restaurants provide: you do the work, let me pick up what I ordered.

Any retailer might also like to consider what it takes for "immediate" delivery, in case a customer does make this request. I know instances where women have had an emergency need for pantyhose, and one retailer responded "Sure, no problem," but another responded, "I don't know if we do that." Such save-my-neck emergencies can win customer loyalty at least for a limited period of time, and provide the retailer with an opportunity to prove why the customer should continue to patronize the store.

There are also the unexpected courtesies, given some of the poor levels we've become used to. Excuse me if this gets too tacky, but I'm impressed with grocery stores (and other convenience-types) that actually have put bathrooms in obvious locations, rather than in the back of a storeroom that makes customers feel like intruders. Yes, I understand some abuses that might occur in heavily trafficked areas by non-customers, but so many retailers have treated such courtesies as someone else's problem.

>From my students' comments, I've come to appreciate how much THEY appreciate being treated well by sales people. While not an extensive problem, they are ready to walk from a store where they feel they are not perceived as a serious customer. (Each attributed this to their youth, not any gender, racial, or ethnic issues.) In our rush to identify "best customers," I wonder if we sometimes miss out on some customer groups that don't obviously fit the profile. I've seen some seniors, not as fashionably dressed, similarly given short attention. Making it a point to make everyone feel comfortable and welcome may be a distinguishing advantage.

(Perhaps this is another reason why young people like shopping online?)

Finally, recognize that if one retailer has a very good idea, others will probably follow. As in any competitive situation, any differentiation advantage is often temporary at best.

Jan Owens
jpowens(at)execpc.com

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