The Third Wave of Retailing: The Efficiency of the Shopper

Discussion
Apr 10, 2012

Efficiency and convenience are the flip sides of the same coin that birthed retail at the dawn of history, with vast increases over the past 100 years. There is good reason to believe we are on the verge of a five-fold acceleration of efficiency, convenience and retailing.

The economic division of labor created the need for the largest industry in the world, retailing, thousands of years ago. The basics of the process changed little over millennia, until the early 1800s, with the Birth of Plenty (Bernstein) in England, leading to a century of massification.

Mass production, and mass distribution led to mass retailing — self-service. This led to a "new" business model for the world’s first billion dollar business, of low margins and limited capital to deliver massive efficiency (and sales), with A&P at the forefront.

The resulting "creative destruction" (Schumpeter) revolutionized the supply chain and forced efficiencies in manufacturing, but created massive opportunities for growth in both industries. Shoppers loved the exploding assortment of high quality merchandise at plunging prices.

Retailers became merchant warehousemen who managed the logistics of stores and supply chains, with shoppers self-managing the sales process. Decades after A&P’s heyday, Walmart picked up the efficiency baton and created the new "world’s largest business."

"Selling" was redefined in retailers minds as price-promotion — paying shoppers to buy. Brand suppliers cooperated with this in-store approach, and moved their own "selling" to mass media, radio and TV. Mass media is emasculated selling, since it cannot "close the sale," which is done in-store.
One would have to live in a cave to not recognize the growing impact and potential of personal electronic communication on shoppers. In fact, there will be a continuing Convergence of Online, Mobile and Bricks-and-mortar retailing (COMB retailing). But a great deal of the millions of dollars being invested in this currently is misguided, through a misunderstanding of what the real inefficiency problems are in shopping.

At the same time, there is a genius in our midst — Jeff Bezos — displaying qualities of his predecessors: the Gilmans, Hartfords and Waltons. Consider this statement from someone who worked while the foundation of growth was still being laid:

"We used to joke that the ideal Amazon site would not show a search box, navigation links, or lists of things you could buy. Instead, it would just display a giant picture of one book, the next book you want to buy." — Greg Linden, former Amazon programmer

This is the sheer genius of a salesman, not to ignore the 50 million books he has on tap, but to realize that his job is to sell just one! And then to consider selling another … and then another and another, until the shopper is sated … for now. This is the "efficiency process" that self-service bricks-and-mortar retailers have almost totally ignored, and which is the key to massive increases in sales and profits in the third wave of retail.

Discussion Questions: Do you agree with the author that retailers such as Amazon offer a model for bringing the art of selling back to retailing? Do you see a “third wave of retailing” coming based on the new consumer connectivity/empowerment?

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16 Comments on "The Third Wave of Retailing: The Efficiency of the Shopper"

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Dick Seesel
BrainTrust

I’m not sure what retailing will look like in five years, so it’s hard to describe its current evolution as a “third wave.” However, there are clearly some significant trends at play: First, the use of technology to act as a “silent salesperson,” directing the consumer toward products that match his or her existing preferences. While Amazon is the best example of this trend, plenty of other retailers are finding their own ways to talk more personally to customers … with Safeway as a recent example discussed on RetailWire.

Second, the consumer is more empowered by information and mobile technology than ever. Retailers need to change their model to exploit this trend, not to try putting up a moat. Target’s recent complaint about consumer “showrooming” looks like playing defense instead of figuring out how to take advantage of the inevitable.

Doug Stephens
Guest
Doug Stephens
5 years 6 months ago

I think we will soon look back at Amazon as being the forerunner and to an extent, the originator of a far more revolutionary level of efficiency and convenience. “Contextual Commerce” is the new frontier. It’s the confluence of a myriad of data that consumers will trade for optimal convenience. On an opt-in basis, our location, social graph, purchase history, preferences and calendar events will be perpetually calculated to anticipate our needs and recommend the most convenient or appropriate products and solutions to meet them. In perfect contextual commerce scenario, the exact products you need are discovered, sourced and presented for order before you even realize you need them.

And if you think this all sounds far too Orwellian for consumers to tolerate, a recent study suggests that 40% of consumers would opt in to such a service today if it promised relevant product and service recommendations.

Fabien Tiburce
Guest
Fabien Tiburce
5 years 6 months ago

Sure, except it’s not a “wave” as much as it’s a “layer.” Electronic shopping, for all its merits, is “engaged” and “active.” It requires shoppers to want to make the effort to shop online, read reviews, compare, etc. Traditional shopping has been more “passive.” You go to a store and buy products on the shelf, sometimes with the help of a sales associate. While “active” shopping is undoubtedly on the rise (thanks to connectivity and mobility), let us keep in mind that not all customers are “engaged” and “active” and that not all active customers want to be “engaged” all the time (I’ll research a printer but not a battery). And that’s what I mean by layers. It’s not like one type of shopping will replace another (like a wave), it’s more like you now have two types of shopping behaviors co-existing. You really have to fight this fight on two fronts to thrive.

Dr. Stephen Needel
BrainTrust

Amazon and Netflix (see today’s news stories) are doing a great job of trying to identify, via detailed segmentation, what the shopper wants — what book, movie, cd, etc., will strike a hot button. That’s great marketing to the extent that their segmentation model works — and it often does not. This is not bringing back the art of selling. This is not a new wave of retailing. In the old days of record stores, the owner would often tell us, “hey, you liked that album, you might like this one.” We’ve just moved this process to the web and made it more efficient, if somewhat more impersonal.

The third wave of retailing may be more focused on value added than on price — why pay Best Buy prices when I can pay Brandsmart prices? Best Buy needs to give me a reason. And that is not all that new a concept. Best Buy beat out a lot of competition (RIP Circuit City) by having great prices, great selection, and knowledgeable sales people that you could talk to. Not so much anymore.

Mike Osorio
Guest
Mike Osorio
5 years 6 months ago

You see this now in the best luxury retailers, where the in-store experience combines extraordinary brand/product/category knowledge with highly evolved customer relationship skills, all in a palace of beautifully appointed fixtures and gorgeous artisan made products. There, your personal ‘stylist’ brings you the one item that you desperately ‘need’, followed by another, then another, until you are sated.

The same occurs online when the programming model presents you just the item you need, based on previous purchases and browsing habits.

When done well, it truly is magical and it is happening today. Lesser practitioners, beware….

Dan Berthiaume
Guest
Dan Berthiaume
5 years 6 months ago

The “Third Wave” is already here in its early form, evidenced by activities such as consumers performing in-store mobile price comparisons and receiving targeted in-store mobile promotions, as well as the increasing convergence of full e-commerce capabilities with social media sites. Instead of “Third Wave,” retailers should be looking down the road toward “Fourth Wave,” which will have science fiction components like people accessing the internet through clothing and true “24/7” connectivity.

David Williams
Guest
David Williams
5 years 6 months ago

It sounds like the utopia of personalization.

Mark Heckman
BrainTrust

I think Herb has hit it out of the park. Shoppers are looking for relevance and efficiency and few retailers, at least in the food industry, are using their customer’s data to provide the “Next Grocery Item” you want to buy.

At the same time, many food retailers are struggling with the question of how do I reduce inventory and SKUs with the financial carrot of reducing inventory and holding costs dangling in front of them, which stands in sharp contrast to the “bigger is better” model that most retailers embraced over the past 10-15 years.

Retailers, food or otherwise, that invent ways to be more relevant to the shopper through the thoughtful use of customer data, and leverage this same data to eliminate the excess items and inventory in their stores, will be well on the way of aligning their financial objectives with the enhanced satisfaction of the customer. Something Jeff Bezos figured out long ago.

BTW Herb, I still have the book, “The Birth of Plenty” you loaned me several years ago … I should really return that to you!

Ken Lonyai
BrainTrust

Amazon deserves credit for what it has accomplished and how it has lived up to what was a bold naming strategy. However, there are some other players that know how to use customer data very well and now that “big data” is the hot topic, more entities that want to genuinely use consumer data to “predict” a customer’s next purchase item, will try to.

Technology (including mobile) is a big part of my job, but to be sincere, we have to recognize that consumer product research has existed since Consumer Reports started, a long time ago. The consumer has always wanted the data, but had limited resources to obtain it.

Now though, product/brand data and all its social variations can be obtained in real-time at the POP. I agree, that’s an obvious game changer and it’s still very early days with new variations/innovations to unfold.

One question: how are you measuring “a five-fold acceleration”?

gordon arnold
Guest

Time will tell if Amazon, eBay, Facebook, QVC and many others will be a big part of the future of retail. One aspect of the present day retail business which will expand and grow is the Internet. There are millions of investment dollars wasted every minute on software and infrastructure that will not serve a 5 year IT plan for many company members of this changing retail market. Those that do not address this need to stay user friendly and current will at best suffer stagnation and obsolescence. If you can not afford or figure out how to build the right IT ingredients for a state-of-the-art customer interface, then buy, lease or rent one from third party providers.

Phil Rubin
BrainTrust
5 years 6 months ago

What a great post and yes, Amazon is the model for bringing the art of selling, rather than the hack job of discounting, back to retailing. I’ll go a step further and suggest that Amazon offers a great model for not just retailing, but building customer relationships, loyalty and habit.

The implications for most other retailers are very clear and increasingly dire: move away from discounting, towards customers and customer relationships, or continue to concede your business to Amazon.

Ben Ball
BrainTrust

While it is interesting and useful to discuss the current developments in digitized retailing as techniques and tools, it seems to me that the real message in Herb’s comments is that we are approaching the confluence of “Art of a Salesman” with “Hal.”

In other words, we are nearing the point where a website can “read” a customer the way a great salesperson can when that customer is right in front of them. That’s incredible when you think about it. Imagine typing “I need soap” into a search engine and being presented with “Hi Ben, is it for your laundry? Dishwasher? Car? Face? Body? Hair? or Beard?” Answer “Beard” and Blue Beard Wash in my usual size drops into my online cart. Won’t it be wonderful?

Herb Sorensen
BrainTrust

I really appreciate how well the respondents “get” the message, and specifically, that it is all about “selling,” self-service style, but with the mind of an Amazon.

Ken Lonyai asks, ‘One question: how are you measuring “a five-fold acceleration’?”

The short answer to that is selling 5X faster means 5X more sales, PERIOD. It’s actually sales 101, where most of the focus should ALWAYS be on the close — a strange and unknown concept to the typical self-service retailer.

The biggest evidence for the reality of this figure is that there are retailers that are already achieving super sales using two principles — simplify the majority of navigation, and simplify the majority of choice. It doesn’t mean the options for either are necessarily reduced, but the retailer comes into alignment with the crowd of shoppers’ natural tendency toward those two majorities. I discuss this in some detail at my Views blog, linked in the article being commented on. See also, “Five Reasons Your Store Might Sell Five Times as Much.

Lee Peterson
BrainTrust

I think the idea of ‘Third Wave’ is correct; this is without question the dawn of a new era in retailing. Two huge things to me: 1) the blow up of mobile devices; now, there need be no investment in hardware for the retailer, even though there is a lot to figure out, and 2) improved store experience; it had better get much, much better or there will be no reason to stop by, with or without a device. Smaller (fewer too), better.

Investment therefore is very necessary given where we are today. That cash should go into figuring out how to integrate the mobile mentality into the everyday shopping experience, which will subsequently elevate with that re-think/re-do. Onward and upward, clearly like never before.

Ralph Jacobson
BrainTrust

Well, as opposed to 20 years ago when the shopper was technically adverse, and was seemingly at the mercy of the retailer, the shopper now had command of literally the world at their fingertips and will not settle for a product or service that doesn’t provide tangible value. Brands are still in power in many categories, however for those categories where brand loyalty is less pervasive, future shopping channels need to be capitalized upon by brands that need the “following.” Who knows where today’s shopping and social channels will be next year?

Kenneth Leung
BrainTrust

The key is value, and value means different things to different consumers. For some, price = value, others service = value, availability = value. What consumer connectivity created is transparency, to be a low price leader you have to structurally beat the competition or others will discount to match. Service and availability is actually improved by this visibility because more consumers know about it. The 3rd wave are retailers who can deliver the value to the highest number of connected consumers, whether it is product or information.

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