Product, Not Price, Key to Retail Success
Okay, the headline is too simplistic. Everyone watching
retail knows that while luxury goods may be booming, those products are being
purchased by a small percentage of consumers. The fact is that large numbers
of consumers in the middle and bottom rungs of the economic ladder are making
purchasing decisions based on what they can afford.
All the above being said,
most would agree with a Bloomberg News piece contending that retailers
are going to have to offer something other than just low prices to drive purchases
as people begin to feel better about their financial situations.
"It’s
got to be all about the product," Christine Chen, an
analyst with Needham & Co., told the news service.
Claudio Del Vecchio,
chief executive officer of Retail Brand Alliance, which owns Brooks Brothers,
told Bloomberg, "Customers are looking for
quality and value. They are willing to make the investment in something of
better quality if they know it is timeless and authentic, which will endure
rather than impulsively buying several trendy items."
Among the chains
mentioned as gaining shoppers looking for something out of the ordinary were
Abercrombie & Fitch, Coach, Lululemon Athletica and Urban
Outfitters.
Discussion Questions
Discussion Questions: Do you agree with the premise of the Bloomberg piece that “product is king again” with American consumers? What retailers do you see as symbols for having truly differentiated product?
Please. It is not all about products – most all can all be scanned and purchased online. Retail is simple: it’s people. Either good or bad, they get the buzz many hope online coupons will deliver.
If we can’t recapture the magic of retail we will be reduced to nothing more than commodity pricing on products available in an omnichannel world. Thats part of the message I’m about to deliver in my manifesto on retail at risk in a digital world. Stay tuned.
I think product has always been king, even during the worst part of the recession. Yes, many had to shift to less expensive products and we saw increases in PL sales, but brands did not die, at least those brands that stood for something (often quality and value for the money).
“Product is king”? Is this really news? I contend that merchandise content is the most important ingredient in retailers’ success, regardless of the rest of their strategy as well as macroeconomic conditions. Yes, it’s true that the consumer has been unusually price-conscious over the last two years but we live in a promotional environment that didn’t just begin when Lehman Brothers closed its doors.
You could make a case that part of the reason for the retail slowdown since the 2007 high point is poor execution of merchandise strategies. Whether it’s high out-of-stocks, perceived sameness due to consolidation or lack of a compelling trend, there are “lessons learned” (I hope) regardless of the state of the business cycle. And the winners will continue to be the stores that offer value (not price) on compelling, trend-right, exclusive products.
Product creates news, that when delivered through intriguing stories and creative merchandising, can get shoppers excited along multiple points in the path to purchase. While price concerns are here to stay for many shoppers, innovation in product and shopper solutions create opportunities for incremental trips!
This premise is valid, although a bit distorted. The product is still about the price, but the difference between making a good product great, at retail, will still depend on the perceived value add which the product offers the consumer, and many times this will hinge on the customer service which is offered at retail. For many products, simple pricing (i.e. most price-sensitive grocery items) is the key difference. However, for more complex items (like consumer electronics), the difference in purchasing behavior hinges upon the customer experience at store level. Perceived value because of this customer experience will make one product superior to others, all other things being equal.
As I say when giving my insatiable lab Destiny a treat whilst keeping my fingers; “Gentle.” Let’s go gently here too and don’t go swinging wildly from one extreme to another. All of a sudden we’ve swung from Walmart’s determination to feed poverty by beating any reasonable profitability out of their vendors so they can sell cheap stuff to other poor people to now talking about the emergence of “luxury” goods. Gentle, I say, gentle!
Yes, it is sort of about the product and giving people interesting, unique and imaginative stuff. I’ve found it impossible in men’s clothing, for example, to find anything other than boring, unless of course, I go to a metrosexual boutique where a shirt costs me $400 and parking another 20. (And I’d just like to give a shout out to the folks at Neiman Marcus Last Call.)
I’m referring here to the value of good design. It’s design that rules! Why on earth can’t good creative design be manufactured with quality and priced for the mainstream? Good design placed somewhere between “luxury” and “crap” is the answer we’re looking for.
Product is important as always and price will continue to be important. The female consumer is all about bargains, if for brands such as Coach, etc. If you have price and product covered then service and convenience fall into the line of buying criteria. I don’t agree that people are just going to buy online. Online consumers are becoming more and more aware of rising shipping and handling costs. Therefore the attractiveness of buying online becomes costly.
Mr. Del Vecchio is absolutely right–it is (and always has been) about quality and value, regardless of the price. While discretionary income may fall and the customer will spend less, they do not go out looking for “cheap” products in terms of quality and value. Rather, they look for the very best they can find with the money available to spend. This cornerstone concept is what has helped the TJX companies grow to over $20 billion annual sales in just 40 years. As an ex-merchant with them, I can attest to the fact that their first hurdle for all their purchases (regardless of the price point) is quality. In addition to the names mentioned, I would also add other non-luxury apparel retailers that live this idea, including L.L.Bean, Tommy Bahama, Nike, and J.Crew. The economy goes up and down, technology plays an increasing impact, but still these brands continue to survive and grow. It’s not because they have the cheapest price.
There’s an old saying that fits–competing strictly on price is a footrace to the bottom.
Shopper emotions are king. Product is an aspect but experience is, as well. Whenever someone says “it’s all about one thing,” beware.
While the price of any product must be equal to its perceived value to the customer, value comes from much more than the product itself. I guarantee that the top dollar received in one store for a given product could never be attained in many others. It comes down to the service, the atmosphere, the visual merchandising, the store’s location, the store’s reputation and the customer’s overall experience.
Another factor is other product choices, i.e good, better, best choices, that are offered as alternatives to a given product.
In addition, sales skills and other sales efforts can help affect the “wants” of the customer. If the customer wants something bad enough, all reason goes out the window. What makes a person that typically shops at Target suddenly buy a “Coach” purse on a shopping trip? While there are limitations as to what will fly, most of those factors are controlled by the retailer.
There are five kings–or perhaps better said, five contenders for the crown–access, experience, price, product, and service.
As has been demonstrated over and over again, retails can win by championing any of these attributes but will fail if they try to pursue all of them at once.
There is no “king” in retail unless you are talking about the customer.
Those who say price is the fastest way to the bottom should stop and think about the dollar store channel, ALDI and even–at least in its heyday–Walmart.
Those who think it’s all about product should study retailers who command a premium on identical goods simply by virtue of an enhanced service profile.
Those who think access isn’t important need to go back and rethink the convenience store industry, the Internet and 24 hour drug stores.
And on, and on, and on.
The point is that great retailers are the foundation for great retailing. They know who they are; who their customers are; what their customers want; and never fail to give it to them.
Are products important?
Of course.
But so is everything else.
Yes, luxury brands have done well lately. But price is still critical for the overwhelming majority of retail purchases. Go out and count Walmart, Target, and dollar stores and compare that to Coach store count. For that matter, just count the new stores in each of those categories. Or, watch as consumers use the internet–and increasingly, mobile devices–to price compare on high priced purchases.
It’s neither. Value (need) is king–always has been, always will be. Virtually every product has a point at which value is realized. A true merchant experiments until that sweet spot for the majority of customers is found. If the value proposal allows for a profit, great. If not, then another product will be found that will provide both value and profit.
Defining the value of an item has millions of components. All of these components are consumer driven.
As the basic purpose of business is to move wealth from the consumer to the merchant, it stands to reason that the consumer ordinarily might consider need, price, convenience, ego satisfaction, etc when making a purchase decision. Only when enough factors signal value to the consumer will the consumer make a buying decision. And yes this applies to every impulse purchase. It’s not product or price it’s need (value) that determines if/when a product is purchased.
Product is King and Price is Queen! Wow, nothing truly new here at all. Has the shopper evolved since 2008? Yes. Shoppers have always wanted value. With heightened awareness and communication vehicles, the opportunity to demand even greater value is stronger than ever.
We can all think of great retailers that offer desirable, fashionable items at value-driven prices. No longer is the shopper too proud to boast of the great deal they got… on ANYTHING. From food, to apparel to cars. Sure, shoppers want the luxury brands, however where there is little or no visible differentiation between the luxury and value brands, the shopper makes the intelligent choice today.
According to Tomas Maier, creative director of logo-less, Gucci-owned luxury brand, Bottega Veneta, anyone can afford one five-hundred-and-fifty-dollar hand-painted Bottega scarf. (“Just have less” said he.) Maier’s anti-it-bag, the Cabat, (essentially a floppy leather sack with handles) has appeared in the BV line every year since its launch in 2001. Selling for six thousand dollars and only available in Bottega Veneta stores, the bag’s deliberately-limited 500 units sell out every year. Since Maier took the reins in 2001, the brand’s sales are up 800%. I’d say they’re onto something.
I think this is being presented as a false choice. In retailing, no single element is supreme. As successful strategy is the synergy of vision and passion, product and assortment, pricing, presentation, engaged employees, service, execution, experience, and everything else that goes into making a store compelling and memorable.
I believe Sergio Zyman’s comment is apropos here … something like “in the absence of other reasons, consumers always fall back on price.”
In other words: Product is king. But I find that too often, brands ignore product and focus on immaterial issues to consumers–primarily telling them that “we understand you” or “we’re as cool as you are.”
Advertising experience (when measured) shows that product oriented messages far outperform any other messages–even when considered over a 5 to 10 year period. Why? Consumers BUY products. They don’t buy price. They don’t buy image (except as expressed by the product itself). They don’t buy packaging. (Although all of these play critical supporting roles in the purchase process.)
But the single most important impact on a consumers is–the product.
Having said this, I agree with other comments that reducing the issue to price vs. product over-simplifies. There are a great number of influencers, of which product is the leading influencer.
I would pose a bit of a different perspective other than exclusivity, uniqueness, or being ‘it’–Costco. It’s still about the product, the delivery, experience and excitement. Nothing is really that exclusive. Sure, they have their “Kirkland” brand. However, the majority is stuff you can buy elsewhere. You can find most products they carry at a slightly lower price at many other places. You can’t, however, find it at a place that is any more exciting, new, and different every time you visit.
All things tied together equate to the value equation. Their continuous growth in comp sales prove out that equation on many of the concepts of the discussion. The problem is that they don’t sell $500 handbags. That purchase or those like it aren’t value purchases, they are simply frivolity by those that don’t know any better.
Value is decided by the masses.
Product draws me to the store. Cost either allows me to make the purchase or decide I really did not need it that badly. That is my simplistic decision making process.
I agree with Ted in there are many components to retail success. Ultimately, it nearly always comes to matching the right customer with the right mindset, with the right product. That mindset must include the ability and desire to establish the value of doing business with that particular store or the value of a particular brand and even whether the product is cool.
Fortunately, for all of us consultants on RetailWire there are many, many retailers who have positioned their stores and merchandise to add value with several of the factors consumers use to make purchases.
Simplifying the purchasing decision to one component (price) is where Walmart positioned their business for many years. They have since found that positioning is a mistake if you want to reach the broadest range of consumers.
Fortunately, for all of us consultants on RetailWire, many, many retailers have positioned their stores and merchandise to add value with several of the factors consumers use to make purchasing decisions.
I agree with the need to provide a reason beyond price to engage consumers, but I don’t think that incentive has to be all about the product. Product attributes like quality, ease of use and unique design are definitely important motivators for today’s consumers. But other factors can and do play a role, e.g., the overall shopping experience, customer service, past experience, the brand’s environmental commitment and even the store’s location. Great product definitely falls high on the shopping list, but it’s not the only reason consumers choose one nameplate over another.