Retail Experience a Plus for Manufacturers
Brands that
operate their own retail outlets often have a deeper understanding of consumer
behavior than those that don’t and that leads to a competitive advantage,
according to Claudia D’Arpizio, a partner with
Bain & Co., who spoke at the Reuters Global Luxury Summit
in New York.
Ms. D’Arpizio told attendees, "You have in your hands all
the levers to really understand how the consumers are changing."
Retail
ownership is not a requirement for a deep understanding of consumer behavior
and success, said Ms. D’Arpizio, who tracks the
global luxury product business. Many brands who have close relationships
with retailers are able to create a relationship that gives them access
to shoppers without having to set up shop in a more permanent and costly
manner.
"I
think in particular category leaders can work with department stores and
retailers, trying to understand how really to improve the relationship," Ms. D’Arpizio told Reuters‘
audience.
She
also believes that brands that are part of larger organizations have an
advantage over smaller independents.
"For sure if you
are a medium-sized brand inside a big group you are better-equipped to
overcome this moment of crisis because in that group there is at least
one big cash cow that is still fueling growth for all the others," Ms. D’Arpizio said.
Discussion Questions:
Do you believe brands that set up their own stores have a deeper understanding
of consumer behavior and therefore have a competitive advantage over
those that do not? How can suppliers that do not operate their own stores
work with trading partners to deepen their understanding of consumer
behavior across a wide range of retail channels?
While there is a long history of successful CPG marketers that have not built their own retail channels, most of these brands have probably achieved success at least through a strong understanding of consumer behavior. The CPG companies in question should have done a lot of observational and quantitative research and (most importantly) collaborated with retail partners to help uncover patterns of behavior.
On the other hand, it’s no accident that a company like Apple has driven its retail sales primarily through its own stores, with less focus on broader distribution like Best Buy and Walmart, in order to align the store experience with brand positioning. And it’s also no accident that big CPG companies like P&G are moving faster into ventures like “The Art of Shaving,” in order to study–and capitalize upon–men’s shopping behaviors with their own eyes.
In theory this makes sense but has anyone had an exceptional experience at Coach, Cole Hahn or others? No one I know. If anything, because they are manufacturers they seldom capitalize on the opportunities in front of their noses. They become as bland and disinterested as any GAP, Macy’s or Holister employee. And it shows poorly on the brand for the very reason they can control everything the customer interfaces with.
The reason for success in brands that operate their own retail outlets is because planning and execution happens within the domain of professional CPG marketing.
Ms D’Arpizio spoke at the Global Luxury Summit. The brands that come to mind include Prada, David Yurman, Armani and others who have luxury brands with their own stores and sections in stores such as Nieman Marcus, Saks Fifth Avenue, etc. Sometimes those sections function as separate boutiques.
The brand marketers need to understand consumer behavior within the context of the consumer experience. Who walks into Prada, the store? Who shops Prada in the department store section? What is the experience for the shopper? How do they view the competition? Is it immediate, just steps away? Or is it another few blocks? Owning your own store gives you the opportunity for great insight but it is filtered through a particular situation and you must pay attention to it along with the other retail environments.
Brand marketers should be looking at it all, as best they can. Their sales people and store associates in both settings can give them in-depth understanding of what is happening and why. They know the impact of the economy, the impact of poor lighting and great merchandising, for example. They speak to the customers every day and hear what’s on their mind and what influences their purchases.
Interestingly, many luxury products have their own outlet stores as well. How similar or different are consumers who shop there? The products they buy? And the reasons for their choices?
I’d say the brands have a fantastic opportunity all around their retail environments to gather insights for strategic planning. It’s not limited to those with stores of their own. If they think those stores are a microcosm of the rest of the retail world, they are mistaken. Their own stores can pave the way to better understanding but if that’s all they look at, they will miss broader opportunities.
When I think of top brands that successfully operate their own retail outlets I tend to place them into two groups: luxury retailers (Versase, Coach, etc.) and on-trend retailers (Apple, Nike, etc).
I believe these very differentiated brand owners have a distinct advantage in knowing their consumers as they are in businesses that command strong brand loyalty and are in a sense based on some form of “fashion.”
On the other hand, brands that are more mainstream can learn from their retail outlets but tend to be more widely distributed across a variety of retail channels. This leads me to believe that market research will always play a more important role for these brand owners than what might be learned in a brand-owned retail outlet.
Anything a brand can do to better understand their customers can deliver multiple benefits (better understanding of users’ needs, stronger emotional connections to consumers, faster identification of packaging/design issues that manifest at the shelf, etc.); the question is, are the cost and distraction worthwhile?
Apple is the example that everyone points to when touting the power of a manufacturer delving into retail, but success is far from assured. Anyone remember Gateway’s retail outlets? Has anyone been to Nokia’s flagship store? And then, of course, there are entire classes of products for which a retail store would just be silly (Bounty paper towel store, anyone?).
But, if the retail program is well thought-out, well-managed, and is used as an input to product management decisions, not just as another channel, a manufacturer can stand to benefit greatly.
There has always been conventional wisdom that stated the closer the manufacturer is to the consumer the better they will understand them. Owning and operating its own stores provides the ultimate opportunity for understanding via direct contact. However, that does not mean a) that this is the only way to gain a better understanding or b) that doing so automatically confers better insight into the consumer. It depends on whether or not the manufacturer seizes the opportunity to learn about their customers and what it does with the knowledge.
Some of the difference in how they go about this is how they view themselves–as manufacturer who owns its own retail or as a retailer who owns its own manufacturing. Regardless of the legacy of the company to be successful, as a retailer you have to think as a retailer. It’s one thing to “dabble” in owning one or two locations, but another to primarily distribute your goods through other retailers or to commit strictly to your own retail. The first provides you with few key locations to help create brand awareness, etc. The second means you are committed to retail.
Manufacturers can obviously be successful without owning outlets (most don’t). They can gain the knowledge of consumers by some tried and true methods such as conducing research, analysis of the retailers’ data (assuming they are granted access), etc. Regardless of how they approach gathering the data we truly believe those who have secured the knowledge and know how to use it win the battle for the customer regardless if they are a retailer or sell their products through retailers.
I strongly agree with Joan Treistman’s comment. Store sales staff are an excellent source of in-depth understanding about the customers and potential customers. The trick is to gather and leverage that knowledge. I think the considerations in discussing this topic echo some of what was discussed yesterday in the “Tips for Avoiding Product Failure” topic. If suppliers that do not operate their own stores want to deepen their understanding of consumer behavior, get out into the retail stores to interact with sales staff and customers, starting with training sessions in product usage.
I don’t want to minimize the value of having external consultants conduct consumer attitude surveys. I’ve seen how valuable it is to clients to incorporate the methodological sophistication and objective judgment into their decision making. But to achieve that value, the external consultant’s findings must be used, and the motivation to fully use the findings multiplies when the manufacturer and supplier have as direct contact as possible with the consumers, at least for a bit of time.
CPG manufacturers with their own branded stores certainly have the opportunity to get closer to shoppers. The challenge is translating the store box into shopper intimacy. The box provides room for research and learning labs for new concepts that can help the brand team think more creatively and explore more proprietary ideas. The watchout is not assuming what works in a singly-branded store works in a more traditional retailer with thousands of competing brand messages.
Brands that operate their own retail outlet are in a strong position to understand the shopper experience in a unique way. Key is the ability to control retail environment, eliminate competitive distraction and create an enhanced experience. Shoppers are totally engaged with the Brand (or not!) and it is possible to learn more about the consumer and why and how they buy.
Shopper interaction with the product/package leads to the insights that can make the Brand experience more relevant when it matters most.
It stands to reason that the experience of operating one’s own retail outlets can only help towards understanding the relationship between a consumer and the brand. The benefit extends to the opportunity to hear what a consumer has in mind at the time of purchase (questions/concerns/motivations) and a chance to experiment with in-store presentation to assess the contribution it can make to activation and imagery.
Ms. D’Arpizio is right of course–that manufacturers with direct retail channels often (but not always) have deeper customer insights–but of course they should. As should all retailers or any brand or company that sells direct to customers.
The challenge is always connecting strategy and execution using data-driven insights. So much data, so little use of it in terms of creating exceptional brand and retail experiences for customers. Yes, Apple and others do it though they still rely on products, not customer centricity.
In fact, there is considerable opportunity–especially in the luxury goods sector–to better use customer data to create meaningful dialogue and translate that into incremental sales. Neiman Marcus and Nordstrom, as noted above are good examples. Some of the direct luxury merchants (Burberry, Hermes, Ferragamo and even Tiffany) really only do a marginal job of being relevant beyond their broad brand and product marketing.
Luxury brands are personal identity for many consumers. Sure, luxury shoppers love the exclusivity and brand immersion experience. They get cues on emerging styles and from shopper cohorts on keeping themselves fresh. Retailers who offer many brands can’t offer that brand immersion nearly as well.
In almost every case of a branded product manufacturer successfully launching a retail unit, the leader of that group came from retail, not manufacturing or the agency business. Apple is the most obvious example here, but the outlet stores for the big fashion houses have also followed suit by poaching managers from the apparel retailers. There have also been several examples of the retail units of branded product manufacturers failing because CPG and brand marketers have been placed in charge. Think about Gateway and IBM.
Retail brands absolutely have an advantage. That’s why Walmart’s CEO can talk about “just getting out and talking to customers” as a strategic initiative (NYTimes 5/31). There’s no middle man (research teams) for him, he can just go out and talk to his customers 7 days a week if he wants to. CPG does not have that luxury.
The closest thing to a look into the future for CPG is Pepsico’s Smart Learning Center in Dallas, a mock-up grocery store for consumer testing–a GREAT idea and an opportunity for them to match retailers advantage.
Vertical brands succeed because they have successfully acquired the necessary retail expertise to go along with their product development and branding expertise. It’s not enough just to have retail stores, but they must be well-conceived, well-executed and well-managed. In that event, the consumer data that flows back up is highly useful, and most definitely creates a competitive advantage. Otherwise, it runs the risk of being not much more than garbage in, garbage out.
It makes sense that constant contact will provide companies with deeper understanding of the brand’s role in the consumer’s life. However, it’s only a competitive advantage if the non-store brands don’t take action to learn about their consumers.
In the current consumer environment there are plenty of tools such as online communities, that allow any brand instant feedback and a deeper understanding of their consumer desires, needs, and upcoming trends that affect the relationship with them. In many ways, this is a lot better than having stores since the gathering of information is not done by store employees who might skew information.
The lack of logistics and operations costs from brick and mortar locations, can also be considered a competitive advantage to brands without stores, if they efficiently utilize all the research tools available to them.
Now, more than ever, consumer feedback is a true marketing advantage. When consumers walk into an Apple Store they start a dialogue with Apple. Apple’s employees are well trained and have the ability to provide a great deal of feedback to Apple Inc about what consumers are looking for in a product and more importantly what consumers expect from a product. Say what you want but Apple consumers spend little time cursing Apple because Job & Co have done a great job of meeting and managing expectations.
Could Apple survive without the retail feedback? We all know they can, but Apple uses the consumer contact to insure “thrival”, not survival. The really horrible mistake being made by retailers like Best Buy is that they hire on the cheap and train on the cheap and leave any real product knowledge to their Geek Squad.
I wish Apple would start selling large screen TVs. I am exploring that market and the opportunity to receive honest information is very limited. I know I can trust Apple; I don’t know who else I can trust.
Due to my travel schedule, I’m a bit late to the conversation, but would still like to add my two cents.
As the former director of retail for Bose Corporation I can give you some first hand perspective. We absolutely learned more from our customer by interfacing with them directly in the stores. But it wasn’t just because we could talk with them directly, but we were able to test different ways to engage them with the products and the brand.
We were then able to take that information and help the retail dealers to improve their performance. I can’t tell you how many improvements at those dealers started at the company stores.
I now work with a number of clients that have company stores, and I know there is a competitive advantage to these stores. You can do what you want when you want, and you’re able to get feedback and test concepts so much faster than those who don’t have stores.
I also believe that contrary to some comments above, the level of service and experience in these stores is much better than traditional retail. Sure there are some companies who use a direct to consumer approach to just move through products, but those who are extending the brand by investing in people are executing at a higher level and making a stronger connection with their customers.
In my view, brands that operate their own retail outlets definitely get a deeper understanding of consumers. The main competitive advantage they gain is the opportunity to use this insight to design and deliver powerful brand experiences that drive loyalty (and maybe even loyalty).
Apple is best in class at delivering brand experiences.
I’m not sure that the issue is one of “a deeper understanding of consumer behavior.” Brands with their own stores and brands sold through other retail outlets have both found ways to do a good or a bad job at understanding customer behavior. Certainly it’s tougher for those without direct interface with the customer, but some have done it well.
The real issue comes with their ability to act. Those with their own stores have the opportunity to fully manage the TOTAL customer experience. That means making needed changes in training staff, physical environments, policies and processes, product placement, and so much more to better meet what they have learned about customer needs and wants.