The question for today’s retailers: What business are you in?

Discussion
Photo: Best Buy
Jun 13, 2018
Chris Petersen, PhD.

Through a special arrangement, presented here for discussion is a summary of a current article from the IMS Results Count blog.

In one of his best-known works, “Marketing Myopia” in Harvard Business Review (HBR) from 1960, Theodore Levitt focused on a single strategic question: “What business are you in?”

Mr. Levitt argued that every major industry was once a growth industry. In a majority of cases, growth slowed or stopped, not because the market became “saturated,” but because management failed to redefine its business in terms of customer needs. For instance, railroad owners should have seen themselves in the “transportation business” to meet the emerging transportation needs beyond tracks and railroad cars.

In a same manner, retailers in decline tend to define themselves in terms of what they sell. Leading innovators define the business “they are in” as how to best serve customers.

It is a fascinating exercise to look at today’s retailers and ask the question: “What business are they in?” Let me take a stab at a couple:

  • Best Buy – “Your ‘digital plumber’”: The Geek Squad has been a prime force behind Best Buy’s profitability and why customers return to get help in their digital lives. Will Best Buy’s new partnership with Amazon be a plus or negative in the company’s continuing efforts to evolve into America’s digital plumber?
  • Ace Hardware – “Ace is the place to get answers”: Ace’s staff go out of their way to provide solutions to run households. Will that be enough to bring customers back when they can find cheaper products online?
  • Walmart – “Your Amazon alternative and maybe something more”: Recent investments in online, click and collect kiosks, apps and hip brands indicate that Walmart can be a competitive at “phygital retail”. Will Walmart eventually define its business as being something other than an alternative to Amazon?

What business is Amazon in? While certainly in retail, much of Amazon’s profit comes from cloud services. Amazon is certainly an ecosystem built on customer centricity, but is that a business? Will Amazon ultimately become a platform and portal for all commerce?

The days of retailers differentiating based on the products they sell seem to be long past. There are no distinct channels. Customers are crossing all boundaries on their own. The fundamental question today may have become: “What business is retail in?”

DISCUSSION QUESTIONS: Is it a common flaw for retailers to define themselves based on what they sell rather than the solutions they offer? With today’s pace of change, has retail become more about evolving to address customers’ changing needs? Do any retailers stand out to you for the way they’ve redefined themselves over the years?

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Braintrust
"The shift from a product-defined retailing paradigm to co-creating customer experiences is well underway."
"The answer to “What business are you in?” can’t be a reactionary “Selling all kinds of stuff everywhere.”"
"While the product is important, it’s really about creating an emotional bond between brand and customer built on memorable experiences..."

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32 Comments on "The question for today’s retailers: What business are you in?"


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Max Goldberg
Guest

Retailers need to fill a role in consumers’ lives and create a core story that defines the customer experience. Otherwise, they just sell the same, or nearly the same, products as their competitors. Consumers expect retailers to do more than sell stuff. They expect a need to be met or a problem to be solved. In this regard, retailers need to remain nimble. Macy’s was nimble, then seemingly lost touch with consumers. Target lost touch, but recently seems to have regained its story and its footing. It’s not easy being a retailer today.

Jeff Sward
Guest

Best Buy as “digital plumber.” Brilliant! For apparel retailers I like “We are in the business of managing people’s emotions.” People feel faster than they think. If you can’t make them feel better than the next guy, how will you survive? Are you just offering stuff on sale? Or do customers actually look forward to your next delivery? A retailer who manages emotions well probably has a longer life than a retailer trying to win the race to the bottom.

Neil Saunders
BrainTrust

Retailers can differentiate themselves in terms of the products they sell. Good firms like Apple, Williams Sonoma, Lululemon and Sephora all do this. Indeed, their products are often part of a solution to a customer problem or need. However, it is also important to add additional value whether this is in the form of services, advice, the lowest prices, an experience and so on.

Doug Garnett
BrainTrust

So true, Neil. Too many run around today saying the product is dead while praising the incredible Apple stores … which are only incredible BECAUSE OF product.

What’s seems missing is an informed view that sees HOW product is a core part of the experience that a specific store offers.

I wasn’t incredulous in the write-up, too, at the idea that there’s no distinction. Tell that to mass retailers Lowe’s, Home Depot, Menards, Best Buy, CostCo, and many more.

There is no future for retail OTHER than one where product is very important. After all, retail (online or offline) only exists for one reason: to sell product.

Lee Peterson
BrainTrust

I remember the CEO of Southwest Airlines saying in a speech that they realized that they weren’t in the transportation business, they were in the customer service business. I think the same could be said for most retailers. It seems, at this point, that Amazon gets that concept better than anyone else.

Doug Garnett
BrainTrust

I have serious concerns about how people today take this Levitt comment. How many times have we heard the trains accused of ignoring that they were in the transportation business — except their expansion into trucking and other transport was restricted by federal law?

Retailers are in the business of connecting product and customer in such a way that customers buy them. That’s the ONLY reason retail exists. And the only reason Southwest exists? To transport people and things.

Customer service can be an important difference or brand element in the way a store or airline operates. But it’s not the reason they exist.

Mohamed Amer
BrainTrust

The shift from a product-defined retailing paradigm to co-creating customer experiences is well underway. That means not just defining what business one is in, but the entire organizational structure, strategy, capital investments and metrics. From the board level to the store and web storefront, the change is irreversible. As Max so cogently stated, retailers need to fill a role in consumers’ lives. It’s not the stuff you sell that matters, it’s the experience your customers have and feelings you engender that will define your business and brand. Start with the customer and the rest will follow.

Doug Garnett
BrainTrust

Of course, the only reason a retailer exists is to sell stuff (and successful retailers don’t sell “stuff” but products that matter in a way that matters). Experience is just lovely … Yet when I just need to get into an Apple Store for a charging cable, I do not want an “Apple Store” experience — I want the charging cable I need. Those other times when I want to browse iPad Pros (or similar), then I might appreciate a more complete experience — entirely focused on the product.

Mohamed Amer
BrainTrust
Thanks for your comment, Doug; in times of change it’s natural to have different views of what we’re looking at. You may not want an “Apple Store” experience, but that misses an important element. You need that charging cable for a reason, it’s not because you wake up in the morning and tell yourself, I got to get me a charging cable. It’s because a charging cable has become a necessary part of what you do everyday; that cable means more than charging an electronic gizmo, it helps you do certain things that form your daily routine and that routine, in many ways, is what defines who you are. It’s this more expansive mindset that is increasingly necessary in order to sell more “stuff” in today’s economy. Products are important, no doubt about it, but if that is your focus, you will make the wrong business decisions and will lose the war of survival. When your strategy is exclusively built around how well you source, buy, flow, price and display a product ONLY as a… Read more »
Doug Garnett
BrainTrust

My sense is you miss my point. The ONLY reason there’s any interest in the Apple store is because of the quality and exceptional nature of Apple products. There have been other attempts with lesser products and those stores fail.

Note also that I never restrict to “only” product. Rather product MUST BE at the core of any successful retail strategy and the strategy muse emanate from a product/consumer vision.

I chuckle at the cable analogy. It really is about charging. To elevate a cable above that level is to make the biggest error made in marketing.

Mohamed Amer
BrainTrust

Ah, glad to see that the consumer made it in your vision. Imagine how boring it would be if everyone looked at the same picture and were in agreement on what it means. Vive la difference … and that’s what makes the world go round.

Doug Garnett
BrainTrust

Vive la difference… But as to consumers… 🙂

Some of us presume that everywhere and in everything the consumer along with their needs, desires, and motivations is present. And we can’t talk product without talking product in context of the consumer. But I focus on product because of the incredible level of dysfunction among retailers right now with product.

Product is, to consumers, far more compelling than about anything (of course, with all the unspoken assumption about it being well made, meaningful product communicated to the consumer while dismayed in a useful way for the consumer and at a price which is a good value for the consumer. 🙂

Shep Hyken
BrainTrust

Most of what retailers sell is a commodity. What differentiates them from their competition is not the products they sell, but something else they deliver to their customers. It could be knowledge, a special/unique feature, customer service or something else. What you sell is one thing. Understanding why the customer buys from you is another. Knowing the “why” is very important. And to take it to another level, Dr. Ted Levitt also said that businesses need to understand that the function of their business is to get and keep customers. Most people think the function is to make money. That’s the goal. He argued (and was right) that if you confuse the function with the goal, you don’t always reach the goal. So what can a retailer do to get customers to buy from them over their competition? What can they do to get them to come back? Finding the answers to those questions seems like a good place to focus your marketing and sales energy.

Charles Dimov
BrainTrust

I’m not comfortable calling it a flaw. It is safe to say that most retailers are focused on the present. Most are trying to do their best at meeting the customer’s current and near-future demands and expectations. Nothing wrong with that — as long as someone is thinking about a bigger strategy and “evolving” the ship in the right direction.

It is about changing to address the needs of the customers — which are not passing fads. The problem is that there are many passing fads — a good example was Pokémon Go. It is still played, but not to the same extent as when it first launched.

I like the changes seen at Walmart. Three years ago, I would not have thought it possible to take a sleepy giant and turn the culture into one that is both focused on efficiency AND retail innovation.

Bob Amster
BrainTrust

My definition of retailing used to be: “to sell products people want, buy them at the lowest price possible, sell them at the highest price possible, in the best locations possible.” Today one must add: “through attractive and exciting channels and employing a frictionless process for purchasing.”

Michael La Kier
BrainTrust

This is one of my favorite questions, and one most retailers do get wrong. A great example of a retailer who thinks beyond the products they sell is Publix. They are the largest employee-owned grocery chain in the U.S. They are dedicated to customer service and community involvement and food is the solution they offer. From in-store Publix Aprons demos and recipes of the week to sponsoring local soccer and giving to Feeding America they are more focused on helping the community than they are on winning in the grocery game.

Lauren Goldberg
BrainTrust

Publix is one of the first retailers that comes to my mind as well! They really strive to live their tagline “Where Shopping is a Pleasure.” They are continuing to evolve with their digital coupons and online ordering, and they are keeping that pleasurable experience at the core of what they do.

Lyle Bunn (Ph.D. Hon)
Guest

Every business is in the experience business. Enhancing, supporting, defining and fulfilling the aspirations of people who have their own goals. What a shame that retail gets overwhelmed by its its own providing of stuff or becomes endless aisles of “solutions.” The business of business may be generating customers, but if they are not enhancing the quality of life for those customers, their business outlook is poor. We have entered the experience economy and are deepening our engagement with it.

Carol Spieckerman
BrainTrust

Retailers have been rightfully worried about defining themselves by category for a while now. At first, Walmart was the concern – which categories would it go after next at crazy low margins? Those days now seem quaint with Amazon on the scene, picking off categories one by one at massive scale and with algorithmic alacrity. Amazon already is a multi-pronged product, brand, solution and service platform. Now an over-correction is at work in retail that is even more perilous. The concern is (or should be) complete loss of identity as retailers offer store space to competitors and expand online marketplaces into oblivion. This is diluting brand equity (hence many brands’ pull-back on wholesale distribution). The answer to “What business are you in?” can’t be a reactionary “Selling all kinds of stuff everywhere.”

Nir Manor
BrainTrust

I think it’s a valid question and an opportunity to redefine and reinvent retailers’ value proposition and business models. A much required core competence to be able to do that is to be data-savvy and customer-centric. Being able to understand who are your best and less good customers, what your customers want, how they perceive your brand and which other services you can provide them in a manner that is consistent with your brand (e.g., the “digital plumber” concept for Best Buy) will enable retailers to reposition and provide additional services, experiences and content that will make them more relevant for customers.

Brandon Rael
BrainTrust

Fundamentally it has become about the “why” for today’s retailers. The continuous evolution of customer expectations has led to retailers having to re-evaluate their objectives, purpose and how seamlessly they fit in with their target audience’s lifestyle, in a channel-agnostic way.

The move to experiential and personalized retail experience is top-of-mind as one of the main differentiators that will draw customers to your brand. Retailers that are getting this mix right are positioning the retail store as a brand and platform — to build relationships and drive closer attachments to their local communities.

Retailers such as Apple, Gucci, Farfetch, and Restoration Hardware, are not only focusing on experiential retail but also empowering their sales associates as brand ambassadors, to drive and enhance the overall customer experience.

Dave Nixon
BrainTrust

If retailers adapt to the ever-changing demand of consumers then we will have a ton of the same old brands doing the same thing and will create fatigue and saturation.

Retailers need to find their stride in what they are great at and own it with everything they have (using THEIR customer preferences and behaviors to drive their success). I’m going to Ace Hardware for answers on how to install a plumbing fixture because Amazon won’t get you there when everything leaks.

Specialize and deliver with excellence.

Richard J. George, Ph.D.
BrainTrust

In addition to Levitt’s classic article, Charles Revson, founder of Revlon proclaimed, “In the factories we make cosmetics; at the counter we sell hope.” If a business can define its equivalent of “selling hope” it provides clarity to what business it is in.

Three food retailers stand out as evolving marketers who clearly understand the changing nature of selling hope: Wegmans, Publix and H-E-B. Perhaps none have done a better job of redefinition than H-E-B with its customized banners (H-E-B, H-E-B Plus, Central Market, Mi Tienda, Joe V’s Smart Shop and H-E-B Convenience Stores). More recently its move into online with convenient delivery options from click-and-collect to in-home delivery continues to raise the bar on its equivalent of “selling hope.”

Ian Percy
BrainTrust
“What business are you in?” leads to a static answer though it is a good start. To make it dynamic you need to ask yourself “Why?” two more times. Most businesses are two “Whys” short of a compelling and meaningful purpose. Activity and busyness are typically defined economically (the “oikos nomos” or numbers). True purpose has to be defined ecologically (the “oikos logos” or word or meaning of your existence). Why does your retail operation exist? Who would miss it if it disappeared? Most of this article leans toward the economics of products, pricing, strategy, etc. We need both since what drives us and gives us meaning is the ecological and what rewards us is the economic. Going for the numbers without the meaning will wear you out and make you miserable. Not being able to sustain your higher calling because you’re broke isn’t so wonderful either. I respectfully suggest a better question is “What good are you doing that will make our world a better place?” Do you create or preserve beauty? Are you… Read more »
Zel Bianco
BrainTrust

This is a question that many consultants are still using in many speaking engagements at many conferences. “Disney is not in theme park business, but in the experience business,” and so on. While it is certainly important to focus on what you provide to your customers or guests, changing the “what you do” from “what you sell” or the industry you are in is useless unless it is truly socialized and adopted by everyone in the organization that services the customer.

I recently changed my LinkedIn profile from describing the software we sell to, “Helping CPG companies use all of their data sources more efficiently and effectively to increase sales at retail.” Unless this is put into practice by everyone in my organization, it is just marketing speak.

Ian Percy
BrainTrust

I really appreciate your comment, Zel … my contribution above is totally aligned with yours though you’ve said it better. You’re moving your organization from “what” to “why” Makes all the difference in the world. And if everyone gets it on a visceral level you’ll be unassailable.

James Tenser
BrainTrust

Superb anecdote, Zel. The way you changed your profile description is proof that you are focused on what your customers need you to be.

If we conclude we are in the “experience business” or the “service business” we had better back that up with something more grounded (as you have). Otherwise we define our competitive set as every other business. Companies also need to ask: “Who are our customers?” What do they need from us now?” “How has that changed?” What will they need in the future?” “How enduring is our present positioning?” “What makes us the better choice for our customers?” “Who will our future customers be?” “How and when will we change?”

I have long argued that large retail chains must avoid the “big middle” or face peril. Stand for something, live by it, and listen actively. Your customers will tell you when it’s time to adapt.

Ricardo Belmar
BrainTrust
While the product is important, it’s really about creating an emotional bond between brand and customer built on memorable experiences that remove friction and create delight. Retailers that embrace this (Apple, Sephora and REI come to mind) will succeed, while others will struggle. Look at Macy’s (a frequent topic in this forum) — they used to have consumers’ pulse on apparel defined in every way, but over time lost their way as the product became less important than how it made the customer feel when they purchased it. Now we see Macy’s buying STORY and investing in b8ta to reverse that trend. Why? To regain that emotional connection with their customers. I recently attended an event hosted at a Treehouse store in Dallas. They have a highly curated concept for home improvement built around offering sustainable, green products to homeowners but with very few products in the store. Their shopping experience is based more on providing knowledge about products and services to deliver and install them in your home. For a store where most purchases… Read more »
Cate Trotter
BrainTrust

I think this is a very important question for all retailers to consider. The focus really shouldn’t just be on what you sell anymore given how many different options customers have when it comes to where to buy from. A lot of retailers aren’t the exclusive source for the products they sell, and even if they are that’s not usually enough to keep customers going back if the rest of the experience is lacking. Retailers need to be thinking about what role they can play in their customers’ lives and how they can make them better. It might prove fruitful in terms of their strategic approach!

Ralph Jacobson
BrainTrust

Around 15 years ago I met with a prominent East Coast supermarket CEO and he told me that he would like his company to be known as a service company rather than a product company. Well, that hasn’t happened yet, however I also believe that he was ahead of his time. I do think the time has come to leverage a true differentiator, such as services provided by real humans, to really generate compelling reasons to shop your store rather than a competitor’s.

Peter Fader
BrainTrust

The answers here reveal a very interesting pattern: in the first 21 posts, there are 15 mentions of “experience,” but only one reference to “relationship.” That’s the problem with retail today: too much focus on the former and not enough on the latter.

Giving out glasses of champagne is not a business model. Building relationships can be one.

Rich Kizer
BrainTrust

Brick and mortar stores have an incredible positioning opportunity card that they must play, and that is creating the sense of positive emotional experiences through discovery, which takes place in an emotion-creating environment. Like going to Disneyland — that’s an amusement park that focuses on creating emotions. Disney plays that card well!

Macy’s, with their connection with “Story” is hitting that button: “Come in and experience and dream.” We call that the “Second Story”, which is focusing on creating positive emotions about the business through presentation and interaction with the store. When that happens, the physical becomes interactive, both mentally and physically, and that is card that must be played.

wpDiscuz
Braintrust
"The shift from a product-defined retailing paradigm to co-creating customer experiences is well underway."
"The answer to “What business are you in?” can’t be a reactionary “Selling all kinds of stuff everywhere.”"
"While the product is important, it’s really about creating an emotional bond between brand and customer built on memorable experiences..."

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