Dunne, Lusch, & Carver
Chapter 14
Reframing Retail Strategy
Reframing Retail Strategy
• Major drawback of traditional retail thought…
• Retailing ≈ Merchandising ≈ Goods (Tangible
Offerings)
• One “constant” of retail success:
• Improvement in “choice” increases customer
satisfaction
• Eg, East Germans’ “choice” enhancement after the
Berlin Wall Fell 1989
• Satisfaction drives repeat purchasing, and thus
profitability
Three Eras of Retailing
• Timing is idiosyncratic with regards to country
and culture
• Some are still in era one
1. Going to market ~ “To Market”
•
Generally prior to 1900
2. “Marketing to” customers
•
Generally after 1900
3. “Marketing with” customers
•
Last couple of decades, yet degree of use is limited
“To Market”
• Retail success largely seen as resulting from:
1. Distribution, and
• e.g., Plentiful and timely supplies
2. Inventory management
• e.g., Fully stocked shelves of new merchandise
• Largely why retail was synonymous with “the city”
• Limited transportation/travel and communication
infrastructure limited assortment capabilities
• i.e., the 3 major constraining factors on retail at the time
• e.g., Macy’s (NY) included apparel factory to supply rather than rely
on a supply chain – even in New York city which was “large” at time
“Marketing To”
• Many transportation & communication
constraints alleviated with 20th century
• Paired with retailer success, many leveraged
infrastructure enhancements and began replicating via
chain stores
• But chain operations brought own set of issues
• Large capital investments & concurrent success of many dominant
department stores pushed chains to focus on lower prices and
promotion of these lower prices
• Lower price means more transactions in order to maintain profit
levels.
•
Retailing becomes more about efficiency & selling than service & uniquely solving customer
needs
“Marketing To” (cont.)
• The “earn & turn” mass merchandising formula:
• Function of three (3) tasks:
1.
Locate in low-cost areas to minimize operating costs
2.
Focus on high-turnover goods backed with low price &
promotion
3.
Shift work to the customer ~ self-service lessens employees
• In essence, the “Retail Resource Trinity” Model
Retail Resource Trinity Model
“Marketing To”
Creates an Efficiency Trap
• Mass merchandising leads to an “efficiency trap”
• In trying to be attractive to all, it’s ideal for no one…
• So where’s the retailer’s differential advantage?
• The trinity-model is easy to copy
• Constantly seeking to improve profitability requires constant
improvement in:
• Retail space productivity
• Retail inventory productivity
• Retail labor productivity
• Resource efficiency becomes the goal over resource
effectiveness as price becomes the deciding factor
• i.e., The Retail Resource Efficiency Cycle
The Retail Resource Efficiency Cycle
“Marketing With”
• Represents a significant shift in retail
management thinking & strategy creation
• Two major areas of change
1.
A shift in the way retailers view and manage firm resources
2.
An era of active collaboration & long-term relationships
between retailers, suppliers, customers, & other
stakeholders (employees)
“Marketing With”
& Resource Management
• Operand versus Operant Resources
• Operand – those that humans act upon or do something
to in order to create an effect
• By very nature can be exhausted or depleted
• Eg, natural resources, equipment, fixtures, merchandise, etc.
• Operant – those that can act on or produce effects
• Rather than being depleted can be grown or expanded
• Often intangible, yet the reason why harder for others to copy
• Eg, employee skills, competences (knowledge), capabilities, etc
• One proxy – price to book ratio
• 5.08 ratio = $4.08 generated in intangible for every $1 in tangible
“Marketing With”
& Long-term Relationships
• From “One-to-Many”…
• “Classical” marketing (i.e., Marketing To)
• Viewed all stakeholders as essentially operand
resources
• Extract as many concessions/benefits from prior to depletion
in most efficient manner possible
• Common examples of one-to-many marketing include:
• Broadcast media,
• Employee manuals,
• Standardized procedures for all employees & suppliers
• Taken to the limit one will run out of suppliers, customers,
employees as all are seen as exhaustible
“Marketing With”
& Long-term Relationships
• To “Many-to-Many”…
• “Service-Dominant-Logic” marketing (i.e., Marketing With)
• Recognizes that all stakeholders can be proactive, both
positively & negatively, in affecting retailer success
(i.e., operant resources)
• Views customers, and more broadly all the retailer’s
stakeholders, as central to the retailer’s long-term success
• The remaining marketing- and retail-mix variables are only important
to the extent that they help to better meet needs/wants of stakeholders
• Recognition spurred largely via the presence of many-tomany communication networks (e.g., Twitter, Facebook, etc.)
A Service-Dominant (SD)
Logic or Mindset
• Service is the cornerstone of SD Logic &
corresponds to:
• The application of knowledge & skills, through deeds,
processes, & performances, for the benefit of another.
• Thus, service involves
1. Doing something of benefit for others (i.e., stakeholders)
2. Interaction because deeds, processes, etc. aren’t done in isolation
3. Application of knowledge & skills that are unique, operant resources
which establish the basis for one’s differential advantage
• Service is not simply the opposite of a tangible good;
it’s the reason for the good in the first place
Three Forms of Service
• Service as a Transcending Concept
• Service can be provided in three (3) primary forms:
1. Directly (most common view)
2. Indirectly Via a Good
• Goods have a job they perform (i.e., help you perform a job)
• Thus, all goods are service appliances that create solutions
• What are you buying when you purchase a drill bit? A toaster?
3. Via Education
• Education & demonstration enables the customer to better use and
experience the product purchased
• Cooking demonstrations at Williams-Sonoma enhance ability to use cookware at
home.
IHIP Characteristics & SD Logic
• Traditional-services marketing
• Views services as distinct from goods & in possession of less
desirable characteristics
• IHIP:
• Intangible, heterogeneous, inseparable, & perishable
• SD Logic adopts perspective that all market offerings
should strive to have & highlight IHIP characteristics
• What are you buying when you buy…
• A BMW automobile (a good), or
• Jewelry from Tiffany’s (a store)
• Brands etc. are IHIP, else they’d be commodities
The “Traditional”
vs. SD Logic Perspective
Traditional Services Mktg.
• Services are:
• Heterogeneous b/c each customer
receives something different
• Inseparable b/c they are provided
& consumed simultaneously
• Perishable b/c they can’t be
inventoried
SD Logic
• Goods are also IHIP:
•
•
• EG – An iPad’s value is Apple’s
service provided when you use so
location is separate, but not the
service provision
• Goods are:
• Homogenous b/c standardized
• Separable b/c produced away
from customer in factory
• Nonperishable b/c they can be
inventoried
Heterogeneous from the customer’s
perspective b/c each uses &
experiences differently & uniquely
Inseparable b/c there’s no value until
they are used, and in use, one cocreates value with the producer
simultaneously
•
Perishable b/c of obsolescence,
recycling, sharing, etc.
• Services need not perish if viewed
from the customer’s experience
• Education doesn’t perish (hopefully)
4 Principles of SD Logic
1. Service is the basis of exchange
• What is exchanged in the fish & wheat example?
• Not a good or output, but processes and skills
2. People are always co-creators of value
• Just like the kitchen appliance (i.e., used to create value), all goods
are used to create some type of value
3. All people are resource integrators
• Customers integrate market resources, often from several retailers,
with public & private in order to create an experience
4. Each person determines value uniquely
• Everyone experiences products in use differently, & even families
will each experience a shopping occasion differently
Customer-Centric Retailing
• Most marketing & retail decision-making “puts
the customer first,” but…
• Customer-centricity goes to the extreme
• The customer & his/her daily life informs all firm decisions
• Thus, the goal is to enhance density
• The best combination of resources that are mobilized to a time &
place for a particular individual to solve one’s problems or enable one
to pursue opportunities at an optimal value or cost.
• e.g., Google, Amazon, The Coca-Cola Freestyle Vending Machine, etc.
• The “Customer-Consultant” or “Buying Agent”
• Greatest opportunity for the future of retail is becoming an advisor of
density and integrator of resources.
The Customer as an Operant Resource
Engagement
• The degree to which customers interface, experience,
& connect with various actors (retailers, etc.) in the
economic system
• Interfacing
• Corresponds to every interaction between the customer and retailer
• Goal is to make each as pleasurable & easy as possible
• Experiencing
• The cognitive & affective responses resulting from interfacing
• Goal is to understand how every interaction leads to a pleasurable experience
• Connecting
• The degree of bond that a customer has as a result of one’s
interfacing and experiencing with a particular retailer.
Co-Production & Co-Creation
• Customers actively participate in creating value
• Two avenues for actively producing value:
1. Co-production
•
A continuum pertaining to the degree to which the customer is
actively involved in the performance of the retailer’s core activities
•
•
e.g., from entirely self-service (including checkout) at the highest extreme to
personal shopping, etc. at the other
Important to note that there will always be some degree of co-production, but it
might be quite minimal*
2. Co-creation
•
Everyone who purchases or uses a product* is a co-creator of value
•
•
Value is the knowledge, skills, etc. imbued in a product & experienced in use
Co-creation is at the heart of what value truly is received.
Relieving & Enabling
• Value stems from not only co-production and cocreation, but also the degree to which individuals
are relieved and/or enabled via a product*
• Relieving
• The degree to which other tools, people, informational aids,
etc. assist in eliminating certain tasks or making them easier
• Enabling
• The degree to which other tools, people, etc. assist one in the
performance of service for themselves or others that they
would otherwise be unable to perform
• e.g., One-stop shopping, in-store banking, cooking demonstrations etc
Dialogue
• Customer-centricity views advertising and
promotion as a service and tool for building and
maintaining relationships – not a means to sell
• Dialogue marketing involves learning together
• Requires
• Openness & a sharing/assisting mentality in communications
• Active involvement in the community one’s seeking to reach
• Common examples include
• Externally
• Social media networks and blogs
• Internally
• Social networking and other collaborative tools for not only employees but also
suppliers
Value Propositions
• Again,
• A statement of the tangible and/or intangible results one
receives from shopping at & using the retailer’s products*
• Forget the “holy grail” of price & economic value
• Understand “value” from the customers’ perspective (in use)
• How do they use your products to create value?
• What other products (resources) do they integrate with yours to create
value?
• What are the total costs (not necessarily financial – e.g., time, social,
etc.) to the customer in using your products?
• How does the value proposition resonate with your other stakeholders
(e.g., are employees excited about uniquely serving the customer)?
Developing a Learning Mindset
• Failure isn’t always a bad thing
• Often believed to be a “control” issue
• Management/employee control need not be “lacking”
• “Sticking to the plan” could be to blame
• Failure offers learning & enhancement opportunities
• Three Different Types of Learning:
1.
Single-Loop Learning
2.
Double-Loop Learning
3.
Triple-Loop Learning
Single-Loop Learning
• Learning via a single source of feedback
• In the context of a management plan:
• “Learning” through corrective action which is triggered
whenever the retailer recognizes it’s performing below some
pre-established target goal.
• SPM example:
• If ROA target is set at 16% but current operations are
yielding a ROA of 10% and PM of 4%, corrective action is
needed.
• What’s the easiest corrective action?
• Boost one’s AT from 2.5 to 4 (see Ch. 2 on how both numbers were determined*)
• But recall how doing so could boost “stock-outs” (our “Stock-Out” math problem*)
Double-Loop Learning
• Learning via a double source of feedback
• In the context of a management plan:
• Learning through introspection wherein the retailer elicits
feedback on not only whether it is meeting targeted goals, but
also if the goals/measures it has chosen to go after are the
appropriate, or “right,” ones in the first place.
• SPM example:
• Recall our “what is profit” discussion…
• Just like profit figures need context (e.g., from sales of what? ~ PM),
• Determining what metrics to go after need careful thought
• Is focusing on margins (e.g., PM) instead of simply dollar figures good enough, or
• Perhaps one should use ROA, which includes more of an efficiency component, but
• Could too much attention to ROA push one to “gamble” by playing with AT, …
Triple-Loop Learning
• Learning via questioning the appropriateness of
the current business model & reframing
• Unlike in single- and double-loop learning, the retailer asks
not only
• “are we doing things right” (i.e., single-loop), and
• “are we doing the right things” (i.e., double-loop),
• But also
• “what is the right business model ”
• Triple-loop learning underscores the idea of reframing
• Consider future changes in form, time, place, & possession
• With constant attention to one’s value proposition and why customers
choose to shop one’s store
What You Should Have Learned…
Chapter’s Learning Objectives
1. Describe the three eras of retailing and what
distinguishes them.
2. Define service according to a service-dominant
logic and explain the four principles of servicedominant logic.
3. Explain how customer centricity is essential in
contemporary retailing.
4. Discuss the central importance and imperative of
continuous learning in retailing.