Retail last mile 1- Retail Theatre

8/8/2019 Retail last mile 1- Retail Theatre

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The last mile of retail - 1: dynamic theatre

The store as theatre

I recount a purchase expedition for a laptop. Prior to the actual shopping trip I had done

extensive research on brands, models, features, consumer feedback on brands and models, andprices. The research influenced me to narrow my final choice to a particular brand and model.

During the store visit I purchased a Sony Vaio, a brand that was not my original choice, and not

even in the brands that I had considered in my choice-set. On reflection, searching for the

triggers that influenced me to change my decision, I realized the extent to which what had

happened in the store, the physical touch and feel experience of the product and the store level

cues, both direct and subtle, which had influenced me. This experience of changing an a priori

purchase decision, the intent of buying a brand or model, during a store visit is fairly common

experience.

Managing the productivity of the last mile of retail, the store, where the customer engages with

the merchandise, is like trying to control and predict the outcome of an „atypical‟ theatrical

performance. Atypical because it is a play where everything is planned except the role and script

of the main performer. Let me explain. The retailer is the producer and director of a play. He

provides the props. He selects the merchandise. He designs the store, the displays, and selects the

lighting and music. He also provides the actors, the staff manning the store, giving them a script

to use with customers. The retailer, however, has no control over how the play is actually

enacted because of his lack of control over the main performer, the customer entering the store.

The customer can do whatever he wants. What transpires in the store can be likened to dynamic

choreography. The play of retail is enacted in reaction and response to the behavior of thecustomer.

These two perspectives, of the customer and retailer, juxtapose the crux of the retail challenge.

The elasticity of the customer to reexamine his purchase choices at the moment of purchase is an

opportunity for a retailer. He can attempt to induce a customer to consider and buy what is in the

store. The retailer does this by orchestrating a diverse set of strategies, with a limited control

over what is working, and what is not. The retailer takes many different decisions on products,

displays, and marketing. The customer sees and experiences the outcome of all these decisions in

the shop in a complex intertwined way. The way the decisions are executed enables customers

buy. No store has a 100% conversion of customers into shoppers. So some things always work.

And other things don‟t.

It is in such a scenario that the conventional measures of store performance, like changes in

same-store sales, gross margin, direct product profit, sales per square foot, and return on

inventory investment, provide little insight to a retailer on improving the customer experience,

and the conversion of customers into shoppers. All these metrics are outcome measures. They



have the inherent limitation of being based on sales that have already occurred. They reflect

realized demand. A retailer is more interested in understanding, at a store level, demand that was

not converted to sales after a customer had walked into the store. Retailers lose the opportunity

to satisfy consumer demand because of many reasons; it is difficult for shoppers to find the

desired merchandise, the store carries the unsuitable product assortment or presents it in an

unappealing way, products are incorrectly priced, the store has poor customer service, or has

long lines at the register. Sales data alone do not reveal the purchase obstacles or the potential

level of unrealized demand.

For utility in retail the traditional tools and techniques of management need adaptation,

application with a change of focus, and emphasis on different more executable issues. Let us

understand this from the perspective of a retail problem. Take just one concern of a retail CEO at

the store level, the challenge of revenue growth. New products and product variety is the basis of

retail. Once store size and design are fixed and therefore given, the challenge of retail buyers is

to balance assortment variety within the constraints of visual merchandizing. To understand how

assortment variety transforms into sales, a fundamental question to ask is whether or not majority

of customers at the store have an opportunity to see and experience the offerings, understand the

intent of the retailer, and then make a choice decision, to buy or not to buy. It is only when this is

understood can a retailer take action to achieve sales growth.

Writing the script for retail

This requires deeper and different insights than conventional market research. Market research,

often influenced by brand owners, focuses upon understanding „why‟ and „where‟ customers

buy, seeking a deeper understanding of their motivations, beliefs and attitudes, and theirpsychological influencers and drivers of purchase intent and choice behavior. This research

answers the question of store choice, of how a customer includes a retail brand in his choice-set

of locations to visit when a particular need is aroused. Retail, at the store level, requires an

understanding of „how‟ customers actually buy in microscopic detail. A retailer has to

understand the dynamics that occur at the shop when the customer engages with the

merchandise. The final moment when customers make their final purchase choice is critical for

two reasons. One, customer purchase behavior is often different from intent as expressed in

survey questionnaires. Two, practitioner research1 suggests that nearly two-thirds of shopping

decisions are made in stores at the moment of purchase. Others 2 have found that eighty five

percent of purchase decisions are now reached in stores, and eighty percent of those decisions are

made in just four seconds. Whatever is the veracity of these researches, many situational

variables at the place of purchase, like a store design and ambience, and product packaging and

displays, do influence consumer choice and purchase decisions. Therefore managing retail

1 http://www.adgully.com/marketing/two-thirds-of-final-purchase-choices-are-made-in-store-grey-g2-study.html. 2 Saatchi & Saatchi research quoted in Womens Wear Daily 13th July 2005

http://www.adgully.com/marketing/two-thirds-of-final-purchase-choices-are-made-in-store-grey-g2-study.html

http://www.adgully.com/marketing/two-thirds-of-final-purchase-choices-are-made-in-store-grey-g2-study.html



performance is about the quality of execution and controlling the implementation of diverse

store-level retailer activities. Getting a shopper into a store and making him a customer are two

different and discrete consumer behaviors that are influenced and enabled by different

managerial actions. Table 1 highlights these differences. The table, refer the first column,

identifies the differences in the knowledge needs of a manager to take decisions to influence

consumers become shoppers, and then shoppers become customers, respectively. To influence

customers to come to the store, a manager needs insights into their perceptions and attitudes. The

managerial goal of marketing is „awareness and attraction.‟ It ends when a customer enters the

shop and becomes a shopper. This is when the work of a retailer. To enable buying within the

store, a manager needs to become aware of in-store shopper behavior at a fairly nuanced level.

He seeks to convert the shopper to a customer by „engaging‟ him at the point of sale, helping him

„evaluate, and purchase.‟

Table 1 – Differences in managerial actions of converting a consumer into a shopper, and then a

customer.

Traditional brand level research focuses upon understanding how consumers become shoppers at

a relatively gross level. The change of focus and emphasis of research for retail, contrasted with

traditional consumer research, are highlighted by asking four questions, the first column in table

2. The differences can be attributed to the understanding of detail that a retailer requires to takedecisions. Traditional marketing research takes a big picture view whereas a retailer requires a

closer and more refined view of what is happening at the moment of purchase. A retailer‟s

window of opportunity for influencing consumers is very limited. If the average time for

consumer choice making is around four seconds, impact of retailer actions should be measured in

milliseconds. Let me elaborate. An owner of brand or a product category like soaps and hair care

products, segments the market based upon identifiable and measureable criteria, positions the



product, and sells through multiple channels. He develops and manages distribution strategies

across channels and measures his performance in metrics like market share. Sales slack in one

channel is overcome through push and pull strategies in others. Retailers, on the other hand, deal

with sales on a daily basis from each point of sale. Their goal is to maximize sales at each

location. Customers visiting retail locations have diverse profiles, are not strictly segmented, and

retailers consider every visiting customer as an opportunity. A shortfall in sales on any day is lost

forever, and their focus is on measures like store conversion and average sales realization per

customer. Retailers are to an extent brand agnostic and are keener to understand the performance

of their assortments, the basis of their competitive positioning in the eyes of customers. Retailers

are more keen on understand trends and shifts in consumer behavior across different consumer

segments, and substitution effects across brands and products in categories.

Table 2 Focus of traditional research and retail research

Required consumerinsight

Traditional research Retail research Why thedifference?

Who is shopping? Segment consumers

through identifiable

characteristics at a gross

level

Retailers need to

understand and anticipate

shifts in the characteristics

of shoppers

Retailers deal with

individual

customers and not

aggregated

segments at the

point of sale

What is the customer

buying?

Identifies what customers

are buying

Retailers need to

understand switching

behaviour across brands /

products displayed at a

store

Retailers deal with

assortments and are

interested in

customer response

to assortment

Where is the shopping

occurring?

Identify places (e.g.

geographic location,

channel, etc.) where

consumers are buying

Retailers need information

on channel or location

switching behaviour

Different retail

formats influence

customer choice

behaviour for the

same product /

brand

Why is the shopping

occurring the way it is?

Explains shifts and

differences in aggregate

pattern of consumer

behaviours, tangible and

intangible influences(consumer needs and

wants, emotions,

predilections, competitor

actions, etc.) manifested in

purchasing patterns, and

timing of purchases

Retailers require store

level information on the

influences on purchase

decision-making. The way

in which consumer madehis choice.

Focus of retailer is

on every sale and

every lost sale



Developing the details of a retail strategy

An effective retail strategy, in terms of the theatre metaphor the writing of the retail „script,‟ and

the creation of the appropriate „props‟ to „induce‟ a desired behavior from the customer, must be

developed based upon a generic understanding of consumer disposition and choice behavior. Let

us deconstruct the consumer decision model. Assume an appliance is being purchased. Figure 1

depicts the thirteen steps of the consumer purchase process.

Figure 1 Stages of consumer purchase behavior

The customer journey begins with a need arousal and the decision to buy an appliance. The need

develops as the customer searches for information and makes a preliminary choice of what to

buy from where. Customer then journeys to the market, browses through stores and brands,

evaluating and narrowing the choice before making the purchase. The post-purchase



consumption and use experience is integrated with the customer buying journey because the

customer reflections on his purchase and use experience are instrumental in forming his brand

perceptions. Three clear stages can be discerned; one, incubation where the need is triggered,

consumers search for options, and develop a preliminary choice set of brand and store to visit,

two, the shopping and purchase where consumers visit a shop with intent to browse, choose, and

buy after evaluation and assessing the value proposition, and three, the post-purchase reflection

of the purchase and consumption experience.

The software and hardware of retail

Effective retail strategy requires retailers to develop and execute a series of initiatives at the store

level to increase store conversion, the most fundamental driver of retail performance. Let me

exemplify using the example of a supermarket. The supermarket business has a low barrier to

entry. Anyone with access to capital can find a location, decorate the store, put up fixtures and do

a shop-fill with standard products. Assume two different entrepreneurs establish two same sizesupermarkets. What will then differentiate the performance of the two different supermarkets

carrying identical products if the same set of customers with identical requirements visits them?

Retail performance is a function of products, the hardware (store design and fixtures), and the

software (product displays, signage, and customer service). The products are identical so the

difference, if any, should be a function of the software and hardware. Figure 3 explicates this.

Figure 2 The influence of soft issues in retail

Sales

Number of buying

customers

Total

customers Demographic

and location

Conversion

Store circulation /

Product visibility /

Customer service

Product assortmentInvoice valueper customer



Moving from left to right in the diagram, store sales = number of customers X sales realization

per customer. Number of buying customers is a function of „conversion‟ of the total customers

visiting the store, Number of paying customers = Store conversion X total customers. The

invoice value is a function of store location and location demographics, outside the scope of

current discussion. Conversion of customers (highlighted in red in the figure) into buyers is

function of store circulation (are the customers navigating the entire store, reaching the

merchandise? Greater is the circulation greater is the probability of purchase) and merchandise

visibility (is the range visible, and presented to the customer to for easy understanding and

evaluation). Store conversion = store circulation X merchandise visibility. This is assuming that

once a store buy has been done the product assortment is fixed. In our supermarket example the

assortment is identical. All other things (merchandise) being equal any difference in performance

would be attributable to circulation, merchandising displays and customer service.

The following two displays can be expected to have different productivity in terms of

conversion, number of customers buying the category when facing the display.

The store software issues are important because they can have dramatic impact retailperformance „at the margin.‟ A slight change in conversion, from 15% to 16%, can increase sales

upwards by over 6%. A change in the reverse direction will be just as striking.

Retailers often spend more time in „managing‟ the tangible and easily measurable factors of

retail performance, like assortments, the range and prices, analyzing to improve retail

performance, underscoring the importance of intangibles in influencing retail performance. This



targets to communicate meaning to only a segment of all customers. The intangible features of

the store, strategically executed with customer centricity, have long term performance

consequences. Negative consequences of the Walmart demonstrated the influence of retail design

on retail performance.

The next few chapters I track the customer journey through the store, starting from outside the

store before a customer crosses the threshold, and identify retailer actions connecting them to

customer needs, expectations and behavior to optimally design the stores and displays.

© Manoj Nakra 2010

Retail last mile 1- Retail Theatre

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