Retailing Can Gain Margin From Your Experience

The Retailing Category is not Working Efficiently

Retail is the mechanism for companies to get their goods to their consumers. Brands have any number of options when bringing their products to market and must carefully decide in what kind of “stores” their products should be placed.

A New Way to Look at the Market

There are any number of retailing establishments ranging from “superstores” like Wal*Mart to specialty boutiques — each catering to different clientele. However, if one were to peel back the layers of the retail shopping experience, all retailers would fall somewhere in this axis:

the Retailing Category in a chartBefore moving forward, we need to define this axis: Value/Flair – this axis characterizes the product offerings of the retailer. Retailers operating close to the value side are most concerned with providing a quantity of products at the lowest possible cost. Retailers who operate closer to the flair side are less concerned with commoditized products and lowest pricing and carry products that are fashionable, have trend-setting appeal, or are “gadgetry.” Expected/Experience – This axis characterizes the shopping environment of the retailer.

Retailers operating close to the expected side provide a generic shopping environment with little to no focus on ambiance of the store (often utilitarian). Retailers operating close to the experience side are generally focused on ambiance and as a result are attempting to create an “event” out of the shopping experience.

High-Volume Discount Retailers

What is interesting about graphing the retailing market in this way is that we can see how retailing has changed over time and better predict where it is going for any given subset of retail. For example, looking solely at the high-volume discount retailers (like Wal*Mart) there are two clear “camps” of high-volume discount retailers.

The Retailing Category of high volume retailersFirst, the majority of high-volume discount retailers position themselves in the upper left hand quadrant of “expected” and “value.” What this means is that the experience typically in these stores is secondary to the value — get what you need, and get out — with price being a key driver to selection of the store within the category. In the lower right hand quadrant, we see a single high-volume discount retailer, Target, who’s products seem to have more “flair” and shopping there seems to be more of an “experience.”

Retailing CategoryTarget has separated itself from its other high-volume retail competitors by occupying a space in the market that was once unthinkable. Target like the rest of their competition began in the upper left quadrant but through repositioning and, more importantly, execution of their brand, they have separated themselves from the rest of the pack. Even though Target is a high-volume discount retailer, it has to compete less on price than its competition because the brand has important meaning beyond the category value of “low prices.”

Target created a first mover advantage of sorts and has, in turn, insulated itself a bit from having another competitor move into its space. However, there still is viable real estate remaining to be claimed in this segment. For example, there are no discount retailers owning the “value” and “experience” position (some may claim it but none own it), which is a viable position to occupy. A high-volume discount retailer could occupy this position by paying off a visit to the store as an “experience” rather than a utilitarian shopping experience.

Retail as a Whole

This model is applicable for every retail sub-segment. In fact, the model can also be applied to the very function of retailing itself, specifically from the perspective of the consumer insomuch as what they perceive the shopping experience to be.

Retailing Category

Your Margins Can Be Found In Experience

Retailing CategoryThere is a causal relationship here between “experience” and margin. Granted, we cannot forget that there is a real relationship between “flair” and margin, but that is nothing new. Historically, consumers have always been willing to pay more for the latest and greatest trends. It is in the relationship between “experience” from the customer’s perspective, and margins from the business perspective that is the most interesting and offers the most promise. The momentum in consumer behavior points to “seeking out new experiences.”

This is why an established high-volume retailer can open up a new store mere miles away from an existing location and draw customers from their existing store. These “commuting customers” who often have to travel further to get to the new store with the identical merchandise and identical prices. The rationale for this behavior is simple to understand when you look at human behavior – consumers want a “new” shopping experience that caters to them as individuals. Accomplish this and watch margins and floor traffic increase at the expense of your competitors market share. There are better ways to accomplish this than building a new store in every neighborhood.

 

Read a more in-depth review of the retail space here