Why “Less is More” in Retail?

Retailers find they sell a lot more of nearly everything by reducing the number of brands on offer, but figuring out what should stay and what should go is not easy. In economics they call it the "paradox of choice," the idea that a shopper, when faced with multiple options tends to focus too much on which item to choose, and is therefore less satisfied with the item she finally picks.

Reducing the number of products can help companies increase sales by as much as 40% while cutting costs by between 10 and 35%, according to a 2007 study by consultant Bain & Co.

Here is an extract from an interesting article in The Globe & Mail:

Several months ago Wal-Mart Canada Corp. decided to overhaul one of the staples of its grocery business – the peanut butter aisle. It dropped two of its five lines of peanut butter to free up scarce shelf space for cinnamon spreads. But the decision didn’t cost the retailer a single jar in sales. With fewer selections to browse, customers wound up purchasing more than before.“Folks can get overwhelmed with too much variety,” said Duncan Mac Naughton, chief merchandising officer at Wal-Mart in Mississauga. “With too many choices, they actually don’t buy.”

In a reversal, retailers are now reducing the amount of choice on their shelves. After years of tempting customers with ever expanding arrays of brands, hues, sizes and flavours, they’re racing to simplify their offerings. The recession has encouraged them to focus on top sellers and private labels while throwing marginal products overboard.

But look at the India situation:

Here are some facts from a recent article by  Meenakshi Radhakrishnan-Swami

FMCG companies in India have had a fairly smooth run until now - given that the average kirana is 150-200 sq ft and has space for less than 1,000 SKUs, they didn't need to create endless product variations and extensions of the same brands.

Compare this with Barry Schwartz's list in his 2004 bestseller The Paradox of Choice: Why Less is More, based on a visit to his local supermarket in the US:  285 types of cookies (21 options in chocolate chip alone), 95 different snacks, 360 shampoo types, 40 options for toothpaste, 275 varieties of breakfast cereal, 175 types of teabags.

Schwartz's supermarket was a "not particularly large store", but Indian consumer goods companies would struggle (and fail) to stock even that level of products (and remember, this book is three years old): Cadbury India has over 100 SKUs in two categories, Procter & Gamble sells over 320 SKUs across five categories, while Hindustan Lever has more than 700 SKUs in over 20 categories.

If hypermarket visitors are not to be confronted by acres of empty shelves, then, consumer goods companies will have to expand their portfolios substantially. "

Here is my view:

1.   I wonder if Retailers would like to explore using their Loyalty data to understand purchase behaviour at an SKU level. Companies like Big Bazaar & Spencers would have humongous amount of data which can be used effectively.  Analytics on this data would throw up actionable insights.
2. Also I am sure that a Retailer could partner very effectively with a credit card company to further overlay information on his loyalty card behaviour and analyse his assortment better. Partnered analytics is still a new concept in India and I wonder how it could explode action-ability.

 

Loyalty programs can drain profits!

Whenever companies run short of ideas for engaging with their customers, they launch Loyalty programmes. In fact ,my belief is that companies end up spending millions of dollars supporting loyalty programs many of which do “zilch” to their bottom line.

According to a recent report by loyalty program watchdogs, Colloquy, the average U.S. household is enrolled in 14.1 loyalty programs, which marketers spend as much as $2 billion annually to operate.

Here is an interesting article by Tim Keiningham, Global Chief Strategy Officer at Ipsos Loyalty and author of the newly published book Why Loyalty Matters. The premise of the article is that many companies incorrectly associate so-called “loyal” customers with profitable ones

Here’s is what Tim has to say:

Looking at customer actions and attitudes, our research showed a very large percentage of loyal customers—often more than 50%—are not profitable for most companies, because their loyalty is driven largely by expectations of great deals.

http://online.wsj.com/article/SB10001424052970203353904574149041326829628.html

Bill Hanifin has this very interesting comment

Take it a step farther and I’ll assert that while every company doesn’t need a “loyalty” program, EVERY company needs a well planned and executed Customer Strategy. Imagine if our industry ditched the “L” word and adopted a more inclusive term. The semantics debate might be de-fused and we could get down to business.

Read more of what Bill has to say at:

http://blog.hanifinloyalty.com/2009/06/25/ipsos-theres-no-p-in-loyalty.html

Here is what I believe are key questions to think about:

1.    Is your loyalty program only ending up rewarding new customers?

 

2.    Do you measure the profits that you get from loyalty or do you just see Loyalty sales as a percentage of total sales?

 

3.    Are you under investing in your loyalty program by not impacting any core aspect of your service or product delivery? As a retailer do you say that your loyalty program is doing well but hesitate to give an exclusive checkout counter for loyalty program members because it is operationally difficult.

 

Is Customer experience too much fluff for the CFO?

Often marketers are rapidly putting together rollout plans and aggressively chasing market share and customer centricity takes a back seat. But does customer centric action impact the bottomline!Do the CEO & CFO care?

Forrester’s previous research has shown a high correlation between customer experience and three key elements of loyal behavior: willingness to buy more, reluctance to switch, and likelihood to recommend.

Here is an extract from an interesting study from Forrester:

But how does Customer experience affect a company’s bottom line? To answer that question, we looked at the percentage of loyal customers within the customer bases of more than 100 companies. It turns out that customer experience leaders have an advantage of more than 14% over customer experience laggards across all three areas of loyalty. The annual revenue gains from a modest difference in customer experience can total $311 million for a large hotel. Banks and hotels garner the largest gains from their current customers, while airlines get the most from an increase in positive word of mouth. Customer experience professionals should use this information to build customized business plans.

I believe that in growth markets such as India the opportunity to embed "customer centric" processes into the fabric of the organization is very strong. This is because entire industries are being created right from "scratch"-Retail, telecom and many others.

It needs a strong CEO who drives the customer centricity agenda himself and makes it practical for the market to absorb. The CEO then must drive a technology agenda, with the CTO, which puts together the "plumbing" for crafting a great customer experience.

 

Of Mice & Loyalty programs!

Loyalty is such a misused concept today! You see loyalty programs of all shapes & sizes! In many cases , the marketer is happy treating the program as a “reward program” and not worrying too much about long term loyalty! But often marketers make the cardinal mistake of treating a loyalty program as a onetime marketing effort and not as a “living & breathing” program.

Without constant thinking and effective execution a loyalty program is just not worth it’s while. The other large challenge is that Loyalty program marketers must look closely at the data they are producing and constantly evaluate the customer behaviour to make the program work! Loyalty analytics is the key to improving the construct of your program!

Roger Dooley writes and speaks about marketing, and in particular the use of neuroscience and behavioral research to make advertising, marketing, and products better. Here are some very interesting thoughts from Roger on loyalty programs:

So what do rats have to do with loyalty programs? Well, back in the 1930s, researchers made an interesting discovery: rats running a maze to reach food ran faster as they got closer to the food. This finding led to the “goal gradient hypothesis,” which states that the tendency to approach a goal increases with proximity to the goal. Simply put, the closer the goal, the more effort you expend to get there.

So what does this have with loyalty programs? A few years ago, Columbia University researchers examined the goal gradient hypothesis using unwitting human subjects, and found that people behave a lot like rats. Give them a coffee punch card that rewards them with a free coffee when full, and they will drink coffee more frequently as they approach a fully stamped card. Here are four of the major findings in that study:

(1) participants in a real café reward program purchase coffee more frequently the closer they are to earning a free coffee;

(2) Internet users who rate songs in return for reward certificates visit the rating Web site more often, rate more songs per visit, and persist longer in the rating effort as they approach the reward goal;

(3) the illusion of progress toward the goal induces purchase acceleration (e.g., customers who receive a 12-stamp coffee card with 2 preexisting “bonus” stamps complete the 10 required purchases faster than customers who receive a “regular” 10-stamp card);

(4) a stronger tendency to accelerate toward the goal predicts greater retention and faster reengagement in the program.

[From The Goal-Gradient Hypothesis Resurrected: Purchase Acceleration, Illusionary Goal Progress, and Customer Retention by Ran Kivetz, Oleg Urminsky, and Yuhuang Zheng.]

Read more of Roger’s thoughts at:

http://www.neurosciencemarketing.com/blog/articles/loyalty-programs-of-rats-and-men.htm#comments

Can loyalty work for Bank accounts?

For decades Credit card companies have used Reward & loyalty programs effectively. Is there potential to do the same for bank accounts. Capital One has launched this new account that allows you to get rewarded for your everyday transactions. This is a unique move to reward customers basis their average monthly balances.

"The Rewards Checking account is a free, no-hassle way for customers to earn rewards for many things they are already doing, like shopping and paying bills online," said Diana Don from Capital One. "Capital One's new checking account offers more ways to earn rewards and a variety of ways to redeem them, giving customers the flexibility to decide which rewards are best for them at any given time."

The interesting point is that the Rewards Checking account is free. There is no monthly fee, no minimum balance and no fees to use rewards. And it takes only $50 to open. Now where is the catch , when was the last time you got something free from a bank! Does it make sense for banks to have individual loyalty programs for different banking products. In fact it is more profitable for banks to have a bank wide loyalty program which rewards a whole range of banking behaviors. However launching products or features that go across "silos" within a bank is always a challenge!

Read more about this and it would be interesting to hear your views on how "sustainable" this program is?

http://www.richmond.com/business/25504

 

 

Build a fence around your customers

As the economy slows down, it is even more critical to look at customer behavior closely to spot "likely defectors". Retailers have so much data about the way their customers are behaving that they can set up "trigger points" that alert the marketer that there is a change in the customers behavior. In fact at Cequity we believe that managing "downward migration in customer value" is far more important than "managing churn". The interesting part of this philosophy is that you do not need very advanced CRM systems to really execute this-even simple Microsoft Excel based "trigger points" can do the trick!

Michael Greenberg has this very interesting article on creating "inflection points" for spotting customer behavior changes.

http://chiefmarketer.com/crm_loop/database/fence_customers-03242006/index.html