Let’s get physical

Amidst all the breathless pronouncements about the inexorable decline of brick and mortar retail emerges an interesting phenomenon: some of the fastest growing and most exciting internet-only brands are opening stores.

Recently, Bonobos raised $55MM largely to accelerate its foray into “Guideshops.” Other e-commerce innovators such as Warby Parker, Trunk Club, Nasty Gal and Bauble Bar are all expanding into physical store fronts. Expect more announcements soon, not only from earlier stage companies, but from larger direct-to-consumer brands as well. This seemingly counter-intuitive trend reflects a few realities.

First, most of these venture capital funded darlings have thrived in their first few years by exploiting a highly specific customer niche and leveraging the heck out of the advantages of a direct-to-consumer model. Alas, the number of customers who are willing to buy product sight unseen, without working directly with a sales person and lacking the instant gratification that physical stores provide, is comparatively small when it comes to product categories where fit, material quality and fabrication are important. For these brands to continue to grow–and have a chance for material profitability–physical locations aren’t a nice-to-do, they are a necessity.

Second, brick and mortar retail is different, not dead. In most product categories, for many, many years to come, the overwhelming majority of sales and profits will continue to come from, or be influenced directly by, physical locations. Regardless of whether a brand started as an actual store or as a virtual entity, the ones that will ultimately win will offer a tightly integrated experience across their various channels and touch-points. They will eschew traditional mass, one-size fits all strategies and embrace more personalized missions. There remains plenty of business to be done in brick and mortar locations–if you have something remarkable and meaningfully customer relevant.

Finally, when we think about the market or the customer we inevitably get it wrong. Global pronouncements about industry dynamics or the “typical” consumer are rarely particularly illuminating and almost never sufficiently actionable. The brands that are winning–the ones that are stealing share from you–go beyond the averages and the mega-trends. They understand how to apply technology to create frictionless commerce. They delve into data and apply customer insights that inform stronger acquisition, growth and retention tactics. They are committed to experimentation. They treat different customers differently. And on and on. None of this is fundamentally rooted in how a brand started or whether trends tend to favor its success.

Of course it’s far from certain that these previously web-only brands will successfully transition to an omni-channel world. Some will stumble mightily. A few will fail completely. Others will see their growth stall at only a handful of profitable locations.

The one thing for certain is that for quite a lot of customers, the benefits of physical shopping are here to stay. For traditional players the rush to close and down-size their store base may have some merit. But it’s equally likely the problem isn’t just the real estate portfolio.

 

Rewarding stupid

The brand that incentivizes lowering the cost of its customer service function, when faster response time–and assuring the customer’s problem gets resolved the first time–is what drives customer value.

The retailer that slavishly measures–and provides bonuses for silo leaders based upon–individual channel performance, when the majority of its consumers research and shop across channels.

The credit card company that relentlessly increases late fees and other nuisance charges to maximize “other” income, while card-holder retention and usage rates are dropping.

The marketer that continually increases the frequency of promotional e-mails because they are cheap and reach a lot of people, when opt-out and conversion rates of its very best customers continue to decline.

It shouldn’t surprise anyone that when we reward stupid, we get stupid.

But apparently, sometimes, it still does.

Retail’s zero-sum game

I’ve got some bad news for you if you are in retail in North America or Western Europe.

In just about every sector–if you strip out inflation–the size of the pie is not growing. Moreover, you would be hard pressed to argue that this will change any time soon. With few exceptions, the brutal reality is that the capacity and willingness of most of your customers’ to increase their category spending is stuck in neutral. Get used to it.

Sure, the high-end is doing a little bit better (for now), but that’s largely driven by relatively price inelastic demand and an influx of foreign shoppers. Chances are that’s not your situation.

And, yes, there is continued strong growth in e-commerce, but most of that is either channel shift or leakage to unprofitable pure-plays. Of course if you are Amazon it’s a totally different story. But you are not Amazon.

Perhaps you work at a handful of brands that offer something truly differentiated and highly relevant to a sizable part of the market. If so, you are grabbing a greater share of that pie. For the rest of us, that just means our share of the pie is shrinking. Unaddressed, that is almost certain to end badly.

More and more, the vast majority of retailers are playing in a zero-sum game. More and more, the opportunity to drive top-line through store openings has evaporated. In fact, most retailers will be closing stores and shrinking the square footage of the one’s that they keep. Shrinking to prosperity is rarely a sustainable strategy.

Simply stated, driving real growth only happens by stealing market share, by growing share of wallet. And that means being more relevant and more remarkable than the competition.

It demands developing actionable customer insight as a basis for competitive advantage. It requires abandoning much of what you got you to where you are and embracing strategies and tactics that will get you to where you need to be. It means taking on more risk than you are used to.

Sure it can be scary. But quite frankly you have no alternative.

Oh, and I’d hurry if I were you.

 

 

This is not for you

Maybe it’s somehow coded in our genes.

Or maybe society conditions us to mindlessly think that bigger is definitely better; that more is always more.

Perhaps our fear of failure drives us to cover every imaginable base?

Yet the brutal reality is that the list of organizations that require scale to succeed AND can actually pull it off is undeniably short. And friends, I’m here to tell you, chances are neither you nor your organization is on that list.

Alas the pull of mass is undeniable. Let’s reach more people. Let’s gain more subscribers. Let’s try to sell more stuff, regardless of customer relevance or potential for profit.

As media choices explode, and the world becomes ever noisier, our default tendencies seem rooted in casting a wider net and shouting louder. That’s just stupid. It’s also expensive.

The best marketing plans are crystal clear about who the product or service is for and what it takes to become highly relevant and remarkable for that precise audience. By extension, the other thing a great marketing plan does is to declare who the brand is NOT for. As most brands are at the end of the life cycle of mass-driven strategies–or never should have been there in the first place–this is a critical distinction.

Confident brands don’t chase their tail or get sucked into a race to the bottom by reflexively pursuing volume for volume’s sake. They spend their time in search of depth and meaningfulness with their core, not trying to rope some generic somebody into engagement with gimmicks or endless discounts.

More and more, there is great power in knowing who your brand is for and who it most clearly is not.

More and more, there is great freedom in declaring simply and confidently: this is not for you.

 

 

 

 

 

Timid transformation

Funny how many companies speak of the fundamental shifts affecting their industries but haven’t gotten around to changing much about they way they go to market.

And isn’t it peculiar how most brands talk about putting the customer at the center of everything they do yet–with few exceptions–they are still organized by channel and cling to a heavy reliance on mass marketing techniques?

As disruptive new business models emerge and gobble up market share in just about every sector of our economy, you would think that more industry incumbents would be motivated to change and to change profoundly. Alas, mostly we get rhetoric, empty promises and tepid experiments.

The transformative forces shaping consumer behavior–the connection economy, all things digital and so on–fray traditional loyalties, make many historically strong business models obsolete and only serve to accelerate the shift in power away from brands toward the customer.

So you would think that companies would realize the need to change as fast as their consumers. But evidence suggests that this rarely happens.

It’s far from obvious that timid transformations work.  So why then is that the path you’ve chosen?

 

 

 

The heart of omni-channel

You can fixate on the decline of brick & mortar retail all you want, but for the foreseeable future–in the vast majority of product categories–more than 90% of sales are still going to be done in physical stores.

You can make a big deal of the hyper growth in your digital channels, but don’t forget that many of those customer relationships started in a store. And many of the sales you ring up as a web order originated through exploration done in a physical location.

Sure, there are a handful of web companies where expansion into brick & mortar sites is secondary and mainly serves as a way to address the shortcomings of a purely digital experience. But for the overwhelming majority of brands, the physical store will be the dominant driver of sales, whether that revenue is actually booked in a store or not.

The other often neglected fact is that for many retailers their most profitable customers purchase regularly in both brick & mortar and e-commerce channels. If the physical store experience wanes, you can expect overall sales and profits to suffer.

As industry analysts and the press hyper-focus on a company’s e-commerce performance, the danger is that physical locations get short-changed. We are already seeing many retailers disinvest in their stores. These brands should tread very carefully.

As there is a continued rush to “right-size” store counts, many retailers will discover that closing stores will dramatically affect their e-commerce growth in the vacated trade areas. If your store closing analysis doesn’t include the impact on your web sales you are making a huge mistake. Too many stores were opened pre-recession. Too many stores will be closed in the next few years. Tread carefully here as well.

Without question you should be investing mightily in digital capabilities and just about anything mobile. But physical retail is likely to remain the heart of omni-channel for most brands for a long time.

You can go on and on about omni-channel this and omni-channel that, but screw up the store experience and you will be paying the price for years to come.

The customer trapeze

Study attempted strategic transformations or turnarounds and you’ll quickly discover that many are rooted in the hopeful–and typically dramatic–shifting of a brand’s customer base.

One frequent theme is the desire to migrate from an older customer to a younger one. The “this is not your father’s Oldsmobile” campaign epitomizes this path.

Another is the desire to “trade-up” the customer mix. The push for a much greater proportion of affluent and/or more fashion forward customers typifies this desired aspirational shift. Sears and a litany of other brands have tried to push this large rock up a huge hill for years.

Perhaps the brand wishes for a less promotionally oriented customer base (JC Penney, plus many others) or to shift from being known for more basic items to be seen as a “solutions-provider” (think Radio Shack).

History reveals that very few established brands are able to successfully execute a dramatic re-configuration of their customer base. Once you get beyond Cadillac and IBM, the list grows short indeed. It’s not hard to understand why.

The more a brand is known for one set of things, the harder it is to persuade consumers to believe something fundamentally new and different. To the extent a company starts to aggressively move away from what made it successful with its legacy segment to cultivate a new group, it risks alienating its historical core. One need look no further than Ron Johnson’s disastrous reign at Penney’s to see how ugly things can get when this sort of strategy is pushed too aggressively and without sufficient customer insight.

Like any trapeze act, the customer trapeze is all about speed, coordination and timing.

Many struggling brands will never survive, much less thrive, without letting go of major elements of their past. Let go at the wrong time, be it too late or too early, and the fall is disastrous.

We may not be right for you

Bessemer Trust, a leading private wealth management firm, ran an ad in today’s Wall Street Journal with the headline “we may not be right for you.”

In the copy below, they briefly state that they are not trying to be the biggest but, for the right type of customer, they strive to be the best.

Think about how few brands have the confidence to not only make such a statement, but to act on it.

Think about how few brands even have a clear understanding of who their core customers really are, what their profitability is and how to best engender their loyalty.

Without a clear customer-centric growth strategy and the willingness to treat different customers differently, all too often brands find themselves supremely unfocused in a desperate and often frantic quest for top-line growth.

Embracing the notion that “we may not be right for you” seems risky when, for many, it is precisely what they need.

Who’s it for? What’s it for?

When you’ve been in business as long as I have–and believe me it’s really not the years, it’s the mileage–it’s fair to say that I’ve reviewed a lot of business plans. Some very compelling, most not so much.

The less than great ones are typically chock full of details on every imaginable component of the product or service. They are packaged in a beautiful PowerPoint deck. And there is a spreadsheet laying out the explosive growth that’s inevitably just around the corner.

It often looks very impressive. But, sadly, it is also completely irrelevant if there are not clear and crisp answers to two core questions: Who’s it for? What’s it for?

It’s simply not good enough to describe your target customer group by high level demographics (or as Seth says anyone who pays us money). Can you describe them in distinct, addressable segments? What are your plans to treat different customers differently? Why will they substitute your product for their current preferred solution? What will it take for them to become regular customers and, ideally, brand advocates in the face of current and emergent competition?

Once you’ve painted the picture on the customers you’ve chosen, now tell me exactly what your product and service does for them. Not features and benefits, but solutions, outcomes. Can you articulate what current customer compromise you are alleviating? I want to hear about the hole, not the drill.

Whether we like it or not, in more cases than not, persuading potential customers to shift their attitudes and behaviors–for reasons other than price–is harder than we’d like to believe. Before the explosion of digital commerce, when the cost of procuring information was typically high and consumers’ choices were often limited by how far they were willing to drive, an entrepreneur could often get away with poorly defined customer selection and a less than remarkable value proposition. Today, it’s a huge challenge to even get noticed, much less drive trial and frequent, profitable repeat business.

So before you gather aggregate market statistics and craft your hockey stick financial projections and fiddle with the font size of your pitch deck, get hyper-focused on the two key questions that ultimately separate the winners from the losers.

The confidence of brands

There is plenty to ponder when the subject is branding. Lots of agencies, consultants, marketing gurus and academics have frameworks and models for assessing a brand’s strength. Varying definitions abound. I like Seth‘s:

A brand is the set of expectations, memories, stories and relationships that, taken together, account for a consumer’s decision to choose one product or service over another. If the consumer (whether it’s a business, a buyer, a voter or a donor) doesn’t pay a premium, make a selection or spread the word, then no brand value exists for that consumer. 

Therefore a brand is a promise, a pledge of trust. Without the buyer’s willingness to believe in the delivery of that promise, the brand is irrelevant. So confidence in the minds of consumers is essential.

But so is confidence in the mind of the marketer.

Confident brands lead from a position of authority. They take risks. They don’t need to over-explain or hard-sell their customers. Options are abundant. This is a brand playing offense.

We can easily sense the brand that lacks confidence, that sadly has lost–or never had–its mojo.

Unconfident brands are defensive. They cast too wide a net for customers. They compete too heavily on price. Their advertising lacks focus and nuance and instead is characterized by shouting and bludgeoning. They default to one size fits all marketing.

The real tragedy is that what flailing brands need the most is precisely what they lack. Without the confidence to face the realities of their situation and to take the bold actions to get on a path to prosperity, their ultimate fate is sealed.