Blockbuster: In Search of Customer-Centricity

By most accounts Blockbuster will soon seek bankruptcy as a last ditch effort to address its mountain of debt and incredibly shrinking business model. While Blockbuster’s immediate term issues are capital structure related, the Blockbuster story is one of a company that has neglected to embrace even the basic tenets of customer-centricity for more than a decade.

Yet again, we have a once dominant category leader who has failed miserably to respond to shifting customer needs and preferences, despite possessing a brand that is virtually synonymous with on demand home entertainment and its ownership of a vast retail network. Most incredibly to me, however, is how Blockbuster–under various regimes–has neglected to utilize what should be their primary asset: a rich customer database and the ability to leverage it to deliver relevant, personalized products and services.

Think about it. Blockbuster’s business model lends itself beautifully to the foundational elements of a customer-centric growth strategy.

Deep Customer Insight. Yup, since it’s a membership driven model they have a pretty good idea of who’s buying what, how often, etc.
Actionable Segmentation. Check. Tracking current value is easy and customers’ needs can be reasonably inferred from the frequency and history of the genres of movies that they rent and buy.
Segment Specific Differentiated Experiences.  Pretty easy too, since they can readily treat different customers differently and have the ability to deliver in store, through direct mail, via email or on the web.

My personal experience demonstrates Blockbuster’s missed opportunities.

Nearly six years ago, when I moved from Chicago to Dallas I had to get a new Blockbuster membership card because I was told membership and customer data was location specific. Never a good idea to have to restart the relationship when you already have my data.

About two years ago, my spending at Blockbuster plummeted when I joined NetFlix. Presumably any kind of rudimentary data analytics would reveal this disturbing trend to the CRM department (if in fact Blockbuster had one) and trigger some sort of marketing campaign to try to win me back. No dice. And while this is my own sample of one experience, I’m pretty sure this has been going on for lots of customers as NetFlix and RedBox’s businesses have been on fire.

During the last few months I’ve been back into Blockbuster several times to rent movies (apparently I have a high tolerance for pain). Did I receive any kind of messages that they were happy to see me back? No, but I did notice each time that the space they had devoted to a snack bar was devoid of customers (“honey, let’s drive past these seven other places that surround Blockbuster because I hear Blockbuster’s Diet Coke is really good”). Did I receive any kind of personalized point of sale offers, or perhaps a request for my email so they could communicate with me in the way I’d like to be communicated with? No, but each time I did get pitched soft drinks, candy and popcorn. Gee, if I didn’t know any better I would think your management were trying to turn Blockbuster into 7-11.

It seems to me that what the Blockbuster brand needs to stand for is home entertainment on my terms, anytime, anywhere. And given the vast amount of product choices out there and that my habits are reasonably predictable, you should be able to curate the options for me and make it easy for me to do business with you. And that all requires great customer data, personalized marketing and business models that are relevant and differentiated. It doesn’t have a lot to do with magazines, candy and soda at the cash wrap.

Unfortunately Blockbuster wasn’t paying attention to these things years ago when they had far more degrees of freedom to act and hadn’t lost many of their valuable customers to the competition.

Blockbuster’s history may have been written. Hopefully you can still write your company’s. If you truly embrace customer-centric thinking it doesn’t have to be an obituary.

The Stall at the Mall: Retail’s Tepid Bounce Off the Bottom

So last month’s retail comparable sales numbers are out and they are pretty bad.

According to Financo, the specialty retail sector (guys like Gap and Abercrombie & Fitch) was down 1.1% for May, despite comparing against a 7.3% decline last year.  Department stores fared better, up 1.8%–but that compares against a horrific last year when the group (which includes luxury players like Saks and Neiman Marcus) saw a staggering decrease of 12.4%.  And all this in a month where the late Easter was supposed to help.

In the words of that great retail strategist Dr. Phil, it’s time to get real.

A careful analysis of recent retail performance reveals some upward trajectory in sales, but only when compared to dismal results a year earlier.  This is the proverbial bounce off the bottom, not a sign of a true recovery.  Gross margins are improving as well, but we must remember that inventories were cut drastically, eliminating that last tranche of inventory that must be marked down dramatically to move.  Even in the face of reduced inventories many retailers are still struggling to get back to historical gross margin rates.  And that’s because many customers still require greater than traditional markdowns to be enticed to buy.  Again, not a sign of a lasting recovery.

The retail sales equation is really pretty simple.

(Capacity to Spend) x (Willingness to Spend) x (Spending Allocation) = Sales

For most sectors capacity to spend is barely budging given continued high unemployment, tight credit and slow disposable income growth.  In some areas we are seeing a bit more willingness to spend–if only in comparison to last year’s major pull back.  The inability of most retailers to raise prices–combined with many consumer’s willingness to selectively “trade down”–is tending to mix the allocation of spending to lower average retail prices.  You add it all up and the retail outlook remains pretty tepid.

So what does this mean for your business?

First, accept that your business is not likely to recover to 2007 levels any time soon.  Second, embrace the reality that most of your sales growth has to come from growing share of wallet with existing customers.  Third, aggressively seek to understand your customers’ needs (tangible and emotional) far better than your competition.  Next, let go of your product-centric ways and lean into that brave new world of customer-centricity .  And then focus and intensify your efforts to meet your customer needs in truly remarkable ways.

It may not be easy, but it’s what you know you need to do.

Ruthless Experimentation: What Are You Afraid Of?

Part of any remarkable customer growth strategy is what I like to call “ruthless experimentation.”

Old timey, product centric growth strategy was all about the big reveal.  We spend months and months coming up with our bold new marketing plans and then–at this point, please pause dramatically–Ta-Da!–we see if (hope that?) the customer likes it.   If we are wrong, it’s back to the drawing board for Plan B.

Not only is this cycle unacceptably long, it does not reflect the dynamic realities of what it takes to build and sustain a relationship with your best and most promising customers.   Just about any business has the ability to test and learn on a number of fronts: permission-based email, direct mail, Facebook, Twitter, an in-store promotion and more.  So why do I have conversations virtually every day with executives who are still studying their social media strategy, struggling to develop an actionable customer segmentation or waiting to improve their CRM platform before they try more personalized marketing?

It’s simple: they are afraid.  Afraid to admit they don’t really “get” how something works.  Afraid that they may not hit their hoped for response rates.  Afraid a promotion might perform “too well.”  Afraid to pull the trigger on the “good enough” idea rather than the perfect one.

So what’s the riskier move?  Studying and planning until you have lowered your chance of “failure” to close to zero %?  Or sitting on the sidelines while your competition is out there trying stuff, learning, truly listening to customer feedback and evolving to make their value proposition more relevant and remarkable?

Being customer-centric is a dynamic, learning process.  Accept it, walk through your fear.  Experiment ruthlessly.  Be a linchpin.  And make something happen today.*

* see Seth’s Blog for more on this: http://bit.ly/cilzJL

It’s the Experience Stupid! Why Retailers Need to Move Away From Product-Centricity

As I approach my 20th anniversary in the retail industry I continue to be amazed at the number of senior retail executives who go on and on about how “it’s all about the product.”  Nonsense.

Don’t get me wrong, product is anywhere from pretty important to very important depending upon the particular retail concept and the consumers they target.   But the total customer experience is the most important driver of success in retail.   Think about the last thing you bought.  Chances are there were multiple places you could have gone to buy that product.  Why did you end up buying where you did?  Price?  Convenient location?  Great customer service?  Compelling environment?  Easy returns?  Informative web-site?  One-stop shopping?  Loyalty program points?

At Neiman Marcus one of the things we looked at is why customers, when faced with identical product and identical prices from multiple retailers in the same mall, ended up buying an item at a particular retailer.  With rare exception it was some aspect of the customer experience–customer service or store environment–that was the differentiating factor.

It’s easy to understand why most retailers are product-centric.  They are run by merchants, and merchants spend their life picking product, allocating it and monitoring sales, margin and turnover.  Few have any background or experience with marketing or customer insight.   Retailers are organized by product category, not customer segments.

More and more we see retailers that emphasize customer-centricity over product- centricity–whether it’s Zappo’s, Nordstrom, Best Buy or Coach–leading the way.

How’s your company doing?