Surgical Shopping and the Hangover Market

Last holiday season I coined the term “surgical shopping” to describe the highly precise way many consumers were purchasing.  While the panic of late 2008 and early 2009 subsided, consumers were only gradually opening their wallets, focusing primarily on needs vs. wants and often trading down to brands that gave very clear bang for the buck.  By the time the numbers were in for the 4th quarter, it was clear that business was better, but not particularly good.

As an economic recovery struggles to gain traction, this “surgical shopping” behavior remains rampant, and in my opinion is not likely to change any time soon.

This behavior is evident on the lower end of the market, as private labels (or more accurately “private brands”) gain market share.  And it’s apparent on the higher end, as accessible luxury brands such as Coach, Nordstrom and J. Crew beat their more exclusive and expensive rivals.  Even at the absolute luxury tier, brands like Louis Vuitton, Gucci and Hermes outpace the competition as they emphasize their heritage of investment quality craftsmanship to win over flash in the pan, mostly pure image brands.

This is now the Hangover Market.  Waking from the intoxication of too much marketing and societal hooch, consumers are now shaking off the cobwebs and dry mouth of excessive, superficial spending.   And while it’s always difficult to predict future consumer behavior, many consumers are not going back to their old reckless spending habits.  For some, this will be out of economic necessity.  For others, this will be values based, as they become more discerning about the quantity of what they buy and the price they pay for certain items.

So what does this mean for business leaders and brand stewards?

Tangible, obvious value wins.

Craftsmanship wins.

Authentic wins.

Experience wins.

Connectedness wins.

Being remarkable wins.

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Expensive & Lousy Meets Free & Excellent

I just got back from Chicago where I spoke at the annual Shopper Insights in Action conference.  It was a great trip, but one of the things I will remember the most is a very disappointing experience I had at the host hotel.

At this hotel (which shall go nameless, but it rhymes with lariat), I was charged $14.95 for daily “high-speed” internet access.  Putting aside whether hotels should charge for web access–they shouldn’t–my primary complaint was that the service was far from high-speed.  In fact, it barely worked at all.

After a full day of trying to get my email account to even load properly, I finally relented and called the toll-free help line.   After half an hour on the phone with the support person listening to them spew indecipherable technical jargon and trying various things to increase my connection speed–most of which involved limiting service for other folks in the hotel–we concluded that this was a long-term problem at this location, likely caused by their not having upgraded their infra-structure.

Expensive & Lousy.

Ironically, the next day as part of my conference presentation, I shared the Zappos success story to reinforce the importance of using remarkable customer experiences to win in an intensely competitive market.  As you may know, part of Zappos growing reputation for legendary customer service is that delivery of their product is free–both for the original shipment and for any returns.  Moreover, Zappos will often upgrade the customer to overnight shipping at no charge.

Free & Excellent.

Of course, we cannot just randomly give away high value products and services.  But as brand stewards, minimally, we don’t have to call attention to the things that represent an obviously bad value, nor do we have to reinforce the notion that we are using every opportunity to nickel and dime our clients (I’m looking at you credit card and airline industries!).

Remarkable is a choice, and we get to decide which elements of our business model and brand promise create the wow, the buzz, the purple cow.  It’s not always easy or practical to deliver the Free & Excellent.  But you can certainly stop the Expensive & Lousy.

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Is Your Strategy Swimming Naked?

Warren Buffett once famously said “you only find out who is swimming naked when the tide goes out.”

Well as far as I can see, the tide’s out and the water is rising pretty slowly.

Is your company like those financial institutions that lent money to the person who looked like the Millionaire Next Door, only to discover they were playing the balance transfer game and using their home’s equity like an ATM machine?  Might have been a good idea to have understood those customers’ ability to pay you back.

Are you like some of those luxury brands that appeared to be winning big pre-recession, but were mostly growing through raising prices and now are scrambling to win back customers they let drift to the competition?   Seems like a good idea now to realize that you need both the uber-wealthy and the solidly affluent to help pay the bills.

Or maybe you are that high-flying e-commerce company that touts its incredible rate of customer acquisition and average spend per customer, while failing to notice an alarmingly high rate of customer churn.  Oh, you don’t track retention?

Perhaps you are that brand that crows about its double-digit growth rate, while not even knowing that the category is growing much faster.  Hmm, I guess market share is not important in your business?

When business looks good, it’s so easy to pound our chests.  But there is a big difference between looks good and is good.

Remarkable companies are keenly focused on deep customer insight–in good times and bad.  They have customer segment specific strategies that inform all their tactics, and they identify and act upon weakness before it becomes a crisis.

No one can predict everything that might happen to significantly impact your business.   But a well crafted customer-centric strategy gives you the best chance to not be caught swimming naked, risking being sucked in by the riptide that is your boss, the Board or the marketplace.
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Now go put some pants on.

What Color is Your Growth Strategy? The Curse of the Red Herring.

Blue Ocean.

Black Swan.

Purple Cow.

In the last several years various authors and pundits have literally given us colorful ways to think about how to grow our businesses.   Good stuff.

But what about the Red Herring?

As you probably know, a “red herring” is any diversion that is intended to take attention away from the main issue.

How many folks in your organization employ the Red Herring Strategy to dismiss a potentially insightful line of inquiry or to shoot down a bold new idea?  How many times does your team lose traction and waste energy distracted by a long discussion of things that you simply cannot change.

Sometimes you need to let go of the Red Herring before you can swim in the Blue Ocean or find your Purple Cow.
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Yes, But You’re Still Ugly . . .

Once upon a time there was a man and a woman who had known each other for several months.  Over time, the man had grown quite fond of the woman and one day he finally got up the nerve to ask her out.  “I’m sorry” she told him, “you seem like a very nice guy, but I just don’t find you physically very attractive.”

The man was disheartened at first, but soon he was energized by the rejection. The very next day he started hitting the gym, and that weekend he got a new haircut at the most expensive salon in town.  Over the next several weeks he continued his workout regimen and spent a fair amount of his paycheck to update his wardrobe.  He even went to get a manicure and facial.

After about a month of his self-improvement plan, he went to the woman and asked her out again.  “I’m sorry” she once again told him, “I can see that you’ve really taken steps to improve your appearance, but there is still just not enough of a physical attraction for me to decide to go out with you.”

While one can certainly challenge the shallowness of this woman’s decision-making process, we can certainly see how businesses, finding themselves in the same situation as the hapless gentleman of this story, adopt the same line of thinking as they seek to improve themselves.

When I was at Sears nearly ten years ago, we had a new senior executive who spent hours and hours digesting the mounds of consumer research that laid bare the challenges we faced in regaining our competitive position.  He was struck by the analysis the showed how our target consumers rated us on important dimensions versus tough competitors like Kohl’s and JC Penney.   “I now see exactly what we need to do” he told us dramatically at an early morning strategy session.  “If we can just focus on closing these gaps, we can really make some progress.”

As I left the meeting–with strong visions of needing to update my resume dancing in my head–one of my direct reports turned to me and said quite sarcastically, albeit accurately: “great, our new strategy is to suck less.”

Better is not necessarily good.  Simply getting closer to what the customer truly values doesn’t engender loyalty and brand evangelism.  “New and improved” does not guarantee a win.

So are you going to be spend your time and resources merely closing the gap with your competition?  Or are you going to innovate, take a risk and leapfrog the pack to do something truly remarkable and-dare I say-beautiful?
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Defying the Sea of Sameness

Any business school course on strategy will devote significant time to the importance of competitive differentiation.  We attend marketing conferences where speakers pontificate on the need to have a unique value proposition.  Excellent books like Seth Godin’s Purple Cow preach the benefits of being remarkable to separate yourself from the herd.

Yet any visit to the mall or surfing of the internet quickly reveals an often numbing “sea of sameness.”

This has long been true for many retailers.  But I believe the recession has made it worse.  As retailers have slashed inventory, desperate to demonstrate inventory productivity progress to investors, merchandise assortments have become less interesting, less differentiated, decidedly less remarkable.

By now it should be apparent that a full recovery is going to be slow in coming.  That means revenue growth must come primarily from stealing market share.

Now is the time to go on the offensive.  Now is the time to commit to deeply understanding your target customers’ needs, compromises and preferences and to find ways to innovate, to be truly remarkable.

For some companies, this means embracing the trusted agent role, going out into the market and curating a unique offering for a discerning clientele.  This is what the best specialty boutiques do.

For others, it means finding more exclusive products in the market, leveraging existing vendor relationships to construct a unique offering and/or developing their own compelling private brands.  This is happening across the price spectrum.  Kohl’s recently reported that 47% of revenues now come from exclusive products.  Saks Fifth Avenue is aggressively working to significantly increase its percentage of private label and national brand exclusives to differentiate itself in a challenging luxury market.

I think two basic principles are at work here.  First, a willingness to move away from a product-centric, gross margin rate maximization mind-set to embrace customer-centricity and all that entails.  Second, an acceptance that it is actually more risky to play it safe and swim in the sea of sameness.

Someone in your industry will decide to break away from the herd and gobble up share while the competition is on their heels.  What’s your choice?
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