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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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.
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“Channel Agnostic”: The Pathway To Customer-Centricity

Having spent the past ten years or so driving customer-centric growth and marketing strategies at places like Neiman Marcus, Sears and Lands’ End, I used to say there were two types of retailers: those that embraced an integrated multi-channel model and those that operated in multiple channels, but treated the channels as largely independent entities.

Today, despite ample evidence of customers’ researching online before going to stores, or shopping physical locations to then go home and order in the comfort of their own homes, we still see many businesses with limited channel integration. In fact, a major player like Pier One actually shut down their e-commerce operation for several years because they somehow thought it wasn’t core to their strategy. They have since come to their senses.

But after many years of pontificating on the power of a seamless, integrated multi-channel experience, I think it may be time to move away from the term multi-channel integration–which by now should be table stakes for any half-way competent retailer–to something that aims for a higher plane and a chance to be truly remarkable in your customer growth strategy.

My new favorite term is: channel agnostic, which I first heard the leadership of JC Penney espouse.

What’s powerful to me about this term, is that it really puts the customer first.  It says as a brand we don’t care which channel you gather your research in, which channel you buy from and which channel you return in, we’re there to make it happen for you.  If we are out of stock in our store, we will jump on our point of sale system, find it at another store (or on the web) and ship it your home if you like.  “Integration” is nice–as if we just want to prove to the customer that we actually talk to each other, but ultimately it’s passive.

So how different would your company be if it really embraced the notion of being “channel agnostic?”  Would your marketing change?  Would your assortments?  Would your return policy?  How about the information that your sales associates have at the store?  In the customer service center?

And if you find that the changes would be significant, then the real question is: would making those changes make your strategy more remarkable, allowing you to better engage, grow and retain customers in the new battle for market share?

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The Office of the Customer

A remarkable growth strategy for your brand or business should be, at its core,  a customer-centric growth strategy.  Contrast this with most companies’ strategies which are strongly product-centric or channel-centric.

To be truly customer-centric, your organization needs to start with a single, cohesive understanding of the value, needs and wants of your most important customers and prospects. And then you need to consistently turn this insight into action to drive meaningful results.

So how are you doing?

Have you integrated all your relevant customer data into an enterprise data warehouse?  Is all your “voice of the customer” information–from formal research studies to satisfaction surveys to customer complaints accessible and its implications understood by key decision-makers? Do you have people, and I mean specific individuals, responsible and accountable for understanding your most important customer segments, monitoring critical metrics and for coming up with new and improved ways to engage, grow and retain them?

I can hear the objections already. We don’t have enough data!  Our systems aren’t good enough!  We can’t afford to get good customer research and create sophisticated segmentations!   We can’t add headcount in this economic environment!

Sure, it would be better to assemble a new department with lofty goals and a big budget to take on all these noble activities.   But here’s the choice you can make.  You can sit around and hope for money to be freed up or for your CEO to suddenly get that old time customer religion.  Or you can make something happen.  Today.   You can become a linchpin in taking that first step in the journey towards true customer-centricity.

If no one else is doing anything that’s making a difference, create the “The Office of the Customer.” Invite people to become part of your tribe.  Vest yourself and those who join in your movement with the responsibility to pull the critical customer information together.    Work collectively to glean the insights, design the better solutions and relentlessly advocate for putting the customer first.    Help your management see what can be done with a purpose and a passion.

If no joins in, or perhaps worse, your boss tells you to stop wasting time on these fanciful notions, you’ve learned something valuable.  It’s probably time to find a job at a company that gets it.
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In the Absence of a Time Machine, Start Where You Are

I was reflecting on recent conversations I have had with former colleagues and potential consulting clients. Often the discussion turned to the past and a reciting of various decisions we wish we had made. If only this….and if only that…we lamented.

Yes, if we knew the recession was coming we should have been more proactive about cutting costs and integrating our marketing functions when it was first recommended. Of course, getting a jump on that new business opportunity two years earlier would have assured us a leadership position today. No doubt, if we had truly focused on understanding customers’ needs and wants better we would be ready to respond more quickly and in a more remarkable way.

Ah, if we only had a time machine.

One of my favorite writers and speakers is Pema Chodron, the American born Buddhist nun and spiritual adviser. One of her excellent books is entitled Start Where You Are, and at its core the book is a reminder to embrace, rather than deny, painful aspects of our lives and develop a fearlessness to move ahead.    It is also a manifesto to deal with the present reality, rather than waste time hoping to re-do our lives.

In my experience, there can be benefit to reflecting on past decisions (and non-decisions!) to see if we can learn how to avoid repeating the same mistakes.  But even more powerful is embracing the reality that–in the absence of a time machine–the past is the past and that all we really have is right now.

Is your organization ready to let go of the past?  Are you ready to start where you are?
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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.

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Why You Need a Customer Strategy. Stat!

My guess is that if I asked you to describe your organization’s business strategy you could readily tell me about your target customer, the products or services you offer, how you go to market and why what you do is just so darn compelling.

But what if I asked you about your customer strategy?  Could you clearly articulate which customer segments are most valuable to your company today and in the future?   Could you describe how your organization and processes are aligned to maximize the value of your most important customer relationships?  Could you show me specific initiatives and programs designed to acquire, engage, grow and retain customers in each segment?  And how about customer segment specific performance metrics like profitability,  share of wallet and net promoter score?

Having a compelling business strategy is necessary–but hardly sufficient–in today’s customer-centric world.  Face it, after the bounce off the bottom this year, most industries are faced with the prospect of slow growth–and unlike the past, it’s not going to be so easy to drive the top-line through price increases.  That means your revenue growth will have to come from market share gains.  And unless you are in the position to acquire lots of new customers, that means growing share of wallet with existing customers.

Chances are your competition has figured this out.  So now you are left to battle it out in the marketplace.  Are you going to resort to mass marketing and tired old price oriented tactics?  Or are you going to get serious abut customer-centricity and take your strategy–your customer strategy–to the next level?

I’d hurry if I were you.
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