Free prosciutto on a toothpick at the deli, free gift with purchase at the cosmetics counter, free trial magazine subscription...examples of free abound. As consumers, FREE is so enticing to us because we want to avoid risk. Humans assess the price of an item by assessing its benefits and subtracting its costs. Free is so appealing, according to behavioral economist Dan Ariely, because the absence of cost seems to add to the benefits.
My favorite free gift right now is entertainment-- story time at a beloved local bookstore in St. Paul, MN called the Red Balloon. Story time is a weekly event hosted at the bookstore. Tuesday is baby story time, Wednesday is preschool story time, and Thursday is for toddlers. The gifted storytellers combines music, puppets, and rhymes with reading books.
Sure, lots of bookstores and libraries have story time. Most are occasional. For moms like me who are planners, their sporadic nature makes them less appealing. Plus, I see kids, mine included, come to anticipate the different portions of the story time, and look forward to their favorites segments.
This weekly event fills a need for SAHMs. Its regularity enables parents to integrate it into a routine, a challenge with bi-weekly or monthly story times. Typical baby behavior is accepted. Kids are encouraged to grab books and explore them. Internationally, Starbucks has successfully created a third place, the place beyond home and work where consumers can go to relax. Within St. Paul. The Red Balloon's story time has transformed it into a third place for parents and the under-four set.
Of the forty or so parents who attend, I would guess that eight or ten make a purchase right after story time. I rarely do. However, whenever I need a birthday or holiday gift, Red Balloon ins my first stop. Sure, I can save a few bucks if I order the books online, but the Red Balloon has given me so much joy with its story times.
Red Balloon has one location and a website. This sort of retailtainment is a challenge to scale because it requires an investment in space and talent. Examples include wine tasting at wine shops. What other retailers create a link with their target shoppers by offering entertainment?
Friday, April 6, 2012
Thursday, March 1, 2012
The future of shopping
Darrel Rigby's provoking article "The Future of Shopping" (in the December 2011 issue of the HBR) posits that retail is about to undergo a technology-driven transformation. Rigby calls retail "an industry stuck in analog." The current state for traditional retailers is a bricks and mortar and a competing e-commerce operation. Rarely do the two operate synergisticly. and often the two operations overtly compete. In the not-too-distant future, the retailers who successfully meld B&M, on-line, and other retail technology will dominate.
The article inspired me to consider retailers I frequent that have consistency in pricing and promotions on-line and in-stores. Retailers that focus on big-ticket, less impulsive, less promotional items items (Room & Board furniture, Tiffany) offer consistent pricing in-store and on-line. I can think of instances in which J. Crew, Banana Republic, Gap, LL Bean, Barnes & Noble, Target, Williams Sonoma had different on-line and in-store promotions. At one end of the spectrum, Williams Sonoma occasionally offers discounts on-line that aren't available in stores. At the other end, Barnes & Noble has a completely separate pricing model for the exact same merchandise to compete with Amazon on-line.
Price transparency has improved exponentially with smart phones. Retailers complain about showrooming, customers examining a product in a B&M store before buying it more cheaply on-line. Have you used smart-phone technology to negotiate a better price from a B&M merchant? What retailers do you think are positioned to compete?
The article inspired me to consider retailers I frequent that have consistency in pricing and promotions on-line and in-stores. Retailers that focus on big-ticket, less impulsive, less promotional items items (Room & Board furniture, Tiffany) offer consistent pricing in-store and on-line. I can think of instances in which J. Crew, Banana Republic, Gap, LL Bean, Barnes & Noble, Target, Williams Sonoma had different on-line and in-store promotions. At one end of the spectrum, Williams Sonoma occasionally offers discounts on-line that aren't available in stores. At the other end, Barnes & Noble has a completely separate pricing model for the exact same merchandise to compete with Amazon on-line.
Price transparency has improved exponentially with smart phones. Retailers complain about showrooming, customers examining a product in a B&M store before buying it more cheaply on-line. Have you used smart-phone technology to negotiate a better price from a B&M merchant? What retailers do you think are positioned to compete?
Wednesday, February 22, 2012
Land's End--a bright spot at Sears
Sears stock is up about 66% this year, making it a top performer in the S&P 500. The retailing behemoth will announce its quarterly earnings this week. My recent Sears experiences suggests that Sears will have a hard time attracting new customers. Perhaps it can hold on to existing customers, but the shopping experience will have to evolve to attract new customers in the competitive middle market.
A few weeks ago I had a return from the Land's End catalog, so I popped into Sears. I don't shop much in department stores. I spent the summer between high school and college behind a makeup counter in a now-defunct department store. I find the lack of natural light dispiriting and the layout confusing. In sum, I recognize that I am not the core Sears customer.
When I walked into Sears through a side entrance with my 18-month old, she stopped, pointed, and yelled "wow!" She was taken by a display of a headless mannequin sitting on a riding mower. I wonder if there is much demand for mowers during the Minnesota winter. The rest of the first floor also felt strange--an immense display of plastic storage bins, what struck me as a make-shift coffee shop, tools, more mowers, and washing machines.
We navigated our way to the escalator, which deposited us on the second floor. The jewelry and cosmetics section were tightly packed onto the same floor pad, leaving little room for browsing. The cosmetics section featured displays like a drug store or mass merchandiser. The impression I had was of clutter, and I wondered why consumers choose to shop at Sears.
Then we came to our destination--the Land's End Shop. The space opened up. The department was easy to navigate, as the merchandise was logically grouped. Even the signage featured the updated preppy look that is Land's End signature. When I stood in the Land's End department, I got the story Sears was trying to tell me. It seemed genuine and consistent with the Sears brand. Sure, if you don't like the navy-and-white sailor look, the brand isn't for you. But the merchandising, presentation, and signage all created a pleasant shopping experience.
Land's End is a bright corner in a dreary box. Sears highlighted Land's End's strength during the 2011 holiday despite dismal overall sales. The Land's End brand demonstrates that Sears has the ability to execute well. How can it leverage this in other departments in the store?
I suspect Sears stock will have a rough week this week, and I can't imagine that one brand will be enough to spark a turn-around in this once-great retailer's decline.
A few weeks ago I had a return from the Land's End catalog, so I popped into Sears. I don't shop much in department stores. I spent the summer between high school and college behind a makeup counter in a now-defunct department store. I find the lack of natural light dispiriting and the layout confusing. In sum, I recognize that I am not the core Sears customer.
When I walked into Sears through a side entrance with my 18-month old, she stopped, pointed, and yelled "wow!" She was taken by a display of a headless mannequin sitting on a riding mower. I wonder if there is much demand for mowers during the Minnesota winter. The rest of the first floor also felt strange--an immense display of plastic storage bins, what struck me as a make-shift coffee shop, tools, more mowers, and washing machines.
We navigated our way to the escalator, which deposited us on the second floor. The jewelry and cosmetics section were tightly packed onto the same floor pad, leaving little room for browsing. The cosmetics section featured displays like a drug store or mass merchandiser. The impression I had was of clutter, and I wondered why consumers choose to shop at Sears.
Then we came to our destination--the Land's End Shop. The space opened up. The department was easy to navigate, as the merchandise was logically grouped. Even the signage featured the updated preppy look that is Land's End signature. When I stood in the Land's End department, I got the story Sears was trying to tell me. It seemed genuine and consistent with the Sears brand. Sure, if you don't like the navy-and-white sailor look, the brand isn't for you. But the merchandising, presentation, and signage all created a pleasant shopping experience.
Land's End is a bright corner in a dreary box. Sears highlighted Land's End's strength during the 2011 holiday despite dismal overall sales. The Land's End brand demonstrates that Sears has the ability to execute well. How can it leverage this in other departments in the store?
I suspect Sears stock will have a rough week this week, and I can't imagine that one brand will be enough to spark a turn-around in this once-great retailer's decline.
Friday, February 17, 2012
I cannot resist the siren song of FREE! Great Harvest Bread Company often lures me in when I'm passing by one of its locations. I like their bread and I like to support neighborhood business. But I love getting my free hunk of bread and slathering it with butter.
In my mental calorie calculus, a free slice of bread doesn't count as a meal or a snack. From a mental accounting point of view, a free gift like a slice of bread throws me for a loop. I don't know how to evaluate the value of a slice of bread (it is probably a whopping $.15). It enables me to justify the visit. After the bakery has lured me in the door with the gift of FREE bread, of course I'll buy a loaf of multi grain.
I see this behavior when grocery shopping too. I am a huge fan of Cooks Illustrated magazine. I love it because the results rarely disappoint. The recipes call for very specific ingredients and tend to be long and involved. I can shop at the supercenter, which is less expensive but inevitably requires a second stop a a specialty grocery store for Parmesan rind or leeks or some other distinctive ingredient. Sometimes I just eliminate the trip to the supercenter and go to the more upscale grocer. I justify the more expensive prices with the knowledge that I will get a few nice snacks from the free samples on offer.
In his book "Influence: The Psychology of Persuasion," Robert Cialdini illustrates that giving a gift changes the dynamics of the relationship. Even for a hunk of warm bread or a fancy cracker topped with aged Parmesan can impact how readily and how wide we open our wallets. The recipient of the gift feels that she owes the retailer something in exchange. So if you are trying to sell something, sample or gift potential clients. If you are offered a gift, think about how it might influence your behavior before accepting.
I'll illustrate this concept with more examples in future posts.
In my mental calorie calculus, a free slice of bread doesn't count as a meal or a snack. From a mental accounting point of view, a free gift like a slice of bread throws me for a loop. I don't know how to evaluate the value of a slice of bread (it is probably a whopping $.15). It enables me to justify the visit. After the bakery has lured me in the door with the gift of FREE bread, of course I'll buy a loaf of multi grain.
I see this behavior when grocery shopping too. I am a huge fan of Cooks Illustrated magazine. I love it because the results rarely disappoint. The recipes call for very specific ingredients and tend to be long and involved. I can shop at the supercenter, which is less expensive but inevitably requires a second stop a a specialty grocery store for Parmesan rind or leeks or some other distinctive ingredient. Sometimes I just eliminate the trip to the supercenter and go to the more upscale grocer. I justify the more expensive prices with the knowledge that I will get a few nice snacks from the free samples on offer.
In his book "Influence: The Psychology of Persuasion," Robert Cialdini illustrates that giving a gift changes the dynamics of the relationship. Even for a hunk of warm bread or a fancy cracker topped with aged Parmesan can impact how readily and how wide we open our wallets. The recipient of the gift feels that she owes the retailer something in exchange. So if you are trying to sell something, sample or gift potential clients. If you are offered a gift, think about how it might influence your behavior before accepting.
I'll illustrate this concept with more examples in future posts.
Friday, February 10, 2012
Skipping the Groupon Middleman
In the build-up to the highly anticipated Groupon IPO, the Groupon business model has been examined ad nauseum. Barriers to entry in the daily-deal game are low, consumers are suffering from daily-deal fatigue, and so on. I wanted to highlight another potential threat that showed up in my inbox last week: businesses that find the daily deal model effective can take a DIY approach. Picaboo offered a limited-time, deep-discount vouchers directly to consumers.
Picaboo is an on-line printer of photo books, photo cards, and the like. During the past two years, Picaboo has offered multiple Groupons. I've purchased many of these, as the quality of Picaboo product is outstanding.
Groupons are expensive propositions for businesses--typically Groupon receives between 40% and 50% of what consumers pay for the voucher. If a business offers a $100 Groupon voucher for a cost of $50 to the consumer, the business will receive $30 to $25 in revenue...ouch!
As the daily-game evolves, businesses will find creative and profitable approaches to compete for customers. What novel approaches do you see?
Picaboo is an on-line printer of photo books, photo cards, and the like. During the past two years, Picaboo has offered multiple Groupons. I've purchased many of these, as the quality of Picaboo product is outstanding.
Last week I received an email offer for a $100 credit to Picaboo for $30. The offer, available for one day only, was directly through Picaboo. If Picaboo has a lot of repeat customers using Groupons, it is brilliant to tap into their existing customer base. Creating the offer themselves makes offer much more lucrative for the website.
Groupons are expensive propositions for businesses--typically Groupon receives between 40% and 50% of what consumers pay for the voucher. If a business offers a $100 Groupon voucher for a cost of $50 to the consumer, the business will receive $30 to $25 in revenue...ouch!
As the daily-game evolves, businesses will find creative and profitable approaches to compete for customers. What novel approaches do you see?
Monday, February 6, 2012
big box pharmacy blues
I had a minor outpatient procedure this week, and afterwards I needed two prescriptions filled. The doctor's office called the prescriptions in, and I arrived at the pharmacy about two hours later expecting to dash in and out. I felt pretty crappy, so when I was told that yes, the prescriptions had been called in but they hadn't been filled yet, I was annoyed.
Apparently the doctor's office was supposed to tell the pharmacy when I was going to be in to pick up the prescriptions. Hmmm...did the pharmacy ask the doctor's office when I would be in to pick it up? Did the pharmacy call me to clarify? More questions--of the seven or so employees behind the counter, why was only one person at the pharmacy counter helping customers despite a line 6 people long? Is it right that one customer skipped the line entirely by going to the drop-off desk rather than wait behind us poor fools in line for the pick-up?
So after a considerable wait in line, I had to kill another ten minutes or so for my prescriptions to be filled. These are the the same prescriptions that had been called in hours earlier. Ten minutes can seem like a long time when you are nauseous and have just traipsed across a parking lot and through a store, and already cooled your heels in line.
The ideal customer, in the retailer's eyes, would spend that time shopping around making high-margin impulse purchases. Instead, I sat on a hard bench uncomfortably close to an un-sound-proofed bathroom and flipped through a magazine I grabbed from the display by the register (with no intention to buy). It was clear that I was not welcomed to wait by the pharmacy and little provision for comfort had been made.
The mix-up I encountered is consistent with other interactions at that same pharmacy. The cost of prescriptions from a pharmacy is hard to compare if the drugs are covered by insurance--not impossible, but it does demand considerable legwork. So I don't know if it is cheaper for me to use the big-box retailer, and I'm pretty frustrated with the one I've been using.
The next time I need a prescription I'll try a local pharmacy. I'm not seeing the ability to sell cheap t-shirts and diapers translate effectively into a more service-oriented business like the pharmacy. What's your experience with the pharmacy at big-box retailers? Is my experience consistent with yours or not?
Apparently the doctor's office was supposed to tell the pharmacy when I was going to be in to pick up the prescriptions. Hmmm...did the pharmacy ask the doctor's office when I would be in to pick it up? Did the pharmacy call me to clarify? More questions--of the seven or so employees behind the counter, why was only one person at the pharmacy counter helping customers despite a line 6 people long? Is it right that one customer skipped the line entirely by going to the drop-off desk rather than wait behind us poor fools in line for the pick-up?
So after a considerable wait in line, I had to kill another ten minutes or so for my prescriptions to be filled. These are the the same prescriptions that had been called in hours earlier. Ten minutes can seem like a long time when you are nauseous and have just traipsed across a parking lot and through a store, and already cooled your heels in line.
The ideal customer, in the retailer's eyes, would spend that time shopping around making high-margin impulse purchases. Instead, I sat on a hard bench uncomfortably close to an un-sound-proofed bathroom and flipped through a magazine I grabbed from the display by the register (with no intention to buy). It was clear that I was not welcomed to wait by the pharmacy and little provision for comfort had been made.
The mix-up I encountered is consistent with other interactions at that same pharmacy. The cost of prescriptions from a pharmacy is hard to compare if the drugs are covered by insurance--not impossible, but it does demand considerable legwork. So I don't know if it is cheaper for me to use the big-box retailer, and I'm pretty frustrated with the one I've been using.
The next time I need a prescription I'll try a local pharmacy. I'm not seeing the ability to sell cheap t-shirts and diapers translate effectively into a more service-oriented business like the pharmacy. What's your experience with the pharmacy at big-box retailers? Is my experience consistent with yours or not?
Saturday, January 28, 2012
Big changes in store for J.C Penney shoppers
The retail news of the week is the reinvention of J.C. Penney. The retailer's new CEO announced it will revamp its pricing and promotional strategy next month. At the same time it will transform the shopping experience by rolling out the concept of store-within-a-store. We'll see the first of these in Fall 2012 and the roll out will be complete in 2015. I'm going to focus on the pricing and promotional strategy in this post.
The mid-price chain of some 110 stores has struggled, turning in the worst performance among department stores over the last five years according to the New York Times. As Paco Underhill notes, department store shoppers are aging and younger ones are not replacing them. Mid-price department stores are in an especially touch spot, saddled with aging mall locations, stiff competition from the high end and low end, and little to differentiate them. The intense competition yielded the couponing and discounting wars that the new JCP ads spoof.
JCP is stepping away from the couponing madness to offer consumers a great price everyday. Coupons and price promotions were were the lifeblood of JCP. The retailer reports that it ran 590 sales last year, and that more than 70% of its revenue was discounted at 50% or more. Next month JCP will go cold turkey, significantly curtailing the number of promotions it offers. JCP will cut the everyday retails by about 40% on most items.
This sounds great--shoppers will know they are getting a good value and JCP will save a boatload on labor, since no one has to put up those signs and re-tag discounted merchandise. Advertising costs are also expected to decline, as the retailer will not need to to promote the incessant sales.
Overall, though, I think JCP is onto something here. JCP wins if it can get its existing shoppers--those who know, love and trust JCP-- to buy more on each trip to JCP or to come to JCP just one more time a year. Those shoppers are critical to the success or failure of JCP, and how they change their behavior will determine the future of the chain.
However, I have some concerns about the everyday-low-price strategy. In an era when consumers are laser focused on bargains, how will they know what a good value is? Consumers are notoriously bad at being able to assess the value of an item without context clues (see my post on anchor pricing). Will the lower tag price give consumers the impression that the quality of the goods are lower? Will consumers prefer to get a pretty good deal on a lot of items at JCP? Or do they love the hunt and want an outstanding deal with a coupon on one item at Macy's or Kohl's?
Wall Street is enthusiastic about the changes--the stock price went up over $6 last week, when the broader market didn't fare nearly as well. I'm not ready to buy JCP stock yet though! It will be fascinating to see if the JCP consumer is as receptive to the changes. What do you think?
The mid-price chain of some 110 stores has struggled, turning in the worst performance among department stores over the last five years according to the New York Times. As Paco Underhill notes, department store shoppers are aging and younger ones are not replacing them. Mid-price department stores are in an especially touch spot, saddled with aging mall locations, stiff competition from the high end and low end, and little to differentiate them. The intense competition yielded the couponing and discounting wars that the new JCP ads spoof.
JCP is stepping away from the couponing madness to offer consumers a great price everyday. Coupons and price promotions were were the lifeblood of JCP. The retailer reports that it ran 590 sales last year, and that more than 70% of its revenue was discounted at 50% or more. Next month JCP will go cold turkey, significantly curtailing the number of promotions it offers. JCP will cut the everyday retails by about 40% on most items.
This sounds great--shoppers will know they are getting a good value and JCP will save a boatload on labor, since no one has to put up those signs and re-tag discounted merchandise. Advertising costs are also expected to decline, as the retailer will not need to to promote the incessant sales.
Overall, though, I think JCP is onto something here. JCP wins if it can get its existing shoppers--those who know, love and trust JCP-- to buy more on each trip to JCP or to come to JCP just one more time a year. Those shoppers are critical to the success or failure of JCP, and how they change their behavior will determine the future of the chain.
However, I have some concerns about the everyday-low-price strategy. In an era when consumers are laser focused on bargains, how will they know what a good value is? Consumers are notoriously bad at being able to assess the value of an item without context clues (see my post on anchor pricing). Will the lower tag price give consumers the impression that the quality of the goods are lower? Will consumers prefer to get a pretty good deal on a lot of items at JCP? Or do they love the hunt and want an outstanding deal with a coupon on one item at Macy's or Kohl's?
Wall Street is enthusiastic about the changes--the stock price went up over $6 last week, when the broader market didn't fare nearly as well. I'm not ready to buy JCP stock yet though! It will be fascinating to see if the JCP consumer is as receptive to the changes. What do you think?
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