Retail 101 (Part Four): Our identity in the market

In the last installment, I left off proposing a question: How does a retailer know who or what it is?

If the “Great Recession” has taught us anything, it’s that consumer behavior can be changed by countless market forces in play, including the simple availability of cash. If cash isn’t available, the consumer might revert to credit. The current recession tightened the noose on both, forcing many people and organizations toward tough decisions.

For many, it meant the end of an era (remember “Sharper Image” anyone?). For others, it meant changing or broadening their focus into areas with which they may not have been either familiar or ultimately successful. For nearly all, the first inclination was the easiest: Deep discounting. Not everyone, however, can play that game well, nor does everyone belong in that game.

Welcome to the renaissance of Wal-Mart, a retailer who should have been poised to leverage their experience as a discounter into an entirely new crop of consumers by providing an attractive alternative to higher-end retail. Conventional wisdom would have us thinking that in such an economically constrained environment that Wal-Mart should have been ideally poised to capitalize on welcoming those new customers. Conventional wisdom would have held only partly true, since not every retailer went so quietly into extinction.

While it’s natural to think of Wal-Mart — the world’s largest retailer — as the epitome of discount retail, it’s not the only option, and not every shopper affected by a downturn will automatically make the choice to simply step down to a lower-priced stair on the retail ladder. Here’s why:

Wal-Mart is adept at discount. They use size, market share, and market penetration to pressure prices lower. Once prices have hit a natural bottom and are forced beneath the floor, the only remaining variable to change is quality. For retailers such as Wal-Mart, Target, and the Swedish retailer Ikea, this means that sourcing now needs to be done globally at the cheapest possible rate, and potentially the lowest acceptable level of quality.
Not all customers are going to accept the trade-off of low-price/low-quality versus fair-price/right-quality. Other retailers have capitalized on this and have offered options that weren’t within Wal-Mart’s focus. So while Wal-Mart focused on reducing prices and marketing to a lower-common denominator, many consumers found that the selection available did not meet their needs and made other decisions.
Existing retailers discovered “White Label” or “House Brand” products, sold by retailers under their own label without the overhead of national marketing campaigns or the establishment of ‘brand recognition’. In many cases, the customers who purchase house-brand products — anything from men’s shirts to canned foods — found that the quality was comparable or equal to their brand-name counterparts at a lower-cost. Goodbye brand-loyalty, hello lower-prices.

The simple point is that not everyone can or should be in the same game, or try to compete for the same low-common-denominator of customers. Those who service that market well are probably several steps ahead of your thinking, meaning that it’s time for new tricks or offering something that the deep-discounter doesn’t or cannot.

Logically, no one would expect everyone can or should jump into the same fray because not all customers will respond the same way to an economic condition, nor will all make the same purchasing choices. Some will experiment with an unknown brand, for instance, hoping that either a lower-price or better guarantees will offset their initial fears. Others might simply adjust to purchasing in lower quantities or purchasing less often from the same retailers. Still others may make a much different adjustment.

As I mentioned above, reducing price beyond a floor-level causes sacrifices to be made in product sourcing or product quality. Oftentimes, both. Stories of children’s’ toys made in China from lead-based paints or infant formula with unknown and dangerous additives are the stuff of legend. Rather than make choices that could have a serious impact on health and safety, the consumer might decide simply to be ‘less of a consumer’ and make a flight to quality.

How does a retailer know who it is?

Simply put, it needs to understand the persona of its core customer base. Who are they? What do they buy? What is important to them? How can we better meet their needs? Those are the questions that differentiate one retailer from another.

It’s what makes a Saks Fifth Avenue or Neiman-Marcus different from Macy’s, Sears, JCPenney, Lord & Taylor and Dillards, and what makes both different from Wal-Mart, K-Mart, Target, Dollar General, and even Kohls or TJ Maxx/Marshalls. Organizations do one type of business model very well, and often struggle when adapting to any other. No one would expect that Neiman-Marcus would suddenly become an off-price discounter as much as they would expect Wal-Mart to suddenly appeal to the upscale customer. The key differentiators of quality, product and service are issues that separate the two by a vast divide.

Knowing what your customer will want, and knowing your market in both good times and bad times is what helps to cement that identity. So does service, and that is the premium for which the customer will still pay were all other aspects of the retail experience to remain equal. I recently related the story of a visit to Neiman-Marcus that resulted in the sales staff collaborating to close a nearly $500 sale by going that extra few steps on behalf of the customer. For the customer, they created a service experience that exceeded expectations and built loyalty — the customer who has the resources may buy more selectively, but will still consider quality.

The bottom-line? Identity is carefully crafted and cultivated with your customers, and it is built on a foundation of service and quality. Not all retailers can be Wal-Mart; nor can they be Saks or Neiman’s. Servicing your target market well will mean that they’ll remain loyal despite the economic hard times. And the customers who visit you for price-conscious reasons aren’t going to stick around when they recognize that quality and service are the missing pieces.

Next installment: The flight to quality.