Everything That’s Wrong With Retail Summed Up In One Question

During my presentation at the Retail Customer Experience Executive Summit a question was asked that sums up everything that’s wrong with retail today.  Care to guess what that question was?

The question was “What about the bargain hunter?”

Background

An audience member had just made the comment that having ‘sales’ and offering discounts penalized customers who paid full price when another audience member brought up Macy’s and JCPenney’s failed attempts at everyday pricing.

I asked him which of the two customer groups were more profitable, the customers paying full price or those waiting for ‘sales.’  He grudgingly acknowledged that the former were more profitable.  That’s when he asked “what about the bargain hunter” – the people who enjoy finding deals?

This question sums up everything that’s wrong in retail today.  We’re willing to ignore the needs and interests of our most profitable customers to cater to people who don’t really value what we have to offer and won’t buy unless we offer them a discount.  Let’s see what kinds of behaviors this mindset produces.

Implications

Instead of focusing our marketing on finding new ways to serve our most profitable customers and attracting more customers like them, we spend obscene amounts of money trying to attract people who won’t buy unless we offer them a significant discount.

As we continue to employ this marketing ‘strategy’ we train our most profitable customers to wait for deals.  We train them to become bargain hunters.

Then when we’re reviewing our financials, we bemoan the fact that our customers only care about price.  How could we possibly expected a different outcome?  And we have no one to blame but ourselves.

Oh, by the way, aren’t these bargain hunters the same customers who:

  • Are most likely to return merchandise?
  • Absorb your employees’ time getting the information they need, then going on line to a competitor and buying from them?
  • Cost you more to acquire and are less likely to remain loyal?
  • Complain to anyone who’ll listen about what a lousy experience they had at your store?

Oh yeah, those are the people I want as customers.

Digging out

The obvious question, assuming that you agree that pursuing bargain hunters is folly, is “How do we get out of this mess?”

The simple answer is to shift your focus to your most profitable customers and allow the bargain hunters to hunt in someone else’s field.  Yes, that means that you’re likely to see a significant drop in sales.  If you raise your prices 3% to 5% at the same time, you’ll offset some of the revenue loss, improve your company’s profitability and solidify the perception of value in the minds of your most profitable customers.

Next, ask your customers what would make the experience even more enjoyable for them?  They may not have an idea immediately so make it easy for them to contact you with ideas whenever they surface.  If you’re not dealing with the end user, spend time with your customer to discover how their customers’ needs are changing.  That way you’ll position them and yourselves to be on the leading edge of innovation – a very profitable place to be.

Finally, raise prices regularly in smaller increments.  Panera repeatedly raised prices during the recession and experienced revenue growth in excess of the price increases.  Kraft Foods has had similar results with sales growth at times being 50% more than the price increase.  All of Apple’s new offerings during the recession carried the same premiums they did previously and at one point Apple’s cash reserves exceeded those of the U.S. Treasury.

For the skeptics

For those of you whose thoughts continue to drift back to the JCPenney/Macy’s everyday pricing failures, hopefully I can put your concerns to rest.

JCPenney, in my opinion, has made several mistakes that prevented their everyday pricing from working.  First, they don’t have a clear picture of who their ideal customer is.  Their attempts at being ‘hip’ and adding ‘wi-fi’ to eliminate checkout lanes don’t jibe with traditional JCPenney customers’ interests.

Historically JCP customers have been middle-class wage earners who enjoy having a dependable brand.  One that is consistent in quality and keeps them in line with current fashion trends.  They don’t buy brands like Tommy Hilfiger or Polo to enhance their image.  Indeed, they may think that behavior ostentatious.

JCP’s traditional customers prefer not to be on the leading edge of anything including technology which makes the wi-fi ‘check out’ of questionable value to them.

Second, the real benefit of JCP’s everyday pricing was convenience – being able to get what you want when you want it without wondering what the price was going to be an hour from now.  They didn’t tout that in their marketing.  Instead, they talked about a square deal which has no meaning to customers – who among us buys something that doesn’t feel like a square deal.

Finally, JCP put the cart before the horse.  You’ve got to be clear about who your ideal customer is, what it is they value and how much they value it before you change your pricing.  These other factors provide customers with a context for evaluating changes in pricing.  By changing the pricing without changing the context JCP simply confused its customers.

I’m not as familiar with Macy’s attempt at everyday pricing, but I suspect its failure was similar to JCPenney’s in this regard, they didn’t change the customer experience (product mix, service levels, ambiance) in ways that would allow customers to see a reason for the change in pricing.

Human nature being what it is, when only one aspect of an offer changes we wonder “Why?”  If multiple aspects of an offer changes, we expect a change in pricing and evaluate the new offering in light of our needs/interests.

The only question remaining is “Given the awareness of the problem, what are you going to do with it?”  I’ve given you a clear picture of what happens when you cater to bargain hunters.  I’ve also offered tips for reversing the trend.  The rest is up to you.

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