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Author Archives: Guru Raj

The New Details of Retail: Data

October 3rd, 2011 | Posted by Guru Raj in Retail - (Comments Off)

Retail and consumer companies are rife with stories about highly fastidious founders.  A colleague recounted how he witnessed the head of a major chain of hotels getting on his hands and knees to personally check if the drip pans under the refrigerators were clean.  Similarly, Sam Walton was famous for flying a prop-plane from store to store, and along the way, touching down wherever he saw a promising empty lot for a new store.

Today, leaders need to look beyond physical sites, store managers, and DCs and apply that same discipline to other aspects of their business.  The foundation for good decision-making is data. (more…)

Wal-Mart Brings Back Layaway

September 13th, 2011 | Posted by Guru Raj in Retail - (Comments Off)

This week, Wal-Mart announced that it is reinstating layaway for electronics and toys.  The popularity of layaway has waxed and waned over time but seems to be back in vogue.  Wal-Mart’s reinstatement reverses a decision to eliminate layaway in 2006 (with the exception of jewelry). In addition, several other large retailers now offer or continue to offer layaway (Sears, Kmart, Best Buy).

Given the weak recovery so far, reimplementing layaway is a smart idea.  Implemented correctly, layaway offers all the attractiveness of credit cards (i.e. enabling a consumer to purchase something they can’t afford) without the associated regulatory or emotional baggage now associated with credit.  Moreover, many retailers are finding that they are “over-spaced.”  With parts of large retail stores under-utilized, there is little downside to devoting some of that space to layaway.

However, as retailers think about employing this “re-discovered” tactic, there are two key questions to get right.

 
 

 

  • How should layaway be financially structured?  Currently, layaway programs follow a similar fee structure: 10-20% down, $5 up-front fee, plus a $10 cancellation fee if the purchase is not completed.  While these fees are far less than the finance charges associated with carrying a credit card balance, they may not seem cheap to the consumers that layaway is targeting.  Since layaway is a explicit attempt to entice customers to buy something “extra,” there should more innovation and thought around the fee structure.  Should retailers offer to refund the fees if the layaway reaches a certain threshold, e.g. put at least $100 on layaway and we’ll waive the fee?  Should fees be waived if customers purchase certain bundled products that have higher margin?  These are all crucial elements for retailers to test, refine, and implement in the most effective way.

 

 

 
 

 

  • How should layaway be messaged?  There are multiple way to spin the idea of layaway:  convenience (We’ll hold on to this product so you don’t have to.), flexibility (Don’t know what you really want for christmas?  Don’t worry, put more items on layaway while they’re in stock, and you can figure it out later.), credit (for those patrons who don’t qualify for additional credit cards), frugality (Layaway is a form of forced saving.), etc.  In these economic times, some patrons may need to use layaway for the first time.  The right message could ease a new customer into trying this product.

 

 

In general, we expect to see a resurgence in products and services, like layaway, that help consumers extend their buying power.  Testing variations in-market can help retailers find a solution that really works.

Big Data — What Does it Mean for Retail Executives?

August 3rd, 2011 | Posted by Guru Raj in Retail - (Comments Off)

The clamor about “Big Data” continues to grow, and, at this point, it’s undeniable that we now live in an environment of “Big Data.”  In practice, this means that consumer-facing companies generate, track, and store more data than ever before.  Transaction log databases are common-place, whereas we may have previously focused only on aggregated metrics.  More impressively, consumer behavior (clicks, views, interactions, etc.) generates a stupendous amount of data.

But what does this mean for retail executives?  Does it change roles and responsibilities?  Does it change the approach used to tackle questions about cap-ex, marketing, merchandising, etc.?

We’d love to hear your thoughts.  Write back or add your comments here.

Commodity Price Increases — Playing This “Forced” Hand

August 3rd, 2011 | Posted by Guru Raj in Retail - (Comments Off)

Wide-spread commodity price increases are being reported with greater frequency.  Companies are now not just increasing prices, but doing so in a very public way (e.g. Clorox, Dunkin Donuts) in order to allay investor fears that their profits will be wiped by the squeeze between  commodity prices and consumer prices (e.g. Newell)

If we were economists, we could debate the root cause (e.g. monetary expansion) of this problem, but we have more practical and urgent problems to solve.  Let us also ignore the investment related tools (e.g. “buy forward”) for dealing with commodity prices for the moment and agree that ultimately, increases in commodity prices will force changes in consumer prices.

So, the question du jour is … What’s the optimal way to pass commodity prices onto consumers?  Are there tactics that will be more effective than others?

At first, it seems as though there are only a few ways that increased commodity prices can be passed through:

  • Price increases of goods being sold
  • Decreases in package size or unit count
  • Decreased trade-spend and promotional support
  • Changes to formula or materials

But thinking a little deeper,  it’s clear that there are actually a multitude of possible tactics:

  • Price increases of goods being sold
    • Increased differential pricing by product characteristics
    • Increased differential pricing by store or market characteristics
  • Decreases in package size or unit count
    • Increasing discounts for larger packaged goods, while simultaneously increasing the price of smaller packages
    • Increases in the price, units, and discount offered through bundles (encouraging customers to trade up)
  • Decreased trade-spend and promotional support
    • Re-deployment of marketing spend to most effective levers or those with clear ROI indications
  • Changes to formula or materials
    • Changes to packaing or presentation

In our work with leading retailers, we’ve come to appreciate that successful pricing actions have a few common characteristics

  1. Try something early: In general, the fears about raising prices are unfounded.  We’re not suggesting that you should lead your sector in price increases, but prudent retailers will test the waters early in order to accurately measure how consumers will really react.  Typically, you don’t have to publicize it, and you don’t need many stores or markets.  This information is critically important and more than a few times, early tests revealed that items were underpriced and increases could be passed on without detrimental effect.
  2. Iterative and staged application:  Rising commodity prices are nothing new and are never so urgent that they have to be dealt with immediately.  Smart retailers stage the way that their pricing initiatives roll out (some stores get it first and some stores are held out of the initial change) so that each increase can be accurately measured against doing nothing.  In this way, retailers rapidly build up a repository of which tactics are effective, with which products, in which parts of the year, etc.  This is a more complex than “raise prices everywhere by 3% all at once” and is the true silver bullet that allows the best retailers to navigate the murky, and hugely important, pricing decisions.
  3. A differentiated approach: We’ve often observed that no initiative is uniformly successful or unsuccessful.  This is particularly true for pricing related decisions.  Goods vary greatly in perception, need, interchangeability, etc.  Similar variance exists at the store and market level.  In the retail business, there’s a strong argument for KISS, but uniform pricing decisions are almost always sub-optimal.

As you may have guessed, our advice for pricing is nuanced, but, with a bit of planning, is not much  more complex than what most retailers are already planning.  You can read whitepapers about how to put these ideas into action on our website.

Location-based marketing is “here.” From Chili’s to Target, leading restaurants and retailers are showing an enthusiasm for piloting offerings from a range of hot New York and Silicon Valley start-ups including Foursquare, Shopkick, and Gowalla.

While each location-based service (LBS) is unique, they are all oriented around a core principal: offers and coupons are most effective when restaurants and brands can target consumers at a specific time and place.

For example: General Mills would have the opportunity to target a 2 for 1 coupon for its Nature Valley granola bars to the iPhone of a consumer standing in the middle of the snack aisle. A $0.50 off a fountain drink deal could be broadcast to the smart phone of anyone walking within a block of a 7-Eleven.

Redemption statistics, along with location data tracked by smart phone applications, could then be used to arrive at the holy grail of marketing: targeting the right offer to the right consumer at the right time to most effectively drive purchases.

Many of Silicon Valley’s most vaunted venture capital firms have invested tens of millions of dollars in LBS companies at astronomical valuations, believing that these services will displace more traditional couponing channels including newspaper inserts and shared mail.

LBS start-ups have been using this cash to incentivize consumers to download iPhone and Android apps enabling their tracking and couponing technology.

Foursquare recently offered consumers discounted beverages based on the number of times they used Foursquare’s app to “check-in” at Starbucks locations.  Similarly, Shopkick offers loyalty points to shoppers for simply walking into a Macy’s or Best Buy location and additional points for scanning products they like – these points can then be redeemed for gift cards.

Such promotions have been popular with consumers who are downloading LBS apps in record numbers.  Foursquare is leading the charge, registering almost 7 million users and logging roughly 25k new users per day, with Gowalla following behind. In an impressive flexing of its muscle, Foursquare recently logged two-hundred thousand check-ins to a promotional campaign run during the Superbowl. The lure of free loot is so tempting that hackers are findings ways to trick GPS and other tracking systems to rack up ill-gained gift cards.

And competition from bigger and more established players is coming. Facebook recently released its integrated location offering “Places,” which even in its nascency is almost as popular as Microsoft’s Bing search engine among merchants looking to promote their businesses. Google recently announced a full roll-out of check-in functionality associated with its Latitude service.

Similarly, Groupon and LivingSocial are also looking to expand their offerings into the location-based space – allowing restaurateurs greater refinement in targeting offers to users at a specific time. Instead of selling 50%-off deals redeemable at any time, merchants could intelligently target deep discounts redeemable only during a certain time window to customers who were nearby. The opportunity is sizable: instead of selling thousands of 50% off Groupons valid at any time, a restaurant manager could target steep discounts redeemable in a specified near term window, during a rainy day when lunch sales were dragging, for instance.

We expect to see significantly greater focus from group buying sites on more sophisticated offers as consumers tire into a state of deal daze and merchants play competing sites off of each other to reduce deal costs.

Supporters and detractors aside, the market for location-based services is far from mature. Through the rapid iterations the industry will face, the core questions location based services pose for retailers remains remarkably consistent with more those posed by more traditional coupons: namely, are consumers redeeming coupons actually incremental or are they existing customers who are cutting into retailer margins? Only time, and rigorous testing, will tell.

Retail Trends: The Top 11 in 2011

February 5th, 2011 | Posted by Guru Raj in Retail - (2 Comments)

With the storms of 2010 (both financial and meteorological) receding, it’s time to fully turn our attention to 2011.

In many ways, we expect the trends in 2011 to be continuation of changes that are already sweeping through retail.  We don’t expect any out-of-the-blue bombshells, but the easiest way to lose in retail is to not keep up.

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1.  “Gateway” Coupons

The coupon and promotion driven retail environment is reaching some sort of end-game, or at least a nadir.  After all, triple coupons, bounce back coupons, stackable promotions (clearance price + 25% additional discount + 10% coupon + 5% for using the store credit card) and similarly aggressive promotions are so pervasive that they are now the subject of reality TV shows.

In this race to the bottom, the only tactic left is free, as in “Get $10 off a $10 purchase.”  This type of “Gateway” coupon is a straight-up challenge to the consumer (“I dare you to come and cherry-pick $10 worth of merchandise!”).  Surprisingly, there is evidence that this type of offer can actually work very well when used judiciously and infrequently.

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2.  Online Convergence

Online and offline shopping convergence has been predicted since the early 2000s and is finally becoming a reality.   The following scenario is now possible:

  1. See or hear ad on TV/radio, reminding you that you need something from a particular store
  2. Search through email in-box or online forums for the latest deal or coupon
  3. Visit store to check-out the merchandise
  4. Buy item at home because the store didn’t have the color, size, or specific item you needed
  5. Have item shipped to store to save on shipping
  6. Visit store, pick-up another item while you’re there

Retailers need to carefully think through the entire shopping experience or risk confusing (with different prices or poorly integrated services) and alienating customers (through poor service somewhere in this chain of events).  The idea that different channels need to be managed independently is defunct.

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3.   “In-store” Technology

We’re not talking about an upgraded POS system or an improved IMS.   A big shift in 2011 and beyond is the saturation of smart phones and the resultant change in shopping behavior.  We expect a surge in offerings that allow retailers to target consumers with location based ads and offers.  There is already growing use of 2D barcodes (e.g. QR Code) that link in-store merchandise to online information.  However, adoption of this (or similar technologies that require the customer to take additional action) has been slow.

Instead of asking the consumer to respond to the store, what if the store responded to the customer instead?  For example, suppose that you notice a customer walking towards the exit after having lingered in the electronics aisle for 30 min?  Would it be useful to target the customer with an offer on his way out?  Would a 10% off coupon or an extra year of warranty help “seal the deal”?

As always, this technology cuts both ways.  Consumers will become increasingly competitive and disloyal as their smart phones allow them to inspect in-store and then buy from the cheapest place online.  Brick-and-mortar retailers will never be able to match Amazon’s basket of prices. So, how will traditional retailers fight back?  We haven’t yet seen a cogent answer to this question.

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The Non-Paradox of Choice

January 18th, 2011 | Posted by Guru Raj in General Insights - (1 Comments)

Washington D.C. – Note: In this month’s guest entry, APT’s founder and current chairman, Jim Manzi, revisits the famous jam experiment and the (non) paradox of choice.

The jam experiment

Over the past decade, some academics have claimed to show scientifically that humans tend to become paralyzed by too many choices. This is often called the “paradox of choice. Probably the best-known piece of evidence is the “jam experiment,” in which shoppers bought more jam when presented with fewer flavors than when confronted with many flavors.

But what if one of the crucial experiments at the foundation of this mountain of inference showed no such thing?

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Google Ngram Viewer

December 17th, 2010 | Posted by Guru Raj in General Insights - (Comments Off)

Google released a new feature, Ngram Viewer, that allows one to search for keywords in books across time.

On a whim, I searched for our favorite topics: the connection between testing and prediction, as well as the interplay between correlation and causation.

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What’s Causing Sales to Go Up … or Down?

December 16th, 2010 | Posted by Guru Raj in General Insights - (Comments Off)

A frequent question every retail manager asks is “what’s causing sales to go up … or down?”  We’re not pointing any fingers, but, when sales go up, the answer we hear is that “the increase is caused by the latest media / promotion / merchandise change / operational initiative / etc,” and when sales go down, we hear “the decline is due to unfavorable weather / macro-economics / competitive actions / etc.”  The fallacy is obvious — if we blame poor weather conditions for poor sales, shouldn’t we also credit good weather conditions for some of the good sales?

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A Cult Following: The Most Coveted Accessory in Retail

November 3rd, 2010 | Posted by Guru Raj in Retail - (Comments Off)

Lululemon Athletica, purveyor of $100 yoga pants and $60 tank tops, is a great example of how successfully engaging your customers can drive bottom line results.  Retail locations hold regular yoga lessons before store hours and reward diligent yogis with 15% off coupons.  They also enlist the help of local yoga instructors, who are given free apparel with the understanding that they wear it during their yoga classes.  The 400 women who attended Lululemon’s Barefoot in the Park event at Bryant Park in Manhattan certainly appear invested (both physically and financially) in the brand.  Is this grassroots branding campaign driving in store sales?  Stocks are up 80% in the last 12 months.

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