Pohmer On…Two Out of Five Ain’t Bad
For those of you old enough to remember the providential words of the great, worldly philosopher Meat Loaf, “Two out of three ain’t bad.” Surely he wasn’t referring to retail consumers when he wrote that song. But what does Meat Loaf have in common with your business, you might ask? Just be patient, and we’ll get back to him before long. For now, let’s think about some of the things we’ve covered in the past few months.
We’ve discussed the need for you to identify your company’s core competencies and how to develop an image that supports those competencies. We have talked about maintaining focus on your strengths in advertising and promotion, and we have looked at how to differentiate your business model and message for the consumers’ dollars and loyalties from that of your key competitors. A new study just published by AlixPartners tells the same story with a few new twists I think you might find interesting, thought provoking and challenging.
Consumer Priorities
The 2006 AlixPartners Consumer Sentiment Index polled 6,000 consumers, asking questions to determine what mattered most to them when making their purchase decisions, i.e., price, product, services, access or overall shopping experience. This survey was demographically and geographically balanced and drilled down to measure the responses by retail channel and specific companies within that segment, primarily focused on the larger, more visible retailers. But the important things I took away from this study were the different ways we can look at operating our own businesses, as well as how to compete against the larger retailers.
Looking at the “Consumer Top 10,” what consumers said was most important to them, I was somewhat surprised at the results:
- Courteous employees
- Well-marked price
- Good-quality merchandise
- In-stock merchandise
- Honest prices
- Unconditional returns
- Quick and easy returns
- Easy to find what we want
- Clean store
- Convenient hours
Ties To Shopping Criteria
AlixPartners next matched up consumers’ expectations with each of the key shopping criteria and made some interesting correlations…
Price. Key finding: “Honest” is more important than “lowest.” Because consumers are increasingly busy, they don’t have the time or desire to shop around for the best deal. Rather, they are gravitating to retailers who can provide consistency, honesty and a fair value (not to be confused with the lowest price), even if it means paying a little more. And being able to easily see and understand what the item costs at the purchase decision point is critical in reducing the hassle factor.
Product. Key finding: “Good is good enough.” Because of the increased quality of private label and controlled house brands, most consumers can’t detect, appreciate or value the small differences between good, functional products and the very best, high-end and name-brand products, and they won’t pay for small or incremental differences. However, customers will pay more for significant and discernable differences and benefits, but those differences need to be readily communicated and understood. So, today’s consumer wants a broader assortment of consistently “good” products that are in stock.
Service. Key finding: “Back to basics.” Not a surprise to anyone… today’s time-pressured consumer wants things quick, easy, simple and hassle free. The study found the expectation of, or desire for, a high level of customer service has decreased, resulting in a trend towards “self-service, with a little help.” Incumbent in this new expectation is the necessity to have the product easily accessible and well signed, merchandised and displayed.
Access. Key finding: “Make it easy for me.” Logical adjacencies, effective signage, wide and uncluttered aisles, and a clean, well-lit environment are all important to the consumer. Consider “project-based” merchandising, with all of the individual items needed to complete a given task or project displayed together. This will not only make it easier to pick up everything needed but also will help build consumer satisfaction and confidence.
Experience. Key finding: “Skip the entertainment, just respect me.” This element is the most difficult to deliver on because it is emotional rather than pragmatic, but it has the most potential for differentiating your store for all customers and building loyalty. Major elements in this area are courteous employees who respond positively to questions and challenges, such as returns, and who value consumers as valued customers.
This analysis is important in and of itself because it reveals some unexpected information, but it’s how retailers approach the information that is most interesting.
Measuring Success
When AlixPartners applied the above five criteria to individual segments and retailers, they translated the results into three levels of proficiency… exceeding expectations, meeting expectations and operating below expectations. You might expect the most successful retailers to exceed consumer expectations in all five focus areas. But the reality is the successful retailers consciously focused their resources on exceeding expectations in just two or three areas, while meeting expectations in the other criteria. As in the Meat Loaf analogy (see, I told you I’d get back to this eventually!), two out of, in our case, five is the preferable and most realistic strategy.
The author of this study, Fred Crawford, is also the co-author (with Ryan Matthews) of The Myth of Excellence, where he states, “What do customers want? For businesses to ‘wow’ them in one key area (say, service), while the firm differentiates itself in a second (say, product). Put the lion’s share of your time and resources into excelling in two areas, and it’s okay, even advisable, merely to meet expectations in the other three. In other words, dare to be average in the other three, resisting the ever-present temptation to spend just a little more on things your customer probably doesn’t care that much about anyway. In fact, if you’re spreading your precious assets peanut butter-style, evenly across all five attributes, you’re either wasting money or, worse, condemning all five to mediocrity.”
To put this philosophy into context, let’s look at some concrete examples. Wal-Mart dominates on the price attribute, differentiates on product and access, and just meets expectations on experience and service. By focusing the majority of their efforts on price, the result is so powerful that consumers are willing to overlook any shortfalls in the other attributes.
Lowe’s has positioned itself to be dominant in experience and differentiated in product and to meet expectations in price, access and service. Home Depot, on the other hand, dominates in product, differentiates in price and access, and meets expectations in service and experience.
Nordstrom’s dominates on service, differentiates in experience and product, and meets expectations in access but is below expectations in price. But because the service image is so strong, it compensates for the lower price-measurement perception. On the other hand, Sears doesn’t have any attribute where it dominates or exceeds expectations; it only meets expectations on access and price and falls below expectations on product, experience and service… not a good position.
Picking Your Battles
Both the concepts behind this study and the study’s results are an opportunity and a challenge to the independent garden center. The opportunity is to identify those attributes you can incorporate into your business. You should look for attributes that address the new customer attitudes and will improve customers’ perceptions of what you offer. The challenge is to select those attributes where you want to dominate and those where you simply want to meet customer expectations; then, determine what you need to do to move those under-performing attributes to the level of meeting expectations and allocate enough resources… time, money, energy and people… to reach your goals. Remember that, in addition to going through this assessment process for your own operation, you also want to honestly benchmark your key competition so you can take advantage of their weaknesses and compensate for their strengths.
So dare to be average, focus on two out of five and use your resources wisely to position your business to meet and exceed your customers’ expectations…
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