June 2014
Difficult to Build, Easy to Lose By Stan Pohmer

Many of you have been shopping at Target for years, enjoying their cheap-chic product offerings, their creative TV ads, the quirky and innovative event marketing and their community giving programs. They built one of the strongest brands in retailing; the red bullseye became synonymous with the image Target worked hard to create. Though much smaller in store count and revenue, because of their strong brand image and unique, differentiated positioning, Target was able to compete effectively against other mass market behemoths, including Walmart. Over the years, Target had earned a world-class reputation for excellent store operations, trend assortments, merchandising and marketing.

But starting in the second half of 2013 (some may say earlier), Target has been the talk of Wall Street and the media for a number of reasons, none of them good. Being a national company (now international with their expansion into Canada), most of us have probably personally experienced or been touched by their challenges. Here are a few of them:

1. Being a trend and fashion leader, Target introduced “pop up” designers to their merchandise mix: up-and-coming designers from around the globe who didn’t yet have broad distribution in the U.S. market, or higher-end designers who didn’t have distribution in the mass market. These assortments were designed to have limited duration (only a month), and quantities were deliberately limited; when they sold out, they wouldn’t be replenished. The introduction date of each collection was announced in advance and customers lined up in the stores before opening and quickly depleted store stocks, often on the first day, only to be re-sold on eBay for premium retails. These assortments were simultaneously introduced on Target.com and the response was so great that the demand crashed the system … two months in a row.

2. The majority of Canada’s population resides within close proximity to the U.S.-Canadian border, and many Canadians regularly crossed the border to shop at U.S. retailers, with Target being one of their favorites. When Target decided to expand internationally, Canada was their first choice because they were already known and respected by Canadian shoppers. Target purchased the store real estate from an existing Canadian retailer and then remodeled the stores to Target’s format over the course of a year. During that year, Target launched an extended pre-opening marketing campaign that set high expectations in Canadian shoppers’ minds.

But when they opened almost 130 stores in this new market in the third quarter of 2013, the stores were plagued with severe out-of-stocks, massive inventory imbalances and customer complaints that retail prices were higher for identical products in Canada than in the U.S. stores (Canada has higher minimum wages and higher distribution costs) and the fact that some brands available in the U.S. stores weren’t being offered in the Canadian stores (the Canadian store footprints were smaller than the U.S. stores and some brands sold in U.S. stores couldn’t be sold in Canada due to exclusivity agreements and legal reasons). As a result of these problems, sales and profits have fallen way short of plan.

3. In December 2013, in the middle of the year’s most important selling period, Target experienced a data breach caused by hackers who infiltrated Target’s systems, and credit card and personal information for as many as 130 million U.S. customers (over 40 percent of the U.S. population) was compromised or stolen. When Target announced the data breach, what had been a strong holiday sales trend nose-dived as customers were reluctant to or stopped using their credit cards at Target for the balance of the Christmas season. Even through the first quarter of 2014, Target’s store traffic counts remain challenged due to data breach hangover.

4. In May 2014, Target’s board of directors requested the resignation of Gregg Steinhafel, Target’s Chairman, CEO and president and a 35-year, highly respected Target veteran.

Targeting Trust

I’m using Target as an example here because they are being talked about in the news right now, but I could probably use any company in America (think GM or Ford and their recent massive recalls), or even your company. As a result of each of these events, Target’s customers lost trust in the company and when trust is broken, loyalty disappears. Likewise, Target’s board of directors lost faith in Steinhafel’s ability to steer the effort to rectify their challenges and lead the charge to regain their customers’ trust. In some of the Target examples, a strong level of trust that existed was broken; in others (i.e. Canada), a level of expectation was established that wasn’t met, so trust was never established, but the net effect was the same. Any one of these events individually would start to erode trust, but the cumulative effect of all of these shortfalls combined leads to a breaking of trust.

In the heat of the season, we sometimes forget that retail is a business of relationships, whether it is between individuals or between a company and an individual; it can be between you and your team, one of your sales team and a customer, or your customer with your brand. And trust is the single most important driver, the fundamental building block, of successful relationships in teams and organizations, or between individuals.

The best definition of “trust” I’ve seen is that it is “the firm belief in the reliability, truth, ability or strength of someone or something.” It sounds so simple until we truly comprehend the reality and import that if this trust is broken or can’t be established, then the potential power of relationships can’t be realized.

Just Trust Me

Ever wonder why some brands are stronger than others? Consider the classic definition of a brand; it’s a promise or expectation built and reinforced over time based on repeated experiences. It’s a relationship between an individual and a product or store that’s based on trust! And the stronger that bond of trust becomes, the more brand loyal the individual becomes.

We often hear that word-of-mouth (WOM) advertising is the most powerful form of promotion, but did you ever think about why it works? People tend to better believe the people they trust or have relationships with than what they might simply read or hear about. If your trusted friend tells you that Pohmer’s Garden Center is the best in town, you will believe him until you are proven otherwise based on your personal experience with Pohmer’s Garden Center.

Here’s a real world example of the way WOM works: my son needed some chimney repair/concrete work done and he had three companies come out to give him estimates. He knew I had some similar work done two years ago and asked me which company I used. Based on my bond of trust with my son, the strength our relationship and the positive experience I had with one of these companies, he took my recommendation for the company I had used. It’s important to point out the company I recommended had quoted the highest price, but because he felt a higher level of trust based on my experience, trust compensated for the price differential. That’s an example of the power of WOM!

Trust is not given; it is earned. And earning trust is a process that takes time and consistency. And once trust is earned, you can build on it and strengthen it to develop loyal relationships. If the bond of trust is ever broken or it hasn’t yet been established, it is well worth the effort and expense to fight to earn it back. Without trust, there is no relationship. Without relationships, there is no loyalty. Without loyalty, you can never achieve your full potential. Having trust and strong relationships with your customers can be your best competitive advantage and differentiator…

Stan Pohmer

Stan Pohmer is president of Pohmer Consulting Group in Minnetonka, Minn. He can be reached at [email protected] or 612.605.8799.