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Winning the price war — and still making a profit

Posted by Chad O'Connor  April 26, 2013 11:00 AM

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The price wars are on. It’s a vicious battlefield out there. With sites like Amazon and Overstock and the proliferation of showrooming — where consumers browse a physical store before buying an item online, presumably because it’s cheaper — consumers can find the lowest price for anything on their shopping list easily and quickly.

Retailers are scrambling — in panic mode — fixating on the dollars and sense calculation, so much so in fact, that they neglect other factors that are just as important.

There’s no arguing that price is significant. But it isn’t everything, as found in our recent study that explored both the digital and bricks and mortar shopping preferences of consumers.

The key finding: the number one reason people choose to shop either in-person or online isn’t price. It’s convenience. In fact, in our survey of 1,000 consumers, 40 percent said the top reason they shop in stores is convenience, over only 17 percent who said it was price. When we asked for the top reason they shopped online, they gave nearly the identical answer, with 43 percent saying convenience, over only 25 percent naming price.

Many national big-box chains continue to fiercely combat showrooming. While it is something that 70 percent of customers in the survey admitted to enjoying, it is not the whole story. What these results show is that you can’t win on price alone. It’s not profitable as a business model, and it won’t win customer loyalty in the long run.

Instead, retailers must find the right balance between convenience and price. How do you do it? Instead of creating a multichannel strategy, what companies really need is a customer-centered strategy. Here are the 6 keys:

1. Cater to your best customers. At the yoga-gear brand Lululemon, local stores hand-select brand ambassadors who represent the Lululemon lifestyle, creating a community of consumer partners who are constantly spreading the word. Retailers that laser in on a targeted demographic benefit from the greatest “social media tool” in existence: word of mouth. A customer who feels catered to can be a retailer’s most powerful salesperson.

2. Turn your store into an experience. This year, Disney completely redesigned its Disney Store into a full-fledged Disney experience that mimics its parks with “pixie dust trails,” a custom-designed theater for watching Disney movies and shows, and an interactive “magic mirror” for princesses-in-training. Designed to be “the best 30 minutes of a child’s day,” the stores have become both a seamless extension of the Disney brand as well as a place for families to linger, experience, and shop.

3. Make shopping faster. Shoppers of the big-box retailer Walmart are forced to navigate cavernous stores—an average of 108,000 square feet in size. This frustrating in-store experience can drive customers online, where they can find exactly what they need much faster than roaming through store aisles. To combat this, Walmart added an in-store mode to its smartphone app, which helps customers locate aisles for the items on their shopping list. They’ve also debuted Walmart Express stores which are significantly smaller, at just 12,000 to 15,000 square feet.

4. Consider your employees your biggest asset. Employees and the help they offer are the backbone of brick-and-mortar stores: their knowledge and the way it’s delivered shape the shopper’s experience. Wegmans, a supermarket chain with a loyal, cult-like following, invests heavily in its employees, even sending hundreds of staffers on trips around the world to become experts in their products. Those real education experiences drive the staff to communicate their firsthand accounts, giving shoppers a more authentic and educated retail service.

5. Live in beta: Test and be nimble. Before building a complex system – a real or online store -- you first need to build a prototype, which can enable “failing fast,” rather than remaking a more complete version. For example, if you design a 10,000-square-foot mock-up of a store, you make the intangible tangible, allowing test subjects to give feedback so you can tweak the concept and save time and money before you build the real thing. We did this regularly with our Sprint client, dropping life-size prototypes into a test store, so consumers can “kick the tires” of an idea.

6. Execute as an organization. It takes an entire organization to truly innovate a service, from the folks on the frontlines to those sitting in the C-suite. Most organizations are segmented into silos, with the only shared connection at the top of the chain, but in order to create a seamless experience, those silos need to connect at every level. That’s why when Continuum begins any project with a client, we involve representatives from every group, particularly those who interact directly with customers. With the international bank BBVA, we created an experiential model that showcased the interactive touch points that would be used in a new retail model, which we took on the road to share with other members of the global organization. Ultimately, BBVA’s entire global management team embraced the vision and new direction.

By looking at their brand’s total service proposition holistically, rather than as a system of channels, businesses can boost the value of a brick-and-mortar shopping experience – and make it clear that price isn’t always everything.

Craig LaRosa is a Principal at Continuum, a global innovation and design consultancy based in Newton, where he works with brands to design better customer experiences.

This blog is not written or edited by or the Boston Globe.
The author is solely responsible for the content.

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