By Pete Killian and Linda Deeken, The Cambridge Group, and Steffen Meyer, Custom Lighting
The 1st Horsemen: “Traffic” → Defeat with: Customer Experiences
Traffic has been declining for decades, and is set to accelerate with the growth of trip-eliminators (e.g. online) and ‘trip-consolidators’ (e.g. bulk-item retailers). Two growth levers remain: more customers, and bigger baskets. Growing and retaining customers takes relationship-building, and growing baskets takes superior experiences — both far more customer-friendly mindsets than “driving traffic.”
Replacing the “traffic” mindset with customer-centric experiences doesn’t require a grand reinvention. Taking a customer-centric view and pragmatically addressing their unmet needs gains more immediate and longer-lasting traction.
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A warehouse club client redefined the experience in a key category for its members, but one where they were underdeveloped and losing share: beer! Traditional thinking said clubs could only win in infrequent beer stock-up trips, so it had neglected the key experiential elements of smaller grab-and-go trips.
Key to success was to leverage manufacturer insights showing significant unmet member beer demand. Proposed experience improvements were obvious and tangible: cold beer coolers, added craft beer selection and new product merchandising. Big-data analytics drove club clustering, distinct merchandising plans for each cluster, and rollout sequencing to prioritize clubs with the greatest upside potential.
Driving customer-friendly experience had major impact: beer category trend reversed from a 2% loss to 7% growth, resulting from both new members buying beer and baskets growth from additional craft six-packs — and those at higher margins.
The 2nd Horsemen: “Our Competitive Set” → Defeat with: Customer Shopping Missions
Many retailers go to market as if grocers still neatly competed with grocers, drug with drug, mass with mass, etc. But our data shows that customers are messier: they shop everywhere, across categories, and they do not forgive retailers based on their format’s limitations.
Rather than defining (and redefining) one’s competitive set, retailers can adopt a mindset of customer shopping missions. Missions comprise not only what customers buy in a trip, but more importantly the “why behind the buy.”
Our warehouse club client used member shopping missions to overcome competitor fixation. By analyzing its members’ spending, however, we showed that the main competitors were not other club stores, and the bigger opportunity was to win vs. grocery and mass.
Defining member missions – and delivering key member benefits in each – often meant stretching beyond the “club model” (bulk, limited selection, minimal merchandising) to win against other channels:
- “Family Meals” Mission: In fresh meat/produce, exceed quality standards of specialty stores to drive trips; improve meal-making authority (digital presence) to win vs. grocery;
- “Care for the Home” Mission: Invest in price to win vs. mass; double down on private label quality to differentiate from grocery; and
- “Specific Replenish” Mission: An online-heavy mission, focus on pricing, site experience and pickup options to match mass competitors – and build a lead over Club competitors.
The business impact was immediate and significant: turnaround from negative comps to multiple consecutive quarters of comp growth. Additionally, member satisfaction and retention improved, strengthening club economics (with margins coming largely from membership fees).
The 3rd Horsemen: “Product Categories” → Defeat with: Customer Jobs to be Done
Many retailers manage products by category, one buyer per class: e.g. José buys glue, Brian buys glitter, and Shivam buys Styrofoam balls. But often, this categorization runs counter to the way people actually shop!
Customers hire products for “jobs to be done.” Retailers who understand jobs across categories make customers’ lives easier — e.g. helping them bond with a child and then feeling like a good parent. Conversely, stores/sites laid out by category cause customer frustration and waste growth potential.
Why don’t retailers prioritize jobs? Some do. For example, signage in a Lowe’s store in New York City points shoppers to jobs, not categories. But there are barriers:
- Items may address many jobs. E.g. should flour be near jobs like “holiday baking” or “pizza night?”
- Many manufacturers organize by category too. Organizing by job forces vendors to engage with more buyers, adding a major time investment.
- Changing company incentives and structure to be job-centric may take major effort.
But it’s worth it:
An arts and crafts retailer client had focused on categories. We helped them frame holistic “jobs.” E.g.:
- From products: scrapbooks, stickers, cutting machines…
- To job: Create Memories (Job specs: de-clutter thoughtfully, create lasting bonds, show off my style)
Our client redesigned stores around inspiration zones and holistic collections. The company created community gatherings by job. Internally, it created common language between merchants and marketers, simplifying decisions.
These changes drove sales growth of 10% to 20% in redesigned stores and up to 90% in key departments, with positive same-store sales throughout a recession, while customer satisfaction improved.
The 4th Horsemen: “Zero-Based Budgeting” → Defeat with: Customer-Driven Resource Allocation
Remember your New Year’s resolutions? It’s OK: retailers can’t stick to them either. This year’s budget resembles last year’s: Same budget; same actions.
To stop “last year-itis,” many companies switched to zero based budgeting (“ZBB”), where all expenses must be justified every period. The baseline is zero, not last year. Predictably, this achieves major budget cuts. But those who consider this a tremendous value creator face many doubters who blame it for precipitous brand health declines.
We see ZBB as the 4th Horseman — yes, “Death.” But retailers can ‘defeat’ the reaper with customer-driven resource allocation. Set budgets by combining:
- Portfolio Roles: How important is each category to you, based on customer permission?
- Customer Demand-Drivers: What benefits do customers demand from shopping with you?
Using these tools, we helped a leading retailer reallocate billions of resource dollars — space, promotions, shelf resets, digital marketing, etc. — companywide.
We prioritized the benefits customers seek from each category — discovery, ease, selection, etc. — and identified the resources needed to deliver these benefits. This meant “swapping” resources between categories, e.g.:
- Baby supplies: Prioritized category where customers demand easy shopping and well-known brands…but instead got many shelf resets and new products.
- Computers: Lower-priority category where customers demand newest technology and in-store demos…but got lots of floor space instead.
- Solution: “Swap,” giving Baby’s shelf resets to Computers and space from Computers to Baby.
When one looks across all Four Horsemen, you likely already see them in your organization or recognize them on the horizon. That fact can be daunting. However, the key is to act on this foresight and proactively establish these customer-driven frameworks necessary to eliminate and contain the Four Horsemen of the Retail Apocalypse. A jump to action will invariably be the defense move your organization needs to defend against the Four Horsemen.
Pete Killian has helped develop demand-driven growth strategies that drive business impact in a wide range of industries, with a focus on retail and CPG. In retail, Killian has led multiple enterprise-wide strategy engagements in grocery, mass, club and specialty classes of trade. Linda Deeken is a Chief Marketing Officer at The Cambridge Group. She has been published in Harvard Business Review, Chief Executive and Entrepreneur, among other publications, and has been a key contributor to several books recently released by The Cambridge Group. Steffen Meyer is the founder of innovation consultancy Custom Lightning, which helps corporations and startups across consumer-facing industries to turn disruptive ideas into viable businesses. Meyer’s perspective builds on 15 years of experience at Target and SAP — across innovation, strategy, operations, finance and business development.