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Luring Customers in the Information Age

October 21, 2010


In several past posts, I’ve noted how on-line sales have affected the future of traditional brick-and-mortar stores. Bookstores have perhaps been the hardest hit. The electronics sector has also been hit with stores like CompUSA having gone out of business. All of this is making store executives rethink the strategies they use to lure customers through their doors. Advertising has been a staple strategy for centuries. How stores advertise, however, has changed dramatically — ask the editor of any newspaper or magazine. The latest advertising gimmick draws from technologies that have only recently become available [“Luring Shoppers to Stores,” by Emily Steel, Wall Street Journal, 26 August 2010]. Steel reports:

“It’s Steven Spielberg’s futuristic ‘Minority Report’ come to life. Marketing companies are experimenting with a new wave of digital technologies to pitch to consumers while they shop: interactive dressing-room mirrors, kiosks with virtual customer-service representatives, and shopping carts and digital scanners that offer personalized discounts. These futuristic technologies are among the interactive tools on display at Interpublic Group of Cos.’ new retail center at the advertising company’s Media Lab in Los Angeles. There, Interpublic is testing innovative ways for marketers to connect with customers as part of an effort to better understand what makes consumers buy and to encourage companies to rethink their approaches to the role of the retail store.”

Steel emphasizes some of the points I made above. She continues:

“Retailers are grappling with lackluster sales and consumers who are dissatisfied with the store experience as online shopping with its related interactivity becomes mainstream. Shopper satisfaction at retail stores is declining up to 15% a year, according to an ongoing IPG Media Lab study of more than 10,000 North American shoppers. Online shopping gives buyers lots of information to guide their purchases. And consumers want detailed product data, reviews from previous buyers, related recipes for food products, health and nutrition information, and more, says John Ross, president of Shopper Sciences, which is part of IPG’s Mediabrands unit. ‘The role the store is playing is changing,’ says Mr. Ross, who was previously chief marketing officer at Home Depot. ‘Shoppers are walking up with a different set of expectations.’ Some retailers have started testing basic versions of the new technologies. J. C. Penney has a ‘FindMore’ fixture at select stores. The size of a door frame, it comes with a 52-inch touch screen that lets consumers see the retailer’s full range of merchandise. Consumers can email data about an item to themselves or a friend or scan a bar code to learn more about a product and get recommendations, such as tops and accessories that match a pair of pants.”

I don’t think that it surprises anyone that stores like J.C. Penny would be trying some of these new technologies. Steel notes that even supermarkets are jumping on the bandwagon to individualize the shopping experience. She explains:

“Stop & Shop Supermarket is testing handheld scanners in 289 stores that show customers personalized discounts as they shop. The offers are based on such factors as shopping history and just-purchased items. The scanner also lets consumers place deli orders and check out faster.”

In a previous post [Walmart Isn’t Resting on Past Success], I noted that Sam’s Club is also experimenting with providing unique incentives to individual customers [“Sam’s Club Personalizes Discounts for Buyers,” by Andrew Martin, New York Times, 31 May 2010]. Steel focuses on some of the more exotic technologies that are emerging. She continues:

“IPG’s retail lab offers a window into what the future could hold. Among the new technologies on display is a device that transforms the front window of a store into a giant touch screen. Instead of looking at a static mannequin, consumers can interact with the screen to select outfits for an avatar. Meanwhile, kiosks allow a customer to chat with a virtual sales associate who can provide advice on such topics as how to install a new flat-screen television. Another device is a mirror that enables a shopper to scan a dress and then project that clothing onto her body before going to the dressing room. She can also tap the mirror to view different colors, find matching shoes and send the image to her Facebook profile. Specialty retailer The Limited is considering installing interactive mirrors in some of its stores in the next six months, says Chief Executive Linda Heasley. The technology will help consumers match styles or even warn that two pieces of clothing don’t match. … Earlier this month, electronics retailer Best Buy announced plans to start an experiment at 257 of its stores involving a mobile application called Shopkick. Consumers who download it onto their mobile phones get rewards when they visit the store.”

Macy’s is not relying on technology to draw in customers; rather, it is trying to tailor what it offers in its stores to the tastes of local customers [“Atlanta Hats? Seattle Socks? Macy’s Goes Local,” by Stephanie Clifford, New York Times, 02 October 2010]. Reporting from Atlanta, Clifford explains:

“Long before it was renamed Macy’s, the department store of choice here was Rich’s. Opening just after the Civil War, it drew generations of Atlantans with its coconut cake and the Pink Pig, a Christmastime children’s train. Now, after years of ownership by New York-based Macy’s, the old Rich’s stores are feeling a bit more like Atlanta again. The generic display near an entrance at the Cumberland Mall store, for example, has been replaced with a rack of white satin suits — yes, even in October. ‘We have a lot of mega-churches here in Atlanta, and for first Sunday, the mothers of the church wear white all year long,’ said Terry McDonald, a human resources manager for Macy’s Cumberland and surrounding stores, referring to a church service held once every month. After decades of acquiring, consolidating and centralizing, the department store chain is rediscovering — and financially exploiting — its multiple local roots, advancing a trend that is quickly being adopted by other retailers like Saks Fifth Avenue and Best Buy. It is a lesson many companies overlooked in the last 30 years as they rolled smaller stores into huge national brands, and headquarters mandated what the outlets in Biloxi or Boise should sell. But years of economic turmoil for the retail industry have helped refresh memories. While many national retailers continue to see sales declines in a sour economy, Macy’s says its first full year of ‘going local’ has helped increase sales significantly and ‘lifted the entire Macy’s performance,’ according to its chairman and chief executive, Terry J. Lundgren. Macy’s is on track to add $1 billion in sales in 2010 from stores open more than a year, he said. The retailer had $23.5 billion in sales in 2009.”

Admittedly, a 4.25 percent increase in revenue is a pretty good result considering the economic doldrums being felt by many other retailers. Steel reports that “localization is not just about turning back the clock. When many of the regional chains were at their height, shoppers tended to be middle-class white women. Now, they often are not.” She continues:

“In Bellevue, Wash., for example, fewer than 4 percent of residents were Asian in 1980, when the Macy’s store there was a Bon Marché. The most recent Census Bureau survey showed the Asian population in Bellevue was 23.2 percent, attributable in part to the tech explosion in the area. So the Bellevue Macy’s has added more extra small and small sizes — including size 0s in women’s clothing and 36 in men’s suits. And it got rid of its big and tall section. It also changed the jewelry selection to appeal to the tastes of Indian customers — more gold and precious gems and less silver — and doubled its sock department because of the many Microsoft visitors who travel and apparently forget their socks.”

For companies looking to sell their products globally, there are lessons to be learned from the Macy’s experience. The better your understanding of the environment and/or the culture you are trying to expand into the better your chances of succeeding. Dan Brutto, president of UPS’s international division, recommends, “Get help—and read business cards” [“How to Grow Your Business Globally,” Bloomberg BusinessWeek, 24 August 2010]. He continues:

“This year’s UPS Business Monitor United States, an annual survey of U.S. small and midsize business exporters with fewer than 500 employees, found that one-third of respondents cited cultural or language barriers as the reason why they didn’t follow up on an international sales lead. Small businesses that were new to exporting said that their limited knowledge of the marketplace in foreign countries constituted one of their biggest barriers to overseas expansion.”

Brutto admits to having made his share of social faux pas over the years and claims he has “learned from (and eventually laughed at) these mistakes.” If you want to attract customers to products and services, you have to realize, Brutto writes, that “ninety-six percent of the world’s consumers live outside the U.S., so failing to export today may mean you’ll have to play catch-up later.” He then provides some good advice:

Do your homework. … In addition to doing market research, executives at small businesses that succeed in new markets gain a basic understanding of common business etiquette by visiting the country where they intend to do business and by working with organizations that know the market firsthand, such as chambers of commerce. No matter how prepared a business might be, an etiquette faux pas or two is inevitable. Learn from mistakes. …

Relationships are everything. Outside the U.S., cultivating business relationships is essential. This is especially true in China, Vietnam, Brazil, Poland, and other emerging markets. … The U.S. Commercial Service (USCS), the trade arm of the U.S. government, is an excellent resource to help businesses find distributors and partners and secure the right introductions. After introductions are made, you must cultivate relationships with business partners. … In addition to building relationships with business partners, it’s critical to get to know other exporters. By networking with peers, you learn a lot from each others’ experiences. …

Slow down. U.S. businesses must adapt to a slower pace of business elsewhere. …

There’s a lot in a name. Starting out on the right foot in a new market means knowing the proper way to address your colleagues. In China and Vietnam, for example, surnames come first and job titles such as “Director” are important. … When it comes to business cards, it’s customary in many countries, including India and China, to read the business card. Don’t just put it away immediately. It’s also seen as a sign of respect to have the information on one side of your business card printed in the native language of the company you’re visiting.

English spoken here. Many small and midsized businesses cut their exporting teeth in markets where English is a primary language, such as the U.K., India, or closer-to-home Canada. … New exporters should consider starting in Canada, the U.S.’s largest trading partner—and the first non-U.S. market in which UPS did business. Canada has common business practices, a common language, and a great infrastructure for doing business.

Show you’re in for the long haul. Nothing is more off-putting in a new business relationship than indicating you’re looking for a fast return on investment. Many small and midsized businesses mistakenly think that fast-growth markets mean they’re certain to make a quick buck. It takes time to establish a presence in another market, and your colleagues and partners expect a long-term commitment.

One size never fits all. Businesses must understand that every country has its own customs and etiquette rules; what works in one market won’t necessarily work in another. In such countries as India, which has 29 states and multiple cultures, a regional strategy and approach are critical.

Negotiations everywhere will be different. In India, you should avoid saying ‘no’ in business discussions because it’s considered rude. In China, it would be a mistake to take the word ‘yes’ literally. Chinese executives frequently say ‘yes’ and nod during conversations, often merely to show that they are paying attention to what you are saying, not necessarily agreeing with it.”

Brutto’s recommendations are echoed in an article by Emma Jacobs [“Navigating cultural difference, Financial Times, 20 July 2010]. She writes:

“Celebration of a country’s difference runs counter to the notion that the world is becoming culturally homogenized through the spread of the internet, the internationalisation of business and the development of a cadre of high-flying MBAs that appear to speak the same business language. Such a belief can fool managers into believing cultural differences do not matter, according to Paul Bennett, chief creative officer and managing partner at Ideo, a global innovation and design consultancy. In fact, he says, global companies must understand different cultures and turn that to business advantage: ‘It’s the understanding of the subtleties that are important.’ As Maarten Nijhoff Asser, consultant at Trompenaars Hampden-Turner, which advises companies on cross-cultural challenges, says: ‘If your strategy is just growth without thinking about adapting to local markets, then you are just the Royal Bank of Scotland and you will falter. Too many companies don’t listen. It can be long-winded, but it is ultimately more successful.’ All companies, says Andrew Kakabadse, professor of international management development at Cranfield School of Management, have done localization ‘badly at some point’. The key to making it work is ‘clarity of strategy’, which is formed ‘when a company interrogates itself about what it’s really good at’, he says.”

Jacobs points to MacDonald’s as being one company that has done well at localizing its offerings. She writes:

“From the beginning of its development in the US, to its spread in Europe and, more recently, India and China, the company has targeted a variety of products at consumers in different markets. Key to its successful localization have been research and investment in products adapted to local tastes. Big Macs were never going to succeed in India, where 80 per cent of people do not eat beef. But the company did not treat the country as a single market, and conducted in-depth analysis in several states. So, when McDonald’s opened a restaurant in Gujarat, where most citizens are vegetarian, it offered vegetarian burgers and other Indian dishes, such as samosas. In New Delhi, however, McDonald’s introduced meat burgers for non-beef eaters – such as the Maharaja Mac with lamb or chicken. The company has also made an effort to recruit local managers, for example establishing joint ventures with two local entrepreneurs in New Delhi who were selected to manage the fast-food restaurant. According to a 2007 article in the Journal of Business Case Studies by Bahaudin Mujtaba and Bina Patel, of Nova Southeastern University, this strategic move helped the company negotiate Indian bureaucracy.”

It obviously is a lot easier for a fast-food chain to understand local tastes than it is for a company selling widgets. Although most analysts agree that companies generally need to understand the culture into which they are selling, there are exceptions. Jacobs explains:

“Prof Kakabadse says this is a reversal of the old strategy of ‘think global, act local’. Now, it is ‘think local, then act global’. So, rather than companies customizing products to a local market, the focus should be to start with the local products and then try to leverage them globally. But not all global companies need to adapt to different cultures. Apple sells the same iPad in Tokyo as in Toronto. Rather than localization, it competes on pace of innovation, says Mr Nijhoff Asser. ‘HSBC, Ryanair and Apple’s top teams have asked themselves what makes their companies better than anyone else. HSBC looked at its 19th-century origins when it was operating in Hong Kong and Shanghai and serviced the local needs,’ he says. But, he adds, Ryanair does not worry about adapting its product to local markets. Its competitiveness lies in price: ‘Whether you decide to differentiate your market is entirely dependent on your product.'”

Individualization, the topic with which I started this post, is simply the extreme extension of localization. New technologies are what permits individualization. Localization relies more on knowledge than technology, but technology can often help you apply that knowledge better. For people who worry that globalization is homogenizing the world, the fact that large companies are adapting to culture rather than the other way around should provide a bit of comfort.

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