Category: Retailing

The Semantics of Sales: What Motivates Consumers

I recall a conversation more than 20 years ago I had with a men’s clothing buyer for the department store where I began my marketing career. We were discussing different approaches for promoting sales on men’s suits. What was more effective: 50% off or advertising the specific price point that reflected a 50% savings? If I recall correctly, the buyer opted to use the percentage discount as the method for framing the promotional price.

Fast forward to today, and the same questions are being asked. In this tight economy, what are the magic words that will prompt consumers to loosen their purse strings and buy? A recently released report by Information Resources Inc. suggests consumers are motivated to scour retailers’ sales offerings in the quest for deep discounts. Furthermore, frequent discounting by retailers has left consumers longing for more, more in terms of deeper discounts. Retailers are responding by stretching the upper limits of their price discounts. Claims of “save 50%” are increasingly being replaced with claims of discounts of 70-80%. In other words, the wow factor of a 50% off sale has been diminished by overuse; deeper discounts are needed to create the desired impact.

Going back to the original question: what’s the best way to frame a discount? It appears the answer is promote the percentage savings, but unless it is an eye-popping figure, consumers may sit on the sidelines and wait for a better deal to come along.

Link: The New York Times – “Never Mind What it Costs. Can I Get 70% Off?”

Black Friday Shopping Frenzy Unnecessary

The tragic death of a Wal-Mart employee in New York last Friday should serve as a call to evaluate how retailers use early morning “doorbusters” on Black Friday. These attractive early morning specials are intended to generate store traffic. Unfortunately, high demand for certain items creates a situation where some people become so obsessed with getting an item they seem to lose their senses. How else can you explain the scene at the Wal-Mart on Long Island where a crowd estimated at 2,000 people took the term “doorbusters” far too literally?

The weekend after Thanksgiving is crucial to retailers in terms of their success for the Christmas season and beyond. But, as shopping has been made more convenient with stores open 24/7 in some cases and always open 24/7 online, the need to orchestrate a customer mob scene is unnecessary. It is one thing for retailers to call on workers to open stores at 3:00 and 4:00 AM, it is quite another matter to put their safety at risk by creating a frenzy for a small number of products. Rather than straining their employees’ energy levels and customers’ patience levels with doorbuster promotions, retailers should explore ways to generate more interest and store traffic throughout the entire Christmas shopping season.

Link: Ad Age – “Lawsuit: Marketing Blamed in Wal-Mart Trampling Death”

Black Friday Results: The Good and the Bad

Early feedback on this year’s Black Friday performance for the nation’s retailers is encouraging. Sales rose to $10.6 billion, up from $10.3 billion last year. Any increase is good news as retailers braced for the worst in the face of an economy that has been now officially deemed to be in recession.

The bad news? The cost of attaining the sales increase means lower profits. Retailers had to aggressively lower prices and use other incentives to lure shoppers into their stores. The result is a hit on retailers’ profit margins. The challenge faced by many retailers is the lead time required to place orders. Orders placed for this Christmas season were placed several months ago, in many cases before retailers were fully aware of the economic train wreck that was about to happen. Now, with inventory on hand, the choice is to forgo profit margins and move product or not budge much on price and take a bath in an even deeper sea of red ink.

The big winners? You and I. We need a break from rising prices, and the battle for our holiday shopping dollars means we should continue to see attractive prices through the end of the year.

Link: USA Today – “Early Data Show Strong Black Friday”

Americans Buying Less, Clicking Less

The weary American consumer is creating major challenges for retailers. Two pieces of evidence: 1) declining retail sales and 2) declining open rates rates for e-mail. An article appearing online at The New York Times reports that retail sales in October experienced the largest monthly drop ever. It is feared that the 2.8% drop from September and 4.1% drop from last October are not the last dips to be felt in retail sales. Despite retailers’ best efforts to attract customers with promotions and incentives, consumer response may be soft for the near future.

If the bleak sales picture is not enough bad news for retailers, another study shows that a promotion tactic often used by retailers, e-mail, is less effective with consumers these days. Research by MailerMailer found that the open rate for consumer e-mails dropped from 16.1% in the first half of 2007 to 13.2% in the same period in 2008. Consumers that are being cautious at best or have less money to spend appear less interested in opening e-mails from marketers because it means they may have to decide whether to spend money they may or may not have!

The decline in e-mail open rates should hardly discourage marketers. E-mail is a very cost effective medium to use, and permission-based e-mail campaigns still are based on customers’ desires to have a relationship with a company from which they have consented to receive e-mail communications. It does mean that the relevance of every message sent to customers must be evaluated in an effort to make it worth consumers’ time and effort to open marketing e-mail messages.

What’s Wrong with Circuit City

Electronics retailer Circuit City has announced it is closing 155 stores, resulting in layoffs for almost 20% of its employees. The company blames a weak consumer economy and tight credit as constraints that have left it exploring all available options to keep the company afloat. Despite closing stores, Chapter 11 bankruptcy is still a possibility in the near future.

What went wrong? Circuit City has suffered the same problem that many also-rans encounter: lack of a distinctive brand position. Best Buy has excelled in the areas of product choice, customer service, and employee satisfaction. Wal-Mart has mastered the low price position. Amazon.com has product selection and customer interactivity as key strengths. Circuit City simply does not stand out in a competitive landscape.

Circuit City has not helped itself in the court of public opinion. In 2007, the company collected heaps of negative press for a decision to let go more experienced, higher paid store employees and offer to rehire them… at a lower salary rate, of course. Also, negative customer sentiment is abundant on the Internet. The search term “Circuit City sucks” returns many web sites and blogs at which Circuit City customers share bad experiences they have had. Lack of a solid brand position, coupled with lack of a good reputation for customer service, leaves Circuit City in a fight for survival.

Link: Reuters – “Circuit City to Shut 155 Stores, Mulling Options”

Online Retailers Giving Consumers a Voice with User Reviews

Word-of-mouth communication about one’s experiences with companies and brands has been around as long as companies and brands have been around. Now, word-of-mouth meets Web 2.0 as more companies are giving customers a voice to rate products on their web sites. According to a survey sponsored by Internet Retailer, retailers’ number one spending priority in the coming months is to add user reviews to their web sites. Interestingly, it is the top priority of all three types of retailers surveyed: store based firms, web based firms, and catalog firms.

User reviews, coupled with the number two priority of integrating blogs or forums to web sites, shows that retailers want to engage their customers in meaningful exchanges of communication. The days of marketers “talking down” to their customers are history! Greater flow of communication from retailer to customer and customer to customer will add value to the shopping experience and serve as a means for nurturing relationships.

Link: eMarketer – “Web Stores Score with Customer Ratings”

Online Retailers the Exception for Bleak Holiday Shopping Season?

A follow up to a post about the challenges facing retailers in the coming months. Traditional brick-and-mortar retailers may have more to worry about than consumers with less money to spend. It appears that more consumers are going to spend their money online, which would come at the expense of traditional retailers. Shopping online is a viable alternative to spending money on gas to drive to stores. If I can save gas money AND avoid the crowds in December, I am all for that! However, if predictions about retail sales this holiday season come to fruition, there may be smaller crowds at the mall!

Link: DM News – “Happy Holidays Forecast for E-Commerce”

Retailers Challenged to Get Shoppers into Stores

The impact of rising prices for gas, food, and many other products is being felt by many different industries. Perhaps one of the hardest hit is the retail industry. Weakened consumer buying power is a direct hit to the business of stores that count on us to buy clothes, electronics, home products, and much more. Retail sales for stores open at least one year rose 2.6% in July, the lowest gain in four months, according to the International Council of Shopping Centers. The sales trend could be hurt further as business created by economic stimulus checks begins to wane.

The unimpressive sales results from the back-to-school selling season do not bode well for the 2008 Christmas season. Retailers will most likely win customers over with a steady diet of sales as well as special promotions to spur store traffic. Low-price retailers like Wal-Mart and Costco are positioned to weather a tough shopping season, but other retailers will be forced to get creative to convince consumers to let go of their money. This year, it will not be enough to have the right products at the right time. The right price will be as important, if not more important to consumers this holiday season.

Link: Blomberg.com – “U.S. July Retail Sales Slow, Hurting Back-to-School”

High Gas Prices Cost Dads in Many Ways

It does not take a degree in Economics to understand that higher prices for gasoline and groceries mean that many people have less money to spend on other purchases. The pain felt at the gas pump and supermarket will extend to dads everywhere on Father’s Day this year. According to a survey sponsored by the National Retail Federation, average spending for Father’s Day 2008 will be an estimated $94.54, down from $98.34 last year. The reduced spending coupled with rising prices means that those buying gifts for their dads will have less buying power. Despite the lower expenditures for Father’s Day this year, the NRF says certain retailers will be frequent shopping destinations for buyers. In particular, many shoppers will seek gifts at department stores (ties and cologne, no doubt) and discount retailers.

Just in case dads are tempted to pity themselves about the prospect of a lean Father’s Day this year, they can take comfort in the fact that moms felt the sting of a tough economy, too. Average spending for Mother’s Day was estimated to be $138.63 this year, down slightly from last year’s $139.14, according to the NRF.

Link: National Retail Federation – “Dad Takes a Back Seat to Gas and Food Costs, According to NRF Survey”

When Diversification Equals Dilution

Growth. It is the quest that fuels businesses of all sizes. Management and marketing texts tout diversification as a key growth strategy. Tapping into other markets, especially if there are synergies with the knowledge and resources already in place to serve existing markets, is viewed as a way to extend a brand beyond its core market. The theory is compelling, but in practice it often leads to disappointing results.

Case in point: apparel retailer Talbots recently announced that it is closing its men’s and children’s’ stores. The move, while costing Talbots in the short-run, will allow the company on what it does best: serve women’s fashion needs. One can hardly fault Talbots for the decision to extend to men’s and children’s apparel; it represents a significant portion of the population. Also, the Talbots name had accrued a great deal of positive brand equity in the marketplace. In hindsight, it appears the extensions may have taken Talbots’ focus away from its core business. As a result, not only were the men’s and children’s stores unsuccessful, but the core women’s stores have struggled, too. If diversification creates a potential situation that leads to strained resources and diluted brand equity, is it really worth it? I think not! Link