TROUBLE AT THE MALLS AND IN RETAIL STORES

Store based retailing is going through an agonizing transformation with an uncertain future.  Not since the recession of 2008 have we seen numerous store closings, bankruptcies, and consolidations for both retail stores and malls.

Brokerage firm Credit Suisse paints a troublesome picture of the retail sector in a recent report.  Store closings are at an alarming rate with 5,077 stores closed in 2015, 2,056 stores closed in 2016, and an estimated 8,600 stores set to close in 2017.  The current rate of 2017 closings exceeds the closing rate of 2008 during the recession when 6,163 stores were shut down.

The closings affect all types of retailers including Macy’s (15% of stores closed) American Apparel, Staples, CVS, Payless, Guess, Abercrombie and Fitch, Sears/K-Mart, and many others.  Starbucks just announced the closing of its Teavana retail tea stores due to lower mall traffic.  Chains such as Sports Authority, Gander Mountain, Limited, hhgregg, Gymboree, and Radio Shack have filed for bankruptcy.

Several factors account for these issues:

• Retailers rushed to open new stores in anticipation of increased consumer spending and to counter competition.

• As shopping mall construction increased, retailers saw opportunities to locate in new high traffic areas.  The result of the mall overbuilding is a dramatic difference in malls in the United States versus other countries.  According to Zero Hedge, the US has 24 square feet of retail footage per capita versus 16 for Canada, 11 for Australia, 5 for the United Kingdom, 4 for France, 3 for China and 2 for Germany.  This overbuilding compounded by the closing of many anchor stores, has caused a glut and bubble with the prediction by Credit Suisse that 25% of malls will close by 2022.

• The changing consumer and the rise of e-commerce are both a threat and an opportunity for brick and mortar retailers.  Consumers are pressed for time, want convenience, and want an easy way to make a purchase.  Online allows them to sit down in front of the computer or mobile device to find the right product at the right price, in the right place.  According to Berkeley Research Group, excluding the impact of e-commerce which increased 13.4% in 2016, brick-and-mortar retailers increased sales only 2.5%.  Online shopping grew 17% CAGR since 2010 with online sales share newly doubling to 10.6% in 2017.

• Savvy consumers figure out the place to shop.  About half of them do showrooming, that is, go into retail stores check merchandise and pricing, and then purchase the product online.  About two thirds of consumers admit they research online and then purchase at retail.  Online offers 24/7 access to product information and product ordering.  Amazon Prime just reminded me that I saved 15+ trips to retailers by ordering online with them

WHAT CAN BE DONE

> For malls faced with this changing environment:
• Large mall owners such as Simon are increasing investment in their A malls, modernizing them and adding new outlets to replace those retailers going out of business.  The new outlets fall into two new categories, innovative retailers such as fast fashion outlets such as Primark, Zara, Uniqlo, and Forever 21.  They have added over 200 restaurants to their malls including Cheesecake Factory, all to enhance their customers’ experience.

• Consumers need reasons to come to malls beyond retail shopping.  Adding an exciting environment with events, special displays, fashion shows, art exhibits, entertainment, and other community activities helps bring in traffic.  Adding nontraditional mall services such as medi-centers, fitness centers, gourmet grocery stores, pharmacies, banking, Apple and Microsoft stores, Tesla showrooms, as well as smaller specialty stores will build traffic for the malls.

• Mall operators such as Simon have divested B and C underperforming malls and placed greater emphasis on high traffic, high-volume malls.  If divestiture is not possible, mall owners are exploring whether the mall can be repurposed into another facility such as a medical center, apartments, distribution center or other types of business.

> For retailers faced with this changing environment:
• Retailers need to continue to rationalize non-productive outlets by eliminating marginal stores.  Productivity metrics must be used to determine the optimum number and location of outlets.  Rethinking store size and merchandise mix may be important for retailer survival.

• The omni-outlet customer requires new services to allow online ordering and home delivery, online ordering and in-store pickup, as well as in-store returns regardless of the point-of-purchase. Major improvements in computer systems and logistics are required to achieve high levels of expected customer service.  In-store service delivery of online orders, handling online returns, and processes for product exchanges require  new in-store facilities ranging from storage space for online orders to be picked up, computer terminals, and well-trained employees to handle the service desk.  Importantly, signage at the store entrances must direct people to where they can pick up their online ordered merchandise.

• Customer experience is key to increasing store traffic.  Retailers must stay current in changing customer lifestyles and merchandise changes that drive altered shopping behavior.  Having high demand items in stock and enhancing the shopping experience as a treasure hunt can increase traffic and the number of items bought.  Surprise customers with a small gift or token of appreciation.  A local grocery chain offers a free cookie to children when they approach the bakery department.  Compete on the basis of customer experience and merchandise selection rather than price.

• Retailer websites must be inviting, easy-to-use, and above all engaging.  According to research cited by HubSpot, 81% of shoppers for high ticket items conduct online research before making their purchase, 44% of people go directly to Amazon to start their product searches compared to 34% who use search engines such as Google or Bing.  Therefore, it is imperative that retailers use search engine optimization and other tools to make sure that their websites and product offerings show on the first one or two pages of search results.  Beyond the inviting website, retailers must develop a strong social media presence and use it to communicate new merchandise and promotional offerings.  Digital media can be used to drive in-store traffic.

• New merchandising techniques need to be added.  Consumers who order online miss the ability to touch, feel, and try on merchandise before they buy.  Several merchants are offering customers the ability to order online several different items, select the one they want, and return the others at no return shipping charge.  Amazon is testing Prime Wardrobe which allows customers to do this. Warby-Parker allows customers to receive up to five eyeglass frames to try prior to purchase.  Customers of Trunk Club and Stitch Fix receive merchandise for selection and return.

• Offering unique or highly customized merchandise can add value and exclusivity.  High quality store brands such as Costco’s Kirkland brand now accounts for 25% of the retailers sales.  Many Costco HDTV and other electronic products have unique model numbers making comparison shopping difficult.  Retailers who can develop unique or customized products can compete more effectively.

• Clarity of brand positioning is critical.  Having the consumer know who you are and what you stand for can differentiate the retailer mean the difference between success and failure.  Retailers such as T.J. Maxx and Marshalls have clarity in positioning as outlets for newly available brand-name merchandise on a regular basis at competitive prices.  Walmart has low everyday prices, but service is low on consumer expectations.  Publix Super Markets are well-positioned for convenience, customer service, fast checkout and helpful employees.

• Using market research and data analysis studying customer behavior can be turned into actionable marketing strategies to increase traffic.  Insight into customer loyalty, what influences them to buy and to buy again, why customers are lost, should be used to enhance marketing decision-making.

• Mobile apps are a critical part of the communications with customers.  According to Internet Research, mobile commerce makes up 30% of all United States e-commerce.  More Google searches take place on mobile devices than computers.  Careful use of mobile apps can help build consumer engagement and the selective use of emails can increase online sales, store visits, increased order size, and should be part of business building marketing strategies.

• Strategies to reduce showrooming must be developed and implemented to turn a shopping customer into a purchasing customer.  Matching online pricing or providing added services such as extended warranties can be used as an added value to the customer to keep them in the store and prevent them from going online.

The world of retailing is changing dramatically from the anticipated growth rates of the past.  Malls and retailer overbuilding have caused issues in this sector.  The changing consumer and e-commerce have had a dramatic impact in industry restructuring.  Both malls and retailers must move quickly and decisively to reconstruct their marketing to be assured of having a profitable future.

Herbert Brotspies, Ph.D., is an Adjunct Professor of Marketing in the Huizenga College of Business and Entrepreneurship, Nova Southeastern University. He can be reached at brotspie@nova.edu

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Market segmentation is a fundamental concept in identifying profitable business opportunities.  Market segmentation divides markets into subsets of consumers or businesses who share a similar set of needs and wants, evaluating the subset segments, and then implementing strategies to target high value segments. 

Segmentation is widely used in consumer marketing. This becomes very obvious walking down the aisles of your local supermarket seeing product form segmentation such as liquid laundry detergent or powder, special shaving products for African American men, or easy to prepare food products targeted to the working parent.

In sharp contrast is business to business (B2B) where recent research shows limited use of market segmentation and where it is used, little value is received. It may be that segmenting business markets is more complex than consumer markets because business to business marketing is much more than a simplistic approach of finding customers who may be interested in your product.

Historically, B2B was viewed as the segmentation between the seller and buyer using a variety of segmentation bases including demographics, sometimes called firmographics, operating variables, purchasing approaches, situational factors, and buyers’ personal characteristics.  Simply, whoever bought from you was the focus of the segmentation analysis.

Today, B2B marketers recognize there are situations where the company buying your product is not the ultimate user or consumer. So, segmentation is more than just B2B. At times it is B2B2B or even B2B2C (consumer), thus segmentation requires a different approach.

B2B

B2B in its simplest form is when a business sells its products to another business who uses the product themselves.  For example, B2B is selling commercial dishwashers directly to restaurants.  The restaurant market may be segmented by large restaurants or hotels depending on segmentation criteria.  Based on analysis, the commercial dishwasher company decides to focus sales on restaurants with seating capacity of at least 150 people. 

This is not to be confused where a business sells products to business intermediaries who resell the product. When Coca Cola sells soft drinks to Wal-Mart, Coca Cola segments the market on the basis of consumer use of soft drinks and uses the B2B intermediary as a channel of distribution. However, Coca Cola may also segment the carbonated drink market by outlet type, food stores, drug stores, mass merchandisers, small grocery stores, convenience stores, and other outlet types.

B2B2B and B2B2C

But what happens when a business sells its product to a business customer and that customer incorporates the product into its own product for resale to either another business or to consumers? Does the segmentation method change? Do they look at segmentation differently?  Do they attempt to segment the market on the basis of their customer or do they also look at the business segments of their customers?

B2B2B

Several examples can help clarify this. XYZ Company manufactures electric motors. Electric motors have widespread application for use in other companies’ products. They are used as components in elevators, escalators, water pumps, oil industry pumps, even electric motors for aircraft.  XYZ segments the market not on the customer purchasing their product as a component first, but rather on the application of XYZ’s capabilities. They develop segmentation criteria for different industries using pumps taking into consideration their own capabilities and strategy.  Once they determine that the market for elevator motors and aircraft electric motors are growing but oil industry pumps and water pumps are not, they then focus on segmenting the suppliers to these industries.  In essence, the demand for their products is derived from the demand of their customers’ products.

B2B2C

This is also evident in the high technology industry. Chip makers sell to Apple, Lenovo, Compaq, HP, Samsung, and Dell, for use in consumer products such as cell phones, computers, and tablets and now smart televisions. Consumer behavior drives demand for these products.  So, a chip maker must understand their customer’s customer. A chip maker will also sell chips to companies for application for cloud computing such as Dropbox, Amazon, and HP Enterprises.  The sales for the cloud businesses of Dropbox, Amazon, and HP Enterprises are driven in part by consumer demand for cloud storage or cloud applications. Companies in the B2B2C business must develop segmentation skills in the consumer market such as psychographic and behavioral bases for segmentation. Thus, additional segmentation skills are required beyond the B2B segmentation skills for B2B2C companies.

In a recent report to analysts, Intel revealed they are reducing investment spending in software, personal computers, and phones and tablets while investing more in data centers with cloud computing, retail solutions, transportation and automotive, smart homes and buildings, and industrial and energy. These are consumer driven segments. They will then focus on companies who are strong in the growth segments they identified. 

Qualcomm similarly looks at the end user of their customers in deciding product developments, sales, and marketing priorities. They have identified segments where consumers drive demand including technology for the automotive market, smart homes, mobile computing, and wearables.  

Segmenting business markets is no longer is just looking at your company’s customers or potential customers. With the recognition of B2B2B and B2B2C, segmentation is now focusing on the market segments served by the customers to drive investments in product development, sales, and marketing effort.  

Herbert Brotspies, D.B.A., is a Part-Time Participating Faculty in Marketing in the H. Wayne Huizenga College of Business and Entrepreneurship, Nova Southeastern University. He can be reached at brotspie@nova.edu

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The hunt is on to get as much customer information to guide marketing decisions by using what is currently known as “big data.”  Simply, big data is a collection of data, structured and unstructured, used to find marketing relationships not very obvious to the marketer.  Big data helps show marketers what is going on.  Big data helps the Chief Marketing Officer (CMO) understand the “what” but very little of the “why.”

Now, more and more marketers are turning to ways to find the “why” in marketing—why consumers buy the products they do, how they use them, and importantly, how they relate to products in ways big data or conventional market research surveys cannot.  They are increasingly using techniques used by anthropologists called ethnographic research, studying consumers where they live, where they work, in the kitchen, in the bathroom, in the stores, restaurants, concerts, malls, or college campuses.  This observational method helps marketers by showing how products are used, the meaning of products in their lives, and the lifestyles that influence purchase decisions. 

Ethnography evaluates consumer behavior in detail, identifying important patterns through observation of people engaging in activities such as browsing, buying and trying products, or using services.  Based on ethnographic findings, recommendations are made to conduct quantified market research, develop new products, add features to existing products, or change advertising approaches.

Intel, the computer chip maker, uses ethnographic research to understand how teenagers, who grew up with smart phones, use their devices differently than baby boomers, how television and PC technology converge, and how smart phones are taking over most of the functions of personal computers.  J.C. Penney looks in women’s closets to see the brands and styles of clothing they purchase for work.  Clairol, the marketer of hair coloring, watches how women apply hair coloring at home to improve the ease of product use.

According to ethnographic case studies by Consumer Research Associates,

·         Abbvie Pharmaceuticals, a marketer of a drug for HIV, wanted to understand the patient journey to identify opportunities for innovation in packaging, messaging, and service.  Researchers observed physicians with patients and conducted in-home interviews with patients to learn how drugs are used.  As a result of the research, new techniques were developed to help patients comply with their therapies and to help physicians communicate and personalize treatment solutions for patients. 

·         Miller Lite wanted to understand how brand updates would be received and understood by their current customers.  Researchers conducted in-home demographic groups to gauge reaction concepts being considered.  Interviews were conducted in stores and bars with different brand concepts in a natural setting to gauge consumer reaction.   Using a variety of ethnographic methods, the project culminated in the successful update of all Miller Lite branding and marketing materials.

·         Best Buy, a leading consumer electronics retailer, wanted to explore expanding its selection to include a health and fitness department.  They were interested in how well customers would accept this brand expansion with a particular appeal to female shoppers. They wanted to understand the consumer product research and decision-making processes and to identify triggers for investing in home fitness equipment among female shoppers. Ethnographers collected stories among women who recently purchased fitness equipment learning about stores the participants liked including Best Buy.  Researchers accompanied consumers on shopping trips for fitness equipment to understand the purchase process.  The ethnographic research helped Best Buy design the fitness department and provided direction in product selection.

Ethnographic research is also used in business to business situations.  Bosch, a manufacturer of production equipment, wanted to determine how to gain a competitive advantage over rival companies.  They first conducted interviews with production managers and then went into the manufacturing plant to observe how production-line staff used competitive equipment.  The observations revealed there were customer needs that were missed by competitors such as awkward adjustments and difficult maintenance procedures.  The result was a line of Bosch manufacturing products that overcame the issues of competitive products.  Observing the use of competitive products, an ethnographic technique, gave Bosch the insight they needed.

Miele, a German household products company, wanted to investigate the cleaning needs of people with allergies.  They sent researchers into homes of people who had children with allergies to observe cleaning practices.  Through ethnographic research, they discovered, parents spent extra time vacuuming mattresses to remove allergens.  Parents could not be sure the mattresses were allergen free, so they kept vacuuming.  Miele developed a vacuum cleaner with a series of lights that indicated when the item is dust free.  This reduced the time and uncertainty of parents vacuuming their child’s bed.  Based on this research, Miele also introduced a washing machine with special features to thoroughly clean pillows and bedding of allergens.

Big data, finding unusual relationships in structured and unstructured data, will always play an important part in marketing to understand what is happening.  But to develop insight as to why, marketers use ethnographic research and visit people in their homes, watch how they use products, listen to stories about how and why they buy, what they buy, and gain deep insight into the purchase decisions and the why of marketing.

*Image source: Tata Consulting Services (2015).

Herbert Brotspies, D.B.A., is a Part-Time Participating Faculty in Marketing in the H. Wayne Huizenga College of Business and Entrepreneurship, Nova Southeastern University. He can be reached at brotspie@nova.edu

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A recent Huizenga blog on Corporate Sustainability by Dr. Michael Hoffman pointed out that the former head of global marketing at Coca Cola is now the Chief Sustainability Officer.  That should come as no surprise given the growing importance of sustainability in brand marketing. 

First, let us look at some definitions, because the word “sustainability” is often used interchangeably with other descriptors.  According to a 2013 study by KPMG, the accounting firm, the most commonly used terms globally are ‘corporate responsibility’ (14 percent) or ‘corporate social responsibility-- CSR’ (25 percent) and ‘sustainability’ report (43 percent).  The Global Reporting Initiative (GRI), the organization that sets sustainability reporting standards, identifies three broad areas under the sustainability definition: environmental, social, and economic.

Marketers have an important interest in all three areas.  For example:

·         Hershey’s reduced the amount of paper wrap in their mini chocolates saving over 270,000 pounds of paper, the equivalent of 11 tractor trailers of paper that would have wound up in a landfill, and of course, saving the brand money.  The company saved over 14 million pounds of packaging material in the last five years. 

·         Procter and Gamble donates one dose of maternal and neonatal tetanus vaccine with the purchase of each package of Pampers.  Since 2006, over 100 million women and babies have been protected, saving countless lives. 

·         UPS supported relief efforts for hurricane Sandy with $1.5 million in cash and in-kind support to aid in the recovery efforts, a $250,000 grant to the American Red Cross, $250,000 in logistical aid for urgent response, and an additional $1 million in cash and in-kind support to a variety of relief organizations. 

Why do companies do this?  Research shows numerous corporate and brand benefits.  Studies among corporate executives by McKinsey & Company consulting in 2008 and the Boston Consulting Group/MIT in 2012 indicate Corporate Social Responsibility (CSR) has a direct, positive impact on shareholder value and profitability.  Seventy-nine percent of chief financial officers state that these programs improve firm performance by maintaining corporate reputation and brand equity. 

Consumers express a preference for brands supporting CSR.  A recent U.S. study with 1,000 consumers done for the advertising agency Burson Martsteller and design firm Landor showed 55% of respondents favor purchasing a product with added social benefit over one without those benefits. The study also revealed 70% of consumers are willing to pay a premium for a product costing $100 from a socially responsible company, with 28% willing to pay at least $10 more.  

A 2014 Nielsen market research study in 60 countries with over 30,000 respondents showed similar results.  Fifty-five percent of consumers would pay more for products and services from companies committed to positive social and environmental impact, 52% made at least one purchase from one or more socially responsible companies and 52% check product packages to ensure sustainable impact.  All of these metrics show dramatic increases over a previous study done by Nielsen in 2010.  

Marketers see distinct benefits from CSR.

•      Innovation - Seven in 10 surveyed executives report that CSR brings opportunities for the innovation of new products and services.  One third also report opportunities to grow their market share.  Examples include Unilever’s hair conditioner that uses less water and Boeing's energy efficient new planes.

•      Cost savings –Reduction in material waste, transportation, packaging materials, energy use.  P&G's one-year reduction in waste disposal through recycling saves enough money to purchase 400 prime time television spots.

•      Brand differentiation-environmental friendly packaging and products, social programs, brand citizenship.  Toyota has differentiated its cars with fuel-efficient hybrid models across its product lines as well as reducing carbon emissions throughout its manufacturing processes.

•      Long-term thinking - focus on longer-term horizon, 5 years out rather than just next quarter.  UPS is committed to a long-term plan to transition to the development of alternative biofuels for its trucks to reduce costs and pollution.

•      Customer engagement - helps companies and brands engage with customers about something good, puts customer at center.  Brands such as Pedigree dog food with its adopt a dog campaign , Yoplait yogurt asking consumers to send in specially marked pink lids for donations to breast cancer, and Warby-Parker donating eye glasses for every pair purchased by consumers, have added to sales, brand loyalty, and brand equity through their "do good" programs.

So, it is not surprising Coca Cola placed a marketing executive in charge of sustainability.

Does your company embrace sustainability in its marketing and brand practices? In what ways?

Herbert Brotspies, D.B.A., is a Part-Time Participating Faculty in Marketing at the H. Wayne Huizenga School of Business and Entrepreneurship, Nova Southeastern University. He may be reached at brotspie@nova.edu

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It is hard to believe the first cell phone call celebrated its 40th birthday on April 3, 2013. It then took 10 years to develop the first Motorola cell phone prototype into a commercially feasible phone gaining government approval in 1983. It weighed 2 ½ pounds and the cost was slightly under $4,000.

Today, the cell phone has dramatically shrunk in size and moved beyond its first purpose of telephone calls to a device for information consumption, information creation, and life management, driven by consumers, marketers, and rapid changes in technology.

The numbers are staggering. A recent study shows 87% of adults have a cell phone with about half using a smart phone allowing for full Internet connectivity. In fact, about a third of all cell phone users use their cell phone as their major connection to the Internet with apps accounting for the major portion of their Internet time. Two-thirds of smart phone users say they could not live without their smart phones.

The cell phone has become the consumer's tool for instant information from checking the weather, finding and reviewing a restaurant, comparing prices while shopping, to calling friends for advice on a purchase decision. Searching on PC's has been declining while mobile searching is increasing dramatically.

The iPhone began the age of mobile computing five years ago. Marketers have responded by developing customer friendly apps from the local bank to the largest airline. Apps for games, entertainment, news, weather, utilities, and music now carry ads targeted to specific consumers. As part of their overall marketing communications strategy, marketers must seek ways to understand mobile search behavior and how consumers use the software and apps on mobile devices.

Marketers will also need to innovate new ways to use the cell phone to improve customer experience for both products and services, going well beyond mobile banking or the ability to adjust the thermostat in your home. With its geo-positioning capability to determine your location, perhaps the mobile phone of the future will provide you with a coupon for ketchup as you walk down the aisle in the supermarket or send you an invitation to see a local veterinarian because your location showed you were in a doggy park.

Thirty-five years from now, when the first iPhone is 40 years old, will we be looking at the iPhone the same way we look at the first Motorola clunker cell phone?

Herbert Brotspies, D.B.A., is an Adjunct Professor of Marketing at the H. Wayne Huizenga School of Business and Entrepreneurship, Nova Southeastern University. He may be reached at brotspie@nova.edu.

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