Maybe it is just pure coincidence, but a sizeable portion of our blog posts so far in 2014 has focused on issues facing the retail industry.  For whatever reason, the news media seems to be spending a good deal of time investigating retailing, with their primary emphasis on store-based retailers.  As we have noted several times, store-based retailers face significant pressure from competitors that sell exclusively online, such as Amazon, Zappos, and Newegg, to name a few.  These Internet companies have attracted millions of customers by providing a highly customized shopping experience, tailored to individual shoppers, along with extremely competitive pricing.

The impact of online retailers has been devastating for many prominent retailers.  For instance, back in 2011 we listed a number of famous retail names that have gone away.  More recently we see other big chains struggling such JC Penney, Barnes & Noble and Radio Shack.

So what do store-based retailers need to do to survive?  Some strategies for survival may be found in this Internet Retailer story.  Yes, it may seem surprising that a trade magazine named Internet Retailer would publish a story addressing brick-and-mortar issues; nevertheless the recommendations contained in the story seem reasonable.

The ideas presented for fighting back against online sellers are from executives of leading retail chains and commercial real estate firms, as well as industry insiders representing research firms and consulting services.  The advice for fending off online sellers includes improving the overall shopping experience, integrating mobile devices for use by store employees and better analysis of data from customers’ visits to the store.

Click to: Share and Cite

On the surface, today’s announcement that drugstore giant CVS will soon stop selling tobacco products is certainly a shocker to many.  For CVS, this product category represents over $2 billion per year in sales and no doubt generates at least twice that amount from other products customers purchase when they enter the store to buy cigarettes, cigars and chewing tobacco.

But as pointed out in this USA Today story, by abandoning tobacco CVS may be attempting to reposition the company as a little less retailer and a little more health care provider.  Of course, CVS and all other drugstores lean toward health care given their emphasis on dispensing prescription drugs.  But many of these retailers want to expand well beyond filling prescriptions and see a growing opportunity in providing basic front-line medical care.  This can be seen in the rapid expansion of in-store medical clinics now offered by many chain drugstores and other retailers that offer pharmacy services (e.g., Walmart, Target).

From a marketing point of view, CVS needs to present an image of actually caring about patients’ health.  Certainly if they offer health care services in one part of the store while selling tobacco products in another, the door is wide open for critics to claim the company is hypocritical and only interested in making money.

So by removing tobacco products, CVS has made a crucial strategic decision that is dependent on the growth of their health care business.  However, it remains to be seen whether the general public will bypass medical offices and accept CVS and other retailers as their first stop for general medical care.  And whether sales from medical services can exceed what CVS is losing by not selling tobacco is certainly something investors will be watching closely.

Click to: Share and Cite

As we point out in our Sales Promotion tutorial, one of the most valuable uses of sales promotion is to create demand.  This is often accomplished when the promotion involves an incentive for customers to make a purchase.  There are various methods for doing this.  The most obvious incentive is one that lowers the price for acquiring a product, such as a coupon or special “sale pricing.”  Others include an incentive that lowers the out-of-pocket expense by permitting a trade-in of an existing product; contests and sweepstakes, where skill or luck can result in a big payout to the winners; and loyalty programs, where frequent purchasing leads to future savings.

No matter which type of promotion is used to stimulate sales, there is usually some level of risk to the marketer.  For instance, if the vast majority of purchasers become conditioned to only purchase a product when a coupon is available then customers are likely never going to buy at full price.  This, of course, could dramatically affect marketer’s revenue.

Another example of a potential problem with sales promotions is found in this Washington Post story.  As explained, a Texas furniture retailer offered a special promotion that gave customers, who spent more than $6,000, their money back if the Seattle Seahawks won the Super Bowl.  The result, the retailer must now give back over $7 million.  

While the result of this promotion may seem hard to believe, what is really surprising is that the retailer did not purchase insurance just in case this was the outcome.  As the story notes, in 2013 another furniture retailer had a Super Bowl promotion which also benefited the customer, but they had insurance which reduced their loss.

Click to: Share and Cite

Poor JC Penney.  The once proud retailer has certainly struggled in the last few years leading many to wonder what the future holds.  The problems started a 2012 when a new management team was brought in to boost sagging sales.  Their big strategy was built on the relatively simple idea of convincing customers that JC Penney was a store that offered a wide variety of products at good prices.  Unfortunately, they faced an enormous hurdle as many customers only thought of JC Penney as a place to shop for bargains.  In other words, it is not a retailer that comes to mind for general shopping only when there are good deals.  So in an attempt to change customers’ perception, JC Penney essentially abandoned sale pricing and instead tried to lure customers with advertising that promoted everyday low pricing and very few sales.

The result was a disaster.  A large percentage of their customer base, who considered themselves bargain hunters and enjoyed the feeling of believing they were getting a fantastic deal, stopped shopping and overall sales dropped dramatically.  This resulted in the new management team being fired.  A new management group entered and promptly returned to the old strategy of offering regular sales.

Yet today the bargains customers are perceiving may not what they seem.  As discussed in this Time story, the pricing strategy that entices customers through advertising by suggesting extremely large discounts may not actually be what it appears.  The reason has to do with product list price or, as the story calls it price anchoring, which is the product’s full price before any discounts.  But as discussed in this story, the list price set by JC Penney on some products may be outrageously high, and even much higher than recommended by the product’s manufacturer.  Even more, the hike in list price appears to be aimed at products that are likely to be in demand at certain times of the year, such as a bump up in jewelry pricing right before Valentine's Day.

While this may appear to be unwelcome publicity for JC Penney, this strategy could work if consumers remain driven by the notion of obtaining a bargain.  Also, this strategy is by no means restricted to just JC Penney.  Several other retailers have also been accused of the doing the same.

Click to: Share and Cite

In our discussion of the New Product Development process, we emphasize the overwhelming importance of conducting marketing research prior to product launch.  As we explain, research plays a key role in each of the steps in this process.  This includes research to help identify potential new products (Step 1: Idea Generation); research to test customers’ response to “mockup products” (Step 3: Concept Development and Testing); and testing customers’ response to actual products in real market settings (Step 6: Market Testing).  However, we also note that conducting market research for new products can be quite difficult, especially for products that may be viewed as highly innovative.

A good example of problems marketers face when trying to use market research for breakthrough products can be seen in this story from Knowledge@Wharton.  In it, the authors discuss how market research, or lack of it, may in some ways be blamed for what some claim is a significant product category failure – the 3-D television.  What comes out of this story is how some tech companies appear to only give lip service for the need to undertake quality research, especially prior to product launch.  These tech marketers seem more concerned with getting the product to market and then testing, which we indicate in the What is Marketing? tutorial is often a mistake.

The story includes a look at how leading television manufacturer, Vizio, bypassed pre-product launch research for its 3-D television, which was eventually discontinued due to low demand.  It suggests studies may have been able to uncover some of the issues that would eventually lead to the product’s failure, such as lack of 3-D movies, consumer dislike of wearing 3-D glasses and the perception of the television leading to certain health issues, such as headaches and eyestrain.

The story also touches on the philosoply Steve Jobs had with the development of technology products, which were not necessarily supportive of using market research.  As noted in the story, in many ways Jobs was anti-research and also not inclined to follow the ideas found within the well-known Marketing Concept.

Overall, this is an excellent story on how not undertaking market research may come back to bite companies.  It also offers insights on why companies choose to forego research when developing new products.

Click to: Share and Cite