Retail innovation

Photomontage by artchandising

Think about your last flight. What do you remember about it? Some hassle like the person in front reclining their seat to within a few inches of your nose? Or maybe a pleasant conversation with the person next to you, prompted by the realisation that you were both reading sailing magazines?

Negative experiences and positive experiences all happen inside the same “package”: the jet cabin. But some one realised that it’s a cabin with a brand, the airline’s brand, so everything you experience in there affects the brand image – for better or worse.

KLM wants to manage the customer experience as part of their branded travel.

An interesting gal/guy in the next seat

KLM Royal Dutch Airlines was established in October 1919 to connect Holland to its colonies. In 2004 it became part of the Air France KLM group. With a view to enhancing the customer experience, this retail company has created several new services.

KLM’s Meet & Seat service – “make your flight an inspirational journey” – helps you to locate other people you think are interesting – for personal or professional reasons – and be seated next to them.

The selection is based on the social network profiles (mainly Facebook and LinkedIn) of users who authorise the use of their data beforehand. This enables passengers to find out about the occupation, likes and hobbies of other unaccompanied passengers and decide who they would like to sit next to depending on similarities or interests they have in common.

But… What about my privacy?

Critics of “Meet & Seat” say that KLM may be delving too deep into their lives of their customers. Some feel that KLM is converting the jet cabin into a high-school cafeteria.

One drawback is that users cannot veto who sits next to them, the only escape being to choose another empty seat – if there is one. It is, however, the customer who decides whether or not to be visible and accepts the possibility of sitting next to someone they have something in common with.

In general, customers are increasingly asked to provide information in order to provide personalised services to fit with their preferences. The secret is to strike a happy balance between the information requested and using it appropriately depending on the circumstances and matter in question.

Hassle-free shopping

Another of the Dutch airline’s ventures is “Shop@KLM” which sells the products usually sold by airlines. Purchases can be made on-line at shop.klm.com, for example, before the flight and KLM delivers them either on-board during the outward or inward flight or to your home address.

The customer avoids having to carry gifts about and enjoys an enhanced, more convenient shopping experience.

According to Dixon, Freeman & Toman (2010), customer loyalty is achieved not by fascinating them but by making things easier for them. Hassle-free service increases customer loyalty – and ensures sustainable future cash flows.

I want to travel in a group

KLM has also created a “trip planner” (tripplanner.klm.com) to plan group travel on the Internet in a collaborative way. This app uses each group member’s Facebook profile to suggest destinations and types of trip (beach, party, mountain…) in response to a highly visual, short questionnaire.

The app compiles the group members’ answers and preferences about travel destinations and times, and displays the option that received most votes from group members. An easy, fun and convenient way to plan group travel without the hassle and confusion of countless calls and emails.

KLM is one of the first airlines to integrate social networks into their own sales process – all on the same site.

A cross-channel strategy

These three KLM services are an example of a cross-channel strategy, i.e. the integration of two customer-interaction channels which until recently were apparently separate: on-line and off-line channels.

Generating synergy and integrating the two channels achieved what Steinfield, Adelaar and Liu (2005) define as enhanced legitimacy and trust in the brand, a wider coverage of different shopping preferences and the creation of natural complementary factors between the two “channels”.

KLM doesn’t take advantage of what Gallino and Moreno (2012) explained. These authors observed that BOPS (buy on-line, pick up in store) generates higher sales – not when the on-line purchase is made but when the item is picked up. When customers visit the store to pick up their purchase, they stroll around and increase the likelihood of an additional purchase. In KLM’s ase, products are not picked up in store but the new logistics will probably generate positive spin-offs that have not yet been studied.

KLM’s on-line/off-line integration helps reinforce their brand image as a customer-oriented company that cares about their customers.

Making the most of social networks

On-line/off-line integration is reinforced by using the social networks: proof that they are not just useful for keeping up to date with friends.

KLM’s social network interaction strategy enables them to sell not only plane tickets but also entertainment, networking opportunities and great in-flight service.

KLM as a “curator”

With “Meet & Seat” KLM also acts as a curator, aiming to provide personalised outcomes based on their customers’ needs and preferences. This enables them to empathise more with customers and broaden their travel experiences.

“Be my guest”

Perhaps passengers are more willing to sit next to some one who is a professional DJ, a super model, an astronaut or a Hollywood actor.

In 2012 KLM launched “Be my guest”, a campaign enabling customers to enter a virtual chat room and chat to one of Holland’s six most famous celebrities: Armin van Buuren (famous DJ), Ruud Guillit (footballer), Yfke Sturm (supermodel), Wubbo Ockels (astronaut), Jeroen Krabbé (Hollywood actor) and Hella Jongerius (furniture designer).

Participants answer 5 questions to choose the celebrity to travel with, and then the celebrities themselves decide which participant they will travel with to an inspirational destination. If, for example you are a fashionist, you might end up going to New York on a shopping trip with supermodel Yfke Sturm.

The campaign was a great success and very well received by the general public. It also won several awards and special mentions.

Final conclusions

What matters in business management is not so much having ideas (although they are always welcome), as keeping customers as our compass north, so that a retail company becomes a brand focussed on the clientele.

Because of the empathy generated, customers can be won over in a sustainable and profitable way. At the end of the day, that’s what it’s all about.

References

Dixon, M.; Freeman, K.; Toman, N. (2010) Stop Trying to Delight Your Customers. Harvard Business Review. July 2010.

Gallino, S.; Moreno, A.; (2012) Integration of Online and Off-line Channels in Retail: The Impact of Sharing Reliable Inventory Availability Information. Management Science. (Under Review)

Martinez-Ribes, K; (2012) El surtido, los cuadros de una exposición. La curación en Retail. Código 84, nº 167. December 2012

Steinfield, C.; Adelaar, T.; Liu, F. (2005) Click and Mortar Strategies Viewed from the Web: A Content Analysis of Features Illustrating Integration Between Retailers’ Online and Offline Presence. Electronic Markets. V.15, No.3, pp. 199 – 212.

Meet & Seat reviews:
> consumerist.com

Be My Guest reviews:
> keithkornson.nl
> work.davidnavarro.net
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Lluis Martinez-Ribes

Source: Código 84, nº 171.

Image by artchandising

Every day we are bombarded with some 2,000 messages (ads, ideas, suggestions) but only a tiny fraction of them – the ones the brain thinks might be relevant – are actually perceived by customers.

Thanks to functional magnetic resonance imaging (fMRI), neuroscientists now know that 85% to 95% of human decisions are implicit and not conscious. In other words, reasoning with people to convince them about how good a shop (or product) is, is a waste of time strategy.

What is the so-called sensory marketing?

Triggering emotions makes persuasion much easier because emotions bypass the filter of selective perception. But this is only possible with help from the senses, which are the fast track to emotions.

Stimulating the senses triggers an emotional response. Consumers then experience sensations that make them aware of an external factor.
This is the biological explanation for what is known as sensory marketing, a term I’m not particularly fond of because despite its biological basis, it’s just part of the favourite store creation process.

Point of sales sensory marketing consists of using ambient elements that impact customers’ senses and make their emotional, cognitive and behavioural responses favour the creation of a brand image and encourage purchases (Manzano et al., 2011: 74).

Greater awareness

This is where the senses step into the limelight. We all know the traditional five senses – sight, hearing, taste, touch and smell – but there are others that deserve a closer look. Ken Robinson, a creativity and innovation expert, points out the importance of the senses of balance, motion (spatial perception and spatial self relation) and heat, to name but three.

Antonio Damasio, a foremost Portuguese neurobiologist, explains that if someone screams, for example, our heartbeat accelerates and we think there’s danger nearby. We’ll then either listen hard or run away. All of this together – the stimulus, the body’s response and the consequences – is what constitutes feeling. Feeling is the perception of all this. It’s something that starts externally, affects our body, because the brain says so, and then we perceive it.

Beyond sensory marketing: “implicit marketing”

Because of the way the brain works, the most appropriate term for marketing, that is the processes and methods used to become a favourite store, would be “implicit marketing “or marketing of the implicit.

There are lots of examples of “implicit marketing”, but I’d like to focus on one particularly interesting case that casts a bold, new slant on an apparently well-established area: in-store music.

Since March 31st 2010, 17 million customers have been shopping without music at L’illa, Barcelona’s leading town-centre, shopping centre. The mall replaced its background music with computer-generated abstract sounds. It represents quite a radical innovation in the shopping experience.

Back in 2001, M. Gobé, the author of the best seller “Emotional Branding” said that music affects the time and speed of shopping and even the amount spent and is, therefore, a major factor in consumer behaviour. Therefore, replacing background music by abstract sounds could trigger different, new responses, and even more so bearing in mind that customers are used to listening to music while they shop.

Chapin et al (2010), from Florida Atlantic University, discovered that emotional responses and neuronal triggers depend as much on the parameters of the musical stimulus (e.g. the type of sound, or its tone or tempo) as on the prior musical experience of the listener. In an area like a shopping centre intended for a variety of segments, such as a shopping centre, maybe this project is not as crazy as it might seem.

Image by artchandising

The relationship between culture and the senses

Although “culture” can be defined from very different viewpoints, the UNESCO definition is very interesting for retail and marketing.

According to the UNESCO, “culture can be defined as the set of distinctive spiritual, material, intellectual and emotional features of society or a social group, and it encompasses, in addition to art and literature, lifestyles, the basic human rights of the individual, value systems, traditions and beliefs.” In other words, the way in which we live together. Hence, culture plays an important role in the way in which we interact with each other and our surroundings.

Each culture has a different way of defining, understanding and experiencing “the non conscious”. The processes generated by the implicit part of our minds are greatly influenced by the culture to which we belong.

Ken Robinson, for example, says that the sense of balance is essential in Africa. Whereas Mediterranean cultures place great importance on smell, taste and touch (hand shakes, hugs, cheek kissing, etc). This way to understand the sense of touch is very different from Anglo-Saxon or German cultures in which physical proximity is interpreted in other way.

The future of sensory marketing

Sensory marketing could be a powerful segmentation strategy because it is based and works from the non-conscious.

The senses can even be used in the online arena, particularly in product delivery time. Some of its applications are related with packaging used for product shipment, using innovative designs in contrast with the traditional and impersonal cardboard box.

Lastminute.com went one step further by expanding their on-line advertising strategies into their off-line activities, and sending small gifts to their customers to remind them of specific experiences. One such gift was a small tube of suntan lotion to remind them to plan their summer holiday (see font).

In the not-too-distant future it will be possible to sense smells in digital platforms and the media. As Russel Brumfield and other experts have already said, we’re on the brink of a breakthough into the world of smells: in the near future phones will probably enable us to smell who is calling, and websites and emails will be aromatised (Manzano et al., 2011: 154).

But there’s still a lot of uncharted territory in the sensorial marketing. Aradhna Krishna (2011) believes we still know very little about how the senses interact, and about possible clashes between sensorial perception and oversaturation in different people.

A final note

Until now, the highstreet stores able to exploit the senses best to create specific experiences and sensations have had a great advantage over e-stores. The full sensory experience in highstreet stores in comparison with just the two senses (sight and hearing) used by e-shoppers has been a huge advantage that drove Dell USA to copy Apple’s strategy of allowing their products to be sold on the high street too.

But touch-screen phones and tables have enabled another sense to make inroads into the digital world: touch. It’s no coincidence that shopping on these devices is rocketing.

References

Chapin, H.; Jantzen, K.; Kelso, J.; Steinberg, F.; Large, E. (2010): Dynamic emotional and neuronal responses to music depend on performance expression and listener experience. PLoS One, Vol.5, No.12, p.1-14.

Krishna, A. (2012): An integrative review of sensory marketing: Engaging the senses to affect perception, judgment and behavior. Journal of Consumer Psychology. Vil.22, No.3, pp. 332-351.

Manzano et al., Marketing Sensorial: Comunicar con los sentidos en el punto de venta. 2011, Prentice Hall, ISBN: 978-84-8322-812-8
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Lluis Martinez-Ribes

Source: Código 84, nº 170.

Image provided by Cookiteca

It is 5.30 on a Friday afternoon. After hanging up their coats, and carefully washing their hands, 15 children excitedly open their eyes as they enter a kitchen larger than the front room of their homes. There was a rising crescendo of murmured admiration. One of the children, Julia, has invited the others to celebrate her birthday. However, this was not going to be a conventional birthday party; rather they were going to have fun learning, and then eating, a cake. Hopefully, there will be enough left over for them to take samples home to show their families.

The party was taking place at Cookiteca, a new business that is hard to define yet easy to understand and love. This Barcelona-based firm is less than 30 months old, yet it has already opened four locations and served more than 11,000 clustomers. The firm is managed by the two partners Sílvia Mirabet and Neus Canal.

When Neus describes the business she uses different ways according on who is he addressing. She tells suppliers that Cookiteca is a cooking course centre and a shop. However, she tells prospective clients: ‘Cookiteca is a place where you can enjoy cooking and have a good laugh’.

History

Neus is an architect, entrepreneur, and business consultant. I met her when she came to visit me at ESADE to discuss attending a 3.5 day course in retail innovation. Registration for the course would cost €3000 and it was clear that she wanted to make the very most of her time and money. I was delighted with her vision and focused energy.

Cookiteca began in January 2010 when Sílvia, a cooking lover, asked Neus for advice about a business concept based on cooking. The idea hinged on the fact that it was easy to find cooking courses, but very difficult to find utensils and ingredients. They founded the business in May and opened their first location four months later in an attractive building in the traditional neighbourhood of Sarrià in Barcelona.

On entering Cookiteca and seeing a display of semi-professional cooking tools you might feel that you had entered a rather stylish kitchen utensil shop. To one side is the reception desk that doubles as a cash desk. Enter a little further inside and you will find an area displaying utensils and ingredients for making desserts. This area leads on to a very large and well-equipped kitchen where cooking classes are given. But it does not end here, further on there is a room with a large table where participants can taste what they have just prepared. On their way out, participants can buy some of the more unusual ingredients used in the class.

This is a guild-breaker retail formula: it is simultaneously a kitchenware store, a specialist bookstore, a cooking school, a restaurant, and a grocery. And sometimes it is also an event planning company, whether it is for individuals or companies.

Who does Cookiteca serve?

One of the strengths of the business is the diversity of segments served. The business aims at three segments – although never simultaneously:

• Adults interested in cooking
• Event planning businesses where the kitchen plays a leading role
• Children

There is a growing public interest in cooking. According to Neus some 20% of people who could cook do not know how – and there are many others who want to expand their abilities by learning a manual skill that is unrelated to their professional work. Neus says that by learning a new skill people gain more self-confidence and escape from daily life tension.

Activities range from a basic healthy cooking course to more skilled and fashionable courses – such as backery. The usual price of registration is between €35 and €45.

Part of its activity is B2B rather than retail. Cookiteca sells active kitchen-based events to local companies: such as cooking demonstrations and tastings. The firm has a psychologist on call who helps clients design specific events.

But it is children who have made Cookiteca famous and remain a vital segment. Children (who must be older than six to follow and enjoy the learning dynamics of the classes) always have plenty of fun cooking and many develop latent abilities. Their self-esteem is also given a boost when they return home with something they cooked themselves. The children make Cookiteca a happy place, and have quickly spread the word about Cookiteca around Barcelona.

In addition to the scheduled courses, various other events and birthday parties are hold (with cooking always as the main event). Self-catering courses for children are organised during the school holidays. The children arrive early in the morning, prepare their breakfasts, eat together, go grocery shopping at the local food market, attend an external workshop, return, then prepare and enjoy lunch together before going home. The course serves as a rounded experience in cooking and working together – while having fun.

Offline and online combined

The company web plays a key role in creating awareness and marketing the cooking classes (25% of places are booked on the web). It is also increasingly used for selling other products.

Cookiteca has not yet offered what will become the main digital interface, a smartphone app, and for the moment the business remains a good example of a start-up that is not technology based.

The current revenue pie shows 35% earned from cooking workshops, and 65% from shop sales. The partners aim to balance both items and expect to reach breakeven soon.

Image provided by Cookiteca

More than cooking

Neus is clear that she does much more than co-manage a cooking school.  She is establishing Cookiteca as a strong brand with humanist principles. Neus says the company emphasizes the role of good cooking for well-being, and maximises the fun inherent in group learning.

Brand building, explains Neus, is more important than aggressively aiming at short-term profit.

There are two essential elements for building the business:

1. A competent and enthusiastic team – perhaps the most difficult element to achieve in a retail model.
2. A suitable building as “package”, Neus says locations must be: cosy, authentic, practical, inexpensive, and undecorated. The food, she says, tends to provide the colours needed.

My six tasting notes:

My tasting notes for Cookiteca suggest that the business leaves the following after-tastes:

• 1. Cookiteca offers a retail model that understands the economic reality in the street, and treats customers as people.
• 2. Cookiteca has devised a solution tree, with a common trunk (the love for cooking), but with different branches yielding in an unique and intense experiences as fruit

⁃ Using a mixture of products, services, and activities;

⁃ Combining products usually found in very different sectors.

• 3. It is a business model that serves different segments at different moments – but never simultaneously.
• 4. Cookiteca knows how to answer the question that I usually put: ‘what do you mean in my life?’ Cookiteca is a place where I can meet with other ‘foodies’ like me.
• 5. Improvements will come from a better fit between the three dimensions:

⁃ Solution portfolio

⁃ Segments

⁃ Locations (including the online shop)

• 6. Despite requests and having prepared some documentation, Cookiteca does not yet wish to franchise the business because the founders feel that further fine-tuning is needed. Franchising means offering the franchisee a reduced risk of failure, and Cookiteca wants to improve their model first. This is a good example of an ethical business philosophy.

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Lluis Martinez-Ribes

Source: Código 84, nº 169.

Image: Lluís Martínez-Ribes

In August 2007 I spent two weeks in China working on a retail project for household goods. I visited a lot of homes as well as a few shops in several cities. In one of these stores, I saw a sofa with a piece of paper on top. It was a public list for those interested in buying the sofa to jot down their personal data. If 10 people signed up indicating they were interested, the store would then sell that model to all of them at a heavily discounted price.

This was the first time I saw an example of we-commerce, albeit an analogue version.

Currently, the group shopping phenomenon is spreading around the world, though taking advantage of Internet instead of paper due to its ease.

What is ‘we-commerce’?
At the individual level, we-commerce is what many companies have been doing for decades: creating shopping groups to be able to negotiate better prices from their suppliers.

We-commerce is the name used to describe a particular way of selling products. It’s led by an aggregator which takes advantage of the bargaining power of group purchasing and the possibilities Internet provides. When a certain number of clients are strongly interested in a given item, the purchase can be made with a very advantageous discount.

Example we-commerce sites include comprarunidos.com, everybodycar.com, compramospiso.com, valesmucho.com, entregrupos.com, numismatica-visual.es (occasionally), etc.

How we-commerce works
There are three players in the sales process: interested individuals, companies selling their products, and the agent facilitating the relation between the previous two. The fundamental role of the latter is to aggregate demand so that a certain volume is created, thus allowing the seller to offer interesting price discounts.

In fact, the aggregator creates a ‘vertical distribution system’ as it is referred to in academia:  ‘actors’ who are organised and related in such a way that they carry out beneficial commercial transactions for all.

Despite the fact that this bargaining power resides in the purchasers grouped together, the aggregator usually takes the initiative in organising the system. However, the potential customers indicate which products they want to buy through the group.

These items normally consist of high-priced goods which are only purchased sporadically. Examples include homes, large household appliances, stamp collections, etc. This model does not work with ordinary products. One company, tiketocio.es, tried to apply the model to perfumes in 2010 but it now sells them through conventional retailing.

Image: artchandising

Advantages and disadvantages for purchasers
In exchange for a highly reduced price, in general, interested purchasers are not sure when they will actually be able to carry out the purchase or even if it will occur as this depends on having enough purchasers. Another negative factor is that shoppers are often the ones who have to pay a commission to the agent organising the purchase.

To a certain extent, group purchasers also have to accept certain trade-offs, such as having fewer customisation options available.

For sellers, group purchases represent an important increase in their sales volume though at a notable price reduction. They also have to remunerate the aggregator, whether via commission or periodic payments. This sales model does not encourage brand loyalty, though short-term sales are high.

For aggregators, this model allows them to earn significant income since the other two parties are very interested in reaching an agreement. The weakest aspect of the model currently is that it is still in the early stages and lacks critical mass.

For all three, it is extremely important that all the purchasers who say they’re interested truly commit to carrying out the purchase if the appropriately-sized group is created. If this doesn’t occur, the transaction will not take place, and all those involved will, at a minimum, have wasted their time. In 1989, Bagnoli and Lipman, discussed this model’s theoretical foundation for the first time, arguing that this type of contract required certain guarantees.

What it isn’t
We shouldn’t confuse we-commerce with other business models that share some common traits.

Online outlets (e.g., vente-privee, letsbonus, groupon, privalia, buyvip, primeriti, yoox, net-a-porter, etc.) do not practice we-commerce. They offer products at reduced prices to registered customers that have agreed to be periodically informed about special deals, the latter normally lasting a very short time. In addition, the clients don’t choose the products to be sold; these appear and disappear based on what the companies selling them want to liquidate or promote. This type of outlet store does not need a minimum number of purchasers to carry out the sale.

Social media commerce, that is, sales organised via social networks (e.g., Facebook, Yahoo!, Google+, etc.), can be defined, according to Anthony Mayfield, as the use of social networks for their members to acquire products or services through the network, taking advantage of the highly influential recommendations provided by friends and acquaintances.

Thefancy.com is an example of a mixed social media and affiliation commerce model. Some consider this site to be the Pinterest of e-commerce. Each time someone buys something through a link someone else has shared, the latter receives a commission.

Though it is a type of group purchase, we-commerce is not about sharing ownership or use of a given product. The latter model, in which usage takes precedence over ownership, is growing. Clear examples include firms such as Zipcar.com, through which members share cars, and myluxury.biz, which rents luxury purses by the day or week.

A fairly similar model is cloud housing (vidamesfacil.com/cloudhousing) which manages buildings, applying economically and environmentally sustainable principles and sharing or purchasing supplies together. Another example of a company with strong social and environmental values is London’s The people’s supermarket, though it is still not online. It has been partnering with Spar since 2012.

On the other hand, there are also examples of firms who use the term ‘we-commerce’ though they are, in fact, traditional retailing. This is the case with Join2buy, whose name, appearance and introduction seem to be that of a we-commerce site though it only offers a limited number of products for which it believes there will be strong demand: it simply buys them from suppliers at a low price and sells them cheaply.

We-commerce’s foundations
We-commerce has a strong social foundation which is actually based on biology. As mammals, we feel comfortable in groups. We like to influence others and be influenced by them. This tendency is heightened even further through Internet where we not only receive content but also produce and share it. Social networks have become the greatest worldwide revolution in the last few years with tremendous impact.

The theoretical basis of this influence is the so-called ‘network effect’ which Robert Metcalfe applied to Internet in 1980: the more people are included in a network, the more everyone benefits, obtaining positive externalities.

In this context, we-commerce unleashes individuals’ latent potential when they become organised. Together they can achieve things which they couldn’t on their own. In fact, shopping is a human activity with a high degree of social content and repercussion.

One of the primary success factors of any we-commerce firm is very likely generating trust to quickly become important and reach the so-called “tipping point” (Malcolm Gladwell, 2000): the point at which it becomes the reference and, as a result, achieves critical mass in the number of consumers.

Paradox
We-commerce has novel traits, but it also has a paradoxical component in terms of the commercialisation strategy used.

Several we-commerce companies describe their sales model as ‘direct purchase’. However, the majority of aggregators that group interested buyers together neither sell nor re-sell products. By contrast, they expand the sales channel by acting as intermediaries between the purchaser and seller.

In a society which often claims that it wants to ‘eliminate the middleman,’ this example demonstrates that some clichés are poorly formulated.

Two final thoughts
First: Regardless of whether we call them individuals, purchasers, shoppers, consumers, citizens or, better still, people, they will become increasingly aware of their power and their social and commercial influence. The examples cited above are nothing more than the seed of what’s to come.

Second: Many low-cost products and repeat purchases (e.g., detergents, cheese, bread, etc.) cannot be sold via the we-commerce model. However, I can foresee families soon putting a price on their loyalty. It will no longer be a question of ‘how many points do I get for every 10 euros I spend at the supermarket?’ but, rather, ‘What rebate will you give me if I spend 90% of my annual family budget at your store?’.  The metric for this already exists and can be calculated: “customer lifetime value”.
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Lluis Martinez-Ribes

Source: Código 84, nº 168.

(Images: artchandising)

In 2012, many pharmacies in Spain have drastically reduced their inventory. The Government, their main customer, accounts for over 70% of sales and is not only negotiating lower margins but also paying later and later.

Keeping stocks down is very appropriate in financial terms, but not necessarily in terms of the impact on customers, who see how their usual pharmacy has become less convenient:  many products have become available only upon request and customers must return another day to pick them up. Product presentation has also become less attractive.

Such inventory decisions are common in retail. Mercadona, for example, significantly reduced its range in 2009.

This topic has enormous scope, affecting not only the financial and commercial aspects of an organisation but also the management of complexity within it (purchasing, logistics, and training, etc.). Put another way, it directly affects the balance sheet, the Profit and Loss account and the overall competitiveness of a retail company.

Tools for the assortment policy

It is well known that assortment in a retail company has two variables: breadth and depth. The first refers to the number of major product categories that a store (physical, web or app) makes available to the customer. The second refers to the number of options that the store offers within any given category (for example, the number of kinds of milk on sale).

By playing with these two variables one can describe many retail formats. A convenience store, for example, is characterised by offering a broad but shallow choice: a little (usually only best-selling products) of a lot of different categories. In contrast, a specialist shop offers many options (depth of choice) in only a few product categories, aimed at many different kinds of customer.

Several methodologies have been used, such as “efficient assortment” or “category management”, which has been promoted by AECOC* for years. Their usefulness is high when it comes to improving or adjusting an existing situation, but is nevertheless low when it comes to creating an innovative retail formula.

(*) AECOC, Spanish Association of Commercial Coding (Asociación Española de Codificación Comercial

On the other hand, the method by which category management has been actually carried out has led to it going into a steep decline, at least in the mass market sector. Suppliers led, developed and funded while those directly concerned, the retail chains, went about making range decisions using different criteria, not always in line with the patterns of their suppliers.

As a result, the current playing field presents a remarkable challenge: choice, a crucial element in commercial and financial policy, is addressed in a disorganised manner.

Customers change their preferences for both type and amount (for example, ‘three for the price of two’ promotions no longer seem to work as well as before), suppliers want to launch new products, but the likelihood of achieving sufficient market coverage is very low and retail not always are in tune with the customers or with the suppliers.

Academic studies

There have been numerous studies which have shown that an excess of depth of choice does not usually create a better quality of life for customers but instead generates more complexity, more doubts over what to choose… and ultimately less revenue, as noted by Prof. Barry Schwartz in his book, ‘The Paradox of Choice,’ 2003.

A study carried out by Sheena S. Lyengar (‘The Art of Choosing,’ 2010) looked at the reaction of supermarket customers faced with two alternative choices of jam.

The largest number of products attracted more customers (fascination effect), but  resulted in fewer sales. The human brain does not like complexity, doubt,  or paying conscious attention to things. Aspects such as these represent effort and aggravation in the purchasing process.

This finding is especially relevant since, according to research by Dixon, Freeman and Toman,  reducing the required effort creates more loyalty customers than, for example, giving them a fascinating shopping experience.

As Prof. Bran Wansink (Cornell University) noted, Costco in the USA has only 4,000 items in its range. The lack of choice is deliberate: “We’ve chosen for you,” says the chain.

The compass points towards the customer

The current challenge of choice, especially as applied to moments of innovation in retail, can be solved better if we start not from our current assumptions but from customer-centricity.

More specifically, a new approach is born if you start from a very simple question:

• Shop, what do you mean to my life?

In other words, what is the shop to the customer? And also, what is the shop to the customer? Note that we are not using the verbs ‘to do’ or ‘to have’ but others: ‘to be’ and ‘to feel’.

One task that can have a high impact on a retail business is known as to edit. Once common in fashion retail, it can now be found in any sector.

To edit involves devising the sense that a given choice might have, through items provided by different suppliers.  It’s like composing a musical score using notes provided by third parties.  For example, designing a collection of accessories that expresses a Mediterranean character from a selection of existing items from various suppliers.

This type of activity is typical of a curator.

This rol is key to any museum exhibition,  the curator determines the sense of the event by choosing works that he or she did not personally create. The curator will also arrange and sequence them according to his or her determined criteria. As a result of the work of the curator, visitors will enjoy a consistent experience full of emotions and perhaps of learning, achieved in a chronological sequence, as a vivid storytelling.

One example is that which Gary Friedman, President of Restoration Hardware, cites as the company’s philosophy of business and, as such, of choice: “When we fearlessly fight for what we believe in and remain hopelessly optimistic about life, love and the future, we create an authentic connection with all in our path. Most importantly with ourself.”

Another example is that of Ferran Amat, owner of the iconic shop Vinçon in Barcelona, when he cited falling in love with products as a criterion for choosing them. In an interview he said that they were all products he would have in his own home.

The Curator

This term reflects its etymological origin in Latin, curare (to care for, to worry about); that is to say, those who are responsible for a matter or process, having talent, subject knowledge and management ability.

This role is now more relevant than ever in a retail company because we live not only in the information society but also with the burden and oversaturation of inputs with the associated risks of lack of attention and mental distraction of customers.

In short, adding more and more items is not necessarily the answer. The customer ‘reads’ and understands choice on a non-conscious level. I have no doubt that assortment communicates more and better than posters, displays or ’stoppers’. Because it does so intuitively.
But for choice to communicate and sell efficiently, I propose the following three steps:

1. Inspire yourself with the answer to the question, “Shop, what do you mean to me?” Answer if possible without using the usual topics: price, product, quality, service, location etc. Here the role of curator is essential, because it is the source of the assortment policy: to select the right products for the shop. The result will be an “edited” choice, which logically must be in tune with the shop as a brand.
2. Organise assortment — and as such the layout of the shop floor — based around a well thought out  Semantic Structure of Assortment: a type of tree of consecutive criteria, grasped intuitively through empathy with customers. It’s not recommended to ask them directly via market research; it would be paradoxical to use a conscious method to understand an implicit process.
3. Express it in a way that does not create chaos or visual pollution in the human brain. To do this, it is helpful to visualise the subcategories so as to highlight the most relevant in terms of what was mentioned in step 1.

In this way, choice will be in tune with customers. They’ll feel good about what they experience in the shop and of course about its functionality.

So, the breadth and depth of choice in an innovative shop — or at least a differentiated one – will be the result of a kind of philosophical human process; … and therefore very commercial.

Customers aren’t robots with wallets, but people who live their lives in the most harmonious and positive way possible.
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References (by order of appearance)
Schwartz, Barry. The paradox of choice: why more is less, 2003, Ecco edit., ISBN 978-0060005689

Iyengar, Sheena. The art of choosing, 2011. Twelve Edit. ISBN: 0446504114

About Costco:

• cnbc.com
• Dixon, Freeman & Toman, “Stop Trying to Delight Your Customers”, Harvard Business Review. Agosto 2010.

About Restoration Hardware:

• restorationhardware.com

About Vinçon:

• obsmurcia.es

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Lluis Martinez-Ribes

Source: Código 84, nº 167. December 2012

Image: inside the store (provided by the company)
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Stefan Siegel, founder of Not Just a Label
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Image: Container for spices sold in bulk, designed by Carolina Caycedo, which was awarded in the category “Young Design” awards Liderpack of 2011
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