3 lessons to learn from the supermarket big boys - Part II

Last week, in Part I, I briefly covered the evolution of supermarkets and showed how their business model came to be and what lessons we could take from that. Lesson #1 was about pricing and Lesson #2 was about branding.

(Read it here if you missed it.)

LESSON #3: STRATEGY

There are three key strategic takeaways from studying the history of supermarkets:

Firstly, standing still is certain death. The middle ground, where are you trying to be all things to all people, is not a sustainable strategic position. Any concept in between will be squeezed out towards one or the other. (Read more about the Big Squeeze here.)

Knowing where you are, where you want to be and the translating that into a business model is the essence of a strategy. That is, the ‘positioning’ you adopt dictates your strategic imperatives.

For example let’s say you can choose to be a (1) mass-market, disposable fashion segment operator, or you can choose to be (2) a high-end, high-fashion boutique operator. Depending on your choice, you will build your brand, your supply chain, and your pricing strategy based on that initial choice.

And this is the important part: If you choose option 2, you cannot simultaneously play in the low price, high volume segment. It is self-evident, but yet every day, we see the exact opposite.

Secondly, the key to driving costs down is aggressive innovation in technology. Big box retailers like supermarkets have led the way in innovative technology, from bar codes to big data and beyond. The financial, direct cost of technology is coming down, but the rate of change is adding a significant indirect cost of constant learning and re-learning, constant tweaking and changing. This is the advantage of the little guy because the investment is lower and the turnaround is quicker.

Finally, and most importantly, every supply chain will have (or attract) middlemen who want to rort the system and ‘clip’ the proverbial ticket without investing in the ownership (and risks of owning) the product. This has been so since time immemorial and it is true today. The new incarnation are SEO services, providers of marketing automation services and the like.

If history is anything to go by (and it is) you can plan for the following inevitabilities:

1. Businesses will evolve towards a more efficient supply chain with fewer middlemen. I don’t know what will replace these middlemen, but something will. Something like the Google Buy Button may well be the thing that changes the game completely.

2. The oscillation between big and small will continue. The Amazon-Alibaba-Google cohort will become the price/convenience operators and the only point of difference will be … not that. The strategic challenge is to find a competitive advantage that capitalises on your smaller size and taps into something the customer really values.

It won’t be product knowledge, because the internet killed that. Figuring out the answer is a key strategic imperative.

The good news is that customers naturally prefer to deal with the little guys, the ‘market operators’ of today, but they won’t do it any price (lesson #1).

Even better news there ARE answers, the question is simply whether you will find it.

Have fun

 

Dennis

Ganador: Management SOLUTIONS (especially tough ones)

 

3 lessons to learn from the supermarket big boys - Part I

The evolution of supermarkets contain many lessons for modern retailing.

Fixed stores evolved naturally out of markets. Following that, several key changes occurred in a few decades: the introduction of self-service, growth of chains (geo-scaling) and then the explosion in size for stores (and concomitantly the increase in range.) Parallel to this was the ever-increasing focus on price.

This historical development reveals that an important driver in the evolution of the supermarket is that the distribution channel was extremely inefficient. (To understand the strategic role that the inefficiencies and friction plays, read this piece.) The low volume purchases of these small traders led to high costs and sizable mark-ups. Traders purchased their supplies from a wide range middle-men who rorted the system, adding additional costs to an already expensive distribution system.

Supermarkets dominate the one end of the barbell (convenience/price) and specialty stores dominate the other (service/depth & knowledge). Graphically it can be illustrated as below:


Lessons to be learned from the evolution of supermarkets:

LESSON # 1: PRICE

Saving money is big driver of purchase behaviour. Customers generally would avoid the supermarket, but the price/convenience factor is compelling. The basic business models behind both the supermarket formats dates back many decades, and the anti-chain sentiment (in the US) of the 1930s was at least as strong as the movement against big box stores that we see today.

Focus on price will commoditise your business. Once you are commoditised, there is no escape. When you are locked into a price-based strategy, you better focus on costs relentlessly.

But price is not the only strategic competitive advantage. It feels like it is the easiest to pursue, because you can simply go to a shelf or a unit of merchandise, or log on to a computer and change the process. It feels like you have done something. And you have. But not necessarily in a good way. Once you start sliding down the slippery slope, it is very hard to climb back up.

I am not suggesting that price-differentiation is a bad strategy, just that it requires all the other parts of the business model to be aligned with it, and a specialty shop will achieve that alignment with great difficulty because of structural constraints.

LESSON #2: BRAND

Customers don’t buy brands, at best ‘brand’ is a heuristic. I cannot write it any better than the inimitable Bob Hoffman:

A lot of people have shaky jobs. And many have unstable families. Some have illnesses. All have debts.

Lots have washing machines that are broken, and cars that need a tune-up, and funny things growing on their backs, and boyfriends that are always getting high, and socks that have holes, and hair that is falling out, and toilets that are unreliable, and 10 pounds of extra stomach, and kids that are unhappy, and teeth that hurt, and rent to pay, and...

...a lot of things to care about.

One thing you can be pretty sure they don't care about is your brand. 

Yes, I know you've been told that people love brands, and want to engage with them, and co-create with them and be all social with them. But stop and think about it for a minute. Do you really believe this? Does it even pass the giggle test?

If you're a marketer and you believe people care about your brand just because they buy it, you're headed for trouble. What we blithely call "brand loyalty" is mostly just habit, convenience, mild satisfaction or easy availability. 

‘Housebrand’ is a strategy that is about channel power as much (or even more than) it is about margin, and least of all about giving the consumer value.

Customers don’t buy a ‘housebrand’ because they trust the ‘house’, it is because they want it cheap and believe that it comes from the same factory anyway.

Tabloid researchers and gurus on Today Tonight will tell you that people love the Aldi housebrands more than Coles or Woolworths. Not true. Consumers are simply more likely buy it when they don’t recognise the brand (as in Aldi) and they don’t know they are buying ‘homebrands’.

I am not suggesting that branding is not important, but rather that the role it plays in the consumer decision-making process is different to what people think.

Next week I will cover the final (strategic) lessons to be learned from studying the big boys.

How franchisors fail

Books have been written about the advantages and disadvantages of franchising. The government has even chimed in with their views. As always with these things, there is no definitive right/wrong answer.

One of the great attractions of a franchising system is the promise of a ‘proven system’, making the decision to invest less risky. Yet all businesses run the risk of failure and franchise businesses fail too. Some sources suggest the failure rate is the same or at least very similar. Of course there are widely divergent claims, but as noted here, these claims are often spurious. The claimed “95% of franchises succeed” even goes by the capitalised moniker of ‘The Stat’.

Despite some legitimate doubts about these claims, I would classify myself as a proponent of the format. And the market has spoken: Given the size of the industry, one would have to accept that there are probably more advantages than disadvantages.

But there is one fundamental issue that is never addressed, which in my view is crucial to the success of a franchise system. Whilst one can argue that the franchisee and the franchisor can share the blame in many instances (and they do) I want to focus on one aspect that is controlled by the franchisor.

The franchisor and the franchisee are NOT in the same business.

The franchisor is in the business of selling businesses and the franchisee is in the business of whatever the franchise system is (fast food, auto repairs or gardening etc.)

In essence this means that the direct objectives of the two stakeholders are different. The metrics of success or failure are different. The strategies for growth are different, the daily issues faced are different, the cash flows are different, and the capital requirements are different. Franchisors are in a B2B business in the Franchisees are usually in a B2C business – and even when they are in a B2B environment (like an Accounting franchise) the market is still very different.

These differences do not necessarily mean there is or should be conflict. The franchisor has a vested interest in maintaining a healthy franchise system because it makes it easier to sell franchises. But when there IS a fall-out in the relationship, I have discovered that the underlying cause usually relates to the fact that the franchisor has lost sight of the inherent risks of the divided interests, usually focusing on their business at the expense of the franchise system.  That is, a franchisor may focus so much on expanding the network (driving their own revenue growth) that it neglects maintaining the system effectively.

That is, the B2B interests of the franchisor are the primary consideration and the B2C nature of the franchise system becomes the secondary concern of the franchisor. I am not suggesting all franchisors are guilty of this, but in systems which are characterised by mass closures, franchisee revolt and court cases; this is often the case.

Sometimes franchisees are accused of being unco-operative, or not being proactive or of not following the system. All of these claims seemingly point to the franchisee being the guilty party, but in fact I would argue that it is the franchisee recruitment that is to blame.

It again points to the malaise identified above. The franchisor lowers standards and allow people into the system who were clearly not suitable (often against their better judgement) because they are chasing market growth.

The worst types of franchisees are:

(a) People who think franchising is easy (guaranteed) money are usually the ones who are passive/reactive and whinges constant about what the franchisor is not doing for them. Instead of understanding that they have a bought ‘a way of doing business’ and that they still have to actually DO the business, they expect the franchisor to deliver everything on a plate.

(b) People who are too entrepreneurial to work within the system. These folks will work the system, but they will also break the system. They want to change the menu and change the processes or whatever. They always argue that their location/store/customers are different and they deserve special consideration and exemption.

There is a fundamental shift that occurs when you move from being the operator of successful B2C business yourself to being a franchisor. The skills and knowledge you have in running your business pre-franchising become less relevant in some ways and you need to acquire new skills and adopt the right mindset.

It is sad when any business fails. It is particularly disappointing when a well-thought-out business system fails. But much of this can be influenced and controlled by the franchisor, and it is not very productive to blame the franchisee.

 

GANADOR: Changing organisations from the inside out to focus on the customer.

11 Scientific Findings on Retail Pricing

This article summarise most important FACTS that you need to know about pricing in retail

I don’t often do this, but this is the entire executive summary of a serious research paper on Pricing. The fact that I am doing this now, hopefully suggests that it is important. It is a little bit ‘dry’, so I have highlighted the ten most important findings in bold.

Executive Summary by Ametoglu et al, 2010) on a paper titled “Pricing Practices: Their Effects

On Consumer Behaviour and Welfare.”


The pricing practices discussed in this paper are highly prevalent in today’s society. While classical economic theory suggests that people will act rationally, using cost benefit analysis to make choices, scientific research shows that this is not the case. Humans do not have the capacity to recognise and evaluate all the available information in today’s complex environment, nor the time or motivation. Instead, people use mental short-cuts, or heuristics, to deal with this complexity.

Whilst heuristics can usefully guide our behaviour and allow humans to function in the world, they are not perfect calculations and are subject to occasional and sometimes costly mistakes. Importantly, heuristics leave people exposed to external influences, including pricing cues. The literature on pricing practices suggests that pricing cues provided by retailers can affect consumer behaviour and value perceptions.

Compared to presenting a total price partitioning prices into a base price and surcharge can significantly increase consumers’ positive evaluations and purchase intentions, and can lower search intentions. This is because consumers may fail to fully adjust from the initial (lower) price of the base good and therefore underestimate the total price of the product.

Evidence suggests that people tend to stick with the default option, even when this option has major, long-term consequences.

There is a large body of evidence to show that the presence of an advertised reference price increases consumers’ valuations of a deal and purchase intentions, and can lower their search intentions. Reference prices can have a significant impact even when these are disproportionally large and when consumers are sceptical of their truthfulness. The effects of reference prices are stronger when consumers are not readily able to compare them to an industry price, such as with unbranded, or retailers ‘own brand’ goods, and with less frequently purchased and more expensive items.

The available evidence on the effect of offering a “free” product in a bundle (e.g. 'buy one get one free') is mixed. While some studies show that this practice can increase consumer valuations and demand, others show that a freebie designation does not increase consumers’ perceptions or willingness to pay for the bundle.

One large scale study suggests that the bait-and-switch practice may have a substantial (negative) impact on consumers. Moreover, consumers are drawn in to promotions and where the item is out of stock, they predominantly switch to another item within the same store, due to lowered search intentions.

Compared to a single unit price promotion, a multiple unit price promotion (volume offer) increases the quantity consumers buy, even when the discount does not differ and consumers do not receive an incremental saving. This effect can be substantial. Importantly, a bundle discount can increase quantity decisions relative to per unit discounts even when consumers may not purchase enough of the products to qualify for the bundled discount.

The effects of bundles (pure or mixed) are partially explained by confusion in that consumers generally believe that bundles involve discounts (i.e. infer savings) even when they do not and no such information is presented. Bundling can also influence choices because it decreases cognitive effort.

Evidence specifically looking at the effect of time-limited advertising is inconclusive. However, it seems that under conditions in which time-limited offers do trigger feelings of scarcity, consumers are more likely to overestimate the product quality, or the value of the deal, lower their intentions to search, and have higher intentions to buy. Shorter time limits may augment this effect (though very short time limits may have an opposite effect).

Research suggests that pricing practices may be less effective in conditions where consumers are readily able to make memory based price comparisons, or have quick and easy access to price information, such as in online environments. On the other hand, pricing cues put forward by sellers both online and offline may still influence consumer behaviour, indicating that learning and/or easy access to information does not eliminate the impact of these practices.

Invisible Retailing

 

When people buy a product or a service, they do not only pay with money, they pay with many ‘invisible dollars’:

·        They invest their very precious time

·        They risk their reputation

·        The opportunity cost of not pursuing a different product/outcome

Forgetting these invisible payments can cost us dearly.

Similarly, the retailer pays with those same invisible dollars (i.e. indirect costs) for the products.

·        We don’t factor the opportunity cost of the working capital,

·        We don’t price risk of obsolescence and damage into our cost of sales.

Forgetting these ‘invisible costs’ can cost us dearly

 

Pricing: 1 principle, 2 misunderstandings and 1 very important lesson

The pricing of products plays an important role in the creating of an image of a business. The retailer can use different strategies to establish the prices of their products or services.  At a macro level, the retailer must select from one of these three generic strategies:

  • ABOVE the market
  • AT the market
  • BELOW the market

This is a ‘first principles’ decision and this decision will:

  1. Set the boundaries of your branding execution
  2. Inform your ranging and numerous supply chain decisions
  3. Frame your (visual) merchandising executions
  4. Define your target market
  5. Influence your strategic possibilities into the future

If your store/offer is positioned in the ‘value’ space and is strategically designed to compete on price. Low(est) prices in that case is consistent with the business and brand image.

There are two common misconceptions about quality.

The notion of ‘price’ is used by the customer as a heuristic (shortcut) for quality. Buyers generally see price on a sliding scale, like this:

Prices can really be ‘too good to be true’.

Pricing scale.PNG
Customers don’t buy on price, but on value.

Customers equate value and quality and perceptions are formed accordingly. Few people consistently buy the cheapest of everything; but rather want to spend the least amount of money for the acceptable level of quality.

Given the above, the lesson for all that discounting is a strategy of LAST resort, not first.

Discounting should only be used if you have failed to convince the customer of your value proposition. (Of course your competitors set the base line about value and it is not easy to sell the same thing at a higher price when it has become commoditised. The challenge is to find a differentiator customers are prepared to pay for.)

 

What you need to know about pricing in retail (geeks only)

I don’t often do this, but this is the entire executive summary of a serious research paper on Pricing. The fact that I am doing this now, hopefully suggests that it is important.

Executive Summary by Ametoglu et al, 201o) on a paper titled:

Pricing Practices: Their Effects On Consumer Behaviour and Welfare.”

(Clicking on the link will download the PDF of the paper.)


The pricing practices discussed in this paper are highly prevalent in today’s society. While classical economic theory suggests that people will act rationally, using cost benefit analysis to make choices, scientific research shows that this is not the case. Humans do not have the capacity to recognise and evaluate all the available information in today’s complex environment, nor the time or motivation. Instead, people use mental short-cuts, or heuristics, to deal with this complexity.

Whilst heuristics can usefully guide our behaviour and allow humans to function in the world, they are not perfect calculations and are subject to occasional and sometimes costly mistakes. Importantly, heuristics leave people exposed to external influences, including pricing cues. The literature on pricing practices suggests that pricing cues provided by retailers can affect consumer behaviour and value perceptions.

Compared to presenting a total price partitioning prices into a base price and surcharge can significantly increase consumers’ positive evaluations and purchase intentions, and can lower search intentions. This is because consumers may fail to fully adjust from the initial (lower) price of the base good and therefore underestimate the total price of the product.

Evidence suggests that people tend to stick with the default option, even when this option has major, long-term consequences.

There is a large body of evidence to show that the presence of an advertised reference price increases consumers’ valuations of a deal and purchase intentions, and can lower their search intentions. Reference prices can have a significant impact even when these are disproportionally large and when consumers are sceptical of their truthfulness. The effects of reference prices are stronger when consumers are not readily able to compare them to an industry price, such as with unbranded, or retailers ‘own brand’ goods, and with less frequently purchased and more expensive items.

The available evidence on the effect of offering a “free” product in a bundle (e.g. 'buy one get one free') is mixed. While some studies show that this practice can increase consumer valuations and demand, others show that a freebie designation does not increase consumers’ perceptions or willingness to pay for the bundle.

One large scale study suggests that the bait-and-switch practice may have a substantial (negative) impact on consumers. Moreover, consumers are drawn in to promotions and where the item is out of stock, they predominantly switch to another item within the same store, due to lowered search intentions.

Compared to a single unit price promotion, a multiple unit price promotion (volume offer) increases the quantity consumers buy, even when the discount does not differ and consumers do not receive an incremental saving. This effect can be substantial. Importantly, a bundle discount can increase quantity decisions relative to per unit discounts even when consumers may not purchase enough of the products to qualify for the bundled discount.

The effects of bundles (pure or mixed) are partially explained by confusion in that consumers generally believe that bundles involve discounts (i.e. infer savings) even when they do not and no such information is presented. Bundling can also influence choices because it decreases cognitive effort.

Evidence specifically looking at the effect of time-limited advertising is inconclusive. However, it seems that under conditions in which time-limited offers do trigger feelings of scarcity, consumers are more likely to overestimate the product quality, or the value of the deal, lower their intentions to search, and have higher intentions to buy. Shorter time limits may augment this effect (though very short time limits may have an opposite effect).

Research suggests that pricing practices may be less effective in conditions where consumers are readily able to make memory based price comparisons, or have quick and easy access to price information, such as in online environments. On the other hand, pricing cues put forward by sellers both online and offline may still influence consumer behaviour, indicating that learning and/or easy access to information does not eliminate the impact of these practices.

If it is that easy, why are you not doing it?

Don’t stand so close: the science behind serving a customer

Every day I see retailers and staff stand around retail stores. Waiting… for something to happen as they continue to shuffle merchandise around the store. And this makes me wonder about something.

I know there is something out there that is freely available. It is easy. It costs nothing to implement. It’s proven to improve performance. Yet no one is doing it. Why?

Consider this:

There are many easy to implement behaviours that can improve service and increase your ability to persuade the customer to buy.


The Triangle of Persuasion

Don’t stand opposite the customer. That is a confrontational position even though it feels natural to end there when you walk towards the customer. Walk around and stand next to the customer and turn your body 45 degrees towards the customer.

 Stay outside the customer’s personal bubble. This varies by culture, but usually about 2 feet (60cm) is acceptable to most people. Look for signals if the customer is uncomfortable.

Both parties should be able to face AND reach the merchandise or object of interest. Buyer and seller side-by-side should be able to focus their attention on the object of interest.

You should stand on the right-hand side of the customer where possible. Of course sometimes the design of the store or position of the customer makes it difficult to start there, but attempt to manoeuvre that way unobtrusively if you can.

Make sure there are no obstacles between you and the customer. This includes baskets, trolleys, equipment, prams or handbags – and especially the counter.

Ensure your customer is as comfortable as possible. Not too hot/cold. If seated, make the chair comfy. (Search Google for ‘embodied cognition’ if you don’t believe me – or read this as a primer.)

There is more. From the shape of your mouth to the colour of your shirt, there are a myriad influences that can easily be systematised to be part of how you do business – without adding any cost.

But WHAT these things are is not really the issue here.

Long-term readers may remember this blog on Inside Retailing was called Retail$mart (and so was the Ganador blog and still has that URL). That is because I have always tried to create products based on insights that are road-tested practices and scientific findings. Over the last seven years I have shared many of those here and there. I don’t believe in trade secrets and I am not using this to pitch for work – feel free to create your own training by using the tips provided above.

Over the last two years Neuroscience has entered the public sphere. (Along with it the obligatory pop-up gurus of course, but that is another story.) The popular accessibility of this knowledge raises a very important issue, and is the purpose of this post.

The real question at issue here is: if ANYONE can find these insights, and let’s face it this is not rocket science, WHY are people not using it?

It is freely available. It is easy. It costs nothing to implement. It’s proven to work.

Consider the six things I mentioned above.

How many of them are trained into and embedded in your business? If not, why not? Please share in the comments… I am really curious.

Three things to stop doing in your retail store

Sometimes the things we don’t do can make as much of a difference than the things we do.

Three counter-intuitive things to stop doing:

  1. Stop selling features. Customers don’t care about the biggest or fastest. They care about how bigger of faster might benefit them.
  2. Stop selling on price – people buy value. Do you drive the cheapest car you could find? Are all your clothes the cheapest you could find? 99% of people find the product that meets their needs and THEN don’t want to pay more than it’s worth.
  3. Stop configuring your store to prevent theft. Make it easy to shop. Most customers are not thieves and we should not punish (inconvenience) the good ones because of a few bad apples. MOST of your shrinkage can be attributed to your staff and admin errors. And the loss of sales far outweighs the benefit of not losing a few items when your focus on shrinkage instead of service.

The real art of retail is this:

Are you any good at retailing?

Ask an Orthopaedic Surgeon what ‘ortho’ means and they will know. Ask a COBOL programmer what COBOL means and they will know.

And by ‘know’ I mean know the actual definition and the roots of the word and exactly how that relates to their job.

Ask most retailers what the word retail means, and you get a blank stare or at best they might mumble something generic about ‘buying and selling’ or ‘selling to customers’ or the like.

The word retail is derived from the Old French ‘tailler’ (pronounced tai –yeah) and means ‘to cut’. It is the same origins of the word ‘tailor’.

It refers to what we today call ‘bulk-breaking’ – which means that a retailer is a ‘breaker of bulk’: we buy a pallet or crate full, break the bulk, and sell individual (tailored) units to the customer.

The theory lesson is over. What does that mean in practice?

If you want to know if you are any good as a retailer, you need to understand how well you do at breaking bulk. That stands to reason, right?

My question to you is then how do you measure this? What is the key metric of a ‘breaker of bulk’?

It is widespread practice to use the word stockturn to refer to the turnover rate of merchandise.  That it is, how many times (per year) a store turns over its stock.

There are two ways of doing this calculation.  The distinction is between using retail prices or cost prices. The norm is to use annual data, as monthly data would result in fractions, which are hard to work with and benchmarks have been recorded based on annual numbers anyway.

Either of the following two formulae can be used:

                                                                             Total Sales             

                                                            Average Inventory at Retail Prices


                                                                      Total Cost of Sales        

                                                            Average Inventory at Cost Prices


If you want to know if you are a good retailer, you should know how good your stockturn is. But there is a twist in the tale: faster is not always better.

A good retailer is not the one with the fastest turn, but the one with the optimum turn. Too high stockturns are usually indicative of being under-capitalised and results in high distribution costs, double handling and administrative inefficiencies and loss of buying buyer which all ultimately means that excessive stockturn is less profitable.

Stockturns that are too low are more commonly experienced – usually as a result of buying poorly or marketing poorly.

The good retailer is the one that can achieve the Goldilocks standard – getting it ‘just right’.

I understand that some people reading this may think that metrics are theoretical - even possibly unnecessary except of Sales and Profits. Not everyone appreciates why a consultant would want do that analysis in the first place.

Hopefully now you can appreciate that (using and understanding) metrics can go to the essence of the craft of retail – and will reveal how good we are at being a ree –tai-yeah.

Or at the very least, now you know what you really are…


More training is RARELY the solution

It is often said that training is the key to running a successful business. Let's take franchising as an example:

On the surface it seems logical: franchisor knows how to do X and the franchisee does not know how to do X and what they buy is the ‘know-how’. And know-how is transferred through training. Right?

At least you think this way if you are a training company. If you are a marketing company you will say it is marketing and if you are a technology company you will claim the key to success is a new system.

It is the old: ‘if the only tool you have is a hammer, every problem looks like a nail’ principle at play. So as someone who does training for a living, let me be perfectly clear about this: training is not the solution to anything.

More training is the ‘go to’ strategy for every intractable problem and even our Governments fall back on training whenever they encounter a social issue. Domestic violence? Solve with more training. Speeding drivers? More driver education. And in business, if the customer service is poor, roll out some customer service training.

Every time the going gets tough, the tough go training. What a phenomenal waste of money.

Let us consider resolving the speeding issue in society. Do you honestly believe that more driver education will fix that?

The answer is that it will help fix the problem. There are other issues to be addressed too, so let’s name a few:

  •   Authorities have to understand that motoring technology has improved and what once was a safe speeding limit is now just ridiculously slow and must be changed.
  • The quality of road surfaces and the infrastructure like lights, barriers and signage may need to be changed or adapted.
  • The incentive/punishments for driver errors (in speeding) play a role in bringing speeding down.
  • Opportunities to drive fast can be created in appropriate places that are not public roads.

I could go on but it should be clear that there is a whole eco-system of inter-connected things that must be considered if you want to address the problem of speeding.

In a past life I was a Shopping Centre Manager – and the first thing I did when I moved into a centre was to fix the Administration system. Some may consider that weird since it would surely be a higher priority to get more customers to the centre?

I did this because (a) I had to talk to many retailers and be credible, and (b) a very important metric was rental arrears (as you can imagine) and if the Administration system is dysfunctional, the monthly statement/invoice is incorrect. This gives the retailer the opportunity – indeed, the right – to query the invoice and whilst we are trawling through the rent roll, they withhold payment. And if I as a Centre Manager can not even get the rent roll right, they can rightly question how I could talk credibly about what they should be doing in their business?

However, having a solid Admin system is not the answer either. It merely illustrates the point that there are many moving parts to having an entire organisation tuned to perform well.

The same goes for the quality and viability of your franchise system.

This is even more difficult to achieve in a franchising system where relationships are influenced by competing objectives and/or constrained by legal frameworks of what can and can’t be done; not to mention the history and baggage that comes with any relationship.

Just because it is complex, does not mean that it cannot be done. The following diagram is also known as the 7-S Framework or the McKinsey Framework. It was developed in the early 80s by someone who many readers will know – Tom Peters (and Bob Waterman).

The model was used at the time to summarise their findings for the best selling book ‘In Search of Excellence’ – I have used it very effectively to think in an organised manner about all the key elements that must be in place for ANY organisation (including the not-so-excellent ones) to function.

I am happy to give away the ‘secret sauce’ of our approach to solving problems because if there is anything that I have learned in the last 30 years, it is that knowing what to do and actually doing are worlds apart.

This is not the place to get all academic on the reader, but suffice to say that the underlying research is reasonably robust and that having used it for over two decades, it goes down as a classic that cannot be improved upon. Much like the 4Ps of Marketing introduced by Kotler in the 60s, some ideas simply stand the test of time and this is one of them.

Readers can think about ANY challenge they currently face, and I guarantee that the solution (and the problem) will be a combination of one (or more) of those 7 S’s.

Just because an idea is new, does not mean it is important and just because the idea has been around for awhile, does not mean that it does not work any more.

Of course the simplicity of the framework belies the challenges of synchronising all those moving parts. And each of those elements represent an ever-changing domain.

One area I am very familiar with, is cloud-based platforms. This technology (system) can be used for something as simple as taking the Operations Manual online at low cost or to something more challenging like creating collaborative communities of practice.

Let us consider those examples briefly.

Example 1: Having a ‘living’ operations manual in the cloud has several benefits. It is relatively easy, is dynamic, track-able, and instantaneous - and at a few dollars per month per person it is more cost-effective than sending one letter/brochure a month. Yet few people are doing it, which begs the question why everyone is not doing it.

The answer is that it is because most Franchisors are smart enough to know (intuitively) that it is NOT simply about uploading a few PDFs onto some online directory or even just on Google Drive. If you do it right, you will think about who needs to use it, how they use it and how best to disaggregate the information and how it will be monitored. Then it becomes clear that all the moving parts must be in good working order to tackle a project like this.

Example 2: Having an active, collaborative franchisee community-of-practice is (in my humble opinion) the holy grail of franchisor-franchisee relationships. This is a state where the franchisees truly own the objectives, are committed to the culture and have created an environment where they freely share the wins and solve the problems collaboratively.

We can roll out the platform/technology easily, make it look pretty according to your brand but the initiative is doomed to failure. This is not a sales pitch: I am telling you NOT to do it. Unless you have all the other elements in play and properly aligned, the take-up will be at best limited and soon you have a white elephant on your hands that requires someone to allocate time and resources to ‘creating content’, when what you really need is a form of social learning that is driven from the bottom up to happen.

In order to make it work your culture must be robust, your internal communications must be honest and transparent, your people must have certain skills and your policies must be fair and so forth. Not to mention that your business model and strategy must be solid.

I could go on, but you get the idea – I am simply referencing the 7-S framework.

All of these things are doable. The benefits are amazing – from clear financial ROIs to substantial ROR (return on relationships) – but they can and should only be tackled by taking a holistic perspective of the whole franchise system.

The answer is not to roll out more training. Especially not training that has some sort of a buzzword associated with it. (Total Quality Management anyone?)

As part of the whole management mix, training has a role to play, and the right training at the right time is vital to success. But it must be part of the big picture of the total business. That is why training must be part of that big picture, driven by the founder/CEO, for delegating to an over-worked employee will turn training into a series of time-wasting events that have zero impact.

 

The (not so) secret elements of retail success

Regular readers will remember my recent post on the non-existing silver bullet, addressing society’s blind faith in simplistic solutions. (And in the charlatan purveyors of those misconceptions.)

Regular readers will also know I am constantly exploring the notion of success, and what it takes to be successful.

Those posts above link to the challenges of success and focuses on what it is not. I have been searching for an analogy to explain in a simple way what success IS; AND how complicated it is to achieve success that is true and relevant to all types of retailers.

And I realised the traditional periodic table is a good starting point.

Most of us will have been exposed the periodic table of chemical elements in school. The accompanying image will remind you of what it looked like.


All things known to man is contained on the periodic table. In fact YOU and I are not much more than buckets of chemical soup. The latte you had this morning is just chemicals, the computer screen you are looking at right now is comprised of the elements reflected in that periodic table.

Let’s say you want to make a milkshake, it would be (hypothetically) comprised of elements 1, 2 and 3. The same ingredients can be turned into a thick shake, and of course it can be offered in dozens of sizes and dozens of containers. And with the addition of element 4 (a flavour element) you can now create another dozen varieties of the same thing.

With just a few elements, you can literally create hundreds of variations of the same thing.

Achieving success in your retail business is very similar to the mad scientist mixing together elements to create that new milkshake.

The ingredients are known to all, but we all know that not all milkshakes are created equal. And the same goes for you and your business: There are NO SECRETS.

But this is what you should know:

There are a number of different elements to consider. In fact, on this table you must consider ALL of them.

It is the same for everybody in retail, whether you sell shoes or kebabs. What you have to do is to mix those same elements (that everyone has access to) in such a way that you create a milkshake that everyone wants.

It helps to know how people like their milkshakes, what they are prepared to pay for one and then to deliver that consistently. And that is no secret.

Have fun

Dennis

Ganador: Trainers to the Stars



25 retail basics that builds the foundation of success

#thinkdifferent

Good retailers execute these fundamentals well. There is of course always an exception to each ‘rule’, but they are not as common as you think. It is tempting to dismiss something as theory because one disagrees with it, but for every person who denies the validity of these fundamentals there are hundreds of successful retailers who simply just get on with doing it.

PEOPLE

1.      Staff are critical to your success:

o   Teach them to serve well

o   Use them to sell actively

o   Reward them effectively

o   Control your expenses with good rosters and productive staff, not stingy pay scales

2.      Use your own time to add value and manage – not only to serve behind the counter. (Take regular mini-breaks if you can’t take proper leave. Your customers will love you for it.)

PRODUCT

3.      Focus your core product range so that you:

o   Become an expert

}o   Develop bargaining power with suppliers

o   Become known as the ‘go to place’ for… something

4.      Stocktake annually at least (even a rolling stocktake) – no exception

5.      Buy your stock to a Budget (OTB)

PRICE

6.      Consolidate price points (avoid price point proliferation) for each sub-category: Best, Value, Average, Good, Premium

7.      Never discount unless a product falls below the benchmark stockturn rate

8.      There are over 20 different types of price reductions you can negotiate with your suppliers – fight hard for your business

PROMOTION

9.      Doing the same old will get the same old results – be brave, be different

10.   If it works, don’t change because you are tired of it

11.   Use your suppliers and work with their calendars and resources for marketing activities

12.   Community engagement should be at the core of your activities – and the sales will follow

PRESENTATION

13.   Good displays sell silently: visual merchandising matters

14.   Be smart with product/category locations

o   Be consistent for customer convenience – but don’t be afraid to experiment

o   Convenience products in convenient locations

o   Destination products in destination locations

o   Promotional and high-margin products for the dance-floor

15.   Even the dirtiest, poorest, most ignorant customer does not love a dirty store – they will leave as soon as there is an alternative

16.   Your fitout should be SUBSTANTIALLY be refreshed every SEVEN years. And NOTHING should be allowed to be older than TEN years.

PLACE

17.   Allocate product space proportional to their Gross Margin contribution as far as practicable.

18.   Reduce non-selling space to <15% of GLA (sub-let if you can or innovate a new use)

19.   Target a benchmark floor space productivity (in shopping centres, for example aim for more than $8000/sqm based on annual sales)

GENERAL

20.   Systematise everything to minimise errors and risk. From opening and closing hours though to how you cash up.

21.   Pay your bills on time then you can demand the same respect.

22.   Communicate when you have issues – ask for assistance from anybody and everybody and NEVER stop learning. (There is a big difference between TWENTY years’ experience and ONE years’ experience twenty times over.)

23.   Don’t worry about the competition – do your own thing and do it well

24.   Make sure your system (POS/Database) is 100% current and that you can make accurate, meaningful decisions about your agency.

25.   Measure all the metrics that matter and make decisions accordingly

Of course there are a few more and we look forward to hearing from readers what they may want to add to the list. But in summary, there is a final, over-arching rule that applies.

MOST RETAILERS ALREADY KNOW WHAT NEEDS TO BE DONE.

But for reasons that escape me entirely, too few actually do it.

Dennis can be reached on dennis@ganador.com.au with any questions on any of these topics.

15 Things retailers can learn from market operators

I am not a huge fan of markets – not any more than the average Joe at least. I don’t pretend to have more knowledge about markets than the next bloke. But I do understand retail and I really understand consumer behaviour. But more importantly, I have enough common sense judge good and bad business practices when I see it.

This post is not a critique on market stall operators because many of them are hobbyists ands should probably not be judged against professional standards. (Although having said that, even an amateur photographer will try to take the best photo they can and not hide behind their amateur status.)


Observation # 1

A customer is looking at the shoes that (for some reason) were laid out flat on the grass. The operator made a sales pitch, but the customer did not engage, but did not walk away either. After a moment the operator says: “I am going step away and I will be at the back if you need me.” He then proceeds to step away – all of 2 meters (it is a stall after all).

The insight

Very smart. People like to buy, but don’t like feeling ‘sold to’. By SAYING what they were going to do and THEN doing it, they do more than simply give the customer space. They actually communicate a level of psychological consistency – the sub text being that I am as good as my word.

Observation # 2

Some operators do and some don’t wear your own product.

The insight

You are your own best advertisement. A big, fat dude can’t credibly sell diet products. If you sell art then you must look the part. Wear your own product.

Observation # 3

There was an operator that built some jewellery that contained plants – sort of a ‘garden in a necklace’ – like a ship in a bottle, but on a miniature scale.

The insight

In a sea of junk, something different and innovative always stands out.

Observation # 4

One clothing stall had a sign that communicated: “Fashion at market prices.”

The insight

It may seem redundant because both the fashion and the market aspects were obvious. But telling a customer what to expect when that is exactly what they expect is never redundant.

Observation # 5

The candle retailer had a nifty tactic to help customers smell more candles. She offered them coffee beans to chew – which apparently clears the nose sufficiently to allow customers to keep smelling when the variety of aromas could become overwhelming.

The insight

Knowing your product and understanding what the customer is actually buying (not just the look of the candle) is important and finding practical things to make that easier for the customer is hugely valuable.

Observation # 6

One stall had a price point sign that read: “Price’s as marked”

The insight

I know you are not a professional, but really? You can’t spell ‘prices’? I googled the phrase "price's as marked" in quotation marks. Can you guess how many results I found? Exactly 4. I did not realise it was possible to search for something that gave so few results. If the billion people on the internet can get it right, sure you can.

Observation # 7

One stall holder was selling (handmade) dog leashes. But no dog in sight anywhere.

The insight

In an open air market like that dogs are permitted and there are a few around. Most dogs that are taken into these environments are relatively trained not to attack other dogs on sight, but even so that would be a relatively minor hassle.

The alternative is I walk past your stall and I see a table with colourful ropes on it.

Observation # 8

Some stallholders have EFTPOS tap-and-go while others still rely on theold-fashioned bumbag.

The insight

Do you really need to give a customer a reason not to buy?

Observation # 9

No sample jerky at the jerky stand.

The insight

Good luck with selling that.

Observation # 10

I observed the quietest stalls were the ones where the owners were sitting down on a char at the back of the gazebo.

The insight

Is this the cause or effect? I would hazard a guess that customers are thinking if you are not very interested in your product there is no reason for them to be.

Observation # 11

Customer approaches the table and touches product (a plush toy). The owner announces from the behind the laden table “That one is $15 “

The insight

The first thing surely isn’t what it is going to cost but what you are going to get? If the operator said “they smell really good too” the customer would probably have lifted the product towards their face to smell. Picking up the product is already one step closer than simply touching it.

Observation # 12

While selling some organic bathroom/beauty product – owner announces that he is really 167 years old. The customer laughed.

The insight

Rule #1 of getting a customer to buy is to get them to relax. Humour is an effective tool in doing so – if you can pull it off.

Observation # 13

The pickle stand showed their certificates form the Sydney show

The insight

The credibility that comes from an ‘official endorsement’ should not be underestimated.

Observation # 14

I observed one owner juggling sticks to entertain himself while waiting for customers to his herbs and spices stand.

The insight

It wasn’t entertainment aimed at the customers. It had no relevance to his product. He clearly showed his disengagement in a way that is possibly worse than the operator sitting down at the back of the stand because customers would not want to interrupt someone who is ‘doing something’.

Observation # 15

AT the stand selling clocks, not a single one had the correct time, neither have they been set to 10 past 10 as is the custom to display the ‘happy face’.

The insight

If not showing your product in a positive light (by wearing it or demonstrating it) is a crime, then showing it to prospective customers in a ’broken’ state is even worse.

The most important point about all of the above is that NONE OF THESE would cost money and can easily be applied by any operator. These little things can often make the difference between a good and great business.

BONUS OBSERVATION

None of the stall holders actively and prominently directed customers and/or passerby to their website and not one tried to collect a name for a subscription list. There were a few websites listed on labels but nothing significant. I would consider that to be a major missed opportunity.


 

 

Nobody likes needy people, so...

...think before you sign up for ‘Buy Local’

Buy local or shop local campaigns abound. The NSW state government even has a special page on their site to tell you how to do it. (If that is not a sign that that you should be concerned, then I don’t know what is.)

Last week I wrote that customer service won’t sugar-coat a poor, inappropriate or unwanted offer.

By the same reasoning, a ‘buy local’ campaign cannot save a decrepit retail precinct by a misguided appeal to the community to ‘shop local’.

Every struggling town and every decrepit retail strip has such a campaign, or has tried one or wants one. These campaigns are often instigated by a number of stakeholders who rarely recognise their flawed motives which make for poor execution.

How does one reconcile ‘begging’ customers to ‘do the right thing’ with sound marketing? Is there even an example where begging has been a successful way of growing a business? (It may help you survive, but hardly prosper.)

The mind boggles at the condition of the local high street generally and the trader’s stores specifically. The lack of investment in infrastructure and (more often than not) crappy service and over-priced merchandise is obvious to all but the campaigners.

Often a local council sees fit to waste taxpayers’ money in a misguided attempt to save the economy and to protect their rate base. If the Reserve Bank (or even a Government) can’t save an economy, why do the local councillors think they have special powers? It probably happens because it makes them FEEL better and gives them something to TALK about come election time; but neither talk nor feelings will change anything.

Whatever the motivation and however deep the pockets, it is almost always a bad idea to launch such a ‘buy local’ campaign - at least the way these programs normally get launched.

Consider this campaign in Gladstone. All the ingredients are there: Awareness. Advertising. Customer Service. Etc. In addition, they may even throw in the shopping bags and a funky street map. (I am looking YOU St Kilda Village.) What do you think are the chances of making it being a success?

IMAGE: www.gladstoneobserver.com

 

I am guessing slim to none, because the most important ingredient is missing: What are the local traders doing to make it worth THE CUSTOMER’S while?

Of course raising awareness of the offer is important. I even promote an APP that will do that for you. (And good onya for trying Gladstone.)

But that alone is not sufficient. In fact, the more successful the campaign to attract people to a poor offer, the quicker the demise.

People don’t buy elsewhere because it is more expensive to buy locally. Whilst no one wants to be ripped off, you don’t have to be the cheapest. Only ONE product in every single category will classify as the cheapest. Few of the things in the world that you or I buy will be classified the cheapest.

I don’t buy because it is local, I buy local because you have what I want.

Making things worthwhile for me – the local shopper – is about making me feel special. I am the customer; it IS all about me, so make it about me.

  • Love me… (Yip, serve me as if you actually love me; because whilst there will always some commercial prostitution, most customers want the real thing.) Love is the killer app, as Tim writes in his book.
  • Make yourself interesting and different – which makes me feel special for interacting with you…
  • Make your shop a nice place to spend some time – which makes feel special…
  • Make me feel part of the community – because that is special…
  • I think you get the idea… It is not (only) about service and it is not about ‘guilting’ me into buying from you. Don’t beg for my patronage. No-one likes needy people.

‘Buy Local’ campaigns can be done and should be done, but the fundamentals have to be there first. And these fundamentals are really just a collective commitment and concerted effort to practise great retail. Now, about that APP….

Dennis

Ganador helps organisations systematise success.

Don't do the December Discount Dance

Many retailers use discounting as a substitute for marketing. Discounting is a race to the bottom – and inevitable unprofitability.

Discounting is only appropriate for in the following two scenarios:

  •   strategic retail promotions (e.g. introducing new products)
  •  too fix buying mistakes (bought too much or wrong products) and it is not moving

Q: How do you know when a product is not moving?

A: When the stockturn (or sell-through rate) is below the benchmark for that category – and only then. (Never rely on instinct, use your POS.)

Beware the tipping point. Frequent discounting will lead you to a point where customers perceive you to be a discount store. Unless this is your strategy, make sure you manage discounts prudently.

First impressions count in your retail store

Your store entrance is important in achieving two main objectives:

  1. Should be inviting (attract customers)
  2. Must not present a barrier to a prospective customer

This is achieved by:

Making it convenient:

  • Ensuring no steps are placed at the entrance
  • Sufficient width for easy passage– especially in high-traffic areas
  • Easy access for pregnant/handicapped persons or those with trolleys where appropriate (no merchandise/fixtures to clutter entrance)

Making it attractive:

  • Good lighting (bright/ visible signage and or shopfront)
  • Changing entry statements at least monthly to remain interesting and noticeable
  • Use attractive and attention-getting colours in windows, displays and signage

Ask your staff/family/friends to pretend to be customers and to make notes of anything that may inconvenience the customers. They should also use trolleys and prams to test the flow and remedy any issues accordingly.

 

Is your business a Canary, a Duck, a Horse or a Human?

What is the most important metric in retail? And the answer is NOT that ‘it depends’.

Whilst I like GMROI as being most useful and revealing, it has one drawback in that there aren’t many benchmarks available to be used. Its ugly sister metric, stockturn, is simpler but still extremely useful – AND importantly it goes to the heart of retailing. (Breaking bulk to tailor product/quantity to the needs of the consumer.)

Understanding the stockturn of a product/category is extremely useful, yet so few small retailers actually do the homework necessary to have access to this metric. (Services and hospitality would have equivalent metrics that go by different labels, but the same principle applies.)

Your stockturn will reveal that:

(1) Your inventory levels are wrong, or that

(2) Your sales rate is wrong.

But there is one feature or principle of stockturn that even very experienced retailers don’t know and don’t appreciate. The ideal/optimum stockturn for a category is (for practical purposes and in most cases) fixed. That is the optimum stockturn for any given category is a given.

With metrics like sales or profit, there is never a case of ‘having too much’. But with stockturn there is an optimum range. Consider these examples.

The stockturn for a daily newspaper is 365 times per annum. Any more than that would indicate inefficient double handling and any less would mean you probably overstock.

Fashion has a stockturn of 4 times per year – for the obvious reason that the purchase cycle is driven by the seasons. The Christmas Tree Farm sells its stock once a year.

The same applies for every category or product. This rate is determined by (a) the retailers’ business models and (b) by how consumers purchase certain products.

Good planning and good systems will allow efficient retailers to make mid-season corrections on their stock and instead of turning their stock once per season, they may be able to do a mid-season clearance of the duds and stock up on the best sellers. They may turn their stock 1.5 x per season, resulting in a turn of 6x per annum. Inefficient retailers (like Department Stores) who also sell fashion traditionally achieve stockturns of less than 4x per season in their fashion category.

The vast majority of (specialty) fashion retailers will sit in that 3.5 – 6.5 range. But there are ‘fast fashion’ retailers who have a different business model. For instance, Zara is vertically integrated and goes from runway to store in a few weeks. They achieve stockturns of 17x per annum (my estimate.) But then, they are not really in the Fashion business, they are in the disposable clothing business.

What people don’t appreciate is that there is an optimum level for this metric. Just like your heartbeat can’t be in the 1-25 bpm range, nor can it sustain 200+bpm. To work best it needs to be in the 65-75 range.

That is just for a human being. Canaries’ hearts flutter at 1000 bpm, a duck at 190 and a horse at 38. (Yes, there is an apparent mass/ rate inversion – just like the boutique and the department store.)

Heartbeats and Mass - Like stockturn.PNG

 

Which brings us to the title of this post: Do you sell canaries, ducks or horses? And of course, whether your canary’s heart beats like a canary or is acting like a duck or a horse?

You should know the rate of turn and you must compare it to the benchmark:

Again, since the relationship between your sales and your inventory is (relatively) fixed, the amount of stock determines the level of sales you can achieve. (READ THAT AGAIN.)

How to interpret and use stockturn metric:

If the canary is a canary = just right

Assume you sell a product that has an optimum stockturn of 8 – and your average inventory is valued at $200K at retail. The BEST you can hope for is $$1.6m in sales. No matter how much marketing you do, or how much you improve your service, your sales destiny is determined by the amount of stock you carry.

The worst thing you can do if you are turning your stock in the optimum range, is to discount your stock. Your rate of turn will spike slightly but won’t go up over an extended period (the whole year) because discounting will bring tomorrow’s sales forward to today – and on average the turn will stay the same. In fact the net effect is you will make less GP over the term because your discount is the margin you give away.

You should evaluate whether $1.6m is sufficient turnover for your business. None of the traditional, retail tactics like sales/service/display etc is going to change the business fundamentally. The only way to grow a business that is already tuned for an optimal stockturn, is to make strategic structural changes that will increase your market share. E.g. buying out a competitor or implementing strategies that are directly aimed at taking business from someone else

If the canary acts like a horse = too slow

If you are over-stocked, with a sub-optimum stockturn, you should discount the product to recycle the cash into new product that will sell. That is, if people aren’t buying canaries, then you should sell ducks. Or horses. But remember that different products/categories are different yet again.

A low stockturn indicates that you have made a mistake: you bought too much or you bought stuff that doesn’t sell. Discounting is only an appropriate tactic to rectify these mistakes – and should not be used in any other way.

If your horse is a canary = too fast

You are probably under-capitalised and paying the price of ordering small quantities (with no volume discounts) and double handling. The only way to slow down your turn is to increase your stock levels.

Keep increasing it UNTIL you hit benchmark and you will see your sales rise.

In summary:

If you don’t know your stockturn, you are not practising retail. This number reveals whether you should buy more or less or different stock. It reveals when you should discount and when not. Knowing your stockturn eliminates certain strategies and opens up others as the logical options. Buying stock accounts for 70%-40% of your total expenses of running the business – it is vital to get that right.

Do you really know the stockturn of every major category in your store?

 

GOOD NEWS: You don’t have to sell in retail

In a fast moving retail environment like (say) a newsagency, you don’t have to sell. At least not the way most text books and some gurus tell you.

There are two conditions:

1. Make sure the store is laid out to optimise the opportunities to buy.

2. Make sure your visual merchandising tells the right story.

Then you can help the customer buy:

3. Simply have a conversation with the customer; a conversation that shows you are generally interested in what they want and help them get what they want.

Of course this means that you can’t stand behind the counter if you really, authentically and effectively want to engage with the customer.

Once you are in this position (you have achieved 1-3 above) then you may able to focus on learning some of the techniques that will help you have more productive conversations with customers. It takes skill to lower barriers and appeal to their emotions, and this skill can be learned.

One thing is for sure: it is NEVER about hard sell.

If you do this right, you may not get the sale today. But if you do it right you will get sales more often than most, more often than before; and worst case, you will get it next time.

 

Alley coffee.jpg
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