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.

Coming out as a retailer

Without exception, we can attribute success or failure of a retail business to people. Even if we blame an extraneous event, it is not the event as such, but how the people react to the event that determines the eventual outcome.

I believe that view is relatively uncontroversial.

But if it is so, and it is widely accepted, the question that immediately follows, is why the topic of ‘people’ is not at the top of the agenda? Executives and retail owners occupy themselves with a range of matters – from big data, mobile strategies, store location, margin management and a long list of topics – but spends very little time on people.

If your marketing, sucks it is because you don’t have a good marketer or an interfering executive – either way it is a people issue.

If your merchandising sucks, it is because you have poor buyers, poor recruiters, poor trainers, poor managers – pick any one, but whatever you pick, it is a people issue.

High shrinkage is a result of having disloyal or untrained staff. Or it may be a result of poor systems – which of course are designed and implemented by… you guessed it: people.

Name any aspect of retail and behind it stands a human being making decisions. Of course luck (good and bad) plays a role, but once it happens you still have to decide how to respond and counter the bad luck and capitalise on the good luck.

I have come to the conclusion that people in retail don’t focus on people as much as they logically and necessarily have to, for a number of reasons.

Firstly, the way that most people enter the retail business is by accident rather than design. The retail sector seems to be largely populated by people who left school, and without having a specific passion or interest took a job – in retail. Or some may have drifted to Uni, and then after graduation simply turned the part-time job into a full-time one. Consequently, far too few people who work in retail are dedicated to it as a profession.

Secondly, retail jobs are easy to get. Even if you are passionate about retail, the hours are relentless, the pay is pretty average, and the specific skills required are often basic (easily learned). Consequently, there is a high turnover of staff, especially at the entry level. Few people in retail had to jump through hoops to get into retail, and those who really choose to be there don’t necessarily feel a sense of accomplishment.

Thirdly, it is also easy to start a retail business. How hard is it to put a few tables and some shelving in a store and put some merchandise on it at twice the price you paid for it? (It is not easy to be good, nor is it easy to survive and be successful, but is easy to start.)

Fourthly, in the pecking order of industries, retail ranks pretty low. It is seen as large provider of jobs, but not much else. I have never heard of any other industry turning to retailing as a benchmark for anything. What great innovation was made in retailing that is adopted in other industries? (Even ‘eTailing’ was invented and is led by non-retailers, usually computer nerds.)

This leads to a confluence of two powerful, negative forces that conspires against us:

Firstly, the people who are committed, passionate and professional are in the minority, outnumbered by a large number of people who simply take up space in the retail environment. Secondly, those who have risen through the ranks to executive status or those who has the courage to strike out on their own to start a retail business spend very little time on people issues; usually only when the ‘issues’ are pressing and unavoidable such as Union issues, or recruitment and the like. Even then it is more about going through the motions, rather than proactively engaging with people with the specific goal of building a culture that underpins, and delivers on the brand.

In order to counter these negative, restraining factors, it is high time for retailers to come out of the proverbial closet. There is no shame in being a retailer. Retailing is not only an essential (and very large) part of any economy, in a modern society it is complex, challenging and worthy of our best physical and intellectual efforts.

It will probably always be true that it will be easy to get started in retail, but it is equally true that it is incredibly difficult to succeed and to be called a good retailer.

A champion athlete can complete a marathon in close to two hours, and is not offended that a Sunday jogger who clocks up a few kays on the weekend also calls himself a ‘runner’. That is probably because that is how every champion started.

So, no matter how you got your start, or how many ‘joggers’ there are in retail; the only thing that is needed for you to become a champion retailer is make the decision to come out as a retailer and to ‘own’ your profession. And then do everything within your power to focus on the people in your organisation and to continuously raise the bar with every appointment, with every interaction.

Make your people your priority. And it starts with you being proud of being what you are and who you are. Wear your ‘retailer’ label with pride.

Be more. That allows you to demand more.

Dennis

Ganador: People and Performance.

 

 

The 7 sins of retailing

Today is the day for some tough love. It is always easier to see the flaws and mistakes in someone else’s business than your own; but no matter how unpleasant it is, it is beneficial to take the time to diagnose the failings in one’s retail business. This list has been compiled from a life spent in and around retail:

Sin #1: Not having a proposition

Proposition = price X product x promise. That is: what does the customer GET for in exchange for their money? What is the value in that exchange? (Not just monetary value.)

You have heard the old bromide that you sell the sizzle, not the steak; the hole-in-the-wall and not the drill. THAT (sizzle) is your proposition. It is not about features, it is about benefits.

How does this sin manifest itself?

·         Image ‘drift’

·         Always on sale

·         Focussing on what you have instead of what they want

Sin #2: Not having (enough of the right) stock

Timing your clearances and timing your buying is at the art and science of being true merchant.

How does this sin manifest itself?

·         Falling in love with your stock = thinking you are the customer

·         Not knowing what is selling and what is not (no proper system in place)

·         Not knowing the metric and not knowing what to do about it

Sin #3: Not presenting properly

Configuration and visual merchandising is crucial to drive retail productivity. Everyone knows that, but few people seem to understand the difference between visual merchandising and interior decorating.

How does this sin manifest itself?

·         Don’t understand the hotspots

·         Trying to manipulate customers instead of simply fishing where the fish are

·         Fail to use smart design principles to lead the sale

·         Unbalanced allocations (too much space for poor contributors and vice versa)

Sin #4: Not attracting the right customers

Not all customers are equal. If all you sell is ‘on price’, all you’ll attract are cheapskates. That is only a good idea if it matches your proposition; for the other ninety percent, it is a really bad idea.

How does this sin manifest itself?

·         Poor marketing comprising most clichés and noise, and a promise of the cheapest price

·         No Point of Difference

·         Fail to use proper psychology (not the pop-psychology of pseudo-experts)

Sin #5: Pitching price instead of value.

Customers can NOT be persuaded to buy stuff just because it is there - not frequently enough to be a viable business anyway. Retailers don’t understand the (true) cost of consumption and trade-offs the consumers take in order to do the transaction.

How does this sin manifest itself?

·         Price-only advertising

Sin #6: Not Persuading Browsers to be Buyers

Too many retailers have become lazy in their selling. It is true that no one likes being sold to, but you should still ‘help them buy’. This can be done effectively with the application of the correct techniques. A few years ago we persuaded a newsagent to allow us to experiment and we had a few days of ‘active selling’ and compared those days with like-for-like days in the previous week, month and year. The results varied between 18% and 28% UP in a business that was trending down. Despite that, they still weren’t prepared to allocate a staff member to the floor. Go figure.

How does this sin manifest itself?

·         No/slow sales growth

·         Customer Complaints

·         Walk-outs

Sin #7: Not building the system to deliver the outcome

Often people claim to have 20 years’ experience when they really only have one year’s experience twenty times over. Retailers are no exception. In order for a business to make a step-change to the next level, it has to do something different AHEAD of the step-change; that is only logical. If you merely arrive every day to make it through the day, doing approximately what you did they day before, nothing changes.

How does this sin manifest itself?

·         Tired, de-motivated owners

·         Unsellable business

The overall message may appear to be negative and critical – and it is that too. But the KEY point I would like to make is that ALL of these ‘sins’ are easily fixed – and customers will forgive you in due course. Every singly ‘sin’ is based on a decision you have taken, and each and every one can be fixed in the same way.

Simply make the decision to do it differently and follow through.

Quite easily done.

Dennis: Ganador: Making success happen

 

Ganador Blog is about #thinkdifferent. We cover topic of business- and personal development aimed at entrepreneurial marketers. (c)Applies. Posts authored by Dr Dennis Price.

30 key success factors for ecommerce retail

If you want to do e-commerce, my first piece of advice is to NOT do it, unless you have resolved a clear, unique value proposition. Just like in the ‘real’ world, a retail business stands and falls by its ‘proposition’. The worst possible reason to take on this channel is because everyone else is doing it.

But if you are going to do it, address this list of key success factors:

A: Be findable

1.       SEO & Search

2.       Build an database

3.       PPC optimization

4.       Remarketing

5.       Social Media

B : Be shoppable

6.       Accessibility

7.       Check-out process

8.       Design

9.       Good Images

10.   M-Commerce

11.   Navigation

12.   Page load time

13.   Payment options

14.   Option to save product for later

15.   Stocks availability

16.   Unique detailed descriptions

17.   User Experience (UX)

18.   Security

19.   Shipping

C: Be relatable

20.   Customer service

21.   Reviews

22.   Online Chat

23.   Personalization

24.   Quality Content

25.   Regular Updates

D: Be knowledgeable

26.   Analytics

27.   Pricing

28.   Personalization

That is only 28 tips, but the opening paragraph counts double. It is the most important piece of advice I can possibly give you. Adding a new channel is not the same as opening another store. Different business, different customer behaviours, different marketing different pricing and a different supply chain – in short: different in almost every way. The twenty eight Key Success Factors listed above is meant to convey the list of activities that will be required to successfully operate an online store. To get an idea of how different online shopping from a desktop is to online shopping on a mobile phone, read this article from McKinsey.

Should you do it? Of course!

The essence of retail is about selling what people want to buy, when and where they want to buy. And if online is where customer are, then you should be there to. (The reverse applies too as can be seen from online-only start-ups entering the bricks and mortar channel.) But customers flow seamlessly between different channels and one of the toughest challenges to address is integrating the experience seamlessly – not the least of which is the challenge of price harmonisation across channels.

In the final analysis, the observant reader will note that the essence of successful retail is still the same, no matter which channel applies: develop a compelling, different proposition and then be findable, shoppable, relatable and knowledgeable. It is just that the execution is radically different and should not be underestimated.


Ganador – Solving problems with smart solutions

 

 

Have you heard the one about Bumblebees not supposed to be able to fly?

This myth was debunked very nicely by Dr Karl; and the story goes something like this:

According to John McMasters, who back in the 'good old days' was principal engineer on the aerodynamics staff at Boeing Commercial Aeroplanes, it seems the aerodynamicist of the myth was probably an unnamed Swiss professor famous in the 1930s and 1940s for his work in supersonic gas dynamics. The aerodynamicist was having dinner with a biologist. In the idle chit-chat, the biologist noted that bees and wasps had very flimsy wings — but heavy bodies. So how could they possibly fly?

With absolutely no hard data, but a willingness to help that overcame good dinner party etiquette, the aerodynamicist made two assumptions in his back-of-envelope calculations.

The first assumption was that the bees' wings were flat plates that were mostly smooth (like aeroplane wings). The second assumption was that as air flows over an insect's wings, it would separate easily from the wing. Both of these assumptions turned out to be totally incorrect — and the origin of our myth.

The aerodynamicist's initial rough calculations 'proved' that insects could not fly. But that was not the end of the story.

Of course, being a good scientist, his sense of curiosity got him interested in this problem. Clearly, insects can fly. He then examined insect wings under a microscope and found that they had a ragged and rough surface. In other words, one of his assumptions was way off.

But by then, overzealous journalists had spread the myth he had inadvertently created. The story had flown free, even though the bumblebee supposedly couldn't.

There is a lesson in that for all of us. In fact several lessons if we really want to be honest. For instance that much of what we ‘know’ isn’t really knowledge at all. But I want to focus on one particular epistemic principle that we will be well served remembering:

Things that we know today are always overturned in the face of advancing knowledge. As time goes by, we learn things that allow us to create better explanations. But no matter how good the explanation today, there is always a better one tomorrow.

This force of advancing knowledge has a profound implication for our everyday lives and specifically for business strategy:

Everything you believe and take as fact today is changed tomorrow in the light of new evidence.

Just like we once thought the earth was flat and that the start revolved around us, we now know better. Just as Newton’s explanations were eclipsed by Einstein’s theories, everything we know today is at best found to be only partially correct tomorrow.

So how can the Truth change? Well the answer is that it hasn't. The Universe is still the same as it ever was. When a theory is said to be ``true'' it means that it agrees with all known experimental evidence. 

SIDEBAR: This is a point where both THEISTS and ATHEISTS argue their own position. Theists claim that ABSOLUTE truth exists. This is a philosophical assertion based on the notion that ‘it is just so’ – it is something we simply intuit universally. The ATHEIST must argue necessarily that everything is relative. That is, that ‘truth’ is simply that which agrees with all current experimental evidence.

Every person (consciously or not) must take a position in one of these two exclusive camps; one where TRUTH is an absolute and one where it is relative. I find it absolutely hilarious how some people can’t argue against the notion of an absolute truth, but equally firmly adopts an atheistic worldview.

But science has taught us nothing if not that there is always a better explanation around the corner. Some take great comfort from science’s commitment to constantly disprove itself as if this of itself guarantees that we are getting closer to some grand unifying theory of everything. Of course it could just as easily be just a gigantic rabbit hole down which we chase that absolute truth denied by scientists in the first place.

Whatever way you choose, when it comes to human affairs like business strategy, marketing and management and the like, clearly there are no absolutes.

What is right today is wrong tomorrow.

Whoever is best at the strategic arbitrage opportunities and can identify the shifts and changes best and soonest stands to profit most.

But more immediately and possibly more relevant to most of us mere mortals, this shifting foundation of knowledge means that we should recognise this universal truth. The more convicted you are of your opinion, the more compelling the consultant’s exposition the more certain you can be that it, whilst it may seem right now, it is bound to be proven wrong tomorrow.

If you research and study the evolution of the ‘marketing concept’ and/or the ‘evolution of retailing’ then you will notice that ‘the right way’ is always the current way of doing it – the prevailing paradigm so to speak.

Current best practice is always superseded by something better. So a healthy dose of cynicism is a prerequisite in our modern world; for the lack of it will result in us chasing down the ephemeral promises of every fad that comes along.

The bumble bee that is not supposed to fly and the frog that gets slowly cooked in the pot of boiling water are great motivating stories – but nothing more than that. The absolute truth is a bit more elusive and it takes a lifetime to pursue and, who knows, may only be discovered once we pass away.

 

 

Why we can't improve our customer service

Doctors tend to wash their hands just over 60% of the times that they should.

Do you wonder why that is?

Alice Stewart who discovered the link between childhood cancers and pre-natal X-Rays had to wait 25 years before UK hospitals prohibited X-Rays for pregnant women.

Can you think why that might be so?

Customer service is the single most effective differentiator in crowded, commoditised markets, but whilst 80% of businesses think they provide great customer service, but only 8% of their customers agree?

I wonder why that is so?

Seriously, think about that for a moment before you continue to read on. Why is that people can’t see the obvious?

I have thought about how it can be fixed, and I have come to the conclusion it can’t be fixed because it comes down to a host of biases in our thinking processes that make us think we are better off than we really are.

  • I am a better than the average driver.
  • I am better than average looking.
  • Other people are always wrong.
  • Other people should get their act together.

When we all think that, we ARE the other people.

But we refuse to believe it because there are psychological benefits to thinking we are better than we are.

Just watch Australian Idol or any similar show. Next time you see someone wearing an outfit that they really shouldn’t be wearing, you will know this is a powerful effect that is alive and well everywhere you look. From doctors to girls with muffin tops – it doesn’t discriminate based on age, sex or status.

We all think we are a little bit better than the next guy.

Except we are not.

And that, dear reader, is what stands between us and getting better; knowing and accepting that we might not be as good, special, beautiful, smart or successful as we like to believe.

The harsh reality is that our customer service is not as good as we think it is. At least until we accept that it isn’t - and do something about it despite the firm belief that we don’t need to.

The above applies to all of you of course – not me. I really am much prettier than the average…

Just kidding – have fun.

 

When customer service is a perfect paitning

Was your Customer Service once beautiful?

“There is one great difficulty with a good hypothesis. When it is completed and rounded, the corners smooth and the content cohesive and coherent, it is likely to become a thing in itself, a work of art. It is then like a finished sonnet or a painting completed. One hates to disturb it. Even if subsequent information should shoot a hole in it, one hates to tear it down because it was once beautiful and whole.”- John Steinbeck, Sea of Cortez.)

The one hypothesis we all hold dear as the ‘perfectly complete painting’ is the quality of our customer service. How many people, staff members, companies and executives firmly believe that their customer service is perfect? Do you?

Even when information or customer feedback or staff feedback shoots a hole in it, still they hate to tear it down, they hate to revisit what they think and ultimately believe what good customer service is.

Why do we behave this way?

  • Is it too difficult?
  • Are we afraid of the truth?
  • Is the sunk cost too high?
  • Do we have too much of our self (our own identity) wrapped up in the service we think we deliver?
  • Do we want to avoid the consequences of discovering the real truth?

Stew Leonard was awarded 1992 Guinness Book of World Records for largest sales per square foot for a single grocery store: $115 million in sales, $3,470 per square foot.  Stew Leonard’s philosophy can be summarised as follows: “You will never ever need a consultant, all that you have to do is be on the floor and talk to your customers. Every day I am on the floor asking my customer what they want. If they say we like the flowers in this type of bouquet, then I say to Stew Junior when you go to the market tomorrow please see if you can get this type of flower…”

Now this sounds easy! But it is not. The reason being, you need to really listen to your customers and know them. You need to treat them as family. They are not a ‘demographic we need to satisfy. Customers are human beings and a lot smarter than we might credit them with. David Ogilvy famously quipped that the ‘consumer is not a moron, she is your wife’.

In the Disney movie Big Hero 6 the film Robotics prodigy Hiro lives in the city of San Fransokyo. Hiro's closest companion is Baymax, a robot whose sole purpose is to take care of people. Often our protagonist, Hiro, had to come up with plans to overcome evil and adversity, and his favourite tactic was hang upside down and look at the problem differently.


We also need to hang upside down when looking at customer service.


How can you ‘hang upside down’ and look at it differently? It is the oldest cliché in the business but great customer service I simply about this: find out what the customer wants and give it to them.

 

FIND OUT…

·         Pause the research and just ASK and LISTEN. Get on the floor and ask them what they like, or not like. It is your shop you are allowed to talk to them and I know that they want to talk to you.

·         Do you know the ‘persona’ of your customers? Are they the “smart adventurer” Not that they are 25-35 year old urban males earning…blah, blah….. And once you understand that, what does it mean in practice?

·         Shop your own store from the outside in: Let your staff walk in customer shoes on and buy from your store. Think, see and experience the touch points from a customer’s point of view. If your internal processes are not working for the customer at the touch points and moments of truth fix it, change it or throw it in the bin!

 

GIVE IT

·         Make sure it is NOT about selling along. Develop a bigger purpose for your staff, not just selling to customers but inviting them into your place of fun, solutions and engagement. You might the only person that day that makes the customers’ day – and they will repay you handsomely for it, if not today, tomorrow.

·         When staff are not confident in themselves and their products, they struggle to focus on the customer. You need to be an authority in your field. You not only must know your products and services but you need to know your customers and most importantly why they buy from you. (Consumers use the internet to educate themselves about products, so it takes serious training and dedication to actually stay ahead of the curve.)

·         Customers buy from you because like you, like what you stand for, like you because you are similar and not only because they can get the product from you. 

·         You are not your customers. Don’t buy what you like, don’t sell the way you like. Do it for them, do it their way, not your way. If you want to make money, you can’t listen to Frank Sinatra because doing it my way is the wrong way.

 

Have Fun

Dennis

GANADOR: Turning challenges into opportunities with smart people solutions

(PS: Thanks to Moonyeen for writing most of the post this week when time was at a premium)

On being biased

I know quotes are often lame, but at the same time sometimes it is distilled wisdom of such profound insight that it begs to be shared. The art of Facebook is knowing the difference.

This falls in the latter category:

“For us humans, everything is permanent - until it changes, as we are immortal until we die” 
 Malcolm Muggeridge

It casts a light on the human propensity to (over-value) our own views and opinions and in fact have a very tenuous, if not unrealistic, grasp on reality. Much of our failure to deal with reality is now increasingly being documented by Neuroscientists who are identifying our biases.

Here is a long list of biases that contaminate the human experience, and of course given a lifetime of study (and interest) in Consumer Behaviour, we keep a close eye on developments in this space. It is particularly relevant to our work in helping organisations adopt a more customer-centric culture, as we have to constantly work around people’s inability and unwillingness to change. Two powerful biases we come across often are:

Confirmation bias: The tendency to search for, interpret, focus on and remember information in a way that confirms one’s preconceptions.

Dunning–Kruger effect: When incompetent people fail to realise they are incompetent because they lack the skill to distinguish between competence and incompetence.

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.

4 Pricing errors that will break your business

Retail pricing can make or break your business. Coming up with RRP is 50% science and 50% art. The following symptoms and common strategies is evidence of poor pricing practices:

Price-point proliferation

This happens usually in multi-category stores. Stand in front of any merchandise category, say the pen department in a newsagent, and observe how many price points there are. Often you find six to eight price points ranging from below $1 to $10.

Can a customer really tell the difference between a $2.95 pen and $3.95 pen? If not, why are you selling pens at $2.95?

Rationalising price points makes buying a pen a more pleasant experience, and if managed correctly, will improve your margins.

In most categories/sub-categories, three price points (value, mid, premium) will do and in larger categories with a wider range of prices no more than five price points.

Pricing to achieve a margin

Many retailers follow a standard approach to pricing to achieve a certain margin. A standard mark-up is applied to every item purchased. In time, as wholesale prices increase, it results in the proliferation mentioned above.

A further problem is that is that while costs may increase, the value of the item does not necessarily increase. Often costs go up because volume is declining and the worst thing you can do is to increase the price. Simply applying a standard mark-up is counter-productive and it is often better to either accept a reduced margin to maintain volume or to de-stock.

Your mark-up is irrelevant; the only thing that is relevant is what a customer is willing to pay.

Of course ultimately you must achieve a certain margin (your ‘maintained margin’ after markdowns, returns etc) but on a product by product basis, the price is determined by a range of qualitative factors (see below), and the financial outcome is considered afterwards.

If you under-achieve your margin, you can’t simply up the prices to do so without considering these other factors – you have to reconsider your range. Of course there is no such thing as over-achieving your margin.

Following Manufacturers advice

The laws that govern resale price maintenance allow a maximum RRP but no minimum. (For a quick rundown of what can and can’t be done, this page by the ACCC sums it up nicely.)

On the one hand larger manufacturers are likely to have arrived at their pricing recommendation based on some pricing analytics, but that still does not mean that it is right for your business. Make your decision on the range of qualitative (the art) and quantitative (the science) factors, where manufacturer’s recommendation is one consideration. (Of course if you are an agent for a manufacturer, it is different.)

Ignoring qualitative pricing factors

People use price as a heuristic. That is they use it as an indicator (mental shortcut) of something else, and our case usually it is used to indicate ‘value’. Generally one must be an expert to fairly judge value. Say you are buying a car, can you unequivocally tell the difference between a Mazda and a Lexus? Most people use the brand and the price associated with that brand as an indicator of what a good car and what they then expect from that car given the price. It is no different when thy buy shoes or anything else.

The following qualitative factors need to be considered:

  • Brand

As the retailer it is therefore your job to manage how your pricing strategies over time communicate an important aspect of your brand. By setting your price, you are creating (or breaking) your brand.

  • Consistency

You should apply your pricing consistently - if you are selling coffee for $5 and slice of cake for $10, you shouldn’t sell a Coke for $2.  And if you are selling $2 coffees, you shouldn’t sell $5 cokes.

  • Value

People don't buy stuff because it is cheap, but they never want to pay more than it is worth. (Price's Golden Rule of Pricing). This is possibly the most important consideration: what is a customer prepared to pay, given the economic-, social- and competitive context of your store and your product?

  • Strategy

What are you trying to achieve? Market share vs profitability? Growing a business or defending territory? USP or competitive advantage? What is happing online?

  • Timeframe

How important is the product in the long run?

  • Marketing & Operations

How does the product sit in your offer? Is it needed to stimulate sales for another category? Is it a loss-leader?

The key point I want to make, especially for smaller independents, is that the worst thing you can do is to have set and forget approach to pricing. I can’t tell you how often I come across a retailer who simply says they multiply by 2.2 (to achieve 100% mark-up plus GST) and that is how they price everything.

That may the easy approach, but it is also the easy way to go broke quickly.

How to negotiate price without mentioning price

Last week’s post highlighted a few common errors made when pricing for retail. This week the focus turns to how optimise profitability by negotiating smarter.

Many wholesalers/manufacturers will have different types of discounts – not all of which are widely communicated. Often it is a case of ‘don’t give if they don’t ask’. And why would a rep give away something if it is not important enough for you to ask for it?

Here are twenty things you can negotiate that will either improve gross- or net margins:

1. Trade discounts (% off list price)
2. Quantity discounts (based on volume bought)
3. Seasonal discounts (incentive to stock out-of-season merchandise)
4. Cash discounts (reduction based on when bill is paid based on dating of the invoice.)
5. Slotting allowances (paying for shelf-space)
6. Markdown guarantees
7. Promotional allowances
8. Rebates (refunds from vendor which does not impact markdowns)
9. Payment options
10. Payment periods
11. Credit terms
12. FOB Origin or FOB Shipping point (e.g. centralised warehouse)
13. FOB Destination (with or without charges reversed.)
14. Free/Additional POS material
15. Exclusivity (for an area or for a period of time)
16. Co-operative advertising
17. Pre-ticketing/ tagging/ labelling
18. Packaged for resale
19. Field Merchandising & stock rotation
20. Dating (when the discounts etc. come into effect.) For an example of how to calculate the benefits, check this out. This example shows how a seemingly insignificant 3% early settlement actually translates to >50% in actual fact.

You won’t get everything from everyone – but all the little bits help.

Ganador Blog is about #thinkdifferent. We cover topic of business- and personal development aimed at entrepreneurial marketers. (c)Applies. Posts authored by Dr Dennis Price.

About boxes, being inside or out

An elderly couple was asked what the secret to their long marriage was. The woman was quick to reply. It is all about who makes which decisions. I let my husband make all the big decisions like what should happen to the exchange rates and the how the Prime Minister should change our foreign policy, and which wars we should fight. I make all the little decisions like where we live, what school the kids go to and who our friends are.

We are often told to think outside the box. In fact, I pride myself on my abilities in this regard. But it is not all it is cracked up to be.

  • We live in boxes.
  • We drive in boxes.
  • We give gifts in boxes.
  • We work in boxes.
  • We retail in boxes.

One day we will be carried out of this world in a box.

Boxes are unavoidable. The box presents reality as much as it presents parameters and constraints and to deny them is to deny reality. We can’t perpetually want to live and work and ‘innovate’ our way outside the box. Boxes are there for a reason.

Does that mean we have to accept the constraints of the status quo? Does it mean we must be happy with our ‘lot’?

There are two strategic options: accepting the reality of being in a box or rejecting the constraints and living outside the box. Which is the right option?

The simple answer is that both are right.

When the edges of the box are defined by uncontrollable events and unchangeable circumstances, then living within the box, dealing with that reality and ‘making do’ is the smart approach. Becoming efficient within those constraints (despite those constraints) is the key.

When the edges of the boxes are arbitrary constraints; especially those that are deemed to have always been ‘like’ that’ then they should be challenged and pushed. Don’t let tradition or fear define the edges of your strategy, nor let that determine what you are capable of.

The place to live, work and find success is inside the box and outside the box. The real challenge is knowing when to focus on the inside and when to focus on the outside. In the context of running a retail business, there are certain times when working inside the box is required. The obvious ones are:

  • Minimum wage
  • GST on overseas purchases (lack of)
  • Interest rates
  • Competitor strategy (less obvious perhaps)

The areas where you can (and should) constantly innovate and push the boundaries are for instance:

  • Promotions
  • Displays
  • Channels
  • Customer service

The problem is not that people don’t know when to think inside or outside the box. The problem is that people believe ONE way is always the answer.

Whilst our focus (at Ganador) is the provision of solutions for creating teams/companies that are totally focussed on customer service, and everyone knows how important that is, we are the first to admit that great customer experiences are not the only thing that matters.

Sometimes you must think inside the box and sometimes outside. It is NEVER only one right way, sometimes it is both and sometimes it is neither.

Ganador Blog is about #thinkdifferent. We cover topic of business- and personal development aimed at entrepreneurial marketers. (c)Applies. Posts authored by Dr Dennis Price.

WHY DO RETAILERS FAIL #3: TREND vs ACTION

Last week I wrote that instead of responding to trends as drivers of the business, we should rather see trends as market responses to friction points in our business.

It follows, therefore, that we should see the trend as a symptom of a problem and not the cause of a change.

There is wide spread consensus that the following trends are manifesting right now, and that survival requires retailers today to master these trends and either future proof the business against their effects or to capitalise on the trends.

Typically, pundits will list a bunch of ‘things’ and label them trends:

  • Mobile
  • iBeacons/NFC
  • Gamification
  • Community engagement
  • QR codes
  • Multi-channel
  • Social Media
  • Internet of things
  • 3D printing
  • Fusion retail

The challenge with these lists is that the trends belong to different categories. Gamification is a strategy and QR codes are technology.

At the other end of town, Companies like PricewaterhouseCoopers will create conceptual frameworks, which are probably perfectly valid.


http://www.pwc.com.au/industry/retail-consumer/assets/Digital-Media-Paper-Jul12.pdf (Source)

In both cases it is hard to go from the diagram or the list to doing different things in your shop today and be confident that it is relevant to your business and that you are not simply addressing a fad. In accordance with my hypothesis, the trend is an indicator of an underlying issue.

What is the solution?

I suggest a simple process that can be used by large and small organisations alike:

  1. List each touch point of your customer journey (form initial web search to post transactional interaction)
  2. Identify potential areas of friction (e.g. website slow to load, long queue at the till) at each individual touch point.
  3. Fix each point of friction by asking the following three questions:

* How can I use current technology to reduce the friction?

* How can I systematise my operation to change it and to prevent it recurring?

* How can I use this change competitively?

  1. Ensure the changes are documented and communicated and trained into the business as required.
  2. Rinse and repeat as part of your annual business model review
Ganador Blog is about #thinkdifferent. We cover topic of business- and personal development aimed at entrepreneurial marketers. (c)Applies. Posts authored by Dr Dennis Price.

WHY DO RETAILERS FAIL? #2: FAILURE BY FRICTION.

 

To make sense of a great many of the trends in retail is not easy. Experts abound and a simple google search will give you some comprehensive, free slide decks. But how do you make sense of these trends in practice? How do you take it from words on a page to specific actions?

 Understanding the notion of friction allows you to do just that, because one can use that framework to evaluate your retail business quite effectively.

In The Necessity of Friction (1993) Keith Griffin, writes about the traditional view of Economics and it can be summarised as follows:

The core of late twentieth century economics consists of a set of assumptions which, taken together and seen as a whole, constitutes an image or vision of a self-regulating system in which friction and inertia are largely absent. Friction in both senses of the word is generally ignored: there is neither dissention and conflict nor is there resistance to relative motion. The economic system adjusts smoothly to disturbances; markets clear instantaneously; competition ensures that resources are used efficiently.

But, as any practitioner would know, and Griffins acknowledges, friction is real and it is every consumer’s bugbear.

What causes friction in the retail interaction?

The answer to this simple question will make sense of all the retail trends coherently.

Customers want zero friction. Remove friction, and customers are happy.

Price/cost is a friction point, and customers always want the best price (i.e. least friction). That is an easy one. Identifying a comprehensive list of friction points, specifically to your business, and developing specific strategies for them is harder.

Some examples are captured in the image below. The way to use it practically is to evaluate every customer touch point and assess the level of friction at that touch point.

·         Duration

·         Availability/timing

·         Effort/Physical

·         Choice/Competition

·         Epistemic Friction (e.g. product knowledge)

·         Psychological

·         Fit for Purpose/Quality

 

See figure 1 for a simplified, partially completed example.

 

Like any relationship, it is better when the friction is removed.


Retailers fail when they don’t recognise the friction.

How does this relate to evaluating trends?

The growth in ecommerce and social marketing is directly proportionate to online sales as it effective removes the friction of poor face-to-face serves, removes the friction of sales staff that lack product knowledge. And it is also directly proportionate to the friction caused by over-priced offers.

The growth in mobile phone usage (to shop or supplement shopping activities) directly reduces the friction related to the effort/ duration of shopping activities. And so too is the trend of customers who increasingly argue about RRP.

My hypothesis is this: It is not the trend that drives/impact our business so much as that it is our inefficiencies (friction) that cause the trends to emerge in response to that friction.

Consequently, if we become proficient at identifying friction, we will be better able to (a) anticipate the trends and (b) proactively respond to trends in good time. In fact, if we reduce friction efficiently, we will be less impacted by the trends, whatever they may be.

Dennis Price

LESS failure, MORE success - GANADOR

 

Ganador Blog is about #thinkdifferent. We cover topic of business- and personal development aimed at entrepreneurial marketers. (c)Applies. Posts authored by Dr Dennis Price.

WHY DO RETAILERS FAIL #1: THE BIG SQUEEZE

In our first post on the topic of failure, I gave an overview of what failure is, how we respond to it and how we should respond to it. 

There are many ways to describe what happening in the retail sector is. Disruption is too generic, and not helpful to understand what is happening. I prefer to identify specific patterns and one such pattern is ‘convergence’ or what is referred to as the dumbbell effect.  

A good example would be shopping centres, where the big centres with a great offer  just gets bigger and the small, convenient ones do well too; but the middle is being squeezed because the convenience is compromised, yet the range isn’t quite there; so the middle gets squeezed at both ends. 

A similar pattern can be identifies as boundaries between retail formats are being ‘squeezed’. See Image 1 below. Traditionally, you get Fast Food at one end and Restaurant quality food at the other. The price, the quality, the wait – everything was different resulting in very different experiences and expectations. 

Then disruptors come along and squeeze  the formats by creating a niche where none existed before - often in between two niches. When three niches go into two, there is usually some pain for someone. 

The most interesting thing about the big squeeze is that it is allowed to happen. Or is it that simple? 

One can argue that the incumbents of the pre-existing format, simply failed to cover their territory and an upstart came in to eat their lunch. The Quality Steakhouse should have offered $10 steaks. 

Or one can argue that the incumbents could not cover those territories because if they tried, they would have diluted their own proposition. Would you really have gone to Hungry Jacks for a $12 Steak Burger? 

As usual, the answer is probably not either/or, but rather a little bit of both. So the important thing is figure out what the important lesson are: 

1.     Whatever positional advantage you currently enjoy, WILL be eroded in time by an opportunist - it is only a matter of time. 

2.     Differentiation is critical in responding to consumer preferences. (Corollary: there is always a different way to slice the pie.) 

3.     The best, strongest and most compelling proposition will beat weak a weak proposition every day of the week. 

4.     In the new age of marketing, the value of brand can grow more rapidly than ever and decline more rapidly than ever. (You need it more and it is worth less.) 

5.     Niches are getting smaller, so you have to go deeper. (In practical terms, expanding your geographic reach via the internet allows you go deeper after a smaller niche.) 

What are you doing successfully to navigate the squeeze? Has it happened in your sector?

Dennis Price

LESS failure, MORE success - GANADOR


Ganador Blog is about #thinkdifferent. We cover topic of business- and personal development aimed at entrepreneurial marketers. (c)Applies. Posts authored by Dr Dennis Price.

Anatomy of Failure

THE FAILURE BOGEYMAN IS COMING

As soon as we hear the word ‘failure’ we run for the hills for fear of catching the disease. Some high achievers (Branson, Gates, Jobs and the like for example) tell us to embrace failure, but we all secretly think that is easy for them to talk, because they are already successful.

If I was that successful, I’d also be happy to admit my historical failures.

But what if the failure is recent? What if your failures outnumber your successes? Most importantly, what if you believe that you are currently not ‘successful’? Would you be prepared to admit failure?

Most people don’t and won’t. The average entrepreneur succeeds less than 30% of the time. On the other hand, Bill Gates has a 100% success rate with company start-ups. He tried once, and succeeded. Who do you think knows most about what works and what doesn't; the average entrepreneur or Bill Gates?

I tallied up all my business ventures and my pass rate is 2 from 7. That is less than 30%. (In the spirit of honesty, I wasn’t referring to the average entrepreneur; I was referring to my own track record.) I reckon I know more about failure than Bill.

There are MANY more failures than successes in the world. The real stats are:

  • According to Bloomberg, 8 out of 10 entrepreneurs who start businesses fail within the first 18 months - that is approximately 20%.
  • According to an IBM study, only 40% of projects meet schedule, budget and quality goals.
  • For every seven new product ideas, about four enter development, one and a half are launched, and only one succeeds - that is less than 15%.

I can’t find a statistic to prove it, but I don’t believe this state of affairs has improved - ever. So that leads us to the conclusion that we are not dealing with failure like we are with other challenges.

What is failure and why are we so afraid of it?

WHAT IS FAILURE?

Success/failure is and can be more than material things like possessions and money. Success is defined as a state of affairs that are as desired, so failure is therefore non-existence of the success state.

For example: If you define success as a million bucks in the bank, then failure is not having a million bucks in the bank. If you define success as happy kids and time for your art; then failure is unhappy kids and no time for your art.

There is one important assumption in all of this and that this ‘state’ is able to be influenced. If you are physically unable to have kids, then you obviously won’t have ‘happy kids’ either. One can hardly classify that as a failure, even though it is not the desired state.

HOW DO WE RESPOND TO FAILURE?

1. We respond irrationally

The reason why we don’t want to admit failure is that we can’t separate the ‘FAILURE’ from the ‘ME’. We can say ‘it’ was a failure, but we really feel “I” am a failure. When we succeed, we are quick to explain how and why “WE” did it. When we fail, we are quick to find something or someone else to blame, because we take failure is personally.

We all know that synchronicity/luck plays a role, sometimes the dominant role in an outcome. When we succeed, we don’t acknowledge it, and when we fail, we feel like losers for blaming bad luck.

Psychologists will talk about our ‘locus of control’. We tend to internalise events, which is great when things go well, but not if they don’t. People can be trained to shift their locus of control.

2. We make failure relative

Because we want to disassociate ourselves from failure, we define it out of existence.

It is possible to define success anyway we like so that we can describe our current situation as ‘successful’, so that is what we do.

Ganador is a 2.5 person business. That is our business model and that is how we designed it and planned it. However, if I DID win a million dollar contract over several years requiring me to employ more people full-time, would I have done it? Of course I would have, right?

Since that makes the business less successful than it could have been; does it make it a failure? If we were honest, it probably does. I simply settled for less and moved the goal posts to make me feel successful (enough).

If you have a $5m a year retail chain that could be doing $8m, does that mean you are successful or that you are failing?

So, success (and failure) can be defined to suit, and that is a benefit and it is a trap. We end up believing we are as successful as we can be, even when we are actually failing.

Ganador has/does a lot of work with ‘critical retailers’. After eight years, I can say with some confidence that we are intimately familiar with failure. If one can be an expert about failure, then we are. And in eight years of dealing with under-performing retailers, not once did anyone ever take any personal responsibility for the state of affairs. Not once. (On the other hand, I can tell you that John Howard, Kevin Rudd, Julia Gillard and Tony Abbott have a lot to answer for…because they pretty much caused all the problems.)

3. We ignore failure

Our irrational fear of failure pervades our organisations, to the extent that it perpetuates failure. We don’t deal with it. Because dealing with it means we have to admit it, and we can’t do that at all. The consequence of this is that we actually don’t learn about failure, why it happened and how to avoid it in the future.

The people involved in a failed business or project will disband as soon as possible, avoid reference to that ‘black mark’ on their resume and move on.

HOW SHOULD WE RESPOND TO FAILURE?

Instead of a prescriptive list, maybe a few questions to suggest some possibilities will do:

  • How many organisations plan for failure?
  • How many organisations celebrate failure?
  • How many organisations extract maximum value from a failure by constructively engaging with failed teams and failed projects?
  • How many organisations document failure?
  • How many organisations invest in failure training?

HOW we may do these things would not be immediately obvious to some readers, and that is more or less the point. We don’t know what failure training looks like or should look like, because we have never done a course in ‘capitalising on failure’.

Over the course of the next few weeks, I will explore why retailers fail – and then conclude with how we may be able capitalise on it. It is time for FAILURE to come out of the closet. Hiding has zero benefits, and sharing the light of critical analysis on it helps equip us for the present and the future.

Let’s face it, if we work on our failures we have more raw material than if we simply try to replicate our successes.

Dennis Price

Helping to develop businesses less likely to fail at GANADOR

Ganador Blog is about #thinkdifferent. We cover topic of business- and personal development aimed at entrepreneurial marketers. (c)Applies. Posts authored by Dr Dennis Price.

A litany of retail failures, and how to benefit

AKA: RIP Retail Australia (or not)

It is easier to be pessimistic than optimistic, and one can find stats to support either view.

But here is my take on the retail landscape:

Average of 44 small businesses closing their doors each day, according to Australian Bureau of Statistics data

Small business failures up 48 per cent

Sales have been flat, like forever: The latest ABS Retail Trade figures show that Australian retail turnover rose 0.1 per cent in November, seasonally adjusted, following a rise of 0.4 per cent in October 2014.

Online eating our lunch. Total online retail trade, in original terms, rose 5.2 percent in November following a rise of 9.8 per cent in October 2014 and a rise of 8.7 per cent in September 201

The consumer is not coming to the rescue: Total household debt stood at $1.84 trillion at the end of 2013, equivalent to $79,000 for every person living in Australia at that time. This was higher than it had been at any time in the previous 25 years, even after making adjustments to remove the effect of general price inflation

And this won’t change soon: In 2012, Australia's household debt level was equivalent to 1.73 times Australia's 2012 gross disposable household income, whereas household debt in both Italy and Germany was less than a year's worth of gross disposable household income (at 82% and 93% respectively).

Sales growth is declining. Like forever - see graph.

Our retail landscape is littered with failures – from outright bankruptcy to strategic retreats. And failure defies any classification, as you can see from the range:

Small (Treehouse Children’s Decor) and large (Crazy Clark's and Sam's Warehouse). Food (Pie Face) and Fashion (Ksubi, Man 2 Man) and Homewares (Clive Peeters, Kleenmaid). Luxury (Perfume Empire) or Basics (Payless Shoes). Local (Darrell Lea) or International (Starbucks, Krispy Kreme) or franchised (Video Ezy).

But the purpose of this post is not to lament the state of the industry, but rather to make the point that failure is a fact of life. None of those organisations or the people involved with them need to be ashamed of the end result.

The problem with failure is that we run away from it and don’t confront it well enough to actually learn from it.

Melbourne angel investor Frank Cooper believes there is still some resistance to supporting an entrepreneur with an uneven track record. “Attitudes are changing, but there’s still a long way to go before we get to the American acceptance of failure,” Cooper says. (Follow the link to read the story of Franz Madlener and Villa & Hut and what he took from it.)

Over the coming weeks I hope to go some way towards bringing failure out of the closet.

Have fun

Dennis

Ganador: Solutions for Success

 

Why people hate, and what marketers can do about it

I originally wrote this post the weekend before the Martin Place siege in December 2014. Then I decided not to post it because it may appear to be smar-ar$ed or insensitive. But then we had Paris 2015 with the Charlie Hebdo massacre and it seems it is a topic that must be addressed.

The original title was: An Application of Rigidly Defined Uncertainty 

I published a draft framework recently that is designed to help organisations think about the future. In brief, I postulate that society of the future will function very much like a Caveman Society. The technology will be different and it will eradicate the disadvantages of actually being part of a small tribe (E.g. geographic limitations, physical limitations, health risks etc.) and enhance the advantages (intimacy, safety) etc.  I argue that this is the naturally preferred state of mankind. I then proceed to explain how and why these patterns all point to that future. 

I encourage readers to go and create their own predictive frameworks for the domain of interest. To bring this home with an example I thought I might take what is currently happening on an international level regarding the economic distribution of wealth. How would this Caveman Society play out on an international level? 

I believe it will manifest as follows: 

In the past tribes increasingly grew in size until they reached adulthood of nations. What we call a ‘country’ today is the outer limit of what a tribe can be. The world can be seen as a series of silos all side by side. France is its silo, America is its own silo and so forth. The borders are (were) the walls that kept each silo separate.   

In each vertical silo, you had different layers of course. You could view the layers of society in a few different ways, but since we are talking about economics, we can highlight the different economic classes. At the top is the so-called 1% and then all the layers to the bottom where you find the destitute and homeless. 

In essence, tribes were vertically segregated, even as they had different horizontal layers of economic status within each tribe: Inter-tribal geographic separation and Intra-tribal economic separation. 

Migration on a grand scale has caused a high degree of homogenisation in all countries. There are few countries in the world where you won’t find a Mosque, an Indian restaurant or a McDonalds. This is disrupting the fabric of the traditional tribe as the culture (language, practices, ethnicity etc) are being rendered apart. 

Naturally some members of the tribe are feeling threatened and the lines of tribal boundaries are being re-drawn. The question is HOW? 

Some commentators think (and agitate for) traditional geographical borders to be made less permeable. I argue that it is too late for most countries. An exception may be made for a few countries. For example North Korea is not attractive to migrants and China is not available to most migrants. 

I argue (in Rigidly Defined Uncertainty) that formation of the Tribe is the natural state for mankind and consequently a ‘borderless world’ is not an option.  

Unless there are widespread civil wars in a great number of countries, migration won’t be stopped. If one country stops the inflow, it will simply raise the pressure somewhere else to the point of breaking, resulting in a domino effect.  

If we can’t resurrect the old physical tribal boundaries, how will we re-draw the new borders to help us revert to the Caveman State of belonging to a tribe? 

In theory, tribes can be formed by say all red-haired people or by thin people or whatever is perceived to be a common interest. But in my view there are only two candidates for providing the basis for cohesive tribes that have strong, behaviour-influencing common bonds. That is religion or economics. 

Many people think (and fear) that religious extremism is being used to define tribes, but the most viable option I see is economic tribes forming across the world at the expense of geography, language and any other commonality. It won’t matter if you are French or American, it won’t matter if you are red-haired or blond, it won’t matter if you are Christian or Catholic – what matters is your economic class.  

·  The one-percenters will stick together to defend what they have got.  

·  The destitute will wallow together, irrespective of race or creed, in the rot. 

The million dollar question is how the ‘middle’ will break up? That is, how big and how cohesive will those groups will be? 

In theory, those with the most to lose will fight the hardest; but the paradox of economic wealth is that also makes you soft; so ‘theory’ may be obliterated by a relative minority of people who have less to lose but are street smart and not bound by the conventions of civility. 

The point is that tribes are re-formed around economic interests. In effect, I am talking about the lateralisation of tribal boundaries. The new dispensation will have Inter-tribal economic separation and Intra-tribal geographic separation. Instead of vertical silos in a single geographic area, we will have lateral (horizontal) silos (along economic lines) across geographies. 

To illustrate, one could like at the link between religious extremism and economics (of the American Fundamentalist Christian Right and Muslims for instance) but that would be too contentious for this forum. Instead, consider what is happening with something called #gamergate. It started out as a debate about sexism (female discrimination) amongst the small community of (nerdy) gamers. It has exploded into something entirely different. 

On the one hand you have the so-called SJWs (Social Justice Warriors) – get used to that term and if you want to waste some time online, check out the #SJW hashtag. When I wrote the little treatise, I labelled it as vigilantism. But I bet if you dig deeper you will find the SJWs are at the Yuppie end of the economic scale and the hard-core gamers are the archetypal lonely, nerdy males who are most likely not particularly economically advantaged. 

This post is not about gamers, but it is meant to illustrate the practical application of the framework provided by Rigidly Defined Uncertainty. Gamergate transcends national boundaries and a new set of boundaries are drawn. New tribes are being created around new ideas – and this is important to understand.

We all belong to a tribe and we need to belong to a tribe. As one set of tribal allegiance are being demolished we will create others to replace those. The ongoing challenge will be define what those new boundaries will be drawn ‘with’ – and I think it is a safe bet to consider economic class first.

Another example is religious extremism. This is as much evident in the American Right as it is in the Middle East, even though the means employed to achieve their goals are different. In the American Right you have a fundamentalist Christian faith that is employed to mask a keen desire to protect the tribal interests. The Right in the USA is conservative, capitalist and non-interventionist in their approach. For instance they are opposing Obama’s attempts at introducing healthcare by labelling it socialist. The real fear is that it is going to cost them money.

It would be interesting to explore how much of the extremism we witness in the Middle East, is religious and how much of it has underlying economic causes. (Discrimination, exclusion, racism etc directed at minorities.)

That is all Social Theory. What are the implications for your business? 

In the first instance it is worth thinking about the over-arching impact that this new tribalism will have on politics of Australia and what that may look like in the near future, for as we know political decisions have a material impact on your business. Every economic class will practice their own form of vigilantism to secure the safety of their tribe. Which tribes will win? We might not have the skinheads of Europe, but that does not mean the sentiments don’t exist here. 

On a more direct, pragmatic level it has obvious implications for market segmentation. Every tribe is a potential market. That may appear cynical, but the golden rule of economic demand and supply will come into play. What is the make-up of your current users/patrons/customers?

It also has obvious practical implications about workplace health and safety and managing risk. 

It has implications for supply chain. Which countries are you sourcing product from? 

It has implications for branding and marketing communications. New taboos and new opportunities will emerge.

And finally, ideally and most importantly; what all businesses should be doing is creating tribes of their own. Seth Godin wrote about tribes a decade ago. I agree with him. The idea of ‘tribes’ are even more pervasive than Godin thinks it is, and explains more. It also has awesome predictive power.  But if you can do what Seth says and turn a target market into a tribe, you’ve got it made.

The violence we see in our society, whatever you believe the cause is, is a manifestation of the innate desire for humans to belong to tribes. One of the smartest things you can do as a retailer is to use this insight to protect and improve your business.

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.

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