The Wall Street Journal reported recently that both Target and Best Buy plan to price match online prices with Amazon and other major online merchants in an effort to combat showrooming. This is a flawed tactic to compete with online merchants on their turf rather than focusing on strategic differentiation to change the game. It illustrates a lack of understanding of how and why customers are buying and what drives loyalty.
Both retailers have plenty of caveats in their terms and conditions: You have to be able to prove that the price and product is available, and managers will have a right of veto in some cases. Will this stop showrooming or actually encourage it?
Over the holiday period last year, 60 percent of holiday shoppers started their holiday shopping search at Amazon, looking to establish a base price. Research shows that showrooming is real: Consumers use their mobiles first for checking store locations and opening hours, then for price checking.
However, this is missing the point. Yes, consumers can and will check online prices when in store. Yes, consumers are heavily driven by price in today’s economy.
But, consumers also value other things in addition to price alone. These are essentially ‘experiential’ benefits of shopping in the mall — the ability to just drop into a store when you’re passing, try on items of clothing or look at the available connections on a TV, to get advice from a friend or from a member of staff, and of course, the instant gratification that comes with taking the item away immediately. Not focusing on these benefits to concentrate on price on your competitors’ terms makes no sense.
All big box retailers should read PwC’s Experience Radar which examines the motivations
of consumers to buy from a particular retailer. In this chart, while price is the number one factor influencing where to shop, past experience, brand and convenience are also significant factors.
PWC describe how it is a moment of truth that defines a relationship between a retailer and its customers.
“Over half of shoppers cite friendly staff assistance as the key to winning or losing them. Invest in training knowledgeable staff to prevent buyer’s remorse. Shoppers utilize staff knowledge to affirm purchase decisions — product knowledge and recommendations account for almost 1/3rd of good experiences related to support.”
So perhaps the big box retailers don’t have to price match, but merely be similar enough in price and differentiate themselves with great service.
This gets to the heart of the advantages that multi-channel retailers have over a pure-play ecommerce company. No prizes for guessing that price isn’t on the list:
Unfortunately in today’s retail environment, personal, friendly and knowledgeable service is all too often absent. Many people dread going into a Best Buy knowing that they will probably know more about the product they’re interested in (having researched online) than the shop assistant. The sale was there to be closed; only the personal service was missing. Where is the expertise? Where’s the friendly service that helps me to justify the difference in price between getting it now or marginally cheaper online later?
• Personal connection
Face to face service can be very personal and can build a relationship in ways just not possible online. Humans react to faces very differently than to a graphical user interface or to a voice on the other end of the phone. We know instantly when we meet someone whether they are genuine, interested in helping us, or are bored.
We ‘connect’ with people we meet: Great, friendly service in-store is almost always remembered and will often brighten a customer’s day. Moreover, as the customer moves ever closer to a purchase, an expert can be on hand to affirm the customer’s choice, thereby clinching the sale.
A subtle touch can also dramatically influence the probability of purchase:
“Shoppers in a supermarket were approached with a request to sample a new food product. Half the shoppers were touched during the request, and the other half were not. Touch increased the probability of both trying the food sample and buying the product. The touch and no-touch groups did not differ in their taste rating of the product.” (see Taylor & Francis)
Note in this study, both groups had the same view of the taste of the product, but the personal connection triggered by a simple touch changed the probability of getting the sale.
• Experience the product before buying
Online clothing and shoe retailers are suffering with very high return rates, often 50 percent, simply because customers are unable to try on items before buying. The ability to see, touch and feel items is incredibly important in the consumer purchase process. For example, a towel is touched on average six times before it is purchased (see Paco Underhill, ‘Why We Buy’), illustrating how sensory consumers are. The act of touching a product increases the probability of purchase if the towel is soft simply because we are much more likely to purchase product that we have tried or tried on. Salespeople implicitly know this: A customer that wants to buy a car without a test drive is not considered a serious buyer based on the salesperson’s experience.
• Return to store
Multi-channel retailers have a fundamental advantage when it comes to returns, because consumers want to return items back to the store. It’s easy and convenient. The can look someone in the eye and get their money back immediately rather than wondering when or whether an online retailer will pay.You can see the importance of this in the Shop.org chart which shows responses when consumers were asked what’s important when shopping online. Returns, support and service are really important. Big box retailers can use this to their advantage. This has also driven Amazon to experiment with return lockers where you can drop off items for return.
• Experiential Retail
For many, a visit to the mall is fun and social. Whether you’re a teenager going to the mall to try on clothes with friends, get a makeover at the cosmetics counter, or visit Toys“R”Us on one of their Lego experience days, these are fun things to do which connect with consumers in an incredibly personal way. This is the future of retail: If people want to go to the mall because it is fun, they’ll go there and shop because the shopping experience is fun.
The challenge for Target and Best Buy (and Walmart which is considering a similar move) is not that they are unaware of the pitfalls of playing on Amazon’s turf, but that the alternatives are fundamentally more challenging. Paying staff basic wages caps the quality of service that can be delivered. Changing staff behavior and developing expertise at the store level to deliver value and service at the point of sale are really, really hard. Business transformation has always been tough, but that doesn’t mean that you should ignore it. Leadership has always been about making the tough decisions.
The future of the mall doesn’t lie in price competition with online business but with building the next generation of retail that enables consumers to experience products and services through their senses, and to connect with knowledgeable, helpful and friendly staff who will delight customers and get them coming back time and again to experience more.
The future mall will probably also have today’s online-only merchants such as Amazon opening stores simply to be able to leverage these innate in-store benefits that are currently closed to them. Perhaps these two groups of retailers, polarized today, will eventually arrive at the same place.