Dealing with Change
By Deborah Ginsburg*

Today one of the biggest challenges retailers face is how to continue to build brand awareness and customer loyalty in an ever changing market.

A decade ago, it was not uncommon to go to the nursery for your gardening supplies, the grocery store for food, the Wal-Mart for general merchandise, the drug store for prescriptions and a convenience store for gum. Today, those traditional channels for grocery, drug, mass, specialty and convenience stores have all but disappeared

Key Differentiators

We are no longer destination shopping by need. We are shopping by location, price and for some, continued brand loyalty to our favorite stores. Where brand and merchandise used to be the key differentiators, price, convenience and believe it or not, customer service are king.

Retailers are facing a much more challenging market and a more demanding consumer than ten years ago. They need to culturally readjust how they approach their go-to-market strategies.

It is certainly possible to create new line extensions, add new products and services and extend your brand in order to capture the new consumer and hang onto your old one. However, it is essential to do your research, understand the implications and plan for the change.

Here’s an example of what I am talking about. I recently visited my local Bed Bath and Beyond store in search of a set of 400 thread count sheets. I turned the corner only to run into a row of aisles featuring hair care, feminine hygiene products, OTC drugs and a variety of other products I normally shop for at my local CVS. At first I was confused. Did I enter the twilight zone? No, I realized that what I had entered was a literal depiction of the intense channel blurring that is happening in retail today.

Many retailers have found themselves either consciously or unconsciously modifying themselves to this changing market dynamic.

Starbucks has gone beyond the local coffee shop and become a retail outlet for music and merchandise by sponsoring XM café on the XM satellite radio network. They have even gone into partnership with one of the hottest brands around, Apple. A September press release from Starbucks reports, “...customers wirelessly browse, search for, preview, buy and download music from the iTunes Wi-Fi Music Store at Starbucks onto their iPod touch, iPhone or PC or Mac running iTunes while at a participating location.”

One has to ask, if Tower Records had tried to expand their big box record store directly to the changing tastes and buying habits of their listeners, would they still be around today?

Navigating this channel blur requires more than just adding features and merchandise, it requires retailers to become aware of the experience they are imposing on their customers as a result of their “added convenience” and store model modifications.

Let’s take a look at Target. Though Target has expanded into grocery, their initial store experience has not changed. Their brand message is the same and continues to stay on track. Whereas other grocers or specialty stores have added merchandise to their mix that is “foreign” to their original brand position they have failed to properly communicate to the customer what they are doing and are facing more inventory, larger shrink and both internal and customer frustration.

In order to truly evaluate the success or failure of channel blurring, we have to look at the effects it causes for both customer and retailer.

Store-within-a-Store

The store-within-a-store environment came about early on with department differentiation. Grocers have always offered and tried to differentiate their produce from their floral from their seafood departments.

With the growth of organics and the conflicts of how to market it, many retailers created these independent departments and “natural” experiences. Today you find many individual store environments within retail. The houseware and gift departments of Wegman’s are clearly a unique shopping experience as is the grocery section at Target or Super Wal-Mart. Store-within-a-store methodologies work but take a lot of energy and dedication.

Competitive Pricing

Perhaps the biggest problem that has arisen from this channel blur phenomena is pricing. One can look only at the price wars that exist and know that channel blurring has destroyed the days of putting the same item in different packages for different prices at different outlets. There is now greater direct price competition. Specifically, manufacturers used to be able to sell the same product, packaged differently at multiple channels for different price ranges. The customer was for the most part unaware or ignorant of this and was quite content to get the bargain cookware set at Wal-Mart and the upgraded one at Linen ‘N Things. Today, with a lack of defined channels of distribution, increased costs of production, transportation and management, the same item in the same box is going out to everyone. As a result, we see more intense price competition and in some respect the commoditization of many products and services.

Private Brand Dilution

In watching this evolution take place, it becomes apparent that those retailers with many different private label brands have had an easier time treading this channel blur than those with only one strong private brand mark. Why is this? If you have more that one private label brand you have a little more leeway with brand extensions than stores that have to hang their hat on one main brand mark. With a strong private label brand mark, the customer has such a strong brand meaning with consumers that it becomes harder to change. When the brand is extended beyond its core meaning, it risks becoming diluted in the mind of the consumer and therefore weakened. Stores with multiple brands can more easily add and discontinue as needed. Brand essence is key to loyalty and recognition and retailers need to know how their customers view the brand and how far they can extend it without losing the meaning.

Don’t think that channel blurring is all negative, because it’s not. Without it we would still be trekking all over town for each different item we need to buy and probably paying more for them. Channel blur is a natural extension of how our life has expanded, sped up and changed with technology. We are busy people and stores with many offerings help us by providing the “one-stop shop.”

Bed Bath and Beyond is now more than a destination for fine sheets, home products and accessories. It is a store that might now command a more frequent shopping trip if I happen to need shampoo or ibuprofen. Wal-Mart and Target with their fresh grocery sections are now a true one-stop shop location under a 100,000 square feet umbrella. Though how you keep the ice cream frozen while you shop for underwear is beyond me.

As a consumer, this is convenient and confusing. Instead of enjoying my dedicated shopping runs where I could browse through the beautiful bedroom sets and dream of 1000 thread count sheets, or hunt through racks of clothes and shoes, I now have to consider and can consider everything on my shopping list at once, the price value, selection, time for the event and so on. If I no longer care where I buy my 400 thread count sheets will my loyalty fade and the store brand experience dissipate?

The most important thing to remember is that consumers want to feel loyalty. We like routine, but we also like adventure and value, so finding the right mix and taking it slowly is the best advice. Do your consumer research. Know your competition and think outside the box store.

*Deborah Ginsburg, president of Strategia Design in Fairfax, Virginia, was the former Director of Strategic Design for both HEB Grocery and Ahold USA and is now consulting with retailers nationwide @ www.strategiadesign.com.