Historically, customer engagement and product fulfillment occurred in the same place â€" a traditional retail store. But today, retailers are beginning to explore how they can create opportunities for customers to engage with products in native environments. A related approach is to use nontraditional spaces for inventory storage, potentially speeding fulfillment. While it’s still early days, retailers should proactively consider these strategies’ potential risks and opportunities.
At a time when many traditional retailers are closing their physical stores, digitally native vertical brands such as Bonobos, which specializes in men's apparel, and Warby Parker, which specializes in eyeglasses, are aggressively expanding into offline locations. In this article, the authors explore two related trends: (1) the expansion of online-first retailers into offline stores that "supercharge"customer value and (2) the transformation of stores run by traditional, offline-first retailers from fulfillment-dominant centers into experience-dominant centers. As authors David R. Bell, Santiago Gallino, and Antonio Moreno note, as digitally native vertical brands have learned to build relationships with customers, traditional retailers have been reducing their store sizes and inventories and are attempting to improve and elevate the customer experience. "Showroom experiences," they write, "create better customers." When customers are exposed to the brand in a showroom, "they are better able to resolve any uncertainty about the nondigital attributes of the retailer's product."Similarly, the authors say, "showrooms create better retailers: When customers are physically present in the retail environment, observation of their behaviors can lead to meaningful insights." The authors developed their early insights into what customers value while working closely with Bonobos and Warby Parker. Through simulations, they saw that stores with smaller footprints and a higher level of service led to better results economically -improved margins, smoother logistics, and better control of inventory. They found that, rather than being dead, physical retail stores were very much alive with a profound shift in focus -from fulfillment to experience-oriented environments. The authors conclude that online-first retailers and traditional retailers have something to learn from each other.
This is an MIT Sloan Management Review article. Customers are increasingly "omnichannel"-deploying both online and offline channels -in their thinking and behavior. In order to win in this new environment, sellers also must be omnichannel. That means having explicit strategies for the two core channel functions -provision of information about products and product fulfillment -and offering the right combination of experiences for their customers. The authors have developed a customer-focused framework for delivering these strategies, drawing on empirical research conducted with both offline-first retailers like Crate & Barrel and online first retailers like Warby Parker. Traditional, or offline-first, retailers need to leverage the online channel not only for fulfillment but also as a venue for delivering price, inventory and other information desired by customers. Using data from a natural experiment conducted at Crate & Barrel, a retailer of furnishings and housewares, the authors show that by providing accurate price and inventory information online, a traditional retailer can significantly increase sales and traffic to offline stores. Similarly, New York-based Warby Parker, an eyeglasses retailer that started out selling online, sells products with tactile features that some customers want to experience offline. The authors describe how Warby Parker has experienced significant benefits by developing an offline presence. For Warby Parker, offline showrooms that provide product inventory for customers to sample drive increased sales through the online channel. Furthermore, the authors note, when online-first retailers develop offline channels to deliver information, this allows customers to sort more appropriately into the channel that best suits them.
This is an MIT Sloan Management Review article. In theory, trade promotions should benefit everyone involved. In practice, however, manufacturers and retailers often use trade promotions as weapons in a zero-sum game, and consumers are sometimes left out altogether. It need not be that way. Over the past three years, David Bell, an associate professor of marketing at the University of Pennsylvania's Wharton School, and Xavier Drèze, a visiting assistant professor of marketing at UCLA's Anderson School, have examined the theoretical and practical problems associated with trade promotions, and they explain how the right kind of deal can be created -- a transparent system that generates mutual trust and provides benefits to both manufacturers and retailers. The key is proper implementation of what is thus far a little understood tool: the pay-for-performance trade promotion, in which retailers get rewarded according to how much they sell, not how much they buy. The authors explain how the most accepted way of doing promotions today -- which rewards retailers for effective buying rather than effective marketing -- creates a variety of inefficiencies that drain resources from their intended purpose. Using a hypothetical case involving much-simplified mathematics, they go on to demonstrate how manufacturers can design pay-for-performance options that retailers can embrace. They also illustrate how one national beverage company made pay-for-performance deals work in practice. Finally, they offer practical advice to help senior managers rethink the elements of organizational culture that stand in the way of a more effective approach to trade promotions -- and, by extension, block better, more profitable relationships all along the channel.
This article presents a perceived shopping utility framework for analyzing the impact of retail price format on store choice. Retail price format, in turn, determines three key performance metrics: number of shoppers, number of trips, and average spending per trip. When choosing a store, consumers evaluate both the fixed and variable utilities of shopping. The fixed utility does not vary from trip to trip whereas the variable utility depends on the size and composition of the shopping list. Summarizes prior findings on store choice, analyzes how retailers can improve their performance, and interprets the practices of leading retailers. Presents a framework that can accommodate situations where retailers face multiple segments of buyers with different sensitivities to fixed and variable utilities.