In the today’s market, traditional retailers are experiencing tough competition from many quarters. The way customers shop today is different from how they shopped just a few years ago and they have completely different expectations when it comes to delivery, quality, service and efficiency.

Read how you can create unique in-store shopping experiences.

Most traditional retailers set up online stores long ago, and for some of them these stores are where they make most of their sales. Although we are seeing increasing sales online, lots of people still shop on the high street using outlets such as kiosks and cafés. The article below provides five constructive tips for retailers with physical points of sale, providing them with information on how they can think along new lines in this age of increased competition and margins under pressure. Following our advice will place you in a stronger position, helping you to stand out from the crowd and preserve your distinctive characteristics while not cutting costs - that might help turn things in your favour.

1. Increase your market share by focusing on disloyal customers!

Protecting loyal customers is something everyone focuses on in a recession. But your loyal customers are already contributing to your market share. What you have to bear in mind are the consequences of these customers maybe spending 25% less in a recession, impacting directly on your sales. It is highly unlikely that you will manage to convert customers who are loyal to your competitors, but disloyal customers who switch from company to company can be won over and persuaded to stay with you.

Therefore, the increase in your market share rests with the target group who are, by definition, disloyal, minus customers who only buy from your competitors. Market shares can only be increased among disloyal customers if you identify them and find out more about what they want and need.

This is how retailers use design to win the battle for customers.

Example:
Starbucks suffered a blow during the 2008-2009 financial collapse in the USA. Since then, Starbucks has continued to haemorrhage customers to its competitors and has had to take steps to deal with this. Nowadays, Starbucks is still the king of coffee with more than 11,000 outlets in the USA alone, and it is experiencing the strongest growth.

90% of sales at Starbucks were from its loyal customers, so there was not much scope for growth here. The chances of increasing sales among its competitors’ customers were also remote. The chain realised that the potential for increased sales rested with disloyal customers, people who bought from the company occasionally. By offering these customers more of the things they wanted, Starbucks was aiming to reverse declining sales among its most loyal customers. Moreover, disloyal customers represented six times as many sales as the loyal customers at the time!

"Someone really must love you!"

Since then, Starbucks has also introduced the most popular coffee cards and promotional campaigns in order to build up greater loyalty. Nowadays, 35% of all coffee at Starbucks is sold to holders of such loyalty cards. Some of these coffee cards have even achieved cult status and are now available in sterling silver and adorned with Swarovski crystals. If you have one of these, you are a true Starbucks fan. Or, as one of the cheerful Starbucks barristers would put it, Someone really must love you!

Consideration:
We are currently finding that it is possible to increase sales and revenues in a declining market by focusing on target groups other than the defined core target group. It is necessary to chart the needs of disloyal target groups and, if necessary, adapt stores, products and selections to this target group so as to persuade these people to become loyal customers. Furthermore, it is necessary to build up a sense of belonging by enhancing that feeling of being part of a club that appreciates the things you offer. When the advantages of being loyal result in higher status, you have done something right.

2. Close the gap between needs and supply

Most retailers have lots of customers that could have spent more in their stores. The challenge lies in enticing them to do just that. Stores have to become more adept at giving customers what they want, even though this does not always coincide with what the store is currently offering. It is all a matter of adapting to customer groups.

Example:
Starbucks had attempted to adapt to a rapidly changing market. This resulted in them being viewed more often as a variant of McDonald’s and Dunkin’ Donuts, rather than people seeing them as the specialist chain they were at the outset. There were gaps between the various needs of the customer groups: some people wanted self-service food counters like at Dunkin’ Donuts, coffee connoisseurs wanted to be able to buy the best espresso outside Italy, and some people just wanted the good old Starbucks back.

By attempting to be all things to all people, they watered down their core product and became just another high street coffee bar. It was easy to see why half of their customers were spending more and more of their coffee money with their competitors, and it was also easy to see how Starbucks could have changed its offering in order to attract additional numbers of disloyal customers.

Over the past few years, Starbucks has reinforced its reputation as a place where people can get good coffee and now offers fewer food items than it did five years ago. That said, you can now choose from a range of specially imported coffee beans from small-scale, eco-friendly coffee growers in exotic locations. Furthermore, there has been increasing emphasis on equipment to allow people to make good coffee at home. With increasing competition from Independent espresso bars, Starbucks has found it necessary to show who knows coffee best and take back its role as a specialist.

Consideration:
We find that by focusing more on what might sell rather than on what does actually sell, we find lots of opportunities for closing the gap between what customers need and what is on offer. This is the only way in which we can persuade customers to shop more.

3. Keep the good costs and cut bad ones

When sales and revenues level out or decline, the management have to cut costs or standby and watch as earnings decline. Most managers cut costs in such situations, and unfortunately they often cut the good costs first.

By good costs, we mean costs that help to ensure customers prefer your product thanks to particularly good service, better selections and other factors. Bad costs are costs that add nothing to the product or service that customers would be willing to pay extra for.

Example:
For Starbucks, the bad costs involved excessively large premises with too many seats in locations where most customers generally bought coffee to take away, and so the premises were left empty. Refurbishing the premises was not a good way of trying to resolve the problem. Customers were on their way from A to B and just wanted a coffee to take with them. Quite simply, they did not want to sit down!

Comment:
There is often no way of avoiding cost cuts in a recession, but with a true insight into their customers companies can focus on costs that do not go beyond the advantages that customers are willing to pay for, costs that actually result in competitive advantages. Numerous reports show that in times of recession, many customers still prefer to choose a simple dining establishment rather than a fine and often pricey restaurant when they eat out. This trend is known as casual smart and means that chains such as Joe and the Juice, Espresso House and others are now fitting out their cafés with plush leather sofas, cushions, bookshelves and gas fires; more like a second home, and all with the aim of creating a more pleasant atmosphere – and probably also with a view to resembling a restaurant that has had a homely atmosphere for a long time. We have also seen this phenomenon among fast food restaurants such as McDonald’s and Burger King.

It is interesting to see that some stakeholders such as Starbucks are moving in the opposite direction and reducing seating, eating and reading at their cafés and focusing more on customers who buy coffee to take away. This is evident from the fact that many Starbucks cafés have done away with comfortable tables and chairs and installed benches instead, and they have made the premises brighter and turned up the music – all so that customers take their coffee with them and free up the premises for new customers. The risk to Starbucks is that they are about to move away from being a second home and will just be a place where people can pick up a coffee and then leave.

4. Group stores in times of recession

Customers have varying needs, so standardising stores in a chain may result in lost earnings. However, customising them will also be a costly initiative for a chain, if not impossible. Grouping a chain so that some stores look the same and meet the needs of elements of the chain’s target group may provide a success factor for many companies. Grouping stores must be based on the same competitive conditions and the same customer needs.

Example:
Starbucks would possibly have benefited from grouping its coffee bars. As we have seen from the other examples, Starbucks offers coffee to many different customers with different needs – some of them dropping to pick up their first cup of coffee on their way to work, while others turn up to meet up with friends at lunchtime. There is reason to believe that 20-30% of customers’ needs vary, while Starbucks constantly offers the same to everyone. Coffee bar groupings adapted to target groups and their needs would have given Starbucks the opportunity for more effective positioning in respect of disloyal customers, the product would have seemed more customised to the needs of individuals. In other words, they could have homely cafés in one place and, elsewhere, tiny coffee bars for people who just want coffee to take away.

Consideration:
From experience, we know that the majority of companies in the retail trade have to adapt and listen more to what their customers need. Today’s society values individualists. Adaptation to our varying needs is a must for survival – particularly in times of recession!

5. Know your customers

Why do customers shop at our stores? What do they buy from other companies? What are their needs, compared with what we offer? Who are the most profitable customers in our segment who are not already loyal to us? Finding out the answers to these questions does not necessarily mean having to carry out a large and costly survey. The majority of retail companies can use their staff to get answers. As well as asking ‘Did you find what you were looking for?’ shop staff can ask ‘Is there anything you’re looking for that we don’t have?’

Example:
Starbucks realised that asking themselves critical questions well in advance of the decline of their market shares would have benefited them. By asking the right questions, Starbucks will be left with valuable knowledge about its customers, ensuring that as a chain, they will be less vulnerable to competition in times of recession and have opportunities for faster market adaptation.

Checklist:

Who are your disloyal customers?
What gap is there between the needs of disloyal customers and the range of products and services you offer?
Chart bad costs versus good costs.
Are there any advantages in segmenting stores into different store concepts?
Find out what your customers need and want by actively using staff discussions with customers.