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You are standing in the aisle of your favourite hardware store deciding which drill to buy. After making up your mind, you reach down into your pocket and get your trusty shopping buddy, your smartphone. In an instant, you are inundated with pricing information from other local retailers and online etailers. You see that you can get the drill for 15% less at a store 10 blocks away. What do you do?
There has been a lot of talk recently about the concept of “Showrooming”, the act of a consumer using real life retail locations to collect information only to purchase the item online or elsewhere at a discount. It is freaking out a lot of retailers. Even the largest of retail chains are making drastic changes to their business to address the issue.
In January, Target sent its vendors a letter demanding that they either supply a specialised version of the product so that prices couldn’t be compared in store or the vendors would be required to dramatically reduce their prices to match competitors. Electronics giant Best Buy has recently announced at their Annual General Meeting that combatting showrooming is their #1 priority. To do so, they are focusing on an extensive training program for their 50,000 employees. The largest of the retailers, Walmart, has revamped their online and real world business processes to make a strong push for in-store pick up for online purchases. This significantly reduces the cost of shipping and makes their pricing more attractive. Almost half of the purchases transacted on Walmart.com are picked up in-store.
There is little doubt that the driving force behind some of this hysteria is Amazon. As the world’s largest e-tailers, they have a distinct advantage over the retailers in terms of supply chain cost, partner network and overall operating costs. More importantly, they are growing like crazy. Amazon earns more revenue in about 1 month than Walmart.com does in the entire year.
With all of these different retail dynamics, what is it that drives a consumer to showroom. It generally comes down to the three fundamental principles of retail.
Cost – Would you drive down the street or order online to save $0.20 on a $1.99 tub of cream cheese? Probably not. What if you could save 15% on a $699 flat screen TV? Possibly.
Convenience – At what point is it more convenient to just take the item home with you right then and there without having to go to another location or wait several days for an order to be delivered? Shopping is can be highly emotional and very much focused on instant gratification. That being said, there is a very clear line when the cost outweighs the convenience.
Care – In addition to the product itself, there can be a lot that goes along with the sale. Customer service, the sales experience, the easy return policy, the warranties or enhanced support.
Understanding these dynamics is critical to addressing the showrooming issue. You can analytically determine the types of purchases that are most susceptible to this type of showrooming behaviour (it is pretty obvious why Best Buy has been having such a difficult time).
What they can do, however, is use their strengths to their advantage and compete in ways that they have not prioritized before. Amazon and pure e-tailers will always have some advantages over brick and mortar locations. Retailers have to stop trying to compete head on with these advantages. Instead, they should focus on enhancing the things that make them unique.
How Retailers can Connect with Today’s Educated Consumer
Partner with the customer – The word ‘salesperson’ should be taken out of the retail vernacular. More than half of today’s consumers are coming to your store having researched the product that they want to buy. In addition, they have a device in their pocket that can provide more detailed, rich and up to date information that your ‘salesperson’ ever could. It is great that Best Buy is going to enhance the training of their staff but they need to ensure that they do not fall into the trap of product training. Train them how to problem solve. Train them how to read people. Train them how to help. As a consumer today, I need somebody who will be able to direct me quickly to the product I think I need, identify if there is a better product to meet my requirements and then suggest complimentary products to enhance my experience.
Invest in technology – As great as it would be to have wonderful problem solving staff, it is only addressing 30% of the consumers. A recent study indicated that more than 70% of consumers would rather get information on their own via their smartphone than talk to a sales person. 70%! That means that retailers need to get that information in the hands of consumers in a clean and expedited fashion (hence the drive to create Hubba). We all know that QR codes suck but the main issue is not the QR code itseld but the data it links to does not provide value. It doesn’t really matter what the trigger is (Short URL, QR, NFC, image recognition, ultrasonics, etc) , what matters is the retailers ability to partner with their consumer and get great data in their hands so that they can make informed decisions.
The Changing Retail Landscape
Remember, these tactics also change the landscape of the retailer’s workforce. Turning salespeople into problem solvers and having technology so customers can get information on their own means that the amount of people that you have supporting the operation can be far leaner. When people are your largest controllable expense, this can have a dramatic effect on your operating cost.
In addition, it is imperative to invest in your supply chain technology. Not only is it critical to ensure that items are in stock and ready for purchase in store, it is can help with overall pricing. Some companies have nailed this. Many have not. Although retailers may not be able to compete on price, they can definitely make things a little closer.
The other enormous benefit to good in-store information and modern supply chain technology is the cross channel selling. One thing Wal-Mart has done extremely well is the concept of the “Endless Aisle”. They have blended their real world and online medium into a single value offering. If products are not available at that location, you can order them at walmart.com immediately. They have a removed yet another obstacle in the path to purchase that can lead to losing a sale to a competitor.
Retailers Need to Enhance Their Offering
We have discussed the many advantages that etailers have over retailers; however, retailers have their own advantages. Consumers have the ability to see, feel and compare products in real life when in a store. Retailers need to maximize this as much as possible. By creating a demonstration type of environment, they will be able to offer something that even the best etailers could never do.
Consumers have the ability to go home with the product immediately. As we previously discussed, shopping can be very emotional. The opportunity to have something immediately has value for most consumers.
Consumers have the benefit of retailer warranties, guarantees and returns. As far as we have come in the web world, the majority of people are still more comfortable purchasing items in real life. Although the gap is closing at a considerable pace, retailers can still give piece of mind that etailers can’t.
There is inherent value in the types of activities listed above. Retailers need to exploit them as best as possible. Consumers will pay a premium for the real life experience, pending that premium is not too high. But they will pay.
To all the retailers scrambling out there to combat showrooming, stop wasting time and money to prevent this. It won’t work. Protectionism like that has never worked. Ever. Embrace the change and focus your efforts on building the best experience in this new reality.
The most important thing for brands, retailers and consumers to remember is that there is a significant difference between price and value. It is not about the cheapest price. It is about getting a product for a price that is in line (or cheaper) than the perceived value. The majority of consumers would buy a product for $5.99 if they believed it was worth $7.99 over a similar product that was $3.99 but felt that it was worth $2.99. The highest priority for today’s brands and retailers is to properly convey the value of the transaction. This includes the product itself, the service and the extras that they receive from buying in store. That is the way to win with today’s consumers.