CE Retailing: Taking It Back To The Dawn Of Creation
By William Matthies -- TWICE, 3/24/2008
Pretend you are at the dawn of creation and charged with inventing retail, specifically for clothes, coffee and consumer electronics, all of which were just invented the previous day by someone else.
You are told that:
1) Everyone will wear clothes (excluding, at first, an apple-eating couple with significant implications for the rest of us).
2) A significant majority will drink coffee.
3) Consumer electronics will be highly valued, often complicated, and will come in many forms.
Now you need to create protocols for the size and quality of staff that will sell all three.
Your boss gave you the following table to complete:
Using a 1-to-5 scale, with 1 equal to “Not Very Much” and 5 equal to “Very Much,” you must decide how much product knowledge and training will be necessary to sell each product.
As Karl Malden used to say, what will you do?
Remember, the table is meant to reflect how sales staffs should be comprised, as opposed to how they are now. Were you to fill out the “way it is today” table, would it be any different? I suspect it would.
I am always surprised and appreciative of the knowledge shown by most sales people at Nordstrom, enough that I often buy more more-expensive clothing than I assumed I would be going in. Likewise, my average purchase at Starbucks, which arguably sells one of the most commoditized products in the world at a well-above average price, is a minor marvel to me.
However, as we all know, getting consumers to buy more expensive CE stuff more often is a push, and a task that way-too-many-to-mention-here retailers have failed at. So how does Nordstrom do it? How much is there to know or say about clothes? How does Starbucks sell a midsized cup of coffee for just short of two bucks?
Given that they both manage to do so well, how can we not sell more CE products? Maybe the knowledge/training protocols outlined in the table for clothes, coffee and consumer electronics got jumbled during creation.
Retail overall is suffering, with the S&P Retail Index off roughly 30 percent from a year ago. For most, the decline parallels general economic concerns. In the case of CE, however, I believe there are inherent structural flaws in the industry that even in an improved economic climate would restrain growth. Fix those and the CE category could well beat the index.
Easy to say, hard to do, right? Of course, but I also believe a new beginning lies in the admittedly facetious table above. Make the numbers as high as you want for both clothes and coffee, but however high they are, they must be higher still for CE given the complexity and capability of the industry's products. If we do, that there is no limit to how big the consumer electronics industry can become.
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market with price obsessed customers, making it impossible to get
enough markup to pay for the cost of a skilled sales force. More and
more, price is winning out over service. A big problem, call it
structural if you like, is that so much of these service costs needed to
sell upmarket are presale costs--a big investment in a customer who
might not buy. When the same item can be bought from a low/no
service reseller at a lower price, no retailer in their right mind will put
so much presale cost at risk. So, until this changes, sales
knowledge/skills will be inadequate to sell consumers into the great
gap between mass market favorites and the boutique high end.
I can think of only two ways to fix this. One is to eliminate price
competition. Of course, this simply cannot work, because you cannot
take widely distributed products like Sony flat panel TVs and get the
kind of price control you see on, say, an Apple laptop. Such price
control is pretty much hopeless idealism.
The other way is to match lowest-in-the-market markups and offer a
choice of service level (including none) to the customer, and not
extend costly service, including presale service, until the customer
makes a commitment. Not necessarily a commitment to pay a higher
item price, but a commitment to pay for something. Perhaps an
attractive service package not fixed to a particular item. Doing this
would indeed require massive structural change, including redesigned
stores and a reversal of the promotional practices that make retailers
and customers adversaries.
You can get a glimpse of such retailing by looking at Apple Retail.
Apple's small margins discourage discounting. Price is not on their
customers' minds. Rather customers see a nearly unlimited amount of
service availability offered--much of it at extra cost--and become
assured that they can access it to accomplish the mission that is
driving their purchase. Many pay extra for one-on-one help or
priority access to "free" service. These higher levels of service are not
free, not supported by product margin, and are effective in producing
more product sales.
Now, all we have to do is adapt this model to work in an environment
of product price competition. Seems doable to me.
