Bryan Pearson's Blog, page 19

Supermarket Chefs In Season: How Kroger, Hy-Vee Are Improving Sales

Seeking to improve customer experiences as well as revenue growth in the burgeoning takeout category, supermarkets are hiring trained chefs – or in the case of Kroger Co., training their own. Essential to success is ensuring that customers feel they get their money’s worth.

 

What do you get when you mix carry-out with cuisine? More and more often, it is your neighborhood grocery store.

A growing number of supermarkets is hiring experienced chefs – or training them – in an effort to spice up the customer experience as well as revenue. From standalone specialty markets to national chains, a broadening category of stores is adopting the movement as grocers seek fresh ways to remain relevant.

The number of workers in grocery food preparation and serving, which includes chefs, rose to nearly 331,000 in 2015 from 312,500 in 2013, according to Occupational Employment Statistics. In 2012, the category was not even listed. As if in lockstep with the industry, the Food Marketing Institute in 2013 launched an annual Supermarket Chefs competition, and in 2016 introduced the Supermarket Chefs community, more than 50 professionals dedicated to building partnerships between sales leaders and culinary talent.

Changing lifestyles, and the ensuing heightened demand for healthy prepared meals, are apparently justifying the investment. Also supporting these efforts is a broader movement to incorporate better nutrition into the supermarket shopping experience, as explored in my last column.

But also, and perhaps more importantly, in-store chefs may prove an investment in future store performance, if they succeed in accelerating sales in the burgeoning takeout category. Essential to chef success, however, is ensuring that customers feel they get their money’s worth, especially when the store down the street is serving up similar options.

Cooking The Books

The expense of employing chefs is one reason many might expect this strategy to be the domain of high-end, specialty supermarkets. The upscale Cardiff Seaside Market in the coastal town of Cardiff, Calif., for example, in 2015 hired Michelin-starred Chef James Montejano to “solidify our role in the community as a gourmet food supplier.”

However, chain supermarkets are seeing the value in chefs, as well. Kroger Co. recently announced plans to invest $2.5 million to remodel a Cincinnati facility into a culinary training and education center, where its hundreds of in-store chefs can train, share food knowledge and exchange ideas.

Now let’s consider the potential of having an in-store chef who can spearhead a store’s carry-out meals strategy. More than half of consumers buy meals at the prepared-meals section of the supermarket, according to a survey of 63,000 Consumer Reports subscribers. That translates to almost $29 billion a year in sales, and the category is growing at a clip twice as high as overall grocery sales.

For context, $29 billion is more than twice the annual revenue reported by Kellogg in 2015.

“Convenience may have fueled this (prepared foods) trend, but what’s keeping it going is a desire for meals we think are healthier than traditional takeout or dinners from the frozen-food aisle,” Consumer Reports states.

3 Special Ingredients To Success

The chefs who are charged with delivering on these expectations are realizing the extent of this challenge when operating within the realms of the supermarket industry, but they also appreciate the opportunities.

Elizabeth Davis, chef at Hy-Vee, competes in FMI’s Supermarket Chef Showdown. Photo by Steve Greiner.

At the Food Marketing Institute’s annual conference in Chicago in June, the three winners of its Supermarket Chefs competition talked about the ups and downs of their roles. Among the challenges within the store environment is proving their worth – how they can contribute to sales as well as the customer experience.

“In grocery stores we get a unique opportunity at education. We see our customers a lot and get a chance to have a real relationship with them,” said Rachael Perron of Kowalkski’s Market, the 2014 champion in the annual event. “We can learn from them and teach them about food.”

All three chefs (the others are Elizabeth Davis of Hy-Vee and Keoni Chang of Foodland Super Markets) said that deeper customer relationships, and elevating the prepared food experience, are key sources of job satisfaction. Achieving these goals, and ensuring customers feel they are getting their money’s worth, takes three simple steps, based on what these supermarkets are doing:

Understanding the recipe: Elizabeth Davis of Hy-Vee said one of her challenges has been getting her co-workers to think outside the supermarket mindset. “They don’t know what a chef’s purpose is inside that grocery store,” she told the FMI audience. Bringing in a chef is akin to introducing a new product category, so staff should be apprised of the chef’s purpose in the store, their own roles in achieving that purpose and the opportunities the new strategy presents for them. Monthly contests that bestow rewards for coming up with healthy dishes could generate camaraderie.

Preparing a mis en place: Kroger, in developing its own chef training and education center, is making sure the roles of its cooking professionals are understood and consistent. By going through a program, the chefs and other food preparers presumably will enter the stores reinforced with knowledge of retail operations. This is a big advantage. A chef from a high-end restaurant may develop dishes to swoon over, but without an appreciation of the less glamorous, day-to-day demands of the supermarket aisle, it could be difficult to build a loyal team.

Seasoning – but not too much: Chefs can add a dose of credibility and prestige to a supermarket’s good-food mission, but it is important they do not overshadow the store’s key role among consumers. If the brand is known for low prices, it should align its chef’s mission to accommodate the customers’ needs for lower prices. If the store is known for gourmet ingredients, then its chef should capitalize on them. Chef Montejano at Cardiff Seaside Market, for example, develops recipes with new gourmet products that can be bottled and sold.

There are additional methods for assuring success, such as offering cooking demonstrations and classes. It depends on budgets and, more importantly, the store’s target shopper. If a supermarket bakes these steps into pretty much any strategy, it should receive three-star results.

This article originally appeared on Forbes.com, where Bryan serves as a retail contributor. You can view the original story here. 

Sugar-Coating Change: Supermarkets Finding Healthier Future in Better Nutrition

Several supermarket chains, from Kroger to H-E-B, are incorporating healthy-eating campaigns into their overall store experiences. This move, in advance of changing food label requirements, is causing food manufacturers to change practice. Consumers, so far, are responding positively.

 

How much added sugar should a woman consume in a day? At Marsh Supermarkets in Indiana, an on-staff dietitian will happily answer that question via personal email.

Photographer: Sean Proctor/Bloomberg

Expect more supermarket chains to offer such health-conscious services. Several national and regional chains, from Marsh to Kroger Co., are incorporating healthy-eating campaigns, staff and even food-rating systems into their overall store experiences. This move is causing the largest food manufacturers, including Kellogg, to scramble to meet higher nutrition expectations. So far, consumer demand is supporting the movement.

This trend has extended well beyond offering organic produce to scrutinizing the ingredients of packaged and processed foods that have become the staples of many kitchen tables. The upcoming, 2018 changes to what is reported on food labels – including the first time added sugar amounts will be listed – are likely propelling the move.

Or perhaps regulatory changes are simply supporting consumer demand. Either way, supermarket chains are assuming a more interactive role in healthy-eating campaigns, and as they do so their food suppliers are being pressured to follow suit.

Among the grocery examples:

H-E-B: The large family-owned grocery chain employs an on-staff culinary nutritionist, Charlotte Samuel, who shares a series of 500-calorie recipes as well as meatless Monday dishes on the chain’s online health and wellness page. H-E-B also owns a “healthy and delicious” Pinterest board, with recipes that appeal to its more aspirational shoppers.

Marsh Supermarkets: This Midwestern chain employs an in-house dietitian, Mary Snell, as its director of nutrition and wellness. She shares healthy recipes, appears on local TV and takes customer nutrition questions from the Marsh website. Marsh also operates a healthy-label rating system, called Guiding Stars, which takes the confusion out of reading food labels by emphasizing smarter food choices.

Target: The mass merchant in 2015 said it would shift its food focus from major suppliers such as General Mills, Kraft and Kellogg to smaller, more natural brands. The company based this decision, it said, on consumer preferences for healthier, more natural foods. Food accounted for 21 percent of Target’s overall revenue in 2015, second to household essentials (26 percent). Apparel and accessories accounted for 19 percent.

Aldi: The low-price chain is introducing a line of meat products free of antibiotics, added hormones, steroids or animal byproducts. The Never Any! line includes chicken breasts, hickory bacon, whole chicken, chicken breast tenderloins and chicken sausage.

Kroger: The nation’s largest supermarket chain’s Simple Truth and Simple Truth Organic lines of food are free of 101 artificial preservatives and ingredients that customers said they do not want in their food. The Simple Truth line generated 2015 sales of roughly $1.5 billion, compared with about $1.3 billion in 2014, CEO Rodney McMullen told gatherers at a conference in March, and both have recorded double-digit identical sales growth for several years.

“It’s The Lifestyle People Choose”

Whether consumers are committed long-term to pay slightly more for healthier foods, as Kroger, Target and others say, shakes out in the numbers.

Kroger, for one, is optimistic enough to have launched a new store format to cater to natural, sustainable and organic food preferences, called Main & Vine. Granted, the format may be a competitive response to Whole Foods and its lower-cost chain, 365. Either way, Kroger said it has seen a general trend toward healthier eating from its own natural and organic business over the last three to five years, executives said.

“I think it’s just becoming more and more of the lifestyle people choose to live with, eating healthier, preparing food at home,” Mike Schlotman, chief financial officer of Kroger, told those at the March conference.

Research backs this up. Consumers are calling for more transparency in how food crops are grown and are demanding more “free-from” products, according to the Food Marketing Institute’s 2016 Power of Produce consumer research study.

Soda Taxes and Kellogg’s Center Store

Consumer demand begets supermarket demand. And once the biggest grocery chains start scrutinizing labels and supporting healthier lifestyles, their food suppliers are pressured to follow suit.

Also causing pressure are pending changes to U.S. Nutrition Facts labels in 2018 – the first in 20 years. Key among the new requirements will be listings of added sugars, a hot issue these days. In other countries, similar efforts are resulting in taxes on sugary drinks. Britain’s Conservative government recently added a soda tax to its budget, thanks largely to a dogged campaign led by celebrity chef Jamie Oliver. Mexico passed a similar law in 2013.

Here in the states, New York lawmakers are considering safety labels on sugary drinks, and some food manufacturers are becoming proactive. The cereal giant Kellogg, for example, has launched a dedicated website for supermarkets, called “Center Store Growth,” filled with headers such as “Nourish Shopper Loyalty” and “Marketing to the 21st century Multicultural Family.”

The maker of Pop-Tarts and Corn Flakes also includes consumer-focused content on the site, with stories like “The Basics of Fiber” and “Five Tips to Get the Most From Breakfast” (hint: cereal is part of it). The good news, according to one story about the popularity of cereal, is that Rice Krispies contains just 4 grams of sugar.

Which circles us back to my opening question about added sugar, and how much an adult woman should consume. According to the Marsh Supermarkets dietitian, who responded by email, the answer is about 24 grams, or six teaspoons – a fraction of average consumption today.

That’s good information, and a pretty effective way of sweetening the customer experience – without compromising anyone’s health.

This article originally appeared on Forbes.com, where Bryan serves as a retail contributor. You can view the original story here. 

Once Upon A Sale: How Patagonia, Kit And Ace, Anthropologie Use Tales To Sell Wares

Seeking fresh ways to breathe life into their visually flat offerings, online retailers are taking a literal page from catalogs and using narratives to sell their goods. A look at four creative retailers that are doing it well.

 

In 1997, at the National Retail Federation’s Big Show, futurist Alvin Toffler forecast that in a generation or so we would all be able to point to products on a television program (he referenced something on “Seinfeld”), click a button, and voila! It would soon arrive at our homes.

Online retailing had yet to get its marathon-like legs at the time, so Toffler can be forgiven for getting the concept correct but the channel wrong. Now, nearly 20 years later, we indeed can point, click and order – but from digital stories as told by online retailers.

Photo source: Patagonia.com

Several merchants, including Patagonia, Kit and Ace and Anthropologie are breathing life into their online stores by incorporating narratives such as product back stories, customer anecdotes and social media-like newsfeeds. In ways they are taking a literal page from retail catalogs that have been doing the same for decades – telling stories.

Think the J. Peterman catalog, which has made storytelling an art.

“The challenge has always been that a product can be flat when it’s online,” Braden Hoeppner, head of e-commerce at the online merchant Kit and Ace, told Strategy Online. “The strategy is to give the product context and enliven it a bit with content so users can experience it more fully.”

Whether the shopper will feel enlivened to stay with such digital storytelling is yet playing out, but it makes sense in a time when social media has enabled all consumers to share their own narratives, as well as read others. What I do believe is that engagement of any kind hinges on relevance and execution, as well as context and content. Following are examples of digital retailers that are doing it well.

Patagonia: A brand that distinguishes itself through its passion for the outdoors, Patagonia has a website that is less an online store than a company mission statement. To this end, it sprinkles a variety of tales throughout the site, with topics ranging from recycled clothing to the origin of its fleece (soda bottles) to its “Footprint Chronicles” – a global map that provides glimpses into the fair-trade factories with which Patagonia partners, complete with gender mix and products produced. Also notable are the short films the Patagonia website features, including one about hemp farming.

Kit and Ace: This Canadian retailer has been offering social media-like content since it was launched two years ago. More recently it has made its clothing, from crop tops to trousers, purchasable from the story page. A long-form Q&A with YouTube celebrity Sunny Lenarduzzi about becoming a media consultant features photos of her wearing a Kit and Ace tank and slacks. Each product can be purchased off the page. Similarly, its online magazine stories, which range from style to travel to clean eating, include images of products that can be bought with a click. Still, some stories, such as one describing the three types of people one would meet in recreation-league athletics, feature no products at all. The images are all illustrations, underscoring Kit and Ace’s commitment to content as an engagement tool.

American Girl: With dedicated pages for both children and adults, the maker of high-end specialty dolls has designed its website like a magazine, with recipes, book recommendations, activities and short-form films. Its “Adventure Awaits” feature, anchored on the home page, leads viewers to the ongoing story of its limited-edition doll Lea Clark, the 2016 Girl of the Year, and her trip to the Amazon rainforest. With one click to meet Lea, all of her American Girl products, including the necklaces she and her human friend wear, are available to order. Stories for parents include “How to Tackle 10 Tough Conversation Topics with Your Girl” and “Building Blocks of Learning,” about construction sets – not dolls.

Anthropologie: This retailer known for uncharacteristically stylish rompers, platform shoes and household items asks its shoppers to create its online narrative. The merchant invites customers to post images of themselves, along with personal captions, in natural settings wearing their Anthropologie clothing or accessories. A shopper in Chicago, for example, shows off her white flared jumpsuit while climbing the walls (with hands and feet) of a narrow hallway. Details about her Anthropologie outfit, and how to purchase it, are available by clicking on a thumbnail image.

Like American Girl and Kit and Ace, Anthropologie maintains a short distance between engagement and purchase, enabling shoppers to embrace the lifestyles they are reading about. If the stories are told well, I believe shoppers, at least some shoppers, will take notice of the narratives and even return to learn more about the brands that “think” like they do. This attraction to like-minded cultures could energize shoppers to share their own stories, or at least to read on.

Consider, for example, the eponymous J. Peterman mailer that epitomizes the retail narrative.

Yes, the quirky catalog has a website, and it still tells stories: “We’re sitting at a table along Rue Es-Siaghine in Petit Socco,” begins the story about its brightly colored Aztec Caftan. “Sultans and foreign ambassadors meandering these cafes and shops. She’s from Finland, lives in Paris, speaks hoarse, beautiful French. Tall, taut, full of energy, black-eyed, blonde.”

Curious? You’ll have to visit the site to learn how that story ends.

This article originally appeared on Forbes.com, where Bryan serves as a retail contributor. You can view the original story here. 

The Psychology Behind Fee-Based Membership Programs: 3 Tips For Retailers

Restoration Hardware’s recently launched RH Grey program has renewed the question of the viability of fee-based loyalty memberships. More retailers are testing the concept, which could succeed if it delivers a compelling enough value proposition. The trick is in understanding the psychology behind accepting such fees.

 

Ironically, the one area Restoration Hardware should not want its new membership program to fall into would be the grey, yet that is exactly what it is calling it.

The upscale housewares chain’s recently launched fee-based membership program, called RH Grey, is definitely clear in its proposition: pay an annual $100 membership fee, get 25 percent off purchases. It is not the first merchant to charge its members a fee and then entice them to earn it back through purchasing and other interactions. Amazon Prime, Walmart and even American Express have succeeded with (or are testing) such models.

Photo: Victor J. Blue/Bloomberg

They clearly have caught the scent of potential demand – or acceptance. Sixty-two percent of the 1,005 surveyed consumers said they would consider joining a fee-based rewards program if their favorite retailer offered one, according to a 2015 study by LoyaltyOne.

I believe such models could succeed, and even add an element of difference to the loyalty landscape, as long as they deliver a compelling enough value proposition. There are pitfalls, for sure, but also terrific upsides. For example, while a fee may reduce membership numbers and therefore limit the visibility a retailer has into shopping behaviors, it also would enable a retailer to focus its attention on a self-selected group of loyalists.

The trick is in understanding the grey matter – the human psychology that influences such loyalists into paying these fees – and the potential hazards­, including the “sunk-cost” effect.

When People Prefer To Pay

As I said, there are potential pitfalls, including the risk of missteps. Take, for example, the feeling of prestige in receiving a special perk after spending a certain amount with a brand over a period of months. Then imagine the reaction one would have after seeing someone else get the same service, simply by paying for it on demand.

This happens with tiered loyalty or even credit card programs increasingly. Some merchants operate earned-tier systems wherein the more a customer spends, the better her perks. Some of these companies, however, began allowing lower-tier customers to pay for these same higher-level benefits. Not only does this peeve those customers who earned their way to such perks, it risks undervaluing the benefits themselves, because it has fixed a price for them. Does it make sense to require a customer to spend $15,000 to qualify for a certain tier when another customer can receive the same tier benefits for a $300 fee?

Such scenarios touch upon the psychology behind a person’s willingness to pay for special attention and services. In return for their loyalty (or spending over time), they want special treatment. Simple.

Restoration Hardware’s program is elegant in the simplicity of its value proposition. In addition to the 25 percent discount, members receive complimentary interior design services and early access to clearance events.

Grey Matters, And Avoiding The Sunk-Cost Effect

Another key risk for those considering fee-based memberships is that members may succumb to the “sunk-cost effect.” This is a consumer’s reluctance to pull out of an investment because of the feared loss it would incur. This effect takes place even when an investment does not appear to benefit the consumer, so great is the aversion to taking a loss.

“It’s well documented that consumers routinely consider sunk costs when deciding future courses of action,” states The Harvard Business Review, in a report on pricing and the psychology of consumption.

The report shares an example wherein a psychologist at Ohio University asked 61 college students to assume they’d purchased tickets for a ski trip on the same weekend, one at $50 and one at $100. The students were told they’d have much more fun on the $50 trip, yet more than half chose to take the $100 trip because the sunk cost mattered more to them than the greater enjoyment.

In short, fees do influence consumer behavior and retailers should consider the role this fact plays in their loyalty-related endeavors. Based on the HBR report, here are a few tips to understanding the psychology behind why customers pay fees, and how to make the value proposition relevant.

Pay attention to timing: The more time that passes after a customer has paid for a product, the less likely she will be to cash in on it. For example, members who pay a large up-front fee for a gym membership are likely to use it frequently at the beginning, but visit less often as time lapses, HBR reports. For this reason, retailers should at regular intervals alert customers to the benefits of their fee-based memberships. One month after a customer signs up, a retailer can send her a message to alert her of perks nearby on the horizon; after three months, it can send another detailing the perks she has earned, and so on.

Stagger payments: By staggering the fee structure, say to quarterly payments rather than one large annual payment, retailers can promote consistent spending among their members, since shoppers are more likely to use their memberships after paying their fees. That said, this strategy’s success depends largely on the average size and frequency of purchases. Using staggered payments may make more sense among retailers that generate smaller transactions or are shopped with some frequency (say four times a year). Careful design and testing will determine the right combination.

Highlight the value of individual perks: Amazon Prime offers free, two-day delivery to its members. I am not sure what that shakes out to in terms of dollars earned toward my membership fee, but if I did know, I’d likely spend more. The same goes for Amazon’s exclusive programming. Knowing the value of the perks helps the consumer justify the fee – even if he or she doesn’t take advantage of all that are available. What matters is the value is reinforced and available, so paying the fee makes sense psychologically.

Restoration Hardware, with RH Grey, is making its benefit plain. If I spend $400 with the chain, I will automatically earn my annual fee back – that’s the silver lining. If I purchase a $500 faucet and get a $125 discount, I will perceive that I am entering profitable territory.

Or, to apply the financial term, I’d be into the black. There is nothing grey about that.

This article originally appeared on Forbes.com, where Bryan serves as a retail contributor. You can view the original story here. 

The Psychology Behind Fee-Based Credit Cards: 3 Tips For Retailers

Restoration Hardware’s recently launched RH Grey card has renewed the question of the viability of fee-based loyalty memberships. More retailers are testing the concept, which could succeed if it delivers a compelling enough value proposition. The trick is in understanding the psychology behind accepting such fees.

 

Ironically, the one area Restoration Hardware should not want its new credit card to fall into would be the grey, yet that is exactly what it is calling it.

The upscale housewares chain’s recently launched fee-based credit card, called RH Grey, is definitely clear in its proposition: pay an annual $100 membership fee, get 25 percent off purchases. It is not the first merchant to charge its card members a fee and then entice them to earn it back through purchasing and other interactions. Amazon Prime, Walmart and even American Express have succeeded with (or are testing) such models.

Photo: Victor J. Blue/Bloomberg

They clearly have caught the scent of potential demand – or acceptance. Sixty-two percent of the 1,005 surveyed consumers said they would consider joining a fee-based rewards program if their favorite retailer offered one, according to a 2015 study by LoyaltyOne.

I believe such models could succeed, and even add an element of difference to the loyalty landscape, as long as they deliver a compelling enough value proposition. There are pitfalls, for sure, but also terrific upsides. For example, while a fee may reduce membership numbers and therefore limit the visibility a retailer has into shopping behaviors, it also would enable a retailer to focus its attention on a self-selected group of loyalists.

The trick is in understanding the grey matter – the human psychology that influences such loyalists into paying these fees – and the potential hazards­, including the “sunk-cost” effect.

When People Prefer To Pay

As I said, there are potential pitfalls, including the risk of missteps. Take, for example, the feeling of prestige in receiving a special perk after spending a certain amount with a brand over a period of months. Then imagine the reaction one would have after seeing someone else get the same service, simply by paying for it on demand.

This happens with tiered loyalty or credit card programs increasingly. Some merchants operate earned-tier systems wherein the more a customer spends, the better her perks. Some of these companies, however, began allowing lower-tier customers to pay for these same higher-level benefits. Not only does this peeve those customers who earned their way to such perks, it risks undervaluing the benefits themselves, because it has fixed a price for them. Does it make sense to require a customer to spend $15,000 to qualify for a certain tier when another customer can receive the same tier benefits for a $300 fee?

Such scenarios touch upon the psychology behind a person’s willingness to pay for special attention and services. In return for their loyalty (or spending over time), they want special treatment. Simple.

Restoration Hardware’s program is elegant in the simplicity of its value proposition. In addition to the 25 percent discount, members receive complimentary interior design services and early access to clearance events.

Grey Matters, And Avoiding The Sunk-Cost Effect

Another key risk for those considering fee-based cards is that members may succumb to the “sunk-cost effect.” This is a consumer’s reluctance to pull out of an investment because of the feared loss it would incur. This effect takes place even when an investment does not appear to benefit the consumer, so great is the aversion to taking a loss.

“It’s well documented that consumers routinely consider sunk costs when deciding future courses of action,” states The Harvard Business Review, in a report on pricing and the psychology of consumption.

The report shares an example wherein a psychologist at Ohio University asked 61 college students to assume they’d purchased tickets for a ski trip on the same weekend, one at $50 and one at $100. The students were told they’d have much more fun on the $50 trip, yet more than half chose to take the $100 trip because the sunk cost mattered more to them than the greater enjoyment.

In short, fees do influence consumer behavior and retailers should consider the role this fact plays in their loyalty-related endeavors. Based on the HBR report, here are a few tips to understanding the psychology behind why customers pay fees, and how to make the value proposition relevant.

Pay attention to timing: The more time that passes after a customer has paid for a product, the less likely she will be to cash in on it. For example, members who pay a large up-front fee for a gym membership are likely to use it frequently at the beginning, but visit less often as time lapses, HBR reports. For this reason, retailers should at regular intervals alert customers to the benefits of their fee-based memberships. One month after a customer signs up, a retailer can send her a message to alert her of perks nearby on the horizon; after three months, it can send another detailing the perks she has earned, and so on.

Stagger payments: By staggering the fee structure, say to quarterly payments rather than one large annual payment, retailers can promote consistent spending among their members, since shoppers are more likely to use their cards after paying their fees. That said, this strategy’s success depends largely on the average size and frequency of purchases. Using staggered payments may make more sense among retailers that generate smaller transactions or are shopped with some frequency (say four times a year). Careful design and testing will determine the right combination.

Highlight the value of individual perks: Amazon Prime offers free, two-day delivery to its members. I am not sure what that shakes out to in terms of dollars earned toward my membership fee, but if I did know, I’d likely spend more. The same goes for Amazon’s exclusive programming. Knowing the value of the perks helps the consumer justify the fee – even if he or she doesn’t take advantage of all that are available. What matters is the value is reinforced and available, so paying the fee makes sense psychologically.

Restoration Hardware, with RH Grey, is making its benefit plain. If I spend $400 with the chain, I will automatically earn my annual fee back – that’s the silver lining. If I purchase a $500 faucet and get a $125 discount, I will perceive that I am entering profitable territory.

Or, to apply the financial term, I’d be into the black. There is nothing grey about that.

This article originally appeared on Forbes.com, where Bryan serves as a retail contributor. You can view the original story here. 

Augmenting Reality in Retail: How Lowe’s, Walgreens Make Virtual Change In The Aisle

Ironically, the one area Restoration Hardware should not want its new credit card to fall into would be the grey, yet that is exactly what it is calling it.

The upscale housewares chain’s recently launched fee-based credit card, called RH Grey, is definitely clear in its proposition: pay an annual $100 membership fee, get 25 percent off purchases. It is not the first merchant to charge its card members a fee and then entice them to earn it back through purchasing and other interactions. Amazon Prime, Walmart and even American Express have succeeded with (or are testing) such models.

Photo Source: Lowe’s

They clearly have caught the scent of potential demand – or acceptance. Sixty-two percent of the 1,005 surveyed consumers said they would consider joining a fee-based rewards program if their favorite retailer offered one, according to a 2015 study by LoyaltyOne.

I believe such models could succeed, and even add an element of difference to the loyalty landscape, as long as they deliver a compelling enough value proposition. There are pitfalls, for sure, but also terrific upsides. For example, while a fee may reduce membership numbers and therefore limit the visibility a retailer has into shopping behaviors, it also would enable a retailer to focus its attention on a self-selected group of loyalists.

The trick is in understanding the grey matter – the human psychology that influences such loyalists into paying these fees – and the potential hazards­, including the “sunk-cost” effect.

When People Prefer To Pay

As I said, there are potential pitfalls, including the risk of missteps. Take, for example, the feeling of prestige in receiving a special perk after spending a certain amount with a brand over a period of months. Then imagine the reaction one would have after seeing someone else get the same service, simply by paying for it on demand.

This happens with tiered loyalty or credit card programs increasingly. Some merchants operate earned-tier systems wherein the more a customer spends, the better her perks. Some of these companies, however, began allowing lower-tier customers to pay for these same higher-level benefits. Not only does this peeve those customers who earned their way to such perks, it risks undervaluing the benefits themselves, because it has fixed a price for them. Does it make sense to require a customer to spend $15,000 to qualify for a certain tier when another customer can receive the same tier benefits for a $300 fee?

Such scenarios touch upon the psychology behind a person’s willingness to pay for special attention and services. In return for their loyalty (or spending over time), they want special treatment. Simple.

Restoration Hardware’s program is elegant in the simplicity of its value proposition. In addition to the 25 percent discount, members receive complimentary interior design services and early access to clearance events.

Grey Matters, And Avoiding The Sunk-Cost Effect

Another key risk for those considering fee-based cards is that members may succumb to the “sunk-cost effect.” This is a consumer’s reluctance to pull out of an investment because of the feared loss it would incur. This effect takes place even when an investment does not appear to benefit the consumer, so great is the aversion to taking a loss.

“It’s well documented that consumers routinely consider sunk costs when deciding future courses of action,” states The Harvard Business Review, in a report on pricing and the psychology of consumption.

The report shares an example wherein a psychologist at Ohio University asked 61 college students to assume they’d purchased tickets for a ski trip on the same weekend, one at $50 and one at $100. The students were told they’d have much more fun on the $50 trip, yet more than half chose to take the $100 trip because the sunk cost mattered more to them than the greater enjoyment.

In short, fees do influence consumer behavior and retailers should consider the role this fact plays in their loyalty-related endeavors. Based on the HBR report, here are a few tips to understanding the psychology behind why customers pay fees, and how to make the value proposition relevant.

Pay attention to timing: The more time that passes after a customer has paid for a product, the less likely she will be to cash in on it. For example, members who pay a large up-front fee for a gym membership are likely to use it frequently at the beginning, but visit less often as time lapses, HBR reports. For this reason, retailers should at regular intervals alert customers to the benefits of their fee-based memberships. One month after a customer signs up, a retailer can send her a message to alert her of perks nearby on the horizon; after three months, it can send another detailing the perks she has earned, and so on.

Stagger payments: By staggering the fee structure, say to quarterly payments rather than one large annual payment, retailers can promote consistent spending among their members, since shoppers are more likely to use their cards after paying their fees. That said, this strategy’s success depends largely on the average size and frequency of purchases. Using staggered payments may make more sense among retailers that generate smaller transactions or are shopped with some frequency (say four times a year). Careful design and testing will determine the right combination.

Highlight the value of individual perks: Amazon Prime offers free, two-day delivery to its members. I am not sure what that shakes out to in terms of dollars earned toward my membership fee, but if I did know, I’d likely spend more. The same goes for Amazon’s exclusive programming. Knowing the value of the perks helps the consumer justify the fee – even if he or she doesn’t take advantage of all that are available. What matters is the value is reinforced and available, so paying the fee makes sense psychologically.

Restoration Hardware, with RH Grey, is making its benefit plain. If I spend $400 with the chain, I will automatically earn my annual fee back – that’s the silver lining. If I purchase a $500 faucet and get a $125 discount, I will perceive that I am entering profitable territory.

Or, to apply the financial term, I’d be into the black. There is nothing grey about that.

This article originally appeared on Forbes.com, where Bryan serves as a retail contributor. You can view the original story here. 

Expanding Retail Overseas: 3 Lessons From Best Buy, Walmart And Home Depot

U.S. retailers represented one-fifth of global merchants that jumped international borders in 2015, yet history shows many such leaps had failed to land. Based on my own extensive travels to markets abroad, I share three key factors that should benefit retailers with wanderlust.

 

So you want to sell in Eurasia? Just remember, planting a flag does not guarantee a market will grow.

Just ask Best Buy, Home Depot, Walmart or Target. All of these major retailers tested the waters of international markets over recent years and retreated, having failed to appreciate the nuances of consumer preferences, whether they involved store sizes or price points.

MARK RALSTON/AFP/Getty Images

Yet U.S. retailers continue to leap borders. One in five global merchants that expanded overseas in 2015 was a U.S. company, according to the May 2016 retail report by CBRE Research, “How Global Is the Business of Retail?” Of the 51 countries those U.S. merchants targeted, most were in Europe and Asia.

There’s little doubt many of these merchants are learning the ropes along the way. The smarter ones take their pointers from the failures of others or the successes of seasoned global organizations.

Having traveled for retail research extensively in Europe and Asia, I’ve observed a few key factors that could benefit many retailers. Following are the top three, with examples.

Making it work means working local: Many merchants make the mistake of relying on U.S.-based management teams to oversee international expansions, and on domestic company data and models. Foreign markets have broadly different shopping patterns, however, and a tailored customer experience is not so easily imported. In South Korea, Walmart ignored (or failed to recognize) the local inclination to purchase smaller packages or the competitive power of established rivals. Its stores did not appeal to shoppers either – customers needed to use ladders to access the upper shelves of its higher-than-average racks, and the exposed pipes in the ceilings were a put-off.

Home Depot made a similar foundational error in China back in 2006 when it overlooked the fact that in such developing countries, doing it yourself is seen as a sign of poverty. The country’s aspirational consumers preferred to hire out such work, and Home Depot shuttered its last China stores in 2012, taking an after-tax charge of $160 million.

Alternatively, when Ikea expanded into China, it studied almost 8,300 people in eight cities just to capture their morning routines. Ikea used this research to create behavior-specific products, such as a self-standing mirror equipped with hooks for jewelry and clothing, which made preparation easier.

Don’t underestimate the value of price: Target really stepped in it when it entered Canada with product price points that were higher than those in the United States. Canadian shoppers, familiar with Target from visits to its domestic stores, noticed the disparity and shut their wallets. Walmart, meanwhile, was forced to raise its food prices in Germany back in 2003 after the country’s highest court ruled its low-cost pricing model undermined competition.

Hitting relevant price points requires more than price parity, however; it requires an in-depth understanding of a particular market’s household budget – and what that market is willing to pay for. Also note that what is priced as a steal in one market may be a fortune in another. An 11-ounce bottle of Coca-Cola will cost 22 percent more in France than Germany, for example, while a pair of Nike running shoes is about the same.

Know your products: Often companies retreat from new markets simply because they fail to understand merchandising basics. The products, formats and brands that excel in the United States, even major products such as Tide, may mean nothing to shoppers in foreign markets.

In 2011, the electronics chain Best Buy closed nine namesake stores in China after five years of misreading customer priorities there. Best Buy opened U.S.-style stores with U.S-type products, including espresso makers, while the Chinese preferred more practical items – more washing machines, fewer sound systems. “We were stupid and arrogant,” David Deno, Best Buy’s former Asia chief, told The Wall Street Journal in 2012. Similarly, Best Buy retreated from Europe in 2011 after customers eschewed its big box formats and TV advertising, which featured American accents.

One way retailers can attract positive consumer attention in new markets is by offering private-label or other products that are exclusive to that chain. However, before doing so retailers should be careful the market has an appetite for these products or services. Test and learn.

In the end, we may see more of what recently happened with Lowe’s expansion into Canada: The need to acquire a large local player to create scale, local knowledge and a platform on which to build a new best practice approach that blends the best of both worlds.

This article originally appeared on Forbes.com, where Bryan serves as a retail contributor. You can view the original story here.

Nuts And Bolts Of Lowe’s Canada: How Rona’s Data Fends Off Rivals

Lowe’s recent purchase of the Canadian chain Rona is described as a strategic move to improve profits via a new market. Of critical importance in doing so is Rona’s participation in a coalition loyalty program, which has been key in fending off Home Depot in the past.

 

If the only tool a DIY retailer has is data, then could it not approach every challenge as if it were a customer engagement exercise, and nail it?

This is a question raised by the finalization of Lowe’s $2.4 billion acquisition of Rona, creating one of Canada’s largest home-improvement chains. Lowe’s describes the purchase as a key step in accelerating its growth strategy, which in Canada is an understatement: Rona brings 496 locations to Lowe’s 43. Perhaps more important than locations, however, is what Rona knows about its valued shoppers, and how it has used this knowledge to retain shoppers in the past.

Photographer: Cole Burston/Bloomberg

Both Lowe’s and Rona are careful to point out the benefits the buyout will bring to its Canadian customers. In a press release, Lowe’s chief development officer, Richard Maltsbarger, stated the deal would deliver “meaningful long-term benefits to shareholders, customers, suppliers, employees and the communities we serve.”

The careful wording carries significance when considering the recent history of Canadian retail expansions. This is the second time Lowe’s has attempted to acquire Rona (in 2012, its efforts were stymied by shareholder and political considerations). And some Canadians are likely wondering how the Lowe’s rollout will stack up against Target’s failed attempt to win the Canadian consumer in 2014.

However, the Lowe’s strategy has had an advantage over Target from the start, because it has acquired with Rona a highly detailed database of customer behavior that is supported by a wide network of merchants. Rona is a member of AIR MILES, Canada’s largest coalition loyalty program, and this has helped it outsmart Home Depot years ago.

Beating Home Depot

For those unaware, a coalition loyalty program is a rewards strategy representing not one brand, but dozens or hundreds of brands across industries. Shoppers can earn their points by spending with any partner in the coalition, say a gas station and a favorite restaurant, and then redeem them all with another – perhaps plane tickets.

Though commonly practiced in Canada and Europe, coalition programs are relatively new to the United States – the American Express Plenti program comes the closest to representing this model in the U.S. A key difference of the program in which Rona participates is that partners share their customer data; one can learn how its best shoppers act within the walls of another merchant to better understand their preferences and to anticipate needs.

Back in 2005, Rona was a 10-year member of AIR MILES and among the largest home improvement chains in Canada. Sales for the year rose 10.5 percent, to nearly $4.1 billion, and net earnings advanced almost 27 percent. It controlled 15 percent of market share, according to its 2015 annual report.

Still, Rona did not take its leadership position for granted when Home Depot planned an expansion into its trade areas. It knew from ongoing research that whenever a Home Depot entered a Rona market area, its existing stores suffered double-digit sales declines within weeks.

So Rona turned to the insights from its loyalty data and devised an early defense plan to counteract exactly where Home Depot was looking to build its new stores.

First, it identified potentially affected stores by examining where its shoppers lived in proximity to a new Home Depot location. Then, because Rona was a partner in a coalition loyalty program, it was able to work with other retail partners in the same program that catered to similar shoppers. People who regularly shopped Rona might also frequent a specific gas station, for example.

Rona invited these merchants to participate in a campaign wherein they would offer special rewards to customers who visited Rona before and after the Home Depot openings. These partners also distributed coupons to customers to encourage them to return to the chain.

The result: Rona sales did not drop off at all, let alone by double digits. Instead, the size of transactions among customers who used the offers rose by an average of 8 percent. Total sales among loyalty members increased by 5 percent.

Measure Twice

This case study highlights the value of shared data more than a decade ago; just imagine what those insights and new data enabled by recent technologies would accomplish today when paired with a smartphone as a delivery mechanism. The Rona story also emphasizes the insights Target lacked when it entered Canada.

However, in addition to data, Lowe’s is making other, more practical decisions that should position it well:

– Lowe’s has assigned a Canadian to the helm. Sylvain Prud’homme, who was hired as president and CEO of Lowe’s Canada before the Rona deal, will oversea the combined chain. He had formerly headed some of Canada’s most respected retailers, including Loblaw and Sobey’s West. Target, by contrast, had put its U.S. management team in charge of its Canadian expansion, and their lack of market understanding was quickly evident.

– It is staying close to home. Lowe’s will relocate its Canadian head office to Boucherville, Quebec, where Rona is based. Importantly, it also will continue to buy from Canadian suppliers, a crucial decision when navigating different supply chain challenges.

– No name changes. Evidently aware of Rona’s 77-year history and brand integrity, Lowe’s will continue to operate the stores it is buying under Rona’s names. Target entered Canada through the acquisition of Zeller’s, a beloved chain among thrifty shoppers, many of who did not like the brand switch.

– The people factor. Lowe’s said it would keep the “vast majority” of Rona’s staff and management. For maintaining regular shoppers, and professional customers in particular, this is a vital decision. Lowe’s will need to rely heavily on the intelligence of Rona’s management and executives if it wants to better understand the shoppers and stores in the network of its vast new marketplace. In particular, the Rona team will enable Lowe’s to understand the insights its loyalty program yields.

To put it in DIY terms, Lowe’s is measuring twice so it only has to cut at the Canadian market once.

This article originally appeared on Forbes.com, where Bryan serves as a retail contributor. You can view the original story here.

What Penney’s Appliances Can Teach Macy’s, Others, About Customer Spin Cycles

Some may see J.C. Penney’s addition of appliances as the latest effort by a troubled chain to rekindle customer relationships. But examined in the broader scope of retail marketing, it underscores the immediate need by chains to identify when a customer may be leaving.

 

J.C. Penney’s expansion into home appliances may be less about hard goods and more about a hard fact when it comes to retailing basics: If customer engagement is lax, it will not always come out in the wash.

Photographer: Michael Nagle/Bloomberg

Penney’s move is likely designed to win back lost shoppers and attract new ones, but it also is a reminder of how crucial it is to re-engage and excite, to keep customer relationships alive in order to attract the new and prevent the loss.

It is a lesson other department store brands, including Macy’s, are struggling with today, and one Penney has learned the hard way. The 114-year-old chain has had a long struggle to re-engage customers after launching a disastrous pricing strategy in 2011 that took the emphasis off promotions and contributed to a 25 percent decline in sales.

Now Penney is expanding its inventory to include not only apparel, but also the machines in which it is cleaned. On May 9 Penney announced it would expand into home appliances, including washers, dryers and ovens, following a successful test of the products in 22 stores over the winter. The showrooms will be both online and in stores.

“The response has been outstanding,” Marvin Ellison, Penney CEO, said in a statement. “The pilot confirmed that we should not limit our business to apparel and soft home in order to achieve significant revenue growth.”

Retail DIY: Ask Why

The former leadership team at Penney’s did not foresee the mass abandonment it experienced in 2011, but its own model (and that of many chains) should have been a tip-off.

The ways through which retailers have trained customers to seek out value – through a regular diet of offers, for example – pretty much ensure shoppers will want to try new things. This conditioning is requiring that retailers be increasingly more adept at adjusting their assortments and at knowing how to bring a customer back. The culprit may be price, it might be service, it might be store layout, and it might be competition.

Regardless of the reason for customer drop-offs, retailers should be able to spot those early forewarnings, to understand the ”why” behind “what” that their shopper data is revealing.

For example, did the customer simply get bored? Did the merchant remove a product that shoppers were coming to buy exclusively at its locations? Did the shopper have a negative service experience? Perhaps it has nothing to do with the retail experience at all but is rooted in a change in her economic circumstances.

Analytics can help identify some of these shifts but not all – that takes a combination of data analysis and talking to the customer, or simply asking outright what has changed. The alternative is for a retailer to test its hypothesis by making changes to its offerings and seeing what sticks.

Identifying Warning Signs In 4 Ways

Penney’s entry into appliances could be the result of both these approaches.

After testing appliances in market, Penney in early July plans to add a dedicated showroom online and to to nearly 500 locations. It also plans to assign an additional 25 percent of floor space to window coverings and test a furniture line from Ashley Furniture in select locations.

If shoppers take to the new format it could place Penney at an advantage just as other major department store chains are struggling to recapture sales. For those others, here are a few warning signs to indicate whether shoppers are about to walk away.

Lower spending: No reason to ignore old standbys, such as when a regular shopper’s spending on a branded credit card (or as identified through a loyalty program) begins to wane. There may be many reasons, and narrowing them down can be achieved through one-to-one promotions, such as “We Miss You“ bonus offers or retroactive “We Owe You” loyalty rewards.

New competitors (virtual and otherwise): A new kid on the block is almost guaranteed to cost a retailer some sales, even among loyal (but curious) customers. By working with third parties, such as co-branded credit card partners or loyalty program partners, retailers can offer their customers richer incentives to shop with them before, during and after the rival arrives, and thereby reduce potential lost sales.

A drop in conversion rate: If regular online customers are beginning to abandon their shopping trips midway, it is probably because something has changed to make the online experience less seamless, or something occurred in their lives that increased their need for ease. Either way, it signals the necessity to examine the login and navigation processes, and possibly to contact those customers and ask straight out why they are leaving (with a thank you gift for their time).

Lack of response: If response rates are dropping, then there may be a problem with the messaging. Retailers should make sure the content they are sending, especially via smartphone, includes the needed contextualization to be relevant (for more on that, see my last item in Forbes). By offering better-than-usual incentives that are relevant because they are shaped by customer context, retailers have a better-than-average chance of encouraging shoppers to fill out surveys that help illuminate what is falling in and out of favor.

These four indicators are not new, but the evolving technologies of today certainly enable us to more quickly and effectively tackle them and apply the solutions to preventing customer loss. For Penney, the answer very well may be in washing machines. It at least beats the kitchen sink.

This article originally appeared on Forbes.com, where Bryan serves as a retail contributor. You can view the original story here.

We Have A Bot For That: How Aldo, Frank + Oak Put The Shopper Experience In Context

In retail, technology-enabled services are humanizing automation by providing shoppers a framework not only of what is in style, but how to wear it. But nailing context also requires a conversation.

 

Several clothing retailers are offering their customers the merchandising equivalent of a heart-to-heart: highly personalized advice for selecting, matching and choosing outfits that are tailor-made for any event, any time.

Photographer: David Paul Morris/Bloomberg

Through mobile apps, digital shop bots, live chats and other emerging technologies, shoe maker Aldo, men’s retailer Frank + Oak and others are slipping intimacy into the shopping trip. They are, as is the relentless mission of retail, trying to reignite brand interest lest their best shoppers stray. And they are doing it not merely through personalized content, but by incorporating the key ingredient that makes such content relevant – contextualization.

“Customers today want a brand to tailor to their needs,” Serge Rose, Aldo Group’s director of customer applications, said in an interview with Glossy. “We’re focusing on flexibility.”

The trick is using the shoppers’ contextual cues to guide the brand content – that is how to connect to a shopper’s emotional value drivers. And this is why more retailers are turning to technology to form companionship. Many of us have made digital devices the vessels of our most personal traits.

Those traits include shopping habits, so retailers are striving to be wherever the shopper is. This is a long-sought goal, but handheld devices now provide that contextualization with unprecedented accuracy. Here is how a couple retailers are doing it.

Aldo: Style Finder With Sole

Long identified as a mall store, footwear and accessory retailer, Aldo is tying its online, mobile and in-store offerings together to deliver consistent, personalized experiences as it prepares for international expansion.

The content strategy is designed, in part, to address fast fashion, which has made flexibility a key to merchandising. However, so are quality and soul, and that can be delivered with some simple scene setting.

“We listened to consumer insight, and what they want, at any point, is more contextualization,” he said.

Among the features on AldoShoes.com is a “Style Finder” that asks shoppers where they are going, how they define their personal styles and their preferred color palettes. It then calls up items to match. When the site relaunches, it will include more such personalized pages, offerings and style content.

Its mobile app will be synched to its 2,000 stores so shoppers can scan boots or bags for additional product and style information. Store associates can show customers what is available in-store, online or at other stores and order items to ship directly to the home. (Aldo plans to test Uber Rush next year.)

Other retailers, including Luxottica Retail, offer similar online style indicators (choosing the right frames for one’s face, for example). In a year, those that do not may be the outliers.

Frank + Oak Seeks Mighty Growth

Technology also is enabling international expansion for Frank + Oak, a men’s apparel chain that wants to be known for premium, on-trend styles that carry from the boardroom to the bar.

Its new website and mobile app use bot technology to offer recommendations while customers shop. This “guided shopping” experience may include suggestions based on a shopper’s profile, location and previous purchases. A pop-up representative greets visitors after spending a few moments noodling around the site.

At its stores, Frank + Oak customers can get a shave, grab a coffee and unwind in the lounge or take advantage of a personal stylist.

Such features are clearly tailored to woo (and wow) its shoppers. CEO and founder Ethan Song told Strategy Online that through these efforts, Frank + Oak strives to recapture the social aspect of shopping; to integrate “the human experience with automation” and replicate an event that is much like shopping with a friend.

In return, Frank + Oak can collect richer details about its customers so it can provide more relevant suggestions and style advice.

“The new wave of e-commerce is not necessarily about access, because you already have access to everything,” Song said.

Do You Hear What We Hear?

What these efforts have in common is they generate better-quality data. However, nailing content means consistently getting the context accurate, otherwise we risk missing on relevance. Integrating human and automated experiences can certainly lead to a conversation, but achieving emotional engagement requires decidedly more fundamental considerations. Here are a few:

All customers are created with potential: True, not all customers are created equal, and the needs of high-profit shoppers should be recognized. However, contextual-enabling technologies such as shopper apps empower retailers to identify high-potential shoppers with a higher level of accuracy. A shopper may not have spent more than $100 with a particular brand in the past year, but if he keeps revisiting that same $1,000 suit on his smartphone, it may be time to reach out and offer a free fitting.

Carry their messages: If a retailer’s message is only truly relevant with context, then that good context requires more than knowing where a shopper is and offering shoes that match the occasion. It also means understanding her personal message, or situation, and how it relates to the brand. Through social media, ambassador programs or hosted community activities, a retailer can deliver the content of a customer’s message in a context that resonates with her and others. The trick is directing that user-generated content toward other customers who have similar tastes and/or interests.

Be virtuous with data: I mentioned earlier how contextual interactions enable retailers to collect richer details that they then can use to offer more relevant style advice. This is a tender area. The line between relevance and disconnect (or worse, annoyance) is razor-thin. The more responsible and un-abusive a company is with shopper data, the more likely those shoppers will share additional and more insightful information. And back through the cycle it goes, creating a greater competitive advantage with each cycle.

Contextualization, just like heart-to-heart talks, requires honesty and responsibility if it is to work long-term.

This article originally appeared on Forbes.com, where Bryan serves as a retail contributor. You can view the original story here.