As ways to improve shopper economics continue to emerge, the consumer now holds the key to retail strategies, writes Alan Mitchell.
Why does retailing look the way it looks? It may sound like a silly question, but if we can better understand the forces that induce companies to behave as they do, we can also understand the forces that are changing 'the secrets of success'.
Take retailing. For many decades, the fixed-location shop struggled to hold its own against competitors including local weekly markets and annual fairs. Only when enough people were being paid in cash and living in big cities did the shop, and shopping, begin to take off.
Then a new logic began to kick in. First, you had to be in the right location. Second, you had to offer the right range and prices. If you got these two 'musts' of retailing right, then you became the shopper's first port of call. Destination-shop status conferred further advantages. You could add to your range to appeal to shoppers'
'I might as well while I'm here' instincts. So impulse purchases and range extensions (such as grocers selling toiletries or wine) became critical. Once in-store, retailers found multiple ways to influence shopper behaviour - by the ways they displayed their goods or by offering different forms of promotion, for example.
After a while, these tactics began to change people's shopping habits. Previously, they made a list of the things they wanted to buy and then went searching for them; now they flipped the process to something more like: 'I'll see what's available and what's on offer.'
So, in retailing, one thing led to another, which led to another. Moreover, retailers who rode these waves of consequence with aplomb came to dominate, reaping all the benefits of increasing returns. For example, the more footfall and sales they attracted, the better their bargaining power with suppliers, and the more able they were to beat competitors on price and maintain good margins.
Of course, it wasn't all plain sailing. Sometimes, something shifted way back in the chain of causation. The shift from the high street to out-of-town is a case in point. Retailers such as Tesco, which seized this opportunity first, found a way to magnify all its original advantages - of being a destination shop; of 'I might as well while I'm here'; and 'let's go to Tesco and see what's on offer/takes our fancy'.
If we step back and look at this evolutionary trajectory, is there a single uniting factor? Yes: shopper economics.
Shopper economics has two ingredients: the price and value/quality of the product being purchased (a sine qua non); and the costs/benefits of the shopping process itself.
Shopping around is a time-consuming exercise (unless you are on a window-shopping, exploration trip). All those drivers of increasing returns in retail - location, becoming a destination shop, taking advantage of attitudes such as 'I might as well while I'm here', or 'let's go to see what's on offer' - all reduce the total (time/hassle) costs of shopping.
In other words, retailing has evolved the way it has not because of the power and influence of retailers over shopper behaviour, but because of the influence of shopper economics over retail strategies. The strategies that stick are the ones that improve the shopper's economics in some way, either directly (for example, via discounting) or indirectly (reducing the total cost of the process).
The same also applies to niche, experiential retail theatre, except that this time the focus is on emotional/experiential ROI, rather than time.
It also explains the evolution of online shopping. Amazon beats traditional booksellers on three crucial fronts: choice, price and overall shopping costs (time, hassle). It's weaker on other areas, such as browsing and serendipity, but it has worked hard to address these weaknesses (via 'if you liked this, you might like that' recommendations, for example). …