In Touch With Retailing

Customer Intimacy Enables Market Leadership

By Austen Mulinder, President and CEO, Fujitsu Transaction Solutions Inc.

In their groundbreaking bestseller, “TheDiscipline of Market Leaders,” Michael Treacy and Fred Wiersema claim that to achieve a leadership position in any given sector, a business must essentially prioritize one of three paths:

• Become the low-cost provider
• Provide the best product, or
• Deliver the best total solution.

The best-price position is earned via operational excellence; the best product results from a commitment to engineering and product-quality leadership; and the best total solution is made possible by placing a relentless focus on customer intimacy.

By owning the best price, the best product, or the most intimate relationship with customers in a specific category, the authors believe a business can gain a clear positioning advantage that not only differentiates its brand from competitors, but does so in a manner that is sustainable in an evermore highly competitive world.

I agree.

But what looks like a relatively simple formula on the surface is, in reality, anything but easy. In a crowded arena, a company cannot afford to operate in a silo, but must determine how its own goals can be realistically met in an environment where other players are vying – aggressively and perhaps successfully – for the same position.

Consider, for example, how such a scenario impacts the retail industry. With very few exceptions, almost any retailer with the goal of becoming the low-cost provider in today’s market has about as much chance of winning the game as David against Goliath without a slingshot.

Wal-Mart has done such a thorough job of securing the market’s low-cost leadership position that, for all practical purposes, the opportunity to become another low-cost leader simply isn’t there for anyone in the retailing category, except for a highly targeted niche player. And many players who thought their niche was safe from Wal-Mart’s relentless efficiency have often learned that they weren’t.

Using the “Discipline of Market Leaders” model, that leaves only two options for most retailers. So let’s stop to consider the opportunities associated with the “best product” leadership path. Ten years ago, global supply chain efficiency was the domain of a few great companies who held it as a core competency. The idea of outsourcing your global supply chain was just that, an idea. Before globalization became an international market reality, acquiring and managing the resources a retailer needed to provide the best possible product selection was a daunting task.

Today, however, as Tom Freidman has so effectively pointed out in “The World is Flat,” many of the traditional barriers to entry creating a global business proposition have been dismantled. If I, for example, decide to open a chain of specialty stores in the current environment, I can now outsource the design, manufacture and supply to a network of highly competent niches players that leverage China or another low-cost labor country for manufacturing. I can also secure global supply chain expertise from companies like FedEx or UPS.

As a result, achieving a “best product” leadership position in today’s retailing segment is considerably more difficult from a strategic point of view than it would have been a decade ago. The ability to develop, obtain and sell high-quality products more easily than ever before lessens the sustainability of any competitive advantage the “best-product” position has historically offered.

Customer Intimacy: The New Retailing Frontier

If we stay within Treacy and Wiersema’s three-tiered analytical framework, the future might at first appear to be limited for any retailer who truly aspires to become a new leader. Because of Wal-Mart, the low-cost advantage is, for the majority of retailers, not a strong option. And thanks to an easily accessible global supply chain, the “best-product” approach is a less certain path to success.

But that’s just the bad news. The good news is that the third path – delivering the best total solution by creating an intimate relationship with customers – offers a wealth of opportunities. In fact, I believe the customer intimacy strategy will not only revolutionize the way retailing is practiced today, it will also pave the way for a wide range of emerging leaders in the years ahead.

On the surface, the value of customer intimacy might appear to be self evident. The need for customer loyalty is certainly no groundbreaking news. To keep customers coming into the stores more regularly and spending more on offerings with good margins, many leading retailers are committed to transforming the way in which they build long-term relationships with their shoppers.

But the concept of highly segmented or even one-to-one customer intimacy takes the challenge to a whole new level. The desire to know and satisfy each and every shopper’s individual preferences is a relatively new objective for retailers. And highly segmented retailing was nearly impossible for all but the most advanced retailers to provide until only a few years ago. Tesco is the most notable exception. The tremendous sustained business performance of Tesco globally over the last decade has certainly depended on a world-class supply chain, but their differentiation is sustainable due to their mastery of customer intimacy.

Now, more and more retailers can leverage new technologies for a new generation of shoppers with a transformed shopping expectation that’s starting to make a higher level of intimacy mandatory.

The Power of 'Word of Mouse'

In a recent segment study of Generation Xers and Y-ers by the international consulting firm Yankelovich, 63 percent of respondents indicated they researched products online before making a purchase.

As Paul Greenberg, author of “CRM at the Speed of Light,” emphasized in his insightful commentary, Move Over, Baby Boomers, “What makes this statistic even more compelling is that these new customers are creating extensive communities to create information.” (CIO Magazine, March 1, 2006).

The implications of such findings are, of course, critical to every one of us in the retailing sector. Seven or eight years ago, if you would have asked someone whether he or she had ever used technology to make a retail purchase, the vast majority of people would have answered, “No.”

But the Internet has changed the shopping paradigm forever. Not only has it raised shoppers’ expectations of what they can individually expect from a retailer, other technology innovations – cell phones, self-service stations and wireless computing, for example – have also fueled the rise of technology-empowered shopping behavior.

This new breed of shoppers has knowledge and experience in both e-commerce and self-service, and millions of them have had formal computer and technology training in classrooms.

The new generation’s increasing familiarity and reliance on technology have put added demands on retailers. Today, shoppers can go to Internet sites like Amazon, not only to get what they want, but also to receive personally tailored shopping recommendations and individually customized promotions that demonstrate a real understanding of their own particular needs.

These same shoppers are starting to expect similar benefits – and equally demonstrable intimacy – within a more traditional store setting. Examples might include multiple self-checkout stations that offer more convenient checkout options within the store; self-ordering kiosks pre-programmed with the customer’s specific needs and preferences; or clienteling software to help store associates personalize each and every customer transaction.

Retailers also have the ability to obtain rich sources of customer data from their consumer transactions that create virtually limitless opportunities for customer intimacy. While many are climbing the technology-enabled customer loyalty competency curve, few retailers have achieved real customer intimacy. Learning to fully capitalize on the available data requires an evolution of organizational DNA, culture, process and systems.

Those retailers that understand the potential of the pervasive retailing, consumer-intimate future and invest in enabling it for their target customers can create sustainable competitive advantage and a bright future filled with loyal and happy customers who are willing to pay for value. For those that don’t, WalMart’s shadow will grow ever larger, available margins will get ever smaller and market leadership will become an unreachable dream.

Mastering customer intimacy is an urgent business requirement, as early mastery by leading retailers will not only raise the bar for laggards, it will create a higher bar to win the loyalty of consumers who have already developed a relationship with competitors that are more advanced in their customer intimacy competency. The time to act is now!