Accurately Responding to Market Change to Create Competitive Advantage
Retail strategy is at a reset moment. Historically, retail CEOs have designed business strategies by creating differentiation among the 8 primary factors of location, store, merchandise/assortment, visual merchandising, staff, service, mass media and communications, and price. A retailer could achieve sustained leadership by standing out in at least 2 of these dimensions.
For example, Walmart’s differentiation is based on broad assortments and low price, or Nordstrom on Service and highly specific assortments.
However, an unprecedented change in consumer technologies, and more so consumer behaviors, has transferred the balance of retail commerce power from retailers to consumers. Consumers are now more connected and informed, and have far more purchase options than ever before. Their personal technologies have changed their behaviors. Consumer expectations have increased, their loyalty has decreased and because barriers to switching brands continue to decline they are in fact switching brands at an accelerated pace.
To respond to consumers’ new behaviors, technologies and purchasing power, retailers must append their business strategy with new forms of differentiation, recognize that customer relationships increasingly influence consumer purchase decisions, understand that mass media communications have given way to consumer preferences for highly personalized messaging, and that business intelligence is a new basis for competitive advantage. My diagram below visually illustrates the adjustments needed for todays successful retail strategy.
While the 8 historical differentiation factors still apply, they are fleeting and insufficient by themselves. They are also being copied and replicated by existing and new competitors in shorter and shorter time spans — a trend that will continue to erode differentiation and accelerate commoditization.
The definition of competitive advantage is differentiation that is relevant, measurable and unique. If you recognize that the retail market has changed in a way that none of the original 8 dimensions are unique, you also recognize that they are no longer capable of creating competitive advantage by themselves.
Fortunately, the rise of consumer empowerment also brings new opportunities for retailers. Consumers want to engage with their preferred brands pursuant to their terms and using their personal technologies. Retailers that apply Customer Relationship Management (CRM) strategies to engage consumers and nurture consumer relationships can find that these Customer Relationships trump every other competitive differentiation factor for certain classes of consumers, such as loyalty members, repeat customers and high value customers. Further, customer relationships don’t deteriorate over time. In fact, just the opposite, they normally get stronger over time, making customer relationships one of only two sustainable competitive advantages available to retailers.
The other sustainable competitive advantage is the ability to apply business intelligence for improved decision making throughout the enterprise. Business intelligence is the long heralded but seldom achieved capability to get the right information to the right decision maker at the right time. And for the record, decision makers are not found in just the C-suite. Too often, business intelligence (BI) is narrowly viewed as something for corporate leaders, somehow suggesting the remaining 99% of the business can operate just fine without intelligence.