Success matrix

Barbara E Kahn
Barbara E. Kahn

For the last three decades, Barbara E. Kahn has made it her business to understand consumer shopping behavior and the marketing efforts designed to shape it. Her research into variety seeking, brand loyalty, retail assortment issues and customer decision making has provided marketers with understanding of the consumer choice process through more than 60 articles and several books.

In 1997, Kahn co-authored “Grocery Revolution: The New Focus on the Consumer,” detailing the dramatically changing supermarket industry and the “Walmart effect.” In 2013, she published “Global Brand Power: Leveraging Branding for Long-Term Growth.” Kahn’s newest book, “The Shopping Revolution: How Successful Retailers Win Customers in an Era of Endless Disruption” — published in June — examines why being the best at one thing is no longer enough for sellers hoping to thrive in a hyper-competitive environment that includes Amazon.

What’s your take on how Amazon and Walmart each disrupted the entire retail industry?

I believe they are both very successful retailers, but they are competing from different areas of strength. Amazon has been the leader in online shopping and has understood the importance of creating a frictionless consumer shopping experience. With innovations like “one-click shopping,” Amazon Prime, Amazon Web Services, Amazon MarketPlace and many others, it has radically changed consumer expectations and demands. It has used this position of strength to also offer very low prices. Building on this strength in online shopping, it has started to build physical stores and purchased Whole Foods Market. It also partners with other traditional retailers like Kohl’s.

Walmart has leveraged its physical stores — remember, there’s research showing 90 percent of Americans live within 10 miles of a Walmart — and sales associates — Walmart is the United States’ largest private employer — to offer very low prices and efficiency. It then purchased and together with Marc Lore has built up its online shopping experience as well and offered benefits like “shop online, pick up in store.” Walmart’s latest numbers have shown that it has grown significantly in online sales and has increased in-store sales. Both retailers are now offering spectacular omnichannel shopping experiences.

Tell us about your book on Walmart.

Leigh McAlister and I co-wrote “Grocery Revolution: The New Focus on the Consumer” to chronicle how Walmart was changing the grocery business by concentrating on “everyday low price” strategies rather than “high-low” pricing. This, coupled with its incredible operational excellence, resulted in “low prices, always,” a strategy that challenged other retailers.

I wrote the second half of the book, which was about understanding consumer shopping behavior. The research I did was to study the academic marketing literature, in which consumer psychologists and marketing analysts conducted basic research to understand consumer-shopping patterns. I summarized that research and focused on how consumers chose stores and how they shopped within the store and chose product categories, and then how they shopped within each category.

Did you approach the research in the same way for your new book?

When I stepped down from the Baker Retailing Center at the Wharton School, I realized I had accumulated a great deal of knowledge about the industry. I wanted to synthesize this knowledge into a strategic framework which would allow me to understand and describe strategies that leaders like Amazon, Walmart, luxury companies, digitally native vertical brands and others were using.

With innovations like “one-click shopping,” Amazon Prime, Amazon Web Services, Amazon MarketPlace and many others, it has radically changed consumer expectations and demands.

I created the “Kahn Retailing Success Matrix,” which showed what retailers needed to compete and be a leader in the new environment.

The matrix is built on two key principles. First is the principle of customer value. In retailing that means customers want to buy something they value, such as product benefits, from someone they trust. The second principle is that of differential advantage. Retailers must provide some kind of superior competitive advantage to what is offered by the competition. This superior value can be delivered either by providing more pleasure and benefits or by removing more pain and inconvenience.

These two principles result in a 2-by-2 matrix. What I found in studying successful retailers is that they all have to deliver fair value in all four quadrants, but to be a leader they need to be the best in two quadrants.

Can you walk us through the quadrants?

Let’s begin with “Lead on Brand: Offer Branded Product Superiority.” Retailers in the top left quadrant offer branded products that provide more differentiation, more value and more pleasure, and ultimately provide more confidence to a customer segment compared with other products on the market. Good examples include Nordstrom, Saks, Best Buy and Kroger, which all carry nationally well-known and well-respected brands.

That is followed by “Lead on Experiential: Offer Enhanced Customer Experience.” Retailers in the top right quadrant offer a physical store customer experience that provides more pleasure, more excitement and more fun than other retailers can provide. Eataly, Whole Foods, Story, Build-A-Bear and Sephora fit this category. Here, the customer journey is seen as a lifestyle choice, not a chore. This is a high-touch, social experience.

Next, we have “Lead on Low Price: Offer Operational Excellence, Lowest Cost Efficiencies.” Providing reliable products or services at the lowest prices and therefore offering customers the best savings is the priority. Retailers in the lower left quadrant consistently offer the lowest prices and have developed operating models that can efficiently manage inventory, keep overhead costs down, eliminate unnecessary intermediary steps and reduce transaction costs at every step — think Walmart, Costco, TJMaxx and Burlington.

Finally, we have “Lead on Frictionless: Offer Comprehensive Customer Understanding and Total Convenience.” These retailers provide a frictionless customer experience that eliminates all pain points and offers the customer the easiest and most convenient way to shop. The key deliverable in the lower right quadrant is a seamless integration of the shopping experience across all touchpoints. This requires the collection, capture and analysis of all customer data. Constantly analyzing the data allows for customization and personalization as well. The best example here is Amazon, first through its online platform and subsequently with its integration of physical store pickups and lockers and its own stores, and eventually also incorporating data from its Amazon Echo platform.

The matrix works for all retailers?

I believe the matrix can be generalized to all product categories, but the strategies as to what will be a winning strategy will differ.

Don’t some of those strategies involve data collection, and does that mean sacrificing privacy to “have it all”?

Some of these new strategies that capitalize on gathering customer data come with a loss of privacy, and we have seen some ramifications of that recently. But I also think that consumers are benefitting from the superior customer experiences that these retailers are offering. Amazon is raising the bar on convenience, and Walmart and Costco are constantly putting pressure on prices. But to compete effectively, other retailers have created new exciting environments that consumers are enjoying. Costco, Sephora and Eataly all offer wonderful shopping experiences.

Does that have any implication on who will be leaders in 2020?

I suspect the leaders today will still be the leaders tomorrow. Amazon, Walmart, Target, Costco and Alibaba — I imagine they will all only get stronger in 2020. We are seeing some growth in independent bookstores, local retailers and local eateries. Malls are morphing from same-sameness everywhere to offering specialized and localized fare, and consumers are loving it.

Janet Groeber has covered all aspects of the retail industry for more than 20 years. Her reporting has appeared in AdWeek and DDI Magazine, among others.