8 May 2012
Harald Lux, former CEO of the OBI Group, and current MCE Senior Associate, has more than 30 years’ experience leading the OBI Retail chain in Europe, Russia and China. Harald took time out to talk to us about emerging trends in the retail business, and shed light on some implications for B2C manufacturers.
You’ve been in the retail business for many years, and you have seen a lot of changes. What are some of the changes that you see happening now in terms of customer behaviour and expectations?
Retailing has moved away from product orientation to customer orientation. In the past, you had products, retailers got the right products, to the right place, at the right time. Customers bought what was available. Now customers are better informed. There is more choice on internet. Customers can buy from different channels: physical stores, catalogues, online, etc.
Is there a difference in emerging markets?
Some years ago, when OBI decided to enter China, we found out by interviewing customers that their home improvement needs were very basic – plumbing, bathrooms, kitchens. Forget nice-to-haves like gardening or more decorative items. A few years later, the then CEO of OBI China looked at all the gardening equipment and decorations selling well in Germany and wanted to offer these in China. Another idea he wanted to transplant was to put a home improvement store in the middle of a shopping center. In Germany these things worked well but not in China at that time..
There is a nice word- “glocalization”. Retailers can globalize their brands, but they have to localize the offer, and the services depending on the needs of the local market. Another example: DIY stores as they work in Europe, do not work in China. Chinese consumers are not so interested in Do-It-Yourself home improvement projects. It is convenient and inexpensive for them to hire someone else to do it. So we changed the concept to make it more appealing. They could buy the equipment and materials at low prices and they could pay us for professional installation services. We had a team of 3,000 people doing nothing but installations.
Today, affluent customers in China can afford more decoration and we can start to fulfil that need, but the DIY concept remains the same, as installation improvement labour is still relatively inexpensive. You really can’t just transplant what works in your home market.
So what trends are specific to mature markets?
In mature markets, on the other hand, you have to adapt your offering to a more informed customer. Also, mature market consumers are getting older and there is much more need for services. So to take DIY as an example again, installation services are becoming more in demand, for a different reason than in China. Another example you can see for yourself every day: supermarkets offer more prepared foods so people don’t have to cook. This is driven by demand from older people but also working couples. The companies who win, of course, are those who figure out how to meet the needs of these new demographic segments and make their lives easier or better in some way.
What are some examples of innovation that you are seeing?
An interesting emerging trend is crossover between assortments. For example, the German coffee maker Tchibo sets up little outlets in stores. Not only do shoppers stop there for a coffee, but every week Tchibo promotes products having nothing to do with coffee. Each week carries a new theme, and new products. For example recently the theme was spring gardening and they were selling garden equipment. Next week it may be sports. Each week, people come to see what’s new with Tchibo. Maybe they buy what is on offer, but they also buy a lot more coffee.
Mobile marketing is a wonderful innovation which is picking up speed. Today those QR codes can provide additional information and even services around an advertisement or a product. In the future they can serve as an instrument for payment. RFID chips have revolutionalized retail and are continuing to do so, both as a source for major cost cutting in the supply chain and as a source on customer buying behaviour. Finally, companies are finding new ways to collect and analyze customer data to build a better relationship and more relevant offer to their clients.
How do you think retailing will change in the future?
The name of the game for retail formats already now and into the foreseeable future is multi-channel retailing – store, catalogue, internet, etc. Customers expect convenience, to shop outside of normal business hours. Maybe they want to try several different versions or colours of the product virtually, or they prefer to have it delivered than go to the store and carry home something bulky. MediaSaturn, for example, is suffering because they didn’t go to the internet sooner.
What are some of the implications for B2C manufacturers, and to what extent are these changes felt by B2B companies?
If you’re a B2C manufacturer, you have to realize customers can compare your products more easily with your competitors. So you’d better communicate and listen better to understand what your customer needs. Then, try joint category management with retailers. Retailers used to be unwilling to share data. This is over. You really need a partnership to build categories together. You have to exchange information and data to build categories which really fulfil customer needs.
B2B companies feel it further up the chain. They need to build efficient supply chains. The supply chain still contains a huge opportunity for cost-cutting and improving profitability. Look at the relationship between WalMart and P&G. WalMart shares massive amounts of customer information purchase data with P&G, which is able to calibrate its delivery system. They have cut from 90 days delivery notice down to only a few days. This cuts inventory costs for both WalMart and P&G.
As customers become more aware, and more demanding on sustainability, supply chains will become more localized. One jeans manufacturer established an excellent brand name in China. The jeans are made in China, quality-controlled in Europe, and sent back to China sold as a European product. Maybe the cotton is grown in Egypt. Customers are figuring this out. Many of them do not want to contribute to what they see as wasteful practices.
How are consumer companies and retailers using Social Media to get closer to the customer? What works and what doesn’t?
A good use of social media is to get into a discussion with your customer so you can better understand their needs and desires. The second thing is to provide information to the customer. If you do it well, you can build brand loyalty and get customers promoting your brand for you. – that is brand evangelism, and it is very desirable to achieve.
On the negative side, social media is used far too much for classical advertising. If you can somehow provide additional services through social media, an advertisement could be okay. But people are just turned off by traditional ads, and they see through ads masquerading as something else. There is no added value to the communication for the consumer.
Now, you may think of social media as a low-cost advertising channel, but if nobody talks about it, or if they talk about it in a negative way, it becomes a very expensive marketing channel.
Pampers, for example, created a new diaper that supposedly caused rashes. Then they put together a focus group of mothers who found, and communicated through social media, that there was no rash problem. Eventually consumers found out the mothers were paid to say that. This destroyed the Pampers brand image and the trust consumers had in the Pampers brand, and of course affected P&G.
What would be your recommendation to companies who want to take advantage of some of the changes?
Well, this is a summary of what we discussed:
Your offer has to be multi-channel. You can’t compete as bricks and mortar only.
You have to have communication to really understand your customer needs.
Build a partnership with your supplier rather than consider him as a lemon to squeeze the last drop out of. You both can better manage the supply chain for better profitability, and manage your categories for better meeting customer needs.
For more on the changing trends in consumer markets, please visit our section on Business-to-Consumer (B2C) Markets.
Harald Lux is part of an MCE team of Senior Associates with long experience in Business-to-Consumer markets. MCE can consult with your senior management team on B2C marketing strategy and implementation of that strategy. We provide business transformation and strategy implementation services. We can also develop the skills of your managers at all levels in the organization to build their capabilities to implement strategy, working with your corporate learning and development team. Mentoring and coaching services are available for managers struggling with a particular issue. Finally, MCE runs a series of open-enrolment B2C marketing workshops for individual managers. For details, please visit our Business to Consumer Marketing Workshops.