THE AIM OF RETAIL INNOVATION

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Retail innovation is an extremely hot topic. These three examples speak for themselves:

  • A group of experts in retail innovation, of which I form part, received a request from the European Commission for measures to promote this type of innovation across Europe in 2013.
  • The last two editions of the Esade programme “Three and a half days’ immersion in retail innovation” (2012 and 2013) welcomed executives from Australia, Korea, China, Switzerland, the UK, the USA, Poland, Spain, Argentina, Puerto Rico and Guatemala.
  • A Google search for the term “retail innovation” generates 130 million results.

What is all the fuss about? What is this famous retail innovation actually for?

What innovation isn’t

Innovation is not administration. Innovation is not about keeping business neat and tidy. Innovation is not a question of improving what currently exists. Innovation is not about reducing the company’s weaknesses nor enhancing its strengths. Innovation is not improving efficiency nor winning the game. Innovation is not a matter of obeying the conclusions of a market survey, nor jumping on a bandwagon. Innovation is not a case of detecting and implementing a “best practice”.

What innovation is

Innovation is an exercise of creation, creativity and transformation of the present reality. Retail innovation is inventing a piece of the future that does not currently exist, designing a new way of shopping and changing the rules of the game. Innovation probably involves creating a new trend. Innovation is conceptualising and launching a “next practice”.

The process of retail innovation

Innovation is not usually the fruit of a single isolated moment, but rather a lengthy process (normally lasting several months) with the objective of achieving a more effective kind of retail. In a market economy, the paradigm of effectiveness is achieved when a customer chooses your store on a constant basis and you are able to benefit from their preference.

From my experience, I have witnessed that this process usually develops best with compact groups, with a heterogeneous mixture of internal and external professionals, with specialists from a remarkably diverse range of disciplines (psychology, biology, neuroscience, sociology) being inserted on a temporary basis. The process is firmly rooted in the customer insights detected in qualitative market research, normally involving projective techniques. Statistically-based surveys does not help to innovate, but rather to monitor an evolution.

The Board of Directors or the CEOs usually get the ball rolling in terms of the process and then provide support later on with decision-making. Without leadership and the explicit conviction of senior management, the process may end up in frustration. This is the reason why the retail innovation programmes at Esade are aimed at decision makers.

Two routes towards innovation

There are two main ways of innovating: technology-driven and customer-centric.

The technological route begins with the identification or possession of a particular technology, followed by thinking of ways to apply it. For instance, developing ways of capitalising on the fact that every smartphone has an IP address, which acts as a sort of registration number.

The customer-centric innovation route takes its inspiration from certain problems experienced by particular customers in order to invent a new way of shopping. To make such an idea a reality, we then search for the appropriate technology. This second route is certainly not averse to technology, as technology enables the solution.

Berger and Bray (2008) demonstrate that customer-centricity and the attempts to improve the shopping experience are powerful differentiation tools.

Whether it goes by the name of “user-driven innovation” (Breuer and Ketabdar, 2012) or “customer-centric open innovation” (Steinhoff and Breuer, 2009), there is an ever-growing number of experts who define a customer-focused approach as one of the main driving forces behind retail innovation (Sorescu et al., 2013). Personally, this is the route that I find most convincing.

There are two parts to retail

Every retail business model consists of two parts: the part that the customer sees (front-end) and the other behind the scenes (back-end). The latter provides support to the former.

The front-end includes the store (physical or digital), the shopping experience, the product assortment, the services, activities, prices and so on. The back-end consists of elements such as the IT system, logistics, talent recruitment and retention, the suppliers relation’s strategy, the performance monitoring system and so on.

Retail innovation can take an incremental form, applied to a small part of the purchasing process (e.g. incorporating new payment systems). However, the most transformational and effective innovation occurs when the purchasing process is re-engineered, affecting both the front-end and back-end (creating a new retail concept).

When applied to the back-end

If innovation is applied to back-end processes, its purpose is to increase efficiency and productivity, accelerate processes or reduce investment and costs.

The focus in this case is clearly quantitative and it must be designed and implemented by people with the appropriate competencies required in such matters.

For example, innovation based on predictive analytics, taking advantage of big data or data crunching algorithms, is set to be increasingly common in retail companies, as such companies generate immense volumes of data related not only to products but also to people, contexts, etc.

When applied to the front-end

From the customer’s perspective, every purchase is an exchange. They receive a solution (product or service) in exchange for certain efforts that the customer does not like making, but they feel compensated for.

These efforts include all of the bother, problems, concerns, distress, activities and “pains” (including payment) that customers must endure in order to obtain the desired solution.

For instance, the customer’s efforts may involve going to the store, getting there before it closes, parking, finding what they are looking for or asking for assistance, paying and taking the goods home. There are other, sometimes invisible, efforts such as feeling lost or ignorant during the purchase.

Even e-stores involve their fair share of efforts for customers to bear: registering, reading and accepting the purchase terms and conditions, verifying that they are real people by typing strange combinations of letters and numbers, waiting for the order to arrive, etc.

When the efforts that customers have to make when shopping are reduced considerably, they experience a significant increase in their quality of life at that moment.

If innovation is applied to front-end, its main purpose is to provide customers with a substantial improvement of their quality of life when shopping.

The customer’s quality of life does not only improve when they are in the store, but also before arriving and after leaving. The purchasing process, as it is known, involves much more that simply what happens in the store.

From the company in retail

If what the customers experience in the front-end is a more human, emotional and simple way of shopping, the result will be that the store (or e-store) will achieve the customers’ sustained preference (which translates into sustained or increasing cash-flow) and greater profitability (improved gross margin) because customers lower their less price sensitivity.

This is precisely the financial and economic motivation behind the decision of companies in retail to innovate.

There’s talent outside as well

In order to be able to conduct this kind of transformational innovation, it is vital to have true partners that are highly capable, whether they are product suppliers, service providers or external specialists.

Embarking on such a process with only internal resources does not provide the necessary level of heterogeneity and wealth of perspectives, nor does it ensure the diverse competencies required for inventing and creating this piece of the future.

For instance, what would the level of innovation be in Mercadona if it were not for their related suppliers?

In conclusion

Retail innovation inspired by and focused on customers in like a new tree that sprouts from the ground.

It is firmly rooted in empathy, feeling what the customers feel (even though they may not consciously perceive it). The fertiliser that encourages the tree to grow comes from creativity, imagination and leadership. The fruit of the tree is enticing, both for the customers (better quality of life when shopping) and the company (sustained preference and profitability).

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Bibliography

Berger, D. & Bray, J. (2008) “Retail Innovation: The never ending road to success? A critical analysis of pitfalls and opportunities” European Institute of Retailing and Services Studies Annual Conference, 14th-17th July 2008, Zagreb.

Breuer, H. & Ketabdar, H. (2012) “User-driven business model innovation: new formats and methods in business modelling and interaction design, and the case of Magitact”. IADIS International Conference e-Society.

Sorescu, A., Frambach, R. T., Singh, J., Ragaswamy, A. & Bridges, C. (2013) “Innovations in Retail Business Models”. Journal of Retailing. Vol. 87, Iss.1, p.3 – 16.

Steinhoff, F. & Breuer, H. (2009) “Customer-centric open R&B and innovation in the telecommunication industry”. Proceedings of the 16th International Product Development Management Conference on Managing Dualities in the Innovation Journey. Twente, Netherlands.
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Lluis Martinez-Ribes

Source: Código 84, nº 175.

A NEW PROFILE: THE ON-OFF PERSON. The impact of smartphones

 

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I got married in July 1976. As a lover of amateur photography, my father wanted to take charge of taking the photos instead of hiring a professional. And we weren’t about to argue with him? Of course don’t.

On the day of the wedding, there was a technical issue with the stills camera and not a single complete photo was taken. There is just one in which my wife and I appear together. On the upside, our friends were spared long evenings viewing the interminable wedding album.

Digitization: a revolution

The story above was a personal anecdote from the analogue age. Nowadays, we would have hundreds of photos thanks to family and friends. The difference is that digitization has spread far and wide to reach almost everyone.

Mass access to digitization marks one of the greatest revolutions in the history of mankind. It enables any person to perform all manner of tasks, such as creating texts and images, editing, sending or receiving them at any time from anywhere, simply and instantly, at almost no cost.

This has a huge impact on the majority of social and commercial processes. For instance, most people who go to buy a car will have got information online beforehand.

And that is just the tip of the iceberg. Imagine José, a member of my team, is going to negotiate a contract with a potential client next Monday, and I have to give him a few pointers in advance. Using my mobile, I check out the client’s company and search for their financial details. I find the information I want, copy it and then perform a number of operations with the data on a spreadsheet program, all on the same phone. I copy the final result and paste it into an email, which I send on the phone straight to José: “This is the best price that you can offer.” Due to my bad memory, I decide to draft a quick internal note of the calculation process I have used, which is saved on to my phone. This has meant that I have been able to deal with business while sitting on the beach.

Dear reader, take a moment to think about at which points during the process I was online and offline.

Phase
Search information on the internet
Using the spreadsheet
Sending the email
Writing a memo
Status
Online
Offline
Online
Offline

When you read the story a moment ago, did you notice how I had jumped repeatedly between the digital and the analogue world?

The On-Off people

We are witnessing the emergence of a new type of customer: the On-Off person.

The On-Off person is empowered because they take advantage of the benefits of digitization through their internet-enabled phone, without really noticing when they are online and offline, hence the term ‘On-Off’.

Making use of digitization through smartphones and tablets is a secondary revolution within the digital revolution itself. It has a great impact on people’s lives, the way they buy, consume, use and share ideas, and, in general, how the live. The implications for businesses are massive.

There were two driving forces behind the first revolution: the digitization and the availability of digital technologies to the general public.

The rise of the On-Off customer is due to the simple and accessible use offered by mobile phones and tablets equipped with a screen operated using fingers. This feature has introduced the sense of touch into the digital arena.

Wanted. On-Off people required

The number of On-Off people just keeps on growing. In 2012, 30% of the world population owned a smartphone, while in Spain the figure reached 50% (1).

On-Off people can be found in the doctor’s waiting room, on the metro and pretty much anywhere. They use their phones both when they are on their own and in company. They represent a new way of socializing.

It is not only youngsters that are On-Off. It is increasingly common to see older people using digital tablets with ease. At 85 and 87 years old, my mother and father are on their tablets every day without fail.

Let me ask you a question: how far is your mobile from your body now? Perhaps it is as little as 2 cm. The 96% of On-Off people have their smartphone less than a metre away from them at all times, 24 hours a day.

This means that the phone has, in fact, become an extension of their body, a continuation of their hands. As I often say, we are actually becoming bionic. This feature makes it incredibly easy and convenient in terms of living life, being a tourist in an unknown city or avoiding a traffic jam. Viewed as such, it is easy to understand why, for many On-Off people, a day without their smartphone is a very tough day indeed.

The customer, the store

The above facts give rise to an important consequence. What becomes clear is that a smartphone is a store, even though the customer pays it.

If, as we have just seen, the phone has become part of the body, the natural conclusion of this train of logic is that the customer has become the store.

And this idea is not – joke: it is a reality that forces us to rethink the whole model of retail trade.

The customer no longer has to go into as many stores to do their shopping because they themselves are the store. The key factor will be that the interface, or app, is on their telephone and that there is a very healthy relationship between the customer and their app-store brand. The focus will no longer be on running effective promotions but rather on how this app-store contributes to certain moments to the life of this customer/person.

When making purchases, On-Off customers use their phones when they need information, without even noticing whether they are on or offline.

This makes purchasing processes much more complex and nonlinear. They may start off in the physical store, move on to the telephone and end up buying online at home, or vice versa. Once again, this raises the possibility of reengineering to innovate within the sales process.

Final considerations

With the rise of the On-Off customer, it no longer makes sense to think of separate online, or indeed offline, businesses. Whenever somebody tells me that they have are running a start-up, I just assume there are talking about an online project.

My first concern is whether the business proposition they are setting up might be valid for a different time, when we first realised that we wanted go online and we began the purchasing process by turning on the computer.

Smartphone apps must be firmly founded on one or both of the following key pillars:

  • Convenience, providing a better quality at a particular moment or in a certain situation.
  • Amenity, surprise or fun. A smile lights up the world more than the sun.

And they must always be focused on how and when they will be used or, to put it another way, the context of their use, because they are destined to become an extension of the person-customer’s own body.

[1] Data from the study ‘Mobile Life 2012’ conducted by TNS.

Bibliography

Neslin, S. A. & V. Shankar. 2009 “Key Issues in Multichannel Customer Management: Current Knowledge and Future Directions”. Journal of Interactive Marketing, Vol. 23, No. 1, pp. 70 – 81.

Rangaswamy, A.; & Van Bruggern, G. (2005) “Opportunities and challenges in multichannel marketing: an introduction to the special issue”. Journal of Interactive Marketing. Vol. 19, No. 2, pp. 5 – 11.

TNS (2013) Study: ‘Mobile Life 2012’.

Verhoef, P.; Neslin, S.; & Vroomen, B. (2007) “Multichannel customer management: Understanding the research-shopper phenomenon”. Journal of Research in Marketing, Vol. 24, pp. 129 – 148.
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Lluis Martinez-Ribes

Source: Código 84, Special Conference nº.

A VEGETARIAN RESTAURANT FOR NON-VEGETARIANS. An interpretation of Teresa Carles restaurant

Image provided by Teresa Carles

What is a vegetarian restaurant doing ranking 24th out of 4,600 Tripadvisor restaurants in Barcelona?

If we focus on what is praised as a key element in traditional retailing: “Location, location, location”, Teresa Carles falls short – its location is along a small street, not obvious to passersby.

Its history

Like many other successful businesses, Teresa Carles began in a modest way in 1979. Not in a garage (the City Council wouldn’t give them the zoning permission), but in a narrow street in the old town in Lleida. It is a family company founded by Teresa Carles, the heart and soul of the kitchen, and Ramon Barri, her husband. The original restaurant name was “Paradís” ( or “Paradise” in English) and it was transformed in a Spanish leader of this kind of cuisine.

When the Lleida market was addressed, they decided to carefully expand and in 2006 they opened “Baobab” restaurant in Zaragoza, which was another success.

In 2010, Jordi and Mar, the founders’ children, joined the family enterprise to boost its business capabilities. Mar runs administration, while Jordi, with both a financial and vocational marketing background, runs the company externally. He continuously looks for ways to evolve the business, paying attention to the recent scientific discoveries and social trends.

With Jordi and Mar on board, in March 2011 – in the middle of Spanish economic crisis – they opened their third and largest restaurant in Barcelona. This time with the name of their chef above the door, Teresa Carles. The restaurant serves between 8,000-10,000 dinners monthly – 75% of them to women who come not only from the city, but from all over the world.

Customer segments are vary greatly. Among local customers there are two sub-segments: the office people that dine for workday lunch, and people that go to Teresa Carles to enjoy a different gastronomic experience. The restaurant also has a very prominent segment of tourists. One of the unique characteristics of the Teresa Carles experience is to hear a the many languages spoken amongst the international customers.

As the line-ups continue to grow outside the restaurant, the company is opening a second restaurant in Barcelona.

The back-end matters

At the same time when Jordi and Mar joined the business, the company created the Feel Good Food, a central workshop where they make certain bases for their dishes (sauces, fillings, artisan pasta, bakery, etc.), located in Bellcaire d’Urgell.

These base ingredients for the recipes are sent to the three restaurants daily to be integrated into their kitchens. This way, the company can ensure the maximum continuity of quality and flavor of the recipes, which is traditionally often threatened by high kitchen staff turnover.

Teresa Carles, the chef

Teresa, well-educated in the art of traditional Catalan cuisine, always feels the need to be up-to-date with the most advanced vegetarian cuisine. In 1977, she traveled Europe and the United States to learn more about the different variations of this kind of this unique cuisine.

Teresa then set a goal of applying the vegetarian cuisine techniques to the traditional Catalan and Mediterranean dishes, using the best products to create recipes as tasty as her grandmother’s dishes, but more surprising and healthy.

Teresa is now a leading chef in Spanish vegetarian gastronomy. She not only expresses herself through her gastronomical creations, but also has shared them by writing cooking books such as “The Sky Kitchen, Vegetarian Recipes” (2003).

Teresa Carles’ Philosophy

Teresa Carles wants customers to enjoy tasting their dishes, and at the same time, take care of their health.

For her, the first thing she looks for when creating a dish is to surprise the diner with ingenuity and creativity. Secondly, she ensures dishes taste delicious. And all made with healthy ingredients.

In this way, Teresa Carles is a vegetarian that breaks preconceptions – it doesn’t preach or impose. People like it because of its surprise and creativity, not for flaunting any agenda.

With this particular approach, it’s no surprise that 95% of customers are not even vegetarian. An honest and genuine philosophy that doesn’t contradict the business.

The menu

The stars of the show are Teresa Carles’ dishes, with their menu adapted for breakfast, lunch and dinners. Like in fashion, the menu changes seasonally, twice a year, in favour of seasonal products that are fresher and tastier at that moment of time.

The menu takes into account all kinds of dietary preferences, indicating the dishes adapted to a vegan diet (abstinence from ingredients made of animal products) or a raw vegan (food not cooked in temperatures below 46 degrees). Not forgetting, of course, allergies or food intolerances, offering dishes suitable for celiacs or who are lactose intolerant.

Apart from the standard dishes on the menu, the restaurant offers the possibility of personalize your own salad choosing from a list of ingredients. For workday lunches, there is a changing menu with a fixed price.

Image provided by Teresa Carles

Packaging the Product

These amazing dishes wouldn’t have the same taste without the appropriate packaging: the restaurant itself. Their interior design, done by Cesc Pons, in collaboration with Jordi Barri, brings a pleasant, stress-free, serene, cheerful and genuine mood.

The front of the building is an old majestic house. As soon as you enter, you find the cold slow cooking area where all the salads and fresh products are made. The vegetable colors and stylish interiors incite diners with an instantaneous appetite.

In front of the waiting area stands a display case with products created and ideated by Teresa Carles (jams, oils, wines, nuts, t-shirts, etc.) obviously with her own brand. All the products have a “godfather” that has been in charge of the idea-conception and making of the product.

Those who wrongly use the term “private label” could take a lesson in the possibilities of what a brand can sell directly to the public.
There are three dining rooms – one of them could be used for a private group function. Everything is taken care of, even the smallest details in order to avoid problems with air conditioning access, food smell, etc.

Teresa Carles, the brand

Jordi knows how to transform a great gastronomy restaurant in a brand able to sustain business development. The restaurant not only has their own branded products, but it is managed as a brand.

Nowadays, as customers increasingly use the internet before going to a restaurant, Teresa Carles have a website that not only reflects their design, values and philosophy, but also is very customer oriented. For example, the first thing that appears is the information that most of the people need: phone numbers, as the hours of operation and location. On other pages, the rest of the content is displayed.

From their website, you can also access to Spotify playlist that links to songs that can be heard in the restaurant. Many people may think that it is typical “vegetarian” music, but listen to it and you will see how it contributes to build the brand.

The menu is an iconic element. The explanation of each product is narrated in a very ingenious way. They know the power of storytelling.

Jordi is very aware of the importance of the social networks, such as Tripadvisor or Facebook, and he pays careful attention to it. The restaurant has a very active page where they share recipes, videos, and interesting information about vegetarianism.

The last bite

Let me share two learnings from this unique restaurant-brand:

The first is about the criteria to manage decision-making. When you work in Asia, you can see that many companies tend to balance and equate the criteria. They look to achieve a certain agreement between the criteria, which sometimes complicates clarity for decision-making.

By contrast, Teresa Carles doesn’t see the criteria as having the same importance, but has set up a hierarchy for them:

  1. Surprising.
  2. Organoleptic likability.
  3. And all the previous made taking care of health.

The second comes from the previous one.
If we have a “15 second elevator pitch” to explain what the Teresa Carles restaurant is about, we could say that it is a successful retailer because it has a great product, it’s surprising, and you can enjoy the food while eating healthy at a reasonable price.

But, to be honest, if I said that I would feel like an “old school” marketer. As we know that an overwhelming majority of decisions (for example, “What restaurant are we going?”) are made at a non-conscious level, I prefer to ask myself:

  • Teresa Carles, what do you mean to my life at this moment?

In response, I feel that you are giving me cheerful moments of creativity and gastronomical enjoyment, while I forget about the things that stress me.

When I review what I’ve written, I see that it is evident that Teresa Carles knows how to build a brand. They will go far.
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Lluis Martinez-Ribes

Source: Código 84, nº 174.

GROWING CUSTOMERS. Key metrics in retailing

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I was a good kid, I used to do my homework, I ate everything my parents give me and I didn’t break too many things, so my parents give me a bike. I spent hours and hours on it with a boundless thrill. I only had dreams about the disappearance of those two small lateral wheels that stabilize the bike; they showed my inexperience.

My grandfather decided to teach me. He took the “orthopedic” wheels out and we went to the street. In a broad sidewalk from an avenue, he -with infinity patience- hold the seat while I was pedaling. My instinct made me look at the potholes and obstacles in the pavement closer to the front wheel, so I could try to avoid it. Nevertheless, he told me “look forward, look far away” with the same persistence as I disobey him.

Tired of my procedure, he stops the bike suddenly and told me in a serious tone that either I paid attention to him, or he would stop teaching me. Only with the though of the embarrassment of having to need again lateral wheels, I decided – against my own logics – to obey him.

After two minutes I heard his voice far away: “ You are doing it very well!”. I had learnt.

Traditional metrics

Retailing is an activity where, as you can get an immediate feedback to the decisions you make (for example, you only will need little time to observe if a certain product presentation works or not) the risk is to practice this profession looking only to the front wheel, in a short sightedness way.

Probably one of the most common metrics in retailing, no matter what the sector or country, is the average ticket value; the average amount of the transactions. I had been working with retail for more than three decades and still today I haven’t found any executive that doesn’t know this indicator by heart.

Of course, everybody also know the period sales, the turnover relative to the same period from the previous year, and the deviation from the budget.

All these indicators have the advantage that there are very easy to obtain and use. But, they have a disadvantage: they show the business as a sequence of pictures, instead of dynamically, as a film.

Most of the retail companies (e.g.: a supermarket, a bank, a hairdresser, a cafeteria, a boutique, an online store, or an airline, etc.) don’t look for a person that only comes and buys once, but for a person who becomes a regular customer or even a fan.

And traditional metrics doesn’t have this long term approach in their DNA.

In the long term

If a customer’ who spends every week 50 € in our shop, gets angry and doesn’t come back again because we haven’t attended his/her properly, the so called common sense tells us that we lose much more than 50 €. However, How many times we have seen or suffered that myopic management strategy, claiming that a customer wasn’t right with his/her complain!

Attending a complain – fertilizing the customer – is similar to a bank that invest giving a credit, with the hope that they will obtain a benefit from it due to the following regular returns. To calculate it there is a formula, the Net Present Value (NPV), that you could find prefabricated in regular spreadsheet templates.

Kotler (1974:24) defined the probability of having a customer in the long term as the present value of the future expected benefit along a temporal horizon of transactions with a given customer.

The value of a customer in the long term

The “value of a customer in the long term” (Customer Lifetime Value, CLTV) is a formula focused on knowing how much each customer is worth, in euros or in any currency.

The CLTV is a way to measure the present value from the future cash flow attributed to each customer purchasing pattern. It allows you to know how much money a customer’ could achieve to provide in the future, if he/she remains with the same shopping patterns as up to now.

The first time that the term Customer Lifetime Value appeared in a publication was in Shaw & Stone book “Database Marketing” published in 1988, that includes multiple examples.

It could be used at one customer level, but also at a specific customer’ segment level; for example the ones with more price sensibility, more time sensitive, or ones who go to the mall shops, etc.

Obviously there is a need for retail companies to know shopping behavior at individual customer’ level. It is one of the main aims of the “loyalty cards”. Besides it is not need to have a plastic card, but any kind of method to identify what a customer’ does.

The main advantage of CLTV in front of traditional metrics is that it allows us to obtain a long term view of the relationship between the customer and the company, and in this way be able to make strategic decisions.

Traditional metrics CLTV
Characteristics It is like a static picture from a specific moment.
Short term vision.
It has prospective pretensions.
Long term vision of the activity and commercial relation.
Functions Detects the current results evaluating customers through its current behaviour. Value customers through how much they will give, taking into account attraction and retention costs.
Usage Useful in the operational decision making that needs to be done quickly.
Easy to understand by everybody from the company.
Useful in planning decision making in the long term.
Also used to decide either to invest occasionally in a customer or not.
Scope Usually are aggregated data. It could be used in aggregated way, but is ideal at individual customer level.

Thomas, Reinartz & Kumar (2004) analyzed the behavior of a group of customers’ during 3 years. They observed that the bigger segment was the one with the most easy to acquire and retain customers’. Those represented the 32% of the total amount of customers, but only gave the 20% of the benefits. On he other hand, the 40% of the benefits came from the 15% of the customers’, the smallest group, hard and difficult to capture, but easy to retain if you give them what they need.

Who wants to apply that metric could make a simulation at this Harvard B. S. web page.

The whole formula can be downloaded in a spreadsheet format at this Harvard B. S. web page done with the collaboration of Microsoft.

Implications

I haven’t met yet any company in retailing who says that it is not or would’t be customer-centered. However, in practice it seems to me that most of them knows more about product category than about customers. Most of them have executives responsible for managing the different product categories or chains, but I have seen very few that have “customer managers”.

The philosophy behind this metric is double:

  1. As the company life off customers, they have to be the center.
So they have to be understood, observed and measured.
  2. Economic sustainability doesn’t come from a “buck”, neither from promotional pressure, but making customers to come back. So, metrics that takes into account such dynamic approach in a long term, have to be used.

Companies in retail (also most of the other) have to see themselves as “customer farmers”, as “growers” not of pears but of customers.

A new customer is a seed to take care of, that it gets seeded (attraction costs) is irrigated and fertilized (maintenance costs), with the intention to bear fruits (what they buy, the quantity, the frequency and the margin).

If retail companies sees themselves as “customers growers” most of the interdepartmental conflicts will disappear, and the most important: customers will feel more empathy from the retail chain than they get from a 3×2 promotion.

Bibliography

Kotler, P, (1974), Marketing during periods of shortage” Journal of Marketing, Vol. 38, Issue. Summer, pp 20-29.

Shaw, R. and M. Stone (1988). Database marketing, Gower, London.

Thomas, J. S.; Reinartz, W.; & Kumar, V. (2004) Getting the most out of all your customers. Harvard Business Review, Vol. 82, Num. 8, pp: 116 – 123.

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Lluis Martinez-Ribes

Source: Código 84, nº 173.

“YOU JUST DON’T REALISE IT…” (A draft) Implicitness-based marketing

Image by artchandising (sense of hearing)

Nowadays (May 2013) any scientist would deny the fact that that approximately 85-95% of human decisions are non-conscious or implicit.

When making decisions, we can have a wide variety of doubts: regarding which shop or restaurant to go to, about what product or brand to buy, about which bank to open an account with, about which printer to get, etc.

For decades, we have liked to think of ourselves as “rational animals” and, to an extent this is true, especially when compared with other species. However, the paradox is that only 5-15% of our decisions are conscious.

In the market economy

This conclusion, the result of biological and neuroscientific research, has enormous implications for companies operating in countries with a market economy, in other words across most of the world.

In this kind of market place, every customer has the basic right is to be able to choose where and what to buy. Hence the main purpose of marketing is to try to become, and remain, a customer’s preferred option, so that your company makes a profit.

Being the preferred option is something we have all aspired to ever since we were kids. Do you want to play with me? Do you want to dance? Will you hire me? Will you buy my services?

Up till now, a magic formula

For decades, we have tried to achieve this preference with a kind of magic formula for success, whose recipe varied depending on the magician. In all recipes the ingredients were similar; the only things that changed were the algorithm and the proportions. We have all heard phrases such as “location, location, location” (a simple equation: location raised to the power of three), or else “what is essential is a good quality/price ratio”, etc.

This magic formula has been called ‘the marketing mix’, and it has worked quite well.

However, we now know that it is in the limbic system of the brain where the vast majority of non-conscious and implicit decisions are made – at a rate of 11 Mb per second.

So, it really makes sense to think that the most logical type of marketing should be based on what is implicit.

Image by artchandising

Implicitness-based marketing

The challenge is to outline the territory of this new marketing approach, since we lack a theoretical system to act as a guide for the practical aspects. Rarely have we been more in need of a suitable theory.

What theories we do have are more like single willow rods than a finished wicker basket. There are a large number of serious publications based on the above mentioned cerebral reality, but I have yet to find a single mention of “implicitness marketing”.

Taking on this challenge, I am gong to attempt to give a few clues about marketing without tags: the most human type of marketing is based on what is implicit.

Therefore, I have ordered my reflections based on the functional blocks of retail marketing:

  • The philosophy of the business
  • The input capture phase
  • The “cooking”
  • The output phase: to do and to have
  • The way of “doing marketing”

Given that this is quite an experimental subject, I shall present it by comparing traditional marketing with implicitness marketing. I apologise in advance for any us of generalisations or clichés.

Marketing philosophy Traditional approach Implicitness approach
Customer He/she is usually referred to as a “target” to impact.
Sometimes he/she is considered as a “robot with a wallet”: if you do an action, they respond in a certain way.
He/she is considered a person, and moreover, different depending on the context (for example: a person used to sleep less when has a baby).
Objective In order to sell today, you need to convince people. To be continuously preferred, even when sales promotion ends.
Orientation Market orientation (to be market driven) To drive the market. Innovate and blaze the trail is a service. It appeals to the limbic system.
The job There are often conflicts between marketing and sales departments. All the departments should perceive themselves as Customers growers.

 

When looking for inputs Traditional approach Implicitness approach
Market research objective: Usually carried out to obtain information about customers. To understand the customer, visualize, and put a face to them.
Subject In many reports and journals, it is told about “the consumer”. Attention is paid to each priority segment, in particular to see how they are influenced by their context.
Purpose In many cases, market research is carried out “just in case” the project fails: “to ensure that it doesn’t affects me”. In order to find a source of inspiration, you need to hunt for genuine “insights” through the fog. If it were that clear, it would be called “outsights”.
Method Knowledgeable specialists in very specific and different subjects are required. You need to use specialists, but with a polymathic or multidisciplinary approach where humanistic sciences plays a key role.
Way Often with easy to draw answers that can be tabulated and

Often, by the use of questions demanding answers that can be tabulated and to charted later.

If the aim is to innovate, a qualitative approach must be adopted. In both cases, these approaches include projective techniques. Questions about tell me your reasons are technically in doubt.

 

In the “kitchen” Traditional approach Implicitness approach
What we aim to cook New products, new services, new advertising campaigns. New solutions, if possible quite complete or with parts that can be fitted in, if it is needed.
Our resources Basically, using the company’s own resources. There might be intelligent life outside the company. Comprehensive solutions can be developed working alongside companies in other sectors.
The engine All the elements of the marketing mix are used. Above all, the aim is to guess the customers’ replies to the following question on the main retail product (the shop and what happens in it):

Where do you fit into my life? Which sense are you providing me with in this moment of my life?

The base What most advertising agencies ask you: “the reason why”… Much better to ask “The sense why …”, linked to the previous point.

This is hard to answer with the traditional marketing mix elements.

 

Output phase Traditional approach Implicitness approach
Communication The aim is to make the company communicate with them efficiently. The aim is to have a conversation, to listen, to talk and to empathise.
Actions The focus is on things and actions, “To do + To have”. First of all, to define “to be” and “to feel”.
Later on, “to do” and “to have”.
Network use Both offline and online. Instead of multichannel or omnichannel, customer-centricity.

Today, when using smartphones we switch between online and offline without noticing.

Objectives To meet the sales targets for a given period. To increase the Customer Lifetime Value (CLV), since we are all customer growers.
Metrics Ex-post, in other words once things happen (except for budgets). Both ex-post and ex-ante.

Using artificial intelligence, we can predict the near future.

 

Managerial style Traditional approach Implicitness approach
Time spent in shops or online So many minutes: it is increasing. If the customer spends two hours a month, they are giving us two hours of their life.
Customer service It should be correct. With the maximum respect: they pay us with money and with their life.
Tools usage Instrumental use. Targeted towards brain’s automatic pilot: the limbic system.

The cerebral cortex works more slowly and almost always tries to rationalise things that have been decided implicitly.

Tone and style Make everything that is done and communicated clear, in order to be as efficient as possible. The limbic system likes…

  • Intuition.
  • Things that are subtle and feminine, anthropologically speaking.
  • Things that are grasped easily.
  • Magic and surprises (good ones).
  • The imagination.
  • Empathy.
  • Smiles, even when speaking on the phone or using an app.

Final thoughts

In this bubble I have discussed the changes that have occurred in my field over the last five years, both with regard to academic and consultancy work. In both cases, what I try to do is to think up innovative retail models to improve customers’ quality of life. And the results have been great.

When someone wants to innovate, the main obstacle is not generally the competition, but rather their own non-conscious prejudices, acquired over decades. In the near future, therefore, I hope to be able to improve this draft about implicitness-based marketing in a more comprehensive way.

Bibliography

Nordfalt, J. (2005) Is consumer decision-making out of control? Non-conscious influences on consumer decision-making for fast moving consumer goods. PhD Thesis, EFI, the Economic Research Institute at the Stockholm School of Economics.

Wedel, M.; & Pieters, R. (2007) Visual Marketing: From Attention to Action. New York: Psychology Press, 328 pp.

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Lluis Martinez-Ribes

Source: Código 84, nº 172.

NOT JUST A FLIGHT – AN EXPERIENCE! KLM, a retail airline

Photomontage by artchandising

Think about your last flight. What do you remember about it? Some hassle like the person in front reclining their seat to within a few inches of your nose? Or maybe a pleasant conversation with the person next to you, prompted by the realisation that you were both reading sailing magazines?

Negative experiences and positive experiences all happen inside the same “package”: the jet cabin. But some one realised that it’s a cabin with a brand, the airline’s brand, so everything you experience in there affects the brand image – for better or worse.

KLM wants to manage the customer experience as part of their branded travel.

An interesting gal/guy in the next seat

KLM Royal Dutch Airlines was established in October 1919 to connect Holland to its colonies. In 2004 it became part of the Air France KLM group. With a view to enhancing the customer experience, this retail company has created several new services.

KLM’s Meet & Seat service – “make your flight an inspirational journey” – helps you to locate other people you think are interesting – for personal or professional reasons – and be seated next to them.

The selection is based on the social network profiles (mainly Facebook and LinkedIn) of users who authorise the use of their data beforehand. This enables passengers to find out about the occupation, likes and hobbies of other unaccompanied passengers and decide who they would like to sit next to depending on similarities or interests they have in common.

But… What about my privacy?

Critics of “Meet & Seat” say that KLM may be delving too deep into their lives of their customers. Some feel that KLM is converting the jet cabin into a high-school cafeteria.

One drawback is that users cannot veto who sits next to them, the only escape being to choose another empty seat – if there is one. It is, however, the customer who decides whether or not to be visible and accepts the possibility of sitting next to someone they have something in common with.

In general, customers are increasingly asked to provide information in order to provide personalised services to fit with their preferences. The secret is to strike a happy balance between the information requested and using it appropriately depending on the circumstances and matter in question.

Hassle-free shopping

Another of the Dutch airline’s ventures is “Shop@KLM” which sells the products usually sold by airlines. Purchases can be made on-line at shop.klm.com, for example, before the flight and KLM delivers them either on-board during the outward or inward flight or to your home address.

The customer avoids having to carry gifts about and enjoys an enhanced, more convenient shopping experience.

According to Dixon, Freeman & Toman (2010), customer loyalty is achieved not by fascinating them but by making things easier for them. Hassle-free service increases customer loyalty – and ensures sustainable future cash flows.

I want to travel in a group

KLM has also created a “trip planner” (tripplanner.klm.com) to plan group travel on the Internet in a collaborative way. This app uses each group member’s Facebook profile to suggest destinations and types of trip (beach, party, mountain…) in response to a highly visual, short questionnaire.

The app compiles the group members’ answers and preferences about travel destinations and times, and displays the option that received most votes from group members. An easy, fun and convenient way to plan group travel without the hassle and confusion of countless calls and emails.

KLM is one of the first airlines to integrate social networks into their own sales process – all on the same site.

A cross-channel strategy

These three KLM services are an example of a cross-channel strategy, i.e. the integration of two customer-interaction channels which until recently were apparently separate: on-line and off-line channels.

Generating synergy and integrating the two channels achieved what Steinfield, Adelaar and Liu (2005) define as enhanced legitimacy and trust in the brand, a wider coverage of different shopping preferences and the creation of natural complementary factors between the two “channels”.

KLM doesn’t take advantage of what Gallino and Moreno (2012) explained. These authors observed that BOPS (buy on-line, pick up in store) generates higher sales – not when the on-line purchase is made but when the item is picked up. When customers visit the store to pick up their purchase, they stroll around and increase the likelihood of an additional purchase. In KLM’s ase, products are not picked up in store but the new logistics will probably generate positive spin-offs that have not yet been studied.

KLM’s on-line/off-line integration helps reinforce their brand image as a customer-oriented company that cares about their customers.

Making the most of social networks

On-line/off-line integration is reinforced by using the social networks: proof that they are not just useful for keeping up to date with friends.

KLM’s social network interaction strategy enables them to sell not only plane tickets but also entertainment, networking opportunities and great in-flight service.

KLM as a “curator”

With “Meet & Seat” KLM also acts as a curator, aiming to provide personalised outcomes based on their customers’ needs and preferences. This enables them to empathise more with customers and broaden their travel experiences.

“Be my guest”

Perhaps passengers are more willing to sit next to some one who is a professional DJ, a super model, an astronaut or a Hollywood actor.

In 2012 KLM launched “Be my guest”, a campaign enabling customers to enter a virtual chat room and chat to one of Holland’s six most famous celebrities: Armin van Buuren (famous DJ), Ruud Guillit (footballer), Yfke Sturm (supermodel), Wubbo Ockels (astronaut), Jeroen Krabbé (Hollywood actor) and Hella Jongerius (furniture designer).

Participants answer 5 questions to choose the celebrity to travel with, and then the celebrities themselves decide which participant they will travel with to an inspirational destination. If, for example you are a fashionist, you might end up going to New York on a shopping trip with supermodel Yfke Sturm.

The campaign was a great success and very well received by the general public. It also won several awards and special mentions.

Final conclusions

What matters in business management is not so much having ideas (although they are always welcome), as keeping customers as our compass north, so that a retail company becomes a brand focussed on the clientele.

Because of the empathy generated, customers can be won over in a sustainable and profitable way. At the end of the day, that’s what it’s all about.

References

Dixon, M.; Freeman, K.; Toman, N. (2010) Stop Trying to Delight Your Customers. Harvard Business Review. July 2010.

Gallino, S.; Moreno, A.; (2012) Integration of Online and Off-line Channels in Retail: The Impact of Sharing Reliable Inventory Availability Information. Management Science. (Under Review)

Martinez-Ribes, K; (2012) El surtido, los cuadros de una exposición. La curación en Retail. Código 84, nº 167. December 2012

Steinfield, C.; Adelaar, T.; Liu, F. (2005) Click and Mortar Strategies Viewed from the Web: A Content Analysis of Features Illustrating Integration Between Retailers’ Online and Offline Presence. Electronic Markets. V.15, No.3, pp. 199 – 212.

Meet & Seat reviews:
> consumerist.com

Be My Guest reviews:
> keithkornson.nl
> work.davidnavarro.net
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Lluis Martinez-Ribes

Source: Código 84, nº 171.

THE POWER OF THE SENSES. Sensory applications in retail

 

Image by artchandising

Every day we are bombarded with some 2,000 messages (ads, ideas, suggestions) but only a tiny fraction of them – the ones the brain thinks might be relevant – are actually perceived by customers.

Thanks to functional magnetic resonance imaging (fMRI), neuroscientists now know that 85% to 95% of human decisions are implicit and not conscious. In other words, reasoning with people to convince them about how good a shop (or product) is, is a waste of time strategy.

What is the so-called sensory marketing?

Triggering emotions makes persuasion much easier because emotions bypass the filter of selective perception. But this is only possible with help from the senses, which are the fast track to emotions.

Stimulating the senses triggers an emotional response. Consumers then experience sensations that make them aware of an external factor.
This is the biological explanation for what is known as sensory marketing, a term I’m not particularly fond of because despite its biological basis, it’s just part of the favourite store creation process.

Point of sales sensory marketing consists of using ambient elements that impact customers’ senses and make their emotional, cognitive and behavioural responses favour the creation of a brand image and encourage purchases (Manzano et al., 2011: 74).

Greater awareness

This is where the senses step into the limelight. We all know the traditional five senses – sight, hearing, taste, touch and smell – but there are others that deserve a closer look. Ken Robinson, a creativity and innovation expert, points out the importance of the senses of balance, motion (spatial perception and spatial self relation) and heat, to name but three.

Antonio Damasio, a foremost Portuguese neurobiologist, explains that if someone screams, for example, our heartbeat accelerates and we think there’s danger nearby. We’ll then either listen hard or run away. All of this together – the stimulus, the body’s response and the consequences – is what constitutes feeling. Feeling is the perception of all this. It’s something that starts externally, affects our body, because the brain says so, and then we perceive it.

Beyond sensory marketing: “implicit marketing”

Because of the way the brain works, the most appropriate term for marketing, that is the processes and methods used to become a favourite store, would be “implicit marketing “or marketing of the implicit.

There are lots of examples of “implicit marketing”, but I’d like to focus on one particularly interesting case that casts a bold, new slant on an apparently well-established area: in-store music.

Since March 31st 2010, 17 million customers have been shopping without music at L’illa, Barcelona’s leading town-centre, shopping centre. The mall replaced its background music with computer-generated abstract sounds. It represents quite a radical innovation in the shopping experience.

Back in 2001, M. Gobé, the author of the best seller “Emotional Branding” said that music affects the time and speed of shopping and even the amount spent and is, therefore, a major factor in consumer behaviour. Therefore, replacing background music by abstract sounds could trigger different, new responses, and even more so bearing in mind that customers are used to listening to music while they shop.

Chapin et al (2010), from Florida Atlantic University, discovered that emotional responses and neuronal triggers depend as much on the parameters of the musical stimulus (e.g. the type of sound, or its tone or tempo) as on the prior musical experience of the listener. In an area like a shopping centre intended for a variety of segments, such as a shopping centre, maybe this project is not as crazy as it might seem.

Image by artchandising

The relationship between culture and the senses

Although “culture” can be defined from very different viewpoints, the UNESCO definition is very interesting for retail and marketing.

According to the UNESCO, “culture can be defined as the set of distinctive spiritual, material, intellectual and emotional features of society or a social group, and it encompasses, in addition to art and literature, lifestyles, the basic human rights of the individual, value systems, traditions and beliefs.” In other words, the way in which we live together. Hence, culture plays an important role in the way in which we interact with each other and our surroundings.

Each culture has a different way of defining, understanding and experiencing “the non conscious”. The processes generated by the implicit part of our minds are greatly influenced by the culture to which we belong.

Ken Robinson, for example, says that the sense of balance is essential in Africa. Whereas Mediterranean cultures place great importance on smell, taste and touch (hand shakes, hugs, cheek kissing, etc). This way to understand the sense of touch is very different from Anglo-Saxon or German cultures in which physical proximity is interpreted in other way.

The future of sensory marketing

Sensory marketing could be a powerful segmentation strategy because it is based and works from the non-conscious.

The senses can even be used in the online arena, particularly in product delivery time. Some of its applications are related with packaging used for product shipment, using innovative designs in contrast with the traditional and impersonal cardboard box.

Lastminute.com went one step further by expanding their on-line advertising strategies into their off-line activities, and sending small gifts to their customers to remind them of specific experiences. One such gift was a small tube of suntan lotion to remind them to plan their summer holiday (see font).

In the not-too-distant future it will be possible to sense smells in digital platforms and the media. As Russel Brumfield and other experts have already said, we’re on the brink of a breakthough into the world of smells: in the near future phones will probably enable us to smell who is calling, and websites and emails will be aromatised (Manzano et al., 2011: 154).

But there’s still a lot of uncharted territory in the sensorial marketing. Aradhna Krishna (2011) believes we still know very little about how the senses interact, and about possible clashes between sensorial perception and oversaturation in different people.

A final note

Until now, the highstreet stores able to exploit the senses best to create specific experiences and sensations have had a great advantage over e-stores. The full sensory experience in highstreet stores in comparison with just the two senses (sight and hearing) used by e-shoppers has been a huge advantage that drove Dell USA to copy Apple’s strategy of allowing their products to be sold on the high street too.

But touch-screen phones and tables have enabled another sense to make inroads into the digital world: touch. It’s no coincidence that shopping on these devices is rocketing.

References

Chapin, H.; Jantzen, K.; Kelso, J.; Steinberg, F.; Large, E. (2010): Dynamic emotional and neuronal responses to music depend on performance expression and listener experience. PLoS One, Vol.5, No.12, p.1-14.

Krishna, A. (2012): An integrative review of sensory marketing: Engaging the senses to affect perception, judgment and behavior. Journal of Consumer Psychology. Vil.22, No.3, pp. 332-351.

Manzano et al., Marketing Sensorial: Comunicar con los sentidos en el punto de venta. 2011, Prentice Hall, ISBN: 978-84-8322-812-8
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Lluis Martinez-Ribes

Source: Código 84, nº 170.

A GUILD-BREAKING RETAIL FORMULA. An interpretation of Cookiteca

Image provided by Cookiteca

It is 5.30 on a Friday afternoon. After hanging up their coats, and carefully washing their hands, 15 children excitedly open their eyes as they enter a kitchen larger than the front room of their homes. There was a rising crescendo of murmured admiration. One of the children, Julia, has invited the others to celebrate her birthday. However, this was not going to be a conventional birthday party; rather they were going to have fun learning, and then eating, a cake. Hopefully, there will be enough left over for them to take samples home to show their families.

The party was taking place at Cookiteca, a new business that is hard to define yet easy to understand and love. This Barcelona-based firm is less than 30 months old, yet it has already opened four locations and served more than 11,000 clustomers. The firm is managed by the two partners Sílvia Mirabet and Neus Canal.

When Neus describes the business she uses different ways according on who is he addressing. She tells suppliers that Cookiteca is a cooking course centre and a shop. However, she tells prospective clients: ‘Cookiteca is a place where you can enjoy cooking and have a good laugh’.

History

Neus is an architect, entrepreneur, and business consultant. I met her when she came to visit me at ESADE to discuss attending a 3.5 day course in retail innovation. Registration for the course would cost €3000 and it was clear that she wanted to make the very most of her time and money. I was delighted with her vision and focused energy.

Cookiteca began in January 2010 when Sílvia, a cooking lover, asked Neus for advice about a business concept based on cooking. The idea hinged on the fact that it was easy to find cooking courses, but very difficult to find utensils and ingredients. They founded the business in May and opened their first location four months later in an attractive building in the traditional neighbourhood of Sarrià in Barcelona.

On entering Cookiteca and seeing a display of semi-professional cooking tools you might feel that you had entered a rather stylish kitchen utensil shop. To one side is the reception desk that doubles as a cash desk. Enter a little further inside and you will find an area displaying utensils and ingredients for making desserts. This area leads on to a very large and well-equipped kitchen where cooking classes are given. But it does not end here, further on there is a room with a large table where participants can taste what they have just prepared. On their way out, participants can buy some of the more unusual ingredients used in the class.

This is a guild-breaker retail formula: it is simultaneously a kitchenware store, a specialist bookstore, a cooking school, a restaurant, and a grocery. And sometimes it is also an event planning company, whether it is for individuals or companies.

Who does Cookiteca serve?

One of the strengths of the business is the diversity of segments served. The business aims at three segments – although never simultaneously:

  • Adults interested in cooking
  • Event planning businesses where the kitchen plays a leading role
  • Children

There is a growing public interest in cooking. According to Neus some 20% of people who could cook do not know how – and there are many others who want to expand their abilities by learning a manual skill that is unrelated to their professional work. Neus says that by learning a new skill people gain more self-confidence and escape from daily life tension.

Activities range from a basic healthy cooking course to more skilled and fashionable courses – such as backery. The usual price of registration is between €35 and €45.

Part of its activity is B2B rather than retail. Cookiteca sells active kitchen-based events to local companies: such as cooking demonstrations and tastings. The firm has a psychologist on call who helps clients design specific events.

But it is children who have made Cookiteca famous and remain a vital segment. Children (who must be older than six to follow and enjoy the learning dynamics of the classes) always have plenty of fun cooking and many develop latent abilities. Their self-esteem is also given a boost when they return home with something they cooked themselves. The children make Cookiteca a happy place, and have quickly spread the word about Cookiteca around Barcelona.

In addition to the scheduled courses, various other events and birthday parties are hold (with cooking always as the main event). Self-catering courses for children are organised during the school holidays. The children arrive early in the morning, prepare their breakfasts, eat together, go grocery shopping at the local food market, attend an external workshop, return, then prepare and enjoy lunch together before going home. The course serves as a rounded experience in cooking and working together – while having fun.

Offline and online combined

The company web plays a key role in creating awareness and marketing the cooking classes (25% of places are booked on the web). It is also increasingly used for selling other products.

Cookiteca has not yet offered what will become the main digital interface, a smartphone app, and for the moment the business remains a good example of a start-up that is not technology based.

The current revenue pie shows 35% earned from cooking workshops, and 65% from shop sales. The partners aim to balance both items and expect to reach breakeven soon.

Image provided by Cookiteca

More than cooking

Neus is clear that she does much more than co-manage a cooking school.  She is establishing Cookiteca as a strong brand with humanist principles. Neus says the company emphasizes the role of good cooking for well-being, and maximises the fun inherent in group learning.

Brand building, explains Neus, is more important than aggressively aiming at short-term profit.

There are two essential elements for building the business:

  1. A competent and enthusiastic team – perhaps the most difficult element to achieve in a retail model.
  2. A suitable building as “package”, Neus says locations must be: cosy, authentic, practical, inexpensive, and undecorated. The food, she says, tends to provide the colours needed.

My six tasting notes:

My tasting notes for Cookiteca suggest that the business leaves the following after-tastes:

  • 1. Cookiteca offers a retail model that understands the economic reality in the street, and treats customers as people.
  • 2. Cookiteca has devised a solution tree, with a common trunk (the love for cooking), but with different branches yielding in an unique and intense experiences as fruit

⁃ Using a mixture of products, services, and activities;

⁃ Combining products usually found in very different sectors.

  • 3. It is a business model that serves different segments at different moments – but never simultaneously.
  • 4. Cookiteca knows how to answer the question that I usually put: ‘what do you mean in my life?’ Cookiteca is a place where I can meet with other ‘foodies’ like me.
  • 5. Improvements will come from a better fit between the three dimensions:

⁃ Solution portfolio

⁃ Segments

⁃ Locations (including the online shop)

  • 6. Despite requests and having prepared some documentation, Cookiteca does not yet wish to franchise the business because the founders feel that further fine-tuning is needed. Franchising means offering the franchisee a reduced risk of failure, and Cookiteca wants to improve their model first. This is a good example of an ethical business philosophy.

_____________

Lluis Martinez-Ribes

Source: Código 84, nº 169.

TOGETHER WE CAN.An appraisal of we-Commerce

Image: Lluís Martínez-Ribes

In August 2007 I spent two weeks in China working on a retail project for household goods. I visited a lot of homes as well as a few shops in several cities. In one of these stores, I saw a sofa with a piece of paper on top. It was a public list for those interested in buying the sofa to jot down their personal data. If 10 people signed up indicating they were interested, the store would then sell that model to all of them at a heavily discounted price.

This was the first time I saw an example of we-commerce, albeit an analogue version.

Currently, the group shopping phenomenon is spreading around the world, though taking advantage of Internet instead of paper due to its ease.

What is ‘we-commerce’?
At the individual level, we-commerce is what many companies have been doing for decades: creating shopping groups to be able to negotiate better prices from their suppliers.

We-commerce is the name used to describe a particular way of selling products. It’s led by an aggregator which takes advantage of the bargaining power of group purchasing and the possibilities Internet provides. When a certain number of clients are strongly interested in a given item, the purchase can be made with a very advantageous discount.

Example we-commerce sites include comprarunidos.com, everybodycar.com, compramospiso.com, valesmucho.com, entregrupos.com, numismatica-visual.es (occasionally), etc.

How we-commerce works
There are three players in the sales process: interested individuals, companies selling their products, and the agent facilitating the relation between the previous two. The fundamental role of the latter is to aggregate demand so that a certain volume is created, thus allowing the seller to offer interesting price discounts.

In fact, the aggregator creates a ‘vertical distribution system’ as it is referred to in academia:  ‘actors’ who are organised and related in such a way that they carry out beneficial commercial transactions for all.

Despite the fact that this bargaining power resides in the purchasers grouped together, the aggregator usually takes the initiative in organising the system. However, the potential customers indicate which products they want to buy through the group.

These items normally consist of high-priced goods which are only purchased sporadically. Examples include homes, large household appliances, stamp collections, etc. This model does not work with ordinary products. One company, tiketocio.es, tried to apply the model to perfumes in 2010 but it now sells them through conventional retailing.

Image: artchandising

Advantages and disadvantages for purchasers
In exchange for a highly reduced price, in general, interested purchasers are not sure when they will actually be able to carry out the purchase or even if it will occur as this depends on having enough purchasers. Another negative factor is that shoppers are often the ones who have to pay a commission to the agent organising the purchase.

To a certain extent, group purchasers also have to accept certain trade-offs, such as having fewer customisation options available.

For sellers, group purchases represent an important increase in their sales volume though at a notable price reduction. They also have to remunerate the aggregator, whether via commission or periodic payments. This sales model does not encourage brand loyalty, though short-term sales are high.

For aggregators, this model allows them to earn significant income since the other two parties are very interested in reaching an agreement. The weakest aspect of the model currently is that it is still in the early stages and lacks critical mass.

For all three, it is extremely important that all the purchasers who say they’re interested truly commit to carrying out the purchase if the appropriately-sized group is created. If this doesn’t occur, the transaction will not take place, and all those involved will, at a minimum, have wasted their time. In 1989, Bagnoli and Lipman, discussed this model’s theoretical foundation for the first time, arguing that this type of contract required certain guarantees.

What it isn’t
We shouldn’t confuse we-commerce with other business models that share some common traits.

Online outlets (e.g., vente-privee, letsbonus, groupon, privalia, buyvip, primeriti, yoox, net-a-porter, etc.) do not practice we-commerce. They offer products at reduced prices to registered customers that have agreed to be periodically informed about special deals, the latter normally lasting a very short time. In addition, the clients don’t choose the products to be sold; these appear and disappear based on what the companies selling them want to liquidate or promote. This type of outlet store does not need a minimum number of purchasers to carry out the sale.

Social media commerce, that is, sales organised via social networks (e.g., Facebook, Yahoo!, Google+, etc.), can be defined, according to Anthony Mayfield, as the use of social networks for their members to acquire products or services through the network, taking advantage of the highly influential recommendations provided by friends and acquaintances.

Thefancy.com is an example of a mixed social media and affiliation commerce model. Some consider this site to be the Pinterest of e-commerce. Each time someone buys something through a link someone else has shared, the latter receives a commission.

Though it is a type of group purchase, we-commerce is not about sharing ownership or use of a given product. The latter model, in which usage takes precedence over ownership, is growing. Clear examples include firms such as Zipcar.com, through which members share cars, and myluxury.biz, which rents luxury purses by the day or week.

A fairly similar model is cloud housing (vidamesfacil.com/cloudhousing) which manages buildings, applying economically and environmentally sustainable principles and sharing or purchasing supplies together. Another example of a company with strong social and environmental values is London’s The people’s supermarket, though it is still not online. It has been partnering with Spar since 2012.

On the other hand, there are also examples of firms who use the term ‘we-commerce’ though they are, in fact, traditional retailing. This is the case with Join2buy, whose name, appearance and introduction seem to be that of a we-commerce site though it only offers a limited number of products for which it believes there will be strong demand: it simply buys them from suppliers at a low price and sells them cheaply.

We-commerce’s foundations
We-commerce has a strong social foundation which is actually based on biology. As mammals, we feel comfortable in groups. We like to influence others and be influenced by them. This tendency is heightened even further through Internet where we not only receive content but also produce and share it. Social networks have become the greatest worldwide revolution in the last few years with tremendous impact.

The theoretical basis of this influence is the so-called ‘network effect’ which Robert Metcalfe applied to Internet in 1980: the more people are included in a network, the more everyone benefits, obtaining positive externalities.

In this context, we-commerce unleashes individuals’ latent potential when they become organised. Together they can achieve things which they couldn’t on their own. In fact, shopping is a human activity with a high degree of social content and repercussion.

One of the primary success factors of any we-commerce firm is very likely generating trust to quickly become important and reach the so-called “tipping point” (Malcolm Gladwell, 2000): the point at which it becomes the reference and, as a result, achieves critical mass in the number of consumers.

Paradox
We-commerce has novel traits, but it also has a paradoxical component in terms of the commercialisation strategy used.

Several we-commerce companies describe their sales model as ‘direct purchase’. However, the majority of aggregators that group interested buyers together neither sell nor re-sell products. By contrast, they expand the sales channel by acting as intermediaries between the purchaser and seller.

In a society which often claims that it wants to ‘eliminate the middleman,’ this example demonstrates that some clichés are poorly formulated.

Two final thoughts
First: Regardless of whether we call them individuals, purchasers, shoppers, consumers, citizens or, better still, people, they will become increasingly aware of their power and their social and commercial influence. The examples cited above are nothing more than the seed of what’s to come.

Second: Many low-cost products and repeat purchases (e.g., detergents, cheese, bread, etc.) cannot be sold via the we-commerce model. However, I can foresee families soon putting a price on their loyalty. It will no longer be a question of ‘how many points do I get for every 10 euros I spend at the supermarket?’ but, rather, ‘What rebate will you give me if I spend 90% of my annual family budget at your store?’.  The metric for this already exists and can be calculated: “customer lifetime value”.
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Lluis Martinez-Ribes

Source: Código 84, nº 168.