The Long Play: Competing In The New Phase Of Consumer Empowered Retail

Over the last ten years, the dynamics of retail have fundamentally changed. We’ve now entered a new era, one where the consumer reigns supreme, resulting in far-reaching impacts on retailers and brand manufacturers. Companies in the retail and shopping industries – retailers and product manufacturers alike – need to understand these changes and act promptly in order to stay competitive.

In the steep part of the adaptation curve, digital technologies – led by the PC, then the Internet, and now mobile devices – have given consumers new abilities to learn and choose. The ultra-informed consumer gets information on any product or service nearly instantaneously and makes purchases from practically anywhere at anytime. Consumers evaluate brands no longer just as trust or status marks, but as mechanisms of self-expression. These same digital technologies accelerated production and supply efficiencies, which has multiplied assortment and purchasing options, resulting in massive selection available to consumers. The supply side has exploded (e.g., more stores, more brands, more products), while the demand side has grown about 2-3% per year (i.e., population growth). Technology has empowered both, but the winner is the consumer.


Thus, to win in this new retail environment, a company (brand or retailer) needs to do at least one of four things exceptionally well:

  1. Create the scale to consistently win on price. Low prices and good value will always matter. This will be tough for most retailers as only a small number truly have the scale and operational excellence to be price leaders in national and global markets.
    Examples: Amazon, Walmart
  2. Curate/sell unique products that consumers want to buy. Products and brands that allow consumers to differentiate and define themselves allow retailers to compete beyond price and availability.
    Examples: Specialty retailers, Nordstrom
  3. Provide an experience that is delightful and pleasing in its own right. Consumers have come to expect experiences as well as inventory. Retailers who develop delightful, even somewhat addicting experiences, can excel.
    Examples: Whole Foods, Cabela’s
  4. Develop and nurture direct relationships with consumers. Some brands have nurtured relationships to the point where the consumer trusts the retailer beyond the gratification of immediate needs. These relationships create value for consumers and companies without the need for explicit kickbacks or rewards.
    Examples: Costco, Amazon


Implications For Brands

The biggest implication for consumer brands and manufacturers is that they need to invest more in experiences and services as part of their “product,” and they need to better nurture direct consumer relationships. Few have the scale to compete on price, and even fewer products are truly unique. Success requires more closely engaging with consumers and completely solving their needs. In fact, over the last 30+ years, the concentration of market capitalization among the top 100 firms in the S&P 500 has been shifting toward companies that either provide a consumer service or directly engage with consumers. This demonstrates the shift in power (and shareholder value) from producer to consumer.


Brands must also consider the continued rise of private labeling. Retailers are leveraging scale, experience, and direct consumer insights to produce and grow alternatives to legacy brands. While not a new phenomenon, what is new is the amount of consumer insight available to develop products. Private-label sales currently represent ~20% of grocery sales in the US, but Amazon’s data-fueled expansion into private label and Aldi’s success deserve careful consideration.

Retailing has shifted from a business primarily about product distribution to being about value delivery. Consider how Apple, Amazon, and Nike have transformed their markets. Apple turned computers and task specific devices into services that entertain us and assist us. iTunes and the App Store allowed Apple to solve consumer needs in ways that devices alone could not, and in so doing Apple transformed itself from a consumer product brand to a hybrid brand involving aspects of product, retailer, and lifestyle.

Selling books used to be about providing selection recommended by the shop owner. Now it’s an experience to discover new topics of interest and a way to learn what others have said about books. It’s about having access to a book in several devices, synchronized. Amazon doesn’t simply sell books. It enables discovery and reading.

Nike has transformed shoes from mere clothing items to an experience and set of services that help athletes perform better. Cars used to be devices used by drivers. Now they’re expected to park themselves. Soon they will drive themselves. Not far into the future cars will be evaluated on how well they make it through traffic rather than by horsepower and gas mileage.

In short, all retailers are brands. And brands are retailers – whether they know it yet or not, at least in the sense of engaging more directly with consumers. Successful brands will need to engage with consumers and compete on the same criteria as retailers, a different set of ground rules than the manufacturer-brand rules of the past.

What Brands Should Do Now

While it’s tempting for brands to focus strictly on developing unique and compelling products, it’s shortsighted to rely on this alone. Consumer brands should certainly continue to innovate their products (in an attempt to remain indispensable to retailers, allowing them to harness above-commodity margins), but product innovation alone doesn’t address the importance of delightful experiences and relationship development to winning today’s enlightened consumers.

To succeed beyond product innovation and cost-efficiency improvements, brands must consider three strategic exercises:

Add Value Beyond The Current Product
Expand the brand promise to more broadly solve consumers’ needs, and develop your product and related digitally enabled services to deliver on this promise. The “product” needs to be more than what is in the box, because what is in the box will likely be commoditized.

  • What you can do now: Consider the consumer problem solved by your branded product and develop a service concept that solves that problem better. Build the basic digital tools to make such a service and pilot with consumers. For example, go beyond making doing the laundry easier; eliminate the need to do laundry.

Build And Develop One-On-One Relationships With Consumers
This doesn’t necessarily mean selling directly to them, but often it will. Brands need to fill their consumer databases and develop capabilities to nurture those relationships. It’s important to realize that this doesn’t necessarily mean creating conflict with retailer customers of brands. Getting to know consumers better and developing products/services to meet their needs is in the best interests of both traditional retailers and consumer brands. It’s not a zero-sum game.

  • What you can do now: Leverage your online sales channels (e.g., as vehicles to learn about consumers and to engage with them via media. Opportunities for digital engagement exist beyond immediate sales. For example, target complementary offerings that give consumers a reason to engage directly with your brand.
  • What you can do now: Use customer service and support channels, as well as product packaging, as mechanisms to build your consumer marketing database. For example, ensure all consumer records in services databases are available for marketing. For multi-brand companies, link all brand databases together to build out more complete consumer profiles.

Adapt Methods Of Measuring Success
While it’s always been prudent for brands to measure and incentivize store sales, channel sales, and web sales for managers, it does create internal conflict and organizational silos that hinder success. To avoid creating barriers, service-product hybrids should assess success in terms of consumer metrics, such as revenue per user and lifetime value.

For example, in the healthcare industry, care providers are often compensated based on capitated rates and healthcare outcomes of their assigned populations. This creates incentives to improve healthcare among the population, while judiciously using resources. Like the healthcare industry, brands should assign general managers to defined consumer segments (e.g., by geographic region) and incentivize the total segment penetration and sales per consumer, regardless of channel. Tasked to maximize consumer revenues and loyalty within their assigned populations, managers could then judiciously apply whichever channels, products, or services that are most effective.

  • What you can do now: Create measurement programs to report against consumer goals holistically. The new data systems will shed light on how goals and incentives could practically be applied in the future—and help create the data pipes necessary to engage one-on-one with consumers.

These retail times are a-changin’ with ultra-informed consumers in the lead. To succeed in this new era, brands must think beyond their products and solve broader consumer problems with delightful solutions. None of the recommended actions are quick wins because no such quick wins exist. What is at stake, however, is which brands and retailers will survive and which will go the way of the general store or the Sears catalog.