The Framework You Need to Survive in Retail

Organizations cannot afford to be operationally driven. A Customer Experience focus is a necessity of survival in today’s hyper-competitive and disrupted retail market.

That said, not every organization realizes this fact yet, which I find disappointing. I was talking to the C-Suite of a retailer (who shall remain nameless) about Customer Experience. It was not a fruitful conversation; they were in denial. I imagined their rejection of the idea of CX must have been like when Blockbuster thought about buying Netflix and decided, “Nah! Streaming is never going to catch on.”

We hosted a special guest Professor Barbara Kahn from the Wharton School at the University of Pennsylvania on our recent podcast. Professor Kahn co-hosts a weekly program on Sirius XM Channel 132 called “Marketing Matters.” Her new book, The Shopping Revolution: How successful retailers win customers in an era of endless disruption, details her experience as Director of the Patty and Jay H. Baker Retailing Center from 2011 to 2017, where she witnessed retail chaos firsthand.

During her tenure, Kahn asked retailers to describe their idea of a great retailer. They said a good merchant. To them, a good merchant means to someone who understands how to merchandise and is excellent at building a compelling assortment of products that customers want. Also, they focus on operations, meaning they know how to get it to the store and manage inventory and supply chain.

However, she noticed the respondents in these conversations were not talking about customers. Then, she reviewed her marketing books. The previous frameworks were also product- and logistics- focused. She noticed that no other organizing framework in retailing recognized the customer existed. However, she knew the Customer Experience was a significant influence in the success of retailers in the disruptive retail environment of 2011 and beyond.

Recognizing that the frameworks needed an update reflecting the changing retailing landscape, she made her own that included the customer. Not only that, she wrote a book about it.

The Kahn Retailing Success Matrix

The Kahn Retailing Success Matrix concentrates on customer and competition rather than operations. It also explains how retailers can use Customer Experience to their success. It is built on two fundamental principles:

1. Retail Proposition: You must provide customers with something they value.
2. Superior Competitive Advantage: What you offer must be more valuable than what the competition delivers.  

The Product Benefits column represents what the customer wants, what they value. Kahn says they want a product that consistently delivers on its brand promise. However, they also want a product from retailers they trust.

The Customer Experience column shows what people want from a retail experience. Kahn says consumers want to have fun and enjoy what they are doing. Also, customers want a problem-free experience.  

The rows give you examples of the concepts in action. The first quadrant is about enhancing the experience or Increasing Pleasure. The first quadrant is the luxury brands whose brand awareness and promise attract people to their retail locations. In other words, the product design itself is the pleasure.

The second quadrant is about brands with elevated experiences. For example, Sephora has an enhanced experience. People go to a retailer to have fun. At Sephora, customers can try all the luxury beauty products, which is part of what's driving them to the store. Kahn compares the Sephora Customer Experience to a playground.  In shopping malls where the rest of the stores are deserted, Kahn says the Sephora store is crowded. She describes seeing people stand in front of Sephora crying when it's closed.

Now, mind you, Sephora is not my store; cosmetics are “not my bag.” However, I feel that way about the Apple retail locations. I like playing with the new products and talking with the geniuses, and everything else. That said, I have never stood outside crying because it was closed.

Now on the bottom row, Kahn includes examples of Customer Experiences taking away the pain. The third quadrant has discount retailers. A high price is a pain that customers feel (often acutely), so she included retailers that take away the customers’ pain of high price. Tons of retailers are in that quadrant, like Wal-Mart, Costco, and T.J. Maxx. They all have different strategies, but they're competing on low cost.

The fourth quadrant is retailers that simplify the Customer Experience. Kahn calls them frictionless because they make the experience easy. She credits this effect to attaining a deep understanding of their customers—by collecting loads of data on them. Not surprisingly, the poster child for this final quadrant is Amazon.

Examples of How the Matrix Works

Kahn says businesses need to determine what the threshold is for customer value in each one of these four quadrants. What's the minimum you need to do to compete in each one of these four quadrants? Kahn believes that retailers that fail to do this will struggle and eventually go out of business.

With the Kahn Retailing Success Matrix, the winners in retail during the disruptive period of her tenure as director of the Patty and Jay H. Baker Retailing Center were the best at one thing. However, they didn’t stop there. Then, they leveraged that leadership advantage in one of the other quadrants to be the best there, too. In the remaining two quadrants, she described their performance as “good enough.” She calls this the two-quadrant strategy. In other words, today’s winners are outstanding at more than one thing—but not necessarily the best at everything.

For example, Amazon is the best at frictionless experiences. Then, they leverage that advantage to excel at low prices, also. Kahn argues that Amazon's strategy is the best at frictionless, best at low price, and good enough at brand and Customer Experience.

Now consider Wal-Mart.  Wal-Mart was the biggest retailer in the world for years and years on low price and operational excellence. Kahn said she taught smaller classes on the operational excellence of Wal-Mart. However, recently, it wasn't good enough. So, Wal-Mart had to take their leadership in low price and become a leader in frictionless as well. They have been developing ways to make it more convenient for people to shop with Wal-Mart, like how they offer shopping online and then picking-up in the store.

You hear about once-great retailers that are in trouble in the news. They either have a poor in-store experience, or their prices were out of whack, or they didn't have the right product, or they weren't convenient. (I’m looking at you, Sears. You too, J.C. Penney). Their fate is sealed as a result.

So, What Does This Mean for Your Customer Experience?

What we can learn from Professor Kahn and her matrix is it's not enough to be the best at one of these quadrants. Now the industry is so competitive you've got to take that leadership advantage and be the best in two quadrants.

Retailers weren't really thinking about customers. By including Customer Experience in the matrix, it demands that organizations don’t do what they’ve always done.

To hear more about The Kahn Retailing Success Matrix and how it can apply to your Customer Experience in more detail, listen to the complete podcast here.

The bottom line is that if you've got a customer-focused mindset, then that becomes the competitive advantage. It is difficult to understand and even more challenging to convert to once you have an established operational mentality. But once you have it, you must consider what value you provide to customers and how you offer it to them. That’s the key to success, and survival.

If you want to benchmark your organization’s performance in the new world of behavioral economics against other companies, take our short questionnaire.  Once you submit, we compare your answers against what we know about the market and send you a free personalized report about where your organization is today.

Hear the rest of the conversation on How Successful Retailers Win in Endless Disruption on The Intuitive Customer Podcast. These informative podcasts are designed to expand on the psychological ideas behind understanding customer behavior. To listen in, please click here.

If you enjoyed this post, you might be interested in the following blogs and podcasts:

How Do Customers Decide If Their Experience is Good or Bad? [Podcast]

How We Make Decisions—Prospect Theory

Why Customers Make Strange Decisions

Colin Shaw is the founder and CEO of Beyond Philosophy, one of the world’s leading Customer experience consultancy & training organizations. Colin is an international author of six bestselling books and an engaging keynote speaker.

Follow Colin Shaw on Twitter @ColinShaw_CX