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Business Journal

Can You Still Win With Service?

by William J. McEwen

As companies strive to succeed in the "new normal," they shouldn't abandon the differentiator that's the toughest for competitors to mimic

As companies compete in today's "new normal," many have been redefining and refocusing their branded offerings. However, in their efforts to more clearly differentiate their brand promises, they've traveled different roads.

Too often a company's new lower prices can be matched by others.

For example, France-based Carrefour announced a major strategic shift. The world's second largest grocery retailer is concerned that its reputation for high prices has been making it less attractive to today's cost-conscious European shoppers. So Carrefour will reportedly move away from its established position as a quality-focused marketer of other companies' branded grocery products and will instead emphasize selling its own less expensive in-house brands.

Confronted with declining same-store sales, Carrefour has chosen to deemphasize its array of gourmet organic products in favor of its Carrefour Discount basics. The chain aims to build sales volume by cutting prices, and it hopes to improve profits not by charging shoppers more but by striking better deals with the food producers who supply its store-branded products. According to the company's CEO, "What's very important is price image."

Like other companies facing similar challenges, Carrefour is attempting to change what it is (a purveyor of higher priced goods) to become what it wishes to be (the preferred place to shop for value-seeking shoppers). Price is its weapon of choice.

Is price cutting sufficient?

But price-based differentiation will always prove to be a difficult challenge, as too often a company's new lower prices can be matched by others. As retailers in many other categories have learned, "price" is a difficult attribute for any grocery chain to truly "own." Price wars are not uncommon, and Carrefour is confronting some established price-perception leaders such as ALDI. Marketers should also remember that highly engaged shoppers are rarely bonded to a brand due to price alone. Thus, it's debatable whether Carrefour's announced price reduction, by itself, will prove sufficient to meet its goal of establishing enduring, competition-resistant bonds with its shoppers.

Of course, price is only one weapon that a retailer might choose, and other retailers have chosen other routes to connect with their customers. Consider Asda, the British retailer owned by Walmart. Asda's situation is not unlike that faced by Carrefour. It is confronted with the same sort of price-conscious shoppers and similarly intense price-based competition from other grocers. And so Asda, like Carrefour, has championed its lower priced store brands, which reportedly account for about half of the chain's sales.

But Asda, it seems, has concluded that it cannot rely on price as the core benefit associated with its own-brand products. So the chain has begun relaunching its private label offerings. In doing so, the company decided to directly involve shoppers in determining which products it should feature. Asda conducted blind taste tests with consumers, retaining only the products that customers prefer and reformulating more than 1,000 existing products to enhance their consumer appeal. The company is using this customer feedback as a means of elevating the perceived quality of its "Chosen By You" Asda products. As their head of product development stated, it's "because we know you, our customers, are the best judges of quality."

Asda, like Carrefour, is attempting to change. But in this case, the company is seeking to improve the perceived quality of its lower priced store label products by providing evidence of their consumer appeal. Asda's strategic weapon centers less on price and more on quality/price ("value") by incorporating customers' preferences as an integral part of its product selection process.

However, just as prices can be matched, so can a retailer's program of conducting consumer taste tests. So while Asda adds an important dimension of quality to price, its efforts could be mimicked by another chain, stripping away what Asda is seeking: a lasting basis for meaningful brand differentiation.

There are other options for retailers, and there are variations on the approaches being pursued by Carrefour and Asda. While most grocery chains continue to emphasize the price/value they offer, several, like Asda, are attempting to increase their interactions with their customers to create a stronger base of more connected, engaged shoppers.

U.S. grocery retailer A&P, for example, has created an online magazine called Live Better! that offers healthy tips and recipes. A&P sees this magazine as one more feature of an in-store wellness program that is aimed at building stronger customer bonds by responding to customers' "new normal" food values. But once again, any grocer can establish an online publication, and any grocer can provide healthy recipe ideas. A&P's activities can add value, but they may not establish a long-term competitive advantage for the chain.

Each of these leading grocery chains is employing a set of marketing tools hoping to more sharply differentiate their stores from those of their competitors. They're all seeking to establish stronger, more competition-resistant relationships with their shoppers.

There are weapons available to marketers that extend beyond price or product.

But we know that there are weapons available to marketers that extend beyond price or product. There are, in fact, five marketing Ps that can be brought to bear to establish stronger connections with customers. For a retailer, not only can product and price help to reinforce a relationship, but the place (the store), the promotional activities, and often most powerfully, the retailer's customer-facing people can all contribute. (See "Your Brand Is in Their Hands" and "The Power of the Fifth P" in the "See Also" area on this page.)

Are you being served?

We also know that, even in the "new normal," customer service still matters. For example, a recent American Express survey reported that more than 60% of U.S. consumers rated customer service as important. Perhaps more impressive, the same study reported that Americans will spend an average of 9% more when they feel a company provides excellent service. But despite the fact that great customer service is often what separates an engaged, loyal customer from one who is essentially indifferent, this survey revealed that only about a third of consumers feel they're now getting great customer service. (See "Americans Will Spend 9% More With Companies That Provide Excellent Service" and "Who's Caring for the Customers?" in the "See Also" area on this page.)

If customer service is so important, why not pursue it as the means to gain a sustainable competitive edge? There are compelling stories of the exceptional customer service commitment displayed by legendary retailers like Stanley Marcus and John Nordstrom. But perhaps these are merely the marvelous memories of days gone by. Maybe, as one observer has stated, maintaining close customer relationships "takes too long and costs too much." In a world increasingly focused on short-term payoffs, patience is a rare commodity.

However, there are at least a few brave souls who are embarking down the less-traveled customer service path, and there's much that Carrefour, Asda, or A&P might learn from them. In the retail banking category, one small bank bears watching. While competing U.K. banks tout price, product range, or some vague "We'll be there for you" promise, a new bank has entered the London market, and it's proposing to differentiate based on its service quality. Metro Bank opened its doors in July with Dixieland bands, free ice cream, bowls of dog biscuits, signs proclaiming "No More Stupid Bank Rules," and a rallying cry of "Love Your Bank at Last."

Of course, Dixieland bands and dog biscuits can also be duplicated by a competing retail banker. But Metro is proclaiming a differentiated customer experience based not on price or product but on the place (open and airy design), the policies and processes (customer-friendly), and the people (hiring and training employees to coddle customers). According to Metro's cofounder, big banks "think customers choose the bank that pays the highest rates. They're wrong. People will choose your bank at lower rates if you can give them a better experience -- if you spoil them."

Brand differentiation based on superior service, whether in banking or grocery retailing, requires a good deal more than creating an online magazine or conducting taste tests. It requires looking at every customer encounter through the eyes of the customer and paying close attention to the "people" component that Gallup's research has shown to be so important. Creating engaged customers requires the efforts and energies of engaged employees, whether they're bank tellers or supermarket clerks. These service and people factors are far more difficult for competitors to imitate. As a result, they help establish brand differentiation that endures over time.

Metro Bank may prove to be a huge success, or it may just be a noble effort to revitalize and reintroduce customer service to U.K. banking. It's clear, however, that big U.K. retail banks will be facing decidedly atypical competition with the introduction of banking services from Metro and from powerhouse database marketer Tesco as well as iconoclastic Virgin.

Some have claimed that in the "new normal," it won't be "business as usual." As marketers have shifted their focus from customer acquisition to customer retention, it will take more than price and product to build a lasting and competition-resistant customer relationship. Retailers are exploring new avenues in search of competitive advantages that won't be easy to duplicate, and it appears that even retail bankers must be prepared to fight intense competitive battles on grounds that may once again, as in decades past, include customer service.


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