A company that aims to impress investors typically touts its continuing sales growth. This often includes the proud announcement of an ever-expanding network of company locations.
The stories of aggressive expansion sound remarkably similar, whether the company is a bank, mass merchant, restaurant chain, or clothing retailer. Bullish sales growth implies aggressive distribution expansion, extending the company’s presence into new market areas by opening new stores, outlets, or branches.
It’s a clear signal to the investment community: successful marketers expand, while unsuccessful ones contract.
Consider the evidence. Faced with a painful bankruptcy, Kmart closed about 600 outlets, focusing its marketing efforts on fewer, more desirable locations. In clear contrast, Wal-Mart has continued to enjoy growth and success, trumpeting a 12% increase in sales and adding 200 new locations to its network of supercenter stores. And that just reflects store growth in the United States; Wal-Mart also continues to add to its network of stores overseas.
Much like Kmart, United Airlines is struggling to emerge from Chapter 11 and reports closing its remaining 32 ticket offices and discontinuing flights to a number of destinations. Meanwhile, JetBlue Airways has ordered an additional 65 jets and announced expansion to new domestic routes. The clear message is that JetBlue, not United, is the one that is actually “rising.”
In a similar vein, fast-food dominator McDonald’s has responded to its recent sales and stock price doldrums by announcing that it would close 719 stores and significantly scale back its global expansion plans. Contrast that with Starbucks, which is pursuing its growth goals by adding some 100 new stores each month. And Starbucks recently announced plans to buy Seattle Coffee’s 150 locations. While McDonald’s stock price has languished, Starbucks’ stock has risen, up more than more than 20% for the first quarter of the year.
Rapid expansion
An expanded distribution network appears to be an important steppingstone on the path to marketplace dominance and the continuing accolades of stock analysts. If distribution expansion is seen as the means to enhanced growth, distribution contraction is viewed as the means to enhanced management.
But additional stores and outlets don’t merely represent opportunities to reach a larger customer base. They also represent a daunting management challenge, because each and every one of these stores now constitutes another point of significant brand contact -- another major company “touchpoint.” Every one of these outlets must deliver the company’s brand promise and do so at each and every instance of customer contact.
These stores are not just distribution points -- they are brand representatives.
Companies must manage all locations -- the new as well as the old -- while recognizing that the location is, in the eyes of its customers, the personification of the brand. After all, McDonald’s is not simply a company headquartered in Oak Brook, Illinois, or an ad campaign or a catchy jingle; nor is it Ronald McDonald or the golden arches. Rather, in the eyes of its customers, the real McDonald’s is the particular store they visit. It’s the store’s products and people that customers remember. And it’s the in-store experience that communicates McDonald’s ability to deliver on its brand promise; the in-store experience builds customer engagement (see “Beyond Customer Loyalty” in See Also).
But a location’s convenience isn’t what drives repeat business and creates enduring customer connections. It’s not the number of locations or the coverage of the company’s network of stores and outlets that ensures customer engagement. What drives the customer relationship is the locational experience, delivered one outlet and one interaction at a time.
Research by Gallup Organization scientists underscores this crucial point. In a Gallup-initiated research and development study (see “The Power of the Fifth P” in See Also), McDonald’s customers wanted to return in part because of the brand’s ubiquity and easy access. But what really drove customers to McDonald’s stores and kept them from defecting to other fast-food providers was the quality of the people delivering the service and the quality of the products, rather than the number or convenience of the company’s stores.
Location, location, location . . .
When it comes to customer relationships, convenient locations are just a small part of the total marketing puzzle. For example, consider the auto industry. There are now 217 more auto dealerships in the United States than there were a year ago, yielding a new grand total of 22,363 dealer outlets. These new dealerships represent an increase in the number of points of customer contact. But while each of these outlets represents a marketing opportunity, each also represents an important brand management challenge for the automaker.
In Gallup’s research, convenient locations did not significantly determine brand loyalty for leading brands such as Ford, Chevrolet, Dodge, Toyota, or Honda. Having more dealerships does not necessarily imply a benefit to the auto buyer. What’s important is not the number of dealerships; it’s the quality of the customer experience at these dealerships. The most important determinant of repeat business, the Gallup analyses showed, were the people who customers encountered at the dealerships. Knowledgeable and helpful dealer sales and service professionals were the keys to repurchase intentions -- and were even more important to customers than the reliability and value of the products being sold.
That fact is now being recognized by some automakers. While there has been an overall increase in total new vehicle sales outlets, the real story has been the increase in exclusive (or single brand) dealerships. Increasingly, manufacturers are seeking stand-alone dealerships where the showrooms -- and the brand “personality” -- are not shared by disparate brands. The reason is simple: Companies must control the quality of brand contact. As discussed in previous GMJ articles (see “Outsourcing the Brand” in See Also), companies that seek to manage these brand encounters must realize that the product they produce is never the sole contributor to the quality of the customers’ brand experience.
Just over 23% of the 32,071 “Detroit Big Three” automakers’ dealerships are now exclusive or single brand. But almost half (47%) of the 10,793 import brand dealerships are exclusive. Focusing on a single brand can translate to a more consistent and coherent brand experience, and that remains an important competitive advantage for import brand marketers.
Is this single-brand focus important? Consider the luxury auto category. Almost two-thirds (63%) of the 857 dealerships for luxury sales leaders BMW, Lexus, and Mercedes are exclusive or single brand. Compare that to the percentage of exclusive or single-brand dealerships for Cadillac and Lincoln, the fourth- and fifth-best selling luxury brands. Only 5% of the almost 3,000 Cadillac and Lincoln dealerships are exclusive. Having appreciably more distribution outlets doesn’t provide Cadillac and Lincoln with the sales volume return that their luxury import competitors enjoy.
It’s not quantity; it’s quality.
If companies are to manage brand contact and thereby enhance brand equity, they must manage the customer experience at each of the individual stores and outlets that represent the brand. To a company’s customers, the individual store is the very essence of the brand; it is the means through which the brand promise is -- or is not -- delivered. A company must take the pulse of its customers regularly and monitor its own ability to consistently deliver an exceptional experience at each and every one of its stores. The company must recognize that its stores aren’t merely distribution centers; they are in fact brand centers. And they are crucial to delivering on the company’s brand promise, whether the total number of stores is expanding or contracting.
Expansion offers companies the promise of great returns. But without adequate store-level brand management, those great returns are at best temporary.