As retailers shift from mass marketing to targeting specific groups of consumers, they're becoming increasingly innovative. Leveraging demographic segmentation has become quite common, so retailers are taking it a step further and identifying ever-more specific markets to better position their strategies.
The growing trend in retailing is to move away from a centralized organizational structure that manages all marketing, assortment, and distribution channels to a decentralized approach. Thanks to distribution channels like the Web, consumers are now accustomed to retailers that market directly to them. Retailers are responding to consumer expectations with what's been called "mass customization."
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Amazon.com has set the standard for customized retailing. Once you purchase a product from Amazon's Web site, the site not only recognizes you as a customer when you return, but it also recommends products based on your sales history. Essentially, Amazon's "store" tailors itself to meet your personal needs.
Consumers are now demanding the same level of service from other retailers, including brick-and-mortar stores.
Where customers can feel at home
The essential premise of localized retailing is about creating "my kind of store" -- an environment where customers can feel completely at home, relate with ease to the shopping experience, and see themselves reflected in the marketing. Appealing directly and individually to customers, though, requires a strong awareness of the local customer base and a firm grasp of what will catch customers' attention.
A good example of this principle in action is the "Urban Theater" that Home Depot created in its recently opened store in Manhattan. In this "virtual apartment" setting, Home Depot showcases its most urban-relevant products while actors complete home projects in a mock loft apartment -- a setting that many of the borough's residents can relate to. "The [retail] chains that are always successful in the city are the chains that come in and change for the city and react to New York," said Jeffrey Roseman, a real estate broker in the city, in Women's Wear Daily.
Localized retailing has also spawned "pop-up" events in which marketers or retailers set up shop briefly to target a specific market segment. These retailers may have traditional brick-and-mortar locations, but they use this type of marketing event to identify and communicate with a particular audience. Some retailers say that these local events can add more value to their marketing campaigns than traditional advertising or marketing.
Target Corporation has enjoyed success with pop-up retailing events such as its "Target Bullseye Inn." Target took over the Bull's Head Inn in Bridgehampton, New York, for five weeks, creating what the company called "a one-stop resource for all things summer." This special event featured exclusive items -- from tableware to bed linens to outdoor decorating items -- from Target designers. The goal of the event was to "surprise and delight our guests by bringing everything they need for summer fun directly to them at a favorite summer spot, the Hamptons," said John Remington, vice president, events marketing and communications for Target. Target has also created special marketing events in Manhattan, launching designer Isaac Mizrahi's apparel during a fashion show in 2004 and promoting holiday sales with a pop-up event on a boat in 2002.
Customer-centricity
Retailers are continuing to focus on local customers by making their marketing or products more customer-centric: They're creating modified versions of their brand by targeting smaller and more specific market segments.
Best Buy has been a pioneer in this approach. The retail chain has launched very specific store concepts that speak directly to a soccer mom, a tech guru, or that urban guy who wants his entire home entertainment system built and installed for him. While the product assortment may be similar, its presentation varies in these customer-centric locations. Stores designed to appeal to soccer moms may offer a kids' play area, educational toys, and products like appliances in addition to Best Buy's traditional consumer electronics mix. Other stores may feature home theater displays as well as high-end and cutting-edge electronics to attract that urban guy.
These stores first determine the demographics their local market and choose two customer profiles. Then, they stock merchandise accordingly. The approach seems to be succeeding. Brad Anderson, Buy's chairman CEO, recently said that "customer centricity lab stores collectively outperform other U.S. Best Buy stores in terms of comp store sales gains and gross profit."
These small variations offer great rewards. This type of focused positioning creates a unique message for customers; they truly feel that this is "my kind of store." While it also offers challenges -- it creates extra processes and structure in the corporate office, for example -- its potential to evolve and expand brand offerings seems limitless.
Another way to target specific segments is through in-store media, which has evolved as a main vehicle to individualize a retailer's message. Eddie Bauer was an early pioneer in testing in-store video media. By placing flat-screen televisions in store windows, individual stores were able to change their advertising messages at any point in the day. This gave Eddie Bauer the ability to appeal to morning shoppers who might be motivated by a different marketing message than people shopping in the evening.
Changing climates
A customized approach can also help retailers adjust their product offerings to the local climate. Though retailers understand the need to carry shorts in markets where it's hot year-round, their systems have not always allowed them to do so. In the past, shoppers may have found only a small selection of shorts for sale in Miami in the winter, during that city's peak tourism time. Now, retailers have fine-tuned their marketing tactics and carry shorts year-round in warm climates. They're also creating exclusive product lines that are climate-sensitive: A retailer may carry a long-sleeved shirt in cooler markets, for example, but offer a short-sleeved version in warmer markets.
As consumers learn that they can purchase products through more channels, retailers are reacting; their goal is to get the customer what they want when they want it. If a retailer fails to stock items that are in demand in a particular climate-driven market, the customer can easily find it elsewhere, whether that's online or down the street. As customized retailing expands and consumer expectations rise, retailers must exploit every opportunity to create unique product offerings that speak directly to their local customers.
Pricing is another key aspect of localization. Many retailers now localize pricing to adjust to local market conditions; they can grow their profit margins or cater to a local marketplace's pricing tolerance. Essentially, they can charge what a particular market will bear.
"Retailers whose stores/outlets span locations that have different customer segments in terms of buying power and interests need to be able to price appropriately for each of these customer segments to maximize profit for each segment," says Sanjay Chopra, co-founder of Calance, a global professional services firm. "Retailers need to be able to plot the demand curve of each segment, then price and promote appropriately to maximize profit, clear inventory, or meet revenue targets."
Customized retailing has evolved beyond breaking a retailer's store base into a few store types. As distribution channels continue to diversify, retailers must find ways to appeal to specific market segments. Their product mix must be relevant to the local climate and culture, and their pricing must reflect what the marketplace will bear. While mass marketing may be on the decline, mass customization is evolving -- and as it evolves, so do the demands that each market places on retailers.