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Business Journal

People Who Need People

by William J. McEwen

Retailers have long recognized the importance of an enduring relationship between the store and the customer. Decades ago, the customer was "always right" -- and certainly not because that met the store's needs, but because it so clearly focused on the customer's. Focusing on the customer, retailers noted, was the key to a continuing relationship. And that relationship, in turn, was the key to profits.

However, the retailing world -- as is true for so much of the marketing world -- has changed dramatically over the past few decades. Stores no longer compete just with "stores." They compete with mega-stores and price clubs, with box stores and hyper-stores. They compete with specialty stores, as well as with mass merchandisers. And they now compete with a bewildering array of web sites.

All of these are retailers. All of them may seek to provide the same product to the same consumer. And, to be successful, all of them need to do so more than once.

What does this mean for the new millennium retailer?
Today's retailers need to master a more complex array of new and emerging business tools. At the same time, they must never lose sight of a familiar goal, one that is the cornerstone of any retail relationship: building an enduring bond between the store and the customer. This bond encourages the customer to resist competitive promotions and provides a basis for expanding and extending the customer relationship.

But, how can retailers achieve the goal of increased customer commitment in the face of greatly expanded customer options? How can they cement a real customer bond in the face of intensified price competition? Moreover, how can they confront the leveling of the locational "playing field" brought about by the rise of web site marketing: the diminishing -- or even disappearing -- role of the traditional retail mantra, "location, location, location"?

As the prevalence of Internet access has increased, and the number of e-commerce product purchase transactions has mushroomed, an interesting phenomenon has taken place. The role of the retail brand -- and of an established, leverageable bond between store and customer -- has not declined; it has actually increased.

Recently reported data has highlighted an interesting fact: the cost per customer for web site marketers increased by almost 100% from 1998 to 1999. In marked contrast, the cost per customer for so-called "clicks and mortar" retail marketers, who have both websites and store locations, has declined almost 50%. As a result, the latter currently enjoy about 6 to 7 times the return-on-investment efficiencies of the web site-only marketers.

How can that be the case? Because a one-time-only or trial purchase is not the key to a profitable relationship. It is merely the necessary first step. If the relationship goes no further, the value to the retailer is actually minimal.

So, how do retailers create a relationship in the new Millennium? How can they create meaningful differentiation between their brands? How can they motivate consumers to seek out one vendor from among an increasing array of alternatives? In many ways, the real key to success in the new millennium is the same as it was in the old one.

Is it the product? Generally, no. Retailers have largely accepted the concept of product parity. Product offerings, product features and even brands stocked are substantially similar across many competing stores.

What options, then, remain to differentiate between established retail brands? Price. Promotion. Place. And retailers have used all three. Deals. Promotions. High-traffic locations. Retailers have been masters of these traditional marketing tools, and they have continued to spend heavily on each of them.

So, is that why the "clicks and mortar" retailers have been beating the web site-only marketers? Hardly.

It's not price. Web site marketers typically offer prices that are, at best, difficult for most retailers to match. It's not place. The Internet also essentially eliminates the role of locational convenience. All web sites are about equally accessible.

If it's not price or place, then it must be promotion -- clever and creative advertising that builds an emotional bond between the store and the customer? Maybe. But research by The Gallup Organization suggests that there is another vital dimension that web site-only marketers haven't yet addressed, and haven't been able to match. In fact, it is something that many "clicks and mortar" (and even "bricks and mortar") retailers haven't taken the time to recognize or to fully leverage.

Web site marketers have a difficult time building relationships because they're missing a key ingredient in building a brand relationship: there are no people involved.

Putting a human face on the company
Why should people make a difference in a society where time is allegedly our most important commodity, where attention spans are measured in nanoseconds, and where convenience is everything?

Because the cornerstone of a continuing relationship is a sense of "attachment" between a customer and a brand (or, in this case, a retail store). Attachment requires a sense of trust, of reciprocity, of reassurance that promises made will be kept. In short, attachment requires a human face on the company or store. People aren't the only way to build a sense of attachment -- but they may well be the most effective way.

A few web site marketers have established ongoing dialogue, and an individualized customer focus. Most, however, haven't found a way to provide this "human" face, or to build a sense of brand attachment and an enduring brand relationship with their customers. . And yet, many traditional retailers -- while they have historically benefited from this "human" legacy -- aren't really capitalizing on it. And that's their vulnerability.

How do we know this?
In a recent study of more than 1600 customers of three leading consumer electronics retailers, The Gallup Organization found that locational convenience was not an important driver of loyalty for any of the major chains we studied. It was, quite simply, not a factor. It was assumed. Introducing another alternative provider with great locational convenience (such as a new web site) simply does not address the factors that actually build repeat business in this category.

What does build repeat business? Value is certainly important. On average, stores perceived to offer a great value generate about twice the customer loyalty of those who are thought to provide only adequate value. However -- and worthy of special note -- stores whose employees stand out as particularly helpful or knowledgeable create from three to seven times as much loyalty among their customers. Thus, the role of people in building repeat business is about twice as powerful as the role of price/value.

What is particularly fascinating is that while traditional retailers certainly recognize the motivating power of a great deal, they appear to be almost unaware of the far greater role that their employees play in cementing commitment -- and thus they often fail to leverage their No.1 asset.

The greatest single opportunity to increase retailer differentiation in a meaningful way -- and thereby to increase customer loyalty -- lies with the people who "touch" the customer. Sales. Service. Call centers. They may touch the customer in person, over the phone, by mail -- or even over the Internet. However this contact takes place, it turns out to be a major determinant of continuing customer commitment to the store (or to the web site).

Can human capital be competitively leveraged even in the age of the Internet? Yes. Can "clicks and mortar" marketers continue to outperform web site-only marketers? Yes. They can - but will they? Perhaps, but only if these retailers fully leverage their relationship-building advantages. That means that they recognize the power of contact, and that they both recognize and manage their employees for what they really are: a powerful marketing resource. Not just for the past millennium, but for the next one as well.


William J. McEwen, Ph.D., is the author of Married to the Brand.

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