• Home
• »
• Insight

• Home
• Executive Jobs
• Features
  • Focus
  • Career Couch
  • Radar
  • Water Cooler
  • Insight
  • Podcasts
• Place an executive ad

In one sense, there is nothing new about the concept of the all-powerful customer. Drucker's insight explains why customers have shaped the strategies and destinies of retailers, and not as is commonly thought, the other way around.

It also explains what happened to Starbucks, a phenomenon that set itself up as the third space away from home and work, like a pub where you don't drink, and gave American consumers something that was less about coffee than about the way they wanted to be seen. Starbucks' management made the mistake of over-extending the brand, turning it into something ubiquitous, putting it into hospitals and airports.

Starbucks lost its pizzazz because management forgot about customers' emotional needs for status, and even generating a little envy. When something becomes too common, it stops being cool. Starbucks, now facing its first quarterly loss, has announced it is closing 650 stores and cutting 13,000 jobs.

Customers' emotional needs continue to reshape retail. In the old days, customer loyalty existed because people had nowhere else to go.

Now customers are more in control. Forces such as eBay, cash-back sites and so-called aggregators, which compare prices at the click of a mouse, are some of the drivers. Just as the growth of the suburbs and affluence of the post-war years gave us shopping centres and malls, the changing values of customers have created new retail models. Customers now seek an interaction and the traditional big blocks that have segmented customers are being broken down on behavioural terms. There is greater demand for niche products, and the internet has unblocked bottlenecks of distribution and communication.

Power has shifted from retailers to consumers. Technology and greater access to information allow consumers to know more about what's on offer. Similarly, information is now defined more by peers and opinion leaders through, for example, blogs and websites, a trend that is eating into the power of advertising.

That's why many brands now want to be a retailer. You see it at any post office. Similarly, banks have spent hundreds of millions of dollars on branch openings and refurbishment schemes. Branches are now called retail outlets, places that have gone from centres of transaction to where you go to get sold something. Branches have been redesigned and fitted out in distinct zones. Westpac and Commonwealth Bank have employed "greeters" who direct traffic to the zones, and ANZ has a ticket system that eliminates queues and turns the experience into something approaching waiting at a deli.

It has happened to religion, too. During World Youth Day, marquees promoting activities and modes of interaction, selling everything from flags to T-shirts, showed how elements of the church are travelling in the retail direction. But religion has always known how to turn a buck: Chaucer's Pardoner made a fortune selling fake relics to pilgrims.

There are distinctive changes in the retail offerings, too. Branding specialists at FutureBrand say retailers need to create emotional connections with these new consumers. FutureBrand has identified six key trends: active citizenship, which has seen stores such as McDonald's revamping their design and offerings; urban villages, which tap into a growing sense of community and which, for example, has seen the growing popularity of markets; global tribes, which target the need for a sense of belonging and where brands such as Abercrombie & Fitch offer membership; antidotes, where brands seek to make the world a cleaner place; new traditionalism, where new brands are being packaged with traditional values; and value savvy.

FutureBrand's vision of emotional connections is everywhere. British clothing chain TopShop, for example, has just installed self-photography studios at its flagship stores that allow customers to discover their inner model. Customers can check their pose in a large mirror, and then press a button for a digital photograph.

Similarly, there is the bizarre trend of what has been called "premiumisation" - in line with that awful habit in business where suffixes are attached to a noun to turn it into a verb and back into a noun again - where sectors put out premium versions of just about everything and which, according to reports, are selling well despite the economic slowdown.

Listed by the Trendwatching.com website among the big trends expected to make great inroads this year, experts point to products such as Tasmanian Rain bottled water, released in the US in January by a New York-based company. It is selling for $US25 ($A26.10) a bottle, or you can pay $US63 for a case of 12 bottles if you buy it online.

Tim Riches, FutureBrand's Australian managing director, says the emotional pull leaves Coles and Woolworths vulnerable. It's not that they are in any danger, as their strength lies in their convenience and product range.

But Melbourne Business School research in 2006 found that Coles and Woolworths were poor performers on the customer satisfaction scale developed by Bain consultant Fred Reichheld, in which customers are asked a simple question: how likely are you to recommend us to a friend or colleague?

And that, says Riches, opens the way for competitors: "The future holds risk because it leaves the pathway completely open for other brands to come in and present offers that have a greater potential for emotional connection."

lgettler@tpg.com.au