What’s the value proposition?4 min read . Updated: 03 Apr 2009, 12:32 AM IST
What’s the value proposition?
What’s the value proposition?
Many organized retailers have seen their growth drop significantly. Some of them have shut shop. Prevailing wisdom is that the economic downturn has affected retailers severely, and there is little they can do to grow rapidly and profitably in today’s environment. “We have to virtually write off 2009, tighten our belts, wait for consumer confidence to return" is a common refrain.
I seek to disagree. While there is surely some impact because of lower consumer spending, the need of the hour is for retailers to develop sharp consumer value propositions, because this is what brings consumers into retail stores. If some retailers are seeing significantly fewer visitors today, it is because consumers don’t see distinctive value in shopping at these stores. On the other hand, stores which stand for a compelling idea or relevant consumer benefit will best weather the storm. Indeed, I contend that many of them will grow stronger today because consumers become far more choosy during downturns, they become less promiscuous regarding stores and elect to shop only at formats which offer them the exact value they desire.
Empirical evidence first. Take the case of Wal-Mart, which has a sharp consumer value proposition. Despite the sharp US recession, it recorded the strongest sales result in its history during the last quarter of 2008, beating market expectations.
Or consider McDonald’s, again a sharp value proposition, though not necessarily the cheapest, family meal outlet in many countries. On the back of strong consistent sales growth in 2008, it has announced a remarkable 7.1% sales growth in an otherwise bleak January.
Back in India, retail stores with relevant value propositions are full of consumers. Typical examples outside my industry are Bata, which offers the largest range of footwear, Raymonds, which offers the finest quality in suitings, or Cafe Coffee Day, which offers great cafe experience to the youth. Retail stores and malls with diffused value propositions are stark in their emptiness.
Notice that these are not necessarily the “cheapest price" or “discount" retailers. What they share in common, however, is that each offers a strong, well-articulated consumer benefit—in the case of Wal-Mart, the benefit is the least price; in the case of Bata, the largest range; and in the case of Cafe Coffee Day, a great “youth cafe" experience. So, it would be erroneous to assume that the only proposition which can win in today’s economic climate is lower prices and a constant slew of discounts. Indeed, such an assumption may lead retailers to making wrong choices, eroding value and damaging themselves.
The real problem is that many Indian retailers have not searched their souls to come up with distinctive value propositions. Retailers have focused on many operational issues such as locating optimal properties, configuring efficient supply chains, developing right assortments, designing beautiful stores and running store operations brilliantly. At retailing seminars, you will see subjects such as retail rentals, talent retention and supply chain occupying centre stage. These are essential building blocks, but they cannot substitute the fundamental benefit which every retailer should offer if customers have to make a beeline to their stores. In short, these are necessary but not sufficient conditions for retailing success.
Contrast this with successful durables or FMCG brands, from soaps to air conditioners. They first and foremost build their unique selling proposition. A soap brand, for instance, may base its proposition on freshness (e.g., Liril), skincare (e.g., Dove), or safety (e.g., Dettol). These brands also focus on the right fragrance sourcing, the right packaging laminate, shape of the bar and so on—operational parameters analogous to retail properties, front-end salespeople and interior store design. But each of these building blocks flows from a core brand proposition, which has been well defined.
This is precisely what retailers should focus on. Every retail format—Food World, Reliance Fresh, Westside, Pantaloon, Globus, Barista, PVR Cinemas, Forum mall—is a brand, and must stand for a compelling idea or value in consumers’ minds.
There are a number of winning retail propositions which every retailer can choose from—such as location, shopping convenience, product range, consumer experience, differentiated merchandise, trust and price. Many retailers, with good intentions but poorly conceived strategy, attempt to offer many or all of these benefits at the same time, thereby immediately diffusing any sharp proposition in consumers’ minds.
Having chosen a winning proposition, retailers can then build rich layers to connect consumers around the core. Their operational building blocks—choice of property, price, front-end staff skills—should also flow from this proposition and be consistent with it. Retailers will then ensure that they are not leaving too much value on the table while simultaneously delighting consumers with their offer.
India has a very large consuming class. Gross domestic product continues to grow at a relatively handsome 6%. The organized retail sector is still less than 5% of the entire market, and therefore has almost infinite scope to grow by gaining market share. With such opportunities, retailers should focus on developing value propositions which drive consumers and loyalty. This is the best antidote to tough economic times.
Harish Bhat is chief operating officer, watches, Titan Industries Ltd. These are his personal views. Your comments are welcome at email@example.com