Microsoft Retail Store?

Hmm...Microsoft recently announced its intent to open retail stores. The blogosphere is drawing comparision to an Apple store where customers get exposure to Apple products and the essential Apple "experience". What I am wondering about (and many others are too) is the merchandise itself. Now unlike Apple, MS doesnt really manufacture PCs. So is it going to be X-Box, Zune etc and potentially a tie-up with an OEM without a significant retail presence? (Dell?). How would other partners (HP, Sony etc) react? Found some images online of how the store would look like? If I didnt know it was a model of an MS Retail concept store, I would have almost thought it is some kind of upgraded Best Buy!!!...I am waiting to see what is MS's retail strategy.

My 99 cents

Growing up in India in the early part of my life, I was used to seeing rounded prices. Coming to US however was a shift of sorts where everything was priced ending in .99 or .95. Being a creature of habit, I would always round it up to the next dollar value. So I used to wonder what is the point of this exercise. Why would you want your customers to take the additional trouble of trying to figure the real price. Turns out I am in a minority. Recently read an article on reveries.com that aroused my curiosity on this kind of pricing. There is an area of marketing called "Psychological Pricing". An interesting research quoted on the wikipedia site goes - "Kenneth Wisniewski and Robert Blattberg at the University of Chicago's Center for Research in Marketing showed that when the price of margarine was lowered from 89 cents to 71 cents, sales volume increased a mere 65%, but when it was lowered from 89 to 69 cents, sales volume increased by 222%"

Some common reason cited for this kind of pricing,

• Consumers ignore the least significant digits rather than do the proper rounding. Even though the cents are seen and not totally ignored, they may subconsciously be partially ignored. Some suggest that this effect may be enhanced when the cents are printed smaller.
• Fractional prices suggest to consumers that goods are marked at the lowest possible price.
  Now that consumers are used to psychological prices, other prices look odd.
• When items are listed in a way that is segregated into price bands (such as an online real estate search), price ending is used to keep an item in a lower band, to be seen by more potential purchasers.

My additional 1 cent - I think what you un-round (meaning changing .00 to .99) to may depend on the least used denomination of the currency in the society. For instance, I dont think in India something could be priced Rs 99.99. If the cashier has to tender change back he wont be able to give Rs. 0.01 (i.e. 1 paisa) back cause I have never seen one being used!!!! I guess the best I can see is Rs 99 instead of Rs 100. Ofcourse this may be changing as cash gets used less often and is replaced with credit cards.

Sunny Image

It not uncommon these days to see more and more retailers providing "green" options in their stores. With surging energy prices and surging importance that consumers are giving to how eco friendly are the stores they shop from, more and more retailers are jumping on to make more of their offerings "green". The not so new inclusion in this wave has been using more and more renewable energy in running the store. Installing solar panels is one such measure as reported by this recent article (subscription maybe required) in NY Times. Some very interesting points in the article are

• If Wal-Mart eventually covered the roofs of all its Sam’s Club and Wal-Mart locations with solar panels, figures from the company show that the resulting solar acreage would roughly equal the size of Manhattan, an island of 23 square miles - Wow that can change the look of suburbia...imagine all the stores with black tinted tops gleaming in sunlight. Jokes apart, I wonder how much %age of electricity consumption of the store can it actually take care of. Is this more of an image thing or there is a long run bottomline benefit involved.
• The current rush apparently is driven by a government deadline at the end of the year to get renewable energy tax credits. As stated by one of the people interview in the article - “Every project that starts development has to be finished by Dec. 31 or you lose tax equity advantage, and nobody’s willing to take that risk,” said George Waidelich, vice president for energy operations at Safeway. “You’re talking about millions of dollars.”
• One thing that comes across as a little contradictory is the rise in the price of solar panels with greater demand. This might indicate a lag in solar technology manufacturing ramp up.
• And finally a basic difference between us and our friends across the pool - "American retailers are following the lead of stores in Europe, which are much further along. Store-roof projects are so numerous in parts of Germany that they can be spotted in satellite photos. Government subsidies there, however, have lasted for years."

Text Analytics

I have been reading and researching about Analytics lately (although I agree its already one of the high focus areas in retail) and stumbled upon something interesting related to analyzing customer comments/feedback using Text Analytics. Text Analytics is essentially searching for keywords to identify customer trends. As the article explains - "For instance, if one person in 100 mentioned something, it would be missed. But if in 100,000 responses, 1% of people say the same thing, it could be noticed as important, like a new trend that's developing or something wrong with a product that's just starting to surface." This technique is being used to identify emerging trends through customer interactions on social networks, blogs and a number of other online forums. Also as the article cites a means of finding whether a particular strategy is working or not - "Starwood, for instance, in another Anderson text-analytics study of frequent-traveler website Flyer Talk, discovered that its guests discussed beds and showers more favorably than other hotels, while competitor Hilton's guests more often discussed food and health clubs positively. That validated the "tens of millions" spent on new beds in Starwood hotels"

Retail of Elections

I am back after a long break and holiday season is long gone and its election primary season. As the economy tip-toes on a thin line with recession looming large, the country (US in this case) is few steps away from electing its new president. But before that it is walking through a very interesting yard of primaries for nominating a presidential candidate with both the parties (GOP and Dems). I came across a very interesting article by David Brooks of the NY Times on a Retail consultants perspective of the Democratic nominee race (i.e. Hillary v/s Obama). Essentially the consultant (Dr. Retail) compares the candidates with 2 distinct grocery store profiles i.e. the Safeways of the world equated to Hillary and the Whole Foods of the world equated to Obama. One is commodity based and the other is aspirational based. Ofcourse its too simplistic but for all the retail enthusiasts out there just another view through their prism!!!!

Check it out yourself

A month or so back I had put a post on how Whole Foods is using a different approach to minimize check out times in its Manhattan stores. What I had noticed about Whole Foods was that they did not have any self checkout aisles. To me self check out is a very convinient option as I am very conscious about how many bags I use to fill my groceries. Often baggers at full service aisle, double bag and dont optimize the number of bags they use. But what I have often noted is that often a lot of customers get stuck with a bad label or produce item without PLU etc. That always use to make me wonder what is the benefit of this system. A full service aisle will help you checkout faster with experienced clerks entering and scanning your ticket items. The only explanation I could come up was perhaps the labor savings offset the investment. Turns out that self checkouts (SCO) isnt perceived any longer as a technology that helps you save some dollars but more of a customer habit. A very interesting article by Retail System Research's Nikki Baird talks about her experience at a user conference on self check outs. Some very interesting observations made by Nikki are summarized below,

• "...many of their customers are already trained on using self-checkout, and so are coming to expect that SCO is part of the shopping experience – at least for groceries. To these retailers, SCO is a customer service play required to keep up with larger chain competitors. They view it as a customer service benefit, increasing the amount of choice a consumer has over how they go about buying their groceries"
• "Consumers expect all of the same services at SCO as at any other register ". This is cited through an example of cash back transactions on debit cards. This is very convinient for a consumer as he doesnt have to take the trouble of stopping by an ATM. A lot of retailers dont provide this facility at self-checkout thereby affecting the customer convinience
• "There needs to be enough space within the “pod” of self-checkout stations so that carts can maneuver – not less than seven feet and more like eight". This is an interesting observation and more important in a self checkout scenario since all the material handling is done by the customer. Now this reminds me of this neigbourhood grocery store who had their SCOs facing the entry/exit doors. Well you'd think that is convinient but during winter time I saw many a troubled customers as every time someone stepped into the store a cold breeze would sweep the SCO sending shivers through potentially loyal customers!!!

India Retail contd...

I had a chance to listen to a webinar on an India Retail tour done by a Retail Forward analyst (Subscription maybe required). It was a very interesting approach where the analyst went to 4 major metro cities (Mumbai, Delhi, Chennai and Bangalore) and took a tour of some of the major stores in apparel, grocery and general merchandise specialities. It was more of study by observation then really looking at major statistics but regardless there were some interesting numbers thrown. Some key highlights

• India is among the 6 fastest growing retail markets with a CAGR of 10.4 % for non-auto retail.
• The more interesting part is that 96 - 97% of the retail sector is unorganized with over 12 million small mom and pop retailers. There is one exception to this - apparel, where the organized sector penetration is about 20%
• About 65% of the retail sector comprises of grocery. The spoliage rate is extremely high for produce going upto 35% of the total inventory.
• World over the real estate cost component comprises about 3 - 6 % while in India it is in the range of 7 - 27 % (!!!!) of the total operating costs.

Beyond the above numbers, some interesting observations were made by the analyst on what Indian retail does right. I am listing a few that I could note down

• India seems to offer a very high degree of development in visual merchandising. Right from the street fruit and flower vendor to the bigger departmental store, there is a big emphasis on making the merchandise visually appealing. Shopping is viewed as a family outing and retailers tend to make their store fronts as attractive for them as possible
• In addition to the visual appeal of the merchandise, smaller retailers seem to be very good at space utilization. Perhaps the higher than average cost component that the real estate has in the cost component is responsible for this. The report cites the example of a local panwallah (betel leaf vendor) shop where colorful merchandise is hung vertically to make as much use of space and at the same time display it to the potential customer
• There are some stores which are somewhere midway between organized and unorganized retail. Saravana stores in Chennai is cited as an example. This store targets lower to middle class customers with multiple levels selling apparel, consumer goods etc. Its unorganized aspect is its high reliance on manual labor to process orders where one associate packs, other provides a counter receipt, another is a runner who takes the ticket merchandise to the front desk for customer to claim. Its organized aspect is the fact that they have cut all middlemen and directly buy from the producers. Their model is low margin and high volume.
• From a branding perspective there is a trend of Indo-Western fusion. This is seen all the way from apparel to foreign fast food restaurants adapting a more local flavor and providing wider vegetarian options.