Social responsibility: Relatively affluent consumers in affluent countries are increasingly concerned about the impact that companies have on society, which includes the impact on the physical environment, on workers in countries that supply products, and the impact that products have on the consumers who purchase them. This focus social responsibility and product safety is likely to grow, especially as more consumers become aware of these issues through mass media.
Global consumer growth shifts away form the US: During the past decade, the extraordinary growth of consumer spending in the US was a driving force for the global economy and for the global retailing industry in particular. Quite the opposite is true in the rest of the world particularly in Asia. In China, for example economic growth has been fueled by exports.
Commoditization run amok:
We live an age of great technological innovation. This has enabled ordinary people to enjoy standards of living unimaginable even to royalty a century ago. Improvements in manufacturing efficiency enable the highest quality products to be sold at amazingly low prices. Commoditization takes place when consumers view products as essentially undifferentiated other than on the basis of price.
Traditionally, basic products were considered commodities – petrol, cooking oil, basic apparel. Yet today consumers see electronics, fashion and processed foods as commodities. Avoiding commoditization therefore is becoming one of the signal challenges of our time for global retailers. Those that differentiate on the basis of something other than price will be the winners of the future.
The rise of long tail retailing:
Some of most successful stories in retailing in recent years have come not so much from industry giants that target the mass market but from smaller chains with a narrower focus.
The mass market has become saturated while the population of developed countries has become more fragmented in terms of incomes and shopping behavior. Within the mass market, retailers and their suppliers have become highly focused on price competition, thereby driving down, margins and failing to provide consumers with clearly differentiated offerings.
But what is the long tail? Consider consumer income in any country is distributed. It resembles a bell shaped curve in what statisticians call a normal distribution. The middle of this bell is the mass market, where the greatest share of income exists and where most retailers compete. The ends of the tail are smaller, representing a smaller share of income. Yet these ends have often been ignored by retailers intent on reaping the economies of scale associated with the mass market in the middle. This is starting to change. As a result of improvements in information technology, it is now possible to operate a portfolio of small, targeted businesses just as efficiently as one large business. Hence, retailers seeking growth can invest in new businesses along the long tail rather than expanding existing mass market formats.
The fight to plant the flag in India: India has become the next big thing for the world’s leading retailers. On the surface, this seems to represent the triumph of hope over experience. India is after all a country with more than a billion people which is moving towards a true market economy. For the world’s leading retailers, India is a gamble, but one worth taking.
Retail investment in services: As countries grow and achieve economic affluence, consumer spending ion goods as a share of GDP tends to decline, while spending on services grows disproportionately. This has certainly been the case in developed nations such as the EU, Japan and the US. In part, this is due to the higher rate of inflation in services. That, in turn is due to the lower productivity growth in service industries. The relative decline in the prices of goods leaves consumers with comparatively more to spend on services. Retailers that can successfully sell services related to their core merchandize or simply based on the strength of their brand names can increase their growth through expanded share of the wallet.
Focus on customer experience:
One of the leading problems faced by many retailers is a lack of differentiation among competitors that leads consumers to view stores as commodities. One way to tackle this problem is to focus on improving the experience of consumers in the store. This encompasses far more than customer service – important though that is and includes all the elements influencing consumers such as store layout, signage, lighting service and the ease and speed of transaction.
Retailers as World class marketers:
In the past, manufacturers of fast moving consumer goods (FMCG) were considered the leading marketers in the world. As retailers became bigger and more powerful, suppliers had to focus more on relationships with their customers than their consumers. Trade spending became important than mass media advertising.
Retailers become the principal holders of relationships with consumers. Moreover, through their sale of private label goods, they became leading suppliers in their own right. Today, some of world’s top retailers are aggressively hiring top marketers away from FMCG companies. Their goals is to become marketing powerhouse, to build strong brand identify in order to compete other retailers and, increasingly, to compare with branded suppliers through private label sales.