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Online shopping in digital stores and shopping in brick-and-mortar stores offer different forms of experiences. It starts from the environment or setting in which the shopper is situated — being present in a 3D physical retail space or viewing a 2D screen of a computer or mobile device. It is the difference between how much and what specifically a shopper can see and absorb when looking around in a physical store compared with looking at a screen. The difference in setting may have a further impact on behaviour, like how shoppers find products and how they inspect them.

Imagine a shopper, Dan, entering a large fashion store. Dan’s head immediately turns around as much as 180 degrees scanning the scene. Just a few steps in front of Dan there is a low desk with shirts, and another desk with sweaters to the left; to the right Dan observes shirts hanging on a rectangle-shaped stand, and he notices how their designs differ from those on the desk; along the walls are more shirts and trousers, etc. Dan decides to approach first the shirts to the left because they have multiple colours, lifting one or two to look more closely at them; later he also turns to the wall to see trousers and tries to match them with shirts. As Dan’s shopping trip advances he may enter deeper into the store to check on some accessories or another variety of shirts. Very early in the visit the shopper can figure out what may be found in main sections of the scene. Then starts a sort of discovery tour that may be guided by a master goal but progresses as the shopper identifies relevant and visually attractive items (stimuli). The scene is ‘updated’ as the shopper goes deeper into the store, or into adjacent halls, and details that were more distant and vague before become sharper and clearer.

A different kind of shopping process usually occurs in online website stores: first of all because much fewer products (stimuli) can be observed in a relatively short glimpse of the screen-scene. The way merchandise in the online store is located and explored is much more gradual.  An online store actually encourages a more goal-driven search process (e.g., choosing names of categories from a menu, selecting attribute options to narrow down the search to a relevant selection of products). Then starts a back-and-forth process of exploration of different items (e.g., by clicking on item titles or images and entering product pages), and visiting additional major categories of products. However, the experience of search and exploration is so different: whereas in the physical store the shopper can ‘wash the eyes’ with shapes, designs and colours of products, and follow the eyes through the shopping trip, it is much harder to do so in an online store where one has to go step-by-step or in a piecemeal manner. Nevertheless, online shoppers have more flexibility and a wider span of possibilities for viewing product options simultaneously on the screen of a desktop or laptop computer than on the screen of a smartphone.

Certainly there are more clever and creative e-commerce or store websites that are able to generate an improved experience of exploration and inspection of products. For example, there are online stores that show grids composed of tiles of images representing major categories and sub-categories of products. The images are more lively, and some of them exhibit motion as well. With some images, hovering with a mouse on the product photo (before clicking) changes the angle in which a garment or handbag, for instance, is shown. On product pages, some options may be selected that immediately affect the product image (e.g., colours, dimensions, designs); products may be rotated dynamically or by selecting from a line of static thumbnail images under the main frame.

A large majority of shoppers enquire about products online before visiting a physical store. According to a Google/Ipsos survey (‘Omnichannel Holiday Study’, Nov. 2017-Jan. 2018), 78% of US holiday shoppers searched products before going into a store; the online search helps shoppers in planning their shopping trip to the store, narrow down the options they should be seeking at the store, but it also ‘inspires the purchase’ (thinkwithgoogle.com, October 2018). In another research by Publicis (‘Shopper First Retailing’, 2018), an even higher proportion of shoppers, 87%, report that they begin searches in digital channels (online, mobile), up from 71% in 2017 (RetailDive.com, 15 August 2018). Searching the Internet is regarded as a productive method to look for directions and learning about product options, as preparation for making purchase decisions. Shoppers do not feel obliged also to make the purchase online, even if they browse the e-commerce website of an online-only retailer (‘e-tailers’) or of a mixed retailer that operates both a website store and physical stores. Consumers like especially to consult reviews of peer users who have already had experience with products they consider.

This learning process seems functional and goal-driven where shoppers need some guidance to put order into their shopping journey. Online sources, including e-commerce websites, seem to provide an efficient solution for this purpose. The process may indeed inspire shoppers with ideas, perhaps to the extent of helping the shopper to focus on viable and worthwhile purchase options and avoid wandering too long clueless in a store. In such a case in particular, visiting the online store of a mixed retailer can prove most useful before arriving to one of its physical store locations — and this makes the website an even more effective tool for the retailer.

However, retailers that operate physical stores would not want shoppers to come too prepared with their minds pre-determined what to buy. While shoppers usually have a general plan of what they are looking for, final purchase decisions are still made mostly in-store. Hence it is so important for physical stores to be designed and arranged in an appealing and stimulating manner — to allow consumers to complete successfully their shopping trip in-store, and furthermore encourage and induce them to purchase a few more ‘treasures’ they discover in the store.

It may be relevant to consider here two scenarios:

For retailers that operate physical stores in multiple, even numerous locations, there should be a stronger incentive to leave their customers with enough reasons to conclude their shopping in-store rather than on the website store. Thus, the online store has to be visually attractive, user-friendly and informative, but it does not have to be fully equipped with features that convince customers to complete their shopping and purchasing online. The website should not go all the way in effort to draw shoppers from physical stores. Whereas the online store may provide more functional, productive experiences (e.g., efficient, time-saving), the physical store would be more capable in creating pleasant emotional experiences (e.g., excitement, thrill, joy). The positive emotions invoked should not be taken lightly because they drive purchases.

For e-tailers with no physical stores there should be greater need to invest in the quality and feel of experiences they can provide in their e-commerce websites. The introduction of shoppers to the online store should be more delightful as well as informative and user-friendly. Visual elements and interactive features have to be inviting and helpful in guiding the visitor into different sections of the store — on the ‘main stage’ of the screen estate and not just through the menu and search engine.

The latter applies, nonetheless, also to mixed retailers that have stores in just a few locations (e.g., major cities) and wish to reach much greater numbers of customers that do not have a store near them. It may also be relevant when targeting customer segments who for any reason have little time free to travel to a store, and in regions where shoppers are reluctant to go out during harsh weather conditions (e.g., steaming hot and dusty or freezing cold and snowy). [Note: Location data might be used to channel a reduced or enhanced version of a store website according to whether the user is in vicinity of a physical store by the retailer, a form of ‘geo-fencing’].

Delicatessen in Gstaad

The brick-and-mortar stores remain very much in demand. According to a Google/Ipsos online survey (‘Shopping Tracker’, US, April-June 2018), 61% of American shoppers prefer shopping with brands that also have physical stores than ones that are online only. Key benefits suggested for shopping in physical stores are the immediacy in which shoppers are likely to obtain the products they require; getting hands-on — seeing and interacting with products before buying; and being more fun than shopping online (35% feel so) (thinkwithgoogle.com, John McAteer, November 2018). The Publicis study indicates more generally that 46% of shoppers prefer to buy in physical stores (vis-à-vis 35% who prefer shopping using their laptops and 18% on mobile phones) (RetailDive). Apparently, shoppers are not blind to benefits and advantages of shopping in physical stores over online stores, and many are not ready to leave them to fade out.

It is not suggested that online stores necessarily have to be made to appear like physical stores on the screen — mimicking the scene of a brick-and-mortar store may be perceived as just artificial, awkward and inconvenient (though retailers who also have physical locations can integrate actual store images into relevant sections of the online store). On the one hand, the retailer (or e-tailer) should take advantage of the strengths of the digital medium in organising, displaying and tracing information in the online store. On the other hand, online stores may have to breakaway in some degree from rigid structures of tables, lists and matrices. Grids of image tiles make a good start. Yet, more versatile visualisation possibilities have to be considered to provide visitors of store websites (or mobile apps) a more stimulating presentation of the variety of products the store has to offer. The interactive presentation should expose visitors to an array of products available (e.g., by type, use purpose, or brand), and lead their way from there into sub-categories and specific product models or brands.

  • Virtual Reality (VR) technology may be used to emulate a view of a store in 3D space, but the equipment needed to create a truly compelling experience is not in reach of most consumers, at least not yet. The more crucial question is: why should consumers prefer an imitation or illusion when almost everyone can visit real physical stores and shops. At least one aspect VR is unlikely to provide adequately is the social experience.

Instead of treating online shopping and shopping in physical stores as substitutes competing with each other, the more sensible approach for mixed retailers is to create ways in which they can combine and complement each other. The connection can be a two-way street, especially given that shoppers use mobile devices more frequently during store visits (71% of shoppers according to Publicis study cited by RetailDive). From online to store, for example, a mobile app of the retailer used in-store can help the shopper navigate and find the way to the places of products that he or she detected and learned about in a preliminary search and study online (e.g., Home Depot). From in-store to online, the shopper may use the app of the retailer in-store to find more information about products found in the store by scanning a barcode for the product of interest (e.g., Sephora [cosmetics] allows access to product reviews, order history of the shopper, and more) [examples adopted from McAteer in thinkwithgoogle]. More technologies that help in bridging between the virtual and physical domains of shopping include beacons and augmented reality (AR).

  • There are other areas not covered above in which online shopping is distinguished from in-store shopping and require more attention, such as customer service, specifically providing advice and assistance to shoppers, and the fulfillment of orders (a ‘click-and-collect’ programme is another way of linking the physical and online stores).

The physical and digital (virtual) domains have each their strengths in creating different forms of shopping experiences. Physical stores and shops have built-in advantages in evoking emotional experiences while shopping — they are tangible and more direct, can provide good personal care, and may attract and excite shoppers by means of interior design and visual merchandising in their physical spaces. Furthermore, beyond vision, physical stores allow shoppers to enact other senses (e.g., touch, smell) that cannot be experienced in the digital domain. It is unsure how much a store website (or app) can give rise to a similar emotional experience and attachment in shoppers, yet there are aspects that can be borrowed into the digital domain that would make it seem not just functional but also more appealing and immersive. Nonetheless, mixed retailers may have the best opportunity to combine the strengths from the physical and digital domains and link them to produce shopping experiences that are more productive and enjoyable altogether.

Ron Ventura, Ph.D. (Marketing)

 

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‘Experience’ has gained a prime status in the past decade — everything seems to revolve around experience in the universe of management, marketing, and even more specifically with respect to relationship marketing. It has become like a sine qua non of operating in this universe. There can be multiple contexts for framing experience — customer experience, brand experience, user (or product) experience, and also employee experience. Nevertheless, these concepts are inter-linked, and customer experience could be the central point-of-reference just because all other forms of experience eventually contribute to the customer’s experience. After all, this is the age of experience economy (cf. Pine and Gilmore).

This focus on the role of experience and primarily customer experience (CX) in contemporary marketing surely has not escaped the attention of companies involved with data-based marketing particularly on the service side (e.g., technology, research, consulting). In mid-November 2018 enterprise information technology company SAP announced a stark move of acquiring research technology firm Qualtrics for the sum of $8 billion in cash (deal expected to materialise during the first half of 2019). Qualtrics started in 2002 by specialising in survey technology for conducting consumer and customer surveys online, and has later on broadened the spectrum of its software products and tools to address a range of experience domains, put in a framework entitled Experience Management (XM).

However, less visible to the public, Qualtrics made an acquisition of its own of Temkin Group — an expert company specialising in customer experience research, training and consulting — about two weeks before announcing the SAP-Qualtrics deal. Qualtrics was reportedly engaged at the time of these deals in preparations for its IPO. Adding the knowledge and capabilities of Temkin Group to those of Qualtrics could fairly be viewed as a positive enforcement of the latter prior to its IPO, and eventually the selling of Qualtrics to SAP. Therefore, it would be right to say that Qualrtics + Temkin Group and SAP are effectively joining forces in domain knowledge, research capabilities and data technologies. Yet since the original three entities (i.e., as before November 2018) were so unequal in size and power, it raises some major questions about how their union under the umbrella of SAP will work out.

SAP specialises in enterprise software applications for organisational day-to-day functions across-the-board, and supporting software-related services (SAP was established in 1972, based in Germany). It operates today in 130 countries with 100+ innovation and development centres; its revenue in the 2017 financial year was $23.46 billion. Many of the company’s software applications can be deployed on premises, in the cloud, or hybrid (SAP reports 150 million subscribers in the cloud service user base). The two product areas of highest relevance to this story are CRM & Customer Experience solutions and the Enterprise Resource Planning (ERP) solutions & Digital Core (featuring its flagship platform HANA). The two areas of solutions correspond with each other.

The S4/HANA platform is described as an intelligent ERP software, a real-time solution suite . It enables, for example, delivering personally customised products ordered online (e.g., bicycles). For marketing activities and customer-facing services it should require data from the CRM and CX applications. The ERP platform supports, however, the financial planning and execution of overall activities of a client organisation. The CRM & Customer Experience suite of solutions includes five key components: Customer Data Cloud (enabled actually by Gigya, another acquisition by SAP in 2017); Marketing Cloud; Commerce Cloud; Sales Cloud; and Service Cloud. The suite covers a span of activities and functions: profiling and targeting at segment-level and individual level, applicable, for instance, in campaigns or tracking customer journeys (Marketing); product order and content management (Commerce); comprehensive self-service processes plus field service management and remote service operations by agents (Service). In all these sub-areas we may find potential links to the kinds of data that can be collected and analysed with the tools of Qualtrics while SAP’s applications are run on operational data gathered within its system apparatus. The key strengths offered in the Customer Data Cloud are integrating data, securing customer identity and access to digital interfaces across channels and devices, and data privacy protection. SAP highlights that its marketing and customer applications are empowered by artificial intelligence (AI) and machine learning (ML) capabilities to personalise and improve experiences.

  • At the technical and analytic level, SAP’s Digital Platform is in charge of the maintenance of solutions and databases (e.g., ERP HANA) and management of data processes, accompanied by the suite of Business Analytics that includes the Analytics Cloud, Business Analytics, Predictive Analytics and Collaborative Enterprise Planning. Across platforms SAP makes use of intelligent technologies and tools organised in its Leonardo suite.

Qualtrics arrives from quite a different territory, nestled much closer to the field of marketing and customer research as a provider of technologies for data collection through surveys of consumers and customers, and data analytic tools. The company has gained acknowledgement thanks to its survey software for collecting data online whose use has so expanded to make it one of the more popular among businesses for survey research. Qualtrics now focuses on four domains for research: Customer Experience, Brand Experience, Product Experience, and Employee Experience.

  • The revenue of Qualtrics in 2018 is expected to exceed $400 million (in first half of 2018 revenue grew 42% to $184m); the company forecast that revenue will continue to grow at an annual rate of 40% before counting its benefits from synergies with SAP (CNBC; TechCrunch on 11 November 2018).

Qualtrics organises its research methodologies and tools by context under the four experience domains aforementioned. The flagship survey software, PER, allows for data collection through multiple digital channels (e.g., e-mail, web, mobile app, SMS and more), and is accompanied by a collection of techniques and tools for data analysis and visualisation. The company emphasises that its tools are so designed that use of them does not require one to be a survey expert or a statistician.

Qualtrics provides a range of intelligent assistance and automation capabilities; they can aid, guide and support the work of users according to their level of proficiency. Qualtrics has developed a suite of intelligent tools, named iQ, among them Stats iQ for statistical analysis, Text iQ for text analytics and sentiment scoring, and Predict iQ + Driver iQ for advanced statistical analysis and modelling. Additionally, it offers ExpertReview for helping with questionnaire composition (e.g., by giving AI-expert ‘second opinion’). In a marketing context, the company offers techniques for ad testing, brand tracking, pricing research, market segmentation and more. Some of these research methodologies and tools would be of less relevance and interest to SAP unless they can be connected directly to customer experiences that SAP needs to understand and account for through the services it offers.

The methods and tools by Qualtrics are dedicated to bringing the subjective perspective of customers about their experiences. Under the topic of Customer Experience Qualtrics covers customer journey mapping, Net Promoter Score (NPS), voice of the customer, and digital customer experience; user experience is covered in the domain of Product Experience, and various forms of customer-brand interactions are addressed as part of Brand Experience. The interest of SAP especially in Qualtrics, as stated by the firm, is  complementing or enhancing its operational data (O-data) with customer-driven experience data (X-data) produced by Qualtrics (no mention is made of Temkin Group). The backing and wide business network of SAP should create new opportunities for Qualtrics to enlarge its customer base, as suggested by SAP. The functional benefits for Qualtrics are less clear; possible gains may be achieved by combining operational metrics in customer analyses as benchmarks or by making comparisons between objective and subjective evaluations of customer experiences, assuming clients will subscribe to some of the services provided by the new parent company SAP.

Temkin Group operated as an independent firm for eight years (2010-2018), headed by Bruce Temkin (with wife Karen), until its acquisition by Qualtrics in late October 2018. It provided consulting, research and training activities on customer experience (at its core was customer experience but it dealt with various dimensions of experience beyond and in relation to customers). A key asset of Temkin Group is its blog / website Experience Matters, a valued resource of knowledge; its content remains largely in place (viewed January 2018), and hopefully will stay on.

Bruce Temkin developed several strategic concepts and constructs of experience. The Temkin Experience Rating metric is based on a three-component construct of experience: Success, Effort and Emotion. The strategic model of experience includes four required competencies: (a) Purposeful Leadership; (b) Compelling Brand Values; (c) Employee Engagement; and (d) Customer Connectedness. He made important statements in emphasising the essence of employee engagement to deliver superior customer experience, and in including Emotion as one of the pillars of customer experience upon which it should be evaluated. The more prominent of the research reports published by Temkin Group were probably the annual series of Temkin Experience Rating reports, covering 20 industries or markets with a selection of companies competing in each.

Yet Temkin apparently has come to a realisation that he should not go it alone any longer. In a post blog on 24 October 2018, entitled “Great News: Temkin Group Joins Forces With Qualtrics“, Temkin explained as the motivation to his deal with Qualtrics a recognition he had reached during the last few years: “it’s become clear to me that Qualtrics has the strongest momentum in CX and XM“. Temkin will be leading the Qualtrics XM Institute, built on the foundations of Temkin CX Institute dedicated to training. The new institute will be sitting on top of Qualtrics XM platform. In his blog announcement Temkin states that the Qualtrics XM Institute will “help shape the future of experience management, establish and publish best practices, drive product innovation, and enable certification and training programs that further build the community of XM professionals” — a concise statement that can be viewed as the charter of the institute Temkin will be in charge of at Qualtrics. Temkin has not taken long to adopt the framework of Experience Management and support it in writing for the blog.

The teams of Temkin and Qualtrics (CEO and co-founder Ryan Smith) may co-operate more closely in developing research plans on experience for clients and initiating research reports similar to the ones Temkin Group produced so far. Bruce Temkin should have easy and immediate access to the full range of tools and technologies of Qualtrics to continue with research projects and improve on them. Qualtrics should have much to benefit from the knowledge and training experience of Temkin in the new XM institute at Qualtrics. It seems easier to foresee beneficial synergies between Temkin Group and Qualtrics than their expected synergies with SAP.

However, there is a great question arising now, how all this vision and plans for Temkin and Qualtrics working together, and particularly their project of Qualtrics XM Institute, will be sustained following the acquisition of Qualtrics by SAP. One cannot overlook the possibility that SAP will develop its own expectations and may require changes to plans only recently made or modifications to Qualtrics CX Platform and XM Solutions so as to satisfy the needs of SAP. According to TechCrunch (11 Nov. 2018) Qualtrics will continue to function as a subsidiary company and will retain its branding and personnel (note: it may be gradually assimilated into SAP while keeping Qualtrics associated names, as seems to be the case of Israel-based Gigya). Much indeed can depend on giving Qualtrics + Temkin Group autonomy to pursue with their specialisations and vision on XM while they share knowledge, data and technologies with SAP.

Bill McDermott, CEO of SAP, is looking high in the sky: as quoted in the company’s news release from 11 November 2018, he describes bringing together SAP and Qualtrics as “a new paradigm, similar to market-making shifts in personal operating systems, smart devices and social networks“. But it is also evident that SAP still sees the move through the prism of technology: “The combination of Qualtrics and SAP reaffirms experience management as the ground-breaking new frontier for the technology industry“.

Temkin’s viewpoint is much more customer-oriented and marketing-driven vis-à-vis the technology-driven view of McDermott and SAP, which may put them in greater conflict with time about priorities and future direction for XM. Qualtrics headed by Ryan Smith will have to decide how it prefers to balance between the marketing-driven view and technology-driven view on experience. Temkin, for example, has reservations about the orientation of the technology known as Enterprise Feedback Management (EFM), suggesting instead a different focus by naming this field “Customer Insight and Action (AIC) Platforms”. In his comments on the acquisition of Qualtrics by SAP (16 November 2018) he explains that organisations “succeed by taking action on insights that come from many sources, combining experience data (X-data) and operational data (O-data)“. In his arguments in favour of joining SAP with Qualtrics, Temkin recollects an observation he made in an award-winning report from 2002 while at Forrester Research: he argued then that “widespread disappointing results of CRM were a result of a pure technology-orientation and that companies needed to focus more on developing practices and perspectives that used the technology to better serve customers”; he claims that much has changed in the field since that time. Yet it is hard to be convinced that technology has much less influence now in shaping organisational, managerial and marketing processes, on both service side (e.g., SAP) and client side.

  • As a note aside, if SAP gets the upper hand in setting the agenda and does not give sufficient autonomy to Qualtrics as suggested earlier, the first sector at risk of having most to lose from this deal would be ‘marketing and customer research’.

SAP and Qualtrics are both involved in development and implementation of technology, yet SAP is focused on information technology enabling overall day-to-day operations of an organisation, whereas Qualtrics is focused on technology enabling experience and marketing research. Qualtrics and Temkin Group are both engaged in domains of experience: Qualtrics specialises in the technology that enables the research, while Temkin Group brought strengths in conducting research plus strategic thinking and training (education) on customer experience. In order for their joint forces to succeed they all will have to find ways to bridge gaps between their viewpoints, to ‘live and let live’, and at the same time complement one another in areas of shared understanding and expertise.

Ron Ventura, Ph.D. (Marketing)

 

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It is hard to ignore the increased frequency at which men can be seen with a beard of some form or style on their faces in recent years. Beards have become popular especially among young men towards or in their early twenties. The renewed fashion of growing beards is making troubles for 115+ years old Gillette, once an independent company and since 2005 a division and brand of consumer packaged goods giant Procter & Gamble (P&G). The difficulties for the famed brand of razors and blades caused by changes in shaving habits of male consumers have been further exacerbated by increased competition and the growing shift to e-commerce. Yet above and beyond, Gillette faces a key challenge to defend and sustain its brand equity, arising from its reputation and position of leadership for many years.

Indeed ‘beards’ are far from being uniform. Beards, and facial hair in general, can be thick or thin, with or without a moustache, covering the cheeks or leaving them clear (see for example the  top 15 beard styles described by Gillette). Often enough the beard is not much more than stubble kept growing for a few days. But beards should be more than a matter of avoiding a shave everyday. As said above, there are different shapes and styles of them, and to keep the beard in form and in good appearance, one has to cultivate and nurture his beard on a regular basis.

  • From the late 19th century and through the first half of the 20th century the moustache was the epicentre of facial hair for men. It was a fashionable sign of manhood, and there were some creative and artistic designs of them.

According to figures from 2013, it was estimated that 17% of American men grew a beard of some form in that year, up from 14% in 2009. Beards are particularly frequent among young US men age 18-24: 35% in 2013 compared with 31% in 2009 (Experian Marketing Services, 14 March 2014; the estimate of ‘bearded men’ is based on a definition of men not using any shaving products or men who use electric shavers or shaving cream (foam) fewer than two times per week [to be distinguished from watching men and counting those bearded]).

The problem of Gillette seems to be aggravated, however, by a reduced frequency at which men shave per week. It is increasingly popular to grow a 2-day, 3-day or 5-day beard. If to judge by the frequency of using shaving cream, US men used it 4.5 times per week in 2009 versus 4.3 times in 2013 (mean 3.5-3.6 among 18-24 years old). Therefore, this is not simply a question of whether an individual uses shaving products, particularly disposable razors and blades, but how much one uses them (and thereof pays to buy them). It should be noted that just 15% of young men age 18-24 in the US have had a thick beard (using no shaving products) in 2013 (2009 13%);  among those in the next age group of 25-34 years old this proportion was a minor 5%.

  • In other data (by Mintel) for 2015, 41% of men using shaving products in the US do not shave daily (50% of  18-24 years old, 51% among 45-54 years old). Nonetheless, among those who do not shave daily not all is lost, probably far from it.

Hence, there is a different way, more optimistic, to look at the situation. Many of the men who grow some form of a beard do have to continue to shave regularly enough. First, it can be noticed that many of the young men grow a rather thin and light beard. Second, many grow a beard on part of their faces (e.g., around the mouth) and hence have to keep shaving the remaining areas where facial hair grows. Therefore, instead of looking at how men do not shave or shave less frequently, one should look at the frequency they do shave, when and how. Additionally, men who grow thin and partial beards can be encouraged and advised on nurturing their beards, keeping them in line and aesthetically appearing. In fact, Gillette demonstrates in videos on its country-websites how to do so with their manual shaving products, a step in the right direction (note: similar instructive videos are available from other sources as well). Nevertheless, more emphasis may have to be given to trimmers for cutting off more dense facial hair to offer customers a more complete solution.

Shaving manually with razor blades is a ritual that demands time, patience and care. It involves three main stages and requires the use of supplementary products (e.g., pre-shave lotion, shaving cream or foam). Part of the market of manual razors and blades has been captured years ago, especially in developed countries, by electric shavers for the greater simplicity of shaving with them and also for being safer. In the US, the ratio between shaving methods stands (2013) at about 3:2 — 6 users of disposable razors and blades to 4 users of electric shavers (Experian). Younger men (18-24) tend somewhat more to prefer manual shaving over electric shavers. If it gives any consolation, only 27% of American users of electric shavers apply the machine daily (i.e., 7+ times per week). In addition, users of electric shavers seem to have lowered their frequency of shaving (mean uses per week): 4 in 2009 versus 3.7 in 2013 (18-24 years old use them less frequently to start with, 2.5-2.6). A possible lesson from those revealed figures might be that men in developed countries should not be expected nowadays to shave daily, perhaps only half as frequently, using either manual or electric devices.

In some ways, as suggested below, the management of Gillette can draw back users of electric shavers to using the brand’s razors and blades. First, users of electric shavers may be convinced of a greater accuracy in which Gillette razor blades can be used to keep, for instance, a beard within its intended  border lines. Second, while men may not find the time and patience to shave manually during the week, they may see the benefits of doing so, instead of using the electric shaver, on weekends and holidays when they have more time to groom themselves. It may be possible to widen an already small overlap that appears to exist between the use of electric shavers and the use of disposable razors and blades.

  • P&G also markets the Braun brand of electric shavers (foil covering a straight-line blade). Philips, a leader in electric shavers (round rotary heads), is offering models with or without a pop-up trimmer on back of the handset shavers; a trimmer is also available as a separate device, as may fit the need to separately treat more dense hair. (Royal Philips has been re-aligning its business in the past few years, but it seems to have found a place for its shaving products in the personal care category for men as an extension to health-care technologies).

Gillette looks as an autonomous division of P&G, almost independent from it. It may get even more freedom than other brands in the house of brands of P&G. Indeed, Gillette has been an independent strong brand for many years and is still capable of being a driver of consumer choice without the help of the corporate name of P&G. Moreover, Gillette has been and remains the endorser of product brands such as Sensor (since 1990), Mach 3 (since 1998) and Fusion (since 2006; Fusion has two premium sub-brands ProGlide and ProShield). The three product brands may be strong enough each to share a driving power equally with the endorsing Gillette name. Some consumers may know that Gillette is owned by P&G and they may value the solid backing it can give Gillette, but it seems the P&G name has no more than a role of shadow endorser [1]. The root (US) website of Gillette and its various country-websites make no reference to P&G in their content; the only mention given is a title at the top left corner saying “Part of the P&G family”. This approach thus helps in instilling the notion that Gillette acts as a stand-alone brand (or brand tree).

The cost of replacing the disposable razors (‘handles’) and blades of Gillette has become a key issue for the brand in the last ten years. The ‘heads’ that contain the blades (e.g., Sensor with 2 blades, Mach has 3 blades and Fusion has 5) seem to cause the greater burden for users, especially as they have to be replaced more frequently than the razor on which the ‘head’ is mounted. Gillette has embarked on a major effort in the US to lower their cost and bring back customers — the US website includes a ‘Pricing’ page introducing a special Lower Prices offer on razors and blades (these are recommended retail prices that Gillette is careful to stress it cannot guarantee for every retailer). A similar ‘Pricing’ page appears on the Canadian website but without details of prices, while no such page appears on websites of other countries (e.g., Australia, UK, Germany, Argentina, South Africa). Additionally, Gillette publishes on its American website a ‘Letter to Consumers’ from its employees as part of its effort: showing how they listen to consumers, and expressing gratitude to those who have already returned after trying razors and blades of competitors (attributed to Gillette’s quality advantage and their lower price offering). It begs one to wonder why this effort is limited to North America.

A threat to Gillette has come primarily from online retailers such as Dollar Shave Club (now owned by Unilever) and uprising Harry’s. At first, men reacted to increasing costs of blades by growing beards and shaving less frequently, but then also by turning to online suppliers. Dollar Shave Club was estimated to have an online market share in 2016 of 52.4% on razors and blades, and Harry’s obtaining 9.4%. However, Gillette has also entered into selling its razors and blades online and launched a customer Club in 2014; in 2016 its share online was estimated at 21.2% (CNBC, 7 August 2016, estimate figures provided by Slice [Ratuken] Intelligence). An increasing interest in subscription plans was further noted by Mintel (5 Nov. 2015) — such plans offer razors and blades at lower prices with the advantage of providing also supplementary shaving products; all can be ordered together in convenient packages. Gillette had to adapt to the new conditions, including the shift in consumer behaviour and new market rules (i.e., e-tailing). The subscription scheme of Gillette Club is available mostly in Western countries of North America and Western Europe (notes: in some countries it is labeled ‘On Demand’, and in the scheme described online, orders are set to be fulfilled via retail stores).

  • Gillette was acquired by P&G in 2005 for $57Bn. In May 2018 the Gillette brand was ranked #32 on the List of Most Valued Brands of Forbes, valued at $17.1Bn. Market share of razors in the US has been sliding down during six consecutive years, from 70% in 2010 to 54% in 2016. Since 2012 the sales of Gillette have declined from a peak of $8.3bn to $6.8bn in 2016, and dropped another 3% in 2017 to $6.6Bn. There is an anticipation now that the Club would help to halt the decline in 2018.

The slogan of Gillette, sustained for several decades already, is “The Best a Man Can Get”. Gillette has been thriving for excellence in the area of shaving as a cornerstone of its brand equity. It has won its recognition as a leader based on high perceived quality of its shaving products, especially its razors and blades (as a ‘power brand’, it achieved a central category benefit [‘the closest shave’], and has been continually improving [2a]). An association that resonates with consumers is significant for brand-building; it has to be meaningful and relevant to them. David Aaker and Erich Joachimsthaler noted in their book ‘Brand Leadership’ that Gillette was among the brands “that have high customer resonance because their customer value proposition is highly relevant” [2b]. This could be the prime challenge of Gillette as a brand for the coming years: The high quality of its products is undeniable, but can it uphold its relevance to consumers?

 


In its struggle to bring customers back, a national advertising campaign to persuade men to shave again has missed its target. An Israeli advertising agency (ACW) created a campaign titled ‘The Dad Test’ featuring a ruler for measuring how much a beard or stubble hurts babies by scratching the baby’s face (2017). The campaign stirred protest and anger for being insensitive and aiming low (Mako-Keshet TV, 7 June 2017 [Hebrew]). First, the ‘problem’ the ad caught onto is hardly new. Second, the campaign took an offensive stand by raising a conflict, alienating customers, and thus was shooting in the wrong direction. (ACW is affiliated with international advertising agency Grey; this campaign does not seem to have appeared outside Israel).

The US-based advertising agency Grey New-York launched in the past three years ad campaigns, for American Father’s Day, that seem to adopt a more positive and constructive approach to father and son relations: (1) In 2016, ‘Go Ask Dad’ instead of turning to the Internet (The Drum, 19 June 2016); (2) In 2017, ‘Handle with Care’ featuring a son helping his elderly father shave (AdWeek, 22 June 2017); (3) In 2018, ‘Your Best Never Comes Easy’, meant to redefine or re-establish the brand’s slogan (AdAge, 11 September 2018). A leading theme in these ad campaigns is connecting fathers and sons with a razor product of Gillette as the pivotal mediator. They may also be noted for enhancing a functional benefit of Gillette with an emotional benefit.


 

An approach that may help Gillette paving its way forward is looking through the lens of The Theory of Jobs to Be Done developed by Clayton Christensen [3]. In order to attract customers and keep them, a company has to understand the goal or task the consumers wish to accomplish and focus on how its designated product will help them in making progress towards achieving their goal (i.e., ‘getting the job done’). Furthermore, jobs are context-dependent, that is, in different circumstances or conditions the consumer may need the same product to do differing jobs. In the case of shaving razors and blades, we may posit ‘jobs’ such as: (1) What type of look men wish to display with their beards — does the consumer want to foster a ‘neat and elegant’ look or is he interested in appearing ‘rough and tough’? — from here a company may derive the extent to which razors have to provide a close shave and accuracy; (2) The main concern of male users may be that shaving will be easy and convenient, and without taking too much time (say 10 minutes). An additional goal for shaving may require that it is more economically affordable. Taking these options into consideration, it may prompt Gillette to examine whether consumers can easily distinguish between the different razors it offers and trace which model of razor and blades is most appropriate for the job one wants to accomplish.

The challenges Gillette has to resolve may be divided into two levels. In the short to medium term the brand may be more engaged in tackling the contemporary fashionable trends in growing beards and thereby the shifts in shaving behaviour of male consumers. There is little point in speculating how long this period may last — the brand just has go through it and adjust its product offerings and marketing. In the longer term, more crucially, Gillette will have to be concerned with sustaining the relevance of the brand (e.g., fit for a job) to men, younger and older, and ensuring that associations they hold of the brand remain valid and meaningful. On that depends the future of Gillette.

Ron Ventura, Ph.D. (Marketing)

Notes:

[1] Based on the model of brand architecture in: Brand Leadership; David A. Aaker and Erich Joachimsthaler, 2009/2000; London, UK: Pocket Books (paperback edition, originally published in 2000 by Simon & Schuster UK)

[2] Ibid. 1: [a] (p. 67) and [b]  (p. 89)

[3] Competing Against Luck; Clayton M. Christensen with Taddy Hall, Karen Dillon, & David A. Duncan, 2016; Harper Business (HarperCollins Publishers)

 

 

 

 

 

 

 

 

 

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Revelations about the Facebook – Cambridge Analytica affair last month (March 2018) invoked a heated public discussion about data privacy and users’ control over their personal information in social media networks, particularly in the domain of Facebook. The central allegation in this affair is that personal data in social media was misused for the winning political presidential campaign of Donald Trump. It offers ‘juicy’ material for all those interested in American politics. But the importance of the affair goes much beyond that, because impact of the concerns it has raised radiates to the daily lives of millions of users-consumers socially active via the social media platform of Facebook; it could touch potentially a multitude of commercial marketing contexts (i.e., products and services) in addition to political marketing.

Having a user account as member of the social media network of Facebook is pay free, a boon hard to resist. Facebook surpassed in Q2 of 2017 the mark of two billion active monthly users, double a former record of one billion reached five years earlier (Statista). No monetary price requirement is explicitly submitted to users. Yet, users are subject to alternative prices, embedded in the activity on Facebook, implicit and less noticeable as a cost to bear.

Some users may realise that advertisements they receive and see is the ‘price’ they have to tolerate for not having to pay ‘in cash’ for socialising on Facebook. It is less of a burden if the content is informative and relevant to the user. What users are much less likely to realise is how personally related data (e.g., profile, posts and photos, other activity) is used to produce personally targeted advertising, and possibly in creating other forms of direct offerings or persuasive appeals to take action (e.g., a user receives an invitation from a brand, based on a post of his or her friend, about a product purchased or  photographed). The recent affair led to exposing — in news reports and a testimony of CEO Mark Zuckerberg before Congress — not only the direct involvement of Facebook in advertising on its platform but furthermore how permissive it has been in allowing third-party apps to ‘borrow’ users’ information from Facebook.

According to reports on this affair, Psychologist Aleksandr Kogan developed with colleagues, as part of academic research, a model to deduce personality traits from behaviour of users on Facebook. Aside from his position at Cambridge University, Kogan started a company named Global Science Research (GSR) to advance commercial and political applications of the model. In 2013 he launched an app in Facebook, ‘this-is-your-digital-life’, in which Facebook users would answer a self-administered questionnaire on personality traits and some personal background. In addition, the GSR app prompted respondents to give consent to pull personal and behavioural data related to them from Facebook. Furthermore, at that time the app could get access to limited information on friends of respondents — a capability Facebook removed at least since 2015 (The Guardian [1], BBC News: Technology, 17 March 2018).

Cambridge Analytica (CA) contracted with GSR to use its model and data it collected. The app was able, according to initial estimates, to harvest data on as many as 50 million Facebook users; by April 2018 the estimate was updated by Facebook to reach 87 millions. It is unclear how many of these users were involved in the project of Trump’s campaign because CA was specifically interested for this project in eligible voters in the US; it is said that CA applied the model with data in other projects (e.g., pro-Brexit in the UK), and GSR made its own commercial applications with the app and model.

In simple terms, as can be learned from a more technical article in The Guardian [2], the model is constructed around three linkages:

(1) Personality traits (collected with the app) —> data on user behaviour in Facebook platform, mainly ‘likes’ given by each user (possibly additional background information was collected via the app and from the users’ profiles);

(2) Personality traits —> behaviour in the target area of interest — in the case of Trump’s campaign, past voting behaviour (CA associated geographical data on users with statistics from the US electoral registry).

Since model calibration was based on data from a subset of users who responded to the personality questionnaire, the final stage of prediction applied a linkage:

(3) Data on Facebook user behaviour ( —> predicted personality ) —>  predicted voting intention or inclination (applied to the greater dataset of Facebook users-voters)

The Guardian [2] suggests that ‘just’ 32,000 American users responded to the personality-political questionnaire for Trump’s campaign (while at least two million users from 11 states were initially cross-referenced with voting behaviour). The BBC gives an estimate of as many as 265,000 users who responded to the questionnaire in the app, which corresponds to the larger pool of 87 million users-friends whose data was harvested.

A key advantage credited to the model is that it requires only data on ‘likes’ by users and does not have to use other detailed data from posts, personal messages, status updates, photos etc. (The Guardian [2]). However, the modelling concept raises some critical questions: (1) How many repeated ‘likes’ of a particular theme are required to infer a personality trait? (i.e., it should account for a stable pattern of behaviour in response to a theme or condition in different situations or contexts); (2) ‘Liking’ is frequently spurious and casual — ‘likes’ do not necessarily reflect thought-out agreement or strong identification with content or another person or group (e.g., ‘liking’ content on a page may not imply it personally applies to the user who likes it); (3) Since the app was allowed to collect only limited information on a user’s ‘friends’, how much of it could be truly relevant and sufficient for inferring the personality traits? On the other hand, for whatever traits that could be deduced, data analyst and whistleblower Christopher Wylie, who brought the affair out to the public, suggested that the project for Trump had picked-up on various sensitivities and weaknesses (‘demons’ in his words). Personalised messages were respectively devised to persuade or lure voters-users likely to favour Trump to vote for him. This is probably not the way users would want sensitive and private information about them to be utilised.

  • Consider users in need for help who follow and ‘like’ content of pages of support groups for bereaved families (e.g., of soldiers killed in service), combatting illnesses, or facing other types of hardship (e.g., economic or social distress): making use of such behaviour for commercial or political gain would be unethical and disrespectful.

Although the app of GSR may have properly received the consent of users to draw information about them from Facebook, it is argued that deception was committed on three counts: (a) The consent was awarded for academic use of data — users were not giving consent to participate in a political or commercial advertising campaign; (b) Data on associated ‘friends’, according to Facebook, has been allowed at the time only for the purpose of learning how to improve users’ experiences on the platform; and (c) GSR was not permitted at any time to sell and transfer such data to third-party partners. We are in the midst of a ‘blame game’ among Facebook, GSR and CA on the transfer of data between the parties and how it has been used in practice (e.g., to what extent the model of Kogan was actually used in the Trump’s campaign). It is a magnificent mess, but this is not the space to delve into its small details. The greater question is what lessons will be learned and what corrections will be made following the revelations.

Mark Zuckerberg, founder and CEO of Facebook, gave testimony at the US Congress in two sessions: a joint session of the Senate Commerce and Judiciary Committees (10 April 2018) and before the House of Representatives Commerce and Energy Committee (11 April 2018). [Zuckerberg declined a call to appear in person before a parliamentary committee of the British House of Commons.] Key issues about the use of personal data on Facebook are reviewed henceforth in light of the opening statements and replies given by Zuckerberg to explain the policy and conduct of the company.

Most pointedly, Facebook is charged that despite receiving reports concerning GSR’s app and CA’s use of data in 2015, it failed to ensure in time that personal data in the hands of CA is deleted from their repositories and that users are warned about the infringement (before the 2016 US elections), and that it took at least two years for the social media company to confront GSR and CA more decisively. Zuckerberg answered in his defence that Cambridge Analytica had told them “they were not using the data and deleted it, we considered it a closed case”; he immediately added: “In retrospect, that was clearly a mistake. We shouldn’t have taken their word for it”. This line of defence is acceptable when coming from an individual person acting privately. But Zuckerberg is not in that position: he is the head of a network of two billion users. Despite his candid admission of a mistake, this conduct is not becoming a company the size and influence of Facebook.

At the start of both hearing sessions Zuckerberg voluntarily and clearly took personal responsibility and apologized for mistakes made by Facebook while committing to take measures (some already done) to avoid such mistakes from being repeated. A very significant realization made by Zuckerberg in the House is him conceding: “We didn’t take a broad view of our responsibility, and that was a big mistake” — it goes right to the heart of the problem in the approach of Facebook to personal data of its users-members. Privacy of personal data may not seem to be worth money to the company (i.e., vis-à-vis revenue coming from business clients or partners) but the whole network business apparatus of the company depends on its user base. Zuckerberg committed that Facebook under his leadership will never give priority to advertisers and developers over the protection of personal information of users. He will surely be followed on these words.

Zuckerberg argued that the advertising model of Facebook is misunderstood: “We do not sell data to advertisers”. According to his explanation, advertisers are asked to describe to Facebook the target groups they want to reach, Facebook traces them and then does the placement of advertising items. It is less clear who composes and designs the advertising items, which also needs to be based on knowledge of the target consumers-users. However, there seems to be even greater ambiguity and confusion in distinguishing between use of personal data in advertising by Facebook itself and access and use of such data by third-party apps hosted on Facebook, as well as distinguishing between types of data about users (e.g., profile, content posted, response to others’ content) that may be used for marketing actions.

Zuckerberg noted that the ideal of Facebook is to offer people around the world free access to the social network, which means it has to feature targeted advertising. He suggested in Senate there will always be a pay-free version of Facebook, yet refrained from saying when if ever there will be a paid advertising-clear version. It remained unclear from his testimony what information is exchanged with advertisers and how. Zuckerberg insisted that users have full control over their own information and how it is being used. He added that Facebook will not pass personal information to advertisers or other business partners, to avoid obvious breach of trust, but it will continue to use such information to the benefit of advertisers because that is how its business model works (NYTimes,com, 10 April 2018). It should be noted that whereas users can choose who is allowed to see information like posts and photos they upload for display, that does not seem to cover other types of information about their activity on the platform (e.g., ‘likes’, ‘shares’, ‘follow’ and ‘friend’ relations) and how it is used behind the scenes.

Many users would probably want to continue to benefit from being exempt of paying a monetary membership fee, but they can still be entitled to have some control over what adverts they value and which they reject. The smart systems used for targeted advertising could be less intelligent than they purport to be. Hence more feedback from users may help to assign them well-selected adverts that are of real interest, relevance and use to them, and thereof increase efficiency for advertisers.

At the same time, while Facebook may not sell information directly, the greater problem appears to be with the information it allows apps of third-party developers to collect about users without their awareness (or rather their attention). In a late wake-up call at the Senate, Zuckerberg said that the company is reviewing app owners who obtain a large amount of user data or use it improperly, and will act against them. Following Zuckerberg’s effort to go into details of the terms of service and to explain how advertising and apps work on Facebook, and especially how they differ, Issie Lapowsky reflects in the ‘Wired’: “As the Cambridge Analytica scandal shows, the public seems never to have realized just how much information they gave up to Facebook”. Zuckerberg emphasised that an app can get access to raw user data from Facebook only by permission, yet this standard, according to Lapowsky, is “potentially revelatory for most Facebook users” (“If Congress Doesn’t Understand Facebook, What Hope Do Its Users Have”, Wired, 10 April 2018).

There can be great importance to how an app asks for permission or consent of users to pull their personal data from Facebook, how clear and explicit it is presented so that users understand what they agree to. The new General Data Protection Regulation (GDPR) of the European Union, coming into effect within a month (May 2018), is specific on this matter: it requires explicit ‘opt-in’ consent for sensitive data and unambiguous consent for other data types. The request must be clear and intelligible, in plain language, separated from other matters, and include a statement of the purpose of data processing attached to consent. It is yet to be seen how well this ideal standard is implemented, and extended beyond the EU. Users are of course advised to read carefully such requests for permission to use their data in whatever platform or app they encounter them before they proceed. However, even if no information is concealed from users, they may not be adequately attentive to comprehend the request correctly. Consumers engaged in shopping often attend to only some prices, remember them inaccurately, and rely on a more general ‘feeling’ about the acceptable price range or its distribution. If applying the data of users for personalised marketing is a form of price expected from them to pay, a company taking this route should approach the data fairly just as with setting monetary prices, regardless of how well its customers are aware of the price.

  • The GDPR specifies personal data related to an individual to be protected if “that can be used to directly or indirectly identify the person”. This leaves room for interpretation of what types of data about a Facebook user are ‘personal’. If data is used and even transferred at an aggregate level of segments there is little risk of identifying individuals, but for personally targeted advertising or marketing one needs data at the individual level.

Zuckerberg agreed that some form of regulation over social media will be “inevitable ” but conditioned that “We need to be careful about the regulation we put in place” (Fortune.com, 11 April 2018). Democrat House Representative Gene Green posed a question about the GDPR which “gives EU citizens the right to opt out of the processing of their personal data for marketing purposes”. When Zuckerberg was asked “Will the same right be available to Facebook users in the United States?”, he replied “Let me follow-up with you on that” (The Guardian, 13 April 2018).

The willingness of Mark Zuckerberg to take responsibility for mistakes and apologise for them is commendable. It is regrettable, nevertheless, that Facebook under his leadership has not acted a few years earlier to correct those mistakes in its approach and conduct. Facebook should be ready to act in time on its responsibility to protect its users from harmful use of data personally related to them. It can be optimistic and trusting yet realistic and vigilant. Facebook will need to care more for the rights and interests of its users as it does for its other stakeholders in order to gain the continued trust of all.

Ron Ventura, Ph.D. (Marketing)

 

 

 

 

 

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Ordinarily, Great Britain is not the first country to come to mind when thinking of chocolate. The names of Switzerland and Belgium are more likely to come up first, and then perhaps some other European countries (e.g., France, Italy, Germany, Austria). However, the British upmarket chocolatier Hotel Chocolat may deeply change our perception of Britain in association with chocolate; that is, following of course consumers’ pleasurable associations with the brand Hotel Chocolat. The brand name identifies both the company and its products (i.e., it is a ‘branded house’ of chocolate). Moreover, the company is a manufacturer as well as a retailer, offline and online, of chocolate products of multiple sorts, all under an encompassing brand, Hotel Chocolat.

Britain has been known for chocolate from companies like Cadbury and Thornton. But their products did not really succeed in raising an equivalent alternative that challenges the quality of chocolate from the better known ‘chocolate nations’. Cadbury in particular is most probably the main source for perceptions of British chocolate generated by consumers; in some of its products Cadbury blurs the distinction between true chocolate and chocolate snacks or confectionary. In 2010 the American company Kraft Foods took over Cadbury in an unfriendly maneuver; yet Kraft had a problem in swallowing the business of the acquired British company and just a year later split all of its confectionary arm including Cadbury to a new spin-off company called Mondelez International. Thornton’s already set a standard of higher quality chocolate delicacies in forms like bars and pralines. It also developed a chain of chocolate delicacy and gift shops. However, the enterprise expansion eventually ran into trouble and in 2015 the brand was acquired by the Italian giant Ferrero (well-known for ‘Ferrero Rocher’, also owner of Nutella).

Hotel Chocolat seems to be different, not merely for its positioning as an upmarket brand but in virtue of the fine feel and taste of its chocolate products — one immediately knows it is different when tasting one of the brand’s chocolate products. Drinking their hot chocolate with cocoa-flavoured cream makes a fitting complement to the pleasure of eating the solid chocolate delicacies. The experience of visiting a boutique shop of Hotel Chocolat (e.g., in Covent Garden in London, in the basement) also is an important contributor to conquering committed chocolate lovers.

Appetising Selection of Chocolates at Hotel Chocolat

Tempting chocolates displayed in cave basement of Hotel Chocolat’s Covent Garden shop

 

Hotel Chocolat was co-founded by Angus Thirlwell, CEO of the company, and Peter Harris (Development Director). In an earlier stage of their chocolate business, the co-founders established a company named ‘Express Choc’ as an online retailer of chocolates in 1993 (no doubt an early venture in e-commerce). They opened their first physical shop in the north of London in 2004 after changing the business name — this event practically marks the initiation of the brand Hotel Chocolat.

Over the years the brand has evolved and broadened its concept and it actually extends beyond products, shops and online store (retailing) — it also includes a Tasting Club (pre-launched 1998), chocolate workshops  (School of Chocolate), café-bars, a restaurant in London, and a hotel with restaurant in the Caribbean Islands. The company is proud of being a grower of cocoa for its products, a unique status for either a chocolate manufacturer or a retailer. The co-founders acquired a cocoa plantation in the Caribbean island Saint Lucia (2006), an initiative that brought Thirlwell back to his childhood in that part of the world, an origin of cocoa. In the estate of the plantation they opened their hotel (‘Boucan’) and a restaurant (2011). Their restaurant in London, established a couple of years later (2013) to bring West Indian tastes to the UK combined with modern British cuisine (e.g., ‘Slow Cooked Cacao Glazed Lamb Shank’), bears the name of the plantation and the year it was created (‘Rabot 1745’).

In an interview to BBC News, Thirlwell explained the reasoning behind the name — at start there seemed to be no logical relation to hotels. As for the choice of ‘Hotel’, Thirlwell replied: “It was aspirational. I was trying to come up with something that expressed the power that chocolate has to lift you out of your current mood and take you to a better place“, like going on vacation where one would stay at a hotel. As said above, seven years later and Thirlwell materialised the symbolic idea of Hotel into physical reality. Regarding the French wording ‘Chocolat’, he said that “everybody agreed ‘chocolat’ sounded better than chocolate”, which is hard to argue with, and added that the sound of the word almost suggests the sound of how chocolate melts in the mouth (he used the Latin term ‘onomatopoeia’) (BBC News: Business, 27 October 2014).

As reflected from his interview to the BBC, Thirlwell is a devout chocolatier, completely enthusiastic about chocolate. This impression is also supported in a personal page about Angus Thirlwell on the website of Hotel Chocolat. He continues to taste products every day and approves every recipe the company produces. A guiding principle that appears highly important to him is using more cocoa in chocolate products and less sugar. It is said that people started to crave cocoa long before anyone added a grain of sugar. This principle was practised, for example, in a product called ‘Supermilk’ that contains 65% cocoa, emphasises the ‘smooth creaminess of milk’, and includes less sugar than a dark chocolate — a feel of milk chocolate that is nearly a dark chocolate. In ‘Our Story’ webpage, Hotel Chocolat laments the overemphasis on sweetness in British chocolate: “Today, sugar is 20 times cheaper than cocoa, and a typical bar of milk chocolate contains more than twice as much sugar as cocoa”. Conversely, the mantra of Hotel Chocolat is explicitly: ‘More Cocoa, Less Sugar’.

A notion of this motto is felt very present indeed in a number of chocolate products of Delicious Orange Tangs by Hotel ChocolatHotel Chocolat, and it is probably at the root of the magic of their chocolate, and their business success. Just for instance, take their chocolate shells filled with Salted Caramel Cream, or Orange Tangs (orange-filled chocolate sticks) that are truly special and delicious (based on the author’s experience). It is all about the pleasure of eating genuine and fine-flavoured chocolate.

Formally, according to the website of Hotel Chocolat, the company operates 93 shops as well as cafés and restaurants. The Telegraph (24 January 2018) tells us that in the weeks running to Christmas 2017 and New Year of 2018 Hotel Chocolat opened ten new shops, bringing their total number to 100 across the UK. The store locator on the website (provided with an interactive map) suggests, however, that the company may have an even larger number of establishments in the UK — 153 locations are designated as ’boutique’ (shops). There are specifically 26 locations of café-bars, and the restaurant in London. It should be noted that café-bars are mostly (or always) integrated with shops, and Rabot 1745 is a complex including the restaurant, shop and café-bar. The brand is also represented in concessions (51 in total). The conflicting numbers are confusing and make it hard to determine the true current number of outlets of the company (could be a result of duplication in the counts of location types in ‘Our Locations’, apparently mainly due to concessions counted as boutique shops). Hotel Chocolat also has two stores in Copenhagen, Denmark, and several outlets in Ireland (seem to function mostly as concessions).


  • The revenue of Hotel Chocolat Group in the financial year 07/2016-06/2017 amounted to £105.24 million, an increase of 15.5% year-on-year; the net income in that period was £8.76m, an impressive rise of 114.6% year-on-year.
  • Hotel Chocolat Group was incorporated in 2013 and is listed on the London Stock Exchange since 2014 (the founders exchanged a third of their holdings for cash, receiving each about £20m, while in total raising £55m).
  • In the past six months the share price shifted between 240p and 380p, standing in late January ’18 at 333p; market capitalization: £375.5m.
Source:  FT.com, (Market Data)
Sales received a lift of 15% during the 13 weeks to 31 December 2017, attributed mostly to a special package in advance of Christmas (a gin ‘advent calendar’ package), a 100% cocoa collection, and the introduction of no-sugar milky chocolate range. Hotel Chocolat makes 40% of its annual sales in the run-up to Christmas and New Year (The Telegraph, 24 Jan. ’18).

A clear, well-stated and meaningful vision must have helped Hotel Chocolat considerably in its evolution and expansion. It stands on three values people in the company believe in: (1) Originality — not playing by the rules, rather doing things differently, and being creative and innovative. (2) Authenticity — growing cocoa, making and retailing chocolate, being true to cocoa and using natural ingredients (not letting sugar dull the flavour of cocoa itself and not mask the nuances from other ingredients, in line with the mantra cited above), and developing their own recipes in-house at the factory in Cambridgeshire (award-winning). (3) Ethics — committing to a deep sense of fairness that extends to farmers, customers and future generations (i.e., not spoiling the environment with waste in all stages of production).

The description of these three values or principles seems elaborate and specific enough to offer very clear guidelines for all managers and employees in the company to go by. They are accompanied by two business or marketing goals set by Thirlwell: excite the senses with chocolate and making it widely available. The two goals help to add focus to the mission of the brand: the first seems to pertain primarily to the products, the second underlies the network of retailing through physical shops and an online store. Other activities of Hotel Chocolat (e.g., hotel,  restaurants and café-bars, Tasting Club, School of Chocolate) contribute in enhancing the brand: deliver its message across and strengthen closer relationships with customers.

The business revolves around the brand ‘Hotel Chocolat’ and its development as it is their face and voice to the world. That is how customers and other stakeholders recognize everything they do. The more prestigious image of the brand is expressed through their products and packaging, primarily with their premium collections (‘tables’ — e.g., 86 pieces £65, 179 pieces £100). Pricing is also part of supporting the image, though Hotel Chocolat tries not to be excessive (e.g., one can find small-medium packages and boxes for prices in a range of £5-25). The concept of Café bars is gaining weight in aim to come closer to consumers — creating a venue where they can relax and enjoy a good chocolate drink with something light to eat (e.g., brownies) from Hotel Chocolat. The company may tap on a desire of Britons for high-quality chocolate, having a better own experience with chocolates from countries like Switzerland and Belgium. The founders protect the brand from dilution by avoiding, for example, displaying their products on shelves in supermarkets for sale (but their products are sold through concession in departments stores of John Lewis which fits better their brand image). The brand is taken care of meticulously by the founders to maintain an image they worked hard to instill: “a necessity of life, albeit a luxurious one” (Kate Burgess, opinion column, FT.com, 13 March 2016).

The brand of Hotel Chocolat has built its strength in quality of products and the expanse of its brick-and-mortar shops in addition to online retailing, supported by further activities or services. But attention must be paid to challenges ahead. First, how to balance resources correctly between keeping the quality of products and the expansion of the retail network — not falling to the trap of sacrificing the pleasure from the chocolates to their increased availability in the retail chain. Second, how to manage wisely and responsibly reaching out to other countries. In the interview to the BBC News (2014), Thirlwell concluded: “If you are specialist you have got to be absolutely specialist. There is a lot of competition and we want to be in the driving seat.” Consumers who appreciate and love genuine chocolate would surely hope that Hotel Chocolat succeeds in its mission so they can continue to enjoy their delicacies, and be excited.

Ron Ventura, Ph.D. (Marketing)

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In 2016 General Electric (GE) sold its domestic appliances division to Haier from China. The American company reached a dismal situation wherein it needs to repay a large debt and streamline its businesses. Selling the consumer-oriented business may have seemed to the management, led at the time by previous CEO Jeff Immelt, as a means to relieve the company from a business that is out-of-line with its other mostly industry-oriented business areas. However, that division was an asset whose value could not be measured just in financial terms — it was more than a capital asset. It provided a valuable support to the brand of General Electric, together with the lighting business. The incoming CEO John Flannery is planning even more drastic changes to the company’s composition, but removing the appliances division might turn out as an obstacle to his mission. The industry brand of GE could benefit from its long appraised consumer brand.

General Electric is engaged in a range of business areas. In some of them the company has obtained or enhanced its capabilities through acquisitions during the tenures of CEOs Jack Welch (1981-2001) and Jeff Immelt (2001-2017). The businesses of GE feature: (1)  Additive –advanced manufacturing technologies (e.g., 3D printing); (2) Aviation — engines, components and electric systems for jets, and avionics (e.g., innovative digital pilot dash-boards); (3) Power, including gas, steam and nuclear power; (4) Industrial Connections, including electrification, grid and control; (5) Healthcare — medical technologies such as ultrasound, MRI  & CT, digital integrated care (i.e., data sharing and management), patient monitoring, surgical imaging and more; (6) Renewable Energy, including wind, solar and hydro, and innovative hybrid solutions; (7) Transportation — digital automation and industrial Internet-of-Things (IoT) solutions for  locomotives, marine (drilling) and mining.  The businesses of GE today are directed largely to industrial, commercial, and public clients. The last business that targets consumers at least in part is Lighting, offering advanced LED bulbs (e.g., smart IoT-controlled, HD-quality), linear fluorescents, and other products.

Noteworthy, digital transformation is omnipresent through most of the businesses of the company, entailing advanced computer-based digital systems, interfaces, and mobile applications (e.g., IoT apps developed in co-operation with leading hi-tech companies). Much of the digital activity seems to be originated, planned and developed at the Digital division or unit of the company (e.g., industrial apps serving IoT products, Predix — the online platform applying IoT data and predictive analytics, manufacturing software, as well as cybersecurity). Internet-of-Things functionality applies also to lighting products for consumers; it was supposed to be implemented as well in their domestic appliances. In practice, the appliances may still be reliant on GE for IoT technology even after the transition.

For many years the Appliances of GE were commonly associated by consumers with quality and durability — having a refrigerator carrying the art-graphic logo sign of GE in the kitchen was taken as a symbol of social status. In 2015 the appliances division generated revenues of $6.34bn, 7.1% of GE’s total revenues. The combined revenues of GE from appliances and lighting, as reported by the company, stood at $8.8bn (an increase of 4.8% from the previous year). Combined profits were $700m, a margin of 7.7% as percentage of revenues (GE 2015 report on financial results, Segment Operations: Appliances and Lighting). GE overall reported a loss in 2015 (see Chart 2). The company first tried to sell its appliances to Electrolux but the deal was objected by the American Department of Justice. A new process for selling the division started with Qingdao Haier, and after six months of negotiations a deal was closed in June 2016 at a price of $5.6bn. The range of appliances in their new ‘home’ includes refrigeration, cleaning (dishwashers), cooking, laundry (washing machines), accessories such as water filters, and air-conditioning.

The division of appliances is now identified as ‘GE Appliances: A Haier Company’. This company is in an interim period of transition, alas outwards its status creates a bit of confusion about who is really in charge. The company’s website is resident at a domain titled ‘geappliances.com’ and the company retains the brand identity of GE. The association with Haier does not seem too committing. For example, whom consumers should expect to be responsible for their appliances? Or, how to distinguish between appliances that originate from GE or from Haier? The headquarters of GE Appliances remains for the time being in US territory in Louisville, Kentucky, under American executive leadership. Recently, the new company announced the creation of appliance connectivity — operation command by voice and through mobile apps (IoT). Yet the technology is reasonably a direct extension of GE’s development of capabilities of Artificial Intelligence and IoT in their businesses for industry.

Haier has thereof received a strategic foothold on US soil, in hope to strengthen its position in the country and establish a long sought market share in the American market; American consumers have refrained from buying appliances of Haier. The Chinese manufacturer rose from a failing refrigerator factory in Qingdao of thirty years ago by instilling over time quality standards that were much higher than those accustomed in China. Zhang Ruimin, leading the transformation, succeeded remarkably in turning the company into a major national appliances manufacturer in China with global extensions. However, the quality standards at Haier remain behind those of developed countries and therefore the company’s efforts to sell in the ‘West’ have been lingering (1). Haier still has a challenge of closing a gap in quality and credibility, which the acquisition from GE is expected to help overcome.  Many consumers in the US as well as in other Western countries will probably remain concerned by ambiguity about the source of their appliances, being of GE (United States) or Haier (China). Haier also gained important American technological know-how (e.g., in AI) from the American company. General Electric apparently gained a financial relief, but one that may be only for a short-term, and the company may have to pay for it in the future.

The new CEO of GE, John Flannery, revealed in an annual ‘Investor Day’ meeting last month (Nov. ’17) the company’s plan to focus on three business areas: power, aviation, and healthcare. It will exit completely some of its existing business operations (e.g., transportation, lighting, industrial solutions, electrification) while reducing its effort and involvement in others. For example, the company will retain its digital unit or division to develop and sell apps to customers for operating and monitoring equipment reliant on Predix platform, yet with a smaller budget. Flannery was less clear on the future of some areas such as renewable energy where the company is not completely willing to leave and some other arrangement may have to be found. Strategically, the plan is to reduce the span of businesses the company engages. In addition, the CEO informed analysts that the company will have to cut in half its dividends.

The share of GE climbed from a level of $25 to $30+ in late 2015 and held its price as high through 2016 with small fluctuations. Then, the price started to slip down continually through 2017. So much for the effect of selling GE Appliances on equity. By August 2017 the share price already came back to $25. Since Flannery entered the CEO office, and subsequently following the announcement of his plan and the harsh cut in dividends, the share price steeply fell to about $18, as low as the band of $15-20 in which the share fluctuated in 2009-2011.

Chart 1 GE Share Price

Analysts were left unsatisfied and critical about the turnaround plan at GE. They complain for instance that the company is too expansive, and that it must increase efficiency and reduce duplicate costs across the organization (Reuters, 13 Nov. ’17). Others express concern in particular about the debt at GE, and that the plan includes insufficient measures to fix problems with the company’s businesses (CNBC.com, 14 Nov. 2017 — also noted, GE share underperformed S&P 500). Part of the cure will have to include exit from some businesses (e.g., where GE entered by acquiring another company or where it did not build a substantial advantage). Nevertheless, increasing efficiency and reducing duplicate costs can be achieved also by merging some associated areas and consolidating them into a new division, though perhaps narrowing the scope of operation in each field. One example for doing so may be in the area of energy: sources, production or distribution (i.e., power, renewable energy, connections). Another area to consider is ‘digital’ — balancing between development of original technologies and solutions in a central unit, and their implementation for specific systems and equipment in the various business divisions. Letting go of the appliances business could be seen as a logical way to free resources for advancing industry-related areas of expertise that remain. But solving problems of over-expansion and inefficiency in the industry-oriented businesses did not have to come at the expense of the consumer-oriented business in which the company developed product and brand advantages over decades.

The company has to come to terms now with damages from excessive expansion-by-acquisition, a strategy led by Welch and followed by Immelt. The ‘elephant in the room’ for the company is GE Capital, the investment bank of General Electric, whose troubles particularly since 2009 inflict on the whole company. Now the company under Flannery plans to heal by letting go of some more of its genuine businesses such as transportation and lighting (Matt Egan, CNNMoney.com, 20 Nov. ’17), that is, in addition to the appliances already shed by Immelt. The company has built an expertise in transportation, especially locomotives, during the past hundred years. Lighting can be regarded as a founder’s asset of the company (i.e., attributed to Thomas Edison); as described by Egan, lighting “symbolizes the company’s history of innovation”. General Electric could find it very difficult to continue after removing parts of its heart and soul.

The intensive occupation of the company with allocation of capital was initiated and developed by Welch but it spiralled out of control under the leadership of Immelt. The latter quadrupled the amount of capital invested in the company (from $42bn in 2001 to $163bn in 2009) which involved a significant increase in borrowing. By 2011 it was recognised as a major problem with the management of Immelt. Geoff Colvin of Fortune described how Immelt as CEO remade the portfolio of GE, for instance by entering new “future industries”  (e.g., healthcare, green energy). However, his aggressive expansion came at a high cost. While the CEO already tried to unburden the company from some businesses (e.g., NBC and Universal Studios), it was seen by analysts as insufficient. The real issue at GE, as Colvin noted, was capital allocation, and it became more so critical at GE Capital (2). The decision to quit the involvement of GE in TV broadcasting and online media (NBC) as well as cinema productions (Universal) sounds very reasonable. Conversely, the claim supported also by Colvin that Immelt was waiting too long to unload appliances (executed only in 2016) and lighting (never completed to-date) from GE should be much less applauded because these business areas made-up a distinct branch at GE with deep roots, and were also carriers of its consumer brand, a valued non-tangible asset.

In a highly critical opinion column in the Financial Times, John Gapper argues that focusing management on capital allocation could kill GE as an industrial company. It would make GE operate more like an equity fund. The company needs to shift because it may no longer be sustainable to run a manufacturing conglomerate as in the 1980s. However, it does not require to treat the business units as equity holdings for capital optimization: “Once efficient allocation becomes the priority, it is hard avoid this cycle.” It cannot be surprising for Flannery to continue this path, following the leadership of Welch and Immelt, considering his long career at GE Capital, up to the latest post he held as head of that division. Culture and a style of management have kept the units of GE stick together like a glue for many years. Without them, Gapper wonders how longer GE can hold together (FT.com 15 Nov. ’17).

The financial figures of GE in 2015 and 2016, as published in the Fortune 500 ranking, show little so far in favour of the impact of exiting from some business activities such as Appliances, measures taken by Immelt to heal the company in his last years in office: The revenues have fallen, but moreover the return on revenues has also decreased from a level of 8%-10% in 2011-2014 to 7% in 2016, after recovering from a loss in 2015 (Chart 2 below). It should be noted nonetheless that the value of assets has already shrunk by 50% between 2011 ($717bn) and 2016 ($365bn).

Chart 2 GE Revenues and Profits

  • General Electric descended from former 6th-9th positions in the ranking of Fortune 500 (US) to 11th place in 2015 and 13th in 2016.

The products of GE for consumers, both appliances and lighting devices, were the ‘face’ of the company to the wide public and a closer form of connection with consumers. Their contribution is in providing stability and longevity to the GE brand, identified by name, logo, and other associated elements. Above all, the brand was represented in products, equipment and devices, in millions of homes, to be useful in the everyday lives of the consumers and make their lives more comfortable. The domestic products also were a channel to implement some of the technological progress and innovation of the company and demonstrate them to a wider public audience. Consequently, exposing consumers (who also happen to be small investors) to GE could help to increase public confidence in the company, especially in turbulent times.

General Electric did not depend on the appliances and may do well without that business. The same may be true for the lighting business. But removing them will not bring the cure either– the selling of GE Appliances apparently has gone wasted so far. Instead, keeping the consumer products would have enhanced the corporate brand. The management could perhaps have gained some peace of mind while reforming their industry-related businesses. In the medium term, making reforms could be a little harder for Flannery and his top-management team to push through. In the longer term, leaving consumer products out of the company — as already happened with the appliances and is expected to repeat with lighting — may remain as a wound, something amiss, in the reputation and brand image of General Electric.

Ron Ventura, Ph.D. (Marketing)

Notes:

(1) “Zhang Ruimin’s Haier Power”, Michael Schuman, Time (Europe), 14 April 2014 (183 (14)).

(2) “Grading Jeff Immelt”, Geoff Colvin, Fortune (Europe), 28 February 2011 (163 (3)).

 

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For Shufersal, the leading food retailer operating supermarkets in Israel, it looks like the sky is the limit. This is a message strongly received from the CEO of Shufersal, Itzhak Aberkohen, in a recent interview given to Globes business newspaper (for its annual publication of consumer-based equity-ranking of brands, July 2017). Shufersal is already a major national retailer, but since the collapse and sell-off of the main competing food chain Mega last year the road ahead is clear more than ever for Shufersal to ride on to stardom. The plans presented by the retailer’s CEO are definitely leading in that direction on different fronts.

  • Note: Shufersal has also been known as ‘Supersol’ but it appears that the retailer is moving to suppress that name in favour of enhancing its Shufersal brand name. The original name chosen for the retailer almost sixty years ago was composed by joining two words: ‘Shufra’ from Aramaic meaning excellent and ‘Sal’ which means basket in Hebrew. The retailer founded the first modern American-style supermarket in Israel in Tel-Aviv in 1958. Israelis frequently name the retailer ‘Supersal’ or ‘Shufersal’. The official choice of ‘Shufersal‘ by the company should make the consumers happy while remaining as true as possible to the legacy name.

The retailing company Shufersal operates over 270 stores. They are divided into multiple sub-chains of different store formats, designed to target different consumer segments or accommodate distinct shopping situations or goals. Three main sub-chains are: “My Shufersal” (the core sub-chain of ‘classic’ supermarkets in neighbourhoods); “Shufersal Deal” (large discount stores); and “Shufersal Express” (small convenience stores in neighbourhoods). Like most food chains, the stores offer in fact not only food and drink products but a larger variety of grocery and housekeeping products, and may sell as well toiletry or personal care products. Shufersal operates in addition a channel for online or digital shopping. It also has its own brand of products carrying the retailer’s name. The CEO seeks to enhance the company’s capacities in these domains, and then extend further. An important aspect in his plan is the digital transformation of the company’s retail operations and services.

  • Note that supermarkets in various countries may selectively add in different times and locations other product ranges (e.g., books and magazines, electric home equipment, housewares).

Shufersal is now on the verge of making a strategic entry into the field of ‘pharma’ retailing with the acquisition of New-Pharm, the second-sized pharma chain in the country. The food retailer already sells toiletry products in its stores, as indicated above, but it has no access to cosmetics (e.g., perfumed lotions, make-up) and non-subscription medications (via pharmacy departments). Taking over New-Pharm would provide it with this capability through the pharma-dedicated and licensed stores. The dominant leader in pharma in Israel is Super-Pharm, which gets the respect of Mr. Aberkohen as a successful and highly professional retail competitor in that field. Shufersal should be able to get better terms for purchasing toiletry products for its supermarkets and other stores, but the addition of cosmetics and pharmaceuticals seems less fitting its current line of business. It makes sense if the retailer had department stores where one of the departments would sell cosmetics, but that is not the case of Shufersal; it would probably have to operate the pharma stores separately. Undertaking the responsibility of operating pharmacies could create even greater complications that may outweigh the benefit of margins from selling OTC medications, nutrition supplements and other devices.

The deal is still awaiting approval of the antitrust supervisor by the end of August 2017. The main obstacle comprises 6-8 flagship stores that the supervisor may not allow the food retailer to have. Aberkohen has said in the interview that the acquisition of the pharma retailer would not be worth it without those stores. There could be additional restrictions due to vicinity of “Deal” stores and “My” supermarkets to some New-Pharm stores.  Aberkohen believes that the increased variety and assortment of toiletry products the company will be able to sell together with the new categories will make an important contribution to its sales potential but will also create a more balanced competitive challenge against Super-Pharm (i.e., as two equivalent retail powers) that will benefit consumers in personal care and grooming. The suppliers are concerned, however, that the bargaining power of Shufersal will become significantly, perhaps exceedingly, stronger in toiletry, and that the retailer will link the trading terms for their presence in New-Pharm stores with presence of their products in the Shufersal stores (Globes [Hebrew], 15 August 2017).

Shufersal’s CEO seems to have little regard for its follower Mega under a new ownership. Most of the chain, neighbourhood supermarkets (“Mega City”, 127 stores), was bought from a holding company (“Alon Blue Square”) in a rather bad state by a medium-sized food retailer of discount warehouse-like stores (“Bitan”) in May 2016. Other discount stores were sold and distributed among some smaller discount retail chains. Since then a few more supermarkets of Mega were apparently sold or closed. Bitan has roughly more than doubled the total number of stores in its ownership since acquiring Mega (on a scale from 70-80 to 180-190). Aberkohen argues that Bitan seems to be taking hold of the operation of Mega City but there is still much work ahead to re-organise its whole retail business. Occasional signs in the stores imply that the new owner is still grappling in effort to manage the additional supermarket chain. There will also come a time to deal with the effort and redundancy of keeping two unconnected brands of the two sub-chains of discount stores and supermarkets (“Bitan Wines” and “Mega City”, respectively).

Mr. Aberkohen has no greater regard for the other discount food retailers (the more familiar and popular of them is “Rami Levy” with 44 stores, increasing by 10 stores in the past year). In his view, Shufersal does not consider itself as opposed to Rami Levy or the other players; it is engaged in its own plans and mission with a focus on innovation. A key to success in the long-term, in his opinion, is an emphasis on managing existing (‘same’) stores and innovation, not adding more and more floor area. He thus maintains that while the competitors, particularly Bitan/Mega, are so busy handling the additional space in new stores, Shufersal will have the time it needs, as a window of opportunity, to create innovation (e.g., Internet, robotics) and gain an advantage of 3-5 years ahead.

  • So far consumers have not gained in terms of cost of shopping from the deal of selling Mega. According to Israeli business newspaper “Calcalist” there are worrying signs to the contrary. Mega under its new ownership has not been pressuring prices downwards (attributed to financial obligations of its owner Nahum Bitan), and Shufersal that had identified this weakness, took the opportunity to raise prices in its stores while gaining in bargaining power vis-à-vis its suppliers. A rise in prices (i.e., index of barcoded products) and an increase in sales revenue in the food retail sector (including non-barcoded outlets) point to a change in trend from 2014-2015.

The CEO of Shufersal is looking forward to digital transformation of retailing and shopping experiences, involving innovation both in online self-service customer-facing platforms and in the preparation and delivery of online orders. He expects great advances in the operation of logistic centres where robots and humans will take part in collating products from shelves for online orders and packing them for dispatch and delivery to customers. Three centres are in development. Enthusiastically, he proclaims that the online apparatus will involve a lot of automation, digital (features) and robotics.

Shufersal is clearly adopting the new language of data-driven marketing, Big Data, and digital automation of interactions with its customers-shoppers. The company is said to pull together to that aim its information systems, supply chain, and data pools from its customer loyalty club and club of credit card holders. This will enable it in the future to customise offers and services much better to its customers. Aberkohen talks of providing services to suppliers based on their platform of big data but he may have to think more in terms of collaboration, especially with the stronger manufacturing suppliers (i.e., sharing data on shopping patterns in exchange for support and aid in resources for analysing the data using advanced tools and methods of data science). Aberkohen believes that in the future we will see fewer stores, and smaller ones, due to transition of shoppers to online ordering and direct delivery to their homes or offices (currently online orders account for 12% of sales at Shufersal).

Moreover, the CEO is expecting a considerable expansion in ranges of products the retailer will make available to its customers via online shopping. This will include also orders from overseas (e.g., through partners in the US). He refrains from likening Shufersal to Amazon but is surely getting inspiration from the international online master. It could relate to: (a) A wide variety of products that a retailer can offer on the Internet (besides, Amazon could be getting more deeply engaged in food retailing with the recent pending acquisition of Whole Foods); (b) Employing robotics and humans in logistic centres; and (c) Advanced and dynamic analytics to customise offers to shoppers.

  • The measure of consumer-based brand equity of Globes/Nielsen is based on three key metrics: willingness to recommend, intention to buy tomorrow, and favourability. The top brand of food chain stores is Rami Levi (discount stores). This position may be credited to the personal character and initiative of Mr. Levi and his high media profile (e.g., proclaiming to fight and act for the good of consumers). Shufersal is in the second-best position in the eyes of consumers. The original brand of Bitan is ranked 7th whereas Mega City has fallen down to the ungracious 11th place (one before last).

Shufersal’s own brand currently captures about 20% of total sales. The CEO aims to increase this share to a level of 40%-50% to be in par with similar retail chains overseas. The retailer will have to walk on a thin rope when cutting down purchases of branded products from national manufacturers without ruining relations with them. Shufersal already offers milk, cheese and meat (beef) under its private label (a precedent in Israel), yet the CEO admits they still value and need their relationship with the leading national producer of these food products (Tnuva). In the past Shuferal has also had a bitter battle with another producer of dairy and other food products (Strauss). Other categories in which the retailer markets under its name include baby diapers and milk formulae; the CEO has the full intention to add more product types to this list and expand the shelf space and volume assigned to Shufersal’s own brand. The proposition according to Aberkohen is to bring quality products at value-for-money. Shufersal has taken additional strategic steps in recent years to tighten their control over the display of products in their stores: assigning their own workers to place most products on shelves in-store instead of allowing representatives of suppliers to do so, and bringing-in most products to stores independently from their logistic centres.

The CEO of Shufersal is cognizant that many consumers do not strive to shop in large discount stores that are usually located at the outskirts of cities or in industrial areas. Often enough consumers prefer convenience to lower cost. People who work long hours, including young adults early in their career, and even students, cannot afford the time or pass over the option of shopping in those stores. It may be added that for older consumers (e.g., pensioners), discount stores may simply be out of reach, especially if one does not drive. Supermarkets in shopping malls (so-called ‘anchors’) are also considered by Aberkohen as obsolete. These consumers-shoppers prefer visiting (at least during the week) a supermarket or even a convenience store in their neighbourhood — they are too pressed in time with duties or other engagements to bother about the somewhat higher cost (Mr. Aberkohen brings his own daughter as an example). Nevertheless, if the neighbourhood stores do not work out as a practical option, they will probably order online.

To top the list of the plans of Shufersal’s CEO, he sees the retailer engaged in a variety of peripheral services consumers may like to have at easy reach such as non-banking financial services (e.g., loans), insurance, travel (including holidays abroad), and optometric (eye-glasses). Some of the services are likely to be made available only online (e.g., insurance, travel), next to additional shopping options Shufersal expects to generate. Although Aberkohen does not refer specifically to the mobile channel, it is reasonable that much of what he describes in relation to an online channel is necessarily applicable these days in a mobile channel.

Shufersal’s CEO has high aspirations for the retail company he leads. Aberkohen’s plans may change not only the consumption culture in the country, as he maintains, but also the nature and character of the company itself. Hence, Shufersal’s management will have to watch carefully what areas it is about to enter and how qualified the company is to make those extensions. They will have to consider, for example, how to integrate the business areas of New-Pharm into the portfolio of Shufersal. They should not underestimate the trouble that discount retailers can cause them. Moreover, as Shufersal makes more moves to fortify its retail business, its management must act with sense and sensibility amid tensions that such moves cause, and are likely to continue to cause, with suppliers as well as consumers. The expansion and addition of products and services for the benefit of consumers is a positive venture, but Shfuersal still has to convince them as such, every day.

Ron Ventura, Ph.D. (Marketing)

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