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For over four decades after the Second World War, TV sets had to be connected to antennas to receive broadcast TV programming (i.e., by air) from national media networks. In the two last decades of the 20th century, connections have shifted to networks of cable and satellite TV companies (the shift started earlier in the US; some households connected to private satellite dishes).  Now, in the early decades of the 21st century, TV connections move again, this time to broadband Internet to receive TV video content by streaming, including TV programmes and films. Moreover, video content can be streamed for viewing on Smart TVs, computer screens (desktop/portable), and on screens of mobile devices (smartphones and tablets), via wired or wireless connections (though wired is still advantageous for TV content). What counts for “TV” is more fluid and it is no longer bound to TV sets in the classic form.

The streaming market for TV content is entering lately a new stage of transition. The competition is getting tougher and more crowded as ‘old-new’ players (i.e., established media networks) are entering or stepping up their involvement in streaming of full-programme video content. Netflix has set an example, and a challenge, to the more ‘traditional’ TV companies since 2007, when Reed Hatsings identified the potential of broadband Internet for streaming film content and faded-out Netflix’s model of mailing DVDs to customers. Over the past decade Netflix kept an advantage, though the gap from competitors (e.g., Hulu, HBO-Now, Amazon Prime Video) has been narrowing down. The latest developments, as discussed below, pose a more serious threat already to the business model and status of Netflix, expected to make it much more difficult for Netflix to stay on top. But the overall growing streaming activity by technology and media companies should worry nonetheless the cable and satellite TV companies of the previous generation from the 20th century.

Netflix offers to its subscribers a variety of films (movies) and TV shows, but its prestige relies particularly on its original in-house productions. Its TV series may be found in multiple genres: TV dramas (e.g., Riverdale, The Crown), Comedies, TV Sci-Fi, Crime TV Shows, Anime Series, TV Horror, Documentaries, and Kids & Teen TV. Some series are known also outside the circles of its customers; among its popular series Netflix lists, for instance, Stranger Things.

However, Netflix gives its subscribers access to view many TV programmes from other companies, including highly popular series from the American national networks, and henceforth difficulties are starting to pile up. As media companies like NBCUniversal and Disney (which are tied together) are about to launch new streaming services, they become more protective of their in-house content productions and intend to block competing streaming services from offering their programmes and films. The Walt Disney Company is additionally now in full control of Hulu streaming service (through its acquisition of 21st Century Fox in March 2019). Furthermore, HBO which currently operates the streaming service HBO Now is in ownership of WarnerMedia (AT&T), under its Entertainment division; HBO is preparing to launch HBO Max in 2020, a new on-demand TV service by streaming.

A battle over rights, especially exclusive rights, to screen video content of films and TV programmes between companies of different orientations is unfolding, and this situation signals trouble for a company like Netflix. For example, Netflix had to pay a gargantuan sum of $100 million to continue to screen Friends on Netflix during 2019, but next year the series will move to HBO’s streaming platform as it launches HBO Max. Friends, the sitcom series from the 1990s, has been very popular among Netflix’s customers, since it started showing in 2015, thus putting pressure on the company to keep it, for as long as they could. In attempt to compensate, Netflix committed to pay a considerable sum of half a billion dollars to secure rights to screen Seinfeld (its ‘spin-off’ comic series Curb Your Enthusiasm by Larry David, that is considered more favourable outside the US, will remain an exclusive of HBO Max). Also, the American version of the originally British satirical series The Office that is still available in Netflix’s library will be reserved from 2020 to the new NBC’s streaming service, NBC Peacock. Such difficulties may force Netflix to rely even more on  new and original materials, but investors are debating if those materials, being expensive to obtain, can provide sufficient return to be profitable (“Netflix Feels the Pressure as Competitors Circle“. BBC News, 17 October 2019).

The streaming service Hulu provides primarily original content of NBC and Fox. Its library includes categories of Hulu Originals, Movies, Current and Past Seasons of TV Series, and Kids. Yet Hulu has an additional facet: it avails a service of real-time TV programming. Hulu offers a basic plan, Hulu (for $5 per month), that allows streaming content from its library (with ads) and an enhanced plan, Hulu + Live TV (for $45 per month), that includes 60 TV channels (American), VOD channels and DVR for recording.  As noted above NBC and Fox are actually owned by Disney, which in turn is set to launch in November 2019 a streaming service called Disney+. The Disney Plus service will specialise in films and programmes from Disney’s own studios, plus Marvel, Pixar, Star Wars (Lucasfilms), and National Geographic, and a large selection of Disney classics as well. Yet from a different corner, NBC is going to launch NBC Peacock in April 2020 that on its part will offer TV shows and series of NBC network, films from Universal Pictures and DreamWorks studios, and it promises to provide for viewing more cinema films from Hollywood bigger studios (NBC Press Release, 17 Sept. 2019). It is said to be supported by both advertising and subscription (not clear at the moment if it will be available outside the US/North America). It will be interesting to see how the Walt Disney Company allocates and manages content for viewing across the three streaming services in its control: Disney+, Hulu, and NBC Peacock. It is not unimaginable that one of them will become redundant due to overlap and internal competition.

More concerning is the intention of Disney to preserve for its own streaming services the rights to screen video content, past and present, from the various studios it controls. The company is expected to forgo $2.5 billion in revenue by removing Disney content from rival services [Adam Lashinsky in Fortune Magazine, May 2019 *]. Additional revenue is likely to be lost by taking off also content of NBC and Fox from the libraries of rival services, such as Netflix. Lashinsky raises alarm over this plan of the Disney company because of the financial harm foreseen to be endured; the big question is: will it pay off in the long run by attracting enough viewers-customers keen on watching Disney video content. Competitors will suffer some headache in filling the gap by bringing content from new productions and alternative sources; will their customers miss the withdrawn content enough to switch or to subscribe to an additional service to get access to the ‘worlds’ of Disney, NBC or Fox?

Amazon Prime Video service is challenging Netflix for a while now, especially in investment in original productions. The Prime Video service offers original Amazon TV productions next to TV series from other TV providers (e.g., HBO, CBS), in addition to categories of Movies and Kids. A title ‘Amazon Original’  is flagged upon image frames of programmes credited to Amazon. Multiple genres are available: Drama, Comedy, Kids & Family, Action & Adventure, Documentary, Animation, International, and more. Members of the Prime Video club can view much of the content for no additional fee. The video content can be watched from the Web and with Amazon Prime Video app on mobile devices, with set-top boxes, and on selected Smart TVs. The competition of Amazon with Netflix would become more intense if the more veteran media companies pull content out from their video libraries.

Apple, a prime technology company, is increasing its involvement in the field of TV media with the combination of its Apple TV app and the upcoming Apple TV+ streaming service (November 2019). Apple also will not be shy in investing in original productions. The Apple TV+ service will bring new original stories of Apple (e.g., The Morning Show starring Jennifer Aniston and Reese Witherspoon; the latter already appears with Nicole Kidman in a successful series “Big Little Lies” of HBO). The original programmes will show on top of programmes and films from different premium channels, streaming services (but not Netflix), and cable providers; all can be watched with the Apple TV app on the company’s mobile devices, computers and smart TVs (CNet.com, 16 October 2019).

  • The plans of Netflix range in price from $9 (Basic) to $16 (Premium) per month.  The plans of Hulu exhibit two price extremes ($5 — $45), with advertising on the one hand and Live TV on the other.  Disney is said to charge $7 per month ($70 for a year paid in advance); it promises the service will deliver at a technical (HD) and content quality of the Premium plan of Netflix. The expected starting fee for Apple TV+ is $5 per month. Subscription to Amazon Prime Video seems to require a membership fee of $9 and then $13 per month paid monthly or $119 for a year paid in advance.

Cable and satellite TV companies face a difficult competition from TV streaming services that give viewers great flexibility with often high quality programming content. The streaming option gives a new leverage to the established TV networks and media companies to attract viewers for starting customer relationships directly with them. But the cable and satellite TV providers can still hold an important advantage: bringing a widespan variety of content of different styles and flavours from different sources, not committing to a single external production house, in addition to their own productions. Furthermore, many TV viewers are still likely to want to watch real-time (‘linear’) TV programmes (e.g., news). The TV channels should include channels of the viewer’s own country as well as optional channels from other countries and in other languages. National TV networks already provide an option to view their programmes by streaming on the Internet: live as they show in TV schedule and recorded (e.g., BBC iPlayer allows UK residents to watch programmes of BBC1 to BBC4 channels on demand); some programmes may be viewed for free and some by paid subscription. Newspapers are also producing more video stories for streaming.

However, cable and satellite TV providers should re-consider their models of service and allow much more flexibility of choice of channels by building greater modularity into their TV service plans. Video-on-Demand (VOD) and recording (DVR) services are desirable and appreciated but they are not enough. There is little point left these days in offering ‘basic’ plans with 100+ channels for a high monthly fee when people regularly watch only a small fraction of them. In the age of customization, TV viewers-customers should be given more freedom in building their own bundles of TV channels. More of the company’s income can come from the fees on ‘packets’ or sub-bundles of channels customers add-on to a low-cost basic plan, yet customers will then know they are paying for channels they are truly interested watching (e.g., news and documentaries, classic cinema films 1940s-1980s, British / French / Italian TV, vintage TV series 1960s-1980s, animation, and so on). The sub-bundles should be small and focused.

Building fences around original TV content of one company and barring streaming services of other companies from offering those programmes will not benefit anyone, neither on the provider side nor on the customer-viewer side. A TV service provider can differentiate itself by protecting the exclusivity of a greater part of its original video content (as ‘anchors’) while allowing a flavour of it to be experienced by customers of its competitors. It is no less logical doing so than licensing rights to other broadcast TV networks, cable and satellite TV providers to screen their programmes. Content has to be shared between the TV service providers, for the appropriate credit and fee.

Television viewers are looking more afar and broadly across the TV spectrum to find the kinds of programmes they wish to see in the few hours they have spare to watch TV. But there is probably a limit to the number of different streaming sources they will be ready to subscribe to in order to access a satisfying variety of programmes and films for viewing. Adding streaming services will not help if they become too secluded. That is why cable and satellite TV providers can still have an advantage, yet they need to give more flexibility of choice to their customers. To gain the awareness and interest of TV viewers in the series and films produced by media and TV companies, they have to share their works instead of raising fences between them.

Ron Ventura, Ph.D. (Marketing)

Note:

[*] “Disney’s Latest Blockbuster Isn’t in Theaters”, Adam Lashinsky, Fortune Magazine, 1 May 2019, 179 (5), pp. 5-6.

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Interfaces of knowledge management (KM) systems can be applied to support and empower customer service via two key channels: (1) directly — used by customers (e.g., adjunct to self-service utilities, web-based or mobile app), or (2) indirectly — used by employees (customer service representatives [CSR]) to help them provide a better service to customers (e.g., more effective, timely, and accurate). These channels have some very different implications in form, scope and intensity of use of KM capacities.

The ‘library’ of a KM system should provide the customer with relevant background information that can help him or her make decisions (e.g., choosing between product attribute options, selecting among investment assets). The knowledge resource may also assist in completing technical tasks at one’s home or office (e.g., setting-up a software or device).  The content may include explanations on specific concepts or procedures, product reviews, and articles on related topics (e.g., an overview of a technology, medical condition, class of financial assets).

A crucial question is how the customer gets exposed to information relevant for the task at hand. General search queries often lead to many and spurious results requiring the customer to work hard to find and collate relevant information. The system has to do better than that in recommending truly useful information, to bring the user more precisely and quickly to a set of relevant knowledge sources. The customer may start by filling a short questionnaire that lets him specify his interests and goals. But as the customer accumulates more experience in using a KM portal and accessing some documents, the system can learn from his or her behaviour and update its recommendations. Alternatively, references to a KM resource may be embedded within a self-service facility (e.g., application for travel insurance) so that the system can refer the customer to supplementary information based on his or her progress in the service process (e.g., explanation of healthcare procedures in the country of destination, recommended features of coverage for the planned trip). As the system learns it may add a visual display of relevant statistics for guidance (e.g., distribution of options chosen by similar customers or in similar situations). Furthermore, a company can use its discretion to provide premium customers secured access to resources available only to its employees within the organisation.

Knowledge management portals for customers are not so common. References are more likely to be implicit, such as being embedded within the self-service platform of the company. More companies now provide an interface for interaction (chat) with an intelligent virtual agent (IVA) to get assistance. Such a robotic agent may give a brief answer and perhaps add a single resource for further reading; if the customer insists on asking a follow-up question, the agent may refer the customer to 1-3 more documents. Sometimes this kind of help is not sufficient and the customer has to make extra effort to drill more useful information from the IVA (a face wearing a smile to the customer is not always comforting). In more complex, sensitive and risk-prone domains, it is advisable to accompany the IVA with a portal that will display more resources in a coherent and viewer-friendly format, explicating what each resource would be most helpful for.

Having said that, there are circumstances in which the customer cannot manage on his own and needs to talk to a skilled person to resolve an issue. It may be because the customer encounters difficulties in fulfilling the task using the computer-based self-service tools or because the domain at issue is relatively complex and involves more significant personal implications (e.g., financial investment, insurance, medical conditions, sophisticated technological products). Researchers Shell and Buell of Harvard Business School suggest in a recent working paper [1] that having customers know that access to human contact is available to them for assistance, even without their taking advantage of it, can improve their feelings, particularly mitigating anxiety, and in turn recuperate their satisfaction and confidence in decisions they make during a self-service session; this will show especially in situations of heightened anxiety. Hence, making notice of access to human contact salient is essential.

Of course in some cases customers will choose to actually turn to a human agent for assistance and guidance; on many other occasions, however, merely knowing that human assistance is reachable may instill some more confidence and encourage the customer to continue independently to the extent that he or she can avoid calling for assistance (i.e., knowledge that human contact is available acts as a safety net). A company can offer human assistance from an agent by phone or chat (not an IVA/chatbot), yet as Shell and Buell propose, the company may also enable customers to get advice from customer-peers (though with more limited effect). Mitigating anxiety through offering human assistance as needed can help to reduce negative effects of customer anxiety on choice satisfaction and subsequently on trust in the company.

The utilisation of knowledge management portals by company’s CSRs aims to work at a different, professional level, to enable the CSRs address concerns and issues raised by customers in a more proficient and timely manner. For instance, it should save CSRs the time and effort of referring to a number of platforms (e.g., marketing, CRM, product) by bringing together different types of relevant and practical information onto one place from which the human agent can access it more easily and quickly. A KM portal display may integrate most recent history of interactions with the customer, relevant offers of products or service packages, or links to additional background articles (e.g., product profiles, technical materials). The KM portal may include essential customer information (e.g., identification and key flags) but it may not free the CSR completely from turning to a CRM system for more information (e.g., previous purchases); likewise, it may not free the CSR from turning to the billing system or a product database resource. The challenge of a KM system is to pull together those portions of information deemed most relevant and useful to the issue at stake from the broad knowledgebase of the company and lay them closer to the service agent (e.g., in a portal or dashboard display). An agent who listens to the ‘story’ told by the customer can give the KM system more clues to allow it to make the best recommendations. Information may be presented explicitly or as links to recommended documents and other external resources. This is expected to be part of the future mode of operation of contact centres, and it is already in motion.

It is important, nevertheless, to take into consideration the time a human service agent needs to review some of the information proposed in the KM portal, in relation to a customer’s enquiry during a live interaction with the customer. The CSR may have to trace, learn, judge and extract relevant information before delivering his or her insight, recommendation or solution to the customer, and all that within a few minutes. Some of the knowledge may be included, as suggested above, in resources like articles that the agent should access and read — think for instance of an article on a new travel insurance offer: the agent has to understand the terms before communicating it to the customer, and being able to answer questions. Three observations are in order on this matter:

  1. Human service agents (CSRs) should receive adequate training on choice, comprehension and evaluation of materials from the company’s knowledgebase, and also should be allocated paid “off-duty” time for reviewing new and updated content (e.g., products and service offers, technical support procedures) to reduce learning ‘time-breaks’ during customer interactions;
  2. The CSR agents should be ready and willing to learn and assimilate information they utilise as their own knowledge, together with experiences they accumulate, to be able to use that knowledge again with subsequent customers without having to process information from the KM portal every time and again — a KM system will be much less effective if CSRs rely heavily on what they see on the screen in every event, rather than using it as an aid and supporting tool;
  3. A key capacity of KM systems is to allow employees share among them experiences, lessons and information they have learned which proved pertinent to the service events they have been treating — by adding notes or updating a special forum, service agents can turn implicit knowledge into explicit knowledge that can help their colleagues in handling similar events in their own future customer encounters.

According to a research report by Aberdeen Group [2], companies that have a formal agent experience management programme gain a higher rate of annual increase in customer retention, above two times more than in other companies (12% versus 5%). These companies can also expect to benefit from about two times higher rates of year-over-year increases in revenues and customer satisfaction. At the same time, agent productivity is also likely to be better with a formal programme for supporting and enhancing the agent working experience (11% annual increase versus 7% in other companies without such a programme). Greater service agent satisfaction is linked to greater customer satisfaction; it requires that the agents feel they can do their work serving customers more easily and successfully with proper guidance and direction.

The Aberdeen report identifies three top factors influencing the agent experience. First, the prospect agent should bring to the job good technology knowledge and skills as well as strong communication skills to be fit for the job assigned. Second, the company should provide on its part the means in technology tools that will facilitate the ability of agents to perform their day-to-day tasks. A smart and effective knowledge management system that can quickly and pointedly lead agents to relevant information (e.g., instructive articles) should have a great role to play in improving the agent experience. Making agents spend extended valuable time seeking background knowledge and insights and delaying their handling of customer enquiries are key deterrents to agent productivity; it may be added that these impediments also are likely to lead to increased agent frustration. Nevertheless, side by side with the skills agents bring with them and the information and technology tools the company provides, agents should be given more autonomy while interacting with a customer (e.g., offer discounts, account credit, free shipping etc.). Aberdeen describes this third factor as providing agents the “sense of empowerment in addressing customer needs”. Employees-agents could be made to feel empowered when respecting their judgement in utilising knowledge resources and allowing them leeway in deciding how best to help the customers.

A knowledge management system incorporates knowledge resources with different types of information and technology tools to access that knowledge. The tools are expected to become powered more extensively by artificial intelligence and machine learning capabilities, to enable users to access relevant and practical information or knowledge more quickly and precisely. However, it should be appreciated that knowledge is most often what people make of information made available to them, and also the knowledge they can return and add to the system for the benefit of others. Whether the interface is used by any company’s service agents or the customers themselves (e.g., applying self-service facilities), the support and guidance of a KM system can enhance the service quality in important ways.

Ron Ventura, Ph.D. (Marketing)

Notes: 

[1] “Mitigating the Negative Effects of Customer Anxiety Through Access to Human Contact”; Michelle A. Shell & Ryan W. Buell [2019]; Harvard Business School Working Paper 19-089 (unpublished paper).

[2] “Agent Experience Management: Customer Experience Begins with Your Agents”, Aberdeen Group [Omer Minkara], September 2017

 

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Everything happens faster in the fashion world. Fashion houses and retailers have to deal with an increasingly turbulent market wherein trends and tastes fluctuate all the time and design styles replace each other in ever shorter cycles. This instability means greater uncertainty for firms, which makes it harder for them to plan and operate through the year. Attempting to curb the motion and introduce more stability can be a serious challenge for the fashion designers, marketers and retailers; the stream is strong, and more often it seems that everyone has to continue flowing to the next fashion style. Retailers with physical stores face an additional challenge from strengthening e-commerce — consumers prefer to buy more clothing items online, especially from whatever source and channel they can find them at lower prices.

Castro is a leading fashion house and retailer in Israel with over 130 stores carrying its name (i.e., Castro, Castro Men, and Castro Kids) across the country. The Castro company  was established by Aharon Castro in 1950. Its retail start was modest, and the business continued to be primarily a fashion house, designing and making garments (for women only), until the late 1980s. In 1985 the founder opened a flagship store on the modern Dizengof shopping street of Tel-Aviv; that may be considered a first brave move to lift-up the image of the Castro fashion brand and earn it more publicity.

In the early 1990s Aharon Castro passed the realm of the company to his son-in-law Gabriel (Gaby) Rotter, joined later by his daughter Esther (Etty) Rotter, and they have been serving as co-CEOs since then. The second period of Castro is marked by the great expansion of the retail arm of the business. More and more stores were opened in the 1990s and 2000s (Castro also made a venture abroad, mainly in Germany, but it was unsuccessful and largely cut-off). In this period the prevailing brand image of Castro was also invented, which gave it fame and appreciation. The last decade has seen more acquisitions of fashion enterprises (clothing and accessories) made by the company, but these do not carry the Castro name and therefore have less bearing on the Castro brand. In summer 2018 Castro merged with the fashion group Hoodies, and the repercussion of this move is yet to be seen, whether the brands mix or remain separated.

Listed below are selected actions that contributed more significantly to establish the prime attributes associated with Castro, exciting and daring, since the 1990s:

Castro aired a famed TV commercial in 1993 that was daring, playful and igniting the imagination — it is best simply to watch it.  Two more facts make this commercial special: (a) It was aired in the beginning of commercial TV in Israel, when the audience was highly curious and interested in advertising in this medium, which helped the commercial to become a “hit”; (b) The song featuring in the commercial was Creep by Radiohead, during the early stage of its musical career, so the commercial gave a unique exposure to Radiohead in Israel. Definitely in those days this Castro commercial was unusual and exciting (until today it is the most loved commercial in the country); it drove great attention and interest in the coats and other clothing products of Castro, and put it on a trail of growth.

In the early 1990s Castro moved into the pivotal shopping centre of Tel-Aviv (Dizengof Centre). Moreover, Castro situated its store near the entrance to the major department store of that time (HaMashbir), a sound call of challenge. A decade later, in 2003, Castro relocated within the shopping centre and opened its flagship store Castro Tel-Aviv, occupying three floors, with an external façade that turns to a strategic corner of streets with high exposure — a strong declaration of their presence. At least for several years it was an important anchor in the shopping centre.

Castro gradually started to enter clothes for men into its stores. Over time the fashion house expanded the scope of its target segments to become a marketer and retailer of clothing for men and women, youth and kids. On the retail side, Castro made two key moves: in 2000 it launched its sub-chain of Castro Men stores, and in 2013 the Castro Kids sub-chain of stores came to life. Perhaps already less exciting to consumers, but they are still daring moves (a demonstration of force).

However, the expansion of Castro’s activities, particularly adding stores to its retail chain, seems to have taken a toll from the company. It is hard to put a finger on a single factor as the cause of recent troubles at Castro. It appears, yet, that the toll has hit primarily Castro as a fashion house. From some point in the passing decade, consumers have been losing interest in the garments of Castro. In earlier decades, Castro led by its founder gained a reputation for creativity, for bringing new designs and quality fabrics (important especially in the 1960s and 1970s, credit going also to Aharon’s mother Nina). Consumers may have stopped believing that Castro’s clothing expresses creativity, novelty and ingenuity. Nonetheless, the needs and tastes of Israeli consumers apparently have changed, and they are looking for something different in fashion and clothing, which also happens to be less original and less expensive clothing.

Firstly, consumers buy more frequently from a variety of online retailers (‘e-tailers’), on top of them is Amazon.com, while getting easy access to broad selections of clothing from abroad at affordable prices. Consumers also are willing to pay less for garments, shoes and accessories of lower quality even if they would have to replace them more frequently. They further tend to inspect garments in physical stores and then buy the same or similar items from online stores. Yet another threatening competition to Castro comes from quick-movers, discount retailers like Zara and H&M that produce and sell garments of similar designs as those of known fashion houses (though they may have some original clothes). A more discomforting revelation of recent years is that a low cost retailer (Fox) is gaining in popularity while Castro is sliding down. The stores of Castro see less traffic of visitors (footfall), thus stores are too quiet for extended periods, and the sellers have too much ‘free time’ to arrange merchandise; a special report on public TV (Kan News, 4 May 2019, Hebrew) indicates that a growing pressure is put on sellers and other staff (e.g., visual merchandisers) to contribute to better results . Could it be that Israeli consumers find the design of stores less attractive; is the visual merchandising in-store less appealing to them; or is it the merchandise itself losing its appeal? We should not overlook the influence of background factors such as changes in the code of dressing (more casual, ‘dressing-down’, sportive) and economic constraints on consumers’ shopping behaviour in clothing and fashion.

  • In 2018 Castro saw overall a loss of 59 million shekels (~$16m), after a net gain of 48m shekels in 2017 and in 2016, and operating profit on clothing has dropped 66%. Additionally, sales of clothing in same stores of Castro+Hoodies fell 7.7% in 2018, above average rate in this sector (Globes, 5 May 2019, Hebrew — this article follows the report on Kan News).

A few ideas may be learned from the American department store chain Kohl’s that is taking dramatic measures in its effort for resurgence, led by CEO Michelle Gass [A]. Some of these measures may be relevant also to Castro, and could suggest directions for the transformation it may also be required of:

Kohl’s is reducing the amount of merchandise displayed in its stores, and is also decreasing the selling space of stores. On the other hand, the retailer installed an advanced inventory technology that allows it to track its merchandise on display at any time (by using RFID tags on product items), and follow purchase data (including online) and analyse it. Hence staff at Kohl’s can predict what products are in greater demand and what merchandise is in need of replenishing in real time, enabling to display less merchandise with no disadvantage.

Furthermore, Kohl’s  developed a capability to trace changes in market trends faster and cut the time needed to deliver new designs to stores (i.e., shorter time-to-market).

Kohl’s introduces new technologies in its stores to improve the service to shoppers and their in-store experience overall, including handheld checkout devices to cut waiting lines at cashiers, and digital price screens that can be updated with less hassle for staff; in addition, the RFID tags aforementioned enable staff to help customers quickly find products they seek (mirrors with holograms or augmented reality may come later).

  • Kohl’s has taken another intriguing step: orders from Amazon can be returned at desks in a hundred of its stores (out of 1,100+ stores). Critics and skeptics regarded this co-operation akin to “sleeping with the enemy” or “bringing a fox into the henhouse”. However, Gass sees in providing this service at Kohl’s stores an opportunity whereby Amazon’s customers already in a store may choose to buy some products they see around, similar to the case when Kohl’s customers who use its “click & collect” scheme at Kohls.com online store later come to pick-up the order at a physical store.

Castro announced recently that it plans to enlarge and redesign some of its stores. Castro Store TelAviv in GanHaIrPerhaps its management should re-consider enlarging stores. Does Castro really need to have stores as large as those of Zara and H&M (1000sqm+)? This may not be effective in terms of (lower) revenue per squared metre [B]. The stores can also be arranged to be more spacious between display exhibits and hold less merchandise, provided that information technology can be used to monitor it cleverly. Redesigning stores may indeed be welcome — current stores could feel too dark-toned with selective spot lights, which may be perceived more elegant but less convenient. Existing large stores may be reduced somewhat, or perhaps may better allocate space to other purposes like special projects (e.g., gallery of new art designs in fashion), a coffee bar or hosting events that may be more interesting than a space loaded with more products [cf. A].  Greater attention should be drawn to the experience that can be generated for visitors in-store.

Another issue concerns the image and experience delivered by the website and online store of Castro. Is the online store not advanced and rich enough? Will more exclusive online offers make the difference? [cf. B] What kind of experience should the website and online store present to visitors? Entering the e-commerce website overly feels like entering a catalogue. The e-store has some nice features like a model’s image changing position when hovering above with the mouse to show the garment from another angle, or being able to see the same garment in different colours. Yet the website appears nothing more than an e-commerce website; it misses something more important — it obscures Castro as a fashion house. The story of Castro and its creations is practically hidden, hard to find. When entering the website, it should communicate the image of the brand Castro — show original designs of the fashion house before start selling. The website should clearly show the “door” to the online store but right next to it should appear the “door” to Castro the fashion house and its story.

Eventually, the garments designed and created by Castro are the main issue to address. This should be an important point of differentiation for Castro from other retailers on which it should make its voice loud and clear. For example, prior to her role as CEO of Kohl’s, Gass identified the rise of the trend of activewear (sportive-energy) style in clothing; she gave it more emphasis in stores with the help of national brands like Nike and Adidas. Castro has a category (online) of Activewear. On the one hand, it can make its voice by introducing its own designs in this category. On the other hand, it should not go only after what seems popular at a time but suggest other modes or styles to the market.

Castro seems to lack sub-brands or endorsed brands up front that consumers can easily identify and associate certain styles or attributes with them (e.g., more daring or novel vs. more conservative, more artful vs. more functional). Castro is said to hire top-of-class young designers. Yet it does not elevate anyone as house designers by name, perhaps to encourage more collegiality and teamwork. An alternative approach would be to build a brand around a team of designers (like a “centre of excellence”) who share a certain vision and approach in fashion styles. Actually Castro already has three sub-brands: “Red” for casual dressing; “Blue” for more elegant, quasi-formal dressing; and “Black” for jeans wear. Castro can develop and enrich any of these sub-brands; create another brand with a specific style or tone of design as a secondary “specialisation” under any of those above; or build a new brand endorsed directly by the Castro name that will express new forms of art, novelty or elegance, etc. Whatever course taken, the leading idea is to give consumers a ‘name & face’ they can cling to, to follow how it evolves, and to identify with.

There are multiple avenues for Castro to reinvent and revive its brand and business as a whole. The expansion of its retailing activities may have led to the weakening of its fashion house and dilution of its brand. Some of the enterprises Castro acquired or merged with could hurt the brand to the extent that they are stopping Castro from developing answers in-house to gaps in the market. Therefore, it is perhaps the time now to return to increase the focus on Castro the fashion house as in earlier times, and let the retail arm serve it, not the other way round. Castro should be ready to enter its third period; the challenge will likely be assigned to the new Deputy CEO lately nominated, Ron Rotter (son of Etty and Gaby Rotter and former CFO), to reinvent Castro and put the brand on a new course.

Ron Ventura, Ph.D. (Marketing)

Additional Sources:

[A] “Michelle Gass Is Cracking the Code at Kohl’s”, Phil Wahba, Fortune (Europe Edition), December 2018, pp. 104-112.

[B] “Castro Once Was the Most Sexy Brand in Israel, But These Days Are Gone” (origin in Hebrew), TheMarker, 12 April 2019 (MarkerWeek edition), pp. 14-16

 

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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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Consumer purchases from Internet retailing websites continue to expand, and their share out of total retail sales increases. Yet there is no real reason to declare the demise of physical, bricks-and-mortar stores and shops any time soon. Online purchases from e-stores (including through apps) indeed pose a stressing challenge to many physical stores, but the latter still hold a solid and dominant majority share of retail sales. Nonetheless, owners of physical stores will have to make changes to their mission and approach to retailing in order to answer effectively and successfully to the challenges from electronic retailing (‘e-tailing’).

The share of sales revenues from online retailing varies across categories (e.g., from groceries to electronics) yet the share overall out of total retailing revenues still floats around 12%-15% on average; there is also important variation between countries. Tensions are high particularly because of the threat from overarching e-tailers such as Amazon and Alibaba who grew their businesses in the virtual online environment. However, retailers do not have to choose to be either in the physical domain or the virtual domain: Many large and even medium bricks-and-mortar retailers are already double-operating through their physical stores and the Internet and mobile channels. Moreover, the master of Western e-tailing Amazon is lurking into the physical world with the establishment of its Amazon Go food stores, its venture into physical bookstores in selected US locations, and notably the acquisition of the food retail chain Whole Foods — what better testimony of the recognition that physical stores are still in need. All these observations should tell us that: (1) The lines between physical and virtual (electronic) retailing are blurred and the domains are not exclusive of each other; (2) It is a matter of linking between the domains where one can operate as an extension of the other (and it does not depend on which is the domain of origin); and (3) The domains are linked primarily by importing technology powered with data into the physical store’s space.

Technology alone, however, is not enough to resolve the challenges facing physical stores. Focusing on technology is like harnessing the carriage before the horses. The true and crucial question is: What will consumers of the coming future be looking for in stores? This is important, because consumers, especially the younger generations born after 1980, still have interest in shopping in bricks-and-mortar stores but they could be looking for something different from past decades, moreover given the digital options available to them now. The answers will have to come through rethinking and modifying the mission and strategy set for physical stores. The direction that seems most compelling for the mission is to shift emphasis from the merchandise offered in a store to the kind of experience offered in the store. The strategy may involve reconsideration and new planning of: (a) the product variety and volume of merchandise made available in the store; (b) interior design and visual merchandising; (c) scope and quality of service; and (d) the technologies applied in the store, all tailored to the convenience and pleasure of the shoppers.

This article will focus primarily on aspects of design of stores, including  interior design and decoration, layout, and visual merchandising (i.e., visual display of products); together with additional sensory elements (e.g., lighting, music, texture, scent) they shape the atmosphere in the store or shop. Yet it should be noted that the four strategy components suggested above are tied and influence each other in creating the kind of experience a retailer desires the customers-shoppers to have while in-store.

Shopping experiences in a store rely essentially on the emotions the store invokes in the consumers-shoppers. Notwithstanding the sensorial and cognitive reactions of shoppers to the interior scene of the store, the positive and pleasant emotions the shoppers feel will most likely be those that motivate them to stay longer and choose more products to purchase (further desired behaviours may include recommendation to friends and posting photos from the store on social media). Prior and close enough to consumption itself, the personal shopping and purchasing experience may invoke a range of positive emotions such as joy, optimism, love (non-romantic), peacefulness, and surprise; of course there also are potential negative emotions that retailers would wish to reduce (e.g., anger, worry, sadness)[*].

The need for shift in emphasis in physical stores is well stated by Lara Marrero, a strategy director with Gensler, a British design firm: “It used to be a place where people bought stuff. Now it is a state where a person experiences a brand and its offerings”. Marrero, who is leading the area of global retail practice at the firm, predicts a future change in mentality of shoppers from ‘grab and go’ to ‘play and stay’ (“Retail 2018: Trends and Predictions”, Retail Focus, 15 December 2017). This predicted shift is still inconsistent with a current retail interpretation of linking the digital and physical domains through schemes of ‘click-and-collect’ online orders at a physical store. Additionally, consumers nowadays conduct more research online on products they are interested in before coming to a store: The question is if a retailer should satisfy with letting the consumer just ask for his or her preferred product at the store or encourage the consumer-shopper to engage and interact more in-store, whether with assistance from human staff or digital utilities, before making a purchase — the push may have to come first from the consumers. Marrero further notes the social function of stores: retail environments become a physical meeting point for consumers to share brand experiences. Retailers will have to allow sufficient space for this in the store.

In order to generate new forms of shopper experiences the setting of a store’s scene also has to change and adapt to the kind of experience one seeks to create. New styles and patterns of in-store design are revealed through photo images of retail design projects, and the stories the images accompany, on websites of design magazines (e.g., VMSD of the US, Retail Focus of the UK). They demonstrate changes in the designing approach to the interior environment of stores and shops.

A striking aspect in numerous design exemplars is the tendency to create more spacious store scenes. It does not necessarily mean that the area of stores is larger but that the store’s layout and furnishing are organised to make it feel more spacious,  for example by making it look lighter and allowing shoppers to move more easily around. Additionally, it implies ‘loading’ the store’s areas which are accessible to customers with less merchandise. First, merchandise would be displayed mostly on fixtures attached to walls around the perimeters of the store, but even then it should not look too crowded (i.e., in appreciation that oftentimes ‘less is more’ for consumers). Second, fewer desks and other display fixtures are positioned across the floor to leave enough room for shoppers to walk around conveniently (and possibly feel more ‘free’). In fashion stores, for instance, this would also apply to  ‘isles’ of demonstrated dressing displays. Third, desks should not be packed with merchandise, and furthermore, at least one desk should be left free from merchandise — leave enough surface for shoppers and sellers to present and look at merchandise and to converse about the options. In some cases, it may allow for the shoppers to socialise and consult among themselves around a desk at the store (e.g., inspired by Apple stores). Opportunities to socialise can be enhanced in larger stores  by allocating space for a coffee & wine bar, for instance, which may serve also sandwiches, patisseries and additional drinks. Stores would be designed to look and feel more pleasant and enjoyable for consumers-shoppers to hang around, contemplate their options and make purchase decisions.

  • Large stores that spread over multiple floors with facades turning outwards to the street may fix the facades with glass sheets, and in order not to block natural daylight from entering into the store they would place desks and mobile hangers or other low shelf fixtures along the windows.

Modissa Fashion Store set for Christmas

In the new-era store not all merchandise the store may offer to sell needs to be displayed in the ‘selling areas’ accessible to shoppers. Retailers may have to retreat from the decades long paradigm that everything on display is the inventory, and vice versa. It is worth considering: First, some merchandise can be displayed as video on screens, and thus also add to the ‘show’ in the store; Second, shoppers can use digital catalogues in the store to find items currently not on display — such items may still be available in stock on premises or they may be ordered within 24 hours. But furthermore, customers may be able to coordinate online or through an app with a store near them to see certain products at a set time; up-to-date analyses of page visits and sales on a retailer’s online store can tell what products are most popular, subsequently guaranteeing that the physical stores keep extra items of them in stock on premises.

Here are references to a few exemplars for illustration of actual store design projects published in design magazines’ websites:

Burberry, London — The flagship store of luxury fashion brand Burberry on Regent Street is highlighted for both the use of space in its design and the employment of digital technology in the store. A large open space atrium (of an older time theatre) occupies the centre of the store (four floors, 3000 sqm), impressive in how Burberry allowed to keep it. The digitally integrated store is commended for its fusion of a ‘digital world’ into its bricks-and-mortar environment: a large high-resolution screen plays video in the atrium, synchronised with a hundred digital screens around the store, some 160 iPads (e.g., for finding items on the catalogue that may not be on display), and RFID tags attached to garments (VMSD, 18 December 2012).

Hogan, Milano — The footwear ’boutique’ store (277 sqm in via Montenapoleone) is designed to reflect the brand, “luxury but accessible”. The store’s mission has been described as follows: “Hogan is a lifestyle brand, championing contemporary culture. The store therefore needed to be dynamic, working hard to adapt from retail space to live event or gallery space”. Characteristic of the store: tilted surfaces for display, lying on top of each other like fallen-down domino bricks; and an animated display of patterns by LED lighting behind frosted glass walls — they both reflect movement, the former just symbolically while the latter more dynamically, to “express the dynamism of the city”. The store of Hogan also fosters social activity around its host bar and customization bar (Retail Focus, 15 February 2018).

Black by Dixon’s, Birmingham (UK) — The technology retail concept aspires to make “the geeky more stylish and exciting”. Digital technology is “dressed” in fashionable design, aiming at the more sophisticated Apple-generation (distinctive in the images are the mannequins “sitting” on desks as props, and colour contrasts on a dark background). (VMSD, 24 May 2011.)

Stella McCartney, Old Bond Street, London — The re-established flagship store resides in an 18th century historic-listed building (four floors, 700 sqm). Products such as dresses and handbags are displayed (sampled) across the store in different halls. The design and lighting give a very loose feeling. Refreshingly, the ground floor features an exhibit of black limestones and “carefully selected rocks” from the family’s estate, a piece of nature in-store (Retail Focus, 14 June 2018).

Admittedly, some of the more distinctive and impressive design exemplars belong to up-scale and luxury stores, but they do give direction and ideas for creating different experiences in retail spaces, even if less lavishly. Furthermore, technology can enrich the store and add a dimension of activity in it. Yet it is part of the whole design plan, not necessarily its central pillar, if at all.

Installing digital technology in a store does not mean importing the Internet and e-store into the physical store. Features of digital technology can be employed in-store in a number of ways, and the use of an online catalogue is just one of them. There is no wisdom for the physical store in trying to mimic Internet websites or compete with them. It should find ways, instead, to implement digital technologies that best suit the store’s space and transform the experience of its visiting shoppers.

Moreover, the store owner should identify those aspects that are lacking in the virtual online store and leverage them in the bricks-and-mortar store (e.g., immediacy, non inter-mediated interaction with products, sensorial stimulations other than visual and audio, feeling fun or relaxed). Thereof, the store should borrow certain technological amenities that can help to link between the domains and make the experience in-store more familiar, convenient, interesting, entertaining or exciting. According to an opinion article in Retail Focus on “The Future of High Street” (Lyndsey Dennis, 25 April 2018): “To draw customers back to brick-and-mortar, [retailers] need to rethink how they use their physical space and store formats. The key is to give customers something they can’t get online, whether that’s information, entertainment, or service“. Advanced technologies such as Virtual reality (VR) and Augmented Reality (AR) are part of the repertoire that are increasingly introduced in high street stores [e.g., AR applied in the fitting rooms of Burberry’s store, triggered by the RFID tags].

Matt Alderton, writing in ArchDaily magazine of architecture and design (25 November 2015), details key technologies and how they are implemented in stores to create new possibilities and leverage shopper experiences. One group of technologies can provide vital data to retailers which in turn can be applied to interact with shoppers and return useful information to them (e.g., beacons, RFID tags, visual lighting communications). The second group includes display technologies that may be enriching with information and entertaining to shoppers: for example, VR and AR, touch screens, and media projected on a surface such as table-top which thus becomes a touch screen. Alderton clearly sees consumer need for physical stores, the question is how consumers would want them: “What the data says is that shoppers want to move forward by going back: Like their forebears who visited Harrods, they crave emporiums that are experiential, not transactional, in nature“. (See also images in this article as they portray new-fashioned designs in space and layout; notably these stores feel less crowded by merchandise, and some show in-store digital displays.)

These are challenging times for bricks-and-mortar stores. New possibilities are emerging for physical stores to grow and thrive, yet they will have to adapt to changed shopping and purchasing patterns of consumers and develop new kinds of experiences that appeal to them. It should be a combined effort, with contribution from interior design of stores and visual merchandising, utilities and amenities based on digital technologies implemented in the store, and the support and assistance by human personnel. The in-store design is especially important in setting the scene — in appearance, comfort and appeal — that will shape shoppers’ experiences. Retailing could evolve as far as into new forms of ‘experiential shopping’.

Ron Ventura, Ph.D. (Marketing)

Reference: [*] Measuring Emotions in the Consumption Experience; Marsha L. Richins, 1997; Journal of Consumer Research, Vol. 24 (September), pp. 127-149.

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‘Where do I find umbrellas?’ ‘How do I get to the shoe department?’ Questions like this are likely familiar to many consumers when visiting large department stores. Walking long pathways on a floor and moving between floors in a quest to find a needed product can be time-consuming and annoying. Signposts often are too general and lack useful instructions for direction. Mobile mapping applications (‘apps’) of indoors environments, an evolving technological development of the last five years, can make the shopping experience in large stores more smooth, convenient and enjoyable for consumers. A mapping app can be useful not only in department stores but also within large supermarkets, fashion, toys or DIY stores, to give just a few examples. Moreover, navigating in complex structures like shopping malls, airports, hospitals etc. may be made much easier with a mapping app.

Over the years large physical floor maps have been installed in some department stores (e.g., hung on the wall near a lift) — the problem is that the shopper has to try to keep in memory the route to pass to a desired destination. Signage of product directories placed in front of escalators may help the shopper to find on what floor a particular type of product (or a brand) is placed, but one may be left again to stroll a widespread floor until locating the product requested. Signs hung above aisles (e.g., in supermarkets) may not be seen until one approaches the relevant aisle. Some retailers and operators of shopping centres provide printed maps on cards or leaflets to guide their customers on the premises; the map is usually accompanied with index lists and codes for reference, and regions on the map diagram may be printed in different colours to facilitate navigation. Holding a map in the shopper’s hands can be a great relief. Holding a dynamic and interactive map displayed on the shopper’s mobile phone seems as an even greater step forward.

Mapping applications of enclosed environments aim to provide people with spatial information and tools similar to those that facilitate their navigation on roads and in the streets of cities. One can search for an address, a business or an institute, and the mapping utility will show the user its location on the map. Additionally, when used on a mobile device, smartphone or tablet, the application can show the way and follow the user until he or she gets to the destination. In-store, the ‘address’ would typically be a product. An in-store mapping app may show the shopper the location of the product in the store, and perhaps give instructions step-by-step how to get there, yet it will not necessarily be able to follow the user to the destination — an additional layer of technology, a physical infrastructure, is required to locate the shopper on the map and automatically “advance” the map on display as he or she walks in the store.

  • A web-based mapping utility of Heathrow Airport (London), for example, allows a prospect traveller to look for a starting point and a destination in any of the five terminals and their facilities and the online service will provide instructions in text and over the map diagram how to get there.

The GPS technology that usually allows the positioning of users on a map of an outdoors space, and follows the user until he or she gets to a destination, stops working when one enters an enclosed environment of a building. It is additionally not accurate enough to pinpoint the location of a person in a relatively small area, and especially is impractical in distinguishing between floors in the building. Therefore, this technology cannot be applied in mapping applications either in shopping centres or in-store. Alternative technologies have been tested and utilised for indoors mapping: more notable is Bluetooth technology applied with beacons, but there are other options in the field, including Wi-Fi and LED light bulbs for signalling and transmitting location information. Effective positioning of shoppers is said to require a dense network of devices (transmitters) throughout the store, oftentimes an expensive enterprise. Therefore, retailers appear to be more interested in implementing select functions of in-store mapping applications (e.g., orientation, promotions) but are less in a hurry to adopt also the capability of positioning shoppers on a map of the store.

A retailer can deliver via a mobile app promotional offers (e.g., digital coupons) to shoppers as well as updates on new products, services and events. A retail app may  include a bundle of services such as tools for mapping and managing a shopping list for the benefit of the customers. Some retailers already use a location functionality in their stores, independent of mapping, to improve the timing when offers are sent to shoppers during their visit, specific to their location in the store. But this functionality usually utilises fewer devices (e.g., beacons) than would be necessary for a full positioning capability. The mapping tools can produce several advantages: (1) deliver a helpful service to shoppers (e.g., using a shopping list with a map); (2) enhance navigation by location of the shopper on a dynamic map; (3) give a better incentive to shoppers to authorise an app to track their location in the store; (4) mount ‘flags’ of promotional offers for various products on the map near the relevant aisles or display shelves, particularly as the shopper approaches nearby (as a benchmark for illustration, think of information [icons & text] mounted on maps of Google or in an app like Waze).

The map is meant to provide first of all spatial information. Should mapping applications also be visuospatial, that is, display a visual image of the store’s appearance? It would be like making a virtual simulated tour of the store. The experience could be more entertaining (e.g., like gaming) but would it be more informative and useful? If the shopper is already in the store, he or she should not really need the enhanced display — it could be more confusing (screen and reality may interfere with each other) and time-consuming to navigate with such a display. The enhanced imagery display may be useful for planning a visit before entering the store, or perhaps for online shopping in a virtual store. Yet, once a shopper is at the physical store, a visuospatial display should be made an option as a matter of discretion by the shopper while the main display better be a map diagram that matches the actual layout and organisation of the store.

  • Mobile marketing company aisle411, which specialises also in indoors mapping for retail stores, created in co-operation with Google’s Project Tango a 3D imaged environment (“3D mapping”) of a supermarket store with features of augmented reality (e.g., product information. rewards and coupons). [BusinessWire.com, 25 June 2014, see video demonstration — note that the application is operating on a tablet mounted on the shopping cart]

A study published last year (Ertekin, Pryor & Pelton, Spring 2017) sought to identify perceptions, attitudes or personality traits that could motivate consumers to use mobile in-store mapping applications (*). The study focused on consumers from generations X (born in 1961-1979) and Y (born in 1980-1999 — adults likely to be familiar with and orientated to using computer technology and its applications). Actually 80% of the respondents in the sample were of generation Y. All respondents (n=258) had a device that can connect to the Internet (57% had a mapping application downloaded to their smartphone). The researchers considered factors regarding the use of technology of in-store mapping applications and how it would affect the shopping experience (30% of respondents reported trying an in-store mapping application before).

The degree of ease-of-use of an in-store mapping app was found to have a positive effect on intention (or ‘propensity’) to use it while shopping. Perceived ease-of-use was defined as the “degree to which a person believes that using a particular system would be free of effort” (e.g., easy to use, clear and understandable, flexible to interact with). Usefulness of the app pertains specifically to the act of shopping, helping to enhance the ‘job performance’ (effectiveness) of shopping with the map. As expected, perceived usefulness also had a positive effect on the intention to use such an app.

In addition to those functional or utilitarian benefits of the application, the researchers addressed the app’s ability to make the shopping experience emotionally more entertaining (particularly inducing excitement associated with novelty of the technology). Entertainment benefits (e.g., enjoyable learning about stores, fun, or merely a good pass time when bored) also strengthen the intention to use an in-store mapping app.

The willingness to use a mobile in-store mapping app is diminished by greater concern of consumers about sacrificing their security when using a network computing application (i.e., emphasis on protection from malicious software or stealing personal information). Conspicuously, however, reference to data security is only hinted and the sensitive matter of privacy is not properly covered, particularly the reluctance of consumers to let their moves being tracked. If the mapping app provides the user more perceived benefits of the types cited above, they may be less resistant to allow the retailer to track them.

A result that would probably be of interest to retailers shows that consumers who exhibit a stronger deal proneness are more intent on using an in-store mapping app. In other words, consumers who are more leaning towards buying on discounts and deals are more likely to be attracted to the mapping app in hope of finding there promotional offers, easy to locate in the store. Yet retailers should be careful about this finding because if they are too focused on delivering promotional offers through their apps, then they will get shoppers more interested in deals and reward points more frequently than other shoppers. In order to encourage shoppers to extend their in-store visits longer and make more unplanned purchases, promotional offers should be put forward on the app more closely in accordance with the store sections or aisles the shoppers access, when they pass through; where feasible, generate offers in association with products on a shopping list the shopper fills-in on the app (i.e., help a shopper find more easily the products on his or her list while adding products that are more likely to be perceived as complements to them).  Promotions are only one of the ways to encourage consumers to shop more, and that is true also for the ‘package’ offered in a retail mapping app.

The model analysed in this study did not provide support for a positive effect of being pressed in time on intention to use an in-store mapping app  (i.e., apps are not associated enough with saving time or those pressed in time are interested in the mapping app no more than others with more free time). It does not seem to give ground to a concern of retailers that such an app might allow shoppers to shorten their shopping trips, but as suggested above, if needed there are ways to circumvent such behaviour. The model also did not support the hypothesis that consumers who like to gather more market information (e.g., products, prices, innovations) and share their knowledge with others, to advise or actually influence them, are more inclined to use an in-store mapping app to accomplish their goals.

The study makes early steps in investigating consumer behaviour pertaining to using retail mapping apps. It confirms that functional as well as emotional benefits are drivers of consumer use of a mapping app in-store. But the investigation has to proceed to validate and refine those findings and conclusions. While the study targeted young consumers of relevant generations Y and X, the sample consisted of university students (hence probably also the vast majority of millennials). It may be sufficient for establishing relations of the tested factors to the use of mapping apps, but further research should go beyond a student population to cover consumers of these generations to validate the relations or effects. Additional analyses and models (beyond the regression model applied in this study) will have to examine effects more thoroughly or with greater scrutiny (e.g., causality, mediators). Furthermore, consumer disposition towards the mapping apps has to be examined through actual experience and behaviour, for example by letting shoppers perform their shopping ‘naturally’ with an app or by giving them specific tasks to perform with a mapping app in their shopping trip. The study of Ertekin, Pryor and Pelton would serve as an instructive and helpful starting point.

Consumers may utilise a mental map of a store site that they hold in memory to guide them through locations in the  store as in an auto-pilot mode. Mental maps are possible to construct, however, for stores that shoppers visit frequently enough or regularly. Digital mapping apps may change how consumers construct and utilise their own mental maps, stored in their long-term memory. People tend to favour digital information sources and rely less on their own memory. A shopper may need no more than a graph as a spatial model to perform his or her shopping job, or perhaps a more detailed mental model of a drawing similar to a map. Yet the extent to which people also use picture-like mental imageries of the site depends on how useful is the visual information for performing their task, because visual imagery requires greater resources. So visual imagery may be re-constructed more selectively as needed — think of ‘photos’ of specific locations of importance or interest to the shopper (e.g., shelf displays of ‘target’ products) pinned to the mental drawing at the relevant places. A conception like this may be emulated in the digital in-store maps of mobile applications.

Mobile in-store mapping applications present a significant, promising development in re-shaping consumer shopping experiences. It could play an important role in the future of retailing, but there is still ambiguity about the extent to which large retailers would choose to implement mapping features and capabilities, particularly the real-time positioning of shoppers inside a physical store. Mapping applications for retail indoors sites may impact, for example, the balance in preference of consumers between shopping online and offline (i.e., in brick-and-mortar stores).

Ron Ventura, Ph.D. (Marketing)

(*) An Empirical Study of Consumer Motivations to Use In-Store Mapping Application; Selcuk Ertekin, Susie Pryor, & Lou E. Pelton, 2017; Marketing Management Journal, 27 (1), pp. 63-74.

 

 

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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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