Forum Moderators: LifeinAsia
These particular widgets are specialty items, usually made to order. Most shoppers will want to check out samples in person before they buy, but it takes quite a bit of staff assistance for them to do that. What happens is that a certain type of shopper will visit a brick and mortar store, use up staff time, and cause wear and tear on expensive inventory ... then go home and buy online. They use the B/M to figure out what they want, then purchase their widgets from some discounter who can sell cheaper because he provided no service.
It's a variation on what classical economics would call the free-rider problem, and B/M widget stores are tired of it. They're tired of being used as free showrooms for competitors, and they need to figure out ways to prevent it from happening so often. The B/M's aren't just facing a price war, they're effectively subsidizing their competition. It's not sustainable.
Any suggestions for the B/M's? Customer service strategies? Promotional strategies? Anything?
And what about widget manufacturers?
The better a widget maker is at publicizing her widget dealers, the trickier the situation becomes. Some stores are saying, "Stop telling the world that I sell your widgets. The only people who call me because of your ads are the sharks who waste my time and cost me money. I'll do my own advertising, thank you, and I won't be mentioning any widget brand names."
Some stores are even saying, "Because it's so easy for shoppers to find widgets at prices I can't match, I'll stop selling widgets."
Because of US laws against price fixing, Wilma the Widget Maker can't just decide to stop supplying Dudley the Discounter, and neither can other stores to ask her to do that. Some widget makers have tried it and ended up facing legal action, and so have some stores. For the moment, Dudley is one of Wilma's largest accounts, but she knows he can't sustain that unless there's a strong base of B/M stores who carry her widgets. Remember, few shoppers will order these widgets unless they have a chance to see samples in person first.
One online discounter cloaks so that shoppers visiting his website will only be shown discount prices if they live at a sufficient distance from his physical store. He has no intention of selling at reduced prices within his own store, only to shoppers who are far enough away that they're certain to use someone else's services to check out the widgets.
To make things even more interesting, in recent months two major widget discounters went out of business quite suddenly, leaving countless widget customers in the lurch. It seems that what the discounters are doing is not sustainable at their end either.
One observer said, " It's hard to compete with savvy business folks, but it's even harder to compete with idiots."
These are turbulent times in the widget industry, and Wilma the Widget Maker is uneasy.
-------
I'd be really interested in hearing some fresh perspectives here. In particular, are there any case studies out there describing how different industries are coping with tensions between brick-and-mortar retailers and online discounters?
Wilma would prefer to support her B/M retailers than compete against them... especially since as a practical matter she doesn't have the resources to replace a thousand B/M retailers with her own showrooms.
Some manufacturers are developing their own showrooms, but I don't know how it's working for them. I do know that the channel conflict is causing some B/M's to stop carrying those lines.
They use the B/M to figure out what they want, then purchase their widgets from some discounter who can sell cheaper because he provided no service.
This is nothing new to online selling, people do the same thing in the B/M environment.
You go to a specialty store to find out which product is best and why and then cruise over to CostCo, BestBuy or Walmart and pick it up a bunch cheaper from zit popping salesclerks that drool on their own name badges.
If I were the widget people I would take a page from the mattress industry and make all unique part numbers in your store and cover up the actual part #s and anything that will help someone figure out what it is to buy it online. That's the trick, if you can't be sure you're buying the same thing, you might go back to the store.
I would also pre-qualify the customer a little better and ask them if they're serious about buying. I might even try being honest and say "there is so much wear and tear on the products people try and then go buy online, if you're serious about buying one of these I'd be more than happy to help you explore this product line" and maybe have one general purpose demo unit sitting around just for people that want to 'look' and refuse to demo other units unless you can smell a sale.
LAST BUT NOT LEAST - Offer to price match any legitimate sales price for the same item in your store at TIME OF PURCHASE. If you only break even or maybe even lose a little, you're driving nails in your competitors coffin and it's probably worth not giving them the business just out of principle.
I remember a guy on TV that used to yell "WE WILL NO BE UNDERSOLD!" and he meant it.
As has been mentioned before, a website for any B&M store is an absoulte MUST nowadays. Of course most of these stores are bound to die, and those, who manage to get onto the web for their particular local-search queries in time, have a clear advantage: Some customers are willing to drive several hundred miles for high priced stuff like furniture or electronics if they can see and touch the items, talk to someone, and get the product even cheaper than online because there's no shipping. This in one way to cope with development.
The second major chance for B&M-stores lies in the long tail: However narrow the niche of your competing discount store may be:
There is always a very profitable sub-niche.
Particularly people with high income are more and more seeking for expensive and exclusive products outside the mass market, and the number of items available is constantly growing due to the global market. What would you say: Are there more people or more different products on this planet? 6 Billion different widgets to sell, is that realistic? How many discounters would you need to account for that?
My intuition is these b/m widgeteers should scale down the b/m service to a bare minimum and at the same time set up a discount widget online store.
Yes to the former, No to half of the latter. Why get online in competitive areas? Listen to your customers and bring your niche-products to the web.
...in the future there may be a "handling charge" of a different kind. Perhaps B/M become paid personal product consultants?
Interesting idea, webwork. Let me suggest an alternative: this is the internet age. It's all about information. Your product knowlege as a B&M-expert is potential unique website content and thus worth a lot of money. The first step is a psychological one: Stopp licking boots in the B&M sales process, become proud of your particular knowledge and carefully get your customers realize that they are enjoying a service bound to die. Record your sales talks with an mp3-player and get your secretary type the dialogues. Bring these to the web in combination with a good web-shop-usability for the products you are talking about. An unbeatable strategy to feed the search engines; no discounter could do that.
propoganda, if you will. Things like:-Forum drops of horror stories of lost products ordered from online shops
-circulations of articles in consumer targeted magazines and sites about such things as the discounter websites that went out of business and left their customers in a desperate situation or other such things
buckworks: but they see no problem with behaving in other ways that drive up the store's overhead costs for no return.
Gee wiz...and for all things, online shops are somehow "destroying industries"? They are disrupting monopolies, alright. B&M with this sort of attitude SHOULD go out of business.
buckworks: This creates an extra difficulty for manufacturers
I thought China and India created extra difficulty for manufacturers...and Japan with their better cars, and Europe with better design...apparently no, it is dying B&Ms trying to adapt to the 21st century markets.
Wouldn't the obvious answer be for Wilma the Widget Maker to become the exclusive online seller
If it was that easy...Wilma the Widget Maker needs to perfect manufacturing process and she is competing in the world market. If she is to hire programmers, web marketers, content writers, SEO firm, affiliate managers, etc. she suddenly needs to become MEDIUM-SIZE BUSINESS, not the small mom-and-pop she's hoping for
I've noticed recently what it's done in the book business. The big book stores no longer carry the huge inventory of technical books they used to have. BookStar, Border's - they are useless. San Diego Technical Books (our local independent tech. bookstore) went out of business - after trying to match online prices. Now I CAN'T browse technical books in a bookstore - there simply are no stores locally that have a good inventory. I am left guessing based on Amazon reviews. Guess what? I've starting buying used from Amazon Marketplace sellers, in most cases. Less risk. I used to buy from SD Tech Books. They were that good, that I wouldn't go behind their back to buy online.
Is there a race to the bottom? You betcha.
The showroom store is spreading in the high end. We have an ArcLinea showroom in my neighborhood. They plopped it into the first floor of a fancy high-rise condo. NOT in a design district. (ArcLinea = $100,000 Italian kitchens...) Of course, this is stuff you can't buy online. But the model will be copied by others.
Some brick and morters get it right. Fry's. Yes, they are high on speciality items. But on commodity items you are hard-pressed to find it at a better price online. So, why bother with online? (Tax = shipping.) Fry's will take it back, no questions asked. You have to know what to buy at Fry's and what to buy online.
To help thwart the migration of shoppers to online retailers, the B&Ms remove manufacturers tags but the clients may come in requesting specific widgets - so that doesn't always work.
I've noticed that most B&Ms widget sellers in New Zealand charge a consultation fee that's applied to a purchase and think the US may not be far behind.
Currently, manufacturers have the benefit of having one channel bear the cost of their showrooms while another reaps the rewards of the sales. The model can't last long.
Now, if the B&M wants to combat this, then they should do what was proposed in a previous message: Start an online branch, and treat it as a different company. I, for one, would go to the B&M's online store to purchase rather than BobsDiscountWidgets dot com, just because those places are often more of a sketchy outfit. If I went to the B&M to do my research in the first place, why wouldn't I want to go to their online store as well?
But i think it's nothing new and the whole thing can work in reverse. That is a person researches a product online and applies a series of personal factors to the decision to buy it elsewhere. I'll give some examples:
-Customer chooses to pay a premium to be serviced locally
factors include:
-face to face relationship
-geographic convenience
-local jurisdiction in case something goes wrong
So there's value in both sides and the battle will continue for a while between B/M versus online sales. Both sides have to adapt.
Some strategies can compliment each other ie B/M with online sales. Nothing new here in this remark.
The internet has *big* problems insofar as it has a very low conversion rate and i believe both sides should be sharp in how they apply their strategies and there's plenty of opportunity on both sides.
I will almost always buy in person if possible because I don't want to pay for shipping and I don't want to wait, but you have to meet me halfway. A few recent examples...
1. I am a long-long-long tail kind of guy. (Just today I bought 2 board games online that, to the best of my knowledge, are not available for sale anywhere in my country.) When I want to buy a book, it's usually not in stock at any bookstore in my city, so tough luck B&M retailers. Stock my book and I'll drive across the city to get it today.
2. There's a huge, almost monopolistic, bookseller chain where I live. I can go to their website and they have some great deals (plus free shipping). Competing with Amazon.com, I guess. But if I walk into their stores, those exact same books are full-price and they won't honor the online prices. Mess with me and I'll mess with you back, so it's back to Amazon I go.
3. There's an electronic chain in my area that has its catalog online, and you can actually see where certain items are in stock at individual stores in the area. Unfortunately the online catalog is quite incomplete and unreliable. Fix this, maybe give me the ability to buy online and pick it up immediately, and I'll shop there. Without that, it's frequently easier for me to get stuff online.
I guess what I'm saying is, customers are in your store because they WANT to find the right item in stock at the right price, and to walk out with it. Get the user experience right and you should be OK.
One more point... The online component cuts both ways. I don't buy anything of significance without checking Amazon.com or Epinions or similar community/review sites. These things are a godsend to the kind of shopper that researches purchases in advance. Reading a few good reviews, and checking that there are no hidden "gotchas" in the purchase, dramatically lowers my innate sales resistance. I've lost track of how many big-ticket items I've discovered online and subsequently bought in B&M stores.
if I walk into their stores, those exact same books are full-price and they won't honor the online prices. Mess with me and I'll mess with you back
This is an example of how the earlier suggestion of opening an online discount division can backfire. Consumers feel ripped off (and will say so) if they spot the price difference between the different divisions.
The prices are different for a reason, though. The overhead of a brick-and-mortar store is quite different from an e-store. Few B/M's can match online prices and stay solvent, in any industry.
Jtara's example of the technical bookstore is a poignant one. Contrary to Aleksi's assertion that online stores "are disrupting monopolies, alright", in some sectors the pressures of online competition will foster the growth of monopolies, not disrupt them.
Will consumers win or lose when that happens?
pretty sure I know the industry
Several people think that, and their guesses are quite varied! :)
It's clear that many sectors are feeling similar stresses.
I really did want to see the camera in person before I bought it. But then I bought it online.
Was the price advantage of the online seller 5%? Nope. 10%? Nope. Try 50%.
Was the B&M investing a lot in service to retain my business? Nope. I had to wait while the teenage help finished telling each other stories and laughing about it, then they knew absolutely nothing about their own merchandise. The "service" they provided was getting a box out of the locked cabinet for me, and then standing around to make sure I didn't steal it.
What if the price differential had been 10% and I had gotten really great service from a knowledgeable staffer? I don't really like waiting for mail-order to play with new toys, so I almost certainly would have bought it at the B&M if that had happened. But when the price differential is $400 and the service is so bad that I leave the store muttering "never spend a dollar in that store!", it's no contest.
Again, things could be totally different in the widget area you're in, but that was my last experience in using a B&M to see the product and then going online to get both better service and price.
My biggest source of referrals for a product I sell is a manufacturers web page listing 4 authorized vendors. People scroll down the list calling them one at a time....yet they rarely get past my listing. I routinely hear new customers say "Well I was going to call them all but I've made my decision, here's my credit card". And I'm not the cheapest - and they know that. If the sales rep actually has face time with a prospect and they still can't close, the problem's not with the client. Time to start evaluating the business, not the clients.
Was the B&M investing a lot in service to retain my business? Nope. I had to wait while the teenage help finished telling each other stories and laughing about it, then they knew absolutely nothing about their own merchandise. The "service" they provided was getting a box out of the locked cabinet for me, and then standing around to make sure I didn't steal it...
I think this is the key as to why some B&M stores are failing.
There was a report on CNN today about how awful customer service has become - among both the giant chains down to the small business. But the worst were the online only retailers - with something like a 75% disatisfaction rate.
And I have seen exactly the same thing you describe. A few weeks ago I went out to buy a new digital camera to redo a bunch of product photos. I stopped in two stores - and in neither one did the employees have more than superficial knowledge of what they were selling. In one they could not even find a product brochure with specs. The "race to the bottom" is not only in prices, it is in cutting back on the quality of employees in the B&M stores.
We have had a B&M store store for almost 30 years, and we also sell online. We have the same prices for both. Many times we sell online but the customer will drive to the store and pick it up. With all the hype lately about solar, our business has gotten a lot more competitive lately - but we have still managed to grow by 20%+ a year for the past 5 years. And we have outlasted most of our competition - almost none of who was our competitors from 10 years ago is around today.
And yes, we see the age old thing of people buying from the lowball online discounter. And sometimes they call us for support, since they cannot get any from where they bought it. Which is kind of a dilemma - we can spend time and hope to get a conversion, but I am not sure it is worth the time and effort.
[edited by: Wlauzon at 7:49 am (utc) on Nov. 11, 2006]
The discounters are able to offer low prices only because present conditions are enabling them to freeload on others who bear the cost of providing those related services.
The discounters are not shy about telling shoppers, "Go to your local widget store, check out the widgets, then come back and order through us, cheaper." This sends shoppers to the stores who expect to be served but have zero intention of purchasing there.
The average widget-evaluating session will require at least an hour of staff time, just as Flwrldy noted for her industry, but the average salesperson doesn't have much chance to close a sale when faced with such a consumer (who will rarely admit what he's up to, BTW).
And there's really no means to bring this process to the web? I can't imagine that.
Let me give an example: The past two years we made considerable tunraround with some special sort of niche-widget to be imprinted. The printing process has some very specific limits due to the material of the widget and normally requires a lot of communication with experts.
When we received the first requests from smaller marketing-agencies two years ago, it took me about two hours for each request to walk through the paper-lists of my supplier and calculate an offer. Only one out of ten offers finally got order status.
A few months later I began to type my supplier's list into a database and programmed a calculator for my website. I also wrote a few lines about the technical details spread to three or four pages optimized for the various relevant search-phrases.
Competition doesn't exist in this area for me on the web. We'll make more than 20k turnaround (5k earnings) this year. Because my calculator answers most of the questions, now one out of three requests gets order status and the other two are communicated relatively quickly with a single mail. All I have to do is exchange some jpegs and confirm the automated offer. I make far more than 100 bucks per hour in this subsubsub-niche of my niche now, and this year we had four out of twelve orders from customers, who ordered for the second and third time, which goes even quicker.
It's all about information.
Our main task as programmers or webworkers is to automate this process of exchanging information.
I admit: People buying italian kitchens for 100k will expect to talk to someone, but they won't buy online, will they? And for all the rest in between there is a huge lot of staff-communication, which CAN be automated.
<li>Increased commoditisation and standardisation of the widget market so that there is less need to see the product
<li>Manufacturer-funded showrooms which will provide an opening for both B&M and online stores to sell products without having to keep stock
<li>The widget industry folds and nobody can obtain widgets
The first option is what I'd expect to happen in most industries - commoditisation and standardisation is a frequent result of pressure on a market. Manufacturers won't want to lose out so they'll have to make the changes required. Look out for the budget-widget (cheap to replace if you don't like it) and the standard-one-size-fits-all-widget.
The second option is suited to high-end products with big price-tags. If the manufacturer pays for testing and viewing costs then the costs are passed on to B&M and online retailers evenly.
If there is a true demand for widgets then the third option of the industry folding will never happen.
It's all about information.
Oliver, suppose your product was dentures.
You could deliver a great deal of supporting information over the web, but how would you handle the issue of personal fitting?
But I'm getting a 'glimpse' about the industry you were talking about. Webwork indeed made a good proposal.
Otherwise this is a job for web 2.0 man.
Or web 3D.1.
Ultimately if the retailer has to stay as a B&M, then the strategy I'd take is the old 'burn their houses, steal their land'. Keep the B&M, slash prices to online levels OR CHEAPER, up the service level, and take an aggressive online strategy with a website that offers everything the competition does plus access to a B&M. If you're getting put out of business by your competition, it's not time to evaluate strategies and complain about the advantages of the competitors. It's time to pull out the brass knuckles and kill whatever needs killing to put *them* out of business. So get aggressive right back. Make them wake up in the morning and think 'Oh s&*^^%, they've got my prices PLUS a reputable location that consumers can walk right in to and get the service they need with this product - how the heck am I going to offer that?'
Ie. They could go into a profit-sharing colaboration with the retailer where if their products occupy 10% of the display space or floor space in their shop and their cut is 20% of sales, then they're entitled to 20% of the gross sales of the percentage of the store their weidgets are in. (20% of 10% of the entire store's gross sales).
And they could require in writing that the merchant not engage in sales outside the floor space of their establishment (ie no internet or mail order sales) that would cut out the wholesalers profit sharing.
And they could require third party accounting by certain accounting firms. This would effectively make it very difficult if not impossible for online vendors to sell the widgets, and difficult (and risky) for B&M vendors to sell the widgets online and risk getting cut off from the supplier.
Such an arrangement can be seen as good for the retailer too, because they would know in very certain terms which of the manufacturers is converting best and which is occupying too much floor space, etc. and fine tune their B&M stores to convert as many visitors to buyers as possible for maximum profit.
It's all about information...
I think this is the point that many miss - both B&M and online.
Our staff knows what they are selling. That right there puts us in the top 25% of B&M stores in our industry.
Our websites have a lot of technical info, "how-to's", and FAQ files. And not just regurgitated manufacturers advertising copy or PDF files - most of it is original content that we have written. We have been doing that for 8+ years, and is probably a major factor why we place so high in the SE's, and in links on other sites about where to get the info.
I would guess that we make half our sales because our info and product knowledge is better than most of our competition. And that applies to both our online and B&M stores.
It's all nice and well to talk about "widgets" but unfortunately life is not that simple. It depends what these widgets are, how the market is structured, where value added services can be provided, how unique the widgets are, how easily it CAN be commoditized, online or offline, what is so typical about the product that it needs to be seen in person, can niches be identified, etc etc.
Things NOT to do: charge for information, tell consumers to prepay before they get service etc etc.. horribly consumer-unfriendly. And also remember: just because it is technically possible, or because you or others feel comfortable with certain new processes.. doesn't mean everyone else does. I lived in the USA for 5 years, just got back to Europe and behavior here is totally different, even though we have all the online retailers we want people still like to go to small stores.
Behavior of people only changes quite slowly, and that is a strenght of a B&M location. The fact that people shop around and then go for lowest price is not of this day and age alone.
Solution and creative ideas for your widget manuf. lady can only be found with sufficient knowledge and analysis of every detail of your market and then see where the openings are that online retailers do not cover (and there will undoubtedly be some).
This post seems to focus on a certain few that capitalize on "a buyers market" where they know the consumer can expend a competetors sales team and then buy for less online. The problem really lies within the middleman -- that is BOTH the B&M owner AND the e-tailer, as opposed to one etailer underselling a B&M owner because they found a cheaper way to sell a widget. look at the success of walmart with their distributition power leading to cheaper prices.
Anyway, We have a B&M store, and then created an online store retailing the same widgets but to a wider audiance to improve market share. In creating our e-store, we found that a great deal of our vendors (manufacturers) sell online retail, and for less, thus competing with us. (Their prices are lower because they are the manufacturer and have less overhead, duh.) Whats wierd is --- we all know how much money and time goes into making an online store, and then marketing it --- yet theese vendors do it while still making their widget. My feeling is --- they sell to us retailers to give their widgets exposure, and then offer that same widget for less, as many people search for what they saw in the B&M or e-store. So, basically, the vendor is using us for marketing purposes, and then taking away our online marketshare, as most consumers obviously feel more comfortable buying direct. In fact we get numerous (toll free) calls a day from consumers asking to transfer them to our vendors site so they can purchase the widget from them directly. Further, we get few sales but a lof of traffic from the vendors that compete with us and many sales from vendors that choose not to have a internet store.
As time goes on, we are ordering less from vendors that have online stores, and ordering more from vendors that have a high demand widget but choose not to have an online store. In fact, when a rep comes in to our B&M store selling us a product line, the first question i ask is "do you have an online store" Most answer with yes, and i say "see ya" and thats it. If more of us did that, then vendors, (or in reference to this post - discount-direct sites) will stop competing with their actual customers, or people who are giving information to a product they are selling. As it is a buyers market, the vendors and discount centers are smart, and they know that the retailers are information centers for their widgets --- why not sell it to them for less. ---- but if their wholesale drops, and retailers stop buying due to their web presence --- they are going to be s&*( out of luck, like we are #*$! out of luck.
it really can go bothways
If a product NEEDS the service then why can it not be included in the sales price somehow.
That has historically been the case with the widgets I'm referring to, and it's a major part of the problem.
Shoppers go to the full-service store, obtain help for their widget selection process without being charged for it, then waltz out to complete their purchase at someone else's no-services price.
Those shoppers feel very clever. The store owners feel like sitting ducks.
In the end there will still be a sales mechanism which works, when you look at the bigger picture.
My advice to B&M firms? Look at the bigger picture and change yourself to whatever kind of firm you think will be around 25 years in the future.
Instead of trying to do an add on with the the item itself, perhaps they should think about an add on at the service level itself. Instead of selling the item, they should think about selling the service.
This particular service needs a few hours of handling. There are all sorts of ways that the service could be enhanced in ways that people would be happy to pay for (food and drink comes to mind first). The service could be treated as a sort of like a rental of a hall rather than the service that just comes with the purchase.
Then, the B&M's could even have a few computers where they help the person order the product online and find the best price and they would not have to spend time trying to decipher the re-sku and named product in order to find it.
The B&M is then taking advantage of the online stores' fullfillments. They would no longer have to have the cost and headache of having any part of fulfillment.
