Inform Your Staff Where Sales Dollars Go

In a Bloomberg Businessweek opinion piece, McGill University’s Jody Heymann recommended opening up the financial books to your staff. There is abundant research evidence that when employees feel a sense of ownership in a business, they find their jobs to be more rewarding. They’ll work harder and more creatively.
     My impression is that many first-line retail employees would prefer not to spend their time regularly tracking the fortunes of the business. But Prof. Heymann might be getting at something more fundamental: Those first-line employees often are woefully inaccurate in estimating where a retailer’s product sales dollars go.
     See if I’m right. Ask some of your employees this question: “For every $100 our store makes in sales, how much of that is profit after expenses?”
     My colleague, hardware/home improvement retailer Art Freedman, says that the answers he gets are in the range of $30 to $50. These employees think that for every $100 sale, the business gets to keep $30 to $50 in final profit. Many employees fail to realize that the real margins are much thinner than that.
     To start, they forget what’s usually the largest cost—inventory replenishment. When you sell an item, you’ll be buying more in order to replace the item on the shelf. Art says that in his business, inventory replenishment consumes about $50 of the $100 sale. And money needs to go for salaries, rent, marketing, and the rest. If you think the numbers alone will bore your staff, use charts or tell it in the form of a story.
     You might not want to take Prof. Heymann’s advice to keep the bookkeeping open to all employees all the time. You might not want to implement her other advice—profit sharing. Still, occasional business literacy lessons for your staff could be quite helpful. Tell your staff where the sales dollars go. It will build their trust, motivate their job performance, and allow them to appreciate how even small mistakes, if made repeatedly, could drive you out of business, eliminating the jobs for them and their coworkers.

For your profitability: Sell Well: What Really Moves Your Shoppers

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Ask Customers & Staff for Ideas
Coach Your Staff with Stories

Combine Flavors for Bonus Effectiveness

“The whole is more powerful than the sum of its parts.” That’s the fundamental motto of an approach to human behavior called “Gestalt psychology.” Allow the research evidence for the motto to inspire you to apply Gestalt psychology to your retailing.

• Reinforce your message through consistency. For example, if you make your living from selling merchandise, you might be considering how you can most fully use services as an additional profit center. If so, keep the product-service identity strong. Consumer psychology research verifies the importance of you projecting a consistent personality across products and services.
• Produce attractive offerings by blending components. If you operate a restaurant, you might be looking over the McCormick & Co. Flavor Forecast for the 2010 holiday season. With the best of the blends, one component brings out the strengths of another. In the cinnamon-bacon blend, for instance, McCormick says the robust cinnamon leads our palate to experience the rounder flavors of the bacon which the smokiness usually overshadow.
• Highlight superiority via contrast. This is the rationale for comparative advertising. It’s also one of the reasons we sprinkle in discounted items among regularly-priced items in our merchandising. The value of the discount is made more apparent to the shopper by the easy comparison with surrounding items that are not discounted.

     In choosing what elements you’ll combine, decide if your primary objective is to reinforce a message through consistency, produce attractive offerings from a blend, or highlight superiority via contrast.
     Gestalt psychology emphasizes the importance of trying things out in the real world, not as an isolated study in a laboratory. The real-world context and individual circumstances can make all the difference. Again, this reflects the Gestalt attention to the whole over the parts. So try out various combinations in your retailing.
     Not every blend will be a winner, of course. While announcing their Flavor Forecast combos last year, McCormick & Co. acknowledged that one of the pairs on the 2007 list may have been creatively inspired, but, if truth be told, failed to inspire many cooks in the world: Wasabi and maple.

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Project Your Store’s Personality
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Sprinkle In Discounted Items with Regularly Priced Items

Lock In Customer Gratitude

Consumers say they look for a retailer they can trust. In surveys conducted by Advertising Age/ARC, consumers in every age group from teenagers on up said that what was most important to them was brand trustworthiness. For retailers, your store is your brand.
     But once the customer finds that retailer, what builds lasting loyalty is not so much trust as gratitude. In the U.S., researchers at University of Washington, Southern Illinois University-Carbondale, San Jose State University, and University of Cincinnati found that when a customer is aware of their gratitude to a retailer, they become more likely to purchase items from that retailer.
     In Italy, researchers at Università Commerciale Luigi Bocconi looked at relationships between six emotions and what the shopper with those emotions did after completion of the purchase. The six emotions were anger, gratitude, guilt, happiness, pride, and sadness. The four behaviors were complaining to the retailer, criticizing the retailer when talking to other people (negative word of mouth), expressing an intention to make a future purchase, and praising the retailer when talking to other people (positive word of mouth).
     The greater the extent to which customers said they felt grateful to the retailer for helping to solve a problem or satisfy a need, the more likely the customer was to praise the retailer to others and to say they intended to shop with that retailer again. In the study, there were no significant correlations between customer happiness, on the one hand, and either positive word of mouth or repurchase intention, on the other hand.
     Continually give your customers reasons to be grateful to you and to your store. Then solidify your relationships with customers by locking in their gratitude to you.

• Even better than general praise are thank you’s for specific actions you’ve taken to benefit the customer. When a customer shares one with you, reply, “I’m pleased I could help you out.”
• On any customer attitude surveys, ask for specifics of what your store did well. When the customer replies, that’s helping to lock in the gratitude.
• Consider asking for paybacks. Research at University of Toronto indicates that with customers you know by name, asking the person to recommend you to family and friends in the future works well. With customers you don’t know by name, asking them to complete a comments card immediately is a better choice.

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Go for Customer Gratitude and Guilt

Pitch the Synergy of Multifunction Items

Why would your shopper want a toothpaste that only cleans their teeth when they could buy a paste which also freshens their breath? Why did Samsung Electronics gear up to get into the standalone camera business when combination camera/phone/GPS/gaming devices are available in abundance?
     Well, there’s a variety of reasons. But one answer from researchers at Northwestern University is that although shoppers are attracted to multi-solution products, a number of those shoppers believe such products are inferior in each of the capabilities when compared to single-solution products. The product which promises to be a jack of all trades risks being seen as a master of none.
     Carrying multifunction products has an advantage for you. You can reduce the total of different items you need to have in stock. If you’re out of the toothpaste that just cleans, you could point the shopper toward the one that cleans plus more. But this works out only if the shopper accepts the quality of the combination offering.
     The Northwestern University researchers found that one way to overcome the inferred inferiority is to set a premium price on the multifunction product. The extra cost helps convince shoppers that the product can indeed do more.
     But in a retailing environment where consumers are highly price sensitive, you might choose to take a different approach. Research findings from Singapore Management University and Korea’s Kyung Hee University suggest a technique: Describe to the potential purchaser how well the various functions work together. Instead of focusing on the different capabilities, focus on the added benefits that comes from the synergy.
     The Singapore/Kyung Hee research indicates that this is especially useful with items the shopper considers to have a high level of technological performance. It is more important with smart phones than with toothpaste. In fact, the researchers concluded that at low levels of technological performance, people overwhelmingly preferred the combination products.
     Because cultures vary in the thresholds consumers set for high technology, the value and effectiveness of pitching the synergy differs by culture. Assess what works with your customer base.

For your profitability: Sell Well: What Really Moves Your Shoppers

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Set Healthy Margins on Multi-Solution Products
Notice Customers’ Cultural Aspirations

Exchange Retailing Ideas with Lots of Others

Finland’s Nokia was the world’s mobile phone powerhouse. But a recent Bloomberg Businessweek article describes the company as having been in “steep decline” in recent years. Nokia has many strengths to bounce them back to extraordinary success. They still hold more than 30% of the market for global mobile phone sales. Still, what happened to Nokia can serve us as a cautionary tale.
     Bloomberg Businessweek attributes Nokia’s problems to an isolation that kept the company from challenging their own business assumptions. As a consequence, they failed to keep up with what consumers came to expect in product capabilities and handset design. Nokia had a reputation for hiring from within. It was only earlier this month that Nokia selected, for the first time, a non-Finn as its CEO. Their ideas stayed within. The operating system for their phones is used by no company other than Nokia.
     The lesson for us? Cut through isolation. Exchange ideas with lots of other business people.

• Broaden the range of people to learn from. Yes, you can’t learn from everybody. For one thing, you don’t have the time if you’re operating your business. For another thing, not everyone who catches your attention has lessons that apply to your business. But look for teachers outside your usual channels. As you read my posting now, do you find yourself thinking things like, “How can I learn from what happened to Nokia. They’re a manufacturer, and I’m a retailer,” or “What could I possibly learn from the experiences of a company like Nokia that is so much bigger than my business”? If you’re thinking like that, you’re at risk for isolation.
• How often do you and your staff interact with other businesspeople? The Bloomberg Businessweek article pointed to the physical isolation of Nokia’s headquarters, far distant from other consumer-electronics and Internet-development firms. There might be something to that. Texting, blogs, and videoconferencing can provide important information. But compared to face-to-face interaction, communication from a distance falls short in spreading the passion. Encourage your staff to participate in workshops and professional conferences.
• Every week or two, consciously question your business assumptions to see how they hold up. Decades of social psychology research—such as at University of Colorado, State College of Colorado, and Ohio State University—highlight how having a point of view primes us to ignore contradictory evidence we’d benefit by noticing.

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Visit Other Retailers
Call on Structural Equation Modeling

Recalibrate for Shopper Gender Trends

In the U.S. at least, it’s likely that husbands will be doing more of the shopping than in the past, and when a wife does do the shopping, she’s more likely than in the past to bring along family and/or friends. Neither of these trends is monumental in magnitude. However, it’s your attention to marginal, but persistent, differences that can give you a retailer’s edge in profitability.
     The chain of logic behind the changes is reflected in an analysis conducted at University of New Hampshire of survey data: During the U.S. economic downturn, husbands were more likely to lose their jobs than were wives, and now, husbands are encountering more difficulty than wives in finding employment.
     As a result, a higher percentage of wives than in the past are finding it necessary, in order to pay the bills, to enter the labor force or to expand their work hours. They’d prefer to be home more with family, but that’s not feasible. One likely consequence of this is that more household responsibilities, including shopping, are being handled by the husbands.
     There are broad individual differences among male shoppers and among female shoppers, but a solid body of research finds that, overall, men tend to think about shopping and conduct themselves as shoppers differently than do women. For instance, researchers at Stanford University asked samples of men and women to contemplate the task of shopping for a new wardrobe. Later, each participant was assigned to plot the route for a cross-country road trip.
     The women in the study were much more likely than the men to plot out a scenic route rather than a direct route. Male shoppers are more purpose-driven. Women are more possibilities-driven.
     Along with this, women are more likely to find emotional comfort from shopping than are men. Put this together with the fact that the wives going to work will long for time with family and friends. When the wife does do the shopping, she’ll want to bring along family and/or friends.
     Recalibrate your merchandising and patterns of salesperson-shopper interactions to turn these shopper gender trends to the advantage of both you and your customers.

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Encourage Group Shopping
Identify Influencers in Family Decision Making
Help Customers Show Off New Products
Design Store Operations for Ecommerce Brains