By Richard E. Wilson
CHICAGO – Mobile shopping is one of the most exciting new developments for retail in years, and “apps” that allow brick-and-mortar-store shoppers to check competing online prices have surged in popularity.
While actual mobile-shopping purchase transactions accounted for only 2 percent of e-commerce sales in 2011, the Kellogg Shopper Index – a fall survey of 1,400 consumers – found that more than half of in-store shoppers report having occasionally used their Internet-enabled mobile devices as a price-comparison tool while in stores.
That number is certain to grow. Yet the spread of mobile price shopping may end up doing more harm than good.
For one thing, mobile shopping makes it far easier for parasitic retailers to “free ride” on full-service, brick-and-mortar stores. It works like this: A potential customer goes to Best Buy to look for stereo headphones, tries on various models, and pumps a salesperson for details. Having settled on a product, the would-be customer checks prices online using a smart mobile device. The headphones are available for 40 percent less at an online retailer, which can profitably offer such a steep discount because it makes virtually no investment in real estate, demonstration inventory, expert salespeople, or merchandising promotions.
Best Buy isn’t the only one to lose out – the maker of the headphones does, too. High-touch retailers such as Best Buy are the proving ground for product innovations that many consumers crave. Ten years ago, how many people would have plunked down $4,000 for an early high-definition television, solely on the basis of its description on an Internet site? Most consumers want a direct experience of the product that can be obtained only in a store.
Unchecked free riding deprives stores of the revenue and profit margins their economic models require. To remain alive, most stores respond by cutting prices, which means that they then have to eliminate services – and perhaps even go out of business – and there will be nowhere for consumers to get a direct experience of products.
That would be calamitous for manufacturers and retailers of all stripes. The Kellogg Shopper Index finds that, for all their reliance on advanced technologies, mobile shoppers are more likely to prefer browsing in their local stores to online education. It found, for example, that as the holiday season approached in late 2011, mobile shoppers still expected to spend a considerable share of their transaction dollars in physical stores. In a recent study by Leo Burnett Group, 60 percent of respondents said they were unwilling to sacrifice the quality of their total shopping experience – before, during and after the sale – for a lower price.
For these reasons, brick-and-mortar stores shouldn’t be written off prematurely, especially by branded manufacturers. To fight back, here is what they should do:
Manufacturers need to develop an optimal channels system that accords retailers appropriate benefits and protections, and makes separate concessions to other channels. This is the tactic adopted by the premium outdoor- and garden-equipment maker Stihl Inc. Even after turning its back on retail channels that drive considerable unit volume, the company achieved greater market share and profit growth than its competitors during the recent economic recession. This was possible partly by following a retail distribution strategy that favors loyal, high-touch, brand-reinforcing specialty channels over national discounters with inadequate service levels.
That requires a four-step process: Understanding what customer segments need; designing each retail channel to give its target segment the service outputs and shopping experiences customers desire; and ensuring that these service outputs aren’t interchangeable between retail models.