Even for retail companies accustomed to vicious battles for precious holiday shoppers, the onslaught from online competitors seems merciless and Darwinian. The downward pressure put on margins by Wal-Mart is mild in comparison to web-based retailers who avoid paying rent for prime real estate or hiring knowledgeable salespeople to provide “outstanding” customer service.
Some larger retailers have extensive online presences, but this just puts more pressure on their margins, as their store prices have to match those found online. And many of the customers who do actually step inside the store come armed with smartphones that instantaneously let them know if a desired product is cheaper somewhere else. If they are to survive, retailers must stop encouraging the online retail business model and instead figure out how to once again become their customers’ habit.
“Most of the time what we do is what we do most of the time. Sometimes we try something new,” note cognitive psychologists D.J. Townsend and T.G. Beaver. Unconscious habits guide most behavior, but those habits can be disrupted when customers try something new and that experience gets rewarded. Holiday gifts purchased online show up on time and have the added benefit of being shipped directly to the intended recipient. This positive feedback loop has changed the shopping habits of millions, and retailers must figure out how to change them back. Here are four necessary steps.
Step 1: Know Your Customers. Online retailers utilize search histories and prior purchases to customize offers and push items to customers. These capabilities are increasing as Google and others are integrating online and mobile search. Retailers must dramatically improve their customer knowledge through improved utilization of databases. The CMO and CIO should become best friends.
Step 2: Maximize Your Advantage. While online advantages will force margins down, retailers who simply try and price match will be sent into a death spiral (see Borders and Circuit City). Retailers must excel in areas where online is absent: building interpersonal relationships. Make your store a place where customers want to shop and where positive emotions occur.
Step 3: Embrace Technology, Don’t Fight It. Certain habits are here to stay. Retail must evolve rapidly in its use of technology as well as enable its customers’ use of technology. Combining high-touch and high-tech has never been more important for retailer’s survival.
Step 4: Reinforce Profitable Behavior. Every action is training your customers to perform a certain way. Take the focus off your own reinforcement (a sale at the cash register) and focus on reinforcing the intermediate behaviors that lead to choice and purchase. If you don’t know what those behaviors are, ethnography and other observational techniques generate insights you won’t find in surveys.
Neale Martin, Ph.D., is Visiting Scholar at the Coles College of Business, Kennesaw State University, and the author of the book “Habit: the 95% of Behavior Marketers Ignore.”