In 1999, I made a presentation to the now defunct DMA “On the Road Conference” in Boston on the topic of the importance of product to the success of our businesses. It was the basic “It’s the merchandise stupid” wake-up call. It is almost 2013 (for product development purposes) and now, more than ever, product and product differentiation will define the ultimate winners and losers in our industry.
Increasingly, sales in the retail and direct-to-consumer arena sales are being driven by price or shipping incentive (or both!). This use of incentives is driving sales, albeit at depressed margins, but it is also conditioning our customers to wait us out, search for coupon codes, comparison shop, etc. My contention is that the only way out of this cycle is to dedicate more resources to developing and sourcing meaningfully differentiated products or services that distance us from the competition.
Consider Apple® vs. JCPenney®. Apple has a completely proprietary and differentiated product line, a strong brand-focused marketing program and sells almost all its products at full retail. JCP has struggled, particularly over the past few years, to remain relevant and competitive in the marketplace given the depressed economy and retail as well as on-line competition. As a result, JCP turned to more and more discounting, promotions and pricing gimmicks.
In June 2011, JCP crowned a new CEO, Ron Johnson, the highly successful Apple executive who led Apple’s retail expansion to over 300 stores. JCP stock soars, then shockingly in late December, JCP announces that it will dramatically curtail discounting and make it simpler for the customer to shop without waiting for confusing promotions. Only one problem; nobody came. Why? JCP is not Apple. Although JCP has run a very impressive marketing campaign touting its new stance and image, the product assortment, the brands carried, and the service offered, provided little if any innovation or meaningful differentiation. The only proprietary products offered tended to be private label commodities. In all fairness, after a dismal quarter, they have added back some promotional pricing and the product offer will continue to improve.
So, in my opinion, the lesson here is simple. Unless we are willing to retool our organizations to focus on new products, innovation, proprietary functionality or features that give us a meaningful competitive advantage in the eyes of the consumer, we are doomed to creating sales gains by more and more promotions and incentives. It would be virtually impossible to morph all our businesses into Apple’s overnight, but I know from our experiences that concentrating on the product, the people who create it, and the resources required to develop it, creates sustainable momentum and customer loyalty. The failure to do so or interruptions in the process create a host of challenges.
I invite your comments, experiences and advice to our NEMOA members.
President & CEO, Garnet Hill