Retailers retrench, regroup and rethink: also, “The Dominance Effect”

This is part 1 of our interview with Dennis Veltre, President and Founder of Clicks & Mortar, a prominent marketing consultancy whose work keeps in close touch with the dynamics of the retailing sector in all its forms.

GR: What has been the impact of the economy on the actions of retailers?

DV: Well, like everyone else, in a down economy retailers turn their focus to ways of reducing costs. But they also do more than simply wait for the economy to recover. There is a good deal of activity centered on improving internal processes, vetting potential alliances, and analyzing new media.

GR: Let’s talk about those areas one at a time. What is happening related to internal processes?

DV: We are seeing a fair amount of attention being paid to the potential of new ERP systems in anticipation of the eventual return of an economy that will support capital expenditures again. The supply chain is an object of attention to find costs that can be driven out and efficiencies that can be achieved. Suppliers are under careful scrutiny for cooperation in controlling costs.

GR: Which suggests that there are emerging opportunities for new alliances.

DV: That is true at the supplier level and at the enterprise level. I think we are going to see an increase in merger and acquisition activities in the not-too-distant future. There are some real bargains out there.

GR: It sounds as if the general state of affairs is one of improving organizational efficiency and strategic planning rather than implementing.

DV: That is generally true. But one of the areas of improvement that rolls over into implementation is the increasing role of social media in the retailing mix of marketing channels.

GR: What role does social media play?

DV: Partly these new ways of reaching customers are part of a larger, older trend toward customer-centricity, which is the idea that the customer, not the channel, should be the focus of marketing attention.

GR: So that Facebook and Twitter and all the rest of the social media are simply additional ways of reaching out to the customer.

DV: That’s right. But one of the primary obstacles to utilizing new media is the same obstacle that exists when a retailer begins using a new marketing channel.

GR: Which is?

DV: I call it the “Dominance Effect.” I am right-handed; if you ask me to sign my name with my left hand, I can’t do it. Many retailers, perhaps most, achieve their success in a particular channel – stores or catalogs or on the Internet. When they move into other channels they are often handicapped by organizational structures, patterns of thinking and their own success.

GR: Like switching to signing with your left hand instead of your right?

DV: Exactly. And it is not simply a matter of muscular control – or organizational structure – we have a hard time even thinking about how what the new channel requires.

GR: So in this case success breeds failure.

DV: Not necessarily. The potential is there, of course, but understanding the danger is the first step in avoiding it. For instance, one of the oldest and most proven policies is to match rewards to performance. However, if rewards are deliberately or inadvertently associated with a particular channel, then that channel will have the best performance. Other channels will suffer, not because they are less effective, but because an organizational policy is penalizing them.

(Our conversation with Dennis Veltre continues in Part Two.)

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