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Myuran Kanga I2
1 Meyers-‐Levy, Joan and Rui (Juliet) Zhu, “Psychological Impact of Ceiling Height in Retail Spaces,” InformeDesign, Accessed: March 15, 2014, http://www.informedesign.org/Rs_detail.aspx?rsId=3387.
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INDIVIDUAL ASSIGNMENT 3: Can Retail Stores Survive in the Face of Internet Competitors? Purchasing a Home Entertainment System at Best Buy vs. Amazon.com
As a technology savvy society, we expect our Home Entertainment Systems to provide the best sensory and emotional experience possible. Here I have compared the change in shopping experiences within the past decade from the typical ‘showroom’ stores such as Best Buy to Internet venues such as Amazon.com.
Best Buy – Traditional Service Outputs: Face-‐to-‐face human interaction, feature and typical operation demonstrations, discussions with customer representatives relating to product pros and cons, personal customer representative preferences/opinions/recommendations, showroom setup experience, personal attention and customized advice, immediate product purchase and inventory availability, guided shopping experience, and technical features explained and shown in laymen’s terms. Non-‐traditional Service Outputs: Further than simple product purchases, customers seek unique service outputs that retailers may not traditionally target. Venues to interact with other people, share in the wow-‐factor and hype related to experiencing new technology, opportunity to speak with other customers on their opinions and experiences, observe other customers operating technology to form opinions about the products’ overall user experience and satisfaction, provide a venue to share time with friends and family – an informal location on weekends/evenings to spend on leisurely shopping trips.
Experience: From the time a customer drives into a Best Buy parking lot, they enter an atmosphere where little effort is required to attain products. Parking lots guide customers to spaces and allow them to enter the facility quickly and through short distances. The parking lots themselves provide guidance for leaving shopping carts, provide trashcans for customer convenience, and even provide powerful lights for evening shopping. Once inside the store, the first feature customers will note is the friendly smile and emotional connection from the door greeter. Next, they notice the vast size of the facility. Not only does the breadth and depth of the facility provide a showroom expanse, the ceiling is also intentionally positioned very high to provide the feeling of freedom and openness1. Customers also hear music playing over the intercom system with the bustling rumble of other shoppers as part of the interactive experience. Shiny plastic wrapping and the smell of new merchandise signal high-‐technology expectations. The home theater department offers vivid TV displays with crisp images and a wide range of display color capabilities. Not only do customers get to hear the sound clarity from the sound systems, but they also feel the thump from the bass in their bodies. Customers can feel and visually inspect the thin TV displays while wearing 3D glasses. Viewing images popping out at customers enhances the sensory and emotional effect. Holding remote controls in their hands and sitting in recliners allows customers to feel the weight and ergonomic aspect of similar systems in their own living rooms. Once selections are made, customers are guided towards registers where they smell the buttery aroma of popcorn or other promotional items designed to attract customers’ as they exit the store.
Disadvantages: Added cost to transport purchases or must transport on your own, selection and variety of products is limited, higher prices and taxes, travel inconvenience, and time inefficiency.
Amazon.com – Traditional Service Outputs: Fast and efficient purchases, 24 hour buying service, direct delivery to residence, wide product selections, access to easily accessible reviews and warranty information, accessory/option recommendations, secure payment methods, lowest prices, easy access to products when ‘I know what I want,’ and simple product comparison tools. Non-‐traditional Service Outputs: World-‐wide shopping access, facilitate “bored shopper syndrome” by providing related interesting products or similar offerings on-‐demand, searching feature to find unique items, suggested/targeted merchandise advertising based on interests and habits, and eco-‐friendly transactions with electronic receipts and no plastic bags.
Experience: The Internet shopping experience provides customers with a unique approach to acquiring technology. Customers can more carefully compare technical specifications for displays, sound technology, etc. side by side. They are provided with the options of shopping while enjoying the tastes and smells of food at home or even while watching their favorite TV show. Amazon presents customers with detailed product pictures of users demonstrating the equipment in their homes and arranges them in an appealing manner. Videos and accompanying sounds are also presented to help demonstrate product features or show customers how users typically operate equipment. Emotionally, customers can connect their buying experience by sharing their findings with friends and family through social media, email, or mobile devices.
Disadvantages: Delay in receiving products due to shipment, difficult for non-‐technical buyers to understand technology, hard to compare visual/auditory differences between systems, no hands-‐on demoing capability, buying requires more thought and effort than guided store approach, and no face-‐to-‐face human interaction.
MAR6930 – Business to Business Marketing – Individual Assignment 3
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Net Promoter Score (NPS) Methodology Background: The ‘ultimate question’ as Fred Reichheld describes it, is used to survey individuals on a firm’s customer relationship loyalty. The method implies a philosophy that firms must convert more customers into promoters and fewer into detractors to grow. From the customer’s eyes, the NPS quantifies long-‐term consumer value by taking the difference between ‘assets’ and ‘liabilities.’ Customers are sorted into three categories: promoters who are loyal & enthusiastic, passives who are satisfied but unenthusiastic, and detractors who are unhappy & stuck in relationships. Survey questions are posed to participants requesting the likelihood of recommending a firm to friends or colleagues with a scale of increasing recommendation from 0-‐10. Responses from 0-‐6 are categorized as detractors, 7-‐8s as passives, and 9-‐10s as promoters. The NPS score is calculated by subtracting the percentage of detractors from promoters. Organizations should challenge themselves by reviewing Reichheld’s NPS score to manage customer relationship improvements.
Questions: The following questions were used to solicit NPS scores for Best Buy and Amazon.com. Six individuals participated in the study including myself. 1) On a scale of 0-‐10 with 10 being extremely likely and 0 being not at all likely, what is the likelihood that you would recommend Best Buy as a source for a Home Entertainment System to a friend or colleague? Follow-‐up question: Why have you provided this likelihood score for Best Buy? 2) What is the likelihood that you would recommend Amazon.com as a source for a Home Entertainment System to a friend or colleague? Follow-‐up question: Why have you provided this likelihood score for Amazon.com? The score results and responses are shown in the following table.
Survey Results -‐ Likelihood to Recommend Firms as Home Entertainment System Sources Best Buy Amazon.com
Respondent Score Why? Score Why? Myuran (me) 5 High prices 9 Best price, Speed Chad 8 See product 6 Skeptical of online purchases
Larry 7 Specialized products 5 Shipping cost w/out membership
Chrystal 2 Too expensive 7 Lowest prices
Marla 9 Convenient for small towns 4 Bad service experience
Roushan 7 Like as a showroom, Expensive 8 Cheaper, Quick, Best support
Detractors: 2 Passives: 3 Promoters: 1 Detractors: 3 Passives: 2 Promoters: 1 Percentages: 33.33% 50% 16.67% 50% 33.33% 16.67%
Final NPS Scores: 𝐵𝑒𝑠𝑡 𝐵𝑢𝑦!𝑠 𝑁𝑃𝑆 = 𝑃𝑟𝑜𝑚𝑜𝑡𝑒𝑟𝑠 − 𝐷𝑒𝑡𝑟𝑎𝑐𝑡𝑜𝑟𝑠
𝐵𝑒𝑠𝑡 𝐵𝑢𝑦!𝑠 𝑁𝑃𝑆 = 16.67% − 33.33% 𝑩𝒆𝒔𝒕 𝑩𝒖𝒚!𝒔 𝑵𝑷𝑺 = −𝟏𝟔.𝟔𝟕%
𝐴𝑚𝑎𝑧𝑜𝑛. 𝑐𝑜𝑚′𝑠 𝑁𝑃𝑆 = 𝑃𝑟𝑜𝑚𝑜𝑡𝑒𝑟𝑠 − 𝐷𝑒𝑡𝑟𝑎𝑐𝑡𝑜𝑟𝑠 𝐴𝑚𝑎𝑧𝑜𝑛. 𝑐𝑜𝑚!𝑠 𝑁𝑃𝑆 = 16.67% − 50% 𝑨𝒎𝒂𝒛𝒐𝒏. 𝒄𝒐𝒎′𝒔 𝑵𝑷𝑺 = −𝟑𝟑.𝟑𝟑%
Analyzing Scores and Comparing Firms: The survey results were converted to Net Promoter Scores for each firm. The comments from participants, along with the NPS values can be interpreted to analyze each firm’s customer relationship state. Amazon.com’s lower NPS can be explained by the fact that Internet purchasing venues are still new to some individuals. These people will remain skeptical until they build a relationship similar to the one they share with companies like Best Buy. People are sensitive to ‘bad profits’ and look for instances where new and unfamiliar companies break the trust required for strong customer relationships. Requiring membership fees (which were recently increased by Amazon.com) just to gain access to privileges and imposing excessive shipping costs for everyone else causes customers to feel like they are being deceived or alienated. Best Buy’s slightly negative NPS may be due to the fact that Internet retailers are beginning to gain ground in the market and taking loyal customers from the firm. Internet companies buy products directly from manufacturers at wholesale prices and create huge product price discrepancies in the market. This is the major problem that traditional retailers must overcome. The margins have become so small that retailers cannot compete. If this trend continues, Best Buy’s NPS will continue to decline over time.
Retail Stores Can Survive in the Face of Internet Competitors Traditional retailers like Best Buy can survive in the face of Internet competitors by leveraging the unique service outputs that they currently fulfill. People frequently visit Best Buy because they know they will be guided through purchasing decisions with any questions or concerns answered onsite. These customers want the ‘consumer experience’ environment. People will always seek face-‐to-‐face human interaction. There is no substitute for the sensory demonstrations provided by Best Buy’s ‘showroom’ experience. The strategy of gaining trust and growing customer relationships with credibility, character, and respect will allow retailers to maintain customer loyalty and value in the long run.
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