Value Over Price: Tips for retailers for offering true value to consumers

What can the retailers – especially the modern trade – do that the consumers perceive value? How can value be defined? Does this definition hold true at all times? In the new paradigm of online grocery, do the same value perceptions apply? These are some of the questions that need to be addressed if retailers want to offer true value to their customers…
In a survey by Nielsen – a leading global information and measurement company – 46 per cent of the surveyed respondents said that grocery shopping is a chore that they try to spend as little time on as possible. The low level of satisfaction may be taken as an indication of the belief that retailers do not necessarily stock what the consumers want. Nielsen polled about 30,000 consumers across 61 countries to derive the parameters that consumers rank when they are buying groceries.
In a generic sense, value is perceived as more than prices alone. In surveys, consumers have rated high quality produce, store location and product availability as more influential than pricing. The real essence of value revolves around the trade-off between the benefits a customer receives from a product and the price he or she pays for it.
Quality
Whether the consumer is shopping at her neighbouring market or in a modern mega store, quality of groceries is the primary parameter.
Groceries need to not only be available in adequate quantities, they should be of high quality and have a relatively small premium over the standard. If they look good in the shelf-display, then the expectations of the consumer is better met. Grocery, for long, has been considered as the learning place for understanding consumer behaviour and for setting the roadmap to loyalty and price premium.
Pricing, for long, has been used as the lever to increase brand try-outs. It can, however, get out of hand. In India, there are several stories and anecdotes about manufacturers discounting prices on specific groceries through promotions and schemes, triggering price wars and then requiring to scramble to maintain market share by dropping profitability across the board.
Indeed, the 10-12 million neighbourhood grocery retail (or kiranas) are largely protected and unconcerned about the spread of modern retail.
They understand their consumers well enough so that common perception tends towards some generalisations. For example, their rice is “cleaner”, the source of their wheat is known, they clean and pack groceries in a place near their outlet, they know what suits me, etc..
Pricing
Pricing is a parameter that is looked at, but the kirana owner is an established expert at extracting the premium from the customer due to his cost structures and local understanding.
Most supermarkets in India are not a compelling draw in terms of price and service. Shopping for dairy and fresh produce is a task that is executed once in two or three days. Access and convenience rank pretty high in the purchase of these items.
The traditional kirana shops have a stranglehold on this space. If they don’t individually offer the entire basket that the consumer demands, they organise themselves into clusters (local markets) that deliver all her needs. Staples – like rice and pulses – are relatively less frequently accessed by shoppers. Modern retail is able to gain a bit more market-share from the traditional in this space.
Indian modern retail has spent a lot of management and time addressing back-end supply chain concerns. Getting the produce to the shelf has been and continues to be a massive supply chain issue made more complex by India’s infamously weak infrastructure.
However, from a consumer’s perspective, an efficient supply chain is not the parameter that influences purchase. Even if the local kirana is slightly more expensive, the consumer prefers it due to product appearance, assortment and availability.
Today’s hyperlocal start-ups around groceries – like Bigbasket – offer quality as the primary differentiator to the consumer in addition to speed and convenience.
So, one of the answers to the modern grocery retailer lies in:
• Ensuring active engagement with the consumer to educate her about how quality of the products is maintained up to and on the shelf
• Working with the suppliers to define acceptable quality parameters and implement supply chain measures that aid the achievement of this condition
• Tracking the delivery of quality against the promise – using technology to monitor and initiate appropriate corrective actions
Location
For a long time, modern retail was working with the paradigm that ‘bigger is better’. Large box stores grew in the west and the same model was tried in the early days of modern retail in India. The verdict of the Indian consumer was clearly against the large store.
The reasons are not far to seek – convenience was the primary driver in addition to the savings (or expenditure) on travelling to the store. It was inconceivable to the Indian consumer that she had to travel a few kilometres to get her staples and then carry them back.
Indian modern retail has restructured and adapted to opening smaller stores in different neighbourhoods but has run into the highly competitive kirana store and higher costs of managing a distributed network. Market penetration, as a consequence, has been marginal.
The convenience store format may fit the consumers’ preferences but it places a far greater demand on the retailers. It may take multiple deliveries each day – for fresh, frozen and packaged goods – to restock smaller format stores. Higher frequencies cummulate issues like packing errors and pilfering leading to higher ‘shrinkage’.
In order to deliver convenience to the consumer, the modern retail industry is apparently faced with a set of challenges that are at once fundamental and intractable. If indeed, the consumer demands convenience, how can the industry cater to this requirement?
The industry leader – Future Group – is showing the way. By co-opting the local kirana into their network as franchisees, the chain is able to offer the consumer convenience while at the same time providing the assurance of a branded product basket.
The group has plans of investing in food parks across India and these franchisee-based retail outlets will be the network through which a primarily private labelled product assortment can be pushed through. This approach offers outlets that are between 450-600 sq. metres in size. Sometimes, these outlets are located inside petrol pumps for additional convenience.
In a country starved of urban retail spaces, this model offers promise of back-end efficiency and speed or convenience for the consumer. Moreover, the franchisee-based model has been effectively used in other industries, be it financial services, with self help groups, or express delivery, where last mile is increasingly handled by a local entrepreneur.
Very importantly, convenience and speed is essential in ‘in-store’ operations as well. Constant monitoring of loads to re-balance cashier availability is one way to handle the in-store volumes and meet consumer expectations around convenience and speed.
So, where do the answers to the modern grocery retailer lie?
• In creating and using models that provide a multi-dimensional perspective on shop ‘siting’ – for example – demographics, street network and expected transit times, service area analysis, vehicle ownership data and the like.
• In delivering convenience – in store as well as through the store siting. How can the product basket be tailored to cater to the consumer of the neighbourhood rather than use a standardised and efficient product assortment? Using locally available information more effectively through technology could provide valuable insight to the modern retail trade.
• And finally, in working with the partners in the supply chain to ensure that the consumers are serviced. Local kiranas frequently use ‘free home delivery’ as a convenience mechanism. There are market structures available today in India to provide this service in a standardised, consistent manner.
In the case of online grocery shopping, it is evident that online shoppers, are looking to remove drudgery of grocery shopping.
However, online grocery shopping is unlikely to take off significantly unless the delivery and fulfillment mechanisms become consistently reliable and ordering processes are more closely aligned to how households really buy grocery. There are analytical opportunities for the modern retail trade to understand their consumer better.
Product Availability
Availability is a critical determinant for consumer convenience and loyalty. Very often, customers switch stores if a product is out of stock. This is particularly the case with the modern, mobile consumer, whose behaviour is less “loyal” than the traditional neighbourhood consumer.
The trigger to switch could happen very early in the purchasing cycle, on occasion at the very first instance. Shoppers will increasingly look at factors that make shopping easier and quicker and availability plays a very important role in this aspect. Shoppers don’t want to visit multiple stores to complete their regular grocery shopping.
If stores need to act regularly and consistently to ensure that consumers’ demands are met, then these actions need to be taken. Ensuring product is on the shelf is essential for any retailer, but even today it remains a major challenge.
Product unavailability can cost modern retail trade up to 5 per cent of gross sales. In addition to impacting revenues, lack of appropriate product availability leads to customer dissatisfaction, lost market share and long term financial impact. Often, availability in modern trade is affected because product availability is not necessarily fully understood. There are a series of inter-linked transactions that need to be done with sufficient level of accuracy for ensuring that the product availability:
• Demand Assessment / Forecasting
• Supplier Delivery Management
• Product Distribution to the retail store
• Retail Store Planning and stocking on the shelf
There are these cross functional linkages that makes it difficult to understand how any one part of the process contributed to product unavailability. Even a small percentage of customers that are disappointed by lack of product availability can cause an impact in a category like groceries due to the higher frequencies of purchases.
In India, a commonly adopted practice to ensure product availability is to do manual checks of the quantities of key items on the shelves at specified times every day or week, in some cases supplementing these with store inventory tracking data.
Retailers who pick product from their shelves for home delivery can generate this type of information at much lower cost.
Such approaches suffer some fundamental flaws — all of which mean the true extent of out-of-stocks tends to be underestimated.
First, they don’t track availability for all products, only those with sufficient volume to justify the (high) cost of manual checks. Second, they miss a significant proportion of out-of-stocks, since checks take place periodically.
If a product is unavailable between checks, then the business will not know about it— only customers will. And third, they don’t give a good indication of how long a product is out of stock, making it impossible to quantify the missed sales opportunity with any degree of accuracy.
In today’s world, it is possible to connect the information on out-of-stock product with the sales information. A continuous monitoring of the shelf stocks along with when customers are actually billing the product will give a better understanding of stocks, their demand pattern and the most appropriate stocking pattern.
Statistic and data analytics provide the necessary tools to analyse the product availability on the shelf.
Equipped with better information on when out-of-stocks happen, the modern retailer can diagnose and mitigate the root causes of such occurrences.
Given the multi-dimensional nature of product availability, the solutions and corresponding costs of addressing this issue vary widely. Different types of availability problems require different remedies with different associated costs, so the financial impact of better availability depends on how it is achieved.
Developing a comprehensive picture of the root causes of out-of-stocks is therefore the first requirement for tackling them in ways that make financial sense.
Some industry players adopt a simple philosophy to improve availability, ‘making it the store’s problem’ by introducing new targets and incentive structures that motivate managers to minimise out-of-stocks. This can generate small improvements, but it will not address availability problems that originate outside the store.
Moreover, the cost of store labour, shrink, and shelf space needs to be balanced against the sales benefit from better availability: simplistic approaches may reduce out-of-stocks only by reducing profits at the same time. Understanding exactly why a product didn’t make it onto the shelf allows more effective solutions.
For example, if a product sometimes goes out of stock for a few hours during the day, replenishment practices may need to be changed. Under these circumstances, what should the modern retailer in India do?
Where do the answers for ensuring product availability lie?
• In addressing the process and systemic linkages between demand assessment, product supply, retail shelf planning and display. To
ensure that the cross- functional linkages are adequately captured in the systems deployed in the organisation, and are understood by all the stakeholders and that the issue of product availability is addressed as a strategically important business requirement.
• In putting in place a systematic mechanism of addressing product availability checks in the retail store. Ensuring that the intensity and duration of an ‘out-of-stock’ situation be recorded to understand the impact of these stock outs.
• In ensuring that focused solutions (like retail store incentivisation) are used intermittently and not considered as a comprehensive approach to address product availability.
Moving to a value driven selling model
Clearly consumers today are looking at a combination of factors that add to their value. Some of the responses are within the purview of the organisations’ systematic responses. Some of these consumer expectations would need market-based collaboration and appropriate technology interventions.
The sustained practice of meeting and exceeding consumer expectations will result in the consumers selecting the ‘value’ provided by the retailer as opposed to the prices set by the retailer across categories. Consistency in meeting the expectations of the retailers’ consumers is key to ensure that the long term financial results are impacted positively.