Episode #0090 - Will shoppers pay a bit more for a better retail experience

Pricing College Podcast

In today's episode, Joanna and Aidan discuss retail therapy for the upcoming Christmas season and Black Friday.

It’s that time of year where we approach Black Friday, and of course the Christmas shopping season. So in today's podcast, we want to take a bit of retail therapy and ask, Will people in a retail environment be prepared to pay a bit more? Not a huge amount more, but will they pay more for better service and other things?

Well, I’m gonna answer that question right away and I would say that Aidan, I think people are willing to pay more for a better customer experience in retail. But now I'm going to add the usual caveat.

But different people are going to have different propensities to pay different amounts. So it's not a sweeping statement. But overall, I do think that people are. But I also think that people that are feeling, say, emotionally frustrated or they've just had a bad experience in a shop, for instance, are more likely to spend more than those that are just having a regular experience.

Nothing's happened or had any emotional sort of things that make them angry, frustrated, etc. They haven't experienced any pain. I think those types of people probably would pay less than those who are frustrated people so here we go into almost the psychology of pricing in retail.

I always think of I looked at what I’ve done in my shopping, I’m not the worlds biggest shopper, I have to admit. But when I looked at the purchases I made. Items like electronics, laptops, computers.

In Australia, I love to go to Harvey Norman and the reason is not that Harvey Norman is the cheapest. It’s not because it is the widest range their quite good for both those things. But it’s more on ancillary items such as a less stressful shopping experience, then maybe a JB Hi-Fi or another retailer.

There are other things such as you can get better assistance from people who work in the store. Harvey Norman often is a franchise. So, people running or working in the store are often more incentivised, I might be wrong. But I feel they are more incentivised to give good customer service, talk you through the product you're buying.

And then also items Harvey Norman has an insurance replacement scheme for a lot of electronics. And I find that quite useful because anybody who buys quite a bit of computer or electronics knows that within two or three years, the chance of malfunctioning reason would be high. So, I do pay more for that.

I have other examples that are given a few moments covering other shopping experiences. But I do think when I'm gonna buy those items, to me, those are big-ticket items. I think "Do I want the hassle or do I want to be stressed doing this?"

It seems to still come down to this quite general term customer experience. And I think you've done a good job sort of defining what that is. Often, people think when you talk about are people willing to pay more for something. They are thinking about the price. The price of a product is dictating everything, even customer experience.

Basically, what we're saying here is that the price actually may not have as much of an impact as we believe. And customer experience is the big thing that influences people. And underneath that, it’s how they feel about the customer experience that influences people's willingness to pay more in retail.

Thinking about Harvey Norman and JB Hi-Fi in very different styles, I suppose of experience. But strangely like both of them have a lot of sales staff at hand in the stores.

And when you go in there, as a consumer you want to buy something that's novel, expensive, or electronic goods. You want to speak to somebody that you trust and knows what they're talking about in terms of that product because you're going to spend.

It's a higher value item for you as a higher-margin item from them. So, they want their sales staff to be good and you want them to be good. So, you can trust that they're giving you the best advice and in both stores. They do put a lot of investment behind that people.

In JB Hi-Fi, their store, I suppose the aesthetics are not great. There's a lot of blaring, sort of confusing price-led signage everywhere. But again, research has shown that confusing signage is a good thing for purchasing. More confusion in a way can create a faster sell. But then again, you need a good salesperson to make a customer or consumers feel comfortable in the midst of all that confusion. And I think JB Hi-Fi nailed that quite well.

Yeah, I suppose I think I saw once whereby someone described it as almost like an explosion in a marketing department. That causes all the posters and stuff like that in JB Hi-Fi. It's almost like, how many posters can you have up?

A similar business is the chemist warehouse which I quite like. The chemist warehouse, I think they spend huge amounts of money on marketing and brand, position themselves first domain. But with chemist warehouse, it is cheap. It tends to be cheaper than other stores.

But it's also the ease of shopping and it is very good. I like the way it's set up along the shelves. You're pretty confident that you’ll find all the vitamins or materials you're looking for. I think they have a big spread of the different products that a lot of stores don’t have.

But I'll give you another example of when I was younger. I used to work in a shop called Marks and Spencers in Britain. It’s a bit of a mixed retailer, I don't know what it could be in Australia. It's predominately under its own brand but also a mid-market retailer. Sort of upper-middle market retailer selling food and also clothing.

But for many years, they had a "no questions asked" return policy on all clothing. So, if you bought a pair of trousers or shoes or anything like that, you could return it no questions asked and get all your money back.

When I worked there, some people did take advantage of that. People would wear items for like six months and then drop them back in for a full refund. But that confidence that it gives you in buying a product, that you're not going to go through the stress of trying to make an argument and explaining, why you should be refunded.

It gives trust and you feel that you're being. It builds rapport I think between the customer and the retailer, even if the retailer loses out on some of the returns. I think the benefits to them, you can’t buy that brand awareness.

And now, of course, we've been talking about customer shopping experience in-store. But there's a massive change in the market now and more people are shopping online. There are people that prefer in-store and online but there is a massive shift and you can say that's due to COVID. Those sorts of things but it could be also, age-related, and again, going back to experience.

I think people expect the same if not better experience online. They want it all. I think overall, customer shopper expectations from businesses are much higher across the board. And I think businesses in a way are struggling to get that unified only channel experience from in-store to online.

I suppose some businesses almost don't know what to do with their in-store because the online customer experience is moving so quickly. But I think in terms of technology and movement and change, yes, that's all happening very quickly. But we still are people and we still feel the same way and have the same frustrations, regardless of online or in-store.

So, I think from a business perspective, you always have to think back to the customer. What is it that's frustrating the customer about the experience, whether it be online or in-store and try and fix it?

For instance, a lot of studies have shown that the worst thing that's driving people online is because in-store, you go to the store and there isn't the stock and that can be quite frustrating. You've made the effort to get in your car, go to the store, find the car park, and walk around the store. You get in there hoping that you find it. It's not there and it always tends to be the same thing. So, most people are going online for that.

Now, could we improve that? Potentially, is online any better? Often, you have to wait longer if you like a pair of shoes you want to be here. And often, you have to wait for three or four weeks, especially now with like supply chain issues, porting issues, things left in the ports. It's not necessarily a seamless experience and it has its hiccups. So yeah, just bear that in mind too.

I think Joanna touched on the idea of the value drivers of what a customer is going there for.

One thing I'll say about this is supermarkets. As in many countries, you have the more traditional - what you would call a full-service supermarket where even somebody packed your bags for you.

At least in Australia and in comparison, to say the new entrant German discount supermarket, one thing I'd say is one of the big differentiators between Coles and Woolworths and the new entrants were that you could have somebody pack your bag for you. You didn't have to go through the self-checkout. Etc. And that is a big value add, especially for some older people.

To be honest, also, just when you've been having a stressful day shopping, do you really want to wrestle and deal with doing it yourself?

I see there's a real plus but more and more recently, when you go into the supermarket, there are no check-outs available. And you're forced to use self check-out system which, to me, is almost like a supermarket stripping away its actual value add. It’s stripping away what people saw as a plus and driving itself.

Fundamentally, if you want to compete on price, that's what you’ll compete on. But you're probably going to lose those other customers who probably want that additional service that makes life a bit easier, a bit more full-service aspect. I think you'll see this more and more I wonder what people feel about this, the listeners but when you're in a supermarket particularly in late evenings, or maybe at 7 pm very often no checkout is available and you're forced to do a self-checkout system that I can understand completely saves the supermarket money but that’s how feels like, it feels like your savings supermarket money.

Yeah, I think that particular example there's definitely a push in the supermarkets to drive people to either that click and collect or that online delivery service but then it goes back to that point, is that a better service? Does it create it? Does it make our lives as consumers shoppers easier? Or is it just as frustrating and you're saying, we want the old fashioned experience where there's a bit more assistance because potentially what they're offering isn't as convenient as the sales pitch of click and collect? For instance, often you can drive in click and collect after work or, later on, in the evening or the middle of the day there's less staff who did the picking in the shop, and you're just sitting there, waiting in your car, is it going to come? Is it not? Is it going to come? and then wasting maybe 45 minutes until the bags come down for you. Is that convenient? No, it's not. Equally online delivery service they give you a large window of time where they're supposed to come and deliver that shopping Is that convenient for me? Or is it convenient for them? I have to sit around waiting for them and that can be very frustrating, especially if I am time poor and I've got things to do or meetings to have in the day, etc, etc. It's all about convenience and I'm fitting around them rather than fitting around me. So I still think there's that shift to online clicking collect, especially in that retail area. But is it working? No, not necessarily. It is supposed to be in favour of the customer but isn't. So anyway, that's my thoughts on that one.

Yeah, I think I'll finish off with I'm a big believer that everything in life goes in cycles, business goes in cycles, too and I suppose you could argue that the supermarkets were invented like most of these things, probably in America, I assume, or Britain or Western Europe, probably and they're implemented and rolled out from the 50s and 60s onwards, where you're bringing all the screen grocers and fishmongers and butchers all under one roof. To some extent that brought convenience because it was all done at the one time but I think things go in cycles and as you dehumanize the shopping experience, take away those value adds, take away even somebody to help you or give you advice on if you want to buy a cut of meat, people will start going back to the neighbourhood butchers, the neighbourhood grocers I think it's widely accepted that you probably will get better meat from the local butcher store if it's a good butcher store, same a fish same with any of those items. And I think yeah, things will go in cycles, they go to conglomeration, big multinationals and then that creates room for the alternatives as they cut back on those additional services, the advisory, the friendliness, the knowing you the person at the deli counter, you might know that disappeared from the big supermarkets through cost-cutting. At least some people will search for on that spectrum and they'll search for y maybe pack in the place we’ll start back at the butcher shop.

Yeah, I agree. I think there are fads in business and there is a tendency in business to leave the human element out because it's often the more complex emotional irrational side of things, and then lead with something more logical, systematic like IT technology, operational efficiencies, but at the end of the day we still are human. We are the ones that are buying it regardless of the channel and what we're using to buy that particular product and we've got to bear that in mind as we zoom ahead with our technological advancements not saying that you shouldn't because that's it's progress, too. But it's integrating that omnichannel experience by thinking very, very closely about the business model where you want to take the business and at the centre of that business model, the customer and that customer experience unpacking what that means for your particular business and your customer.