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Barbara Kahn: You know, one of the
other things that you haven't mentioned, but that is
fundamentally changing retail
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today, is, you know, the role of
price. Now, low price matters, but people are much more price-
sensitive. Maybe it's because of
00:00:13
the tariffs. We'll still see how
that works out. But speaking of Amazon, you know, what they've
done is move up shopping to
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Prime Days in July. - Yeah. - You
know. So that's kind of an interesting thing. The very,
very promotional days that are
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happening in July, that it's
affecting back-to-school shopping and Christmas shopping.
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Welcome to <i>The Ripple Effect</i>,
the podcast that takes you on a
00:00:38
journey through the minds of
Wharton faculty. I'm your host, Dan Loney, and in each episode,
we'll be diving deep into the
00:00:44
inspiration behind the
groundbreaking research that Wharton professors have
conducted, and exploring how
00:00:50
their findings resonate with the
world today. Retail has gone through quite a bit of change in
the last couple of decades, and
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now it's adjusting to the advent
of AI. So where does retail currently stand, at the ground
level? Pleasure to be joined
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here in studio by Barbara Kahn,
who's a Professor of Marketing here at the Wharton School.
She's also host of the <i>Marketing</i>
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<i>Matters</i> podcast and author of
the book <i>The Shopping</i>
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<i>Revolution: How Retailers
Succeed in an Era of Endless</i> <i>Disruption</i>. Great to see you
again. How are you?
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Yeah, I'm good.
Thanks for having me. So when you're talking
about this
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endless disruption, it's
something that retailers, it feels like, need to factor into
their— kind of their bottom
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line, their operations on a
daily basis right now, because things seem to be coming at
them left and right.
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Oh, absolutely. So ever since
Covid, we've seen so much disruption in retailing. It's
absolutely changed their
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strategy. One of the things that
we've seen, as we now know, is that retail is omnichannel. So
it's not physical or online.
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It's a seamless integration
between the two. And the other thing that we've seen is that
the differences in products and
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the differences in price aren't
that significant anymore, because a lot of the products
that retailers are
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selling are in the mature stage
of the product life cycle. So product differentiation, while
it's there, it's kind of
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flattened out. There's just so
much you can do in differentiating on price. So
what we've seen now is that
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retailers are focusing on
changing the customer experience and winning by the customer
experience. And that's why this
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omnichannel piece is so
important, because you've got to think about the customer experience
online and in the physical store.
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That was going to be my next
question. Because seemingly, that has to integrate with how you're
thinking about all these
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different components which you
want to use to promote your products, promote your service,
whatever it might be, but you
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have to do it in the scope of
understanding your customer and how you're going to reach them
in the best manner.
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Right. And one of the things as
I've been trying to think about this and come up with a new
framework to offer some
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strategic advice, is to think
about it as the time spent with the consumer, and think about
that as a differentiating
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factor. So one way to think
about customer experience is, spend more time with your
consumer. Now that's not in and
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of itself, a good thing. It's
got to be valuable time with the consumer. So you start thinking
about customer experiences. How
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can you provide value? Through
entertainment, through learning preferences, so you can do more
customization, et cetera. The
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other way you can offer value
through customer experience is by spending less time with the
consumer. Making it more
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efficient. And that's, of
course, what Amazon learned in spades in the big— you know, that
really brought them to the front
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of retailing, because they made
shopping so easy, so frictionless. So does the add-in of AI into
retail make it easier or harder
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to have that level or that path of customer experience
that you want to have? Right. So now, another
disruption that's coming is this
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idea of generative AI. And we
know consumers, we know students, we know everybody is
using ChatGPT for everything.
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How does that change the
shopping experience? And we're just starting to do research on
it, but it is fundamentally
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changing the process. From your experience and your
history, are there areas of the
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retail operation that seemingly
just fit so well, where ChatGPT, AI, can just seamlessly make
things so much easier for the operation?
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From the retailing point of
view, from the retailer's point of view, there's efficiencies in
supply chain management,
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inventory management, that ChatGPT
can help. But from the consumer point of view, it's
pretty interesting. One of the
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things that we used to teach in
marketing was that there was a funnel in the way customers make
decisions. It was called the decision
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funnel, the marketing funnel.
And the idea was, first you have to be aware of the product, then
you have to care about it,
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form considerations, and evaluate.
It was a very linear process. The first disruption to that
process was the mobile phone and
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digital and digital marketing
and things like that, because now the process was no longer
linear. Brands could come into
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the process any which way, and
we no longer thought of the decision process as a funnel,
but more kind of like a subway
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map in certain ways. You know,
the circuitous way, where information can come at all
different points. That
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fundamentally changed marketing.
Now, what does Generative AI do? It changes the process. You no
longer search for yourself. Like,
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the search process is almost
gone, right? You go to ChatGPT and it tells you something, and
then you respond to that. You're
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not even responding to your own
memory and your own cues. You're responding to what ChatGPT is
telling you. So some of our
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consumer behavior researchers
are looking at, how does that change customer decision making
when it's stimulus-based like
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that, as opposed to
memory-based. So— and a lot of that will
come from the mindset or the
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path that the company is
bringing forward. But then we also have to get to the point
where the consumer has the
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recognition that a lot of this
is going on and not just to buy in at the first suggestion that it gets
and continue that search process?
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Yeah, now I don't know how much
the company affects what ChatGPT spews out either. You know,
because— so like, from the
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company point of view, it's not
clear either. We're just starting to do some— a lot of
research in this area. But one
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of the things that I've seen is
that there are biases built into these algorithms. When a
customer made their own
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decisions, they had their own
personal biases, right? And we did a lot of research. Danny
Kahneman won a Nobel Prize for
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heuristics and biases and all
the things that we understood about the way that consumers were
making decisions. Now we have to
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understand how the algorithms
are making decisions, and it's different from the way the
consumers do.
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Let me switch to bricks and
mortar, because I know that's a topic we've talked a lot about
over the years. Where do we
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stand with the potential
strength or lack thereof of bricks and mortar stores moving
forward, because of how the e-
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commerce realm has just come in
and and dominated in many cases? Yeah. But you know, the
more things change, the more
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they stay the same. People have
been predicting the end of the physical store, even before
Covid. And then during Covid,
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with the acceleration to
digital, which is what you're talking about, people said
that's the end of the physical
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store. It's just not true. The
physical store is transforming. The malls are transforming. Even
Macy's is transforming. We'll
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see what happens with that. But
it's not that the physical store isn't important anymore. It just
serves a different purpose. And
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that's why I was saying customer
experience is really important. So understanding how people
spend their time. We know, and
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we know, as soon as Covid was
over and you got out of that digital world, people couldn't
wait to get back into the
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physical store. TJ Maxx, which
doesn't have a very big digital footprint for a lot of reasons—
when— when we were done with
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Covid, there were lines around
the block to get back into TJ Maxx. So people like the
physical experience of shopping.
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But things that are more
efficient or easier to do online, they'll continue to do
online. We just have to
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understand what they want to do
in the physical store and what they want to do online.
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Right. So there is kind of a
tipping point for the consumer of— and maybe they're the ones
that would know this the best— of
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what I can just go in quickly,
throw into Amazon, get that order in. If you're a Prime
member, you know you're going to
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get it delivered the next day,
and what types of items you actually want to go out and spend
your time and learn more about.
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Right. So that's what we have to learn.
What do people want to do in physical stores? This idea of
retail-tainment. The idea of the
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social interaction seems to be
very important. The idea of building a relationship with the
retailer over time. Now maybe
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you can do it online, but it's
easier to do it in the social way, where you learn customers'
preferences, you build the
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trust, and then you build
loyalty that way. Right. You and I have talked a lot over the
years about Amazon versus
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Walmart. Seemingly— and maybe
even Target as well— but Amazon and Walmart being the two kind
of— the titans in this area. And
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for their own strengths, they
seem to be able to really connect with the consumer to a
degree in different ways.
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Because obviously, so many
people that go to Walmart love the— going to the store and that
experience. Obviously a lot of
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people on Amazon are going to
go there because they love the online ease and speed at which
they can order.
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Yeah. I mean, I don't know how
many people go to Walmart for the experience. Like, when I
think of customer experience,
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I'm going to think of some of
the luxury department stores and things like that. But Walmart is
convenient. It's convenient in
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a different way. Some people
think that it's more convenient to shop online, pick up in the
store and drive it home, than to
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wait for these deliveries to
come to your front door. There's an inconvenience for some people
in that too. So I think both
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Walmart and Amazon are really
featuring a very good price and very easy. And they're defining
what a very good price is
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differently, and they're
defining what's easy differently. What do you hear, then, from
companies in terms of their
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footprint with the bricks and
mortar, of how they are looking at where they want to be within
the shopping experience? Because
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obviously, for the longest time,
the industry relied on the massive malls. They are
obviously not doing that as
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much. And it seems like you see
more of the— I guess it would be the B and the C malls
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that are drawing more
attention from retail companies. I mean, it's interesting how
these different things are
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changing. One of the things I
knew when I started writing my book a long time ago, was the US
was over-stored. So we had too
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many stores in the first place.
That was a given. You know, now it's kind of been obscured by
all these other changes. But we
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had too many Gaps, for example.
Everybody knows we had too many Gaps, right? - Right, right.
- You know. So
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some of those physical stores—
- Only so many pairs of jeans you could buy, right?
- Yeah. I mean, that
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doesn't make sense.
The way they would grow is build a new store. And
it just didn't make sense
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anymore. So we had too many
stores to start with. That was the given. But to your point,
the role of the store is
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different. So one of the things
that happened in Covid was this idea of this omnichannel
experience, where you're buying
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online, pick up in the store.
That made those neighborhood centers more useful, because you
could just drive up to the store,
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pick up something, and it was
very convenient. And we're also seeing the malls change. You
know, what's fulfillment in a
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mall, what's entertainment?
There is a role for physical space. It's probably less
physical space than we had
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before. And probably these big
footprint stores are changing. We're seeing stores become
smaller, more experiential, more
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carefully designed, how they're
using their internal space. Do you think that, in the end,
all the impact that we saw on so
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many different businesses, but
I'll use it in the scope of retail here, will end up being a
valuable learning experience for
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retail because of all of these
changes, and obviously now with technology and all these
different components? That there
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are things that a lot of
companies learn that will make them better on that, you know,
on the outside?
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Yeah, absolutely. I mean, people
were doing things that made no sense just because they did it,
you know? I mean, we understand
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why people put the milk in the
back of the store, because you wanted people to spend more
store— more time in the store,
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to find that milk and buy other
things. But from a customer point of view, it was always
obvious, that's not convenient.
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They cannot do that anymore. So
now you're going to make stores a better customer experience. You
were—and that's an example of
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something that the data are
showing. People don't like that. If you put the milk in the front
of the store, people are
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happier, you know? So there's
some learnings that we're getting. You know, one of the
other things that you haven't
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mentioned but that is
fundamentally changing retail today is, you know, the role of
price. Now, low price matters,
00:13:08
but people are much more price-
sensitive. Maybe it's because of the tariffs. We'll still see how
that works out. But speaking of
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Amazon, you know, what they've
done is move up shopping to Prime Days in July? You
know. So that's kind of an
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interesting thing. The very,
very promotional days that are happening in July, that it's
affecting back-to-school
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shopping and Christmas shopping. Does— does a company like
Amazon, then— do they have— they
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obviously think about when they
want to have those types of days. But do they think about
how many of those types of
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different events they want to
have, and where that saturation level, kind of, you know, goes
maybe overboard as well?
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Yeah. I mean, I'm not
inside the head of Amazon, but that's got to be. But one of the
things that we also see, which
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is part of the wheel of retail
that we've seen over time, is, so Amazon put Prime Day in the
middle of July. Everybody saw
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how effective that was, and then
they all copied. So now part of what you're seeing happening is
that everybody has a Prime Day.
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It's not just Amazon anymore.
All this promotional shopping has been moved to July. What
that's going to do to the back-
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to-school season and to the
holiday season remains to be seen. But a lot of purchases were
made in the middle of the summer.
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What are the areas that you're
most focused on right now, in terms of where retail is and
where it's headed
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moving
forward? I personally am very
interested in this idea of differentiation through customer
experience. Like, how do you
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make the customer experience
something that people want to go to your store to see? There have
been a lot of experiments that I
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don't think have worked, as
people throw the spaghetti on the wall and try to figure out.
You know, like there was a lot
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of these Instagram things in the
mall where you just take pictures and all this other
stuff. I don't know how
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successful in the long run, some
of those Instagram-type installations in malls were.
I've seen some very interesting
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ideas and customer experience,
like, for example, the Sleep Number, which is a luxury kind
of bed thing— in order to get
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that, that's a combination of
learning customers' preferences and using technology, so that you
can build a bed that's so
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customized for you. And that
idea of spending enough time with the customer, either online
or in a physical store, to learn
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those preferences, to really
customize the product, that's an interesting experiment to see
how you can translate that to
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other types of retail. Well, seemingly— and you talked for a
while about how Amazon, with the
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checkout, the self checkout, with
some of the stores that they were going to have, that that was
kind of the next step in that
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process. But seemingly
companies, it feels like, understand that the way to be
able to maybe differentiate
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themselves from maybe a rival or
another part, is to find where technology can benefit them the
most moving forward.
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Right. And so there's— this use
of technology can either build relationship with the customer
through learning preferences in
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different ways, or remove
friction. So what Amazon knew was this idea of one-click
shopping. And that's the
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same thing. I don't want to go
to the back of the store to get the milk. I want it right here.
I don't want to stand online and
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pay for my goods. I'm going to
abandon my cart. So let's make that as efficient as possible.
Personally, when I go into a
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physical store, I can't tolerate
a long line at a cash register. I really expect a salesperson to
come up to me with their little
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pad and get me out of there fast,
or self checkout, or things like that. Well, that's what I was
gonna say.
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When you go to
the grocery store, the self- checkout lines, I've seen my
grocery store and others,
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seemingly, they've added at
least two extra self-checkout areas just because the consumer
wants to get in and get out as
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fast as they can. And again,
that circles back to that component of experiencing
you talked about. - Right.
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Right. Which, in that case,
it's, make it efficient. Don't make me spend time doing things
I don't want to do. Make my time
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valuable with respect to the
retailer. And that's just not the way retailing was originally
built. Retail originally built—
00:17:06
was built to sell products at
the right price, so they were very product-focused. And a lot
of marketing, retail included,
00:17:13
has moved to this new idea of
focusing on what's important to
the customer. Right. Barbara, I always
appreciate talking to you.
00:17:20
Thanks very much for your time
today. Sure. Thank you. It's always a
pleasure. - Thank you.
00:17:23
Barbara Khan,
Marketing Professor here at the Wharton School, also co-host of
the <i>Marketing Matters</i> podcast,
00:17:28
and again, the book <i>The Shopping
Revolution,</i> which she did a few
00:17:32
years ago and has been updated,
<i>How Retailers Succeed in an Era</i>
00:17:35
<i>of Endless Disruption</i>. Thank you for listening to
<i>The Ripple Effect</i>.
00:17:39
We hope you found this
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00:17:45
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