00:00:00
Barbara Kahn: You know, one of the
other things that you haven't
00:00:01
mentioned, but that is
fundamentally changing retail
00:00:04
today, is, you know, the role of
price. Now, low price matters,
00:00:09
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
00:00:17
Amazon, you know, what they've
done is move up shopping to
00:00:21
Prime Days in July. - Yeah. - You
know. So that's kind of an
00:00:24
interesting thing. The very,
very promotional days that are
00:00:29
happening in July, that it's
affecting back-to-school
00:00:32
shopping and Christmas shopping.
00:00:34
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,
00:00:41
Dan Loney, and in each episode,
we'll be diving deep into the
00:00:44
inspiration behind the
groundbreaking research that
00:00:47
Wharton professors have
conducted, and exploring how
00:00:50
their findings resonate with the
world today.
00:00:53
Retail has gone
00:00:54
through quite a bit of change in
the last couple of decades, and
00:00:57
now it's adjusting to the advent
of AI. So where does retail
00:01:02
currently stand, at the ground
level? Pleasure to be joined
00:01:05
here in studio by Barbara Kahn,
who's a Professor of Marketing
00:01:09
here at the Wharton School.
She's also host of the <i>Marketing</i>
00:01:11
<i>Matters</i> podcast and author of
the book <i>The Shopping</i>
00:01:14
<i>Revolution: How Retailers
Succeed in an Era of Endless</i>
00:01:18
<i>Disruption</i>. Great to see you
again. How are you?
00:01:20
Yeah, I'm good.
Thanks for having me.
00:01:22
So when you're talking
about this
00:01:24
endless disruption, it's
something that retailers, it
00:01:27
feels like, need to factor into
their— kind of their bottom
00:01:32
line, their operations on a
daily basis right now, because
00:01:35
things seem to be coming at
them left and right.
00:01:38
Oh, absolutely. So ever since
Covid, we've seen so much
00:01:42
disruption in retailing. It's
absolutely changed their
00:01:46
strategy. One of the things that
we've seen, as we now know, is
00:01:49
that retail is omnichannel. So
it's not physical or online.
00:01:54
It's a seamless integration
between the two. And the other
00:01:58
thing that we've seen is that
the differences in products and
00:02:02
the differences in price aren't
that significant anymore,
00:02:07
because a lot of the products
that retailers are
00:02:10
selling are in the mature stage
of the product life cycle. So
00:02:13
product differentiation, while
it's there, it's kind of
00:02:18
flattened out. There's just so
much you can do in
00:02:21
differentiating on price. So
what we've seen now is that
00:02:25
retailers are focusing on
changing the customer experience
00:02:29
and winning by the customer
experience. And that's why this
00:02:33
omnichannel piece is so
important, because you've got to
00:02:36
think about the customer experience
online and in the physical store.
00:02:40
That was going to be my next
question. Because seemingly, that
00:02:42
has to integrate with how you're
thinking about all these
00:02:45
different components which you
want to use to promote your
00:02:49
products, promote your service,
whatever it might be, but you
00:02:51
have to do it in the scope of
understanding your customer and
00:02:54
how you're going to reach them
in the best manner.
00:02:57
Right. And one of the things as
I've been trying to think about
00:03:00
this and come up with a new
framework to offer some
00:03:03
strategic advice, is to think
about it as the time spent with
00:03:07
the consumer, and think about
that as a differentiating
00:03:10
factor. So one way to think
about customer experience is,
00:03:15
spend more time with your
consumer. Now that's not in and
00:03:18
of itself, a good thing. It's
got to be valuable time with the
00:03:21
consumer. So you start thinking
about customer experiences. How
00:03:24
can you provide value? Through
entertainment, through learning
00:03:28
preferences, so you can do more
customization, et cetera. The
00:03:32
other way you can offer value
through customer experience is
00:03:35
by spending less time with the
consumer. Making it more
00:03:38
efficient. And that's, of
course, what Amazon learned in
00:03:41
spades in the big— you know, that
really brought them to the front
00:03:45
of retailing, because they made
shopping so easy, so frictionless.
00:03:49
So does the add-in of AI into
retail make it easier or harder
00:03:56
to have that level or that path
00:03:59
of customer experience
that you want to have?
00:04:00
Right. So now, another
disruption that's coming is this
00:04:04
idea of generative AI. And we
know consumers, we know
00:04:07
students, we know everybody is
using ChatGPT for everything.
00:04:11
How does that change the
shopping experience? And we're
00:04:14
just starting to do research on
it, but it is fundamentally
00:04:17
changing the process.
00:04:18
From your experience and your
history, are there areas of the
00:04:22
retail operation that seemingly
just fit so well, where ChatGPT,
00:04:29
AI, can just seamlessly make
things so much easier for the operation?
00:04:34
From the retailing point of
view, from the retailer's point
00:04:37
of view, there's efficiencies in
supply chain management,
00:04:40
inventory management, that ChatGPT
can help. But from the
00:04:44
consumer point of view, it's
pretty interesting. One of the
00:04:46
things that we used to teach in
marketing was that there was a
00:04:50
funnel in the way customers make
decisions. It was called the decision
00:04:53
funnel, the marketing funnel.
And the idea was, first you have
00:04:57
to be aware of the product, then
you have to care about it,
00:05:00
form considerations, and evaluate.
It was a very linear process.
00:05:04
The first disruption to that
process was the mobile phone and
00:05:08
digital and digital marketing
and things like that, because
00:05:11
now the process was no longer
linear. Brands could come into
00:05:15
the process any which way, and
we no longer thought of the
00:05:18
decision process as a funnel,
but more kind of like a subway
00:05:22
map in certain ways. You know,
the circuitous way, where
00:05:25
information can come at all
different points. That
00:05:27
fundamentally changed marketing.
Now, what does Generative AI do?
00:05:32
It changes the process. You no
longer search for yourself. Like,
00:05:37
the search process is almost
gone, right? You go to ChatGPT
00:05:41
and it tells you something, and
then you respond to that. You're
00:05:45
not even responding to your own
memory and your own cues. You're
00:05:49
responding to what ChatGPT is
telling you. So some of our
00:05:53
consumer behavior researchers
are looking at, how does that
00:05:57
change customer decision making
when it's stimulus-based like
00:06:01
that, as opposed to
memory-based.
00:06:03
So— and a lot of that will
come from the mindset or the
00:06:07
path that the company is
bringing forward. But then we
00:06:11
also have to get to the point
where the consumer has the
00:06:14
recognition that a lot of this
is going on and not just to buy
00:06:18
in at the first suggestion that it gets
and continue that search process?
00:06:22
Yeah, now I don't know how much
the company affects what ChatGPT
00:06:25
spews out either. You know,
because— so like, from the
00:06:29
company point of view, it's not
clear either. We're just
00:06:32
starting to do some— a lot of
research in this area. But one
00:06:35
of the things that I've seen is
that there are biases built into
00:06:39
these algorithms. When a
customer made their own
00:06:42
decisions, they had their own
personal biases, right? And we
00:06:45
did a lot of research. Danny
Kahneman won a Nobel Prize for
00:06:48
heuristics and biases and all
the things that we understood
00:06:52
about the way that consumers were
making decisions. Now we have to
00:06:55
understand how the algorithms
are making decisions, and it's
00:06:58
different from the way the
consumers do.
00:07:01
Let me switch to bricks and
mortar, because I know that's a
00:07:03
topic we've talked a lot about
over the years. Where do we
00:07:06
stand with the potential
strength or lack thereof of
00:07:12
bricks and mortar stores moving
forward, because of how the e-
00:07:16
commerce realm has just come in
and and dominated in many cases?
00:07:20
Yeah. But you know, the
more things change, the more
00:07:22
they stay the same. People have
been predicting the end of the
00:07:25
physical store, even before
Covid. And then during Covid,
00:07:29
with the acceleration to
digital, which is what you're
00:07:31
talking about, people said
that's the end of the physical
00:07:33
store. It's just not true. The
physical store is transforming.
00:07:37
The malls are transforming. Even
Macy's is transforming. We'll
00:07:41
see what happens with that. But
it's not that the physical store
00:07:45
isn't important anymore. It just
serves a different purpose. And
00:07:49
that's why I was saying customer
experience is really important.
00:07:52
So understanding how people
spend their time. We know, and
00:07:57
we know, as soon as Covid was
over and you got out of that
00:07:59
digital world, people couldn't
wait to get back into the
00:08:02
physical store. TJ Maxx, which
doesn't have a very big digital
00:08:07
footprint for a lot of reasons—
when— when we were done with
00:08:10
Covid, there were lines around
the block to get back into TJ
00:08:14
Maxx. So people like the
physical experience of shopping.
00:08:18
But things that are more
efficient or easier to do
00:08:20
online, they'll continue to do
online. We just have to
00:08:23
understand what they want to do
in the physical store and what
00:08:27
they want to do online.
00:08:27
Right. So there is kind of a
tipping point for the consumer
00:08:31
of— and maybe they're the ones
that would know this the best— of
00:08:36
what I can just go in quickly,
throw into Amazon, get that
00:08:39
order in. If you're a Prime
member, you know you're going to
00:08:42
get it delivered the next day,
and what types of items you
00:08:45
actually want to go out and spend
your time and learn more about.
00:08:49
Right. So that's what we have to learn.
What do people want to do in
00:08:51
physical stores? This idea of
retail-tainment. The idea of the
00:08:55
social interaction seems to be
very important. The idea of
00:09:00
building a relationship with the
retailer over time. Now maybe
00:09:03
you can do it online, but it's
easier to do it in the social
00:09:07
way, where you learn customers'
preferences, you build the
00:09:09
trust, and then you build
loyalty that way.
00:09:12
Right. You and I have talked a lot over the
years about Amazon versus
00:09:16
Walmart. Seemingly— and maybe
even Target as well— but Amazon
00:09:19
and Walmart being the two kind
of— the titans in this area. And
00:09:25
for their own strengths, they
seem to be able to really
00:09:29
connect with the consumer to a
degree in different ways.
00:09:33
Because obviously, so many
people that go to Walmart love
00:09:36
the— going to the store and that
experience. Obviously a lot of
00:09:39
people on Amazon are going to
go there because they love the
00:09:42
online ease and speed at which
they can order.
00:09:46
Yeah. I mean, I don't know how
many people go to Walmart for
00:09:49
the experience. Like, when I
think of customer experience,
00:09:52
I'm going to think of some of
the luxury department stores and
00:09:55
things like that. But Walmart is
convenient. It's convenient in
00:09:59
a different way. Some people
think that it's more convenient
00:10:03
to shop online, pick up in the
store and drive it home, than to
00:10:07
wait for these deliveries to
come to your front door. There's
00:10:10
an inconvenience for some people
in that too. So I think both
00:10:13
Walmart and Amazon are really
featuring a very good price and
00:10:19
very easy. And they're defining
what a very good price is
00:10:22
differently, and they're
defining what's easy differently.
00:10:25
What do you hear, then, from
companies in terms of their
00:10:28
footprint with the bricks and
mortar, of how they are looking
00:10:31
at where they want to be within
the shopping experience? Because
00:10:35
obviously, for the longest time,
the industry relied on the
00:10:38
massive malls. They are
obviously not doing that as
00:10:40
much. And it seems like you see
more of the— I guess it would be
00:10:43
the B and the C malls
00:10:45
that are drawing more
attention from retail companies.
00:10:47
I mean, it's interesting how
these different things are
00:10:49
changing. One of the things I
knew when I started writing my
00:10:52
book a long time ago, was the US
was over-stored. So we had too
00:10:56
many stores in the first place.
That was a given. You know, now
00:10:59
it's kind of been obscured by
all these other changes. But we
00:11:03
had too many Gaps, for example.
Everybody knows we had too many
00:11:06
Gaps, right? - Right, right.
- You know. So
00:11:08
some of those physical stores—
- Only so many pairs of jeans you could
00:11:10
buy, right?
- Yeah. I mean, that
00:11:11
doesn't make sense.
The way they would
00:11:13
grow is build a new store. And
it just didn't make sense
00:11:16
anymore. So we had too many
stores to start with. That was
00:11:19
the given. But to your point,
the role of the store is
00:11:22
different. So one of the things
that happened in Covid was this
00:11:24
idea of this omnichannel
experience, where you're buying
00:11:28
online, pick up in the store.
That made those neighborhood
00:11:31
centers more useful, because you
could just drive up to the store,
00:11:34
pick up something, and it was
very convenient. And we're also
00:11:38
seeing the malls change. You
know, what's fulfillment in a
00:11:41
mall, what's entertainment?
There is a role for physical
00:11:45
space. It's probably less
physical space than we had
00:11:48
before. And probably these big
footprint stores are changing.
00:11:52
We're seeing stores become
smaller, more experiential, more
00:11:56
carefully designed, how they're
using their internal space.
00:11:59
Do you think that, in the end,
all the impact that we saw on so
00:12:05
many different businesses, but
I'll use it in the scope of
00:12:07
retail here, will end up being a
valuable learning experience for
00:12:11
retail because of all of these
changes, and obviously now with
00:12:15
technology and all these
different components? That there
00:12:19
are things that a lot of
companies learn that will make
00:12:21
them better on that, you know,
on the outside?
00:12:23
Yeah, absolutely. I mean, people
were doing things that made no
00:12:26
sense just because they did it,
you know? I mean, we understand
00:12:30
why people put the milk in the
back of the store, because you
00:12:32
wanted people to spend more
store— more time in the store,
00:12:36
to find that milk and buy other
things. But from a customer
00:12:38
point of view, it was always
obvious, that's not convenient.
00:12:41
They cannot do that anymore. So
now you're going to make stores
00:12:45
a better customer experience. You
were—and that's an example of
00:12:50
something that the data are
showing. People don't like that.
00:12:52
If you put the milk in the front
of the store, people are
00:12:54
happier, you know? So there's
some learnings that we're
00:12:58
getting. You know, one of the
other things that you haven't
00:13:00
mentioned but that is
fundamentally changing retail
00:13:03
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
00:13:11
the tariffs. We'll still see how
that works out. But speaking of
00:13:15
Amazon, you know, what they've
done is move up shopping to
00:13:19
Prime Days in July? You
know. So that's kind of an
00:13:23
interesting thing. The very,
very promotional days that are
00:13:27
happening in July, that it's
affecting back-to-school
00:13:31
shopping and Christmas shopping.
00:13:32
Does— does a company like
Amazon, then— do they have— they
00:13:36
obviously think about when they
want to have those types of
00:13:39
days. But do they think about
how many of those types of
00:13:42
different events they want to
have, and where that saturation
00:13:46
level, kind of, you know, goes
maybe overboard as well?
00:13:48
Yeah. I mean, I'm not
inside the head of Amazon, but
00:13:51
that's got to be. But one of the
things that we also see, which
00:13:54
is part of the wheel of retail
that we've seen over time, is, so
00:13:59
Amazon put Prime Day in the
middle of July. Everybody saw
00:14:02
how effective that was, and then
they all copied. So now part of
00:14:06
what you're seeing happening is
that everybody has a Prime Day.
00:14:09
It's not just Amazon anymore.
All this promotional shopping
00:14:13
has been moved to July. What
that's going to do to the back-
00:14:16
to-school season and to the
holiday season remains to be
00:14:20
seen. But a lot of purchases were
made in the middle of the summer.
00:14:24
What are the areas that you're
most focused on right now, in
00:14:28
terms of where retail is and
where it's headed
00:14:30
moving
forward?
00:14:31
I personally am very
interested in this idea of
00:14:34
differentiation through customer
experience. Like, how do you
00:14:37
make the customer experience
something that people want to go
00:14:40
to your store to see? There have
been a lot of experiments that I
00:14:44
don't think have worked, as
people throw the spaghetti on
00:14:46
the wall and try to figure out.
You know, like there was a lot
00:14:49
of these Instagram things in the
mall where you just take
00:14:52
pictures and all this other
stuff. I don't know how
00:14:55
successful in the long run, some
of those Instagram-type
00:14:59
installations in malls were.
I've seen some very interesting
00:15:03
ideas and customer experience,
like, for example, the Sleep
00:15:06
Number, which is a luxury kind
of bed thing— in order to get
00:15:11
that, that's a combination of
learning customers' preferences
00:15:14
and using technology, so that you
can build a bed that's so
00:15:18
customized for you. And that
idea of spending enough time
00:15:22
with the customer, either online
or in a physical store, to learn
00:15:26
those preferences, to really
customize the product, that's an
00:15:30
interesting experiment to see
how you can translate that to
00:15:33
other types of retail.
00:15:34
Well, seemingly— and you talked for a
while about how Amazon, with the
00:15:39
checkout, the self checkout, with
some of the stores that they
00:15:42
were going to have, that that was
kind of the next step in that
00:15:45
process. But seemingly
companies, it feels like,
00:15:48
understand that the way to be
able to maybe differentiate
00:15:52
themselves from maybe a rival or
another part, is to find where
00:15:55
technology can benefit them the
most moving forward.
00:15:58
Right. And so there's— this use
of technology can either build
00:16:01
relationship with the customer
through learning preferences in
00:16:04
different ways, or remove
friction. So what Amazon knew
00:16:08
was this idea of one-click
shopping. And that's the
00:16:11
same thing. I don't want to go
to the back of the store to get
00:16:13
the milk. I want it right here.
I don't want to stand online and
00:16:17
pay for my goods. I'm going to
abandon my cart. So let's make
00:16:20
that as efficient as possible.
Personally, when I go into a
00:16:23
physical store, I can't tolerate
a long line at a cash register. I
00:16:27
really expect a salesperson to
come up to me with their little
00:16:31
pad and get me out of there fast,
or self checkout, or things like that.
00:16:34
Well, that's what I was
gonna say.
00:16:35
When you go to
the grocery store, the self-
00:16:37
checkout lines, I've seen my
grocery store and others,
00:16:40
seemingly, they've added at
least two extra self-checkout
00:16:44
areas just because the consumer
wants to get in and get out as
00:16:47
fast as they can. And again,
that circles back to that
00:16:49
component of experiencing
you talked about. - Right.
00:16:51
Right. Which, in that case,
it's, make it efficient. Don't
00:16:54
make me spend time doing things
I don't want to do. Make my time
00:16:58
valuable with respect to the
retailer. And that's just not
00:17:02
the way retailing was originally
built. Retail originally built—
00:17:06
was built to sell products at
the right price, so they were
00:17:09
very product-focused. And a lot
of marketing, retail included,
00:17:13
has moved to this new idea of
focusing on
00:17:16
what's important to
the customer.
00:17:17
Right. Barbara, I always
appreciate talking to you.
00:17:20
Thanks very much for your time
today.
00:17:21
Sure. Thank you. It's always a
pleasure. - Thank you.
00:17:23
Barbara Khan,
Marketing Professor here at the
00:17:25
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>.
00:17:37
Thank you for listening to
<i>The Ripple Effect</i>.
00:17:39
We hope you found this
episode informative and
00:17:41
engaging. Don't forget to
subscribe and leave us a review
00:17:45
so that we can continue to bring
you the best insight from the
00:17:48
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