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the spirit of the holiday season, or we'll just say the spirit of the retail
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holiday season will be pretty much the same. It's going to be, you know, doorbuster sales. Let's just get all
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that stuff out there. Let's hope that it salvages the year for us. So, yeah, we're not seeing a big
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substantial changes. Now, it's too early and maybe I'm wrong and maybe we'll see
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some some companies kind of going against the traditional grain of of holiday marketing, but the early
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indications are that we're we're right back to where we were. Welcome to the Ripple Effect, the
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podcast that takes you on a journey through the minds of Wharton faculty. I'm your host, Dan Loney, and in each
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episode, we'll be diving deep into the inspiration behind the groundbreaking
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research that Wharton professors have conducted and exploring how their findings resonate with the world today.
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Well, the relationship between the consumer and retailer is one that's constantly evolving and when you think
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about it, especially this time at the end of the year, the component of holiday sales brings forward other
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expectations as well. Pleasure to be joined by Peter Fader, professor of marketing here at the Wharton School and
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author of The Customer Centricity Playbook, and also co-founder of Theta. It's been a while. Great to see you. Dan
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Loney, it's always great to be in the studio with you and talking about consumers and retail and all that. So, I
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mean, you talk so much about customer centricity and the interesting thing is it feels like more and more companies
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have bought into it and they understand the importance of it, that relationship between
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them and the consumer. Are we at a point right now where we've achieved almost total buy-in in that
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relationship right now? No, not even close. We have a conceptual understanding. That's good, that the real unit of the
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analysis should be the customer and not necessarily the product. People kind of are on board with that, but executing
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it, building an organization around it, being held accountable by it, nah, there's still ways to go. Now, we've
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made great progress over the, you know, 10 or so years, and I think it's even accelerating, but
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there's still a lot to be done. So, then when you think about retail in general
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and this holiday season, how does the element of customer centricity play in like in terms of the
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level of importance? Because companies realize how important this three-month, well, it's a three-month window in our
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history, but it's been lengthened out by so many retailers in the last few years.
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And you've hit the nail on the head that, you know, I talk to all these companies and they want to talk about
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customer centricity and lifetime value and customer retention and all that sort of thing. And then the conversation stop
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right around now. And literally this morning, talking to a big retailer and they're they're talking about some kind
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of lifetime value initiative and they said, "We got to put that on hold. It's
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the holidays." And I'm saying, "Well, wait a minute. This is the time to
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really be doubling down on it. This is the time that you really want to figure out who your best customers are and
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leverage that and and let that drive your strategy." And "No, no, no, this is
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the holidays. We got to focus on just selling a lot of stuff regardless of who's buying it." So, it's it's that
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kind of frustration. It's this kind of conversation that proves that there's
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still a lot of work to be done. Well, is it just because they feel like they are so busy, so stressed because so
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many companies really believe that this is the time that will make or break them
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in terms of the course of the the numbers for the for the either the fiscal year or the calendar year?
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100%. They got to just push a lot of stuff out there. They got to do it quickly. They got to do it cheaply.
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And they really are taking their eyes off the ball in terms of both who's doing that buying and what are the
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longer-term implications of of the way that they're they're building or even
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ignoring different kinds of relationships. What do you think is the impact then by not having that focus?
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Well, we've seen it. And you mentioned my newest book is The Customer Base Audit. And in that book, we say, "What's
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the difference between the customers acquired during Q4 versus customers acquired through the rest of the year?"
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You get this great big bump. There's a lot of them. That's great. In fact, they
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buy a lot of stuff during Q4. They look terrific. But then you watch them over the longer term, they're not as good.
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They don't buy as often through the year. Yeah, they'll come back and buy
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again a year from now, but only when stuff's on sale. So, you're acquiring a a less valuable
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group of customers during these times and you're paying a lot of money to do
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it. Now, I'm not saying that that holiday marketing's a bad thing. You do
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have to push a lot of stuff out the door, but you should be doing it mindful of who are these customers buying and
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how can we tip it a little bit more towards the kinds of customers who will bring us lasting value.
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That's a bridge too far for a lot of retailers. How do you think then the pandemic
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factors into this mindset around the relationship between the customer and and the retailer? Because obviously
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it was a dynamic that we'd never really gone through before. It changed obviously in the scope of what we could
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and couldn't do, how retailers reacted with that relationship, and it made me
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wonder whether or not there were elements that changed or were tweaked during that time that companies have
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kind of run with and they understand how much value there is looking back at it as you move move ahead. I I I was
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thinking the same thing during the pandemic because we really saw huge changes to holiday buying. We kind of
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saw basically the disappearance of of Black Friday and and all that for for a while there. And I went on record
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wrongly saying that this is going to change forever. This is going to be the wake-up call that a lot of companies
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needed to realize that this isn't so good and we should really be trying to smooth things out. And again, to the
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extent that we're we're doing some some heavy-duty activity during the holiday
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season, we should be doing it with our best customers in mind. Well, that appears to have all gone out the window.
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And all indications are we're right back to where we were in December or fall of
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of 2019 where it's just let's push stuff out. We'll deal with the which customer
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is which when January comes around. I don't think we've made any progress. So,
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a couple of other things that I wanted to throw in in terms of that relationship is one from an economic
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perspective where we are right now with the level of inflation. And and does that factor in to it as well?
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It should factor in. Certainly it is factoring in just to to the way the the retailers are are staging their plans.
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It's going to be inflation. It's just going to be other kinds of economic
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uncertainties. So, that we're just going to see some some tactical differences,
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but but the spirit of the holiday season, or we'll just say the spirit of the retail holiday season will be pretty
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much the same. It's going to be, you know, doorbuster sales. Let's just get
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all that stuff out there. Let's hope that it salvages the year for us. So, yeah, we're not seeing a big
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substantial changes. Now, it's too early and maybe I'm wrong and maybe we'll see
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some some companies kind of going against the traditional grain of of holiday marketing, but the early
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indications are that we're we're right back to where we were. Then there's the technology side and
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we've obviously added so many elements of technology to our daily lives. And
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obviously retail with e-commerce has played a big role with that. But now we're in this mode of everything's got
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to be AI and factoring in AI in in so many aspects of our business. I think well, I'll ask you it this way. Are are
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we still in a time where we're learning where that's that place is going to be
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in terms of retail? Totally, and that's very exciting. So, what we're seeing right now, or at least
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my prediction for we'll see through the holiday season, is using AI to do the
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things that we were going to do anyway, but to do them a little bit more effectively, a little bit more
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efficiently. So, whether it's it's using AI to maybe to design the kinds of
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products that we're going to be selling, to fine-tune the messaging, to do a
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little bit of to to kind of help improve some of the the supply chain aspects. So, we won't really see it big time.
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It's just going to it's going to be woven into the things that we're doing.
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Maybe that's all it should be. But I think we might see more substantial changes in the years ahead
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as not just retailers, but as as all managers just just find more dramatic ways to deploy it to do things
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that we just wouldn't have been capable of doing before. So, maybe a little bit
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more of a subtle impact as we move forward. And I I ask it that way because I think the the the theory or the theme
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that's out there is that there will be impacts in different ways other than just on the bottom line of a
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company's profit sheet. That's right. So, we'll see some some slight different
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operational changes. Now, we're going to go back to the point that I've been
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harping on, which is it's the holiday season. And even though that AI stuff might be our future, you know, we have
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the playbook here for the holidays. And so, we're going to follow it. Now, to
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the extent that we can use AI in the playbook, we'll see that. But we're not
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going to see anything really really bold with it until we rewrite the playbook, which is something that sorely needs to
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be done. You've talked in the past with me about that relationship between customer and retailer and when something
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goes wrong, does that dynamic change at all or is it enhanced even more to the downside
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during this holiday retail system season because all of these companies are so worried about getting the stuff
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out and and getting it into the hands of people? Sure, there's a couple of factors going
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on. And one would be the economic uncertainty and we really have to protect ourselves from the downside. And
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the other would be just a a lot of the backlash that retailers have been seeing, whether it's now related to, you
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know, different kinds of so-called woke activities and and so on. I think a lot of retailers are just kind of more
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worried about saying something, doing something that could just open up some kind of trapdoor. So, they're going to
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play it a little bit safer in in in these terms. And I understandably so. And I kind of wish that we'd see bolder
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moves as far as what retailers were proposing to do and and how they did it. But but right now it's it's play it safe
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time. So, what you're talking about and correct me if I'm wrong, but it seems
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like that's part of what seems to be a greater focus on companies brand right
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now. That they are so concerned of making sure that that brand is as pristine as it can be so that they don't
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have any negative impacts. That's right. And it's the brand itself, but it it but it it's even just even
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kind of specific messaging companies are are they they don't want to take chances right now. They want to
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be very very careful about how they how they choose their words. You know, we we
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we sometimes see some kind of edgy Christmas advertising or even different kinds of promotional campaigns
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and we're just not going to see a lot of them now cuz we're just worried that
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someone might take that the wrong way. But it almost makes you wonder what if maybe the time of the year and kind of
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the history of the time of the year people are kind of geared into what they believe it's going to be and it's a more
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relaxed and toned down time of the year in comparison to any other time of the year that maybe it all
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it just kind of moves right into uh you know, potentially not making some of these moves. Right. And and and it
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should be the case. That would that let's fall back on kind of traditional values and traditional thinking and and
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so that that that's great. But every now and again you'll see a firm wanting to
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kind of break out of the pack and and do something to get people to say, "Whoa,
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you know, just to kind of get their attention." And it's nice to see that, but I don't
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think we're going to see much of it right now for for all the kind of obvious reasons. There are a few other
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things I want to bring up. One being how companies think about returns these days.
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And certainly that's been a focus especially in the last year or two. And it's always a focus at this time of
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the year because people will buy something for a loved one and it may not fit or it's the wrong color whatever it
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might be. But companies really are focusing more and more on trying to lower the level of returns
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because that's a cost impact to them. That's a big problem because it it has
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been a Christmas issue because you know, I don't want this. I'm going to return it. I'll get something
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else. But now we see it's a 365 day a year issue where you know, I'm going to
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buy a pair of shoes. Well, I'm going to buy eight pairs of shoes to make sure I
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have the right color and size. That's become much more rule than exception these days.
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Companies are really really struggling with it. So, you know, in a way the good news is that that that there's no good
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news, but the the silver lining is that companies are kind of used to dealing with that now and and during the
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holidays it might happen at a slightly greater volume. Everything happens at greater volume, but I don't think that
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that problem will be particularly acute during the holiday season as much as it is that every day of the year. But
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there's we need a solution for it. We need to come up with a way to create just better incentives both for
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companies to put the right stuff out there, the right messaging, the right sizing
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and and for people to not abuse the system as much as they do now. Okay, so the abuse part is obviously an
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important component because there are a couple of retailers out there. I can think of one specifically. I won't give
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the name, but they've kind of made their brand or part of their brand because
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they accepted returns all the time. It didn't cost you to send them back and it
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was something that connected them with the consumer. But obviously that mindset is changing right now. Takes us right
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back to customer centricity. I think we have to make tough decisions for which customers are we willing to have that
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kind of very generous return policy and for which customers it's going to be
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basically take it or leave it or you know, pay say a 10% restocking fee. The companies have to get smarter, they
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have to get bolder, they have to be just more responsible around these kinds of behaviors. These are conversations that
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are just now starting and we're seeing every now and again a little experiment that a company might
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be running, but we're not seeing any broad application of of this kind of you
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know, returns oriented discipline. I think we are going to start seeing that. We're going to start seeing it soon, but
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we're not going to see it during the holiday season. What's been your reaction to all of the
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conversation in recent months around quote and quote shrink of the concern of the level of theft and loss that
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seemingly retailers have dealt with for decades, but now is getting more and more publicity whether it be to the
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level that's going on right now or just kind of the news cycle that we seemingly
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are Oh, it's real. It's real. There's no no question. It's getting a lot of
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publicity, but A, I think it's appropriate that it get publicity because it's a real problem. But B, the
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the nature of shrink, it's no longer just you know, a a kid does taking a comic book. It's organized crime. It's
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it's it's a real problem to the point where so many stores are closing down.
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It's has to be dealt with. What's going to be interesting is to see if if it gets
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worse or if it gets mitigated during the holiday season. You know, it might be that there's just so much so many extra
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employees in the stores, so much traffic in the stores. It's just a harder to see
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that kind of thing going on. On the other hand, that might provide cover for some of that nefarious activity to take
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place. Hard to tell, but it's a problem maybe even bigger than the returns problem
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where we're not at an equilibrium with it. It's just a a real real issue and we better be in a
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in a better place with it a year from now, otherwise it could really drag down the whole retail sector. Then you also
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have a lot of retailers that have to think about some of the issues that we're seeing
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play out in cities across the US where theft in their stores is at a higher level and as a reaction companies are
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shutting stores down in some locations because the potential impact and threat to their employees has grown in in
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recent months. And then when we start interacting that with the holidays when we have fewer outlets, less convenience
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for people, it's going to you're going to have even you know, bigger crowds at
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the big mall stores. So, you don't think about some of those consequences. Again, it's hard to blame the retailers
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for taking some of those drastic actions. Which is why we really need to have come up with with different kinds
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of of of policies, laws, just just ways of of displaying and distributing merchandise in stores
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that's going to attack this problem cuz it cannot keep going on as it is. So, what do you think are the themes
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then for retail during this holiday season coming up? Well, again, there's the theme there's the prediction of
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what's going to happen and there's the kind of what I wish would happen. The
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main theme is let's just sell a lot of stuff. Let's get those big boxes out of here.
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Let's let's turn from from red to black. I mean, it's it's the usual kind of
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narrative. I think that that will be the the overwhelming theme. Okay, maybe there's something good about it. Maybe
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if if companies are missing the opportunity to be more customer centric, missing the opportunity to to use their
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data to make better decisions that will lead to to better long run outcomes. On the other hand,
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there's something about just maybe indeed putting all that aside. Let's just you know, have Christmas in a
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traditional way. Let's enjoy the holiday season and then we'll kind of you know, get
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back to work on on January 1st and and then hopefully make a 2024 not only a better year, but a smarter year
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as we use data, as we understand our customers and run our businesses more effectively.
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Peter, always great to talk with you and get your insight. Thank you, sir. Thank you, Dan. You got it. Peter Fader,
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marketing professor here at the Wharton School. Thank you for listening to the Ripple
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Effect. We hope you found this episode informative and engaging. Don't forget
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to subscribe and leave us a review so that we can continue to bring you the best insight from the Wharton School.