Customer Service vs Price: the industry debates whether great in-store practices can increase profitability

The erosion of prices and margin due to the commoditisation of leading categories, such as TVs and dishwashers, has been a major talking point during 2013. With traditional bricks and mortar retailers competing with online traders, there has been a renewed focus on grassroots customer service as a way of retaining high values sales in physical outlets.

Research commissioned by business intelligence specialist Verint Systems revealed that 72 per cent of almost 6,000 consumers surveyed reported experiencing problems with retail customer service. The most common complaints were existing problems not being resolved on the first contact; staff taking too long to respond to queries; rude and/or unknowledgeable staff; and inflexible processes, such as fixed delivery times and inconvenient opening hours.

Verint Systems further reports that one-third of customers that have a bad experience with retail will share their story on Twitter or Facebook, publicly shaming the retailer involved.

Zwicka Ben Zion is the managing director of Verint ANZ. He said that by analysing in-store security videos, retailers can find out what path consumers take through a store and where they congregate. This information can then be used to assign sales staff and effectively merchandise stock.

“We help retailers through video camera analysis,” Zion said. “We know how many people are in which place in the shop so we know where to you put your best products.

“Take Harvey Norman, for example, if they want to sell a prime location to Samsung and make more money from it or if they want to add a big new space, we have heat maps that tell us where people are in the store, how they walk through the store and how long they are spending in a particular spot.”

Zion told Appliance Retailer that most retailers think they are doing well but when they review Verint’s findings they are in shock at the difference between their customer service perceptions and the reality.

Australian retailers traditionally spend a king’s ransom on marketing and advertising while often the actual store is ignored, leaving it unappealing for consumers. Can investing money in customer behaviour and service insights counterbalance the growing price sensitivity of consumers?

“Customer service — whether good or bad — will always win over price,” said Smeg national training manager Matthew Ahern. “Good customer service will win the deal and, of course, bad or lax customer service will lose it every time. As a consumer, I will buy the more expensive item over a poorly sold cheap one.”

When customer service is bad, however, consumers will be driven to buying cheap, either from a competitor or from an online trader. Unfortunately for the physical retails sector, consumers globally are reporting unsatisfying service levels.

Trevor Evans is the CEO of the National Retailers Associations, which calls itself “Australia’s largest and most representative retail industry organisation”. He said that while consumers will normally choose the cheapest option for products they have pre-selected, customer service is vital when consumers need assistance or are undecided.

“Retail remains, fundamentally, a service industry,” Evans said. “Thinking about typical products in categories like clothing, fashion accessories, hardware, bedding and recreational goods, then service becomes very important when customers need to know whether something fits, whether it looks good, what is currently in fashion, what the quality is or what product options there are, what the differences between competing products are and how you use the product.”

Taking a macro approach to this subject is Graeme Cunningham, the CEO of the BSR Group, the franchisor of Betta Home Living stores. This group suffered a string of set-backs during the late 1990s and early 2000s, due in part to the collapse of profitability of the flat screen TV market. Cunningham has led a Betta’s renaissance by instituting a customer-focused value-for-money proposition.

“Our experience is that people are wanting value for their money, which means competitive pricing, good service and an overall pleasant experience,” he said. “When price is mentioned, it isn’t necessarily the lowest price available that is the deciding factor, but more about the overall value offer.

“Most people expect a good price supported by a good shopping experience where they can have confidence in the retailer and any future after-sales service or support.

“In my experience, price is one of the aspects the consumer considers, albeit an important one, but more often than not these other things come into play when finalising the purchase.”

Steve Neil from Eastwood Hi-Fi tends to disagree with this view. He is a successful independent retailer of hi-fi equipment – a market that has been particularly vulnerable to discounting and online pure-play retailers.

He tells the story of a consumer that ‘sucked him dry for information’ and then chose to complete a $3,000 purchase from a rival retailer because they offered a $30.

Neil and his team at Eastwood Hi-Fi have always been very customer-focused. For example, although Neil admits that he personally isn’t a big fan of soundbars, he recently launched a new website dedicated to educating consumers about this new technology because “Harveys and JBs, who are the main purveyors of that category, really have little idea of the best solution for any particular individual”.

If Trevor Evans from the NRA is right, then undecided consumers are ripe for great service and will pay more for interesting products that are well presented. Peter Brewer from Conair is one marketing manager that relies on his retail partners to introduce and demonstrate his products to consumers.

One of Conair’s recent releases is the VS Sassoon Curl Secret, a new styling appliance that requires hands-on, dedicated customer service.

“The Curl Secret is an innovative product positioned at a premium over other products in the category, so in this case customer service and the selling of the features and benefits has been important to the success of the product,” Brewer said.

“The more ‘uniqueness’ you have with the product or service the easier it is to claim a premium based on the ‘customer service’ around it.

Brewer also makes the salient point that customer service is not just the physical retail store environment, but the broader experience, which starts before the purchase and continues afterwards.

Contrasting Conair’s uniqueness is Breville’s need to differentiate its small appliances, which are often very similar, in terms of features, appearance and price, to rival brands in the marketplace. This requires a focused, benefit-selling style of customer service, according to general manager Jeremy Sargeant.

“Breville feels great customer service provides an advantage when selling products that are similar, or the same, in price,” he said. “When retailers engage a consumer in the sales experience they can talk about features and benefits, which, in turn diverts the attention away from just the price.”

One of Breville’s major retail partners is Leading Appliances, which currently has over 60 retail outlets, mostly in rural and regional centres. Most of these stores are family-owned and operated, meaning they prefer to compete on service terms, rather than price.

Nick Fry, head of product and marketing, said that with 94 per cent of all sales still being conducted in bricks and mortar outlets, there was plenty of scope for smaller players to remain relevant, provided they don’t become showrooms for cheaper, online traders with lower overheads.

“The onus is on the bricks and mortar retailer to provide a pleasant, helpful and memorable shopping experience for the consumer,” Fry said. “Such an experience will help secure that customer as a long-term and loyal customer, and the experience is mainly based on the level of service provided by retail staff. This entails point-of-sale and, just as importantly, after-sales service.

“Every day, electrical retailers face a situation where consumers visit their showrooms for information and to physically see and touch the product, but with one eye on their smartphone searching for a price.

“Price has become easily accessible and, more and more, a front-of-mind consideration for consumers.”

Despite this conflation of in-store service with price sensitivity, Fry remains bullish for the traditional retailer’s ability to close a sale with good service.

“Consumers have to buy the product somewhere — they’re in your shop, they’re looking to buy,” he said.

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