Service Delivery in the Retail Sector

Service Delivery in the Retail Sector

Anish Kumar Goel

IInd Year PGDM

Xavier Institute of Management & Entrepreneurship (XIME), Bangalore

The economic slowdown has made its impact. Stores like Reliance Fresh and More are in the red. Even Future Group’s various formats are suffering from a month-on- month de-growth. Yet Wal-Mart in the U.S. is having increasing same store sales. The world’s most successful company is enjoying increasing revenue and fast expansion into newer areas.

India is home to a billion plus population with cultural, linguistic and food diversities. Have the Indian retail organizations been negligent in understanding their customer’s service needs? India with its traditional bazaars and melas has been a pioneer in retailing. Retailing is not just buying a product. In the short time span a customer enters the store, views the merchandise selects a product and pays at the counter. She is impacted by a magnitude of elements, be it the staff, the store atmospherics, the products or even other customers. It is time some company with better service delivery capitalizes on organizational resources and provides the customers with value-added service instead of just merchandise.

The Challenges Retailers Face

Meeting and exceeding customer expectations: Due to revolution in manufacturing, products have become cheap, abundant and disposable. The customer mindset has changed. People are willing to change their wardrobe, electronic gadgets and home appliance with the changing trends.  However, due to shorter period of ownership of the product, a customer wants no compromise with the quality or level of service. These changing trends have made the retailers to invest more time in details like express counters in Reliance Mart; or hawking on the spot product-financing in Big Bazaar (Future Group).

Life-styles could have important implications for marketing strategy decisions. We also need to understand that the values and life-styles are derived from and personalized through social and cultural learning .They identify consumer demographics as the personal factors influencing consumer behaviour. Puccinelli et al. (2009) thus focused on seven consumer behaviour research domains that influence the customer experience: (1) goals, schemes, and information processing; (2) memory; (3) involvement; (4) attitudes; (5) effect; (6) atmospherics; and (7) consumer attributions and choices. 

These behaviours are in addition to normal operation problems like stock outs. Consumer behaviour patterns in out-of-stock situations also affect customer expectations. Peckham (1963) categorized behavioural responses into three types: substitute brand; buy different stock keeping unit (size/color) in same brand; and do not buy.

Leadership Issue: What should be the ideal operating strategy followed by a national retail chain? Should the store be franchisees like Nilgiri’s or owned by the company, like More or Big Bazaar? Owning every store gives greater flexibility to the company in terms of transferring sales staff and inventory to various locations in the city. But the advantage gets reduced, when the sales staffs are not able to identify with particular store and develop a rapport with the customers. Franchisee system puts greater onus on the owner-operator to generate sales. Mc Donald’s is the most successful example of a company with a franchisee system but maintaining the same ambience everywhere.

A significant research has also  gone into retail leadership with vast studies devoted to the Big-Box Concept of Wal-Mart. Impact of rentals on profitability is another big factor. Business intelligence has also been a major focus with quantitative measurements and weekly performance meetings dictating the operational processes at many successful organizations. Operating summary, trends, opportunities and problems, scorecard and top/bottom performers have become the key dashboard tools.

One of the most powerful and effective strategic tools in retailing is pricing, for which the options available to retailers range from everyday low price (EDLP) to promotional or high–low (HiLo) strategies. Prior research demonstrates that both pricing and store format are influenced by consumer demographics (e.g., income), store factors (e.g., service), and competition. Supply chain also holds the key to the future especially in a developing market like India where transportation and warehousing facilities have been a major constraint.

Compensation issues: The above factors are of no value if not properly executed by the firm’s employees. Thus compensation management is also a big issue. The employees’ dress, their demeanour as well as their grooming, may suggest important service quality information to the consumer. Previous research has documented that organizational commitment is positively related to job performance and organizational citizenship behaviour, while it is negatively related to turnover and absenteeism rates, as well as to stress and work-family conflict.

Research regarding the relationship between employee satisfaction, customer satisfaction, and business performance can be thought of as the result of three key linkages:

1. Employee satisfaction to customer satisfaction.

2. Employee satisfaction to financial performance.

3. Customer satisfaction and financial performance.

Retail staffs are the most underpaid and overworked in the industry.  Their salary is usually given after the ‘stock-taking’, which means very late in the month, and gets reduced depending on items missing from the store. The issue is further compounded by not being able to relate the performance of the staff with the number of units sold. Temporary workers working only during peak hours or peak days add another dimension to the problem. Most of them are not serious about retailing as a career. This gets reflected in their customer interaction and the amount of dedication to their work. The staffs needs to be given more responsibility and compensated accordingly to develop entrepreneurship.

Also the front-end staffs have greater understanding of customer behaviour due to constant interaction. This empowers the staff to have a better planning design or even the store timings. Thus management tools like ‘quality circles’ should not be restricted to the manufacturing arena. Retail employees should be given the opportunity to implement their suggestions; and this will help them develop stronger bonds with their company. 

Competition: In most of the merchandise categories national brands dominate. From soaps and detergents to even staples like wheat and spices, the national brands spend huge amounts on R&D and advertising to develop their brands. The products may be of consistent quality but the extra costs associated with them leave lesser profit margin for the retailer. Also, if all the stores are selling the same categories of product brands, they will have no competitive advantage.

A national brand manufacturer having bias towards a particular retailer or marketing channel may even neglect others while introducing limited period products or offers. Retailers have to develop private labels with superior quality and lesser prices than national brands. These will not only compete with the national brands but also with the private labels of their competitors. However, the retailers can have misguided strategies, like Vishal using the brand ‘Vklean’ in everything from shoe polish to razors.

The major retailers like Wal-Mart carrying private brands also have more power over manufacturing, quality control and delivery of the goods. Nilgiri’s private label for dairy products has been so successful that it is sold in smaller non-chain supermarkets. The manufacturer primarily is interested in using promotions to enhance the performance of its brands, whereas the retailer is interested in enhancing their own performance.

The shift from mostly vertical supply relationships to hierarchical multichannel relationships reduces the power of the retailer, all else being equal, because the supplier now has direct consumer access. As suppliers leverage their intimate product knowledge, lower costs, and centralized inventory, they can not only appropriate sales and profits from their retail partners but also develop alternative avenues for consumer insights, all of which reduces the supplier’s dependence on its retail partners and increases supplier–retailer conflict. The private labels in this scenario can be the saviours.

Service Strategies for Retailers

Retailing is becoming a zero sum game and the only way to attract more customers now is to get them from the competitors. Exceeding customer expectations is not just a cliché. The strategy would require proper organizational planning and flexibility. Location is still the most important factor in retail, but a customer also looks for other factors besides convenience. For example, in the double income families, mobility may not be a problem because of vehicle ownership but time is a major constraint. For these shoppers, especially at weekends, shopping in the departmental store is the time to get their weekly supplies.  They require different promotional strategy and interaction.

Home delivery is the buzzword but customers still prefer to come to the store themselves and select the product before availing home delivery. This is because they are unsure of the quality.  A company especially a vegetable and meat retailing chain like Reliance Fresh can score over its competitors by delivering better quality products.  

Relationship marketing is as applicable to retail as to other services but is presently only practiced by apparel or jewellery retailers. This will change in the future when the retail market becomes more competitive.

To be customer-centric, an organization would also require to process huge amounts of information to understand the needs of the market segment. Even a transnational organization with global operations would have to formulate strategies to suit the individual needs on the local scale. With standardized products becoming the norm, service delivery will become the differentiator. Service delivery should not be just an addition to the product package but a means to gain additional revenue out of the customer. It is directly linked to profitability and increase in the value of the brand equity of the organization. Service delivery in retail would not only be limited to facilities like home delivery or product financing, but providing value for money for the goods sold. The responsibility of a company towards its customers depends on its service delivery.

Konosuke Matsushita, founder of Panasonic, once remarked that ‘Social responsibility for a company implies developing new ways to make better products, more effective sales methods and betters services.’ The organizations not only need to benchmark but set new standards in order to be more competitive. This new level of commitment to the customer will require help from other service organizations like Information Technology service providers for CRM, telecom companies for communication and media solution companies for awareness. Service delivery would have to be considered as one of the core activities of the organization and capability development issues also need to be addressed. The end result of all these efforts would not just be a happy customer or a happy shareholder but a self-sustaining organization having the resources to serve the society better and fulfill all the aspirations of various stakeholders.