Current Customer Service Strategies-Miguel Gomez, Ph.D.

Current Customer Service Strategies for Strong Retail

Profits in a Recovering Economy

Miguel I. Gómez, Assistant ProfessorCharles H. Dyson School Applied Economics and

Management

Prepared for presentation at New York State Nursery and Landscape Association’s Leadership Forum, West Point, New York, November 4, 2010

Today’s Agenda

Macroeconomic situation and outlook

Contributions of the Nursery & Landscape Industry

Marketing emphasis in the recovering economy

Group Discussion

Macroeconomic Situation and Outlook

Gross Domestic Product

Civilian Unemployment Rate

Real Estate Value: Residential

Good News

Real Estate Value: Residential and Commercial

1 to 1.5 Years Lag

Anemic growth in the 1-2% range

Consumers still working off mountain of debt

Government likely to retreat from the stimulative posture of 2010

• Housing a drag on the economy

commercial real estate dropping a year or a year and a half after residential real estate

Backlog of foreclosures and delinquencies that will keep high inventory

Macroeconomic Outlook 2011

The NYS Nurseries and Landscapers

It is the only sector in NYS Agriculture that is experiencing sustained growth

in recent years!

New York, Nursery Stock US Census of Agriculture 2007 vs. 2002

Acres in the Open2002 2007 % Change

15,924 14,638 -8%

Sq. Feet Under Protection2002 2007 % Change

535,199 906,523 69%

Increased consolidationGrowth driven by areas under glass or other protection

THIS IS ONLY THE WHOLESALE VALUE OF PRODUCTS …

WHAT ABOUT RETAIL AND SERVICES PROVIDED?

Retail Outlet Number of Employees

Census Nonemployers Total

NY STATE:

Home Centers 22,066 262 22,328Lawn and Garden Equipment/Supplies Stores 6,816 674 7,490

Nursery, Garden Center and Farm Supply Stores 5,342 N/A 5,342

Florists 6,414 2896 9,310

Landscaping Services 15,594 16,156 31,750

Total 56,232 19,988 76,220

New York, Retailing of Nursery Products/ServicesUS Census of Manufacture (2002) and Bureau of Labor Statistics Non-

employer Data (2006) - EMPLOYMENT

Marketing emphasis in the recovering economy

Perspectives on Recessions

• How many of you have cut marketing budgets?

• Fact or Fiction?

- “We are living in the worst economic conditions since the great depression”

- “We have nothing to fear, but fear itself”

- “Marketing does not work during a recession”

Economic IndicatorsSTATS 29-33 73-75 80-82 08-10

Real GDP -13.0 -0.5 -6.4 -5.7

ConsumerSentiment Index

-- 57.6 51.7 68.7

Unemployment 24.9 9.0 10.8 9.4

Inflation -9.9 11.0 13.5 3.8

“We are living in the worst economic conditions since the great depression” FICTIONTimes are difficult, but 2/3 of us have lived through tougher times

“We have nothing to fear, but fear itself”FACT

• Media today encourages spreading of fear faster than ever before

• Consumers are spending less and saving more due to lack of confidence …

… well planned promotions can increase sales by helping overcome this propensity to save

• When consumers are reluctant to spend, they are unlikely to settle for products that do not meet precisely their needs…

… firms must be careful measuring these needs and offering products/services that meet these needs

“Marketing does not work during a recession”FACT and FICTION

Dumb marketing does not work; smart marketing works

We usually tend to get sloppy during booming economic times

This is an opportunity to re-assess marketing strategies

Facts:- In 73-75, firms that cut in marketing saw a 21% decline in sales- In 80-82, firms that cut in marketing saw a 45% decline in sales

THE KEY IS TO WORK ON MARKETING STRATEGIES THAT STIMULATE CONSUMER DEMAND

Biggest mistakes in and economic downturn

1. Shape the message, don’t slash the priceOnly 3% of American Marketing Association marketers say it is important for marketing functions to adjust pricing strategy

Implications - understand your target audiences’ perception of the economic environment; hone and refine your messages; highlight the value of your product or service, rather than slashing the price

2. Focus on whom not to target67% of AMA marketers say it is important to mitigate the impact of an economic downturn by refining target audiences

Implications - assess which segments of potential customers you do not want to target (some customers are more costly to serve than to lose); focus marketing

Four strategies to enhance marketing plans in a downturn

Four strategies to enhance marketing plans in a downturn

3. Stand apart from the crowd and invest in innovation66% report that they would take the same amount or less risk with a new product and/or service innovation during a time of economic uncertainty

Implications - Differentiate through innovation with a product or service that performs in a faltering economy; invest in R&D now to ensure that your company is in a position to compete when the economy rebounds

4. Sustain the brand63% say they can lessen the impact of a downturn by investing in brand building as part of their marketing plan

Implications - realign marketing strategies to match business objectives quickly to demonstrate a commitment to the bottom line; quantify results

Why focus on Customer Satisfaction to Improve

Performance?

Moving towards selling an “experience” by strengthening retail execution

Adopting a marketing orientation focused on customer satisfaction

– …

Managing theshift upwards

Challenge:

Experience

Commodity/Transaction

Value Add /Information

Shopper Expectations

Importance of Price

High

Low

Source: R. Blattberg, Kellogg School of Management

And The Retail Experience

$1

$5

Good

Service

Commodity

Experience

ExperienceAnd The Cost of Coffee

Starbucks Added 1,500 Units in 2009

More relevant in current economic conditions

Challenge - adopt the mindset of a food retailer….

Prioritizing customer satisfaction to build customer loyalty and increase profits

Should Customer Satisfaction Be Part of The Industry’s Marketing Strategy?

YES!

The Customer Satisfaction – Profitability Links

• Businesses that are able to reduce customer defections by just 5% have experienced a jump in profits of about 25%.

• Cost of attracting a new customer is five times higher than the cost of retaining an existing customer.

• Customer profitability tends to increase over time because loyal customers tend to be less sensitive to price increases.

Drivers of Customer Satisfaction in Food Retailing

Group Discussion (10 Minutes)

What drives Customer Satisfaction in your retail operations?

What Customer Satisfaction strategies are more effective in your business?

Group Discussion (10 Minutes)

Low High

IMPACT ONSALES

PERFORMANCE

Your Performance on Satisfaction Drivers

High

Low

High, High

High, Low

Low, High

Low, Low

Thank You!Questions or comments?

Miguel I. GómezCornell Universitymig7@cornell.edu