Current Customer Service Strategies for Strong Retail Profits in a Recovering Economy Miguel I. Gómez, Assistant Professor Charles 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
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Current Customer Service Strategies-Miguel Gomez, Ph.D.
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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?