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Category: Retail Trends
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You know, one of the other things that you haven't mentioned, but that is fundamentally changing retail today is, you know, the role of price. Now, low price matters, but people are much more price sensitive.
Maybe it's because of the tariffs. We'll still see how that
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works out. >> But speaking of Amazon, you know, what they've done is move up shopping to Prime Days in July.
>> Yeah. >> You know, so that's kind of an interesting thing.
the very very promotional um days that are happening in July that it's affecting back to
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school shopping and Christmas shopping. >> Welcome to the Ripple Effect, the podcast that takes you on a journey through the minds of Wharton faculty.
I'm your host Dan Looney and in each episode we'll be diving deep into the inspiration behind the groundbreaking research that Wharton professors have
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conducted and exploring how their findings resonate with the world today. Retail has gone through quite a bit of change in the last couple of decades and now it's adjusting to the advent of AI.
So where does retail currently stand at
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the ground level? Pleasure to be joined here in studio by Barbara Khan who's professor of marketing here at the Wharton School.
She is also host of the Marketing Matters podcast and author of the book The Shopping Revolution: How Retailers Succeed in an Era of Endless Disruption. Great to see you again.
How
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are you? >> Yeah, I'm good.
Thanks for having me. So when you're talking about this endless disruption, it's something that retailers, it feels like need to factor into their kind of their bottom line, their operations on a daily basis right now because things seem to be coming at
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them left and right. >> Oh, absolutely.
So ever since co, we've seen so much disruption in retailing. It's absolutely changed their strategy.
One of the things that we've seen as we now know is that retail is omni channel. So it's not physical or online.
It's a
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seamless integration between the two. And the other thing that we've seen is that the differences in products and the differences in price aren't that significant anymore because a lot of the products that retailers retailers are
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selling are in the mature stage of the product life cycle. So product differentiation >> while it's there, it's kind of flattened out.
There's just so much you can do in differentiating on price. So what we've seen now is that retailers are focusing
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on changing the customer experience and winning by the customer experience and that's why this omni channel piece is so important because you've got to think about the customer experience online and in the physical store. That was going to be my next question because seemingly
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that has to integrate with how you're thinking about all these different components which you want to use to promote your products, promote your service, whatever it might be. But you have to do it in the scope of understanding your customer and how you're going to reach them the best in the best manner.
>> Right? And one of the things as I've
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been trying to think about this and come up with a new framework to offer some strategic advice is to think about it as the time spent with the consumer and think about that as a differentiating factor. So one way to think about customer experience is spend more time
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with your consumer. Now that's not in and of itself a good thing.
It's got to be valuable time with the consumer. So you start thinking about customer experiences.
How can you provide value? Through entertainment, through learning preferences, so you can do more customization etc.
The other way you can
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offer value through customer experience is by spending less time with the consumer, making it more efficient. Um, and that's of course what Amazon learned in spades in the be, you know, that really brought them to the front of retailing because they made shopping so
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easy, so frictionless. So, does the addin of AI into retail make it easier or harder to have that c that level or that path of customer experience that you want to have, >> right?
So, now another disruption that's coming is this idea of generative AI and
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we know consumers, we know students, we know everybody is using chat GPT for everything. How does that change the shopping experience?
and we're just starting to do research on it, but it is fundamentally changing the process. >> From your experience in your history, are there areas of the retail operation
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that seemingly just fit so well where chat GPT AI can just seamlessly make things so much easier for the operation. From the retailing point of view, from the retailer's point of view, there's efficiencies in supply chain management,
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inventory management that chat GPT can help. But from the consumer point of view, it's pretty interesting.
One of the things that we used to teach in marketing was that there was a funnel in the way customers make decision. It was called the decision funnel, the marketing funnel.
And the idea was first
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you have to be aware of the product, then you have to care about it, form considerations and evaluate. It was a very linear process.
>> The first disruption to that process was the mobile phone and digital and digital marketing and things like that because now the process was no longer linear.
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>> Brands could come into the process any which way and we no longer thought of the decision process as a funnel but more kind of like a subway map in certain ways. You know the ciruitous way where information can come at all different points that fundamentally changed marketing.
Now what does
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generative I AI do? It changes the process.
You no longer search for yourself. Like the search process is almost gone, right?
You go to chat GPT and it tells you something and then you respond to that. You're not even
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responding to your own memory and your own cues. You're responding to what Chachi BT is telling you.
Right? So some of our consumer behavior researchers are looking at how does that change customer decisionmaking when it's stimulusbased like that as opposed to memory based.
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So, and a lot of that will come from the mindset or the path that the company is bringing forward. But then we also have to get to the point where the consumer has the recognition that a lot of this is going on and not just to buy in at
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the first suggestion that it gets and continue that search process. >> Yeah.
Now, I don't know how much the company affects what chatbt spews out either, you know, because so like from the company point of view, it's not clear either. We're just starting to do some a lot of research in this area.
But
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one of the things that I've seen is that there are biases built into these algorithms. When a customer made their own decisions, they had their own personal biases, right?
And we did a lot of research. Denny Conorman won a Nobel Prize for heristics and biases and all
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the things that we understood about the way the consumers were making decisions. Now we have to understand how the algorithms are making decisions and it's different from the way the consumers do.
>> Let me switch to bricks and mortar because I know that's a topic we've talked a lot about over the years. Where
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do we stand with the the potential strength or lack thereof of bricks and mortar stores moving forward because of how the e-commerce realm has just come in and and dominated in many cases. >> Yeah.
But you know, the more things
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change, the more they stay the same. People have been predicting the end of the physical store.
Even before COVID and then during COVID with the acceleration to digital, which is what you're talking about, people said that's the end of the physical store. It's just not true.
The physical store is transforming. The malls are
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transforming. Even Macy's is transforming.
You will see what happens with that. But it's not that the physical store isn't important anymore.
It just serves a different purpose. And that's why I was saying customer experience is really important.
So understanding how people spend their
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time, we know and we know as soon as co was over and you got out of that digital world, people couldn't wait to get back into the physical store. TJ Maxx, which doesn't have a very big digital uh footprint for a lot of reasons.
When when we were done with co there were
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lines around the block to get back into TJ Maxx. Sure.
So people like the physical experience of shopping, but things that are more efficient or easier to do online, they'll continue to do online. We just have to understand what they want to do in the physical store and what they want to do online,
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>> right? So there is kind of a tipping point for the consumer of and maybe they're the ones that would know this the best of what I can just go in quickly, throw into Amazon, get that order in.
If you're a Prime member, you know you're going to get it delivered the next day. and what types of items
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you actually want to go out and spend your time and learn more about. >> So that's what we have to learn.
What do people want to do in physical stores? This idea of retail tamement, the idea of the social interaction seems to be very important.
The the idea of building a relationship with the retailer over
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time. Now maybe you can do it online, but it's easier to do it in the social way where you learn customers preferences, you build the trust, and then you build loyalty that way.
>> Right? You and I have talked a lot over the years about Amazon versus Walmart seemingly and and maybe even Target as
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well, but Amazon and Walmart being the two kind of the titans in this area. And for their own strengths, they seem to be able to really connect with the consumer to a degree in different ways because obviously so many people that go to
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Walmart love the going to the store and that experience. Obviously, a lot of people on Amazon are going to go there because they love the online ease and and uh uh speed at which they can order.
>> Yeah. I mean, I don't know how many people go to Walmart for the experience.
Like, when I think of customer
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experience, I'm going to think of some of the luxury department stores and things like that. >> But Walmart is convenient.
It's it's convenient in a different way. Some people think that it's more convenient to shop online, pick up in the store, and drive it home than to wait for these
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deliveries to come to your front door. There's an inconvenience for some people in that, too.
Right. >> So, I think both Walmart and Amazon are really featuring a very good price and very easy, and they're defining what a very good price is differently, and
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they're defining what's easy differently. What do you hear then from companies in terms of their footprint with the bricks and mortar of how they are looking at where they want to be within the shopping experience?
Because obviously for the longest time the industry relied on the massive malls.
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They are obviously not doing that as much and it seems like you see more of the I guess it would be the B and the C malls that are drawing more attention from retail companies. >> I mean it's interesting how these different things are changing.
One of the things I knew when I started writing my book a long time ago was the US was
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overstored, right? So, we had too many stores in the first place.
That was a given, you know, now it's kind of been obscured by all these other changes, but we had too many gaps, for example. Everybody knows we had too many gaps, right?
>> You know, so some of those physical
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>> only so many pairs of jeans you could buy, right? >> Yeah.
I mean, that doesn't make sense. The the way they would grow is build a new store and it just didn't make sense anymore.
So, we had too many stores to start with. That was a given.
But to your point, the role of the store is different. So one of the things that happened in co was this idea of this
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omni channel experience where you're buying online, pick up in the store. That made those neighborhood centers more useful because you could just drive up to the store, pick up something, and it was very convenient.
>> And we're also seeing the malls change the, you know, what's fulfillment in a
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mall? What's entertainment?
There is a role for physical space. It's probably less physical space than we had before.
Yeah. And probably these big footprints stores are changing.
We're seeing stores become smaller, more experiential, more carefully designed, how they're using
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their internal space. >> Do you think that in in the end all the impact that we saw on so many different businesses, but I'll use it in the scope of retail here, uh, will end up being a valuable learning experience for retail because of all of these changes.
And
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obviously now with technology and and all these different components that there are things that a lot of companies learn that will make them better on the on you know on the outside. >> Yeah, absolutely.
I mean people were doing things that made no sense just because they did it you know I mean we understand why people put the milk in
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the back of the store because you wanted people to spend more time in the store to find that milk and buy other things. But from a customer point of view it was always obvious that's not convenient.
they cannot do that anymore. So now you're going to make stores a better
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customer experience. You were and that that's an example of something that the data are showing people don't like that if you put the milk in the front of the store, people are happier, you know.
So there's some learnings that we're getting. >> You know, one of the other things that you haven't mentioned, but that is
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fundamentally changing retail today is, you know, the role of price. Now low price matters, but people are much more price sensitive.
Maybe it's because of the tariffs. We'll still see how that works out.
>> But speaking of Amazon, you know what
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they've done is move up shopping to Prime Days in July. >> Yeah.
>> You know, so that's kind of an interesting thing. The very very promotional um days that are happening in July that it's affecting back to school shopping and Christmas shopping.
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Does does a company like Amazon then do they have they obviously think about when they want to have those types of days, but do they think about how many of those types of different events they want to have and where that saturation level kind of, you know, goes maybe overboard as well?
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>> Yeah. I mean, I'm not inside the head of Amazon, but that's got to be.
But one of the things that we also see, which is part of the wheel of of retail that we've seen over time, is so Amazon put Prime Day in the middle of July. Everybody saw how effective that was and
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then they all copied. So now part of what you're seeing happening is that everybody has a Prime Day.
It's not just Amazon anymore. All this promotional shopping has been moved to July.
What that's going to do to the back to school season and to the holiday season remains
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to be seen, but a lot of purchases were made in the middle of the summer. What are the areas that you're most focused on right now in terms of where retail is and where it's headed moving forward?
>> I personally am very interested in this idea of differentiation through customer
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experience. Like how do you make the customer experience something that people want to go to your store to see?
There have been a lot of experiments that I don't think have worked as people throw the spaghetti on the wall and try to figure out, you know, like there was a lot of these Instagram things in a
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mall where you just take pictures and all this other stuff. I don't know how successful in the long run some of those Instagram type installations in malls were.
>> I've seen some very interesting ideas and customer experience like for example the sleep number which is a luxury kind
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of bed thing. In order to get that, that's a combination of learning customers preferences and using technology so that you can build a bed that's so customized for you.
>> And that idea of spending enough time with the customer either online or in a
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physical store to learn those preferences to really customize the product. >> That's an interesting experiment to see how you can translate that to other types of retail.
Well, seemingly, and you talked for a while about how Amazon with the checkout, the selfch checkout
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with some of the stores that they were going to have, uh, that that was kind of the next step in that process. But it seemingly companies, it feels like, understand that the way to be able to maybe differentiate themselves from maybe a rival or another part is to find where technology can benefit them the
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most moving forward, >> right? And so that there's this use of technology can either build relationship with the customer through learning preferences in different ways or remove friction.
So what Amazon knew was this idea of one-click shopping and that that's the same thing. I don't want to
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go to the back of the store to get the milk. I want it right here.
I don't want to stand online and and pay for my goods. I'm going to abandon my cart.
So let's make that as efficient as possible. Personally, when I go into a physical store, I I can't tolerate a long line in a cash register.
You know,
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I really expect a saleserson to come up to me with their little pad and get me out of there fast or selfch checkckout or things like that. >> That's what I was going to say.
When you go to the grocery store, the selfch checkout lines, you I I've seen my grocery store and others seemingly they've added at least two extra selfch
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checkout areas just because the consumer wants to get in and get out as fast as they can. And again, that circles back to that component of experience that you talked about, >> right?
Which in that case, it's make it efficient. Don't make me spend time doing things I don't want to do.
Make my time valuable with respect to the
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retailer. And that's just not the way retailing was originally built.
Retail originally built was built to sell products at the right price. So they were very product focused.
And a lot of marketing retail in included has moved to this new idea of focusing on what's
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important to the customer. >> Right.
Barbara, I always appreciate talking to you. Thanks very much for your time today.
>> Sure. Thank you.
It's always a pleasure. Barbara Khan, marketing professor here at the Wharton School, also co-host of the Marketing Matters podcast, and again the book The Shopping Revolution, which she did a few years ago and has been
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updated, how retailers succeed in an era of endless disruption. Thank you for listening to The Ripple Effect.
We hope you found this episode informative and engaging. Don't forget to subscribe and leave us a review so that we can continue to bring you the best insight from the Warden School.