Tuesday, June 19, 2012

Electronics Retailers Scramble to Adapt to Changing Market

From the NYT: Electronics Retailers Scramble to Adapt to Changing Market

What direction should a company take when its products become commoditized, and when traditional, physical transactional methods are bypassed by online retailers offering those very same products? For physical retailers that find themselves in this predicament, the reading “Types of Stragey: Which Fits Your Business” suggests a strategy of differentiation. An example of this approach is highlighted in the New York Times article “Electronics Retailers Scramble to Adapt to Changing Market”, which illustrates how Abt Electronics, a New York electronics retailer, has been able to increase profits via a strategy that focuses on the customer experience.

Commodity products are products that share standard features, quality and price. Electronics are not usually thought of as commodities because they tend to be differentiated through constant innovations and upgrades. What the NYT article points out is that the prices of televisions and video-games have continued to go down in recent years. Chief merchandising and marketing officer of Wal-mart, Duncan Mac Naughton, is quoted as citing the recent lack of innovation in consumer electronics since flat-screen TVs and tablets were introduced in the market. The result is the commoditization of these products, whereby retailers have a harder time differentiating themselves from the competition with products that can be purchased anywhere else at similar prices.

In response to a market in which electronics have become commoditized, and in order to compete with online retailers, physical retailers have taken on a strategy of differentiation in order to set them apart from their rivals in a qualitative way. The example used in the NYT article is of Abt Electronics, a New York electronics retailer located in New York. They have turned their showroom into a unique experience, with installations of activity stations for children and adults, an aquarium filled with exotic fish, and employees serving fresh-baked cookies and coffee to shoppers. Abt pays its employees a salary and bonuses rather than hourly wages. An all commission staff would try to sell what they would make money on, putting unwanted pressure on customers and ruining the customer experience, while hourly workers are only concerned with their wage. The combination of the two ensures that customers’ best interests are still taken into account, while offering incentives for workers to try their best in offering customers a positive experience to receive better bonuses. Since this strategic approach, Abt profits increase in 2011 compared to 2010.

Strong customer relationships can be used to retain customers who would otherwise gravitate toward lower cost providers. To be effective, a customer relationship strategy must provide something customers value, such as personalized service that helps to build a personal relationship not experienced when the customer does business with other companies, their owners and employees. Such qualities cannot be found online or at most big-box stores where a transaction is provided to the customer without the personal relationship. The offering of a superior customer experience is precisely the approach that Abt and other physical electronics retailers have taken to compete with online retailers and big-box stores.  

A customer is quoted in the NYT article confirming his preference for Abt because of its customer service and willingness to negotiate. In his words, “The same model of TV is available here or there. Retailers like Abt are finding interesting ways of working around that by giving away something of value to someone like me. Best Buy hasn’t.” Through differentiation, Abt has been able to find success in an electronics market that has become increasingly volatile for physical retail stores.

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