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March 21, 2003. Experiential Marketing™
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March 21, 2003. Experiential Marketing™
Author: Dr. Augustine Fou, Marketing Science Consulting Group, Inc.
This article deals with "experiential marketing," specifically marketing that gives customers in-depth experiences with products in order to give them enough information to make the purchase decision. In the past, the term "experiential marketing" has often been misused to describe advertisements which depict consumer experiences. In contrast we will use the term "experiential marketing" to refer to actual consumer experiences or interactions with products for the purpose of driving the sale of that product -- i.e. marketing -- not merely the consumer seeing an idealized experience in a TV, print, or radio ad. We will also show that creative experiential marketing, when applied correctly, will lead to greater impact for the consumer, increased effectiveness for the advertiser, and even cost savings relative to traditional advertising or marketing techniques.
For further clarification, in this article the word "advertising" is contrasted to the word "marketing." "Advertising" is taken to mean any activity done to convey product attributes or brand characteristics to a broad base of consumers without explicitly requiring the consumer to take any action, for example, most TV, print, and radio ads. "Marketing" on the other hand is taken to mean any activity done with the goal of eliciting a specific action or response from the target consumer, for example, going to the store and purchasing the product. .
Current Trends in Advertising In the face of tighter budgets and the general demand for greater effectiveness in advertising, many advertisers are starting to employ more creative and innovative ways to reach out to their target customers. Many have started advertising cooperatively in order to share costs among two or more advertisers who are trying to reach the same audience. For example, Target's TV ads feature a wide variety of products which they sell in stores using color-based themes - e.g. the green TV spot showcases Sprite soft drink, Irish Spring soap, Swiffer household mop, Trident gum, and Cascade dishwasher detergent. Pepsi soft drinks are also prominently featured in TV spots by the YUM! brand fast food restaurants like Pizza Hut, Taco Bell, and KFC. All of the above are nice examples of on-brand advertising which convey positive product attributes while sharing the costs among participating advertisers, thus reducing the costs incurred by each individual advertiser. Product placements in TV or movies are also becoming more mainstream and do well in showcasing specific products as they are being used by celebrities or movie stars.
Other examples of what we consider to be mis-applications of the term "experiential marketing" are the following. Car ads which show good looking people driving around to pop music depict the experience one can expect to have when driving that car. But the consumer seeing the ad on TV does not have that experience themselves; they are merely watching someone else have it on TV. Some of the music is admittedly catchy; some of the special effects are indeed "cool;" and some ads might even make a consumer remember a particular attribute of the car; but, then again, when was the last time there was a car ad which did NOT feature happy people driving the car around to cool music? In other words, the impact of such ads on consumers and the likelihood of it motivating a consumer to take some action is low. Victoria's Secret's famous TV ads which feature beautiful models lounging around in their lingerie depict the experience one would have if one wore their lingerie. But these ads are hardly what we would call "experiential marketing" since the viewer of the ad is merely a voyeur who has not experienced the product themselves.
Other ads which are sometimes cited as examples of "experiential marketing" include 1) the "Tide Mountain Fresh" TV ads because the images of snow-capped mountains and meadows of wildflowers "have direct sensory appeal and evoke the outdoor experience," 2) AT&T's "reach out and touch someone" ads because they pulled on emotional heart strings by associating phone calls with the warm-and-fuzzy feeling one gets when talking to close friends, 3) Polo TV ads because they feature inspiring music and an video collage of wealthy young people playing polo, frolicking at their Hampton's estate, and driving their expensive cars and speedboats, 4) Sprint's new TV ads because it depicts someone using their picture-phone to send an instant picture of a "pig drinking a cappucino;" 4) Sam Adams Light TV spots because they depict the "hoot-hollerin'" experience one has when first tasting "Sammy Light -- shockingly great taste;" and even 5) Burger King's latest TV ads which feature cowboys talking up the "cowboy life style" to refer to the flame-broiled attribute of their burgers. So, while many advertisers and advertisements now use consumers' "consumption experiences" to pitch product attributes or brand characteristics, they still don't give the consumer an actual consumption experience. So, we argue, these ads should NOT be cited as "experiential marketing," Instead they remain nice examples of the tried-and-true "feature-and-benefit" advertisements. They should not be considered marketing either, in the present usage, because while the product feature or brand characteristic might be well communicated, a direct connection to action on the part of the consumer is still lacking.
Finally, experience-based retail is also starting to proliferate. Early examples were stores like Nike Town which spent a great deal of money decorating the retail space to resemble a basketball arena, complete with turnstiles at the entrances, wooden floors, and even equipment cages. This gave customers a better retail shopping experience because the surroundings and decorations gave the products a context or put customers "in the mood." Many furniture stores have moved away from merely stocking furniture on the retail floor in hodgepodge fashion to neatly arranging them into "sets" which show how specific pieces of furniture would be used in specific rooms like the dining room, liviingroom, or bedroom. Stores like Toys 'R Us have video game sections which give customers first hand experience in playing sample games on large flat screens and surround sound speakers. IKEA stores are entirely based on "sets" which showcase a variety of products arranged as they would normally be used if in a bedroom, living room, kitchen, etc. Customers get ideas about what to buy with what when they see the products being used in their natural environments. And more elaborate examples of experience-based retail include Sony's flagship store in New York City, which showcases TV and home theatre audio systems set up as if they were in a living room setting; customers could actually sit down and watch a movie clip and experience the wonders of surround sound and ground-shaking subwoofers.
In many ways the above examples provide the context in which consumers can view and purchase products; but they are all still examples of retail. The question remains, what motivates the consumer to go to the retail store in the first place? We argue, experiential marketing.
The Beginnings of True Experiential Marketing Experiential marketing reaches out to the consumer prior to the actual purchase event in a retail store and gives them enough information about the product to motivate them to go to the retail store to make the purchase. This is contrasted to the experience based retail examples above, where the customer is already in the store and ready to make a purchase given some final interactions with the product. A few examples which can be considered early forms of true "experiential marketing" in the definition of the current article include Aveda bath products being featured in W Hotels. The use of luxury bath products from Aveda in a high-end boutique hotel which caters to a specific clientele reinforces the brand image of both parties. More importantly, for Aveda, it allows customers to experience their product prior to a purchase decision or without having to make a purchase decision. For products such as these, the purchase decision is more likely to be made based on the consumer actually using the product and experiencing its benefits -- like smooth, moisturized skin -- rather than on the consumer reading about its ingredients or seeing "features-and-benefits" on TV ads. Allowing the consumer to experience the product first-hand is arguably far more effective in influencing the subsequent purchase decision.
In a prior article, we explored the behavioral roots and psychological reasons that consumers make the purchase decisions they make. It was shown that there is a series of conscious steps that consumers take to "filter" down the set of possible choices and then make the decision based on the comfort level afforded by their own "contexts." And the factor that has the greatest weight in a consumer's purchase decision is their own experience with the specific product. Of course, if they did not have such a personal experience to draw from, they would rely on outside inputs such as friends' recommendations. On the far opposite end of the "trust" spectrum lie advertisements which pitch features and benefits. There is little reason for consumers to trust yet another over-exaggerated sales pitch, let alone base their purchase decision on it. Another example of experiential marketing is DirecTV satellite TV in JetBlue flights. Satellite TV is a complex product which is not sold on specs alone. Having experienced uninterrupted TV in a place where TV is usually not available (i.e. in-flight), consumers would have experienced an explicit benefit and a key differentiating factor of satellite TV. This gives them more information of a personal kind to use in their purchase decision. In this way, experiential marketing is arguably more effective than traditional forms of advertising or even direct marketing, not to mention far less costly than creating, producing, and airing TV commercials.
Our use of the words "experiential marketing" in this article goes a bit deeper than merely giving consumers their very own consumption experience as a way to do marketing. True experiential marketing should also provide significant economic advantages to all the participating advertisers -- i.e. "bottom-line" cost savings in reaching out to their target consumers to communicate product and brand attributes and to motivate specific actions on the part of the consumer. True experiential marketing should be significantly more effective than advertisements or even traditional forms of direct marketing, not to mention being highly trackable so that concrete measures of effectiveness can be calculated and analyzed. Finally true experiential marketing should provide significant opportunities to accumulate information and insights about customers prior to, during, and after their interactions with a particular product and even after purchase of said product. Is clear that experiential marketing cannot be blindly applied to any product. For example, we're not talking about taste testing the new vanilla Coke or giving free samples of the new gum from Wrigley's, even though consumers do "experience" the said products. Experiential marketing is most useful for marketing products where in-depth interactions with the products are key to helping the consumers make the purchase decision. These are usually products which are more complex or involve larger feature sets where simply reading about such features in a brochure are not sufficient. Experiential marketing is also most useful for products whose price points are high and thus prohibitive for consumers to do their own experimenting -- i.e. buy it and try it. .
New Experiential Marketing Concepts Given the definition of "true experiential marketing" in this article and the other "requirements" of lower cost, more effectiveness, and better customer insights, we present a few "out-of-the-box" concepts.
IKEA hotels. Given the commoditized status and lack of differentiation of many hotel chains like Hampton Inn, Fairfield Inn, Red Roof Inn, etc., imagine if a particular chain partnered with IKEA to decorate their rooms with simple, clean and comfortable bedroom furniture. This fact alone would give that hotel chain a significant point of differentiation. The hotel chain also gets the economic benefit of furniture at prices that are even better than wholesale prices on generic furniture. IKEA gets significant "consumption-experience level" exposure to target customers at a fraction of the expense of TV ads. Consumers get to experience IKEA furniture "in action" which undoubtedly would give them enough first-hand experience information to make future purchase decisions. Finally, some creative "consumer insights research" opportunities can even be built in, such as allowing visitors to select from among differently decorated IKEA hotel rooms and tracking such decisions to gather which items are most popular or even how to make IKEA's in-store bedroom sets more appealing. In summary, both the hotel and IKEA achieve "experiential marketing" which drives greater markteing effectiveness (i.e. hotel chain differentiates themselves from others; IKEA lets customers actually experience their products prior to going to a store), delivers a more impactful experience to customers, and even reduces costs for both parties.
Cereal bars. Given the high cost and ineffectiveness of product research and television advertising for commodity products like cereal, imagine a small restaurant or section of a restaurant which serves only cereal. It would serve dozens of varieties of cereal through automated, single-portion-dispensing, self-serve stations. The stations would also allow people to "customize" their serving with a variety of milk (whole milk, 1%, 2%, strawberry milk, chocolate milk, soy milk, etc.) and add-ons like berries, nuts, fruits, etc. Customers would come into the cereal bar and buy a prepaid card, much like the Starbucks card, which they use over and over again. At any given self serve station, a swipe their card and dispense their choice of cereal, choice of milk, and choice of add-ons. They can go back as many times they want and create any combination they want. The experiential marketing part of this concept is that consumers, who are typically "loyal" to the brand and type of cereal that they grew up with out of convenience, can have the field day tasting other kinds of cereal as made by manufacturers or as created by themselves. Cereal manufacturers who "sponsor" particular cereal bars will deliver actual consumption experiences to customers which no TV ad can do, at a fraction of the cost of a TV ad. Also, product research is already built in, simply by observing what cereal combinations people create for themselves; there's no need to pay an expensive product research consulting firm to do focus groups and ask people in an artificial environment what they may or may not like. Observing actual consumers' actual behavior is much more insightful and doesn't cost anything.
If your initial marketing does not even have to be in a physical retail space. In fact, some products are best experienced in the environment in which they are intended to used.
Sponsored car rentals. If anyone's watched TV lately, they may have noticed that all car commercials fall into three basic types: 1) ones that depict a consumption experience -- i.e. Mitsubishi's happy young people driving cars around to pop music, 2) ones that convey product or brand attributes -- i.e. Dodge's "beef jerky" Superbowl ad which shows how driving really fast and slamming on the breaks helps dislodge the beef jerky that was choking the poor guy, and 3) ones that pitch financing or sales related offers. Other than being amusing, or more often annoying, these high budget car ads have very little to do with informing customers to moving them closer to their own purchase decision. But the fact that there are no solid ways to track their effectiveness means that such TV ads are "safe" from extinction in the near future. However, there could be much better ways to spend hundreds of millions of dollars to reach out to potential car buyers. We think sponsored car rentals might be a good example of experiential marketing. By taking some of those ad dollars, automobile manufacturers can supply car rental locations with new models at below wholesale cost or even reduce the cost of rentals of specific car models for consumers. For most consumers, the exact model car that they get is usually left up to chance (i.e. their rental fees are determined by car category); getting a particular car model to drive around and getting a handsome discount on the rental fee, indeed makes for a better consumption experience. For the manufacturer, positive consumption experiences were delivered at a minuscule fraction of the cost of a TV ad which delivers no such experience, not to mention the future cost savings of not having to maintain specialized car dealership locations and to lure potential customers into such dealerships to do test drives.
Stouffer's in-flight meals. What is one of the most common gripes that most people have? Airplane food. It can't get any worse than that. But airlines have no incentive nor the budget to improve the quality of airplane food. However, frozen meal manufacturers like Stouffer's, Lean Cuisine, or Healthy Choice make meals that are single-serve, complete, convenient, and quick. But today, these manufacturers still rely on TV to display highly stylized, glossy shots of how their meals are supposed to look. Imagine if they partnered with airlines to serve their meals in-flight. Consumers would get a wider variety of meals to choose from -- rather than chicken, beef, or pasta -- and undoubtedly a better consumption experience than generic airplane food. If the manufacturers took the tiny fraction of their TV ad budgets and use it to partially offset the wholesale cost to the airlines, both parties would save costs while delivering a better, more impactful experience to the consumer. Customer insights research would already be built in simply by counting which meals were most popular or least popular; the manufacturers can even test new meal concepts with this captive audience.
Conclusion "Experiential marketing" as it is defined and used in this article goes well beyond simply delivering consumption experiences to consumers as a way to give them the information they need to make a purchase decision. Experiential marketing can also be applied creatively to deliver greater impact while reducing costs and to weave in market research or customer insights research in ways that could not be done before. Experiential marketing is the difference between telling people about features or benefits within the confines of the thirty-second TV spot and letting them experience it and get their own "a-ha!" event.
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2003, Dr. Augustine Fou
This work is licensed under the Creative Commons Attribution License. The licensor permits others to copy, distribute, display, and perform the work. In return, licensees must give the original author credit.
To view a copy of this license, visit http://creativecommons.org/licenses/by/1.0
Monday, March 03, 2003
March 3, 2003. Inventory-centralized Retail™
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March 3, 2003. Inventory-centralized Retail™
Author: Dr. Augustine Fou, Marketing Science Consulting Group, Inc.
This article examines several current trends and economic forces that are converging to change retail as we know it. We extrapolate into the future and take a look at what retail might be like down the line.
Current Trends In Retail More and more stores have recently been increasing the number and variety of their product offerings in an attempt to attract a wider customer base and potentially to keep them in stores longer. For example, Wal-Mart continues to add grocery and gasoline offerings to more and more of their store locations in an effort to bolster their "one-stop shop" value proposition. But there is a corresponding increase in redundancy, inefficiency, and waste. As Wal-Mart continues to encroach upon the domain of local grocery stores and gas stations, all retailers in the area are hurt. Having redundant inventory in the same geographic location means greater inventory costs and waste because consumers are not going to buy more or change their typical purchase patterns. Consumers suffer too because these increased costs and inefficiencies are ultimately passed along to them as higher prices.
Another trend in retail is that low-cost providers such as Target and Wal-Mart are expanding further into categories like branded clothing. Older retail brands or department stores which have not connected well with trend-conscious consumers will continue to lose business no matter what inventory they stock. Informal surveys of today's young people reveal that they "never" shop or shop very infrequently at department stores like JCPenney's, Kohl's, Nordstrom's, Foley's, or Federated; in fact, some have never even heard of these store brands.
Single-line retail stores like Tower Records (which sells music) and Sports Authority (which sells sporting goods) are also being forced to change the way they do retail. They must move beyond the traditional definition of retail and expand their value proposition to become "destinations" for entertainment or sports, respectively. Music stores can no longer be merely stock rooms for thousands of CDs because today's consumer can easily browse thousands of CDs online, listen to samples, and make purchases at better prices from the comfort of their own home. Physical retail stores have to deal with the extra costs of real estate, inventory management, and labor. One striking example, however, of a store which continues to innovate new in-store value propositions is Barnes & Noble. Their in-store CD-sampling stations allow customers to sample ANY music CD or get more info on any DVD simply scanning the UPC barcode at a sampling station; the samples start to play instantly and information about the product is displayed on the small 6-inch flat panel display. While sampling is already widespread online, the immediacy, efficiency, and "user-friendliness" of the Barnes & Noble system provides enough incremental value to make a trip to the store worthwhile.
Another entire category of retail, namely malls, are also being forced to reevaluate their value proposition to consumers. In the '70s and '80s malls became popular because they centralized many small stores under one roof and added conveniences like food courts and movie theaters to make a trip to the mall something of an excursion. They also quickly became places for teens to hang out for free (as opposed to bars or restaurants, where they felt obliged to buy something). But most often visitors to malls are just that -- visitors -- and not buyers; they hang out, socialize, browse the merchandise, and leave. Furthermore the individual stores that have been aggregated inside malls are still not able to compete with Wal-Mart on price for commodity goods; centralization of stores for one-stop shopping is no longer unique to malls since Wal-Mart already does a better job of it; and the food courts and movie theaters are no longer enough to make malls destinations.
Economic Forces There are also strong economic forces at work to reshape retail as we know it. While there can be dramatic fluctuations of economic condition, there are always downward pricing pressures from the competitive environment which continue to reduce margins or eliminate them altogether. There are inherent inefficiencies built into traditional retailing because displaying a large number of items on physical store shelves or racks and allowing customers to browse through, to try on, or to otherwise handle these items is extremely inefficient way to sell. In other words, the sale of one item is the convergence of several relatively small probabilities -- e.g. the probability that a consumer has a need and is actually ready to buy, the probability of that consumer takes the time and trouble to go to a retail store, the probability that the item of the right size, color, or feature set is in stock at that time, the probability that the price is "right," and potentially even more factors. These probabilities combine to make the chance of an item being purchased very small indeed. Retailers have to essentially be "fortunetellers" to purchase and stock the right products and product mix in anticipation of consumer demand; retailers have to have the foresight to locate a store near enough to consumers for them to actually make the trip; and, of course, retailers have to play the pricing game. While in the past, sufficiently large margins allowed for such inventory and pricing games, razor-thin margins of today's retail mean that inefficiencies of traditional retail will no longer be viable.
On the demand side, consumers are continually gaining power through technology, more efficient sharing of information, and alternative retail channels. For example, online shopping bots and price comparison engines help to consumers find the best price anywhere. This dramatically increases the speed at which prices are driven down to bare-minimum commodity prices. Mass consumer feedback on particular products or manufacturers can be shared with millions virtually instantaneously online; this means that positive reviews of popular products will drive rapid spikes in demand while negative reviews can send sales of a particular product spiraling down. Finally, online stores provide consumers a convenient alternative to making a trip to a physical store and often offer better prices and hard-to-find items, too. People go into stores like Best Buy and Circuit City and play with products, but then go home and buy online cheaper.
Consumers have also been conditioned to make purchases only when there are "sales" going on. And in response, retailers have been conditioned to put on "sales" more frequently or even continuously. Not only do such sales annihilate margins for retailers, but they also make consumers wary and jaded to these so-called "sales" that go on all the time, and even then they usually don't think the sale price is all that good. This is a devastating cycle which leads to further concentrations of demand, centered around calendar-based holidays like Valentine's Day, birthdays, and most especially Christmas. Such concentration means that retailers have fewer and fewer chances to "get it right" -- in other words, it is imperative that they get the right product mix and inventory for these small number of occasions; otherwise they won't make the sales numbers. But in recent years, it is well-publicized that popular items are always in short supply and not-so-popular items remain on shelves and must be "disposed of" in often below-margin fire-sales after the holidays.
The economic forces of continuous downward pricing pressure, increasing consumer power, and demand concentration are combining to make retail ever more Darwinian. The inefficiencies and "slowness" of traditional retail is no longer economically viable. This calls for a new way of looking at retail and executing it.
Inventory Centralized Retailing We propose a new concept called "inventory centralized retailing." Unlike traditional retail where individual stores or chains of stores purchase, distribute, stock, and sell specific inventory at specific geographic retail locations, in "inventory centralized retailing" most of the inventory is left in highly automated regional distribution facilities -- extremely common and efficient having been refined and streamlined since the advent of Internet shopping. The individual retail stores then become highly specialized showcases of products, where consumers go to experience or "try on" products. They can also make the purchase in the store, but the item will be delivered directly to their homes from the regional distribution facilities. The retail stores will no longer stock aisles and aisles of product; they will no longer need to use large amounts of real estate for inventory storage; and they will not need to handle large numbers or variety of products. Retail stores can instead spend money on showcasing products in their "natural environments" and allow people to experience these products in the proper context, thus increasing the probability of making the sale.
"Inventory centralized retailing" also means that existing retail stores can selectively increase the variety of their product offerings to attract new customers and retain existing ones without an associated increase in inventory related costs. For example traditional music stores can now offer consumer electronics such as stereo systems, home theater systems, and even TV's without having to manage such inventory themselves. They can set up a showcase of these selected products which complement their primary product lines and are on-brand, on-theme, or generally related to the same target consumer that visits the store. The consumer can try out or experience these relevant products in the retail environment and in association with other relevant products such as the music being offered for sale. And, if appropriate, they can even make the purchase in-store. They will then receive a card with a unique code on it or some other form of proof of purchase. The product will be then drop-shipped directly to their homes or an address the customer specifies, which could be particularly convenient for larger items like TVs.
The economics of "inventory centralized retailing" are also attractive to retailers, manufacturers, and consumers. There are many components of a retailer's cost structure that can be attributed to inventory -- 1) capital costs of acquiring the inventory, 2) logistics costs of getting the inventory to stores, 3) real estate costs of warehousing the inventory, 4) labor costs of stocking and restocking inventory, and finally 5) costs of inventory risk -- i.e. not all retailers can predict demand with 100% accuracy which means that popular items will inevitably be understocked and "dud" items will be overstocked. With inventory centralized retailing, retailers can do away with most of these costs or significantly reduce them. For example if a retail store did away with the costs of moving large TV's to particular store locations, warehouse them until they are sold, or disposing of unsold inventory, they could probably significantly lower the price of such TVs and still make more money. The economic argument for inventory centralized retailing is that for particular categories or types of products the cost of drop shipping individual items to individual consumers is still less than the combined costs of capital, logistics, real estate, labor, and inventory risk attributable to such products. In this scenario retailers can earn more profits; manufacturers can potentially achieve higher wholesale prices; and consumers might get better prices and a better retail experience.
Another benefit of inventory centralized retailing is real-time sales data. Historically, manufacturers don't have timely sales data to do accurate forecasting. In other words, while they may have data on large, aggregate shipments of product to retail stores or chains, they typically don't have detailed consumer sales data from the point-of-sale or they get such data many months after the fact, again in aggregate. Their lack of timely data leads to oversupply or undersupply, and thus adds to the inefficiencies of traditional retail. With inventory centralized retailing, manufacturers can have detailed and real-time to information about individual consumer sales as they happen. Such data leads to more accurate forecasting, manufacturing, and even better products or product mix.
Conclusions Given the known inefficiencies of traditional retail, the general trends which are making retail ever more Darwinian, and other economic arguments, inventory centralized retailing might become a significant new way of doing retail which has benefits for all parties involved -- manufacturer, retailer, and consumer. If a retailer can increase the variety of their product offerings without an associated increase in inventory-related costs, then they have a chance to attract more customers into their stores, and perhaps keep them there longer. The other macro benefit is that these inventory related costs are not passed on to the consumer in the price of the item. Increasing efficiency through the use of technology and other methodologies can help retailers survive and gain a competitive advantage while giving consumers better value -- i.e. lower prices and better shopping experiences. And finally the manufacturer makes sales with better margins and gets real-time data for more accurate forecasting and planning, thus completing the entire cycle to increase the efficiency of the retail cycle.
___________________________________________________________________
2003, Dr. Augustine Fou
This work is licensed under the Creative Commons Attribution License. The licensor permits others to copy, distribute, display, and perform the work. In return, licensees must give the original author credit.
To view a copy of this license, visit http://creativecommons.org/licenses/by/1.0
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