08 Jun 2011
For those of you who are in the retail industry, you may have noticed a recent trend to clean up in-store environments – reduce shelf heights, remove dense ends and dump bins, widen aisles etc. – in order to increase comfort and make the shopping experience less stressful for customers.
The big question then becomes “does clean make customers keen? According to Walmart, arguably the largest and most successful retailer in the world, clean stores mean fewer beans (on the bottom line).
As reported in the New York Times, Walmart conducted a massive in-store experiment to improve sight-lines, rationalize the overall number of items offered, remove warehouse-like merchandising in centre aisles, and increase the width of core aisles. According to Walmart’s CEO William S. Simon, “(Customers) loved the experience. They just bought less.”
As a result, Walmart reverted back to its original strategy of offering more products, with tighter aisles, more clutter and lots of bargain bins in the hopes that customers would spend more because of a perception “there were bargains to be had”.
If you do a quick search on the internet, there are dozens of experts who subscribe to the view that a larger selection, more bargain bins, and sales signage equates to “better value”. In essence, the more you look like a market stall, the better it is to generate buzz and sales. They argue that if your merchandise is neatly presented on the walls and in well organized aisles, with no point of sale impulse offers and dense ends full of 2-for-1 specials, customers will tend to think your store is expensive (i.e. overpriced) and they will not buy from you.
And if you think about it, you can probably name a whole list of retailers who subscribe to this “clutter is good for business” philosophy and they seem to be successful. But how can we be sure that clutter makes customers keen? Have we been too quick and prematurely jumped to a conclusion that clean is a traffic and transaction turn-off?
Recent empirical evidence from the science of neurology sheds new light on how we think, and more importantly, how we make decisions. In fact, the decision making part of your brain responds strongly to certain stimuli only.
Did you know that your brain consumes 25% of your body’s energy? As a result, you brain wants to conserve energy so you tend to pay attention and be attracted to things that have sharp contrast, high visual appeal, strong emotional cues and a clear beginning vs. end message.
Now what does this mean for you in the context of your shopping environment?
A chaotic, cluttered store is cumbersome for your brain to navigate – you have to work hard mentally to hunt down and search for bargains. It may create some emotional appeal but it is likely perceived as having low contrast, low visual appeal and no clear beginning vs. end. Shopping in this environment takes time and energy and it also forces your brain to go into “thinking” mode. This is a critical point because thinking is counter-productive to deciding. Thinking takes place in one part of your brain (the neo-cortex), while deciding happens much more quickly (and automatically) in your old or “reptilian” brain.
So what does this research mean for the strategy and conclusions reached by Walmart?
Based on science, the strongest buying cue that you can give your customers is this – if your store (or business) has incredible bargains, people will buy (and even sift through a maze of clutter) because something is in it for them. The “what’s in it for me” (WIFM) principle is one of the strongest influences on the part of your brain that decides.
There is no hard evidence to suggest that clutter makes your customers keen.
Walmart and many others have come to a conclusion based on what they THINK people are doing to reach a buying decision in-store. However, neuroscience has empirical evidence to support the opposite conclusion is more probable. Clutter and chaos create an environment where your customers have to think too hard, which is exhausting for the brain. They will do it if they have to, as long as the perceived bargains and value are very high.
Doesn’t it make more sense to find another way to communicate good value and service without exhausting your customers and causing them to waste their time? Wouldn’t you be more likely to get more sales and word of mouth referrals from your delighted customers?
In the end, Walmart may be correct about the fact people buy more in a certain circumstances but they are wrong about WHY that is. The best way to create more excitement and sales is to make it easier for your customers to decide. You need to show them what’s in it for them, increase the contrast between your solution and your competitors and communicate a strong, clean visual message that compels them to say “YES”.
If you do a quick search on the internet, you will uncover hundreds of experts, coaches, accountants, journalists and government organizations that quote the statistic “8 out of 10 business fail in the first year”. However, the fact that the statistic is widely touted doesn’t necessarily mean that it’s true or backed up by empirical evidence.
So what is the truth? I searched the internet and couldn’t find confirmation of any study that was done to back-up this statistic (that 8 out of 10 businesses fail) by a reputable or well-known bureau. What I did in fact find was some evidence to the contrary. According to credit reference checking agency Veda Advantage, only a small percentage of new businesses close in their first 12-months of business.
What is the exact amount, you ask? Would you believe, less than two percent?
However, they assert another 32 percent close their doors between their second and fifth year of operations, while 21 percent wind up between the sixth and ninth.
So, that is the good news. However, as you can probably guess, it’s not ALL good news.
Just because a start-up doesn’t go under in the first 12 months, doesn’t mean that the owner is running a successful enterprise. I wonder if anyone has bothered to measure how many of the businesses who survived:
- Paid the owner a wage that was at least equivalent to what he/she could have earned elsewhere as an employee?
- Generated a profit and positive cash flow? and
- Had enough working capital to service their debt, pay taxes and suppliers etc. as they came due?
The first few years of business are incredibly risky. In working with hundreds of business owners, we have found that the large majority opt to forgo their salary or inject more equity to prevent them from going under prematurely. What this means is that, while they may not have “technically” gone under, these fledgling enterprises are far from commercially viable and successful.
Statistics can be both helpful and misleading at the same time. It is easy to assert figures but more difficult to substantiate their veracity or explain the implications thereof.
The author of an article or press release will often use statistics to capture your attention and motivate action. That’s why people use statistics – numbers are persuasive and have an aura of authority. A statistic like – 8 out of 10 businesses fail – gets attention, doesn’t it? Whether this data is accurate or not, is only half the story. As a business owner or manager, we must look deeper to find the insights that we can take away and use to improve our results.
Personally, I don’t care what percentage goes under. No matter how long you’ve been operating, if you’re not getting paid a salary, producing profit and generating positive cash flow, you’re not running a successful company. Closing your doors is only half the story. The doors may very well be wide open, but technically, no one is there.
Discipline and attention to details is more important than ever if you want to succeed in challenging economic times. Take a look around… competitors are closing their doors – which means more potential customers for the businesses that DO survive. And in times like these, it’s going to take more than “thinking outside the box” and goodwill with existing customers to secure the survival of your business.
You may have been lucky over the past few years – you may have found it possible to operate without a detailed, written plan and systems/processes. But the global economic crisis has changed all of that. If you want to thrive, there is only one thing that is for sure – uncertain times call for deliberate decisions and proven practices.
16 Feb 2011
The restaurants and promenades in the Docklands (Melbourne) were packed on Monday, night with couples. It was after all Valentine’s Day – the day when everyone declares their undying love for each other… well, at least their “commercial love”.
Apparently, if NAB has anything to do with it, February 15th is now the official day of the year to break off a bad relationship – the “unValentines Day”. I wonder how long it will take for chocolatiers, greeting card companies and florists to create some products to commemorate this special occasion?
The obvious question that no one seems to be asking is “why was the NAB dating both the ANZ and CBA in the first place?”
04 Dec 2010
Did you know that inventory is one of the great hidden costs of business?
Business owners should understand its importance of keeping it under control. Visit http://www.financialforeplaybook.com for more on this story…
Is Inventory Killing Your Business?
Did you know that inventory is one of the great hidden costs of business?Very few business owners understand its importance and the significance of keeping it under control. Inventory ties up your cash while providing little benefit to revenue – until the items are sold. Excessive inventory can weigh a business down and ultimately lead to revenue losses.
Excess inventory is so often the primary cause of cash flow problems that it is worth your time and effort to consider how your current stock holdings are affecting the health of your business. And it’s why you should have a clear understanding of how much inventory you have, how much you should realistically have, what it’s worth today, and how old it is.
Every time you buy stock for your business, you should see the purchase as an investment. Like any other investment, you should expect it to provide you with a financial return in a short period of time. If there is a significant gap between when you buy the goods and when you turn them into cash by selling them and collecting the money, you need to re-assess the value of your investment.
When you spend before you earn you are effectively taking out a loan for the intervening period. Very often this will require a ‘real’ loan from some sort of finance company, a delay in paying suppliers or a delay in paying yourself. If you want to improve the cash flow and health of your business quickly and without spending a dime on advertising, take some time out today to review your stock levels and get rid of excess inventory.