Customer is King: Evolution of the Retail Food Industry Essay

It is common understanding that you cannot have a business if you do not have customers to buy the product you produce or services you deliver; therefore customer is an integral part of every business. There was a time when customers was treated less critical and vocal by the businesses and markets was treated just as dumping grounds for the products, however this situation does not prevail anymore because of the tremendous transformation happening in the retail food industry since last five decades. Today customers have more choices than ever before, through more diverse channels. Even the expectations of customer are higher than ever before. Companies who fail to leave up to the expectation are finding hard to get or retain the customers- Majority of the unsatisfied customer do not complain they just change the suppliers. Therefore retailers have realised that the only way to sustain in the competitive market is by being customer centric. (Barnes & Glynn, 1993) Today every businesses treat customer as king and aware that only exceptional level of customer service can differentiate them from the competition in an increasingly saturated marketplace. Customer is often treated as the asset of the company and considered in the strategic level decision making. Therefore I certainly agree with this frequently used marketing cliche â€Å"customer is king†. To better explain my position I have presented my views based on two contexts. The first being how customer is king? This is explained by describing the customer’s role in the evolution of the retail food industry and its implications. The second being why customer is king? This is explained by detailing the significance of customers in the retail food business. The evolution of the retail food industry and its implications: Retail food industry has undergone a tremendous transformation in the last five decades, these transformations can be classified into four different phases- Predevelopment, Development, Saturation and Decline phase (Terbeek, 1999). During the predevelopment phase shopping was a social event, relationships between the customer and grocer was important. Shopping experience was logical, retail was more of a personalised business where the customer was treated as an individual and his or her needs were well known and understood by the businesses. Also there existed a long term personal relationship between the businesses and the customer (Steidtman, 2005). Therefore during this phase more emphasis was given to the customer and customer service, however this situation did not prevail long. During the development phase, small and neighbourhood stores started to decline due to the raise of supermarket. Customers were no more trusting grocer rather they started to trust brands. No longer there existed a personal relationship between the businesses and the customer. Even management was centralised and employees were ignorant of the customer behaviour, old values which existed during the predevelopment stage relating to employee and customer relationship almost disappeared, the customer becomes a consumer. However due to logistics efficiency and introduction in new model of central buying and distribution of standard products to standard stores led in the decline of product prices. Even though retailer was the ultimate connection to the customer but manufacturer had more control over the market demand and retailer was just acting as distributor. Manufacturer assumed that every market was standard and started using push marketing model to sell his products, therefore emphasis on customer was neglected and customer service was taken a backseat (Terbeek, 1999) During the saturation phase the competition between the retailers intensified, there was a rise of many stores even the products increased from 8000 to 30000 items and above, which resulted in making a decision making stressful for the customers. However the growth of the industry slowdown and the real growth for supermarkets came from taking businesses away from each other. Marketing cost intensified because of the competition between supermarkets, even value created by supermarkets become less easy to distinguish because of the availability of the identical products in every store. Therefore Price become the way for many stores to differentiate them, which gave rise to the new mantra of super markets called â€Å"more products and lower prices†. Competition among the manufacturers also heated up which led retailers to get better incentives for the self-space. Therefore retailers was busy concerned on making deal money which was more profitable then customer service, Customer was almost invisible and the relationship between the retailer and the customer no longer existed(Terbeek, 1999). During the decline phase the might of the supermarkets reduced drastically by the entry of fast food chains and low cost department stores (Wal-Mart, Target etc. – which started competing for the stomach share of the consumer. Therefore retailers try to differentiate themselves by introducing new merchandising strategies such as home meal replacement and solution selling, also another strategy for growth was geographic expansion through consolidation and globalisation. Retailers were more concerned on making profits and increasing market share, however even in this phase they neglected the fact that customer is one of the important ass et and failed to be customer oriented. Therefore retailers still moved even further away from the customer. Following the decline phase of the retail food market is the â€Å"current† (2000+) situation which can perhaps be termed as the frictionless phase (Terbeek, 1999). It’s not surprising that in this phase, the focus is once again on the customer. The one size fits all concept of retail is no longer applicable and there is need to deliver personalized services and products on an individual basis to distinguish them from others and to stay ahead in the market. Therefore customer has become the central focus in this era, even the retailers have realised that customer service, customer loyalty and customer retention plays a major role in sales and profitability of the concern. Thanks to Technological transformation, which has enabled retail to return to what it once – a personalised business, today businesses have realised that customer is a strategic asset of the organisation and treating customer as a â€Å"King† is vital for the long term sustainability. Significance of customers in the retail food business: The food and beverage market is often the largest industrial sector in developed economies. In the US, expenditures on food in both retail stores and food service establishments account for nearly 30 percent of all retail spending. Food retailing alone is among the largest of all retailing sectors in most countries(Gomez, McLaughlin, & Wittink, 2003). The most recent Consumer Expenditure Survey from the Department of Labour indicates that 58 percent of food expenditures are on food consumed at home and Groceries represent a $700 billion business in US alone (George, 2005). Due to the market size today retail sector is not only growing in the rapid pace but also becoming more competitive, even the customers have become more demanding than ever. Retailers have realised that the only way to sustain in the competitive market is through differentiation; Rita Heise of Cargill says differentiation must be a top priority of almost any company today (Tuck, 2003). Today differentiation in terms of pricing, product offering are also becoming commonplace so companies need new ways to differentiate themselves. In the verge of finding differentiating strategies, retailers have realised that the only way of differentiating them form others is by being customer centric(Gomez et al. , 2003). Today customers are vital for the retail businesses, treating customers like a King is really important because this leads to more satisfied customers. The more satisfied the customers are, the more loyal the customers will be- which in turn helps in maintaining customer loyalty. Therefore customer satisfaction, customer loyalty and customer retention all these three terms are interrelated which has a significant impact on the profitability, sales and market share of the businesses. Customer satisfaction: Customer satisfaction and retention are generally considered among the most important long term objectives of firms (Cooil, Keiningham, Aksoy, & Hsu, 2007). The satisfied customers will remain loyal to the company and also create a positive brand image by word of mouth. In recent research of over 1,000 kiwis, respondents said they were twice as likely to tell others about a bad experience over a positive one. With stories being told online, rather than person-to-person, they are accessible to a much wider audience and live on long after the initial compromising incident occurred (Meyer, 2011). Therefore businesses which fail to meet the customer expectations will not only lose customers but also may create a negative brand image. Linking customer satisfaction and customer loyalty/retention: The marketing concept suggests that a satisfied buyer will likely return to purchase again, or at least, consider purchasing again(Keith, 1960). According to Reichheld and Sasser repeat customers cost less to serve than new buyers, benefiting a firm’s cost structure. Additionally, maximizing customer retention rates and minimizing customer defections are primary strategic objectives for most firms because of the competitive retail environment and low switching costs(Reichheld, 1990). Customer satisfaction is positively linked to loyalty and customer retention, therefore businesses should be customer oriented in order to maximise the profits, market share and also to increase the sales. Linking profitability or market share to customer satisfaction and customer loyalty: According to one study, a 2 percent increase in customer retention has the same effect on profits as cutting costs by 10 percent. Similarly, a 5 percent reduction in customer defection rate can increase profits by 25-125 percent (Min, 2011). It is logical that both satisfaction and loyalty are directly related to profitability(Pleshko & Baqer, 2008). Loyal and satisfied customers will increase the customer base by positive word of mouth advertising, which in turn increase the market share and also the sales, even lowers the market retention costs. Satisfied and loyal customers gives businesses a clear understanding about their needs and wants which helps the retailers to grow businesses and profits based on their deep knowledge and understanding of customers. Satisfied customers also create brand equity and even retailers will be insured with better protection during downturn- due to more loyal customers. Therefore today retailers are continuously focusing on keeping their customers happy and satisfied. Businesses which do not satisfy the customers run the risk of customer base eductions, smaller sales and also lose the market share for the retailers who serve better to the customers. Being customer centric cannot be treated simply as the strategy of an individual company because modern food system is complex, dynamic and international (Schaffer, 1998). It includes suppliers of farm inputs, agricultural producers, packaging suppliers, processors and manufacturers, commodity merchants, wholesalers, food retailers, restraints, institutions, and facilitating industries etc. (Schaffer, 1998). Therefore to be successful and competitive, all the players in the food system should be customer centric. Businesses in the food supply chain have realised this and every businesses are taking customer centric approach in the recent years. Today’s retail market in the developed world are becoming more customers centric and treating customers as Kings because retailers have realised that customer centric approach is directly linked to profitability of the firm and also can become a key source of competitive differentiation. By excelling at the strategic customer-centric approach can deliver a superior shopping experience that could not only result in consistently high customer satisfaction but also might encourage customers to shop more often and spend more with their favoured retailers. Therefore we can say that today businesses have realised that customers have the power to dictate their profits, market share and also the sales in the businesses, so treating customers as Kings has become vital for the retail businesses success today.