Leading Retailers by Kahn

BÜLENT DAL | CEO

The first of the last two major revolutions in the retail sector began with the creation of “ever day low price” slogan led by Aldi and Wal-Mart. In the mid-1990s, with this philosophy Wal-Mart led the  “Food Retail Revolution” to start in USA. After a while Amazon showed that providing customer friendly and support giving shopping experience was as effective as pricing on customer decision making process. The “Customer Experience Revolution” pioneered by Amazon has led many leading retailers including Wal-Mart to reshape their business models to facilitate a good customer experience.

The destructive transformation process that Amazon has pioneered continues uninterruptedly. Barbara E. Kahn, Marketing Professor  of the Wharton School of the University of Pennsylvania published on June 2018 her thoughts about how successful retailers win customers in an era of endless disruption in her “The Shopping Revolution” book. Professor Kahn explains in her book that the customers enter the gravitational field of different retailers depending upon their own needs. She lists two principles that influence a customer’s shopping decision.

  1. Customers want to buy something they value from someone they trust.
  2. They buy from retailers who provide superior value.

She starts with two basic principles. The first is the principle of customer value. In the retail world, it means that customers want to buy something they value from someone they trust. That forms the columns of Khan matrix — product experience and customer experience. The second principle is the principle of differential advantage. They want to buy from retailers who do it better than anybody else. They can either give more pleasure or take away pain. That provides the rows of the matrix.

Below in Kahn Matrix according to two principles there occurs four pole retailer clusters. Top left  “Product Brand” row lists the digital native vertical brands, really cool customer experience brands like Warby Parker, Saks Fifth Avenue and Nike. The product quadrant would be things like brand or luxury or design or technology or something that’s really super-cool about a product that you’re willing to pay a premium price or even a luxury price.

On the top row, which is benefits or pleasure, the product quadrant would be things like brand or luxury or design or technology or something that’s really super-cool about a product that you’re willing to pay a premium price or even a luxury price. It’s the importance of in-store touch and feel. That quadrant would be retailers like Sephora or Eataly, which provide incredible, state-of-the-art customer experiences in the store.

On the second row, Walmart is an example of take away pain and offer low price. Walmart, Costco, TJ Maxx would be in that quadrant. Take away the pain from the customer experience is what Amazon did really differently, and they made it convenient. In Amazon’s case, their differential advantage is collecting a lot of customer data so that they can constantly simplify and personalize and customize the experience to make it easier and easier for the customer. In the matrix, that’s how she can define things. But the strategic implications of the matrix are something else.

When we looked at the winning strategies, each one of the winning retailers were the best at something. But they leveraged that leadership advantage to be the best at something else, too. Khan calls that the two-quadrant strategy. You have to be the best at two things and good enough at everything else. Retail is very, very hyper-competitive now. If you can’t make it, you’re really going to go out of business.

Source: “The Shopping Revolution: How Successful Retailers Win Customers in an Era of Endless Disruption”, Barbara E. Kahn, June 2018.

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