A Pleasants surprise

Editor’s note: Terry Fink is executive vice president/chief planning officer at Edelmann Scott, Inc., a Richmond, Va. marketing, advertising and public relations firm.

With the continued onslaught of "category killers" in automotive, home improvement, electronics, banking, crafts and just about every other product niche, retail independents are challenged more than ever to not only maintain sales and profits but to simply survive. Typically, a retail independent reacts vigorously to this competitive onslaught by cutting prices and paring the organization. Research and deliberate strategy often go by the wayside as the local retailer’s survival instincts kick in.

This article points out why this is the wrong reaction and why, in fact, research and planning are needed more than ever when faced with heavy competition from a national chain. It indicates how one independent hardware retailer not only maintained sales levels, but increased them and boosted margins in the face of substantial national competition by employing a strategic process and consumer research.

Richmond, Va.-based Pleasants Hardware has served the greater Richmond area since 1915. While Pleasants is local, with 175 employees, it is not a small "mom and pop" hardware store. Historically, its customer base consisted of a blend of professionals (builders, subcontractors, property maintenance staff, etc.) and a small but growing consumer homeowner base. In 1996, the company opened a second, 110,000-square-foot store in the affluent and burgeoning west end of Richmond to capture the increasing consumer homeowner segment and take advantage of heavy building in the area.

Results after the first year were not good. The new store had not taken root: sales fell well short of company goals. Moreover, it was announced that not only was Home Depot (the largest home improvement chain) moving into the Richmond market, it was building a store within 1/4 mile of the struggling Pleasants store. Lowes - the number two home improvement chain -- already had a very strong presence in Richmond, was publicly committed to the market, and had a store located within a mile of Pleasants. In addition, Home Quarters, another competitor, remained in the market with a store just down the road.

In the past, Pleasants had used television, radio, newspaper and select local magazines as advertising vehicles. Its positioning had been "We know our stuff" - which alluded to the extremely knowledgeable employees of Pleasants. The positioning was true. Pleasants employees did and do know their stuff, as research later showed. However truthful, though, this advertising just wasn’t pulling in traffic.

Yet, what was the correct course of action? To determine this, Pleasants agreed to a strategic process which included four essential steps:

1) a visioning session involving the entire management team and other stakeholders within the organization;

2) qualitative research;

3) quantitative validation of the direction; and

4) implementation.

Visioning session


Our firm conducted a visioning session with senior client management to kick off the process. These discussions provide the management team with a blueprint of the process, timing and issues at hand. This is important as the prevailing response to a major competitive threat is to do something - anything - and do it quickly. Often actions taken in this environment end up misfiring and compounding the problem. The session helps management affirm their commitment to the process and later thwart knee-jerk reactions and suggestions.

When properly facilitated the session is also honest, opens up thinking, and spawns new ideas. Yet, a bevy of new ideas which sound good during such a session often disappear during subsequent weeks and months. To be effective, relevant initiatives are consolidated and organized into 10 to 15 key benefit statements. In other words, the session not only opens up ideas and thinking, but begins to whittle down thinking to a manageable number of key customer initiatives and propositions.

Our Pleasants visioning session included the top 15 people in the company including store managers, purchasing agents, finance officers, and of course, marketing staff. The session ended with 11 key benefit statements which ranged from being the "power tool headquarters" to a "satisfaction guarantee," from "only trusted quality products carried" to "free delivery on anything." And from "a knowledgeable sales staff willing to help" to "supporting a hometown community hardware store." The key is that we now had 11 tangible directions to pursue and the agreement from every key manager in the company that these indeed were the correct directions.

Qualitative research

The purpose of our qualitative research was twofold. First, to gain customer perceptions of the competitive landscape with relation to Pleasants. Second, to whittle down the 11 benefit directions for further quantitative exploration.

Recruitment for the qualitative step in the process was fairly straightforward. We selected from homeowners who lived within a three-mile radius of the store and who had shopped the category within the past six months. We ensured balance of age and income among the participants and importantly, an equal representation between men and women. The male/female representation was important as women now comprise half of all hardware and home improvement center shopping, according to MRI data.

To ensure familiarity and unbiased assessment of the shopping experience, we elected to have all participants mystery-shop Pleasants and each competitor with instructions to purchase certain items. Each was given a $50 stipend. Results of the mystery shopping were recorded via a pre-determined handout which the participants took to the focus groups.

The focus groups were segregated into all-male and all-female groups to make sure the men didn’t overwhelm the women in the groups. The groups themselves were moderated with roughly one-third of the group totally open-ended and two-thirds devoted to exploring the 11 benefit directions. This is deliberately the reverse of a typical group. Too often we’ve seen focus groups conducted in a totally open-ended fashion that yield interesting insights but no tangible direction for next steps. We didn’t want that to happen. Plus, the mystery shopping results provided even better, untainted, open-ended input.

As expected, Pleasants did extremely well in the areas of customer service, merchandise quality, depth, and store environment. The female group in particular appreciated Pleasants’ service and environment. Also as expected, Pleasants fared poorly in price perception, most acutely among men. Even though many items are priced competitively, the high-service nature of Pleasants and the constant low-price message of the home centers had taken its toll. Early in the groups we realized two key things. First, women naturally appreciated our general proposition more than men and second, there was no way we would ever turn around the price perception - so much for the typical local retailer’s strategy of cutting prices when a category killer moves in.

Reaction to the 11 benefit directions provided even more insight. The men and women differed in their views - men gravitated more toward the functional benefits of "best power tools selection" and items like equipment rental, assembly and installation, while women chose service and attitudinal benefits of "helpful" or "having experts on the staff." However, when it came time to select the most compelling proposition for Pleasants, both the women and even the men selected a soft benefit of, "The difference at Pleasants is their people. They are friendly, very knowledgeable, and really go the extra mile to help me." Surprisingly this benefit fared better than hard propositions such as money- back guarantees, higher quality products, more selection, convenience, and so on.

How important are the following service benefits to you

Top 1 Box

            Benefit                          

84%

Get what I need the first time

69%

Save me money

62%

Save me time

50%

Help with ideas to get the project done right

At this stage, we had a primary benefit that was believable and motivating. But it was not unique. Lowes had, and still does, an advertising campaign called "Lowes Knows." Home Depot also alludes to its helpful and knowledgeable people in its advertising. Had we concluded the research there, we would have simply reached parity. And, when being consistently outspent, Pleasants loses with a parity proposition.

As we reviewed the focus group tapes, the solution started to emerge. Participants touched on why they preferred Pleasants. One said, "I can go there and someone helps me get the right things so I can go home and not spend all weekend on a project." Another said, "There’s nothing worse than going through that crowd at Lowes and then finding out I bought the wrong thing when I get home." In other words, they began to get at the true benefit of great service in the category.

Having the best in knowledgeable and helpful people is not a benefit. It should be viewed as a feature. The benefit of having knowledgeable and helpful people in this category was saving time, frustration, and money when doing one’s own home project.

Quantitative research

Nothing in research has been more abused than the focus group. And perhaps the largest abuse is making major decisions based exclusively on focus group research. A couple of participants say something that the highest ranking client agrees with and - poof! - a conclusion is drawn and campaigns are changed.

We view the quantitative step in the process as validation. In Pleasants’ trading area in the west end of Richmond, we determined that 150 qualified and completed phone surveys would be enough upon which to base decisions.

While we were looking for specific items in our quantitative research, we were also able to add aided and unaided awareness questions, primary and secondary shopping questions, and advertising questions. Yet, the key ingredient of the research was the question relating to the benefits of high service, defined as knowledgeable and helpful, in the hardware and home improvement category. (The chart above shows responses to one key question.)

We also slipped in a question on whether the respondent shopped at a very reputable high-service/high-perceived-price grocery store in the area. This particular store commands a 50 percent market share in Richmond. We wanted to find out if people who shopped this grocery store view the world differently in relation to our category.

The answer was yes. The importance of having a knowledgeable and helpful staff increased by over 10 percent among this universe while the importance of low prices decreased by 20 percent. In fact, price fell in overall importance to third place behind "knowledgeable sales staff" and "staff willing to help."

At the conclusion of our quantitative research we summed up the findings in order to set a strategic foundation for our advertising and promotional plan:

Who is Pleasants? The consumer said they are knowledgeable and willing to help with good selection and quality items. But, it costs more to shop there.

Why does the customer care? They can get what they need to get it right the first time, saving time, money, and frustration.

Who cares the most? The busy, more upscale homeowner, who is more likely to be female.

Implementation

A branding line was developed for all of our external communications, "Get It Right The First Time." This theme was a very natural and consumer-friendly way to bring our positioning to life.

Our overall plan consisted of brand television advertising where we illustrated familiar and humorous situations of folks not getting it right the first time; periodic instructional events (how to refinish furniture, power wash decks, etc.) to build traffic and reinforce the positioning; cooperative product advertising which tied into the branding advertising; in-store signage and promotions to bring the message into the store; and public relations such as a Pleasants "Get it Right" speakers bureau and newspaper how-to articles to help people get it right the first time.

Results

Pleasants purchases some items through the Ace Hardware co-op and is therefore privy to consultation from Ace. Our Ace representative rightfully indicated that Pleasants should expect a 25 percent decline in sales once Home Depot opened its doors. We contacted many local hardware stores around the country where a Home Depot had opened and confirmed these expectations.

After the first seven months of the campaign launch, Pleasants may be the only local hardware store in the nation that actually experienced a gain in overall sales upon a Home Depot opening. Importantly, it did so without discounting heavily: margins actually increased vs. the same period a year ago. Moreover, this was not a result of a tremendous advertising budget increase; the overall media budget was constant vs. the prior year.

In addition to gaining sales and margin, Pleasants as an organization raised the bar by implementing the "Get It Right The First Time" campaign. The employees grabbed this customer promise and made it a mission - one that the consumer believes and appreciates and that the home centers could never implement.

Customer insights

We would recommend that any local retailer facing new and heavy national chain competition work through a quality strategic process driven by customer insights. And, at all costs, avoid the traditional reaction of immediately cutting costs and playing defense. After all, as Napoleon once said, "The logical outcome of a defensive strategy is defeat."