BrainTrust Query: Retail’s ‘Nonzero’ Game Plan
Through a special arrangement, presented here for discussion is a summary of a current article from the newmarketbuilders blog. The article first appeared on the Licensing Industry Merchandisers’ Association (LIMA) blog.
A natural tension exists between cooperation and competition, particularly as digital media make large-scale content sharing possible, but not always comfortable, for zero-sum businesses.
Those tensions were explored in a recent article on copyblogger.com, "How to Win a Zero-Sum Game: What to Do if Competitors Won’t Link to You." The author, Sonia Simone, borrows the term "nonzero" from Robert Wright, who wrote an excellent book on how biological and sociological diversity is driven by mutually-beneficial cooperation.
On the more challenging side, in automobile sales, insurance or real estate there can only be one winner; therefore, drawing attention to competitors by linking to their content or partnering with them in any way is a high-stakes risk.
By contrast, plenty of businesses operate in nonzero environments, including retailers. Only a very small, fixated group of consumers would ever shop exclusively at The Gap or dine only at Applebee’s, for example. The explosion of digital and physical touch points have heightened the dynamic, giving retailers more avenues for earning customer attention while making it impossible to own it.
Until very recently, retailers seemed to only be dabbling in cooperative initiatives despite the nonzero realities of their businesses and their desire to diversify. But that drastically has changed as retailers make their owned brands available to competitors, partner up on shop-in-shop concepts, launch limited-run co-branding programs, and take proprietary service offerings into competitors’ store environments.
A few examples:
- A team-up between Neiman Marcus and Target for holiday 2012 will have both retailers carrying and cross-promoting a multi-category program featuring twenty-plus designers, including Diane Von Furstenberg, Rodarte, and Tory Burch. Pioneering planned-scarcity designer partnerships in the mass channel puts Target on common ground with Neiman Marcus, a retailer whose very shopping bags have carried cache since the early 1900s.
- Loblaws will roll out nearly 700 Joe Fresh apparel in-store boutiques within J.C. Penney outlets next spring. Penney gains an eye-catching addition to its 100-brand in-store boutique portfolio. Joe Fresh will benefit from the context and cross-shopping opportunities presented in the J.C. Penney environment, while spreading brand awareness that will ultimately drive sales across all of its business models and formats.
- Target will have white-shirted, clip-on-tie-sporting Best Buy Geek Squad "agents" stationed in 28 Denver-area Target stores come October in a 6-month trial. Best Buy’s most recognized brand happens to be a service, so it makes sense that it would follow the lead of private brand products by migrating, and monetizing, the Geek Squad brand outside of Best Buy’s boxes.
The remarkable acceleration in the number and diversity of these deals attests to the fact that retailers are not only putting aside their rivalries, but are actively harnessing the power of partnership and cross-promotion. If the brand environment seems dynamic and fast-paced now, it only promises to become more so in the future, as broad, long-term retail brand exclusives become the exception rather than the rule.
Discussion Questions
How will retailer-to-retailer partnerships change the brand landscape? What do you think is driving these alliances between retailers? When do and don’t these partnered cross-promotions make sense?
These partnerships are designed to highlight brands in places where consumers don’t expect them to appear. In that sense they reinforce and build brand images. Some of these alliances are stronger than others. It benefits Target to have recognized tech experts (the Geek Squad) in its stores, but could hurt Best Buy sales, as Geek Squad members will not be referring Target customers to Best Buy to make purchases.
It would seem that the best partnerships are with partners that are not direct competitors: clothing and food, and cars and malls are two examples. In these instances brands can call attention to themselves in unexpected environments without direct competition.
As retailers are forced by competitive pressures to focus on their core competencies, and cease trying to be all things to all customers, strategic partnerships will occur more frequently. Retailers who understand who they are and who they are not, will be more receptive to entering into alliances with those that perhaps were previously thought to be competitors.
Larger footprint stores, (above 80,000 square feet) are great candidates for these alliances, as these formats are often looking to create “stores within the store” to enhance the shopping experience.
Introducing well-known complementary brands within these larger formats should be a win for all provided there is sufficient selection, inventory and service within these branded enclaves to attract shoppers and replicate the shopping experience of that partnering brand.
The future of this type of collaboration is more brick & mortar retailers mixing with online retailers in adjacent spaces, rather than pairs of brick & mortar retailers. I can see a lot of these couplings — Zappos and Home Depot for work boots; Dell and Macy’s for tablets and Avon and The Gap. And it could extend even further than that to organizations not traditionally viewed as retailers. I was walking our dog by the post office this morning (always a dodgy route as he doesn’t care for mail carriers) and the idea of Amazon teaming up with the US Postal Service to offer a wide variety of products and services in the post offices popped into my mind.
Loyalty coalitions are another example of nonzero collaboration. They add the benefit of network effects, i.e. the value of the points or promotions increase with each participating store, drawing more shoppers into the program.
The problem begins when the program brand eclipses the retailer brands. Strong retailer brands will shy from these programs while challengers are more likely to embrace them.
This has been well-established in the UK with Nectar. In the US the national landscape is fragmented, but many local retailer-retailer partnerships are thriving. Max is correct on the value of diversity to reduce competitive concerns and increase the value to shoppers.
This might be one of the most encouraging articles in a long time. Sure it may be driven by capitalistic desperation and maybe even greed…but at least it reaches for a higher possibility. That maybe as in nature when all things work together things get as close to sustainable perfection as is possible.
Carol describes a great first step, but there is such a long way to go.
Now…what if entire cities could adopt this principle of ‘nonzero’?
What if congress and senate could do the same thing? Opps — sorry; I blacked out for a moment there.
The digitally empowered shopper has forced retailers to do things that they would have never even imagined, much less even considered, a few short years ago. Retailers are challenged to innovate meaningful solutions for their shoppers in order for their ‘brick & mortar’ presence to remain relevant. These ‘partnerships’ simply make good sense for all stakeholders and more importantly, the shoppers. These relationships made sense years ago but it wasn’t until the shopper forced the retailers to respond by their economic clout. The fiscal reality of shopping forced retailers out of the ‘status quo’. We will certainly begin to see more of these alliances in the months to come.
I would say it’s a very strategic step towards winning customers’ sentiments and retaining the loyalty. As a passing thought, there could be a slogan saying: ‘We value you more then our competition’.
This may help customers in changing the perceptions about retailers. This would add to the reasons customers buy from the retailers other than price, quality, etc, (traditional and logical ones).
Does anyone remember Korvettes or Two Guy’s? Both retailers were big on leasing out departments within their stores. It almost seems that business model should be even more popular today. It used to be that an enthusiastic businessman could hook up with a source of supply and put himself in business with a simple store lease. Now he needs to put in place a technology presence that includes in-store systems and a web presence that attracts consumers. Instead of each aspiring businessman setting up their own presence, it only makes sense to share resources. Why not just become an Amazon partner?
Cooperative partnerships will continue to grow in the retail environment. Partnerships and coopetition are very common in the high-tech world and we can look there for analogies and ideas.
One way common partnership model is between companies that are in the “platform” business (think Microsoft, Facebook etc.) and others that are in “App” or “Content” businesses (think Zynga, EA, ESPN etc.). In retail, the platform businesses are companies like Target or Amazon that can offer partners extremely broad reach and the App/Content businesses are companies that can bring a unique assortment, category depth or a hot brand to the platform.
Retailer partnerships and cooperation make sense in many cases. I think the “old school” way of doing things is to build everything internally, and build walls between us and everyone else. The “new” way is to cooperate whenever possible, and capitalize on the strengths of others. Ron’s example of the post office and Amazon cooperating is so great and simple that one wonders why it hasn’t happened. Probably because 7-Eleven cut a deal with Amazon first. The post office would have be a great place to pick up same-day Amazon packages and would result in lots of additional shipping, mailing, and purchases for the post office as well.
These promotions truly enhance brand awareness and augment the first rule in physical store retailing: Location, location, location. This puts more points of purchase in the market and drives new applications of the retailers’ brands in new environments. This is a good thing.
The proliferation and speed of new partnerships between retailers really is remarkable. Tie-ups once thought to be inconceivable now seem to be happening more regularly.
What is driving this sudden open-mindedness and experimentation? It’s likely a necessity for some, as they face an ever-increasing number of competitive challenges and rapidly changing customer behaviors.
Still, other retailers that are at the top of their game may more open to teaming up precisely because they don’t feel threatened. Retailers competing in a multi-channel, connected world, are increasingly acting more like media brands.
Obviously it’s much simpler if there is little or no competitive overlap. But organizations competing today may be moving in anticipation of shifting sands and a desire to skate to where the puck is going to be — namely, getting their brand as close to the customer in as many locations as they can.