Is it a good idea to fight with already made expectations?
Private-labels are known for offering low price. Charging private-label items higher than the regular price is counter-intuitive and risky. With very limited space and parking the current market-segment GoodChoice is facing contains many customers for whom the cheaper prices of GoodChoice are critical. The limitations force GoodChoice to offer limited variety of well-fit choice of end-items. Every single item needs to be of good enough quality because many customers cannot afford wasting money on “experiments”. Launching an expensive private-label looks to me the wrong idea for such a case. Not every differentiation works well.
Emphasizing the commitment to sell only worthy products as private-label is good and necessary. It allows selling the private-label products with relatively small price reduction. Question is how to give the commitment to quality enough credibility. After all it is so easy to tell customers that every item has been carefully tested and proven to be great. Would YOU believe such a statement from the store management?
In his comment to the case Rajeev Athavale wrote that when an unidentified supplier is producing the item, keeping stable high quality is difficult. I agree with most of Rajeev’s analysis, but not on this point. GoodChoice as a client of a supplier is able to supervise the quality of the products it gets and certainly returns from customers could be used to threaten the producer to maintain excellent quality.
Would a policy to return even open packages cause too many refunds?
I doubt whether many people would consistently demand their money back, but it is an issue to be checked. If every refund is registered and the customer has to sign a declaration of dissatisfaction from the item, then a customer returning the same product twice will have a lot to explain.
So, the recommended step for GoodChoice is to go on with the introduction of its private-label, but price it moderately below the regular price of the leading brand, and to add a commitment for quality, which is backed by open return policy.
Can GoodChoice do more?
Actually GoodChoice likes to provide good quality of all its products.
It is certainly important to know which products disappoint the customers and which are truly welcome. The regular way to control the worthiness of products is to closely watch the sales trend. But, the fast pace of new products introduction, and the frequency of promotions, makes the analysis too slow for good active reaction to the market.
How can such a supermarket chain get fast and reliable feedback from its customers?
Complaints and returns are one way to identify the unsatisfactory products (also flawed processes). However customers do not like to answer long questionnaires and they do not always reflect what they truly think.
Here is an idea I’ve recently learned from British Airways. I was giving a “Golden Ticket”, recognizing excellent service, which I could give to a British Airline employee who gave me excellent service.
I like to suggest “translating” the idea for GoodChoice, actually to any supermarket longing to know more about how customers like, or dislike, certain products.
Issue a Golden Product Ticket and a Red Product Ticket. Every client stepping in should get one gold ticket and one red. The client could write the full name of just one product in each ticket. The gold ticket means excellent product and the red means bad product. The customers who like to fill in the ticket put it in a box at the cashier stand where they pay.
What do you think? Would this kind of fast feedback work well?
Eli Schragenheim 
Hi Eli,
Thanks for your great analysis. I loved the concept of “Golden Ticket” and “Red Ticket”. Also, I learned the purpose of private labels.
In this case, you have taken specific questions (about private labels) and presented a great analysis.
Can we go in some other direction please? Let’s assume that you are consulting GoodChoice. What would be your advice so that they become an ever-flourishing company? Where do you think their constraint is? What actions will significantly increase their short term and long profits and ROI?
Regards,
Rajeev
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Thank you Rajeev.
The ultimate constraint of a supermarket chain is their loyal customers, meaning those who purchase every week.
The frequent promotions all chains are doing all the time are means to “steal” customers from the other chains. When customers check the promotions of various chains every week it means their loyalty to one chain is very weak.
Generally speaking I like to think of the following directions as means to gain loyalty – ensure better service than the competitors. Generally speaking all supermarkets look and operate very similar to each other. The product mix is also similar. so here are few ideas to establish added value that could keep high loyalty.
1. Excellent availability of the common SKUs. I claim no supermarket can truly achieve excellent availability on ALL items, because too many items are supplied by unreliable vendors. However, if a basic list of items that are commonly required is established and the availability of those items is achieved and if the chain advertises their commitment to availability of all those items – then it could be a DCE which is not easy to quickly imitate.
2. What you have suggested – a very good and reliable shipments to clients based on ordering by phone or Internet. While many are offering it – the service is many times clumsy. A truly good service would attract loyalty.
3. Service within the store – helping the customer to locate items. Such a way could be used for valuable feedback (see later).
4. Prevent long queues at the cashiers.
5. Improved loyalty programs. The idea of “frequent flier” is very meaningful for airlines, but it has been poorly translated to other businesses including supermarkets.
6. Like in the case, finding faster and efficient ways to get feedback from the customer and change the product-mix accordingly.
I think we, TOC experts, could substantially help supermarket chains.
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