Monday, August 22, 2005

Is the Customer always right?

This column on bookstores in the New York Times raises a couple of interesting points.

Hell is Other Customers

By making bookstores the equivalent of literary rumpus rooms, the bookselling giants have done much to obliterate the quiet, welcoming atmosphere in which people have space and peace to look over books (a small store feels less cluttered than the chain-store weekend be-ins). This is, however you cut it, bad business sense. Given time to browse, people usually leave not just with the book they came in for but with several others as well. What kind of business sets up and encourages a situation where customers can't see the goods on sale?

For bricks and mortar retailers, other customers do shape the overall shopping experience on any one customer. Many retailers do not recognize this or refuse to manage for it.

The author thinks that this problem arises from bookstore's adherence to the myth that "the customer is always" right." That is partly true. Slavish devotion to the cliché can prevent a retailer from enforcing minimal norms of behavior, which, in turn, degrades the overall experience of other customers.

Another factor is the naïve belief that all customers are equal. This leads bookstores to try to increase retail traffic through discounting and non-book promotions. They might sell a few more books but the sales are low-margin and the stores become more crowded and noisier. In some cases this results in the loss of customers who purchases high margin items.

If the wholesale cost of a $30 book is $15 (50%), then Borders has to sell 15 copies of a "40% off" best seller to equal the lost contribution of a single customer who buys 3 non-discounted books.

It is hard to segment customers in a bricks and mortar environment. Online, Amazon can look a customer's buying behavior, margins, and total profit. Moreover, they do not have to worry that some customers are behaving in a way that lessens the loyalty of other, more profitable customers.

In the real world, bookstores cannot see the profit potential of the person who walks out the door on a Saturday when the store is noisy and crowded with non-buying slackers. But just because it is not easy to measure, that does not mean that their bottom line is not suffering because of it.

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