Category killers: Breaking hearts everywhere
Category killers don’t land fully formed and with market dominance on day one. They emerge over time – admittedly, some of them over a relatively short space of time. During their maturation they are refined, tweaked and put on steroids. Most started with some form of competitive advantage or unique selling proposition that gained them both notoriety and foot traffic. And of course, with the underlying principle of all category killers, they all set out to destroy their competition on price and volume.
In the course of maximising their profits, most category killers erode what made them famous in the first place (beyond just cheap price), as they eradicate their competition and become increasingly confident in their market power. What once started out as a one-stop shop that had the greatest brand and product width, matched with efficient service and sharp pricing, increasingly moves to range optimisation and cost reduction.
The market dynamics that once provided a great deal of colourful choice to consumers from a range of small- to medium- sized retailers become much more homogenous, monochrome and single-dimensional as the oxygen that provided the economic fuel to sustain specialist advice, service and range is sucked out of the market through the sole focus on price and volume. By focusing on the 80/20 rule – the 20 per cent of the products that represent 80 per cent of the market – category killers re-draw foot traffic patterns and absorb the underwriting transactions that supported small to medium business infrastructure.
The cheap price for love
It is true that consumers are universally seduced en-masse by cheap price and that they vote with their wallets. It is also true that they regret what they have lost only after they have lost it. This is the primary reason that most category killers are not loved by anyone – consumers, suppliers or, in many cases, staff. They are exploited for their transactional value alone, for as long as that lasts. The connection that they share with their customers is functional, shallow and vulnerable. The relationships that once existed between customers and specialist retailers that they have killed along the way were much more intricate than that.
But cheap prices are like napalm. They wreak havoc that is easy to disperse and hard to recover from. So do category killers have a moral responsibility to give more and be more for their consumers? The ‘inconvenient truth’ is of course not. The only responsibility they have is an economic imperative to be profitable.
Finding a way into a customer’s heart
However, to sustain a healthy business that can withstand the constantly changing competitive context, smart category killers do more to be ‘loved’ by their customers. Standout examples like REI, Zara, Best Buy and Saturn deliver value-adding concepts, ideas, services and products that enhance their customer relationships, by replacing what was lost from the more intimate competitor offerings they destroyed with something that is genuinely valued. In turn, that creates more interaction and not surprisingly greater transactional depth.
In the age of disruption, there may not be a moral responsibility. But there is no doubt that the long-term economic advantage of a retailer comes from the strength of its customer relationships beyond the functional. Especially at a time when the functional becomes easier to replicate or worse – revolutionise.
Peter James Ryan is a retail expert and head of Red Communication. 02 9481 7215 or [email protected]nication.com.