Speech - guest speaker: Mr. Robert Dutton, president and chief executive officer, RONA Inc. The consumer: More powerful than ever

Share:
Print

Added on 3 February 2004 in Speeches


ROBERT DUTTON
PRESIDENT AND CEO
RONA INC.

February 3, 2004

Today's Consumer Has More Power Than Ever Before
Check against delivery


Introduction
Thank you for your kind introduction, Mr. Kennif.
Mr. President,
Honorable Guests,
Ladies and Gentlemen:

This is the second time that the Board of Trade of Metropolitan Montreal has graciously invited me to this podium. The first time was eight years ago. At that time, I talked about my confidence in retailers – and by retailers I mean the flesh and blood people working in brick and mortar stores. You listened attentively, and I think that some of you may have even agreed with what I had to say. But I seem to recall that there were quite a few skeptics – I could feel it in the air. After all, in the mid-1990s, stores, especially small stores, were an endangered species. They were on the verge of being replaced by big-box stores and the internet.

1. Once upon a time…

The disappearance of the small store was hailed as a grievous but inevitable loss to consumers and to society in general. The late André Fortin, of the Colocs, echoed this sentiment when he sang nostalgically about Main Street, fallen victim to the mall. I'm paraphrasing, so you'll excuse me if I don't sing:
“The co-op, service station
Credit union and snack bar
And the general store are…
Gone like a bomb wiped out them all
When they built the shopping mall.”

It's nostalgia for the “end of an era,” because people feel that business used to be so much better.

Those of you who are over 40 may remember…when we went to the local store, the shopkeeper knew us…and our parents, and our brothers and sisters, too. He even knew what each of us liked. He knew whether he could give us credit. In short, he provided courteous and personalized service.

The corollary of this ideal is that service like that just doesn't exist any more, certainly not in big boxes and chain stores. People think that with the advent of these distribution giants, consumers have lost much of the power they held among small retailers.

The little, independent store on Main Street was the Golden Age of the Consumer! Department stores and big chains are like a return to the Stone Age.

But what if the opposite were actually the case?

Remember that in that famous Golden Age, consumers had very little product choice. When our parents went to a big hardware store in 1970, they found 10,000 or maybe 15,000 different products. Today, in a RONA Le Rénovateur, you'll find 35,000. And our big-box stores offer up to 50,000 different products in store. So in fact, consumers in 2004 more readily satisfy the Number 1 factor in quality service: products that meet their needs whenever they need them.
The distribution system during the so-called Golden Age of the Consumer was inefficient and inflexible. In 1964, inventory management used the “state-of-the-art technology” of the era: Canada Post! In exceptional circumstances a phone call might be made, but only if the call were local and the situation urgent enough to justify such drastic action. If a store didn't have an item in stock, the procurement lead-time was often measured in weeks. Today, stock-outs are both rare and of very short duration when they do occur. All the RONA stores in Eastern Canada can be supplied daily, even twice a day. Procurement lead-time is seldom longer more than 24 hours. In a few months' time, thanks to our new distribution centre in Calgary, most of our Western stores will benefit from the same high level of service.

Information was costly in the Golden Age of the Consumer: to find out what products were available and compare prices generally meant making the rounds of all the competitors. And if you took this step, you had to do so discreetly, so as not to insult the local shopkeeper who had known and served you and your family for so long…

2. A system centered on the product and the producer

The fact is that the distribution and retail system of that Golden Age was centered on the needs of manufacturers, not consumers. In the 1960s, economist John Kenneth Galbraith captured the spirit of the time when he pointed out that the military-industrial complex was practically dictating the tastes of consumers.

For the greater part of the 20th century, large manufacturers exerted enormous pressure on distributors and consumers. The technology of the day, which favored the mass production of standardized goods, was the only way to make products at competitive prices. This technology required a massive initial investment, which created steep barriers to entry. Protected by these barriers, large industrial companies enjoyed immense power over distribution channels and consumers alike.

Do you remember the 4Ps? Product, price, placement, promotion. These were the four pillars of marketing for many, many years. In retrospect, it's striking to note that these four pillars completely ignored the consumer and were centered entirely on production strategies.

3. Towards a system centered on the consumer

Things began to change about 30 years ago. In 1970, among rising fears that society was headed toward complete and utter standardization, Alvin Toffler wrote: “The people of the future will suffer, not from an absence of choice, but from a paralyzing surfeit of it.” He added – and I find this an even more remarkable prediction – “gas stations, airports and hotels, as well as supermarkets, will stop looking as if they had all been poured from the same mold. Uniformity will give way to diversity.” Few prophets can lay claim to such accuracy in their predictions.
This tremendous diversity gives consumers a power that is completely unprecedented in the economic history of the world. Power that comes from choice. Power drawn from two related sources.

On one hand, there's technology. Thanks to technology, the consumer is better informed than ever. In 20 minutes on the internet and the phone, I can learn ten times more about the features, availability and price of a product than my father could in two solid days of shopping And for manufacturers, modern technology has come a long way toward freeing them from the total tyranny of mass production.

On the other hand, the way consumers behave has changed a great deal as well. Consumers are more critical of companies and their products. In terms of product quality and reliability, today's consumer gives businesses much less room to maneuver than their parents did a generation ago. In 1964, there was only one Ralph Nader to demand that companies be responsible to consumers. Today, there's seems to be a little Ralph Nader in all of us.

Having developed a critical capacity in terms of products, consumers have become skeptical, even cynical, about marketing. They've become leery of the daily bombardment of commercial messages.

4. The new consumer
At the same time, consumer priorities are changing.

Time management has become a major challenge for everyone. Statistics Canada says that 85% of Canadian parents who work full time feel there aren't enough hours in the day to do everything they have to do. More than half feel they haven't enough time for family and friends.
And at the same time, we're paying the price for that information overload that has made us such savvy consumers. We're literally drowning in information. Between home phone, office phone, cell phone, fax, email, radio, TV and the internet, we have instant access to the entire world. But the world also has instant access to us in the bargain!

Society in general is experiencing a noticeable weakening of community ties. Family, neighborhood, town, and traditional communities provide less structure today than they did for our parents, leaving more responsibilities and decisions up to the individual. And incidentally, this loosening of community ties in favor of individualism places much greater psychological and social importance on the home. Our homes have become much more than just a place to rest our weary heads at the end of the day. They've become the real centre of our lives. This, by the way, partly explains the current passion for home renovation and the way people are redefining the way they use the various rooms in their homes.

In short, the new consumer is subject to three new influences: lack of time, overabundance of choice and information, and growing individualism. Each of us reacts to this situation differently, but there are two basic camps. Some people experience it as freedom and challenge. For these people, consumption is a tool they can use to continuously open the door to new experiences. Others are more inclined to experience it as insecurity. For them, consumption satisfies a need for safety and belonging.

To succeed, a retailer has to satisfy both these needs simultaneously. The new consumer is a complex, multi-faceted being. We're not one but several different consumers, depending on the time and place. Sometimes we're seeking adventure, sometimes security. The challenge for the retailer is to offer both at the same time.

Harvard professor Theodore Levitt said something that I think applies especially to RONA. “People don't buy quarter-inch drills,” he said. “They buy quarter-inch holes.” I think he could have taken that even a step further. The drill-buyer is actually buying the solution to a problem, or a tool for carrying out a project to create a new décor, special ambiance or just plain added comfort. The drill-buyer is buying a means of self-expression through the accomplishment of a hands-on project.

Manual laborers – what the majority of us were 40 years ago – have now become a minority. For the managers and white-collar workers we've all become, home renovation and "doing it yourself" satisfy an almost spiritual need for real physical accomplishment, as well as saving money.

5. From four Ps to four Cs

Customers who walk into a RONA aren't looking for a product. They're looking for the solution to a problem, or for the means to accomplish something. Our goal is to satisfy either, or…or both.
People who were saying, even recently, that information technology would eliminate intermediaries in the supply chain – starting with stores and merchants – forgot this new aspect of consumption. Intermediaries haven't disappeared – and they're not going to any time soon. Quite the contrary…they're going to become a lot more important.

But intermediaries have to realize that their role is evolving. To succeed 20 or 30 years ago, retailers had to effectively represent manufacturers by promoting their products to consumers. Today, they have to effectively represent consumers by promoting their interests to manufacturers.

In other words, they've got to stop focusing on the product and start focusing on the customer. They can't limit themselves to the 4 Ps. To go back to an idea Robert Lauterborn proposed 15 years ago, today's successful retailer has moved up to the 4 Cs:

One: the customer, and their needs and desires
Two: the total cost of consumption, including the time and effort the customer puts into it
Three, the customer's convenience
And four, communicating with the customer

So while the 4 Ps defined tools for “pushing” products on consumers, the 4 Cs completely invert the perspective, focusing on the consumer's needs instead.

Most businesses today say they're consumer-focused, but you don't just get up one fine day and say, “Hmm, I think today we'll switch to a consumer focus.” Adopting a consumer focus involves a complete overhaul of company practices – as well as the attitudes of all your employees. This kind of change demands time. And even RONA cannot escape this rule.
Eight years ago, I was saying that RONA was planning to specialize in consumers, rather than in a particular type of store or a particular retail sales formula. At RONA, the consumer has always been the cornerstone of our business strategy. Notice I said “business strategy” and not marketing strategy, not merchandising strategy. The consumer has to be front and center in terms of logistics as well as store setup.

Ten years ago, when we decided to maintain several different store formats, it was because we were focusing on the consumer. At that time, more than a few observers expressed their doubts about our decision. Ten years later, the big American hardware and renovation retailers are now just beginning to diversify their store formats. And they're doing it for the same reason we understood long ago: there's no single retail format that can satisfy all of the people all of the time.

In continuing to develop and perfect our stores, we keep a tight focus on the consumer.
Because we're serious retailers. For us, a store is more than just a place where customers go to find products. A store is a product in and of itself, because the consumer goes there to enjoy a particular experience. Everyone expects Mercedes and Microsoft to continue to perfect their products and design new ones. It's the same for us. At RONA, perfecting stores is our R&D. Just walk into one of our new big-box stores and you'll see how different they are from the stores we had ten or twelve years ago.

Our research and development is not limited to just tweaking what's already there. Five years before anyone else, we developed the regional store, a store designed to offer mid-size urban markets the advantages of the big-box stores we offer in major urban centers. And while our competitors are just starting to open this kind of regional store, we've just finished refining a new generation of neighborhood store.

It may not sound like much, but refining store formats involves far more than making small-scale big-box stores. Not to badmouth big-box warehouse stores, but it's pretty easy for them to stock the products their customers are looking for when they have 150,000 square feet of space and 60,000 different products to do it with. It's a little harder when you only have 60,000 square feet to work with, and when you're down to 35,000 or 40,000 products – that becomes a real challenge. Because in one-quarter the space and with half the number of items, customers still have to find what they're looking for: the right product, at the right price, in a friendly environment. It's not easy. It requires a very in-depth knowledge of the customer, because a store in Boucherville may have to be quite different from one in Lachine, and the one in Renfrew, Ontario, will have to be something else entirely. We develop this detailed knowledge of customer needs in part through our computer systems, but mostly through the intelligence of our affiliated dealer-owners, who are well established in their own markets.

As I said earlier, RONA has made the customer the focus of our entire business, not just the marketing process. For example, the decision to offer several store formats has had repercussions on all our activities from the ground up. Everything becomes more complex, because the information systems and logistics of a neighborhood store and those of a big box just aren't the same. While other groups chose to adapt their offer to the demands of their operational systems, we did the opposite: we adapted our systems to our multi-format offer. But that hasn't stopped us from developing effective systems, as independent industry studies have shown. In fact, without our highly efficient logistics and information systems, we wouldn't be able to maintain our multi-format strategy. To show you how committed we are to this, I can tell you that we have just decided to invest more than $200 million in our store network in Western Canada, not only because we have great confidence in the region but because of our commitment to making the most of our different store formats there.

Another way that our customer focus affects operations is in the training and recognition programs we offer across the board to all RONA store staff. We call it our AGP Program, which means Acknowledge customers, Guide them and Provide solutions to their needs. This is a program that reinforces service quality in two ways. First, it uses tangible incentive and recognition systems to promote listening to customers and providing customer-centered service. Second, it gives employees the tools and knowledge they need to offer this kind of service. The program was set up in 2000 and is being improved on a continual basis.

Conclusion

Despite a certain charm and the kindly attitudes of their shopkeepers, the stores of our parents' generation did not really represent the Golden Age of the Consumer. Far from it, in fact! Service then was better in its intent than in reality. While customers may have felt they enjoyed some power with the shopkeeper, they had little or none with the manufacturer. Today, thanks to social and technological changes, consumers have unprecedented power in our economy. Not only are today's consumers better off than their parents, but I think that ten years into the future they'll have even more power. And as we've done in the past, RONA has every intention of playing an active role in defining that future.

Thank you.