This article in the Australian Financial Review (Kmart reborn in program of change) was a timely follow up to my blog post of a few weeks ago when I looked at whether announcing changes in customer charters was good or bad for customer satisfaction.
In that article, I argued that it was better to build the customer experience from inside the organization and let the customers gradually experience the difference. The other approach: announce a major change in the customer experience to staff and customer, carries the risk of increasing customer expectation and lowering customer satisfaction.
Let’s look at the Kmart example as a case study for the “get it right then announce it” approach.
In this article Kmart announces that they have been quietly making and testing changes in their offering. They have not however, been announcing those changes in their advertising to customers. One example of the changes tested is running very special specials that they only advertise in store. In one instance they dropped the price of jeans from $20 to $10 and sales grew 10 fold.
Now however, the game is changing. Kmart is launching the new price strategy in a very visible advertising campaign.
Just by the way, skeptics would say that it’s easy to sell if you halve the price but it hurts overall profit levels. In this case the reverse is true. Net profit levels at the company almost doubled year on year based on the company’s ability to negotiate better deals for the higher volume from their suppliers.
My guess (I have no inside knowledge) is that there is much more to this story than meets the eyes. In the past Kmart has pursued a “high-low” pricing strategy that has not caught the consumer’s attention.
In all likelihood Kmart have been testing a few different approaches to improve business. Perhaps they tried a high price strategy as well as the low price strategy that is outlined in this article.
However, now the testing is over and they are ready to launch the successful strategy as their new approach. But all that we as consumers see is the strategy that worked the best: the low price strategy. We haven’t seen the ones that didn’t work so well.
Consider the other way that they could have approached the change management equation. They could have decided on a new strategy, engaged an advertising agency, launched a big advertising campaign and raised (lowered actually) consumer prices expectations.
From that day forward customers walking into Kmart stores would have had new expectation levels and benchmarks for satisfaction. Even if management selected the correct strategy (a smaller range of low-priced products) the inevitable teething issues faced in the transition would have led to many instances of less than happy customers.
Instead the organization ensured that the back-end systems, merchandise selection plans and logistics all supported the right strategy. The result is that the organization is able to launch a successful new business strategy having already tested it and removed the kinks.
There is one last item that I think is interesting here and that is the role that word of mouth marketing had supporting the right strategy. When there is no advertising campaign for a change in company positioning, the only way that customers can find out about the change is via their friends and family.
Selling 10 times the number of jeans does not happen because the person in store buys 10 pairs of jeans. It happens because that person buys two or maybe three pairs and tells their friends. That is how the soft launch and change in customer experience (low prices) permeates through the customer community.
At this pint prices are lower than people expect and so their satisfaction is higher. Compare this to the alternative approach when expectations are inflated through the advertising and can only be confirmed, if prices really are lower, or defeated, if prices are not lower.
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