Chapter 12

Physical: Why Test Driving Is Still Important Even in a Digital World

You look around—the music is flowing from everywhere. Surely there must be speakers embedded in the ceiling and the walls beyond the ones under the dark drapes in this home theater. Suddenly, the host interrupts the show. Pardon me, he says as he plucks the speakers from the wall and undrapes them. They are faux logs of wood! Then he restarts the show and the music flows again. As he walks out, he promises there are no hidden speakers in the ceiling or walls.

This is no home theater. It is the Bose store at a mall. Bose as in famous for its audio technology. It is showing off its Video Wave entertainment system with an impressive screen (46-inch CCFL backlit), and its even more impressive in-built seven speaker array. It also packages its Phaseguide radiator technology that targets sounds in different areas of the room. Sure, you could watch the demo of the product at home on YouTube, but it does not come close to matching the richness of the sounds and colors in that in-store experience.

Welcome to a baffling trend: Even as Amazon and Netflix threaten all kinds of brick-and-mortar, consumers have shown they want to test-drive high-tech products like they do cars. They want to look at optional add-ons; they want coaching and service. But they don't want it to be like the high-pressure experience that comes with buying a car. In fact, Steve Jobs captured the consumer sentiment at a show in early 2001: “Buying a car is no longer the worst purchasing experience. Buying a computer is now No. 1.”¹

Test Driving Everything

Starting in March 2011, GE kicked off its Electric Vehicle (EV) Experience Tour in several cities across the United States. The goal was to “bring GE experts together with local businesses, industry leaders, and public sector stakeholders for educational workshops, test drives, and dialogue on the business case for EV ecosystems.” Blogged Engadget after the San Francisco stop, “The Yves Behar-designed GE WattStation EV charger was on display at the event in both mock-up and ice sculpture form. We spent some time chatting with Luis Ramirez, CEO of GE Energy Industrial Solutions, and Clarence Nunn, President and CEO of GE Capital Fleet Services, about the future of EV charging. We discussed efforts like PlugShare and the recent addition to EV charging stations to Google Maps, concepts like smart parking spots with embedded inductive charging, as well as ways to accommodate folks without garages who park their vehicles on city streets.”²

The website helpfully provides the GPS coordinates as N41° 53.655 | W87° 37.450. Very appropriate as they point to a store of the navigation company Garmin. That's 633 N. Michigan Avenue on Chicago's swanky Magnificent Mile. The website also provides a 360-degree sweeping video of the store, but you have to step in the store if you want to touch and feel the entire Garmin product line under one roof. Garmin has a very wide variety of navigation units—specialized marine ones, others for pilots of private planes, and of course plenty of devices for autos, hiking, and other uses. The store has another advantage. You can walk in and rent units for as few as three days.

Walk into the Citi Union Square branch at 14th Street and Broadway in New York City, and you will think you are in an Apple Store. That's because it was designed by the same firm, Eight Inc., that also helps design Apple Stores. The 9,700-square-foot store “features six interactive sales walls; image ATMs; free online access and wi-fi for customers; 24/7 access from the ATM lobby, to customer service experts via videoconferencing; and a private seating lounge for customers of Citigold, Citi's premium banking service.”³

Former U.S. Vice President and Nobel Laureate Al Gore joined John Chambers, CEO of Cisco, on stage at the VoiceCon event in Orlando in 2008. The unique aspect was Gore was home in Nashville, Tennessee, and Chambers was in San Jose, California, and the discussion on climate change was moderated by a journalist in London. It was a great way to showcase Cisco's Telepresence product and Gore's Inconvenient Truth message with the fact “that dispersed groups can meet without flying to the same place, thus not contributing to carbon-dioxide pollution.”⁴ The attendees at the event did even better. They got to test-drive the experience firsthand at the massive booth Cisco set up. As Cisco described it, “(the) creative, interactive, customer experience focused booth was the ‘hottest’ place to be on the show floor. We created an office, small business, airport lounge, call center, and home environments for attendees to step into and experience the many solutions Cisco provides to solve business challenges.”⁵

Even as the consumer bought all kinds of technology and got used to technology-enabled services, the past decade has brought an even more baffling trend. High-tech customer channels, particularly in retail, went through all kinds of turmoil.

When Category Killers Themselves Die

In his 2005 book Robert Spector called category killers “the most disruptive concept in retailing.”⁶ Their goal, he wrote, “is to dominate the category [e.g., toys, office supplies, home improvement] and kill the competition—whether it be mom-and-pop stores, smaller regional chains, or general merchandise stores that cannot compete on price and/or location.” He said they “have helped to expand and upscale the ‘mass market’ by aggressively driving down the prices of goods and services.”

Yet high-tech category killers like Circuit City, CompUSA, and Dixons (in the UK and Europe) have faded over the decade, and others like Best Buy had to make numerous adjustments.

Time magazine summarized Circuit City's issues: “Circuit City became complacent—a fatal mistake in the fiercely competitive and fast-evolving retail-electronics industry. The problems began a decade ago, when Circuit City failed to secure prime real estate—its out-of-the-way locations were often just inconvenient enough to tempt customers to head to other retailers, like Wal-Mart. Then Circuit City stopped selling appliances. It didn't move as aggressively into gaming as it should have. And it missed out on big in-store promotions with thriving companies like Apple Computer.”⁷

A blogger captured CompUSA's issues: “I had been an infrequent customer of CompUSA—not-so-affectionately known by some of its customers as CompUSSR—over the years. I prefer to buy my hardware online, or make a 30-minute pilgrimage to Fry's when it offers something like a $169 500 GB hard drive. As I suspect is the case for many others like me, CompUSA has become the store of last resort, the place you go when you need a new router right now. That's not a good niche, especially when consumers are fickle and the competition is cutthroat.”⁸

The Financial Times of London confirmed the trend across the pond, stating, “High street chains selling electrical goods may have conceded defeat in the price war with supermarkets and online retailers, but the new battleground is customer service. Advances in technology mean shoppers at Currys, Comet, or PC World stores can use their smartphones to quickly compare prices for the products on show with the same goods available online.”⁹

The Best Buy Exception

An AP analysis in 2007 compared Best Buy to Circuit City: “For sure, bargains and good rebates could be found at the stores of either chain—an important draw for the price-conscious American public. At other times, it's as basic as how a store feels, how the products and aisles are laid out, how the workers there treat you.”¹⁰

Forrester, the research firm, summarized multiple aspects of the Best Buy recipe:

Start with customer research. “The company has made an art form out of customer segmentation. It talks in terms of ‘Buzz’ customers—young gadget enthusiasts—and ‘Jill’ stores aimed at suburban moms. Beyond this high-level segmentation, Best Buy has 15-plus terabytes of data on over 75 million customers: products they have bought; neighborhoods they live in from shipping addresses and rebate checks; often credit and employment histories. Its sophisticated analytics has allowed it to identify that a sliver—just 7 percent of its customers—drive 43 percent of the company's overall sales volume. So valuable to the company are these individuals that it would take approximately 39 ‘Uncommitted Customers’ (which account for approximately 12 percent of all customers), to replace the lost lifetime value of just one of the best customers.”¹²

Add Best Buy's emphasis on after-sales service with a unit called Geek Squad and projects like the Remote Service Project. “We'd launched Geek [Squad], and we wanted to maximize the availability of the 18,000 Geeks. We wanted to improve their productivity, which would improve the service to the customer and improve the time that the consumer had access to their product, so that when their PC went down, instead of losing it for a week to 10 days, we were now [shortening] downtime to 24 hours: That's a massive breakthrough. [The Remote Service Project] also meant that when you go into the store and you want your PC repaired, instead of [having a long wait time because of] that particular store having a backlog of work to do, we now have a remote capability that identifies that backlog and [can assign] the work [to another] store remotely. And so it really means that we can level out the work across the enterprise, but above all, deliver a great experience for the customer and maximize the up time of the capability of the product that they've sourced from us.”¹³

Best Buy has also become a venture capitalist investing in a fund focused on digital media startup investments like games and mobile applications. An executive was quoted, “We're trying to change what the solutions are for our customers and change the direction of our company and get involved a lot more in what's happening in digital entertainment as an active participant, rather than a passive participant.”¹⁴

Best Buy has also innovated with social media, particularly “Twelpforce” (i.e., Twitter help force), a social media experiment in customer service.”¹⁵

Says John Burnier, Manager, Emerging Platforms and Social Media Steward at Best Buy, about Twelpforce: “With 45,000+ responses provided to incoming questions, I think we're given the opportunity to prove ourselves every day.” Pressed for some examples of outstanding service, he says:

And

Yet the last couple of years have been challenging one, even for someone like Best Buy with so many unique assets. “The electronics seller was one of the few major retailers that reported an outright sales decline in December (2010), following a dismal third quarter dragged down by weak domestic revenue.”¹⁶

To adjust, Best Buy announced it would focus “on a profitable mix of accessories, subscriptions, content delivery, and services, and will reduce its big-box real estate by 10 percent over the next three to five years, as part of an aggressive plan to build its business.”¹⁷ It is “opening 150 smaller mobile-only stores by the end of the year, nearly doubling its total to 325. The move is part of the company's bid to remake its business by focusing on more profitable, fast-growing categories such as tablet computers and smart phones.”¹⁸ Best Buy also qualified as an early retailer for the GM OnStar FMV and the Ford charging station described in Chapter 1.

In the mobile space, that means competition from an even more focused category killer—the estimated 70,000 U.S. stores of the major telcos like Verizon, AT&T, and Virgin. Overseas it would mean competing with TheMobileStore, a specialty chain in India started by its Essar Group and in China, Foxconn's (Apple's contract manufacturer) with its large retail plans. Best Buy made its business by exploiting its customer knowledge. These specialty stores are using their product knowledge to come at the market in the other direction.

Apple as the Real Category Killer

“I am not a genius, but I will stand behind this bar.”

A modest Steve Jobs says that about the Genius Bar in a video sneak tour of his about-to-be-opened retail store at Tyson's Corner in Virginia. It was 2001 and people called him anything but modest or a genius for investing in brick and mortar when it looked like the whole world was going digital. Look at the video a decade later and it captures the spirit of the Apple juggernaut. It shows well-designed products, plenty of usable software, lots of accessories, and warm, welcoming, and knowledgeable service.

Over 230 million visitors entered one of Apple's over 300 stores around the world in 2010. They spent plenty of time and money there. Many also spent plenty of time outside it as crowds snake for hours with every new product introduction. Many visit the store as they would a museum. The Fifth Avenue store in New York—the glass cube—is now considered one of the most photographed sites in the city. The store at the Louvre in Paris is poetically symbiotic. It's hard to tell where the world-famous museum with the Mona Lisa ends and where the Apple store starts.

Michael Gartenberg, analyst at Gartner, invokes Nordstrom, the retailer known for its legendary customer service.

Gartenberg continues:

The Customer Channel: Own versus Outsource?

The Apple experience is making several companies think about owning their own storefronts. Google is opening Android stores with the first in Australia. Microsoft has been opening its own stores across the western part of the United States.²⁰ “Getting that direct customer feedback is what we're learning and getting from our stores,” says Microsoft as it looks to open another 75 stores over the next few years. Nokia has opened and already closed many stores around the world, including a flagship store in London.²¹

In the meantime, medical device companies are finding it difficult to ignore Walgreen's. The pharmacy chain has over 7,500 drugstore locations and close to 6 million daily visitors to its stores.²² Walgreen's is increasingly tech savvy, and so are its customers. So, diabetics can find supplies for their OneTouch Ping (a glucose meter that transmits data wirelessly to the insulin pump at the patient's belt level) or a Novolog, a prefilled insulin pen, at Walgreen's. Walgreen's has a voice-activated refill system. You punch in your prescription code and wait for a text message when the order is ready to pick up. Many branches have a drive-through with chutes like banks do where you can send your credit card and receive the medication. Its website makes refills even easier, since you can pick off a list of previous prescriptions. In the mobile age, Walgreen's has added Refill by Scan, which allows you to scan the bar code from a previous prescription using an iPhone or Android phone.

Companies like Toro or Stanley Black & Decker, with their own versions of smart products for homes and lawns, cannot afford to ignore a Home Depot, with over 2,000 locations around the world. Home Depot aisles are filled with many technology-rich products. They include a remote-controlled Hunter ceiling fan, a Filtrete wi-fi thermostat, a Ridgid 7,000-watt generator, a Ryobi Duet Power Paint Tool system, a Rain Bird irrigation system (to program lawn sprinklers), a Dyson vacuum with “root cyclone technology,” a Char-Broil grill with infrared heat. Home Depot caters to an increasingly tech-savvy contractor and do-it-yourself customer base. Indeed, it is one of the first retailers pioneering mobile payments.²³

Home Depot employees are themselves increasingly tech-savvy. Walk up to an employee and he or she can punch codes into Motorola handhelds and tell you the exact aisle and bin number for the item you are looking for. The Motorola also functions as a walkie-talkie, indispensable in the big stores, and as a portable cash register, and can be used to send requests for bar codes to be printed.

Technology in Retail

We have discussed the trends in high-tech retail. Just as impressive is how technology is reshaping all other types of retail.

Here are some examples:

• AT&T retail stores were some of the first to introduce Microsoft Surface computers. When a customer placed one or more phones on the table, information about features popped up. Shoppers could also zoom around AT&T's coverage map and learn about calling plans by moving their hands across the screen.²⁴
• Trader Joe's has already acquired a cult-like following even as they use sophisticated analytics to only “carry 4,000 different products, compared to typical grocery stores’ 50,000.”²⁵
• Adidas will be rolling out a futuristic Adiverse digital shopping wall at select stores. A typical shoe store for Adidas stocks around 200 shoes, well short of the 4,000 offered by the company. The virtual wall will allow the entire range to be displayed on screen while offering more information than is typically displayed in-store.²⁶
• There's Zara, which thrives on fashion fads. “While other high-fashion retailers spend weeks or months waiting for low-cost suppliers scattered from China to Uruguay, Zara needs three weeks for new product development, compared to the nine-month industry average, and launches around 10,000 new designs each year. Timing is everything in the world of fashion, and to meet its timing requirements, Zara innovates by making multiple supply chains dance to the tune of high fashion.”²⁷Think Zara is just for us commoners? “They may have worn custom Alexander McQueen the day of the royal wedding, but the morning after, both Kate Middleton and her sister, Pippa, had returned to their girl-next-door styles. Newlywed Kate, who strolled the palace grounds with her husband, looked effortlessly chic Saturday morning in a black blazer, Greta wedges by L.K. Bennett (to be rereleased as the Kate wedge for $265 in June), and a blue pleated dress by Zara, just $90. And great minds must think alike: Pippa was spotted out in London, too, sporting crisp white pants, cute nude flats, and a bright blue tailored blazer, $100, also by Zara.”²⁸
• Or there is the opposite of Zara—Net-a-Porter, a London-based e-tailer of luxury-brand women's wear. During the last recession sales soared 53 percent in 2008. “Key to its success is the premium it places on service—it offers, for example, same-day deliveries in London and Manhattan. … Net-a-Porter's nonstop growth has helped spark a big push for online sales by the world's luxury brands—a move many of them long resisted. The presumption was that buyers of pricey goods demanded person-to-person selling.”²⁹
• Of course, there are social and mobile technologies dramatically impacting retail. FourSquare lets you offer promotions for new customers and recognize your best customers. Customers share their location and the deals they've discovered there and brag about becoming “Mayor” of various sites. ShopKick rewards you if you merely walk in and open its app in stores like Target, Best Buy, Macy's, Sports Authority, and Crate & Barrel. There's ShopSavvy, which allows you to scan an item's bar code using your phone camera and that provides a list of online and local prices. There is, of course, Groupon, which is allowing retailers to bring in deal-driven business.

Physical Presence and Drama

People marvel at the logistics of launching Apple products. How do they keep products secure and secretive as they ship to so many locations? Fergus Rooney, CEO of Chicago-based agency EA, a marketing firm that helps companies with product launches, describes an even bigger launch. His firm helped Boeing plan the premiere of the next-generation 747, the 747–8 Intercontinental. He describes the challenge and the drama:

Yes, physical presence can be challenging to manage, but can also yield dramatic results.

Conclusion

We would not buy a car without a test drive. Somehow we seem to have forgotten that physical, tactile experience continues to be important with technology products. The technology elite have not forgotten and they also know you need knowledgeable, friendly customer service to go with it. Let's next see how Taubman Shopping Centers have thrived in the last several decades, when brick and mortar was supposed to be dying.

Case Study: Taubman Shopping Centers

Taubman Centers, Inc. operates as a real estate investment trust (REIT). Like other real estate investors like Simon Property Group and Rodamco, it owns, manages, and leases regional retail shopping centers. Since its foundation in 1950, Taubman has developed more than 80 million square feet of retail and mixed-use properties. Taubman is distinguished by “creating extraordinary retail properties where customers choose to shop, dine, and be entertained; and where retailers can thrive”; its focus is “on dominant retail malls with the highest average sales productivity in the nation.”³⁰ Most of its properties are in the United States, although it is growing rapidly overseas with an Asian subsidiary.

In November and December 2010, at several of its centers Taubman set up Ice Palaces and hosted an “immersive and interactive” experience. Holiday shoppers got a sneak peek into the wondrous land of Narnia, including scenes from the new movie, a light show, and snow. Actors from the movie streamed live from The Beverly Center event to 15 other Taubman shopping centers across the country, where children waved LED wands to simultaneously illuminate the Ice Palaces. In 2011, several of the centers added polar footage from BBC Earth to the show.

In previous holiday seasons, Taubman centers had Snow Globes and themes centered on other movies like The Polar Express.

Taubman has used technology around other promotions. In 2007, with a “back-to-school” promotion, many centers allowed students to create customized avatars, created with Auto Photo technology from Oddcast. In 2008, the back-to-school theme was “Yearbook Yourself” and featured a website that allowed teens to see what they might have looked like when their parents were in school, all while catching up on current back-to-school fashions. They could move from the 1950s through the 1990s and see themselves with the hair and fashion styles of the times while listening to music inspired by that era. In 2009, they enhanced the Yearbook website with integration to Facebook and other enhancements.

In 2010 Taubman announced an alliance with Sharp Electronics Corporation to equip several of its shopping centers with high-definition television lounges for shoppers. The AQUOS Entertainment Lounges feature HD televisions, with screen sizes ranging from 42 to 65 inches and content from a variety of sources, including live sports, entertainment, and news programming in each community.³¹

Do you see the pattern here? Taubman says 10 out of the first 15 Apple stores were at their centers. Now it has Apple stores in 65 percent of its malls. Beyond Apple, the centers showcase other technology stores and technology promotions and events.

Wasn't brick and mortar supposed to be dead by now? What is an old-fashioned mall doing with so much technology?

The families who went over the holidays to The Shops at Willow Bend, the Taubman mall in the northern Dallas suburb of Plano, got to feast on the 30-foot-tall color-changing Ice Palace with state-of-the-art audio and visual effects. They also got a chance to visit the Apple store in the mall. The Adrelina “extreme sports” store with a Flow Rider provided an interesting indoor surfing experience. They got to see one of the first Best Buy Mobile stores—a smaller footprint concept designed for malls.

Nick Dembla, who sells software to the mortgage industry at docVelocity and lives in the nearby town of Frisco, says, “My kids have frequented the Willow Bend mall since they were toddlers. They really look forward to the holiday Ice Palaces and other festivities. My 12-year-old daughter, in particular, has inherited my ‘techieness,’ so we tend to gravitate to the electronics stores. But we pale compared to one of our neighbors who is always at the Apple store there with his kids.”

Charlie Bess, who works for EDS, now part of HP, in Plano and is happiest around technology, says, “It is one of those rare malls that when you go in, you don't exactly know what you're going to find. Its food court is more varied than the standard mall fare. There is also an eclectic mix of stores that draw you in, just to see what's there. It's a diverse combination of retailers that are more than the typical mall mix of anchor stores and ‘the rest’ that I believe appeals to a wide range of consumers.”

The Mall at Short Hills in New Jersey also had a similar Ice Palace and an Apple store. In addition, music fans could walk into a Bose store and check out the latest in audio gear (and its Video Wave described earlier in this chapter). Or they could visit a Steinway store and try out much older technology in its grand piano, which still takes a year to construct. As with the Plano center, there were several more technology-themed stores.

Same with the International Plaza in Tampa, Florida. Yes to Ice Palace. Yes to Apple store. In addition, there is a Sony Style store with its laptops, cameras, and camcorders, TV and Home Entertainment. There is also a Clear store that offers 4G Internet plans for home and on-the-go.

Nina Mahoney, Marketing Director at the Tampa location, says, “We don't just target technology customers or technology tenants. Taubman shopping centers have evolved over the last decade to become destinations for both shopping and entertainment. Clearly technology is an integral part of that in today's lifestyle.”

As the Wall Street Journal pointed out, technology, particularly Apple, is also getting a bigger share of our wallets. “In Apple's fiscal year through September, it had sales of $34.1 million per retail store. Macy's much larger stores generated $29 million on average in sales last year, and JCPenney just $16.1 million, estimates Michael Exstein of Credit Suisse.”³²

Mahoney continues:

One of those restaurants has been fairly influential in the local technology community. Fritz Eichelberger, founder of Hotspaces.Net, a consulting and recruiting firm, explains: “I've been hosting the ‘Pure & Shameless’ Tech Socials at the Blue Martini (tapas bar and cocktail lounge) for almost a decade. The location is a favorite among attendees. It is conveniently located in the Tampa Bay area, there is plenty of parking, and there are other activities at the International Plaza to entice my attendees to show up. I usually get 200 to 250 attendees and once had 400+.”

Thomas Neudenberger is Chief Operating Officer of the U.S. subsidiary of realtime AG, a 25-year-old German SAP consulting company. It offers a biometric SAP security product called bioLock. Looking for a city to locate U.S. operations in 2002, he evaluated several East Coast cities. While he liked Tampa, he was unsure of the local technical talent. The manager of the World Trade Center office space he was evaluating in Tampa took him to one of Eichelberger's events.

Says Neudenberger, “The Blue Martini made my decision as the quality of local talent impressed me. I moved my family here two weeks later. I have been going to that event ever since and meet many interesting people with whom to discuss our bioLock technology. It is always fun and you always run into people that you don't expect.”

Nine years later Neudenberger says he made the right decision and his unit has expanded even outside the United States and installed bioLock software in Europe, Africa, and South America.

Mahoney continues:

There is also a growing trend to use the mall as a showplace to launch technology products. Mahoney again: “As you can see with the Sharp Aquos lounge, we provide new products plenty of exposure. We had the Nissan Leaf (the electric car) exhibit here. We have had Sony Reader events here.”

Technology was supposed to kill brick and mortar. Taubman is proof that what doesn't kill you makes you stronger!