The retail landscape is changing. Consumers have mastered the art of 'trading up' and are now moving into an era of value. Season after season consumers rate value as the most important element in determining where they shop and how much they spend as measured in the NPD surveys. But, what does value really mean?

Value is much more than just price; it's a complex metric encompassing all the retail elements that impact consumers' perception and propensity to purchase. Value is a mix of quality, convenience, experience and price, all multi-dimensional drivers. Consequently, companies focusing only on price to deliver value are missing - and losing - out on the whole picture. In this issue, we'll look at the overall equation and then we'll take an in-depth look at each specific driver in our upcoming issues of InFocus.

Although every niche market and consumer sub-group defines value slightly differently than the next, the basic definition is common across all: they want a top quality product that is easy to purchase within a great experience at the right price. Thus, knowing your consumers, knowing what matters to them, and being able to match it are the keys to creating value for them and your company. Conversely, losing sight of your consumer and what they care about is the surest path to destroying value for them and, thus, for your firm. The four drivers - quality, convenience, experience, price - work together to determine a company's specific value equation, and while some are more important than others, none is absent. Therefore, each must be examined both independently and as part of the whole. Where to start? With the notion of quality.

Consumers assess quality in terms of the product's fit, make, and consistency, all of which stem from your design and manufacturing process. For your customer, does the product fit them? A great example of a company whose fit matches its target consumer perfectly is Bebe. Their target customer is after sophisticated, sexy clothing. Bebe delivers with items that hug the body and blouses meant for only the most buxom.  Make is all about how the product is put together, the seams or joints of product. Consider IKEA; most consumers wouldn't give it the highest make marks, but, then again, they don't shop there for furniture which will last for years.  IKEA knows this and makes its products accordingly. Finally, consistency is just that. Can consumers count on your product being the 'same' in terms of how it wears, how it sizes, how it washes, etc.? 

Taste level is equally critical in how consumers assess product quality. It's not a matter of a 'right' or a 'wrong' taste level, only that which is appropriate for your consumers and your brand. If your brand stands for a conservative, all-American lifestyle, such Talbot's or Brooks Brothers, do your products match that taste? When firms stray away from the correct taste level for their consumer, product falls flat and fails to fly out the door. Matching product taste level to the core of the brand is essential to communicating high quality to the consumer. Consequently, brand definition goes hand-in-hand with laying out the correct value equation for a company.

Convenience, both physical and mental, is the second driver in today's value equation. Achieving the right level of physical convenience is about optimizing the interplay of access (easy in, easy out) and store navigation (wide aisles on a grid pattern vs. meandering, circular presentation). Different consumers demand different types of physical convenience, and what appeals to one group won't necessarily be desirable to another. For example, teens actually prefer to shop in settings with large groups of stores, the better to congregate and spend hours of time together. Their moms, however, are increasingly moving to lifestyle centers and strip mall options to facilitate getting in and getting out for what they need.

Just as important to both the moms and their kids, however, is mental convenience, a new and increasingly critical factor in American retailing. Formerly, "more" was automatically equated with "better" in selecting a shopping destination. However, with the proliferation of choices, many consumers are now clamoring for less choice, asking the retailer to do the editing for them. In addition to careful product selection, in-store product merchandising also weighs heavily on mental convenience, tying it in closely with questions of physical convenience. For instance, if a retailer chooses to have customers physically meander through its store, can it afford to merchandise various pieces of an outfit in different locations around the floor, thereby asking customers to imagine the pieces together rather than clearly demonstrating them as one, unified presentation on a single fixture? Is the customer who will gamely navigate the aisles also up for hunting and pecking to find product? Issues related to physical product presentation directly control the level of psychological comfort shoppers feel and greatly impact their likelihood to pick up and even just mentally try-on product, much less carry it to a dressing room for the actual bodily try-on. Retailers must understand clearly how much and what type of intellectual stimulation consumers desire or they risk losing sales due to mental and emotional fatigue.

Experience is the third factor driving value for today's consumers. Experience is more multi-dimensional than ever, including all shopping channels both physical and virtual. Front and center here is the store four-wall environment: What does it look like? How does it smell? What are the sounds in the background? Just as important as what consumers can see and hear, however, is the level of customer service they demand. Fail to serve them when they need help, and a sale is forever lost. But, crowd them when they're browsing or oversell them, and equal damage is done. Getting service right - the who, the how and how much, the when - is the cornerstone of a truly great environment, one that is tailored to consumers and reinforces the value they feel, motivating them to purchase. On the flip side, a stale environment that fails to resonate with consumers just as effectively 'shoos' them away.

This power to welcome or to dissuade consumers exists across all channels from catalog to website to direct sales, and the decisions made for one direct-to-consumer channel often directly apply to the others. On websites, for example, retailers must continually decide how consumers should interact with it, beginning with layout, design, and user interface and extending to issues such as what products are offered online, how the site connects to the stores, how and where the site is marketed, what the return policy is, and, especially, what customer service options are made available. The solutions to these issues (and many more) define the web experience for the consumer. The answers for the online channel must be coordinated with how the same issues are handled within the catalog and direct sales channels. The ultimate goal is a consistent direct-to-consumer experience that meets the target consumer's demands and in doing so provides value regardless of channel.

The fourth and final driver of value is, perhaps, the most commonly thought of: price. Price is not always about being the cheapest. Instead, two related actions work together in determining how price affects overall value: price sharpness and promotions management. Price sharpness is getting the price right the first time, being clearly competitive in the price while still squeezing out as many dollars as possible. An example of truly sharp pricing is American Eagle Outfitters, whose back-to-school prices were spot-on for their consumer. Indeed, their out-of-the-box pricing was so good that they took only one denim markdown of just $5 off a single style of jeans and did so late in the season. Achieving success with price sharpness, like American Eagle consistently does, relies on understanding the rest of the drivers in the value equation first because how consumers feel about issues of quality, convenience, and experience directly influence the amount they'll pay a retailer and still consider an item good value.

Coupled with price sharpness is smart promotions management. Setting the promotional level to match your consumer is critical both in timing and percent discount. Some firms' consumers are driven in by promotions, and therefore their promotions calendar includes more planned events at smaller markdowns throughout the year. JC Penney follows this model; its CEO Myron Ullman, III, has said that the Penney's consumer "likes to buy promotionally." Other firms have very few promotions throughout the year and instead use markdowns to clear out unsold or slowly moving goods to make way for better, full-price items. For these firms, the amount of the first markdown must be surgically precise; a deft balance is required for success. Too shallow a first markdown and the goods continue to sit, only necessitating an even deeper price cut and training consumers to wait for that next markdown before purchasing. Too deep

a first markdown and the remaining full price goods are devalued in consumers' minds, setting off vulture-like shopping behavior that picks only the most distressed, i.e., cheapest, pieces off the floor and ignores the rest. Moreover, if these firms discount goods too frequently, the consumer will smell desperation and shop only when items are on sale, a hard cycle to break. Thus, promotions management is essential. When done well, it enhances the perceived value of items by putting merchandise on sale with the correct discount and timing to match how the consumer prefers to shop. Conversely, bad promotions management destroys value because incorrect markdowns communicate clearly that the retailer is out-of-step with what its consumers want. 

In the past months, we've tackled the continuing trend of a growing spread between 'moderate' and luxury in today's marketplace. This separation is based on price, but I would argue not on value. At the heart of this trend is the ongoing redefinition of value by consumers along the four drivers: quality, convenience, experience, and price. As consumers reevaluate what matters to them on each of the drivers, they not only trade up but also trade down and do so without compromise. Both the high and low priced products are of great value to them because of the benefits that they deliver across the four drivers.

We'll continue to keep track of this change in the macro landscape by delving into a specific driver of value more deeply in each of the months ahead. But in the meantime, think about your own business. What do you think your value score is? More importantly, what do your consumers think?