Author: Barbara e. Kahn

Publisher: Wharton School Press

What: A new matrix to analyse the competitive advantage of a retailer

Why it is important:  The matrix is simple to use and to understand, quite clear in terms of strategy involved in each of its quadrants. Even though the analysis dates from before 2020 and its multiple changes, the basis of the reflexion remain very valid and some of the points made by the author remain more relevant than ever today.

Barbara E. Kahn is Professor or Marketing at the Wharton School since 2011. Prior to that, she used to be Dean at the School of Business Administration, University of Miami. She has been a member of various consumer research bodies, and has extensively written on marketing, grocery and consumer-related topics.

The forces transforming retail

Barbara Kahn identifies 7 forces reshaping the retail business as we know it:

• Amazon and the notion of unlimited offer (endless aisle), superior customer management (Amazon Prime), and threefold business model helping to generate revenues while decreasing retail prices to the maximum (Amazon Web Services AWS and Amazon Marketplace generating the bulk of the profits, helping to “fund” the low operational margins at Amazon retail),
• Omnichannel shopping (with mobile phone shopping market share going from 2% in 2012 to 30% in 2020),
• Massive data collection (implying the necessity to be able to monetize what is collected),
• New retail tech (VR, AR),
• Vertical integration, with brands cutting the middleman and reverberating the savings on the final retail price, supported by a strong brand narrative,
• Real estate oversupply (in the US), while mall visits were halved between 2010 and 2013,
• New customers coming on top of millennials: Gen Z customers (less price conscious, more sustainability-oriented, not loyal to brands, digitally native, valuing experience over things, and in agreement to share data provided the experience is worth it).

As a consequence, there is a necessity to be customer centric, i.e. give customers what they want after having earned their trust, and, ideally, in a perfectly frictionless shopping process. Barbara E Kahn goes further by mentioning that in reality, retailers must do so better than the others.

For memory, this book was published two years before the 2020 pandemic that radically transformed the business, and it is interesting to see how the identified items remain more than relevant now.

The Kahn matrix

Barbara E. Kahn has developed a matrix helping to identify the type of competitive advantage owned by a market player, and identify further axes of development:

![The Shopping Revolution

![The Shopping Revolution

For the author, retailers looking for superior competitive advantage need to be good in at least 2 quadrants. She then exemplifies each quadrant through a retailer she considers leader in its initial quadrant:

• Frictionless quadrant

Amazon is first excellent in the frictionless quadrant, and also a leader in the low price quadrant.

In 2017 the e-tailer represented 34% of the total US market with a turnover of USD 44 bn. It was expected to reach a total market share of 50% in 2020 (note: this is not the case). The author notes that the margin per product can be as low as 3%, which is possible thanks to the profits generated by AWS (data warehousing, 7.4% of Amazon total revenue in 2015 and 41% of its total income), Amazon prime (paid membership programme generating 60% of total dollar value) and Market place (and the commissions paid by vendors, representing 1/5 of the total revenue in 2017).

• Low price quadrant

Walmart is excellent in the low price quadrant, and good in the frictionless / omnichannel one (which shows, for the author, that the promise of a low price is not enough).

• Product brands quadrant

On the one hand, she identifies DTCs as leaders in this quadrant. Kahn differentiates two types of DTCs:

-     Legacy DTCs such as Zara or Trader Joes, usually quite large and profitable companies,

-     DNVBs such as Casper, Warby Parker, where the story, the experimentation and the frictionless approach are elements of differentiation. They struggle, however, to reach the needed levels of profitability to scale up.

Kahn also mentions that luxury brands embody the unparalleled product experience needed to be a strong product brand. However Kahn notices that they can not rely on this element only, and most of them are also eyeing the Experience quadrant and the Frictionless one.

• Experience quadrant

Here, Kahn mentions brands such as Eataly, Story, Costco, TJ Maxx, Burlington, Sephora or Rebecca Minkoff to develop her argument. The examples mentioned are quite heterogeneous and this part of the demonstration is less convincing than the three other ones.

Going further: we need new KPIs

Kahn concludes her analysis by reminding that:

• To be a leader, retailers must be superior in terms of execution in at least 2 quadrants…
• … but this is not enough: they must also provide a fair value in the other ones…
• … all the more that the market is getting even more competitive.

She also states that the old KPIs are no longer adapted to the new world: sales by square metre are not customer centric enough to be helpful in the new retail realities, and she calls for new tools such as brand impressions, digital purchase intent index, customer convenience KPIs or “share of home” through Siri, Alexa or Google home.

• Buy it on Amazon here