A fellow mentor who is an expert in retail once shared with me that opening a shoe store is one of the riskiest businesses to start and operate because there are so many bad assumptions you can make. In a typical main street brick-and-mortar shoe store, you have to select and stock the proper proportions of style, size, and color. Getting only two of the three right could sink your business hopes.
A few months back, I took my mom shopping for a new pair of comfortable, everyday walking shoes. After looking at several styles and trying on several pairs of shoes, she found a pair she loved. They looked good and fit great, but after a check of the store’s stock, it only came in a color she could not live with, so there was no sale. When starting out, Zappos, the online shoe retailer, faced the same problem and was not sure what products, sizes, or colors of shoes would sell.
Rather than commit large amounts of capital on stock and gamble on selecting customer preferences correctly, Zappos founders went to local brick-and-mortar retailers and took pictures of their shoes, and negotiated discount pricing. They then posted them on their newly developed website. Without the risk associated with the typical shoe store, Zappos was able to learn customer demand. Dell Computer dominated the personal computer market by not making assumptions about configurations their customers wanted but by letting the customer build their own computer component by component.
Making bad assumptions about customer demands means that you have to steeply discount inventory, often for less than cost, that did not sell well. This negatively affects your margins and profits. Even if you can’t get the best margins by making high-volume purchases, your savings in not buying unwanted inventory often outweighs the lack of volume discounts and assumes less risk.
What strategies do you have in place to learn your customers’ preferences?
