Cognitive Bias Theory tells us that people remember the worst part of an experience (Negative Bias) and the last part of an experience (Recency Effect).  My understanding is that these can also be combined as the Peak-End Rule.

So, if I go to the dentist, I’ll remember the drilling, and the free toothbrush I got at the end.

With this in mind, I want to explore the divergence between the check-out experience that would leave people feeling the most positive, and the one that typically happens.

I needed to go to Toys R’ Us for the first time in a long time over the holidays. I have two kids now, and don’t have to feel weird about going there for myself (Lego AT-AT…mmm…delicious…)

I got my Thomas DVD, Candy Land and Chutes and Ladders and went to check out.

The employee, a young guy we’ll call Geoffrey, started to ring up my items.  Here is how I recall the conversation:

Me: Thanks.

Geoffrey:  Do you have a Toys R’ Us card?

Me: No.

Geoffrey: Would you like to open one?

Me: No.

Geoffrey: It gives you coupons and discounts…

Me: I don’t like shopping here (actually, it was “no thanks”).

Goeffrey: Would you like to open a credit card and get 20% off your purchases?

Me: No (20% off $15?  I can think of better ways to save $3).

Geoffrey: Would you like to buy insurance on the Thomas DVD for $1.50?

Me: No.

Geoffrey: Would you like to donate a $1 to the March of Dimes?

Me: No.

Geoffrey: Do you need any batteries (I think this was the 6th question, although everything was getting hazy…)?

Me: No

Geoffrey: Would you like a gift receipt?

Me: No (although…clearly the most reasonable request).

Then I was on my  way.

Now, this exchange was an extreme version of what happens at almost every retailer.  And it’s because a significant portion of their business model is at odds with a great retail experience.  With retailer competing with online establishments, their margins are getting thin and they are forced to make up that margin on insurance plans and credit cards.  Even Apple tries to get its employees to sell Apple Care, although I have to say in their case, it’s a pretty good deal.

If retail can’t compete on price, selection or the overall experience, than all they’re competing on is convenience.

Convenience is changing as many of our physical goods are moving digital.  Take books.  It’s simply not more convenient to buy a book in a store than using an iPhone or other device, from the comfort of my home.   And they can’t compete on price or selection, so the overall experience, which is ruined by check-out shananigans, is not good.

Take diapers.  Costco has the retail prices on diapers.  And given how bulky they are, it’s something that I wouldn’t expect would change soon.  But Amazon now allows you to pay exactly the same price as Costco, and because we don’t pay for shipping (or sales tax for now), we get it all without the inconvenience of the drive and madness of a trip to our not-so-local Costco.

So, where is this going to stop?  What products have the biggest moats?  Well, I would say its the products that are tied to a) services, b) regulation, c) Long-term ownership  and finally, d) touch & try .  Tires (installation and balancing).  Guns & Drugs (Regulations).  Used book stores have a great experience (people do enjoy the silence, smell and selection).  Although digital selections at libraries may compete seriously on price (free if you don’t include taxes) and the lack of need for long-term ownership.

And the best retail experience today is at Apple stores (I might include Tiffany in the same league).  Not only do the stores sell their products at the same price, with great selection (when it’s not the iPad 2), the convenience of knowing that you can go to a place when something goes wrong is a big deal.  All of these points hold true for Tiffany.  I think in some ways the Apple store is like the Tiffany for men.  Shiny objects that cost thousands benefit from a little touching and trying.

Back to the main point…can retailers whose products go digital still thrive?  Will  toy retailers and bookstores find a way to survive. If they do, it will be by engaging with the customers in a way that can’t be done online.  And that means remembering that making me happy as I leave the store is important.  And today, I mostly leave annoyed.

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