Even as Staples announced the closure of 70 stores on March 9 – those on the heels of 48 store closures in 2016 and 242 in previous years – CEO Shira Goodman said she had reason for optimism.
“I am particularly proud of our ability to grow our delivery business by continuing to enhance our offering and satisfy our business customers,” she said in a meeting with investors.
Indeed, with 1,200 stores remaining open, there is room for a turnaround plan to succeed. And while many of the so called easy options have been foreclosed for Staples, Goodman alluded to the sole strategy data suggests could be successful – increasing overall customer satisfaction.
One traditional turnaround avenue, gaining scale through mergers, was snubbed by the Federal Trade Commission last year. The office supply market traditionally had three major players: Office Depot, Office Max and Staples. In 2013, rivals Office Depot and Office Max merged. Staples tried to acquire the merged entity last year. The merger would have increased Staples’ scale, thus spreading its fixed costs over a larger customer base and increasing its margins. But FTC said no.
Another option would be for Staples to grow its online business while decreasing its physical footprint, likely the route to which Goodman was referring in her statement to investors. No doubt closing 70 additional stores will reduce its size and fixed costs. But Staples would need to overcome two hurdles to go this route. First, it would have to cater to the different and unique needs of online office supply customers. Second, it would have to contend with Amazon.
The Customer-Based Execution & Strategy (CUBES) Research Collaborative examined these conditions in the office supply market in late 2016 by conducting a benchmark study of more than 4,900 business managers. The study specifically examined the effects of customer satisfaction on several strategic areas using proprietary models. Six hundred of the participating managers were in the office supply market and rated Amazon, Office Depot and Staples on various dimensions. The researchers then statistically linked the customer ratings to financial metrics.
Counterintuitively, CUBES found the two companies most associated with the office supply industry were not best at satisfying customers in the segment. Only 13 percent of Staples customers were extremely satisfied, while 20 percent of Office Depot customers reported that level of satisfaction. For Amazon, 30 percent of its office supply customers were extremely satisfied.
The takeaway? Staples has a long way to go to match its competitors on customer satisfaction.
How can the company increase customer satisfaction? CUBES looked at several potential drivers of overall customer satisfaction. Price was far from the most significant driver. Instead, the three biggest drivers of customer satisfaction turned out to be service support (accounting for 37 percent of the satisfaction score), product quality (18 percent) and communication (14 percent). Price was a distant fourth, contributing 12 percent to determining overall customer satisfaction.
How did Staples score with its customers on service support? It finished dead last again. Only 13 percent of Staples’ customers were extremely satisfied with its service support, compared to 17 percent for Office Depot and 26 percent for Amazon.
What returns could Staples expect to see from focusing on customer satisfaction? CUBES is able to project the precise results by linking customer satisfaction to financial performance. For every unit-change in customer satisfaction, Staples would increase overall sales by 3.1 billion.
In short, Staples must stop focusing on lowering prices and start improving its service support, product quality and customer communication.
Indeed, any turnaround plan first and foremost must focus on satisfying customers by addressing these key strategic areas. Increasing scale for the sake of lowering costs and prices is likely to backfire. Not only do customers care less about prices than many assume, but they also care more about service support and product quality.
As old fashioned as a customer-focused strategy may seem, it’s not easy. It is easier to go into cost cutting mode with the goal of lowering prices. But if Staples falls in the trap, it will be yet another casualty of misguided corporate priorities that ignore customer satisfaction.
