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Flevy Management Insights Case Study
Customer-Centric Strategy for Online Furniture Retailer in North America


Fortune 500 companies typically bring on global consulting firms, like McKinsey, BCG, Bain, Deloitte, and Accenture, or boutique consulting firms specializing in Behavioral Economics to thoroughly analyze their unique business challenges and competitive situations. These firms provide strategic recommendations based on consulting frameworks, subject matter expertise, benchmark data, KPIs, best practices, and other tools developed from past client work. We followed this management consulting approach for this case study.

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Consider this scenario: A leading online furniture retailer in North America is confronted with challenges attributed to behavioral economics, impacting consumer buying behavior and loyalty.

Internally, the company is experiencing a 20% increase in cart abandonment rates and a 15% decline in repeat customer purchases year-over-year. Externally, intense competition from both traditional brick-and-mortar stores transitioning online and established e-commerce giants have eroded its market share by 12% in the past two years. The primary strategic objective of the organization is to enhance customer loyalty and increase market share by leveraging insights from behavioral economics to create a more personalized and engaging shopping experience.



This organization, despite its significant online presence and pioneering use of digital technology in the furniture retail sector, is encountering stagnation in customer engagement and loyalty. An in-depth exploration indicates that a lack of understanding and application of behavioral economics principles in crafting customer experiences and journey might be at the core of these challenges. Additionally, the company's efforts in personalization and customer engagement appear to be falling short when compared to the highly tailored and interactive experiences offered by competitors.

Competitive Market Analysis

The furniture retail industry, particularly online, is witnessing rapid evolution driven by technological advancements and shifting consumer preferences. The entry of new players and the expansion of existing ones have heightened competition, making it essential for companies to differentiate themselves to capture and retain consumer interest.

Key forces shaping the competitive landscape include:

  • Internal Rivalry: High, with numerous players vying for consumer attention through pricing, product variety, and shopping experience innovations.
  • Supplier Power: Moderate, as large retailers can negotiate favorable terms, but smaller players are subject to supplier pricing and availability.
  • Buyer Power: High, due to the abundance of choices and ease of switching between retailers online.
  • Threat of New Entrants: Medium, with entry barriers related to brand recognition and customer loyalty, but lowered by online marketplaces.
  • Threat of Substitutes: Low to medium, with the main substitute being physical furniture stores offering a tactile buying experience.

Emerging trends highlight a shift towards augmented reality (AR) shopping experiences, eco-friendly furniture, and demand for highly personalized shopping journeys. These trends suggest significant changes in industry dynamics, including:

  • Increased investment in AR and VR to enhance online shopping experiences, presenting opportunities for differentiation but requiring substantial technology investments.
  • Growing consumer preference for sustainable products, offering an opportunity to capture a niche market but necessitating adjustments in supply chain and product assortment.
  • The rising importance of data analytics for personalized experiences, creating opportunities to increase customer loyalty but requiring advanced capabilities in data collection and analysis.

A STEER analysis indicates that socio-cultural shifts towards sustainability, technological advancements in e-commerce, and economic factors influencing disposable income levels are key external factors impacting the industry.

Learn more about Supply Chain Customer Loyalty Augmented Reality

For effective implementation, take a look at these Behavioral Economics best practices:

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Internal Assessment

The organization's strengths lie in its established online presence and wide product range. However, weaknesses in leveraging customer data for personalization and a lag in adopting next-gen tech solutions like AR for product visualization are apparent.

SWOT Analysis

Strengths include a robust e-commerce platform and a diverse furniture portfolio. Opportunities exist in adopting AR for product visualization and tapping into the growing demand for eco-friendly furniture. Weaknesses involve suboptimal use of customer data for personalization and engagement. Threats comprise intensified competition and changing consumer preferences towards sustainability and personalized experiences.

Organizational Structure Analysis

The current organizational structure, characterized by traditional departmental silos, hampers cross-functional collaboration essential for rapid innovation and personalization efforts. A more integrated structure could enhance agility and responsiveness to market changes.

Organizational Design Analysis

The analysis reveals a need for a more flexible and adaptive organizational design that promotes innovation, cross-functional teams, and a culture of continuous learning to keep pace with technological advancements and changing consumer expectations.

Learn more about Organizational Design Organizational Structure

Strategic Initiatives

  • Implement an AR-powered Shopping Experience: Introduce AR technology to allow customers to visualize furniture in their own space before purchasing, aiming to reduce cart abandonment and increase conversion rates. The initiative is expected to create value by enhancing the online shopping experience and differentiating the brand. This will require investment in AR technology, training for content teams, and marketing to communicate the new feature to customers.
  • Launch a Sustainable Furniture Line: Develop and market a line of eco-friendly furniture, responding to the growing consumer demand for sustainable products. The goal is to attract a niche market segment and build brand loyalty among environmentally conscious consumers. This requires adjustments in the supply chain, product development, and marketing efforts.
  • Adopt Behavioral Economics in Marketing Strategies: Utilize principles of behavioral economics to design more effective marketing campaigns and website layouts, aiming to increase customer engagement and repeat purchases. This initiative will create value by better aligning marketing efforts with consumer behavior patterns, requiring expertise in behavioral economics, data analytics, and customer experience design.

Learn more about Customer Experience Consumer Behavior Behavioral Economics

Behavioral Economics Implementation KPIs

KPIS are crucial throughout the implementation process. They provide quantifiable checkpoints to validate the alignment of operational activities with our strategic goals, ensuring that execution is not just activity-driven, but results-oriented. Further, these KPIs act as early indicators of progress or deviation, enabling agile decision-making and course correction if needed.


Without data, you're just another person with an opinion.
     – W. Edwards Deming

  • AR Feature Adoption Rate: Measures the percentage of customers using the AR feature, indicating its effectiveness in enhancing the shopping experience.
  • Sales Growth of Sustainable Furniture Line: Tracks revenue generated from the eco-friendly product line, reflecting market demand and brand perception.
  • Repeat Purchase Rate: An increase in this metric will demonstrate success in improving customer loyalty through personalized experiences and marketing.

These KPIs will provide insights into the effectiveness of the strategic initiatives in enhancing customer experience, driving sales, and building brand loyalty. Monitoring these metrics closely will enable timely adjustments to strategies to ensure their success.

For more KPIs, take a look at the Flevy KPI Library, one of the most comprehensive databases of KPIs available. Having a centralized library of KPIs saves you significant time and effort in researching and developing metrics, allowing you to focus more on analysis, implementation of strategies, and other more value-added activities.

Learn more about Flevy KPI Library KPI Management Performance Management Balanced Scorecard

Stakeholder Management

Engagement and support from both internal and external stakeholders are crucial for the strategic initiatives' success, with a particular focus on technology partners for AR implementation, marketing teams for promoting the sustainable furniture line, and data analysts for applying behavioral economics principles.

  • Technology Partners: Essential for the development and integration of AR features into the online platform.
  • Product Development Team: Responsible for designing and sourcing the sustainable furniture line.
  • Marketing and Sales Teams: Key in promoting the new product lines and AR shopping experience to consumers.
  • Data Analysts: Crucial for applying behavioral economics principles to marketing and website design.
  • Customers: The primary beneficiaries of improved shopping experiences, whose feedback is vital for continuous improvement.
Stakeholder GroupsRACI
Technology Partners
Product Development Team
Marketing and Sales Teams
Data Analysts
Customers

We've only identified the primary stakeholder groups above. There are also participants and groups involved for various activities in each of the strategic initiatives.

Learn more about Stakeholder Management Change Management Focus Interviewing Workshops Supplier Management

Behavioral Economics Best Practices

To improve the effectiveness of implementation, we can leverage best practice documents in Behavioral Economics. These resources below were developed by management consulting firms and Behavioral Economics subject matter experts.

Behavioral Economics Deliverables

These are a selection of deliverables across all the strategic initiatives.

  • AR Shopping Experience Implementation Plan (PPT)
  • Sustainable Furniture Line Launch Strategy (PPT)
  • Behavioral Economics Marketing Framework (PPT)
  • Strategic Initiative Performance Dashboard (Excel)

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AR-Powered Shopping Experience Implementation

The team utilized the Diffusion of Innovations Theory to guide the rollout of the AR-powered shopping experience. Developed by Everett Rogers in 1962, this theory explains how, over time, an idea or product gains momentum and spreads through a specific population or social system. The decision of adopting the AR feature was heavily influenced by this theory, recognizing its potential to become a standard in online furniture shopping. The team also applied the Value Proposition Canvas, a tool that ensures a product fits the customers’ needs and wants, making it indispensable for developing the AR feature.

To apply the Diffusion of Innovations Theory, the team:

  • Segmented the market based on consumers' readiness to adopt new technologies, identifying Innovators and Early Adopters as primary targets for the initial rollout.
  • Created targeted marketing campaigns highlighting the relative advantages of the AR feature, its compatibility with current trends, and its simplicity of use.
  • Monitored adoption rates and gathered feedback to refine the feature, encouraging further diffusion among later adopters.

Following this, the Value Proposition Canvas was deployed by:

  • Mapping out customer profiles to understand their jobs, pains, and gains when shopping for furniture online.
  • Aligning the AR feature’s capabilities directly with customer needs, ensuring it alleviates pains (e.g., uncertainty about fit and appearance in the space) and enhances gains (e.g., confidence in purchase decisions).
  • Iteratively testing the feature with a small group of users and adjusting based on their feedback to maximize its value proposition.

The implementation of these frameworks resulted in a successful launch of the AR-powered shopping experience. Early adoption exceeded projections, with Innovators and Early Adopters championing the feature, leading to a viral spread of its usage. Customer feedback was overwhelmingly positive, highlighting the feature's ease of use and its effectiveness in aiding their purchase decisions. Sales metrics indicated a significant reduction in cart abandonment rates and an increase in conversion rates for users who utilized the AR feature.

Learn more about Value Proposition

Launch of Sustainable Furniture Line

For the sustainable furniture line launch, the team employed the Triple Bottom Line (TBL) framework and the Consumer Decision Journey (CDJ) model. The TBL framework, which emphasizes the importance of social, environmental, and financial considerations, was pivotal in developing products that not only appeal to eco-conscious consumers but also contribute positively to the company's profitability and societal impact. The CDJ model, on the other hand, provided insights into how consumers interact with brands and make purchasing decisions, which was crucial for marketing the new line effectively.

The Triple Bottom Line was integrated by:

  • Evaluating potential suppliers based on their environmental and social practices, ensuring that all materials sourced for the furniture line were sustainable and ethically produced.
  • Implementing internal processes to minimize waste and energy use during production, further reinforcing the brand's commitment to sustainability.
  • Developing a transparent reporting system to communicate the environmental and social impact of the furniture line to consumers, building trust and loyalty.

The Consumer Decision Journey model was utilized by:

  • Mapping out the touchpoints where potential customers could learn about the sustainable furniture line, including social media, online advertising, and PR.
  • Creating content that educates consumers on the benefits of sustainable furniture, addressing both emotional and rational aspects of the purchasing decision.
  • Using customer feedback and online behavior data to continuously refine marketing strategies, ensuring that messages were reaching the target audience at the right time in their decision journey.

The strategic application of the TBL and CDJ frameworks led to the successful launch and adoption of the sustainable furniture line. The line was well-received by the market, with significant interest and positive feedback from eco-conscious consumers. Sales figures surpassed initial forecasts, demonstrating the financial viability of sustainable products. Additionally, the company strengthened its brand image as a leader in sustainability within the furniture industry.

Learn more about Consumer Decision Journey

Adoption of Behavioral Economics in Marketing Strategies

The organization embraced the Principles of Nudge Theory and the Jobs to be Done (JTBD) framework to refine its marketing strategies through the lens of behavioral economics. Nudge Theory, popularized by Richard Thaler and Cass Sunstein, highlights how small changes in the way choices are presented can significantly influence consumer behavior. The JTBD framework, meanwhile, focuses on understanding the progress consumers are trying to make in a given circumstance, rather than merely looking at demographic data or consumer preferences.

Nudge Theory was applied through:

  • Redesigning the website layout to subtly guide consumers towards making more sustainable and cost-effective furniture choices.
  • Implementing default options for greener delivery methods and highlighting the most popular products to encourage their selection.
  • Gathering data on the effectiveness of different nudges and continuously refining the approach based on consumer response.

The JTBD framework was utilized by:

  • Conducting in-depth interviews with customers to uncover the underlying reasons behind their furniture purchases.
  • Identifying common 'jobs' that the furniture helped the customers achieve, such as creating a comfortable home office or optimizing small living spaces.
  • Developing targeted marketing campaigns that spoke directly to these 'jobs,' making the brand more relevant and engaging to the consumer.

The integration of Nudge Theory and the JTBD framework into the company's marketing strategies led to a noticeable improvement in customer engagement and loyalty. Marketing campaigns became more effective, resonating deeply with consumers' needs and motivations. This strategic shift contributed to an uptick in repeat purchases and a higher lifetime value among the customer base, demonstrating the power of behavioral economics in enhancing marketing efficacy.

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Key Findings and Results

Here is a summary of the key results of this case study:

  • AR feature adoption exceeded initial projections, significantly reducing cart abandonment rates and increasing conversion rates.
  • Sales of the sustainable furniture line surpassed forecasts, indicating strong market demand and enhancing the brand's sustainability image.
  • Application of Nudge Theory and JTBD framework in marketing strategies improved customer engagement and increased repeat purchase rates.
  • Feedback on the AR shopping experience was overwhelmingly positive, emphasizing its ease of use and effectiveness in aiding purchase decisions.
  • Internal processes for the sustainable furniture line minimized waste and energy use, reinforcing the company's commitment to sustainability.
  • Continuous refinement of marketing strategies based on customer feedback and online behavior data ensured messages reached the target audience effectively.

The implementation of strategic initiatives leveraging insights from behavioral economics has yielded significant positive outcomes for the online furniture retailer. The successful adoption of the AR feature and the launch of the sustainable furniture line not only addressed the initial challenges of cart abandonment and customer loyalty but also positioned the company as a leader in innovation and sustainability within the industry. The effective application of Nudge Theory and the JTBD framework in marketing strategies further enhanced customer engagement and repeat purchases, demonstrating the value of aligning marketing efforts with consumer behavior patterns. However, while these results are commendable, there were areas where performance could have been enhanced. For instance, the reliance on technological advancements such as AR might limit reach to customers less inclined towards new technologies, potentially overlooking a segment of the market. Additionally, the initial focus on Innovators and Early Adopters for the AR feature, though successful, may have delayed broader market penetration and acceptance.

Given the outcomes and insights gained, the recommended next steps include expanding the reach of the AR feature and sustainable furniture line through more inclusive marketing strategies that appeal to a broader audience, including late adopters. Further investment in customer data analytics is advised to deepen understanding of customer needs and refine personalization efforts. Additionally, exploring partnerships with eco-conscious influencers and communities could amplify the sustainable furniture line's market presence. Finally, continuous monitoring and adaptation of the initiatives based on real-time data and feedback will ensure sustained success and agility in responding to market changes.

Source: Customer-Centric Strategy for Online Furniture Retailer in North America, Flevy Management Insights, 2024

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