Photo: RetailWire
Do retailers need to buy the loyalty of consumers?
Research recently published by the International Council of Shopping Centers finds that price and value are the biggest factors driving consumer loyalty for retailers and brands today.
Ninety-two percent of respondents said price and value were the primary reason they continued to support retailers and brands. Product quality (79 percent) and variety/selection (71 percent) trailed well behind as loyalty drivers.
A recently published Wall Street Journal article posits that the retailers showing the biggest sales growth in the second quarter all share one thing in common — low prices.
Retailers posting gains include Amazon.com, Old Navy, Ross Stores, Target, TJX and Walmart. The article points out that two of the retailers — Target and Walmart — were public about the “investments in price” each has made with the goal of driving traffic, sales and gains in market share.
Other retailers not known for low prices, such as Dick’s Sporting Goods, Foot Locker and Macy’s, did not fare as well, according to the Journal’s reporting.
Ed Stack, CEO of Dick’s, recently told analysts on the chain’s second quarter earnings call that its consumer research found that customers see its prices as “not competitive” in the marketplace. Dick’s posted a 0.1 percent gain in same-store sales in the most recent quarter, well below the two to three percent gain its management was expecting.
Macy’s, which has seen sales decline for 10 straight quarters, has recently begun dropping prices on makeup and cosmetics in its stores to gain back former customers and attract new shoppers. The chain has also begun setting up Backstage shops, its off-price concept, in its full-price department stores to attract budget conscious consumers.
Jeff Gennette, CEO of Macy’s, Inc., has set a goal of increasing private brand sales to 40 percent of the company’s total, up from 29 percent. Doing so would, presumably, give Macy’s lower priced alternatives to national brands while helping to protect margins.
- Low Price Is the Only Winner in Retail – The Wall Street Journal
- Low Prices Raise Customer Loyalty – International Council of Shopping Centers/Business Wire
- Will more promos fix Dick’s Sporting Goods pricing challenge? – RetailWire
- Will dropping prices on cosmetics drive traffic to department stores? – RetailWire
Discussion Questions
DISCUSSION QUESTIONS: Have price and value become the primary reasons why most consumers continue to support certain retailers and brands? Do retailers that emphasize service and other elements of their businesses need to sharpen their pricing practices in the current environment?
Poll
BrainTrust
Gib Bassett
Director, Solutions Marketing with Alteryx
Tony Orlando
Owner, Tony O's Supermarket and Catering
Most retailers’ so-called loyalty programs are little more than extra discounts layered on top of existing sale prices. It’s a transactional approach to the business, if you believe that true loyalty is developed by moving customers from “satisfied” to “committed.” And it’s the easy way out.
A value-oriented retailer will argue that deeper discounts are part of its brand equity — which may be true — but this is not the same thing as building an emotional connection through great content, execution and service. If anybody thinks that Amazon has built brand loyalty (among Prime members and others) strictly on the basis of competitive prices, they are missing the point of everything else Amazon is trying to do.
The survey lumps price and value together, but they are not the same. Price is self explanatory. Value on the other hand is very subjective. Amazon does not always have the lowest price, but a “good price” (where you can compare multiple vendor prices) combined with ease of shopping and delivery create good value. Value can be convenience not just price. But in an era of almost transparent pricing, if a shopper wants the lowest price they can surely find it.
Price and value have always been important, however in a world of virtually complete price transparency, consumers will shop stores with the lowest prices to get the same/similar brands. This happens, in part, because these consumers don’t value the service or store experience retailers offer and so price wins. Ultimately it comes down to differentiation. Retailers cannot simply emphasize service, they need to actually deliver it. Many retailers talk a good service game, but when you visit their stores they have no staff to serve customers. What’s the point? Successfully competing in retailing today is not just about price, but if retailers don’t offer anything different or special they will continue to struggle.
Different strokes for different folks. For some consumers, perceived value is tops and that doesn’t mean lowest prices. For some others, lowest prices are first, last and always. While for a select few, quality and prestige at any price are the drivers. Retailers that understand to whom they want to cater and execute to that market will succeed.
The operative word is “earn” … not buy. Customers support certain retailers because retailers EARN their business by CREATING value.
Price has always been a key customer consideration and always will be. But in the current marketplace there is no differentiation that creates customer loyalty when following the death spiral of low price to very low margins.
A key strategy for retailers without the size and resources of Amazon and Walmart needs to focus on how to create and differentiate value. Ace Hardware products are sold everywhere on the internet, often at lower prices. Ace experienced record revenue and profits in 2016 because they have invested in differentiating customer value through: trained staff, in-store experience and personalized service before, during and after the sale.
The genius of retailing today is not price matching to drive traffic, but earning relationships with customers that value your differentiated, personalized experience.
Price is always important but so are value and service. If everyone has the same item at the same price, the company that offers a more appealing customer experience is going to win.
Looking at Dick’s, it’s true they only saw a 1 percent increase in comp store sales, but they did much better than their competitors. Hibbett saw a decrease of 11.7 percent in comp stores sales. So based on that, Dick’s did very well.
Macy’s was once upon a time a department store. I’m not sure what they are today. One day they’re Kohl’s the next day they’re someone else. Too many retailers are chasing one another on price alone, and they cannot all win. The best thing is to find where you can be competitive. Price is, of course, important but so are the reasons that entice customers to shop you and not someone else. That starts with service and it’s all about creating an outstanding customer experience.
“Do retailers need to buy the loyalty of consumers?”
Oh, I don’t know. Can one buy love? Only time I’ve seen that work was in “Pretty Woman.”
In the same way that faith is irrelevant in the absence of risk, “loyalty” is irrelevant in the absence of sacrifice.
It is a fact that consumers become more and more price sensitive and can easily compare prices online. However pricing needs to be consistent with the retailer positioning and communicate a fair value proposition. It’s not necessarily the cheapest or EDLP, but rather dynamic pricing and personalized offers based on shopper DNA. Better in-store customer service, technology to support and improve sales reps’ capabilities and a seamless shopper journey are all important elements to create loyalty.
OK, we are back to “The Basics of Running a Business 101.” Price in spite of what others may sale is the ultimate driver for customers to come into your stores, and has been for many, many years. The good old days are gone, and with e-commerce going after brick-and-mortar business, and going after each other, you have the perfect storm for consumers winning. Unless you are Apple or Amazon, you better start sharpening up your price points.
Yes quality and service still matter, but consumers today also want the lowest price. For retailers, their margins will continue to shrink because I don’t know anyone who wants to pay regular retail price, whatever that is. I spend a lot of my day finding door buster deals and it brings customers in. Then I can try to upsell them on my homemade deli and custom meats. All of us need a scorching front page or daily deal to get consumers interested in checking out our store or website. That is simply how it will be until I die and beyond.
As we have said, “retail ain’t for sissies.”
The way this trillion-dollar question is posed is important to its being answered. My contributions to the answer are: a.) Price adjustment is the easily doable approach to being comparable. But the only benefit is to be a contestant in the race to the bottom. b.) Life is not a Price is Right game show for most people where purchase at only the lowest price happens. People buy based on the perception of value. c.) Value goes beyond product and price to include convenience and fun of sourcing, product information and confidence in the provider.
I appreciate that entire business strategies are based on the answer to this question, but well-executed tactics always carry the day. The design of the customer experience and the fulfillment of its possibility win every time.
While price is a key driver, they aren’t buying customers. In the lineup of retailers cited above, Walmart and Ross have price as their “why” as a retailer. Walmart has always had the “every day low price” and Ross sells high-end labels for a massive discount. TJX is after the treasure hunt (price is implicated) and Target has always followed Walmart on price.
Noting that price is a commonality between these players is like noting that consumers shop at all these locations. To be competitive, you have to have a competitive price. That’s the basics of retailing. What really makes these banners compelling is that they’re all winning because they know their “why.” In other words, it’s clear to a consumer why they would want to shop in these banners (online or brick-and-mortar).
Dick’s Sporting Goods, Foot Locker and Macy’s share the issue of not knowing who they are, or simply not creating an experience that makes consumers want to come back. “Pricing isn’t competitive” is equivalent to “the consumer doesn’t see value” and won’t come back. Retailers need a “why” because otherwise consumers will ask “why?” and not come back.
Unfortunately I think this is not such a simple question. Price and value, plus convenience, selection and overall experience must all be blended optimally to achieve positive outcomes with consumers. Low-price leaders are doing well but you might be able to group them as 1.) companies that embrace other elements of the mix besides price (like Walmart I’d argue) and 2.) those that are simply discounting in an attempt to keep customers.
The retail success equation for high growth retailers of the future is complex but that’s precisely what leaders are using analytics to address.
This isn’t new news. Consumers have always placed an emphasis on price and value. The difference today is that it is much easier to compare price across a range of retailers.
Most retailers transitioned from the service model to the self-service model over time. It really doesn’t make a lot of difference if it was because consumers wanted lower prices and, therefore, retailers had to cut labor or simply because that was what consumers wanted. There is no going back for most retailers to the days when stores had enough staff to truly provide individualized customer service.
When a consumer says price and value, they are not just saying lower prices. They are saying they want the price to reflect the value they get from buying the brand. If consumers are telling a retailer like Dick’s that their prices are too high, it means that they are not seeing value in the shopping experience. Just lowering prices does not fix the underlying issue.
Retailers today need to take a hard look at what they are providing to consumers. Is it service? Is it price? Is it the total package? If their competitors can say the same thing about their business then they are certainly not providing any value. Just a me-too — and then it is a price game.
Price and value are still primary considerations, since many Americans have not regained their economic footing after the great recession. Even with low unemployment, wages have not returned to pre-2008 levels, so consumers look for value. At the same time e-commerce has boomed, making price comparisons easier than ever. Not every retailer can compete on price. Those who can’t should focus on shopping experience and customer service. Amazon is not just a low price leader. It also offers excellent customer service.
There is a clear difference between pricing and the perceived value for the services customers receive. The retailers, such as CVS and others, which have done a very effective job of integrating their mobile loyalty programs into a transactional, point-collecting platform for discounts have the right mix in play. This is a key component but will only get you so far. Convenience, curated assortments and, of course, the customer experience factor have to be considered.
True customer loyalty is not simply achieved by pricing, discounts or seamless shopping experience, but rather a tangible, emotional and multi-sensory experience with the brand that is not easily achieved via a digital platform.
The customer’s perception is critical and retailers need to be cognizant of that.
Value = price + quality. The components of quality are product, place and people. Lots of variability.
In a time of austerity, price takes on a higher priority based upon need and category. For a generation entering into the key spending life stages, price is very important. Think of those who came of age during the Great Depression or recent Great Recession. Their “value proposition” varies from Boomers.
Retailers need to clearly identify their target audience and understand the role of price in the purchase decision and factor that into how they build that into the brand’s value proposition.
Retail brand experience is the value proposition is the selling model, which is the “five Ps.” Yep it’s complicated and many get confused. And it is why we like to say, “retail ain’t for sissies.”
Brand loyalty and price do not define each other. Shoppers are fickle creatures, driven by a complex array of emotions validated by some form of logic. While price is always a key metric, low price does not define a loyal customer. Shoppers are inherently price conscience. Retailers need to identify, define AND articulate their value to their target audience. They need to be able to tell their brand story in an attempt to connect emotionally to their shopper. Loyalty is earned by, and through, an emotional bond not through a price tag.
Retailers that create loyalty based on price will lose the customer when another retailer has a lower price. The customer is loyal to price, not a store. There is an entire consumer population that will only be loyal to price, so if the retailer can maintain margins and keep prices low they will win them over. Then there are customers that buy because of convenience, service, etc., and as long as there is a competitive price (not necessarily the lowest), the retailer wins customer loyalty. Nobody complains that Nordstrom is overpriced, but they never say Nordstrom is the lowest price. The value they deliver trumps price. Retailers have to decide what lane they are in.
Warren Buffet once said, “price is what you pay, value is what you get.” I believe that should be gospel. But most retailers equate the two, as do most consumers IMO. For example a “value meal” at 99 cents is NOT a good “value” because it’s bad for you. It’s just cheap. A healthy meal at six times that cost IS a good value because you got something that’s better for you and may help you live longer. What’s more valuable than that?
So I think that there should be a bifurcation of these results. Whole Foods, to me, is a good value, because what I get is fantastic. Walmart and Amazon are the kings of price and so I may shop there if i wish to spend less. Good prices. But they are totally different and should be shopped and researched as such.
It seems to me that what we’re really talking about here is price. And if ICSC did an entire study to see what matters most to U.S. consumers and got “price is key” as a result, that is clearly the biggest DUH I have seen in a long, long time. Value is something that should have been more clearly defined as retailers need to focus a lot more on that rather just price — which is a losing game to the likes of Amazon.
“Sharpening your pencil” will just not be enough for the wiser generations to come. Getting something good will have to come into play.
Price, quality and service are the three big drivers in my opinion. With price being the main door opener in most cases. Once in the store service and quality will bring the customers back, but only as long as the prices are still competitive. It is not like it used to be when loyalty truly meant loyalty on both the part of the customer and the business.
It is much too simple to link business increases to so-called investments in price, because retailer brands mean different things to different people. As does the term “value.” What is valuable to me is not necessarily valuable to the next person. Consumer loyalty and advocacy are driven by continually exceeding expectations at each and every moment of truth.
As a retailer if you are buying loyalty through low price and rewards, you don’t have loyalty. Brand loyalty is where even if you do not offer the lowest price, the customer will pick your brand because you deliver the best value. Apple offers a key demonstration of great loyalty even though it is not a low price leader in the category. As retailers try to “buy loyalty” through rewards, all they are doing is driving short-term sales gain which evaporate when someone undercuts them.
It’s definitely a shoppers market these days. Price sells, however value and that last, great differentiator, “service” keep them comin’ back. The other piece that far too many miss is driving brand value. You need to generate those compelling reasons to shop your stores as opposed to the competitors. Not easily done, but very effective for those leaders in the industry.
A low price strategy is the easy way to impact the value equation when the focus is on the denominator (i.e., the price) versus the numerator, which is quality. The quality of the experience, and the goods or services provided, are what drive the value equation relative to price. Thus if you can’t deliver a better experience you have no choice but to compete on price.
As is correctly stated by Dick and others, price is the easy way out and it’s a increasingly an unforced error to attribute Amazon’s continuing success to price. Amazon’s success comes from its commitment — and loyalty — to customers as manifested by its ability to deliver a superior customer experience. And this success is inversely proportional to other merchants not employing this strategy.
Thus the issue of price as the/a dominant driver of loyalty is both cause and effect. The cause is the inability of retailers to lead, differentiate and deliver value and the effect is that price is pervasive as the competitive frontier for retailers. Sad! And worse, unprofitable!
But it’s finally changing for the relatively few who have the capacity and especially the leadership to take the more difficult path of investing in customers rather than lazily lowering prices, margins and profits.
The interesting thing about the WSJ article is that none of the retailers quoted focus exclusively on price. They are multi-dimensional and combine good prices with a host of other benefits, which creates a perception of value. That’s what ultimately drives loyalty.
Conversely, people did not stop shopping at Macy’s or Sears because they were high priced; they stopped shopping there because both chains failed to add value and simply became less relevant.
Most consumers know the retailers better than the retailers know their customers. “The Consumer Conversation,” an eConsultancy Report, states that “81% of companies say they have or are close to having a holistic view of their customers.” But the report also finds that “37% of consumers say their favorite retailer understands them.”
Retailers need to change their mindset from “buying” loyalty to “earning” loyalty with an enhanced customer experience and traditional customer service. In today’s environment, an important aspect of customer experience, which ultimately includes customer service, is for retailers to truly understand their customers’ needs and desires. By harnessing data and analytics to understand the customer, retailers are able to provide unique offers and product to the right customers and the right time.
Price and value are certainly big factors in driving sales, but those things by themselves create loyalty only until the next guy comes along with a better price. What’s most important is understanding the connection consumers have with retailers, and what factors – beyond the obvious price factor – are driving consumers’ behavior. To the point of the question, yes, loyalty can be bought – but often the price for loyalty is not just in low prices. It’s in understanding those emotional drivers and filling those emotional needs.
Studies like these tend to over simplify the problem. Price and value will always be important to shoppers, but they are not the same thing. Competing on price alone is only a winning formula if you can guarantee to always be the lowest price. Otherwise someone else will eventually under price you. That’s not bringing value. Value is a combination of price, convenience, service, experience, and relevance. That last piece — relevance — is the one that often escapes many retailers.
When we ask why are brands like Macy’s or Dick’s losing sales, it’s not because they are high priced. Macy’s for one always has a sale of some kind and consumers know that. The problem for these retailers is that they’ve lost their relevance to shoppers. Interestingly in Macy’s case, anyone that I ask if they’ve shopped at the Herald Square kingship store inevitably cites a great experience — and a purchase. The problem for Macy’s is that they haven’t replicated what makes that experience great in their other stores. Part of the reason for this is that they don’t know what they represent to the customer any more outside of that flagship experience. Many other retailers suffer from not knowing “why” they should matter to their shopper. In other words — be relevant!
Price can certainly be used to lure a shopper into the store but other factors impact their conversion into a sale once they are in the store. What about service? Many retail brands will tout their “great customer service” but when you ask shoppers you won’t hear great stories about the experience. What retailers believe their service to be is often not what their execution shows. Why is Amazon enjoying so much loyalty? Because of execution. Think about what products or service Amazon has shut down — it’s the ones that didn’t execute well. And they’re not afraid to shut down something that doesn’t work. Everything is an iterative experiment to Amazon. We’re seeing many retailers define what they think will be a great experience, but when they implement it, the execution fails, and they are often left scratching their heads why. Execution is what leads to a great experience, great service, relevance, and ultimately value that brings customer loyalty!
Price and value have become the primary reason consumers support retailers and brand. When the value exceeds the price, shoppers are more likely to turn into loyal customers. The internet has made it easy for customers to find the lowest prices, but that doesn’t automatically lead to a sale. Other factors that go into consideration can include shipping cost, loyalty point/rewards, convenience, and any past experience with the retailer. While it is extremely important for retailers and brands to monitor and adjust price periodically to stay competitive, it is not the only factor.
According to one study 86% of shoppers are willing to pay more for a better experience even while most shoppers claim price is top of mind. The truth may be somewhere in the murky middle.
I agree that price and value are important however the retailer doesn’t always understand the true price they are representing in the market because they can’t keep up with the competitive onslaught of data. Price intelligence at a systemic level is rare, rather there is price matching, reactionary pricing, not well understood discounting going on. Surveys rarely match scientific benchmarks, so there is a variance between perception and reality.
Customer experience is also a hazy area to define well. The concept of dealing with a store associate who is really trying to help you is equally rare. Loyalty can be gained through empathy based service rather than up-selling based tactics. I am not sure how many training programs emphasize this vital component of loyalty.