Rolling Back the Truth on Loyalty

Discussion
Mar 30, 2010

By George Anderson

Consumers, it turns out, can be bought. In fact, the key to achieving a really
loyal customer base is to save them tons of money. Most shoppers will take
saving cold, hard cash over superior customer service practically every day
of the week. Those are the findings of the 2010 Colloquy Retail Loyalty
Index
,
where Walmart came out on top as the retailer to which most shoppers pledged
their current loyalty.

“With the recession acting like a second-stage booster rocket, Walmart has
upended the status quo among its national retail peers by chewing into their
last remaining frontier: customer-professed loyalty, at least for now,” wrote
Kelly Hlavinka, a Colloquy partner and author of the report. “The glimmer
of hope for retailers is that as jobless rates go down and consumer confidence
returns, retailers may very well regain their footing if they continue to
work towards customer-centric solutions and more sustainable strategies rather
than combating Walmart on low prices.”

Colloquy surveyed 3,500 consumers in five regions across the country. Responses
were tracked in four retail categories, including department stores, grocery,
mass merchants and personal care.

In last year’s report, Costco achieved the highest customer loyalty in three
of five regions under mass merchants. The warehouse club chain ranked first
in nine of twenty categories defined by Colloquy.

“Customer service, store environment, and a wide product selection were
the underlying factors for customers’ self-professed loyalty (before) …Two
years later, customers view loyalty differently. We’ve witnessed a profound
change among consumers since the recession hit: low prices have stepped up
to become retail’s strongest loyalty lure, according to consumers. That is
something which was simply not true in 2008,” according to Ms. Hlavinka.

Discussion
Questions: Has the definition of customer loyalty changed in recent years?
Are the factors that put Walmart at the top of the Colloquy Index changing
as we speak?
Do you think Walmart will be at the top of the 2011 list?

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17 Comments on "Rolling Back the Truth on Loyalty"


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Dr. Stephen Needel
Guest
11 years 1 month ago

I think shoppers have always been loyal to stores that deliver the best value, recognizing that value is an individual’s definition, not one imposed by a retailer. Wal-Mart continues to make its grocery variety more mainstream while offering lower prices in clean, well-arranged stores. As long as they offer a positive shopping experience and good prices, there’s no reason why loyalty should decline.

Bob Phibbs
Guest
11 years 1 month ago

“Low prices have stepped up to become retail’s strongest loyalty lure.” Is that really true though? Amazon, other than books, still charges more than many others. Apple is anything but low prices and Starbucks still gets a premium over Dunkin’ Donuts. As Martin Lindstrom told NRF a year ago, what customers say on surveys and what they do are often disconnected. Marketers who continue to embrace this “low price is the future” will find, as customers return to normal shopping, that it is a fickle game few brands can be profitable owning.

Ralph Jacobson
Guest
11 years 1 month ago

This result is no surprise when you look at the US economy in most regions. Sure, there are signs of recovery, however, we do in fact have a new consumer. Loyalty, as opposed to “frequent shopper discounts” can still be driven by a combination of characteristics, including low prices. Perks have always been popular, but it is the value-driven differentiators that build loyalty. There are many discounters now, although WMT built their reputation on price, alone. That’s not a bad thing, but it can be easy to duplicate. Ongoing loyalty will be generated by the store that has a unique combination of factors that are not so easy to copy.

Joel Rubinson
Guest
11 years 1 month ago

A few problems with this. First, having the lowest prices isn’t the only way to build loyalty. Consider Whole Foods. Think about the total market share of the grocery channel vs. Walmart. I would guess that more sales occur on prices that are NOT the lowest in the area. Secondly, perception of low price and having the lowest prices are not the same thing, and perception trumps reality.

I consulted for a medical professional supply distributor who was 1-2 with a key competitor. Our client was rated (in attributes) as having the lowest prices; they “owned” that attribute. The CMO said, “It’s great that professionals think that but it isn’t true. Just compare the catalogs.”

John Boccuzzi, Jr.
Guest
John Boccuzzi, Jr.
11 years 1 month ago
Loyalty is about experience and a low price is part of that equation. No question, it has moved to the top of the experience list, but other factors still count and need to be considered. Especially, as the economy improves, I see quality, freshness, customer service and sourcing as key drivers of loyalty. Consumers may purchase less in 2010 and 2011, but what they buy will be better quality and sourced from a country/region they can trust. Florida’s Natural is a great example of a company taking advantage of the fact that they source all their oranges from the USA. Some retailers I visit promote, for example, not the lowest price on their fish, but that their fish is from waters off the USA or farm raised in the USA (not frozen shrimp from Thailand). Think of your local Italian restaurant (great food) that may be having a tougher time today. Ultimately, they can’t compete with Olive Garden (good food) on price, but by focusing on quality, uniqueness, freshness, customer service and overall experience, the… Read more »
Bill Emerson
Guest
Bill Emerson
11 years 1 month ago

There’s no question that the environment has changed. American consumers are nervous and insecure and, as someone pointed out recently, have slipped down Maslow’s hierarchy of needs. They are now looking for security, which translates into lower prices. Continuing (chronic?) high levels of unemployment fuel this, even among the employed.

That said, it is dangerous to equate value strictly with low prices. Low prices inevitably equal relatively low quality and durability. In Europe, where chronic high unemployment is common, there is a saying – “I’m not rich enough to afford cheap things.”

Retailers that offer a great value, regardless of the price, will do well and will attract a loyal following. Those that focus strictly on lower prices will not only alienate their “quality” customers, but will be caught in the average transaction trap (a 30% reduction in prices requires a 50% increase in transactions to get to the same dollar total).

Max Goldberg
Guest
11 years 1 month ago

Consumers are looking for value and will be loyal to retailers that offer it. The recession has been the primary driver behind this trend. I think that the emotional impact of the recession will continue to have an influence on consumers long after the economic indicators tell us that the recession is over.

Retailers that offer value to consumers will be the ones that see increased sales and market share. Value means different things to many consumers. It may be price, service, convenience as well as other factors. There is room for retailers to be successful and not compete with Walmart.

Justin Time
Guest
11 years 1 month ago

Great A&P was one of the early innovators of customer loyalty card programs.

They have enjoyed success in recent years with their various Bonus Saving Club cards and tying the level of customer purchases to achievement levels such as silver, gold and platinum. Kroger, Giant Eagle and others have similar programs.

Shoppers love to hear their register tapes make that fast printing sound which alerts them to various savings, free perks (milk, eggs, etc.) and other messages at the bottom of their receipts.

These savings messages and freebies keep them hooked as loyal and satisfied customers.

Gene Hoffman
Guest
Gene Hoffman
11 years 1 month ago

People want to buy all things – either those with recognizable quality or those wanted in quantity – at a low price. That gives Wal-Mart the best hand today. And people always want to do more things than ever before and that requires more discretionary money. Those factors combined will continue to favor Wal-Mart in 2011. But if demonstrable prosperity should return in 2012, Wal-Mart’s advantage will be subject to modification.

Doron Levy
Guest
Doron Levy
11 years 1 month ago
I don’t even think I agree with this survey. Customers want service and are putting a value on that. While Walmart does serve the largest buying group by cutting prices to the bone, is that something they can do forever? When will vendors realize they can make more by selling less at other retailers? When will Walmart realize that? They already tried axing skus from their shelves and that didn’t work so that proves to me that it’s not all about price and customers are loyal to brands, service and chains. There are retailers out there that are more expensive but get the job done by providing outstanding customer experiences. That experience includes pricing but it can be dictated by everything that happens before the sale is made. Customers expect 2 things when they walk into a Walmart: Minimal to no customer service and long lines. Because of those 2 sacrifices, they also expect to pay the lowest price (which has been proven to not be the case time and time again). Walmart will probably… Read more »
Mark Burr
Guest
11 years 1 month ago
Consumers never choose Wal-Mart on anything other than price. It’s never been the choice for service, cleanliness, variety, experience or any of the other factors that make up the value equation that may or may not define consumer loyalty. Too often we forget that consumers own loyalty, not retailers. Consumers make loyalty decisions, that is, to continue to shop one store over another when they have a choice, based on perceptions. Wal-Mart has won that game. In the meantime, many retailers ring their hands. Others seek to challenge Wal-Mart’s dominance on the basis of other factors in the equation other than price alone. That has been Costco’s endeavor. Others, such as Target, tiptoe around the edges on price yet fail to focus totally on the value factors that can move them upwards in the battle. While it may be that some retailers believe that they can do both – chip away at the price perception and deliver the other factors – those that are winning, such as Costco, know their mission. Costco’s pricing in many… Read more »
Lee Peterson
Guest
11 years 1 month ago

Agree with most of what’s been said in that, of course, Walmart’s on top in 2010 as America’s mega-obsession with price tripled out of necessity over the last 2 years. That’s not to take away from all the improvements Walmart’s made though, which could definitely have affected their score. But all in all, it is a little depressing that price has that much effect on loyalty. You’d think that great brands like Starbucks, Apple, Whole Foods and Volvo, that have focused their loyalty aims via quality, would sooner or later start to top the list. We can only hope, as that would also be a sign of better things for all of us.

I also have to wonder what this list looked like in 2006 and 2007. Would’ve been an interesting comparison.

Peter Fader
Guest
11 years 1 month ago

This is totally backwards: loyalty is what arises when you charge MORE MONEY for a product and customers still choose to buy it. Ditto for other barriers (e.g., limited distribution, poor service).

Walmart surely has a whole bunch of truly loyal customers who would stick with them even if prices went way up. But until someone runs that experiment (or does a careful statistical analysis to sort out these underlying effects), their observed repeat-purchase numbers will way overstate their true loyalty.

Mark Price
Guest
Mark Price
11 years 1 month ago

It is clear that in the past year, consumers have been frightened into new behavior driven by price sensitivity. As to whether that behavior will stick, it is anyone’s guess.

Loyalty has always been a combination of a behavior called retention and an attitude called preference. What drives those two differs by consumer.

But, as one writer has already written, “value” is the crux of it. Value is defined as price + benefit + experience. Companies that focus on benefits and experience are not losing all their customers to Wal-Mart — they are losing customers that valued the price part of the equation more than the other two. That change is inevitable.

The customers who are retained tend to be more valuable and become assets that can refer like customers to the business. I believe the survey that was recently released to be biased based on the economy at the time.

Next year’s results should bear that out.

Bill Hanifin
Guest
11 years 1 month ago
I embrace survey results with the same skepticism of cable television news. Often the news story is told in such a way as to drive a certain result and we all know that numbers can be manipulated to paint a picture suitable to the artist. I don’t doubt that the underlying survey here was diligently prepared, but I do challenge the premise and question [the make-up of] participants. In focus groups, the answer for years to “what is your preferred reward?” has been “CASH.” Consumer behavior denies the veracity of the response. In a similar way, consumers are in a frame of mind to be skeptical about financial services providers, card issuers, and rewards program laden with benefits with which they cannot immediately identify. The response is to claim to be “smart” consumers and name PRICE as the number one driver of their purchase behavior. I believe there can only be one low price leader in a category. If Walmart remains “it,” as the survey indicates, I would run the other direction as a retailer,… Read more »
Ed Dennis
Guest
Ed Dennis
11 years 1 month ago

The shocker here is that it doesn’t require that a consumer have a “loyalty card” to shop at Wal-Mart! Shouldn’t that say something to the rest of the retail industry? I get so sick of retailers stealing from their customers because they don’t have a “loyalty” card in hand. So many retailers in my area require these cards be scanned to receive any discount that I literally have a separate key ring to handle all the tags. Now Costco is a membership club. That means that people pay to shop there. Giving Costco high marks is OK, but isn’t that a little like publicly rating your wife’s cooking?

Tony Orlando
Guest
11 years 1 month ago

I just finished reading a market share survey of supermarket sales in major cities. In all but one, WalMart Supercenters had the #1 share in every market by a wide margin!!!

What else needs to be said.

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