RESEARCH & INSIGHTS
Applying customer-centric insights for sustainable competitive advantage
The retail industry is growing ever more intense and diverse. Traditional retailers must now compete with alternative formats, such as ultra-low-cost retailers like Aldi; and with specialists, like Whole Foods and Trader Joe’s. Amazon now ships groceries and is opening more distribution centers closer to main population centers. Add dollar stores and big-box players to the mix, and the marketplace of just a decade or two ago seems cast in the amber of mom-and-pop grocers with their wooden placard signs.
In this whitepaper, we reveal why early efforts to shift towards shopper-centricity have been unsuccessful, and present solutions for how these challenges can be overcome. The key questions explored answered include:
• How do you implement a systematic and comprehensive approach to understanding individual shopper needs at detailed levels in an always-on, dynamic manner? and
• How do you incorporate insights into daily decisions to build toward a shopper-centric approach that provides sustainable competitive advantage without risking shorter-term objectives?
To access our recommendations for implementing a shopper-centric approach, download the full whitepaper.
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From one-to-one to peer-to-peer, the relationship between consumer and brand has been tipping over the past few years, and the consumer is the one gaining scale.
I first saw the makings of this transition two years ago, while writing my book “The Loyalty Leap”. In it I shared four forces that were converging to shape the destiny of marketing. They included the rise and fall of the CFO, an evolving scarcity of attention, the burgeoning power of the consumer, and our own abilities and challenges, as marketers, to deliver one-to-one experiences.For some time we marketers have been talking about the customer in ways that now sound almost quaint: put the customer at the center of your purpose; make all decisions from the customer’s point of view. But today, the customer has firmly placed herself at the center of our purpose, thank you very much, and she will gladly remove herself if we do not give her what she expects.
Today, my company LoyaltyOne has provided a timely update to these forces. Let’s see how much has changed in less than 50 months.
The world is at our fingertips: There are no local businesses anymore. Consumers can easily access companies from across the globe, to the point that even micro-businesses can compete with national brands. We coined a term for this in 2013, “Mompopolies.” But regardless of a company’s size, it can only compete if it meets rising expectations about choice, delivery and experience. Consumers today require emotional engagement, and analytics-based decision-making is one of the sharpest tools for putting this at their fingertips – and ours.
The Peer-to-Peer Economy: The rise of online marketplaces such as eBay and Craigslist have fostered a consumer mindset wherein alliances are formed to share and exchange assets such as cars, houses, parking spaces and even money. It isn’t a small movement – Forbes estimated the P2P economy rose 25 percent in 2013, to $3.5 billion. But beyond spending, people also are joining to share their ideas on other economic activities, from research and development to marketing.
Consumer data awareness: When it comes to data, size does not matter. More important than the amount of data collected is how it is collected, how it is used (including storage) and how it is shared. Most consumers –77 percent – do not feel they are receiving any benefit from sharing their personal information, according to a recent LoyaltyOne survey. Yet 63 percent of the same survey respondents said they would give more personal information if companies sent them relevant products and service offers in return. Consumers expect something of value in return for their information – using inaccurate data is worse than using no data at all.
Surprise and delight: Loyalty programs have become so commoditized that the traditional points benefits are seen as entitlements. Aggregators now allow members to openly exchange points between programs, while others let them pool and share – all of which increases redemption rates but also means members interact with the program less. Marketers can distinguish their programs and brands by using the data to create more personalized services and adding relevant benefits that are a surprise, and that are more attractive than what aggregators can offer.
These four trends are converging to create an “economy of one,” where markets will continue to fragment into micro-markets that will shift with needs and trends. These nimble markets will feed consumer expectations for highly personalized experiences, possibly to the point that they demand we pay for their information if we cannot deliver on relevance. The choice is ours to pay or play.
To read the full report, including tips on how to engage in the Economy of One, click here.
CVS Caremark’s recent announcement to stop selling all tobacco products in stores by October 2014 is a bold marketing decision made by a company clearly in pursuit of stronger positioning as a health care provider. It’s a smart branding play, and the type of strong action that other companies can consider if they incorporate customer data into their decision making and weigh the effect on the whole company, not just on marketing.
Undoubtedly, some of the 70 million members of CVS’s ExtraCare loyalty program will choose to take their business elsewhere, but those aren’t CVS’s target customers. All merchandising decisions, as big as the elimination of cigarettes or as small as eliminating a flavor of yogurt, should not be made lightly. They require an analysis of the consequences that the decision will have on your best and next best customers, and an understanding of the potential multiplier effect of cutting a product or line.
We have to assume that CVS was laser sharp in its customer-centric focus and took a careful look at its data before going this route. For example, how did the baskets of smokers and non-smokers differ, both in size and alignment with CVS’s goal of improving customer health? What about frequency; were smokers or non-smokers driving store traffic? Drilling down further, we could imagine CVS examining the margins on the most common complementary products in a smoker’s basket. This would help identify the potential losses from losing smokers as customers, expanding the analysis beyond cigarettes.
CVS says the decision will cost the company as much as $2 billion, but it’s clearly banking on recouping some of these losses (if not all and then some) from new customers, more profitable relationships with hospitals and health insurers, and expanded pharmacy services — which is a growing, competitive field. As the first pharmacy to dump tobacco, CVS will benefit from the first-mover advantage here.
As savvy as this particular change in merchandising will likely end up being for this particular retailer, it’s important for retailers to keep in mind that not all merchandising choices will garner such a large scale reaction, and that negatives must always be weighed against positives. As I point out in my article The Evolution Towards Customer-Centric Merchandising, the most powerful way to stay ahead of the competition is to better satisfy the needs of customers. True customer-centric merchandising completely rethinks the traditional category management process, and lets “best” customer preferences guide category management decisions. For companies considering similarly bold merchandising moves, it remains critical to mitigate the downside of product or category cuts by doing a thorough analysis of how your most loyal customers will react.
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THE LOYALTY LEAP
In his bestselling book, LoyaltyOne President Bryan Pearson draws on more than 20 years of first-hand experience. His expertise in building emotional loyalty in the information age is demonstrated through insightful stories from the trenches of the data-gathering and marketing communications fields.