New Study Points to Sales Opportunities Within Emerging Demographic Groups

By Debbie Hauss

In tough economic times, everyone wants a good deal, particularly in the U.S. In a recent survey, GfK Custom Research found that 76% of Americans strongly/somewhat agree that “I feel really satisfied with myself, even excited, when I get a really good deal.” That number is 10 points higher than the total number globally for other countries. The GfK August 2008 report includes input from more than 1,000 U.S. shoppers over age 18 and more than 500 Hispanic consumers to determine the best ways to reach specific populations.

A number of factors contribute to Americans’ desire for discounts and deals. In 2008, first and foremost is the state of the economy, and recent events on Wall Street are driving consumer confidence even lower. Couple that with the fact that consumer incomes are not keeping pace with inflation. GfK reports that incomes increased 0.1% in June compared to a 0.8% rise in inflation.

Directly related to the economy are gas prices, which reached a peak in July and are inching up again following the recent hurricanes. In April 2008, 82% of consumers said that gas prices were hurting their households a lot or somewhat. In August that number dropped slightly to 78%. Prices dropped slightly during that time, and “Over time people do adapt,” notes Diane Crispell, Executive Editor at GfK Roper Consulting.

As people adapt to their economic situation, they adjust their spending and shopping habits. The study reports that 81% of adults agree strongly or somewhat that they now “think more about what I buy compared to a year ago.”

Reach out to consumers where they live and shop
To be successful retailers must offer the right deal to the right customers at the right venue. In total, over-18 shoppers are drifting towards discount stores like Target and Wal-mart and away from upscale department stores like Nordstrom and Macy’s, GfK reports. As many as 27% of shoppers are spending more at discount stores versus 4% at upscale department stores.

Convenience also is key. GfK reports that 17% of consumers are spending more shopping dollars at locally owned, independent stores and 16% are frequenting warehouse stores more often.

Breaking down the survey results into specific populations, GfK reports the following:
Middle-Aged and Older Consumers are seeking the convenience of neighborhood stores. 81% of consumers over the age of 35 are shopping close to home and 84% of indicate they like to support businesses in the community.

Younger Adults are the biggest group of online shoppers. Within the 18- to 34-year-old age group, 87% agree strongly or somewhat that they shop online for ease of price comparison and low-pressure sales; and 96% say they find a better variety of products online. These results are 6-7% higher than the total population. Younger consumers also are looking for creative ways to save. Among the 18- to 34-year-olds, 61% bought a used item instead of brand-new (versus 51% for the total population); and 57% have rented an item rather than buy it (versus 43% for the total population).

Affluent shoppers are also strong online consumers. Adults with household incomes of more than $100,000 shop online to compare prices (92% versus 84% for total population) and save money (66% versus 59% for total population). In addition, affluent consumers may be contributing to increasing coupon redemption. Into 2007, coupon redemption had been declining for 16 continuous years. But in 2007 Americans reversed that trend and redeemed 2.6 billion manufacturers’ coupons. Among affluent adults, 33% printed an online or e-mailed coupon versus 25% for the total population; and 21% used online coupons for Internet purchases versus 17 % for the total population.

Hispanic consumers look for a positive social experience. A higher percentage of Hispanic adults consider shopping a social, family endeavor, versus the total population. 87% strongly/somewhat agree that “It’s fun to browse in stores to see what is new and different.” In addition, 84% consider shopping a good family get-together; and 76% go to stores as a good opportunity to “get out of the house.” Also, Hispanics are the least likely group to look for different ways to save on purchases.

Additional findings
While “Made in the USA” is still a draw for 80% of shoppers, it is not as powerful as it used to be, and it means the least to Hispanics and young shoppers. Among Hispanics, 68% say “I don’t really care where a product comes from as long as it serves my needs” and 70% of consumers aged 18-24 share this sentiment. These two groups are the only consumers that have a higher percentage of shoppers that don’t care where it’s made versus those who say they would pay more for products produced in the USA.

Word of Mouth is an increasingly powerful way to market products. GfK reports that 79% of consumers ask a friend of family member for product recommendations, up from 70 % in 2006; and 51 % go online to read product reviews, up from 46 % in 2006.

Conclusions
Discount stores, online shopping and convenience local establishments are the bright spots in the retail marketplace right now, as consumers struggle with challenging economic times.

Retailers who focus on catering to their specific shopper base will be the winners, even if that means “that you will not necessarily lose as much ground as you might have otherwise,” notes Crispell.

In addition, much of U.S. spending continues to be discretionary, says Crispell, “not truly needs based” so retailers can grab those spending dollars with great deals and attractive and convenient shopping experiences.

Revolution or solution? InfoSys Bows Shopping 360 For In-store Usage

By John Gaffney, Senior Editor

It might be the long sought solution for click tracking in stores. Or it might be another customer tracking technology that takes a long time for retailers to understand and adopt. Whatever it turns out to be there are certainly some dramatic possibilities in InfoSys new Shopping 360 technology. As positioned by InfoSys executives, Shopping 360 is a combination of auto-ID technologies that allow retailers to track shoppers as they travel through a store and even as they browse shelves and make purchases. This tracking is enabled by an in-store network of wireless sensor-based applications. “It enables real-time collaboration between people (shoppers), places (retailers) and products (CPG companies) at the point of purchase,” says InfoSys.

The product is patent-protected and secretive at this time. However, it is being pitched by the company as a technology that is affordable and a generator of information that will lead to more customer loyalty and even more total spend. The jury is still out on whether Shopping 360 will displace RFID technology. The company says it monitors shelf activity without “expensive RFID tags.” The cost is expected to be low. In fact it is “without capital investment” according to the company’s collateral material.

It also has a mobile phone component. “A software application gets downloaded onto a shopper’s cellular phone when they opt-in to use the Shopper Concierge service (the application in Shopping 360 that serves shopping lists and targeted offers). The software application communicates with the ShoppingTrip360 platform over the wireless Internet,” says an InfoSys spokesperson. “This permission-based opt-in network ensures that the shopper controls his own privacy and ability to interact with the store network. It also ensures that CPG companies for the first time in history have the ability to interact with the shopper at the moment-of-truth in a location-aware and context-aware environment. The shopper can download recipes, shopping lists, and receive advertisements, coupons, relevant messaging. The shopper can finally actively engage with this network just like she does today when she logs onto the internet.”

The technology has been in beta testing and the company isn’t saying what retailers or CPG firms have been involved. But if it’s a wireless technology that enables the amount of in-store tracking and information collection that it promises, many retail analysts are hyped.

“Our firm often talks about the notion of an in-store "cookie" and what it may one day be,” says Laura Davis Taylor, CEO of Retail Media Consulting. “Many times, we've talked about enabling the cell phone to serve this role, as it seems logical that a shopper might one day be able to "identify" their presence with their phone for opt-in shopper tracking--if they are motivated to do so. Reviewing the Infosys technology was very exciting for us because it appears to embrace all of the above. It links shopper data, shopper behavior, inventory, store operations and more to provide an "ecosystem" of sorts that can generate some of the powerful insights e-commerce websites do--and isn't that the model we should be going for in-store? Most importantly, it's permission-based, ensuring that it will be accepted while allowing the retailers to learn how to better serve their shopper. Kudos to them.”

Among the technologies promised in the Shopping 360 network are “store heat maps” which track cart paths; “smart shelves,” which track inventory and shelf browsing activities; and “smart visual merchandising” which enables couponing, more information on products and recommendations on new products.

What will it do for retailers and CPG firms? Retailers can monitor the total number of shoppers and their shopping trip paths, allowing them to gauge in-store energy demand based on occupancy, or open new checkout counters when lines start forming. CPG companies get granular visibility on the efficiency of their promotional spending, through an analysis of shoppers who interact with promotional displays, or through monitoring shopper traffic to a particular area as well as subsequent purchases.

Limiting Problem Shopping Experiences Especially Key In Current Retail Environment

By John Gaffney, Senior Analyst

Retailers that understand the importance of negative shopping experiences and limit their occurrence have a better chance to optimize the holiday selling season. That’s the key takeaway from Measuring & Improving Customer Experience, a session at the Customer Engagement Conference, which took place earlier this week.

“Retailers need to get their value equation right this holidays season, that’s for sure,” said Stephen Hoch, Director of The Baker Retail Initiative at The Wharton School of Business, and a presenter during the session. “Pricing, discounting, and product value are all important but we cannot lose sight of the fact that customers need to feel welcome in the store and they need to be serviced. In the long-term that service will be just as important as anything else.”

Paula Courtney, President of The Verde Group, joined Hoch in presenting the results of research they conducted on the impact of customer dissatisfaction. According to that research problem shopping experiences are frequent and can have a huge impact on customers. More than half of all shoppers experience at least one problem in any given shopping visit. And when problems occur they come in bunches. A shopper who encounters a problem while shopping will, on average, experience 3.8 problems in that shopping trip. Six percent of the survey respondents said they encountered more than 10 problems in a shopping trip.

The issue is more than an inconvenience. In fact Hoch and Courtney believe it can hit retailer’s right in the pocketbook during the fourth quarter. The biggest impact is in loyalty. 82 percent of the problem customers said they “definitely will not” purchase from the retailer again, and 79 percent would not recommend the retailer to others. The social networking effect from “problem” experiences is potentially huge. Dissatisfied customers told 1.7 people on the average about their experience. But the amount of people they tell via social networks and product review sites is not calculated in the report.

The heart of the problem, and the solution, is the sales associate. Of the top ten most bothersome problems for shoppers, nine are sales associate issues, according to the research. “They annoy the most shoppers, lose the most business and drive the most negative word-of-mouth,” says Courtney. “Loyalty risk is greatest when shoppers need but cannot find a Sales Associate. Inattentiveness to long check-out lines and being ignored by a Sales Associate also account for significant loyalty loss. Being ignored by employees is the single largest driver of negative word-of-mouth.”

The customer value loss and market reputation damage from problem shopping experiences can be overcome, however. Courtney calls the antidote a “wow” experience in which the customer is effectively engaged by an informed, authentic sales associate. At least 50% of shoppers have experienced a “WOW” shopping experience at some point in their shopping history, according to the research. “WOW” shopping experiences are rare, and generate over 4 times more word-of-mouth than problem experiences.

“These are key experiences for a retailer to provide but they can be simple experiences,” she said. “Sometimes it’s just mitigating problems before they occur. Sometimes its resolving a problem to complete satisfaction of the customer.”

The Measuring & Improving Customer Experience session, as well as all web seminars from the Customer Engagement Conference, will be available online for to all registrants for 90 days.

Analysts Suggest Subtle Shifts In Customer Segmentation Strategies To Provide Shelter From The Economic Storm

by John Gaffney, Senior Editor

Retailers that have identified and analyzed their customer base over the past year may find a new use for that work now that the economy is more unsettled. The knowledge gained by putting customers into actionable segments may provide a hedge against overreactive decisions.

“There are many various levels of customer segmentation, and sometimes it mystifies me as to how companies decide on them,” says Ron Shevlin, senior analyst at the Aite Group. “But at this point it’s not the time to abandon that strategy if it’s in place. Smart companies will use that knowledge to continue to serve the customers that are most likely to respond to them.”

Updating customer value, and continuing to hone in on the needs and values that will motivate customer segments has always been a foundation of retail CRM. As the economy continues to show lower growth rates, a strong argument could be made that some customer segments are changing. Are the most frequent customers maintaining an income level that allows them to be frequent? Are the “luxury” shoppers still in first class? Knowing the answers is essential. Customer strategy experts suggest the following rules for re-evaluating and acting on customer segments.

1. Clearly define the rules of engagement. Each customer segment should have a protocol for frequency and relevancy of communication. For example, if a fashion retailer defined one of its segments as “frequent discount shoppers” it probably alerted that segment via email and direct mail as to sales and events. Just because that retailer needs to make up some ground in the fourth quarter doesn’t mean that it should drop prices more frequently and then bombard the discount segment with emails. The same practice holds true for every other customer segment regardless of whether it is defined by attitude, behavior, revenue, or demographics. “There is a temptation for segment-oriented marketers to return to the practice of carpet bombing,” says Nick Godfrey partner at Customer Portfolios. “It’s not needed. You must decide before the fourth quarter gets very busy exactly how far you’re willing to go to change pricing, marketing messaging, and tactics. To go beyond those agreed rules of engagement compromises your brand and customer relationships.”

2. Protect the Brand: The brand, as Godfrey points out, is simply an aggregation of customers. Customer value is best increased by acting with the knowledge of sound segment valuation and analysis. The highest value customer segment (i.e. the customers who spend the most, shop the most frequently and recommend your company) must be shown the best practices a retailer has to offer. The best customer will still be the best customer after the holiday season is over, says Godfrey. Although the economy may have taken some segment metrics down (such as purchase frequency) they have not taken them out. “The brand does not evaporate on December 24th,” he says. “The brand is made up of customers. Their motivations may change but they are still in a lifecycle with your company that should be followed.”

3. Understand segment changes: It is quite possible, and even probable, that the monetary value of key customer segments have changed. First, the credit, housing, and oil crises have very simply taken retail spending down. Second, inflation has hit many retail verticals, so the amount of money key segments will spend will be affected by the value exchange. Example: The “convenience oriented housewife” may still spend 90 percent of her grocery budget at your store. But what she can actually purchase for the same amount of revenue has dropped.

Shevlin maintains that retailers do not execute against their segment work effectively. Therefore, when segment value changes they tend to overreact. They tend to reinvent campaigns based on segment value changes, and even reinvent their entire segment profile. In most cases it is not necessary.

“You don’t have to move from student body right to student body left just because of the latest and greatest customer survey,” he says. “The smart market researcher knows that customer research needs to be analyzed. Do changes mean that actual spending plans are changing? Are they simple reflections of changing attitudes or are they hard and fast economic changes?”

Real-time customer data updates can be critical. It’s hard to find the percentage of retailers that currently implement real time reports. A recent Aberdeen report put the number at 20 percent, but that was based on retailers currently implementing loyalty programs. Retailers that understand the importance of customer analysis will most likely plan for better real-time customer data, and update their segment strategy accordingly.

“The last place I want to panic is where I can be seen by my most valuable customers,” says Godfrey. “The evidence of a downturn is still debatable. You can make it as bad as you want to. Don’t risk panic on your valuable customer segments.”

New Study Shows Retail Loyalty Programs Lag In Customer Metrics; Progress In Multichannel Approach

By John Gaffney, Senior Editor

Retail loyalty programs are quickly separating into the haves and the have-nots.

That’s the upshot from a recent report from Retail TouchPoints and The Aberdeen Group, titled “Responsive Customer Loyalty: Creating Customer Commitment in Retail.” Among the many positive revelations gleaned from the June survey of retailers is the sophistication and diverse multichannel approach best-in-class companies are bringing to loyalty programs. At the same time, the report makes it all too obvious that many retailers are still checking “don’t know” and “don’t measure” when it comes to key metrics like churn, retention, and customer satisfaction.

Among the signs of multichannel loyalty management is the spread of data in operationalizing member acquisition. Retailers submitted all applicable information to the questions asked in the report and it found that 45% of retailers register customers via sales associate in the store, 41% at the point of sale, and 41% online. 21% currently use “cross channel loyalty tools that align with cross-channel customer demand” with 34% saying they plan to implement this capability within the next year.

“Retailers are using multi-channel tools for loyalty programs and that’s good news,” says Sahir Anand, Senior Research Analyst, Retail and CPG Practice for Aberdeen Group. “In order for loyalty to work it has to be drawn to multichannel tools. It must be utilized in store and online. It’s the only way for the customer that gets a special offer at the POS to redeem it online or vice-versa. Multi-channel operations are the only way to operationalize loyalty.”

Still, as Anand says, “there are gaps.” Some key metrics in the report go unmeasured by retailers. For example, year-over year same store performance was unknown by 35% of respondents. Similar numbers were tracked for market basket size, customer retention, customer churn, which are key data points for any loyalty program. Other unknowns are more dramatic. When asked “what percentage of your current customer base are promoters of your brand” only 9% of the respondents said more than half of their customer base promoted their brand. 46% of respondents did not measure promotion among their customer base at all.

“Very concerning” says Anand. “Not enough retailers equate loyalty with data. It’s an extremely fragmented industry in that regard. Retailers must understand the importance of managing their knowledge development. Only after you manage knowledge can you manage performance.”

Back to the positive side of the survey, many retailers take a detailed, long-term view of their loyalty programs. Some of the high-profile points:

• The two most effective strategies for using customer loyalty data were “elements that suit specific customer affinity and preference” (53%) and “personalized promotions across channels” (52%.)

• The top two objectives driving retailers toward loyalty program objectives were lifetime customer value (57%) and competitive advantage (39%). LTV had long been considered the province of consultants and cutting edge CFOs, but using loyalty to data as a window to this metric was positively surprising to Anand.

• Real time customer data is in use now and will be a priority over the next year. 14% of the respondents track operational metrics within one or two hours of time of purchase. 23% plan to implement real time capabilities within the next year.

The numbers for timely data reporting are more impressive when retailers were asked if they access customer data in “near time,” which is 2-6 hours from time of purchase. 30 percent of retailers currently use near or real time customer data generated by their loyalty initiative. 26 percent of all respondents plan to implement real time POS data tracking within the next year and 22 percent will implement web traffic monitoring in real time.

A link to the full report is available at: http://www.aberdeen.com/summary/report/benchmark/4890-RA-customer-loyalty-retail.asp

New Report Spotlights Strategies To Reach The Web 2.0 Consumer

By Amanda Ferrante, Assistant Editor

Socializing with peers and specially targeted events are two ways marketers are reaching the new generation of consumers: Gen Y – the 14- to 24-year-olds who are desensitized to traditional advertising and expect marketing messages to be personalized just for them.

Working with retailers such as Victoria’s Secret, Dunkin’ Donuts, and Adidas, Mr. Youth, a six-year-old advertising solutions company, creates customized events to introduce new products to the Gen Y segment. The company recently released a white paper titled “Consumer 2.0: Five Rules to Engaging a New Breed of Consumer,” to spotlight the nuances of reaching Gen Y and shed some light on the different characteristics and behaviors that are influencing the way marketing messaging is created and perceived.

Personalization offers Pizzazz
Niche is The New Norm, according to the researchers at Mr. Youth. “Because of social networks, young people [also known as the Web 2.0 consumers] are desensitized to traditional advertising media,” says Matt Britton, Managing Partner of Mr. Youth. “These consumers have come to expect a level of personalization in everything.”

The Mr. Youth white paper explains how today’s young shopping generation defines “fitting in.” “Social networks allow people to seek out others with the exact same interest — it’s really micro-segmented,” Britton says.

The expectation of personalization is translating directly to purchasing behavior. Even though a mass market retailer may be selling thousands of the same t-shirt, that retailer may be the second choice for the Gen Y consumers, who may choose a specialty retailer offering nichy designed shirts that they perceive represent them individually.

Nike has created the ultimate example of personalization, notes Britton, with NikeiD, which allows consumers to design their own shoes using several templates and colors. “Every shoe is unique,” Britton says.

Other ways to reach the Web 2.0 consumer include targeted offers based on previous purchasing habits, like Amazon.com’s recommendations. “It’s hard to reach all consumers,” notes Britton. “But you can speak to consumers, and targeted offers are a great way of doing that. Retailers really need to have a better focus on relating to their customers — and knowing who they are.”

Build the Buzz
Since word-of-mouth has always been a reliable source of both negative and positive buzz, the Web 2.0 consumer is that much more of a chatterbox, with social networks, once again, stepping in as a useful platform. “Retailers need to use their consumers to reach others,” Britton says. “Evangelists” of a store will spread the word when a retail store accomplishes the aforementioned factors — like personalization and relationship building. This method is cost-effective for retailers, and is marketable. “Give information that’s relevant to the customer and the tools they need to spread the word,” Britton says.

The Web 2.0 consumer is the future, and it’s imperative for retailers to cater to this segment. “Companies that aren’t able to offer these services are ultimately going to fail with this new generation of shoppers,” Britton says.

To read the full report, click here.

Creating The Ultimate Customer Experience The New Competitive Differentiator For Retail

By Amanda Ferrante, Assistant Editor

With the playing field leveling in terms of product differentiation in many categories, insiders suggest that the only real point of difference for retailers will be in creating the ultimate customer experience for customers.

“Retailers are finally realizing the person who pays their bills and keeps the lights on is the customer. Today, everywhere you look, everywhere you go—you can find perfectly acceptable substitutes for any product of any kind 24/7,” says Pam Danziger, the founder of Unity Marketing and author of the new book, “Shopping: Why We Love It and How Retailers Can Create the Ultimate Customer Experience.” “Finally, retailers are catching on that opening their doors and putting product on the shelf isn’t enough anymore.”

One of the keynote speakers at next week’s Global Shop 2008 event, Danziger suggests retailers will need to give customers the optimal shopping experience through in-store organization and by creating a community feeling among customers. “The focus for retailing success in the future is not so much what you sell, but how you sell it.”

Based on the belief that shopping decisions are influenced by several factors, Danziger has developed her own formula that she suggests retailers apply to their strategy. To demonstrate, she uses the following model:

The Quantum Theory of Shopping
P= (N+F+A) x E Squared
Need
Features
Affordability
Emotion-Squared

As an example, she cites a female shopping for red velvet shoes. There’s virtually no real need. The features: she has red shoes; has velvet shoes, but no red velvet shoes. There is no price limitation, so in this case, the emotion is the deal-maker. Danziger points out that retailers cannot create need—only desire. “Need tends to drive choices about where to shop. The higher the real need, the less the other factors play. In many cases, nobody needs anything you sell,” says Danziger.

Enhancing Customers’ Desire

Product features stimulate desire; luxury is the opposite of a need. Danziger says, “[90% agree that] when you buy a luxury item, you expect it to be a cut above the average.” Those consumers who shop for luxury items expect superior quality, and shoppers are increasingly aware about discerning product quality, which justifies spending more.

“Shopping is an experience,” says Danziger. Luxury consumers are willing and able to spend. The key is to add new awareness of value. “Nordstrom doesn’t sell the cheapest stuff—what they sell is with style.”

When you’re pricing items, remember that pricing is not about the money, but the meaning to the customer who will be purchasing the item. “By adding value that has meaning to the customer, you create more incentive and reasoning to buy,” Danziger says.

To play off of the emotion squared factor, she adds that marketers and retailers must control all of the tangibles like place, price, product, and promotion. In addition, the intangibles, like perception, performance, peripheral, people.

While more retailers are expanding their loyalty programs to help acquire and retain customers, Danziger stresses that these offerings need to provide real rewards for customers. “You should never charge anybody for loyalty programs,” Danziger says. “They need to be designed for the convenience of the customer, not the store. Too many loyalty programs are clearly trying to simply get people to spend more money, and not provide the real benefit.”

Danziger’s Keys to a “Shop That Pops”:

· Create high levels of customer involvement and interaction. “The people principle is absolutely the most mission critical when it comes to making the shop pop. You can’t program excitement and energy into a shop.”

· Evoke shopper curiosity- this draws customers into the store and around the aisles to browse, and ultimately, buy. Changing and rearranging merchandise evokes curiosity. Creating a paradox compels curiosity;

· Have a contagious, electric quality- a happening, exciting atmosphere with a nice ambience and organic electricity. "Apple stores aren’t electric until people are in there relating to each other and the products."

· Values-driven concept- vision gives the store soul and feeling, which translates to the importance of the customer. “Damsels in This Dress is more than just a store for apparel, it’s a destination where people discover their inner diva and own style.”
· Price/Value model that favors the shopper- sometimes discounting is the story behind the store. Most often, discounting is downplayed in retail. Rather than marketing down price, it’s all about enhancing the value of the product. It’s also important to run with the values of your target customers and existing customers.

· Accessible, non exclusive, and free from pretensions- stores that are welcoming make the customer feel special. It can’t be faked. There’s a different between saying and doing the right things. “Saks 5th Avenue’s myth as a luxury emporium gives inspiration.”
· Maximize customer involvement- give the community feel. “Cabela’s has something for everyone. It’s a destination for a true shopping experience with a store, natural history museum, and café.”