Walmart has leapt ahead of most of its competition in a new loyalty study. But the behemoth of Bentonville shouldn’t rest too comfortably: Much of its position comes from its low prices and the current economic clime, and not necessarily from customer affinity, according to Colloquy’s 2010 Retail Loyalty Index.
“One particularly profound change…has taken place among consumers since the recession hit: The effect of low prices on professed retail loyalty,” wrote Colloquy partner Kelly Hlavinka, who authored the study. “In fact, low prices have stepped up to become retail’s strongest loyalty lure.”
But Hlavinka cautions that only one retailer in any given category can be the low-price leader. “What can other retailers do to acquire, retain and win back customers?” she asks.
There signs, she says, that shoppers may be seeking the convenience of their local supermarket or the customer-service offerings of other retailers. Those outlets unable – or unwilling – to compete with Walmart’s pricing strategy may be investigating other tactics, such as digital coupon offers, shopper marketing efforts, using customer intelligence data and building large-scale loyalty programs.
In the 2010 Retail Loyalty Index, Walmart dominated the four categories – grocery, personal care, department store and mass merchant – Colloquy considered, at least as far as frequency of purchases. But the chain didn’t do as well in hearts-and-minds questions: Other chains, including Kroger, Walgreens and Costco, indexed higher for overall affinity, especially in the southeast, Midwest and southwest.
Loyalty programs aren’t necessarily the keys to these chains’ success. While Kroger hosts one, Hlavinka quotes the company’s CEO as placing value on clean stores, speedy checkout lines, helpful employees and a wider assortment of grocery items. And Publix, which does not collect transactional data on its customers and does not host a discount or club card, uses its own internal research and shopper marketing tactics to focus on customer service, writes Hlavinka.
For now, however, low prices are king, and Walmart embraced this earlier, and with more enthusiasm, than most of its competition, according to Hlavinka. But rather than concentrate on the prices themselves, the chain’s messaging featured consumers across all socio-economic strata enjoying “the happy times enabled by their relationship with Walmart.”
But what strategies should retailers start preparing once the effects of the recession recede? Hlavinka offers four considerations:
First, compete on the landscape best suited to the brand. Walmart seems to have a lock on the every day low price model, but other chains may be able to offer a better selection, or better in-store service. Or they may be able to identify their most profitable customers and gear selections toward what they want.
Second, retailers can target, and hopefully retain, their best customers through targeted promotional offerings such as automated couponing or guaranteed sales prices. Additionally partnerships, either with participating merchants or non-competitive companies, can boost the perceived value of a retailer’s program.
Third, they can remember that information is power. It offers opportunities for greater empathy in all communications, appropriate pricing strategies and relevant product selection.
Finally, retailers can use strategic pricing selectively, pulling in customers through competitive pricing on certain items while minimizing the total impact on their margins.
A white paper from Colloquy based off its findings is available at http://www.colloquy.com/files/2010-COLLOQUY-RetailTalk-White-Paper.pdf.
