Wal-Mart is on a new path to convert all but its most dedicated customers to loyalists and has put in place a five-point plan to achieve that goal. The aggressive effort will span at least 15 years, according to the company’s CMO, and encompass aspects ranging from store layouts to organic food offerings.
Speaking yesterday at The American Consumer Conference in New York City, Wal-Mart executive VP and CMO John Fleming said delivering low prices may be what customers want, but price doesn’t complete the picture. To that end, the retail giant has taken an in-depth look at the shopping habits of its 130 million weekly U.S. customers—more people than live in France and the U.K. combined. It has segmented its customers into three basic groups to better understand who they are and how Wal-Mart can increase their loyalty. The three groups are:
- Loyalists: who shop at Wal-Mart 57 times per year, give 77% of their grocery business to the stores and shop across five-plus categories.
- Selectives: who shop at Wal-Mart 26 times per year, give 28% of their grocery business to Wal-Mart and shop across two to four categories.
- Skeptics: for whom Wal-Mart is not the store-of-choice, but who shop at Wal-Mart five times per year, mostly on an urgent basis.
Wal-Mart, which had $312 billion in worldwide total company sales last year, has put in place a five-point plan, Fleming said, to drive more loyalty based on the insights it now has into these groups. The goal is to transform “skeptics” and “selectives” into “loyalists,” and to build on the dedication of its already-loyal customers.
First, Wal-Mart recognizes that disposable income in shrinking as education and healthcare costs rise, pension plans disappear and fuel costs skyrocket. Despite these factors, consumers will pay more for healthy and safe products. In response, the company has introduced organic foods and products made of organic cotton. The mega-retailer knew that consumers were shopping elsewhere for these premium products and coming to Wal-Mart for the basics. It wanted to be the one-stop shop and leveraged its supply chain to bring the price of organic products (coming this fall) down dramatically for its customers, Fleming said.
“Typically organic products can cost 25% to 30% more against competitive products, and we’re able to get those prices down to about 10%,” Fleming said.
Second, Wal-Mart, found that more than 7.2 million families will change lifestyles over the next four years, and when customers move through these changes—starting a new household, starting a family, childless boomers—their needs for products change. The insight is to offer products relevant to these changing lifestyles, such expanding baby departments in locales where there are greater concentrations of new families and offering more services, such as online travel planning, for empty nesters, Fleming said.
Third, it will continue to improve its relevance to the Hispanic market, the fastest-growing Wal-Mart audience. There are 43.5 million Hispanics today, some 7% of the U.S. population. Of these, 66% are of Mexican descent, a group for whom food, family and entertaining are very important. Wal-Mart has identified 350 stores that are dominated by this Hispanic segment and has expanded its offerings to accommodate them with a wider food menu, including beans, rice, mangos, 12 brands of tortillas (half sourced locally) and a wide variety of peppers and chilies.
Growing Hispanic families also frequent these 350 stores and Wal-Mart plans to greatly expand the baby departments that are typically 3,500-5,000-square feet to “create a store-within-a-store,” Fleming said.
Wal-Mart has doubled its media spend targeting Hispanics over the last two years. It also ran a test last year of special occasion Spanish-language gift cards and found that the test pulled the best results against any segment tested, he said.
Stores will also leverage relevant cultural and sporting events, such as the upcoming World Cup, with in store and media advertising.
Fourth, Wal-Mart is finally coming around to letting the consumer take control, Fleming said—especially those skeptics and selectives, for whom time and convenience matter most. The company decided that it needed to dramatically alter the in-store experience, to make it fast, easy, convenient and clear. In an effort to reach this affluent, educated consumer, last month Wal-Mart opened a new super center unlike any it currently operates, targeting upscale shoppers and catering specifically to female shoppers.
Everything about the new 203,000-square-foot super center, located in Plano, TX, is different—from store layout, to merchandise selection, to new signage and graphics, to a selection of wines that can cost up to $500 per bottle. Fleming said the store is all about actively understanding and meeting customer needs, and it functions as an active laboratory for testing a range of new ideas and merchandise in a fully operational setting (Xtra, March 30, 2005).
Fifth and finally, Wal-Mart has recognized that world resources are being used faster than they can be replenished, Fleming said. It understands that its future consumers—young people—care deeply about this issue and it plans to build sustainability into its business model. As a consequence, Wal-Mart aspires within 15 years to: be supplied 100% by renewable energy; create zero waste; and sell products that sustain resources and the environment.
“In the long term, that will drive deeper loyalty with our customer base,” Fleming said.
As for whether Wal-Mart’s media mix will change. Fleming said that its stores are its most important media channel and that it will change its mix to reach various segments with its product mix.
“Our primary focus is using the store as a media channel,” he says.
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