Advanced Analytics Needed to Measure Loyalty
By Dan Alaimo
Tough marketing challenges, such as measuring loyalty, require sophisticated research methods.
“Retailers want to do one of two things: They want to either increase trips or they want to increase the basket size,” said Candace Adams, president, global retail strategy, SmartRevenue, Stamford, Conn., and a former Wal-Mart executive. “It may sound easy or intuitive, but getting there is the hard part. It really does require the (scientific) rigor. It requires a scientific approach to get to the answers that become actionable and that you can actually develop into strategies,” she said.
Marketers need to rely on advanced analytics, such as structural equation modeling, to get the information they need. Structural equation modeling allows for the modeling or testing of causal relationships, she noted.
“My contention is to drive loyalty and increase basket ring, one must rely on the more sophisticated tools that are in the analytic tool box,” Adams said, speaking recently in Chicago. She was among several presenters at the annual Integrated Marketing Conference of the Association for Integrated Marketing (formerly the Promotion Marketing Association) based in New York.
Using structural equation modeling, SmartRevenue is researching different channels to see what drives loyalty in each.
“It’s our hypothesis that if you are in food, you are going to have different drivers, as opposed to mass, drug, club, convenience or dollar. Consumer behavior in each of these environments is going to be a little bit different.” The study is expected to be completed in the third quarter of this year, she added.
Retailing is a very dynamic process “with a lot of moving parts,” and customers are demanding relevance, solutions and the right product at the right price,” Adams noted. “Connecting with consumers and shoppers and increasing their lifetime value becomes a daunting challenge. One of the ways that you measure that is loyalty.”
Whether the goal is increasing the share of wallet, or increasing word of mouth – whether a consumer recommends a particular retailer to a friend – only one in four shoppers are loyal to retailers or brands, according to Adams.
“The strategic framework to drive shopper loyalty and retail business growth requires that both the manufacturers and their retailing partners develop customer-centric strategies that increase trips and basket ring,” she said. Doing that requires getting answers to questions like:
- What is the right marketing strategy?
- What is the right media mix?
- How can I differentiate myself from competitors?
- How do I increase the basket of loyal customers and get trial from non-shoppers?
“It’s important to use the right tool for the right job,” Adams said. The impact of whatever analytic method used will depend on the type of questions asked, she added.
Meanwhile, during the PMA conference, research on how people use and consume media,
and the impact it has on them, was presented by Don Schultz, professor emeritus, Northwestern University, Evanston, Ill., and president of Agora, also in Evanston. The research was based on U.S. Simultaneous Media Studies conducted twice per year by BIGresearch, Worthington, Ohio.
Understanding how consumers use media and promotional activities changes how marketers plan and implement their programs, according to Schultz.
For example, in listing the amount of time consumers spent with various media forms, the top four were: e-mail for an average 131.3 minutes per day; TV 129.6 minutes; Internet 127.5 minutes; and radio 93.5 minutes.
The media forms people use in combination also is important to understand, Schultz says. For example, they most frequently combine other media, such as online, magazines, newspapers, direct mail and cell phones, with TV watching. Online users simultaneously watch TV, listen to the radio, or use the cell phone most often, while not reading magazines, newspapers or direct mail as much.
The research also measured the influence of the media forms on consumer purchase decisions. The top five were word-of-mouth; coupons; inserts; TV; and newspapers. The Internet, email and blogs were farther down the list.
Changes in consumer media choices are forcing marketers to rethink how they communicate, Schultz told CPGmatters after the conference. Up to now, it has been one-way communication of advertising messages, but companies are beginning to better understand how consumers communicate, he notes.
“To a great extent, the consumption has to start with the consumers and not with the marketers.” Current media planning “has relatively little to do with what the consumers are all about,” Schultz said.
Social media is negotiated media, not persuasive media, he adds. “I have to negotiate with you to get you to listen to me and pay attention and then we create a conversation and some interactivity. Historically, what we have done is we have just blasted the stuff out trying to persuade people, and that is the biggest difference we are going to see going forward,” he said.
In the future, CPG media spending “really has to be co-creation. That is, consumer packaged goods organizations have to bring the consumer into the whole discussion of what they are trying to do, and what products they are trying to develop. Part of the problem is the brand management system, which is focused only on generating profits for shareholders. It doesn’t really look at whether there is any benefit or any value to the consumer, and I think that’s one of the challenges that western management styles have,” Schultz concluded.
APRIL 2010
Shopper-Centric Solutions to Highlight
Second Annual LEAD Marketing Conference
CPG executives and retailers will learn about the latest shopper-centric solutions at the industry’s most comprehensive conference focusing on all aspects of Loyalty, Engagement, Analytics and Digital Marketing applications.
The second annual LEAD Marketing Conference is scheduled to take place October 11-13, 2010 at the Westin O’Hare in Rosemont (Chicago), Ill. At this collaborative event, manufacturers and retailers in all trade channels will learn how to enhance their business with customer marketing and shopper engagement strategies, social media, virtual shopping platforms, analysis of paths to purchase, and assorted shopper technology.
The LEAD Marketing Conference is the only collaborative conference to focus on understanding and leveraging these solutions which are crucial to attracting and maintaining shoppers, as well as providing much-needed differentiation in today’s competitive marketplace.
Detailed information about the agenda and exhibit/sponsorship opportunities is available
The educational agenda will consist of general sessions, two tracks (one for Loyalty and Analytics and the other for Engagement and Digital), and table-top exhibits. Networking receptions and dinners will bring together retailers, manufacturers, and vendors. The annual LEADER awards recognizing retailers and manufactures will be presented at a special
awards dinner.
The educational topics will include the following:
- Advances in Customer Relationship Management
- Strategies for Category Excellence
- Customer Experience Optimization
- Innovations in In-Store Marketing
- New Vehicles for Spurring Sales at the POP
- Blending Off-line and On-line Programs
- Leveraging New Media Vehicles for Success
Engaging and satisfying today’s consumer has never been more challenging given today’s tough economic times. Leading-edge retailers are using advanced analytics to segment shoppers, improve category performance, increase store loyalty and basket size.
New solutions are now available to retailers and are often deployed in partnership with CPG manufacturers. This high-tech array includes analytics for category development, in-store messaging via digital signage, kiosks, advertising networks, interactive shopping carts, paperless coupons, mobile coupons and TV and radio broadcasting.
LEAD fills the vacuum created when the Global Electronic Marketing Conference was discontinued. The last GEMCON, its fifteenth annual event, was held in October 2006. LEAD builds on GEMCON by adding the latest advances in technology and shopper engagement and including other trade channels besides grocery.
Low Prices Replace Customer Service
As Top Driver of Shopper Loyalty
By Rose Anthony
What is driving shopper loyalty to stores these days? Low prices, says a new study.
Not surprisingly, Walmart dominated the 2010 Colloquy Retail Loyalty Index in results that reflect a reality of the Great Recession. Other chains that ranked among retail loyalty leaders were Costco, Kroger, Walgreens, BJ’s Wholesale, Meijer, Publix and H-E-B.
The index shows that shoppers claimed the highest loyalty to Walmart in many of the grocery, personal care and department store regional categories. Costco had the highest loyalty ratings in three out of five mass merchant regional categories. In the 2008 index, shoppers claimed the most loyalty to Costco, which ranked first in nine out of twenty regional and retail categories.
The index ranks the top U.S. retailers according to customer loyalty ratings. The 2010 index was built from a December 2009 survey of 3,500 U.S. consumers in five regions: Northeast, Southeast, Midwest, Southwest and Northwest. Respondents were surveyed across four retail categories that included grocery, personal care, department stores and mass merchants. Colloquy, the Cincinnati-based publishing, education and research division of LoyaltyOne, previously published the Retail Loyalty Index in 2008.
“Our 2008 index showed that loyalty marketers worked within a significantly different retail landscape. Customer service, store environment and a wide product selection were the underlying factors for customers' self-professed loyalty. But our 2010 index proves that the Great Recession became the great equalizer,” said Colloquy Partner Kelly Hlavinka.
“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,” she said.
Hlavinka is the author of a 17-page white paper titled “RetailTALK: What Price Loyalty? The 2010 Colloquy Retail Loyalty Index,” which provides a complete review and analysis of the latest study of U.S. retail consumer loyalty ratings and attitudes. The paper is available free of charge at http://www.colloquy.com/files/2010-COLLOQUY-RetailTalk-White-Paper.pdf.
While Walmart clearly dominated most retail categories, other chains – including Kroger and Walgreens – did climb up the loyalty chart or make their first appearances, edging out 2008 loyalty leaders. Here are the highlights by category:
Grocery
The loyalty leader in the Midwest was Kroger, which has adopted a customer-centric focus and used a customer loyalty program through the recession. In the Southeast, Publix moved up to first place from its second-place showing in 2008. In the Southwest, regional grocer H-E-B ranked first with similar messaging to Walmart and the continuation of a six-store rewards program in its stores in Waco, Texas.
The study reported that the highly fragmented grocery channel, where neither conventional nor discount grocers operate in every state, holds certain advantages for Walmart. Its message of low prices and value resonates with customers. Its ability to deliver on that promise by leveraging its broad distribution network translated to first-place consumer loyalty ratings for Walmart in the Northeast and Northwest, and third-place finishes in the Southeast, Southwest and the Midwest.
Personal Care
In the highly competitive Southeast region, Walgreens tied with Walmart for the top loyalty ranking, with CVS and Publix tied for second place. In a tight three-way race in the Midwest, Walgreens and CVS edged out Walmart, even though CVS hadn't been among the top five in 2008. Walmart easily won the Northwest, maintained the top spot in the Southwest, and finished ahead of CVS and Rite Aid in the Northeast.
Mass Merchandisers
The regional chains BJ’s Wholesale and Meijer replaced familiar names such as Sears, Sam’s Club and Big Lots for top loyalty rankings in the important Northeast and Midwest markets (respectively). Costco continued to rank first in all other U.S. regions.
Walmart, meanwhile, came in second in all but the Southeast, where it ranked third behind Target, which itself rated third in the rest of the country.
Department Stores
Several chains in the top three spots in the 2008 index for department stores fell off the 2010 top-three list. Among them were J.C. Penney, Dillard’s and Dollar General. As in other retail categories, they were replaced largely by Walmart and Target.
Walmart ranked first in customer loyalty ratings in the Northeast and Midwest, and tied with Macy's for the top spot in the Southwest. In the Southeast, Walmart took second to Target, and in the Northwest it followed top-spotter Costco.
“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,” Hlavinka said. “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.”
