Machiavelli famously asked in his best-known work, "The Prince," whether it is better to be feared than loved. Retailers might well ask themselves whether it is better to be shopped more frequently or have the loyalty of their consumers.
The stores American consumers shop most frequently are not necessarily the same ones they are most loyal to, according to results of a study by loyalty marketing consultant Colloquy.
The Retail Loyalty Index, a survey of 3,000 consumers across the nation concerning retailers they had shopped with most frequently in the previous three months revealed Wal-Mart was the retailer shoppers had visited most often in five geographic regions across the nation, but Macy's was the retailer customers gave the highest loyalty responses to.
Wal-Mart came in second in loyalty, while Target and J.C. Penney tied for third. In the mass merchant category, Costco won the loyalty index, followed by Target and Wal-Mart.
When loyalty to department stores was judged, Macy's was at the top overall, explained Kelly Hlavinka, managing partner of Colloquy. "We wanted to define loyalty in an unaided way. We know how the companies out there define loyalty, but we wanted to learn how consumers defined loyalty."
Winning retailers in the loyalty survey were from a mix of categories because consumers tend to view all stores, even mass merchants, as department stores, causing categories to bleed into one another, she explained.
And clearly, the consumer has a very different opinion of what constitutes a department store or a mass merchant, as the survey results show.
It wasn't a stretch that Wal-Mart would take the top spot among the three categories of department store, mass merchant and personal-care retailer for most frequently shopped. It is the world's biggest retailer, with sales topping $374 billion in the last fiscal year, and all that revenue has to come from many repeat visits. But frequency does not necessarily translate into loyalty.
As for stores capturing customers' loyalty, the Colloquy survey revealed:
l In the Northeast, consumers reported the department store retailer they were most loyal to was Costco and the mass merchant they were most loyal to was Sam's Club.l In the Southeast, department store consumers were most loyal to Wal-Mart and the mass merchant earning top loyalty marks was Meijer.
l Midwest consumers said they were most loyal to Costco as a department store and to Big Lots as a mass merchant.
l In the Southwest, Wal-Mart won for loyalty among department stores and Costco topped the mass merchants.
l In the Northwest, department store shoppers were most loyal to Kohl's, and mass merchant consumers were most loyal to Costco and Sam's Club.
"When we asked how loyal they were to the frequently shopped retailers, Wal-Mart did not dominate the list — that's where Macy's and some others popped to the top," said Hlavinka.
The number-one factor in Macy's high ranking was "value for the money," she said. Next was the "wide selection — they have what I'm looking for," and third was customer service.
Macy's has made concentrated efforts to achieve the high loyalty ranking, putting emphasis on consolidating its brand name and image, strengthening its message and position, she said. "They have really rallied around that."
Management-initiated programs, like customer rewards, played a significant role in instilling customer loyalty at Macy's, Hlavinka added.
"You'd expect if you shopped a retailer frequently, you'd be somewhat loyal to that retailer," said Rick Ferguson, editorial director of Colloquy. "Consumers were very loyal to Wal-Mart, but they even were more loyal to some of Wal-Mart's competitors that they shop less frequently."
The survey was based on consumers ranking their experience with stores on a scale of 1 to 10, with 10 being the highest and 1 being the lowest.
Paid membership clubs also build shopper loyalty, Colloquy found. Wholesale clubs like Costco and Sam's Club attract the most loyal customers, who justify their loyalty due to a perceived need to get back the value from their membership plan, Colloquy reported.
The retail sector was a battleground for customer loyalty, the Index found. "Relentless focus on promotions and sale prices no longer guarantees loyalty of key consumer segments. Low prices drive frequency, but not loyalty. Store environment, product selection and quality service drive customer recommendations."While Wal-Mart garnered the most shopping frequency from consumers in all retail categories surveyed — groceries, personal care, department stores and mass merchants — the Bentonville behemoth did not generate equally high loyalty ratings from survey respondents.
"Wal-Mart's Everyday Low Price practice may have made it the world's number-one retailer, but other retailers who attempt to emulate Wal-Mart's success will find that the EDLP model of retailing comes at a cost," Ferguson noted.
The survey results demonstrate the "traditional marketing mix has taken a backseat to a relentless focus on price," Ferguson said. "A marketing strategy focused solely on sale prices and promotions not only faces diminishing returns, but can actually breed disloyal customers. Our research demonstrates retail marketers have an opportunity to shift their focus from EDLP toward loyalty drivers that build true customer engagement, larger transactions and improved margins."
In other words, price will win when times are tight, but consumers will return to the stores they love as soon as they can.
Loyal consumers also recommend their favorite retailers, regardless of store category, noted Hlavinka. "There's a transition from the narrow focus on price. We're leaving the Age of Frequency and entering the Age of Loyalty."
While retailers used to talk about price and product being of equal importance to shoppers, price now has become the predominant message retailers give customers, "and in most cases almost the exclusive message," Ferguson added.
The Index showed consumers considered price just one tool driving retail loyalty, he said. "Low prices are certainly important to consumers, but as long as prices are comparable to competitors other things become equally important, like store layout, product selection and customer service. In most cases, Wal-Mart is competing solely on price, while Macy's is competing with a more traditional mix of factors, with price being just one of them. So I think that may drive more loyalty to a department store like Macy's than a mass merchant like Wal-Mart."
The retail Loyalty Index reveals the North American retail industry is in significant transition, and will move from a price-heavy sales pitch back to a marketing strategy spurring true customer interest, he stressed.
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