The Limits of Loyalty
By Tom Ryan
A recent study by Synovate found 21 percent of shoppers loyal to a particular brand often require it to be on sale before making a purchase, often going to another store for a better deal.
The findings came from an online survey of 650 grocery shoppers looking into shopping behavior around 18 grocery product categories.
“We termed this shopping style ‘System Beaters’,” said Joel Rubinson, SVP of Synovate, who believes this buying behavior has developed as consumers became conditioned by manufacturers and retailers to expect price deals before buying.
“The irony is your most loyal customers are often system beaters because they are the ones that have studied your promotional patterns most closely,” Mr. Rubinson told Brandweek.
The level of system beater shopping behavior varies across categories, Synovate found. Of the categories studied, this shopping behavior was most common among ice cream brands, with 36 percent of the category bought by system beaters. Other categories showing this shopper tendency were laundry detergent, 30 percent, and carbonated soft drinks, 26 percent. Some categories had much lower levels such as yogurt at 12 percent.
While this may pose challenges for maintaining profit margins in certain categories, Mr. Rubinson believes it also opens up marketing opportunities for retailers.
“Retailers might say, ‘Why would I want them, all they do is buy on sale!’ but the fact is they’ll fill up their carts on gourmet coffees and other full-margin items,” Mr. Rubinson told Brandweek. “You just need to lure them in with sales in the categories where they are system beaters.”
He adds, “Manufacturers and retailers will lose sales if they do not match retailing approaches with the shopping style of individual shoppers.”
Mr. Rubinson believes the research underscores that designing a retailing approach for a category and a particular brand should start with the predominant relationship that shoppers have with a product category as reflected by their shopping style. For example, another shopping style Synovate found was ‘Explorer’,” or shoppers buying on impulse and because they find the category fun to shop. A different marketing technique could be used to target this shopping behavior.
“For them, variety and information is more important than dealing. It is possible that in-store communications and signage work best with this group,” said Mr. Rubinson. “Another shopping style is ‘preference planners’ who plan their purchase down to the brand level, but who are on auto-pilot because they know exactly what they want to buy. It is less likely that in-store communication gets through to them. Also, if you do not stock this item, the retailer is likely to lose a sale.”
Discussion Questions: Are system beaters good or bad for retail? Should manufacturers reconsider promotion practices to manage the level of system beating shopping behavior in their product categories? Is the industry doing enough to incorporate shopping styles such as system beaters into their marketing strategies?
O.K. So we must not only differentiate our shoppers by geo-psycho-demographics and trip missions, but also by shopping styles, which will vary by category and trip. We know all our shoppers are split shoppers–patronizing different retailers for different portions of their consumption needs on different occasions.
Active consumers assemble their own pantry management solutions from the wealth of options available to them–brands, stores, channels, and deals. Ryan is dead right. We have trained shoppers to behave this way. When we infer store or brand “loyalty” from repeat purchase behavior data, we are only fooling ourselves.
It seems appropriate to recognize that our industry has made astonishing progress in consumer insights in recent years. This new research from Synovate seems to me to be a useful addition to our collective wisdom. But with insight comes planning intricacy, and a need for improved implementation in the store. If we want to put these insights to beneficial use, we had best work on ways to systematically improve our follow-through.
Great discussion so far, thanks to all. On Kurt’s question, let me provide some additional data. Many (and in some categories, most) shoppers who are system beaters agree that they “have a favorite brand they strongly prefer.” It is likely that these shoppers would not compromise on the brand but wait as long as they can to find a deal in their favorite store, or in some other store they are willing to shop at. If they can’t find a deal, they will probably buy their favorite brand at full price, but those system beaters without a favorite brand would be likely to switch to another acceptable brand (very few system beaters have no brand preferences at all). Let me also emphasize that our data suggest that no shopper is a system beater across the board. They are selectively system beaters in certain categories only. Hope this clarification helps the discussion.
This study appears to have some breakthrough implications for consumer’s behavior to retailer promotions. However, the empirical data that I have seen would dispute their conclusions that these consumers are “System Beaters” and that they would eventually buy if the products were not on deal.
My conclusion–and one which I am doing my Doctoral Thesis on–is that these people only buy on Deal, and if the Deals are taken away they aren’t buying. However, this conclusion is based on looking at aggregated market data and the “incrementality” of promotional sales. If there is specific information in the Synovate study that refutes the market results, then there needs to be a reconciliation between the two.
We created the System Beaters. Oh yeah, pass the wine Dr. Frankenstein and don’t worry about that shadow lurking behind you, it’s probably nothing.
The “system beaters” consumer waits for his or her favorite brand to go on sale before making a purchase. Should manufacturers reconsider promotion practices to manage the level of system beating shopping behavior in their product categories? The answer is decisively “yes” if the brand objectives include establishing and maintaining a credible price point, image, and consistency with margin and profitability. Too many brands use the practice of over-supplying sales, deals, and rebates, for the purpose of elevating or sustaining market share to help drive new distribution or maintain shelf space at retail. The formula that I prefer is full revenue pricing for at least 80% of the calendar year, and up to 90% for premium image brands.
So it sounds like we’re collecting just about enough data that we know who our shoppers are and how to talk to them, especially while they’re in the store.
A logical next step, then, would be to tailor communications to these shoppers to get them in the store and out of the competition’s.
What if an email went out to System Beaters an afternoon or two before the relevant brand went on sale? It could give them an extra discount because they’re a loyalty-card holder and invite them to stock up–and suggest they try this great new gourmet product in this other category, where we know they’re happy to pay full price.
We could design other campaigns for the other shopping behaviors, whether they manifest in other categories in these shoppers or in other groups of shoppers.
In all, it looks to me like we’d be coming up with a finite number of basic pieces of creative–then an automated system would drop in relevant products at appropriate intervals as long as the campaign ran, which could be weekly over several years (assuming a test run of six to eight weeks or so had delivered good results.)
You guys have demonstrated that we’ve got the segmentation technology to pull off a campaign like that, and by now, in mid-2007, retailers should have their customers’ email addresses, and most customers should have internet access.
Also, by the time two or more brands and several retail chains buy in, the cost to participate would be easily affordable even on supermarket margins.
Not to burst anyone’s revelatory bubble, but this has been a retail truism for decades and it’s no surprise that it persists to this day. Loyalists wait until the brand they prefer to go on sale (or publish a coupon) and buy it. French’s mustard, Chevy, or Cutter & Buck, we wait for a sale. Anything else is counterintuitive to our consumer culture. Coupon publishers have known since coupon usage could be tracked that the vast majority of their redemptions are by shoppers who prefer their brand. They were just waiting for a coupon.
This is one of most re-treaded discussions in our industry, repositioned as news. So-called “system beaters” will be with us forever, and God bless them. They drive the engine of grocery retail. Remove them and watch your sales evaporate. They provide the cashflow and traffic that keeps every grocery chain afloat.
The question we’ve been asked is: “Are system beaters good or bad for retail?” (Manufacturers were not mentioned.) So here’s another truism: Supermarkets make more bottom-line dollars from manufacturer “advertising & display” support than they make from selling stuff to you and me. Why should supermarkets care what we pay them for these products? As long as manufacturers make up the deficit in the cost/sale relationship, supermarket retailers don’t give a hoot. Simply put, grocery stores sell traffic and product movement numbers to manufacturers. That’s how they make most of their money.
But what about all the store brands and perishables such as meat, produce, fish, etc.? Nail on the head. How often do system beaters beat the system with these items? Rarely. Supermarkets are savvy enough not to sell their own stuff at below cost without a plan to recoup their dollars on other items (e.g., advertise the bone-in roast or steak, but attractively display the boneless varieties at a dollar more per pound). Instead, they count on manufacturer-supported discounts to generate traffic and volume numbers, which they then sell back to the manufacturers. What a country!
Bottom-line, there is nothing new or revealing in this so-called “study” that can be considered newsworthy.
A system similar to what Mary Baum describes does exist and I can tell you that it is very effective with a wide variety of customers, including system-beaters and those that are less aggressive with their deal hunting.
The program is built around notifying all customers when items they buy are on sale. Frequent shopper purchase history data is used to prioritize every offer in the weekly circular and identify which offers should be communicated to each customer. Whether a customer is a system-beater or not, everybody likes to get a great deal on the things they buy.
Retailers know that customers are looking for the deals on key categories, and they also know that manufacturer trade deals mean that their competitors will likely be promoting the same brands at essentially the same time. To beat the competition, you have to do a better job of letting customers know that your store has the deal they’re looking for. Communication is key, and the ability to personalize the communication makes it far more powerful and customer-friendly.
One comment regarding Liatt’s claim that customers don’t like email…that’s true when the email is designed to ‘market’ to the customer by getting them to buy something they may not want. When the email ‘serves’ the customer by focusing only on what the customer wants and helping them save money, customers eagerly await the emails and see them as a great customer service.
I’m looking at a glass half full for retailers here: there are clearly opportunities to capture customers who do not normally shop at your store when System Beaters arrive to take advantage of a promotion. All the talk of having created a monster rings false to me. I’ll stretch an analogy: consumers are like billiard balls; if they’re all packed together in one behavioral bucket, they’re pretty much immune to being moved in any direction, but if you break ’em up, everyone’s got a shot at changing the game. Whew, that one hurt a little. 🙂
Manufacturers are going to use price promotions to try to extract maximum dollars from the buying public by adjusting prices in a way that tries to hit the reserve price of each group of consumers, balancing cost to the consumer of taking advantage of that promotion against the discount to create differentiation (e.g. the cost in time and energy of finding and redeeming a coupon). One problem with price discounts tied to loyalty cards from a manufacturer’s point of view is that it does nothing to create that differentiation; pretty much every shopper will get the discount, especially in real-world stores where the checkout clerk will swipe the “house card” for you. The benefit of such trade promotions for them lies elsewhere, so they continue to spend those dollars with retailers.
So retailers should rejoice that in creating these price promotions that manufacturers are generally paying for, they’ve broken the rack, so to speak, and created opportunities to gain customers using tactics other than price.
Collecting information and identifying patterns among consumers provides useful insight as in this study. This is a good method for identifying groups of consumers, such as the “deal breaker,” and making predictions for the group. However, it does not provide understanding of the consumers. This is important because, if there are subgroups, then predictions about how the group will act are not always accurate.
For instance, if there is a subgroup who go from store to store only buying the items on deal, such as “cherry pickers,” this is not a lucrative group. They only buy the sale items and then go to their favorite local store for the rest of their shopping. There may be another group of people who normally shop at two or three stores because none of them, individually, has all the items the shoppers wants to purchase. In that case, the “deal breaker” will identify the store that has a good deal on something he or she wanted to purchase and then do the rest of their shopping at that store. There many be many more subgroups as well.
If a promotion is created for the “deal breakers,” positive responses may only come from one part of the group. Before creating promotions and predicting success, it is important to know whether this pattern is truly representative of one group or of several sub groups.
If your most loyal shoppers are truly shopping you for price, then, as a retailer, you don’t offer a sustainable point of difference to these consumers beyond price to maintain their loyalty…hence, you have trained them to be system beaters. As a retailer you must have a strategy and communicate a message that differentiates you from your competitors and is understood by the consumer. This way, if system beaters are loyals, you don’t lose the shopping trip or, more importantly, the market basket.
The Synovate study reveals a key issue with loyalty marketing. Consumers are seldom blindly loyal to a single choice. Rather, they may have preferences and an acceptable set of substitutes.
There has been much talk about the role of shopper missions in recent years, but it is apparent that shopper styles are another important segmentation.
All of this work helps to better define and understand the shopper, which, in turn, can help manufacturers and retailers to target their marketing activities.
Is it just me or does anyone else think we’re ‘dealing’ our way into total extinction? I guess ‘total extinction’ is redundant but you get my point. Gallup reports that 80% of consumers will drop a vendor like a hot rock for almost any reason whatsoever–price being at the top of the list. I know that’s not necessarily the same as a ‘brand’ but the lesson applies. So manufacturers run scared and are drawn into this losing game.
I didn’t read anything about WHY someone would prefer a brand. And if we knew (taste, color, ingredients, whatever)is it not possible to make that the dominant buying urge instead of price? Seems lowering the price is the knee-jerk, often mindless strategy of choice these days. If I understand Mr. Rubinson correctly, he’s telling us to stop and think first.
Since we’re talking groceries let’s talk peanut butter. I wouldn’t get that stuff made primarily with icing sugar if you were paying me. Lowest price–of course! But paying full price for the real unpolluted stuff is a joy. And in fact if I see what seems to be 100% organic peanut butter on sale I get suspicious and double check the ingredients. To me it’s like going to the Discount Surgery Clinic. Every once in a while, quality should win. And ultimately for the courageous, it will.
Ryan is right; we taught consumers this silly game and we’re paying dearly for it.
If I am reading this article snippet correctly, there is an important point hidden in the fact that customers will go “out of their way” to get their special product on sale. So, as others have suggested, luring them to the store with that product and enticing them to buy full-price items while they are there would be a good strategy.
Unfortunately this isn’t really a new idea–it’s Wal-Mart. Put the special products in the aisle with a big sign, give customers a very low price on them, and then use a slogan like “everyday low prices” to convince them that everything else is a good bargain too, even if it isn’t.
Some have suggested using email as a way to cement relationships with a particular store or brand and to notify of sales or new products. When grilled, the people I talk to as consumers, not marketers (even though many are both) say they do not personally want their in-box cluttered with emails from their grocery store or a department store unless it is to tell them a back-ordered item has arrived, a special limited-time seasonal delicacy is in stock or that they are wished a happy birthday with a meaningful coupon. email has become like junk mail–in some ways even worse–because it seems so invasive and often is based on collected personal data that can be slightly “off.” And, just try to get off a mailing list once you’re on it. A close friend who recently and tragically lost her dog to the pet food poisoning scandal becomes incensed when when a particular pet food store sends her email coupons for the very brand that killed her dog.
“Preferred” customers can quickly become irritated customers when they feel they are being constantly analyzed and bombarded with emails.
Consumers like to feel they “got a deal.” Finding sales or everyday low prices on brands of ice cream, laundry detergent or soft drinks is expected by today’s consumers. Yes. They have been taught this by many retailers over the years.
After all, why pay more?
Shoppers who are price-driven, with the time to go from store to store, are the least profitable customers imaginable. No retailer can seduce them into buying something profitable while they’re engaged in focused cherry picking. And the retailer whose loss leaders are the deepest discounts wins more of this unprofitable traffic than anyone else. When everyone around you uses loss leaders, you have a few choices: (1) copy them but don’t try to beat them (Kroger) (2) ignore them and substitute a non-price draw (service or unusual assortment) (Trader Joe’s and Whole Foods) or (2) try to beat them by quantum-leap overhead reduction (Aldi).
I believe the question as to whether “Cherry Pickers” are good or bad is irrelevant. It’s like asking is rain good or bad? Well if I’m golfing today it’s bad but if I want my garden to grow its good. Perspective is everything. The reality is there will always be “Cherry Pickers” so how best to deal with them or minimize them is the real question.
My opinion is that marketers are not doing enough to help provide loyalty to the merchant instead the focus is on the brand. Obviously due to the aggressive brand advertising of manufactures who don’t really care where you buy, just so you buy. So what incentive is there for manufacturers to change anything? Discounts and coupons are the tools provided to “Cherry Pickers.” They use them to get their deals but they create no loyalty for the merchant only loyalty to an offer. So your offer better be best or no sale.
So what if someone created a program that helped increase merchant loyalty and it was not tied to a credit card. What if that program was a rebate model that hooked directly into a POS and could be modified by SKU. What if that model leveraged the other CRM (Cause Related Marketing) to pick a merchant with their heart, not only because of an offer. What if it were possible to transfer a loyalty for a cause onto a merchant? This is not a panacea for bad product or service but it is working and you can contact me for more details. The discount coupon model is not the only answer or certainly no longer the best.