Wal-Mart’s Loyalty Initiative
By John Hennessy, Vice President, Concept Shopping, Inc.
(www.conceptshopping.com)
Wal-Mart has taken a close look at the shopping habits of its customers, and used that analysis to segment its customers into three groups:
Customer Groups | Times Shop Wal-Mart/Year | % of Grocery Business to Wal-Mart | Categories Shopped |
Loyalist | 57 | 77% | 5+ |
Selectives | 26 | 28% | 2-4 |
Skeptics | 5 | * | * |
* For customers in the Skeptics group, Wal-Mart is not the store of choice. Instead, they are identified as those who shop Wal-Mart on an urgent basis.
The goal of Wal-Mart’s shopper segmentation effort is to better understand its shoppers and how they shop Wal-Mart. Wal-Mart believes it can convert skeptics to selectives; selectives into loyalists, and build its already loyal customers.
The result of this analysis, according to Wal-Mart Executive VP and CMO John Fleming, speaking to the American Consumer Conference in New York City, is a five-point plan.
The first change is to offer products shopper are purchasing elsewhere and use its supply chain expertise to lower the price for those goods. First identified target is organics. The goal is availability at Wal-Mart and a 10 percent reduction in the premium price paid for these products.
The second initiative is to respond to changes in shopper demographics. Singles get married. Families add children. Children grow up and leave. Wal-Mart’s response is to offer products that make sense for these customer groups.
Third, Wal-Mart has identified 350 stores that are dominated by Hispanics, their fastest-growing audience. Offerings in these stores are being expanded to appeal to this group among other initiatives.
Fourth, Wal-Mart has developed a new store format designed to be faster, easier and more convenient. The target for this change is affluent, educated consumers, specifically appealing to female shoppers.
Fifth, in an appeal to young people, Wal-Mart aspires to use only renewable energy and create zero waste within 15 years.
“In the long term, that will drive deeper loyalty with our customer base,” Fleming said.
Moderator’s Comment: Is the basis for Wal-Mart’s “loyalty initiative” fundamentally sound from the supporting information the company has made public?
Does using high-level customer segmentation and appropriate business practices to meet the needs/desires of targeted groups equate to a higher level of consumer loyalty?
This is very interesting. Wal-Mart, without a loyalty card that simplifies customer-level analytics, claims to be tracking its 130 million customers down
to the frequency of trip level. Likely they are matching sales and trips to consistent payment types and augmenting with surveys…probably combining whatever internal information
they have with outside information.
With all of Wal-Mart’s success in other areas of retail operations, tracking customers is not where I would look to them for best practices. But with what
they do have they can certainly derive the shopper segments they have defined.
Shopper tracking capabilities aside, the subtext here is familiar to any retailer. There are reasons shoppers choose:
- Not to shop my store,
- Shop my store reluctantly,
- Shop my store less than they should, or
- Shop elsewhere for what I offer.
For some, it’s the store layout. For others, it’s price. For still others, it’s the availability of specific products. And it could be as simple as the
vibe.
Trying to be all things to all people doesn’t solve these problems. Understanding what’s broken and fixing it does. Wal-Mart has identified a lack of store
match to local market area or desired customer segment to be broken and is working to fix it. Best Buy and others have had success with this approach.
This high-level customer segmentation marketing effort by Wal-Mart does turn the marketing possession arrow from what I want to sell to what my shoppers
and potential shoppers want to buy. That’s more the execution of a good business practice than a loyalty marketing initiative. –
George Anderson – Moderator
It’s a time-honored retail tradition to dance with them what brung ya’, so WM’s initiative is fundamentally sound. But what took them so long? Too busy buying the approval of local governments in order to meet the location projections spoon-fed to Wall Street? Too busy unloading shipping containers of products from anti-human-rights Mainland China? Too busy ducking and covering from anti-human-rights claims in their workplaces? Perhaps.
Contrary to David Livingston’s comments, in which WM has seemingly achieved the heretofore impossible task of winning the hearts and minds of its enemies, WM still has enemies who are in control of their emotions and thoughts. Among them are arbitragers who would dearly love to “short” WM stock, and who are always in the process of devising ways to do so. Given the right spin, they could circulate the idea that WM is extremely late to the party regarding own-customer research, and therefore technologically challenged and perhaps unable to catch up.
Wal-Mart has a wealth of data in their Retail Link system. Recently they asked suppliers to analyze and use that data more fully. If Wal-Mart works with suppliers to study and understand this data, it will yield unique insights into their customers. However, this is behavioral data and does not reveal WHY customers are making these choices. Figuring out why the Skeptics only go to Wal-Mart occasionally is critical for making changes to attract those consumers. Analyzing the Retail Link data in more depth is an important part of the process and needs to be done, but it is only one step.
As a supplier working directly with Wal-Mart, there is no doubt the initiatives they are taking are real and making a tangible difference in the way we present ourselves to them each day. We are seeing the impact at several levels of our organization that has touch points within Wal-Mart, and we are seeing them becoming more collaborative in developing joint business plans.
As each move the retail giant makes is scrutinized from every angle, Wal-Mart has been making solid steps toward repairing its outward image to John Q. Public. Smiley has been replaced in their ads, deemphasizing the pricing and now emphasizing the impact Wal-Mart can make on everyday living. Environmental sustainability is being added to their individual objectives throughout the organization. It won’t be a radical difference immediately, however the building blocks are being set in place now.
As far as the underlying data to support their loyalty info, Wal-Mart is performing several joint studies with their supplier partners in understanding consumer behavior inside and outside the store. These studies either help Wal-Mart confirm their data, or direct their focus for future data queries. Conversion studies, shopping patterns and traffic flow, shopping missions, and proximity studies have all been brought into play as Wal-Mart is seeking more share of mind with the consumer. At the end of the day, I believe Warren is spot-on – they have quite a bit of data to begin fixing some things quickly, and may get into analysis paralysis.
The proof of the pudding is in the eating. Perhaps we’ll see if Bernice shifts camp to join the ‘selectives’.
I’m not quite sure what or why Wal-Mart is talking about this. To me this sounds like some kind of canned statement to please the press or Wall Street. From what I have read, Wal-Mart’s best customers are those who criticize or dislike the company the most. It’s quite obvious Wal-Mart has won the hearts and minds of both its friends and enemies. I seriously doubt Wal-Mart is as concerned about these issues as they are trying to lead us to believe.
It isn’t necessary to track customer preferences using loyalty cards since various forms of statistical sampling will certainly deliver the data needed. To answer the survey question, it’s a lot more economical to sell more to Wal-Mart’s existing fans than win over new converts. That’s the way it is for most businesses. Wal-Mart would increase its appeal greatly if it empowered a design team to clean up its interior graphics and other in-store environmental issues. Target store interiors don’t feel like they’re demeaning. Even if Wal-Mart had Target’s exact assortment and prices, Wal-Mart’s interior environment would hurt the impact. And good designers should be able to deliver a decent look without increasing the expense.
Good business practice builds loyalty. Given their numbers and critical mass, focusing primarily on loyalists will get you the biggest bang for the buck, with some secondary emphasis on the selectives. Reading between the lines, I think Wal-Mart has enough to work with here to do good targeting. Few are doing a good job with mining their loyalty card data anyway. Frankly, the degree of granularity available is overkill. If you tried to react to every “finding” available, you’d never get the important stuff done.
The words leopard and spots spring to mind. Although these promises and goals are in keeping with other policies recently emerging from Bentonville, I will remain firmly in the sceptic camp until I see some evidence of change in the treatment of employees and suppliers. All the cosmetic attention to store layout and trying to appeal to local target markets is so much hot air if the company itself still behaves shabbily. It is extremely likely that selectives and loyalists can be persuaded to spend more and tell their friends all about it. Which comes more under the heading of preaching to the converted. If Wal-Mart’s research does anything at all, it will increase loyalty and spend amongst those groups. But I don’t think it’s like to produce the desired results from sceptics.
Isn’t Wal-Mart already tracking its customer’s buying habits? When a consumer uses their credit or debit card at any WM, the items they purchase are tagged to that card. Anytime after that initial use of that same card for another WM purchase, the frequency of visit, which items are purchased, which items are REPEATEDLY purchased, the frequency of repeat purchases by that particular consumer, which items are purchased in conjunction with each other item, and a whole host of data is compiled and analyzed to measure individual and group consumer buying trends. How much more info can they get to know how to attract more business from more consumers?