Retailers must take long-term approach

03 August 2010

MUNICH: Retailers in Europe stand to gain substantial benefits from adopting new models which seek to build long-term loyalty rather than temporary advantages based on price.

According to Roland Berger Strategy Consultants, a series of “fundamental changes” are impacting buying habits in Europe, ranging from health and wellness, sustainability and ageing populations.

Shoppers also often live in smaller properties, are focused on convenience and prefer goods that are manufactured locally, leading to more individualistic behaviour than ever before.

Another demographic is keeping budgets down and “watch prices meticulously,” and while both groups will pay extra for quality, they are different in a number of ways.

“The market is thus becoming increasingly polarized,” Roland Berger's study said. “Although mid-market segments are certainly shrinking, they won't disappear completely.”

Indeed, it seems a form of “hybrid” is emerging that is likely to result in a “boom” for high-end offerings and low-cost or private-label alternatives.

More specifically, “retro” brands, items with a “good for you” positioning - like organic food and drink - and “experience shopping” are all set to witness a surge in demand.

Elsewhere, social networks, virtual worlds and mobile phones will continue to reshape the online and offline landscape by empowering consumers.

While many retailers are leveraging data from loyalty cards, Roland Berger said this must be used for very detailed segmentation, and measured against general household panels run by firms like GfK and Kantar.

This will enable companies to acquire a picture of the wider shape of the market and competitors' strengths and weaknesses, alongside identifying their own most valuable audience.

The next step is to create “clusters” of stores premised not on location or size, but the precise profile of their typical visitor, like dividing networks into “economy”, “standard” and “premium” outlets.

Such a system can be employed across categories through an assessment of the overall role played by particular sectors financially and in the mind of customers.

This should optimise product selection by determining which brands enjoy the greatest penetration, consideration and levels attachment, and those that are viewed as the most important to stock.

A nuanced appreciation of the needs of consumers in this way could reduce price sensitivity by establishing where cost is a primary motivator, and where there is more flexibility.

Knock-on benefits apply with regards to promotions, advertising, targeted mail-outs and other tools that help ensure people do not switch to rival stores.

Roland Berger's analysis suggested this can improve margins by between 1.4% and 2% across the entirety of a retailer's operations.

Carrefour has constructed its proprietary Shopper Discover platform utilising this kind of approach, primarily using purchase data to generate insights.

“We can track exactly how footfall, average receipt and repeat purchasing behaviour have developed in each of the various product categories,” said Thierry Afrigan, director of customer marketing at Carrefour.

The firm has also set up a company called Emnos, via which it shares relevant information with suppliers in order to ensure they are up to date with the evolving requirements of its clientele.

“We believe that sharing a common understanding of our customer needs and potential with our suppliers is key for jointly profitable growth,” said Afrigan.

Data sourced from Roland Berger Strategy Consultants; additional content by Warc staff