This post is by José Carlos González-Hurtado, President of IRI International.
Even the most price-focused brands have come to understand the importance of customer loyalty in recent years. Michael O'Leary, CEO of Ryanair – once famous for its stark approach to customer service – recently credited its 25% profit increase to the "enhanced customer experience" it now offers. Discount supermarkets such as Aldi and Lidl have also realised that low prices are no longer enough to keep customers returning.
Many FMCG retailers still have a long way to go when it comes to making customer loyalty a priority, however. As margins are eroded, price wars break out and online retailers and discounters rise, growing sales by building and sustaining a base of loyal customers is critical. Yet retailers are failing to make use of the rich consumer data they have ready access to, applying it primarily to inform short-term price and promotions activities.
FMCG product manufacturers, on the other hand, have spent years building strategic, analytical and consumer-focused organisations, with the aim of long-term retention of their hard-won customers.
The fact is, shoppers choose a store because the location is convenient, rather than because they love shopping there. They are loyal only to brands. Retailers must become more customer-focused; launching a loyalty card does not mean 'job done', as the chances are each shopper has several different ones from several different stores.
Make the consumer's voice heard
Retailers have market and consumer data in abundance, which puts them in the best position to listen to consumers' demands and respond to them quickly. Like manufacturers, they should derive conclusions from this information, and then use these as the basis for decisions about whether to confirm or change course. This means applying more detailed research and analytics, and creating business processes to transform data into actionable insight.
One area that will benefit from listening to the consumer's voice is the simplifying of product ranges to drive efficiency without losing trade. Finding the optimum combination of product lines will result in shoppers who are satisfied because they can find what they want, quickly, in an environment that is easy to navigate. If the shopper cannot find the product they love, however, they will switch to another store. Intelligent analysis of customer data brings an understanding of consumers' behaviour and product preferences, helping the retailer to accurately see the impact on sales if a particular product is de-listed.
Use insight to innovate and differentiate
Being different is a pre-requisite for loyalty, but many consumers see retailers as nothing more than 'pipes' that link them with brands. Pipes add no value, and are easily replaced.
One effective strategy for making a brand unique is to 'Divide the market in two, and stand alone in one half'. This involves analysing consumer data to identify a real, ownable feature that is relevant enough (or can be made relevant through marketing) to divide 'the world' in two. Head & Shoulders became the world's largest haircare brand after its owner Procter & Gamble split the shampoo market into 'normal' (where all existing brands sat) and 'anti-dandruff', where Head & Shoulders stood alone. P&G won by owning 50% of the potential choices.
Another strategy is to focus on the "three decisive moments" that build loyalty.
Moment 1: The consumer writes the shopping list, and decides where to shop. To win, a retailer's store must be chosen, and also ideally get its own brand products on the list. Manufacturers are adept at this – for instance, when someone writes 'Tide' instead of 'detergent'. If they write 'Finest coffee' instead of simply 'coffee', they are implicitly deciding to 'go to Tesco'.
It is innovation and marketing investment – advertising works! – that will engage the shopper at this point. 'New' sells more than 'better', and nothing is new if nobody knows about it. The retailer needs constant innovation (disruptive, product-driven or simply commercial) and to advertise.
Moment 2: The consumer goes shopping. The retailer brand is on the shelf, alongside manufacturer brands. The customer will decide to put it in their cart if the retailer has got three things right: placement, which allows the customer to find the brand, and the price and packaging which provide the elements for the 'value' equation that the customer will calculate in few seconds.
Moment 3: The consumer opens the pack and uses the product. If the retailer or the manufacturer brand creates delight – by delivering the brand promise in a sublime way, or providing an additional and unexpected benefit – the experience is memorable, and the 'special connection' of respect and love is built. Remember that 'to delight' is much greater than 'to deliver'.
Winning these three moments is what will win the loyalty war: if the customer is delighted with its own brand, they will add it to the next shopping list and return to the store.
By thinking more like manufacturer marketers do and giving the issue of loyalty the strategic consideration it deserves, retailers will not only drive increased sales, they will build a brand that is strong in its own right. This will give retailers the power to sway purchasing decisions, and predispose consumers to shop in its stores.
This post is by José Carlos González-Hurtado, President of IRI International.
