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Canadians Forgo Customer Service for Low Prices [STUDY]

Canadians Forgo Customer Service for Low Prices [STUDY]

Tweet Random As we tepidly recover from the financial crisis of 2007-2009, we’re seeing the residual effects of the economic downturn that stalled commerce around the world—including, of course, consumer activity in North America. In no small way did the downturn affect consumer spending and transaction levels. According to a new study focusing of retail loyalty among [...]

As we tepidly recover from the financial crisis of 2007-2009, we’re seeing the residual effects of the economic downturn that stalled commerce around the world—including, of course, consumer activity in North America. In no small way did the downturn affect consumer spending and transaction levels. According to a new study focusing of retail loyalty among consumers it was found that customer service has been replaced by low prices as the leading factor driving shopper loyalty. In short, many consumers driven by a need for frugality and prudence shifted their proclaimed loyalties to the low-price leaders in Canada. The COLLOQUY Canadian Retail Loyalty Index [PDF] a study of 3,500 Canadian shoppers, shows that the importance of customer service has plummeted by almost 20% since 2008 as discount retailers make major gains in Canada. When asked for the factors that most influence their loyalty to a retailer, consumers ranked customer service in second place behind competitive price.

“While the recession played a major role in driving consumers to low-price stores, even as the economy recovers the need to deliver a good customer experience and value is the new normal for all retailers,” said Kelly Hlavinka, author of COLLOQUY Canadian Retail Loyalty Index and COLLOQUY Partner. “But value doesn’t just mean low prices. Stores that can identify the shoppers that contribute most to their bottom line, and how to satisfy them, stand the best chance of survival and success,” she added.

Kelly Hlavinka is a Managing Partner with COLLOQUY

Naturally, this study grabbed our attention as a number of investment implications can be inferred from these results, more so if the U.S. is headed for a ‘double dip’. Hence, we are extremely excited to present our interview with Ms. Hlavinka, the author of the COLLOQUY Canadian Retail Loyalty Index.

Biography: Kelly Hlavinka is a Managing Partner with COLLOQUY, a firm that provides information and analysis of frequency marketing programs and strategies from around the world. Kelly has helped to define and carry COLLOQUY’s mission to be the voice of the loyalty industry since 1996. Serving as its brand steward with the goal of elevating Enterprise Loyalty to its fullest potential and drawing on her 20 years as a loyalty specialist, Kelly develops articles, white papers and educational initiatives that illuminate the many ways to unlock the asset of customer-specific data for her clients. Kelly in 2003 launched and managed COLLOQUY’s strategic consultancy, working with clients such as Lennar Homes, MGM MIRAGE, Eddie Bauer, Best Buy, HP and American Express.

Q: What are the key takeaways from the 2010 COLLOQUY Canadian Retail Loyalty Index survey?

A: In open-ended responses, the COLLOQUY Canadian Retail Loyalty Index shows that the importance of customer service has plummeted by almost 20 percent since 2008 as discount retailers make major gains in Canada. When asked for the factors that most influence their loyalty to a retailer, consumers revealed a major shift in their views since 2008. The importance of customer service dropped 18 percent among the general population, falling to second place behind competitive price. By contrast, in 2008, virtually all demographic groups ranked customer service the most important factor in gaining and keeping their loyalty, with competitive price finishing a distant second.

However, the study also reveals that deep discounts are not the only way to customers’ hearts and wallets. When asked to define loyalty in directed-choice questions, customers still revealed that being rewarded for their longevity and willingness to recommend is important to them.

Canadians are now much more careful and deliberate about how and where they spend their money. Before people hand over their money, they are asking themselves fundamental questions. They are very aware that ‘I am the customer, and you’ve got to work harder for my business and even harder still if you expect to create a genuine and lasting relationship with me.’

Q: In your 2009 Loyalty Demographics study, it was reported that 93.6% of Canadian respondents claim to participate in a loyalty marketing program. Why do you think the adoption rate of merchant loyalty programs in Canada is 40 percentage points higher than in the United States?

A: By far, it is due to the more mature and rewarding loyalty landscape in Canada. For example, the presence of two major multi-brand rewards programs (AIR MILES and Aeroplan) have taught Canadians just how quickly that rewards can add up. That had led to a more receptive environment for a wide variety of loyalty schemes.

In addition, some Canadian retailers have built loyalty to their brands with a more diversified approach than simply promising the lowest price, as borne out by the continued success of retailers like IGA & Jean Coutu (Quebec); Sobeys (Atlantic Canada); Canadian Tire, Shoppers Drug Mart and The Bay. The degree to which low price drives customer frequency and loyalty is growing in Canada, but still pales in complexion next to the US, where it dominates virtually every category.

Q: Did this high loyalty program adoption rate help retailers and merchants retain business during the recession of 2008-2009 or did consumers simply choose the retailers/merchants offering the lowest prices?

A: While the recession played a major role in driving consumers to low-price stores, even as the economy recovers the need to deliver a good customer experience and value is the new normal for all retailers. But value doesn’t just mean low prices. Stores that can identify the shoppers that contribute most to their bottom line, and how to satisfy them, stand the best chance of survival and success.

Despite the large drop in the importance customer service plays as a loyalty driver in Canada, the Canadian experience pales in complexion to the US, where a similar study by COLLOQUY reveals that low prices have become even further entrenched since 2008, leaving little room for retailers to win on anything but price.

Q: What are the fundamental elements of the retail experience that drive store loyalty? In other words, why are consumers most loyal to specific retailers?

A: The basics really are the primary drivers: competitive prices, good service, quality products and sound selection. The big challenge, though, is that there is so much competition in each category. To really win in retail, you need to strive to be best at what you can. If you can’t win on the lowest prices, it is critical to use a sound loyalty strategy to understand who your customers are, what they are buying and how you can use customer-specific insights to overhaul your pricing, merchandising and store layout strategies.

Q: To which specific retailers are consumers most loyal? How do these retailers compare to those at which consumers shop most frequently?

A: Grocery: Among grocery chains, in Ontario the discounters lead the pack, with Zehrs ranking highest for customer loyalty and No Frills topping the charts in frequency. Similarly, in the West, Costco is the COLLOQUY Retail Loyalty Index leader, with Safeway winning the frequency race. On the other hand, in Quebec, IGA tops both scores as does Sobeys in Atlantic Canada. In Quebec, Loblaws (loyalty) and Metro (frequency) emerge as strong second place finishers.

Pharmacy: In the pharmacy category, discounter Zellers narrowly beats Walmart Supercenter, Shoppers Drug Mart/Pharmaprix and Rexall in the loyalty race in Ontario. Shoppers Drug Mart is cited as the most frequented drugstore. In Quebec, homegrown favourite Jean Coutu topped both frequency and loyalty scores, as did Shoppers Drug Mart/Pharmaprix in Atlantic Canada. In the West, discounters reign supreme, with Costco again topping the loyalty category and Walmart attracting shoppers most frequently.

Q: Recently, Walmart Canada announced a new discount-based program in which customers can earn a 1.25% discount on purchases made on the Walmart Mastercard. How do Canadian retailers maintain and deepen customer loyalty in the face of savvy and formidable competitors like Walmart trying to take a bigger chunk of their business?

A: Walmart continues to emphasize price – and in this case a direct rebate – to build retail traffic. But, other retailers can differentiate by blending both economic incentives, recognition benefits and brand-enhancing elements into their loyalty strategies. This allows retailers to know who your customers are, what they are buying and what their preferences are. In short, it enables the ability to win at “customer intimacy” instead of fighting hand-to-hand combat with Walmart on price

Q: There can only be low-price “leader” so how do merchants/retailers hold onto current customers or regain customers they may have lost during the recession while not sacrificing good customer experience?

A: Retailers can hold onto current customers and regain others lost by keeping the following strategies in mind:

  • Be wise about where you can win. There are other places to win beyond price, from selection to in-store service. Better yet, retailers can win by knowing and understanding their most profitable customers and what they want.
  • Deliver more value. While the recession hangs on, promotions aimed at a retailer’s best customers and partnerships can augment the value customers receive in return for their loyalty.
  • Collect the customer data you need to succeed. By casting the net wide and collecting customer data, retailers can ensure their communications, pricing and product selection hit the bullseye with their most profitable customers.
  • Look local. Examine additional marketing opportunities within a tighter range of store locations to court nearby customers, and to attract new and previously infrequent shoppers.

Thank You, Ms. Hlavinka!

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