“Sweethearting” Deals Cost Retailers Billions Per Year

CHALLENGE:
What is the cost of employees who slip their friends an extra appetizer or comp a drink at a restaurant? It may cost the service industry as much as $80 billion a year. But does this help the business? The answer is a disappointing, “NO.”

HOW THEY RESEARCHED IT:
Professors Clay Voorhees from Michigan State University, Michael Brady and Michael Brusco from Florida State University surveyed 171 service employees. These employees were instructed to request survey completions from two of their customers involved in a sweethearting incident and two of their customers who were not involved, resulting in 610 customer-completed surveys. The researchers hypothesized that sweetheart customers would develop close personal relationships with frontline staff and thereby lead to customer satisfaction with the business, and subsequently, loyalty to the business. Sweethearting with heavy usage regular customers was excluded from the study.

WHAT HAPPENED?
Any positive effect from sweethearting is tied to the collusive employee; the gain any business might receive is filtered out by the employee. Further, customers who were sweethearted provided inflated satisfaction, loyalty and positive word of mouth measures on the surveys. The threat of punishment has little deterrence because staff and customers are collaborating, unlike when staff is pitted against customer-shoplifters.

WHY MANAGERS SHOULD CARE:
Shrinkage and other retail losses are increasing globally. Sweethearting is one form of shrinkage. Further, businesses that reward staff on the basis of customer satisfaction are misapplying rewards when sweethearting is common. The researchers argue that a broad range of traits should be measured prior to hiring, including ethics and need for social approval. They suggest that such measures could circumvent the need to implement oppressive and alienating security measures.

CAN YOU HELP?
Have you found techniques that can inhibit sweethearting? Have you found when sweethearting is valid?

Source: Michael K. Brady, Clay M. Voorhees, & Michael J. Brusco (2011), “Service Sweethearting: Its Antecedents and Customer Consequences,” Journal of Marketing.

News pickups:
‘Sweethearting’ deals cost retailers billions, MSNBC, February 17, 2012 http://bottomline.msnbc.msn.com/_news/2012/02/17/10418928-sweethearting-deals-cost-retailers-billions

‘Sweetheart Deals’ Could Cost U.S. Companies $80 Billion a Year, U.S. News & World Report, February 14, 2012
http://www.usnews.com/news/articles/2012/02/14/sweetheart-deals-could-cost-us-companies-80-billion-a-year

Does In-Store Marketing Work?

CHALLENGE:
The “first moment of truth,” a concept created and popularized by P&G has been the focus of many CPG firms in recent years. Do factors like shelf facings or shelf position have any impact? And impact on what? Attention? Brand evaluation? Interestingly, an experimental study suggests that facings have an impact on attention and brand evaluation, but the optimal impact depends on such factors as usage frequency, brand share, and consumer characteristics. And that top and middle shelf positions generate more attention than lower shelf positions, but shelf position does not reinforce brand evaluation.
HOW THEY RESEARCHED IT:
Marketing researchers, with assistance from Perception Research Services Inc., created an eye-tracking study to observe the impact of both in-store and out-of-store factors on consumer purchasing behavior. The study divided purchasing behavior into five primary categories, including noting, reexamination, recall, consideration, and choice. Participants included 384 adults, resulting in a total of 8,304 observations. Shoppers were asked to review images of traditional supermarket shelves filled with twelve different products. The product placement, prices, and shelf facings varied so as to discover their effects on consumer attention and evaluation. The two sets of product categories used were soaps and pain relievers and the shoppers were divided into two groups – choice versus consideration oriented. During the initial part of the survey eye-tracking technology monitored and recorded the time each shopper spent looking at specific products and during the later customers answered questions regarding previous brand usage, shopping habits, and individual characteristics.

WHAT HAPPENED?
Increased shelf facings significantly influence consumer attention, and through attention, effect brand evaluation. For the average brand and consumer, doubling the number of shelf facings raised noting by 28%, reexamination by 35%, and both choice and consideration by 10%. Brands with low-market share are more responsive to shelf facing increases because the public is less saturated with outside information about the brand, and thus more likely to be affected by in-store advertising and promotion.
Position of shelf facings influences consumer attention but does not necessarily lead to a specific result in consumer evaluation. Horizontal placement has an effect on customer attention with a raised awareness only of products placed in the center of a shelf. This increase is partially attributable to the fact that customers are likely to look over the center of the aisle more often while viewing products on both the left and right sides. Additionally, products in the center of the shelf are viewed more often but for less time. Products placed in the center increased noting by 22% and choice by 17%, however all evaluation gains came from attention and direct effects on evaluation were negative. Vertical placement has a more substantial effect on brand evaluation; brands placed on the top shelf versus the bottom increased noting by 17% and choice by 20%, with 36% of gains from brand evaluation coming from attention. The results support the findings of earlier studies that items with more value and prestige are placed on higher shelves. The takeaway is the significant distinction between attention and brand evaluation, especially in the case of vertical placement where higher or lower placement helps influence the ensuing brand evaluation either positively or negatively
In-Store marketing has a noticeable effect on visual attention but a significantly smaller impact on higher-order stages of the decision-making process such as recall, consideration, and ultimately choice. However the positive impact in-store marketing has on evaluation is highly reliable. Out-of-store factors such as consumer brand usage, shopping traits, and market share have a much higher effect on evaluation.
Price did not play a significant role amongst most consumers; discounted and standard prices were viewed and recalled approximately the same amount of times. Price had a small affect on the two foreign products, in that without being discounted they were never recalled by consumers.
Who to target: In-store marketing is much more effective on younger, better educated, and “opportunistic” shoppers. Past studies concur that these shoppers are more prone to impulse buys and so have a greater susceptibility to in-store advertising. The shoppers were also divided based on questions at the end of the survey into the categories “brand shopper”, “value shopper”, and “price shopper”. “Value shoppers”, or rather those most willing to exchange brand names for price, are the most easily influenced by in-store marketing.
WHY MANAGERS SHOULD CARE?
The research findings suggest that in-store sampling is not the most effective way for businesses to blow the competition out of the water, however over time it can play an important role in marginal increases. Paying attention to product placement, especially in terms of shelf-height, and increasing the number shelf facings will eventually lead to gains. Products with low market share especially should focus on increasing shelf facings and premier placement as those are the products likely to gain the most from added in-store exposure.
On the other hand, managers should increase emphasis on out-of-store factors such as consumer brand usage, shopping habits, and market share as much as possible knowing that those are what really affect purchase decision making.
CAN YOU HELP?
Comment back on your REAL experiences. Is your actual sales consistent with these results?
This research is based on “Does In-Store Marketing Work? Effects of the Number and Position of Shelf Facings on Brand Attention and Evaluation at the Point of Purchase” by Pierre Chandon, J. Wesley Hutchinson, Eric T. Bradlow, and Scott H. Young in Journal of Marketing. Nov 2009. Vol. 73, Iss. 6; p. 1

Can In-Store Sampling Benefit Long-Term Sales Growth?

CHALLENGE:
In-store sample can drive a one-day spike in sales, but is it worth the bother? Does in-store product sampling have any lasting effects on consumer shopping behavior? Does a relationship exist between sampling and brand franchise sales? What about between sampling and total basket size? New research suggests in-store sampling leads to gains not only in same day sales but also in long-term purchasing habits, brand franchise sales, and even total basket size of the average shopper.

HOW THEY RESEARCHED IT:
PromoWorks partnered with Knowledge Networks/PDI to run three in-store sampling procedures for a new product launch, a line extension (adding a new flavor to an existing product line), and a newly packaged existing product. The number of shoppers in each procedure was 3,000, 15,000, and 30,000 respectively. KN/PDI used extensive data from the National Shopper Lab (NSL) to create control groups and test groups for each procedure. Both groups regularly shopped at the supermarket chain in which the sampling took place and had not purchased the sampled product in the past year. The test group was known to have been present when the sampling took place whereas the control group was not in the store during the sampling, but had recently shopped at the grocery chain. The purchasing habits of the households in the study were observed for twenty weeks following the sampling and the results were adjusted using an Analysis of Covariance to reach a 99% significance level.

WHAT HAPPENED?
Same day sales of the sampled products increased 475% on average, in line with both researchers’ expectations as well as past studies. More importantly a long term effect was revealed, showing that the average cumulative trial for the sampled products was 58% higher for the test groups than the control groups, even 20 weeks after the initial sampling. These results indicate that sampling is an effective way to drive first-time product purchases over an extended period of time.

The study also reported an average cumulative repeat purchase volume of 11% higher for the test group than the control group. Not only did the customers exposed to the in-store sample buy more of the sampled products initially, they also continued to purchase the products more than their counterparts who did not experience the sampling.

Sampling of brand new products were expected to generate buzz and result in increased sales, which they did. Somewhat surprisingly however, the line extensions and existing product samplings were also highly successful. The sales increase for line extension products was 919% on the day of the event, and 107% after the 20 week period. The existing product sales increase was 177% on the day of the event and 57% after the 20 week period.

Sampled products also led to sales increases in entire brand franchises. For example, sampling bags of Fritos in a store is likely to lead not only to higher Fritos sales but also higher sales for other Frito Lay products. For all of the sampled items there was an average sales lift of 107% on the event day and a 21% average sales lift over the 20 week period. The average cumulative trial for the brand franchise was a net gain of 19%. In-store sampling can also create new buyers for both products and brands – the average cumulative new buyers for the sampled items were 85% and 23% for the brand.

Finally, the study also shows that in-store sampling can have a positive effect on total shopping basket size. Following the sampling event, the test groups’ overall shopping spending increased 10% compared to the amount spent by the average frequent shopper at the retailer.

WHY MANAGERS SHOULD CARE:
This study opens up the possibilities of in-store sampling beyond the traditional new product launches it has been used for in the past. Managers should concentrate on increasing sales for large brand franchises over time, and even re-launching products which have proven successful in the past.

Grocery chains are not the only retailers who can practice in-store sampling – with results such as increased total basket size as well as higher brand sales it suggests other businesses might use sampling with their products. Industries that already have strong loyalty programs in place, such as cell phone companies and airlines, have the added benefit of being able to track the effects of sampling much like the grocery chains have done. For example, cell phone carriers could provide a trial period wherein consumers could use all the functions available on the latest phone at a discounted price and then monitor the sales results following the trial period. Airlines might offer “platinum” benefits to targeted travelers when first-class seats are open even if the traveler doesn’t qualify.

CAN YOU HELP?
Comment back by sharing ways in which you have implemented in-store sampling outside of the CPG area and what sales have resulted.

A copy of this report may be downloaded at Source: PromoWorks, http://www.promoworks.com/source/default.asp

Does a Store’s Brand Experience Deliver Consumer Loyalty?

CHALLENGE:
What defines great retail experiences, according to shoppers? Which great experiences deliver most to customer loyalty and to the bottom line? Do great experiences happen very often? It turns out “Brand Experience” drives loyalty, but is infrequently delivered.

How they researched it:
1,006 online interviews were completed in May, 2009, with a 60:40 proportional split between U.S. and Canadian shoppers who have purchased products at a retail store in the last 6 months, and weighted to match census data for age, region and gender. The operational definitions of what constitutes “great shopping” or its drivers were not provided in the executive summary. The Verde Group, in partnership with Wharton and Retail Council of Canada conducted the research.

What happened?
35% of consumers report having a great shopping experience within the previous 6 months, another 18% have had a great shopping experience at some point in their shopping lives, while 29% report never. Of those who have had a great shopping experience, a large majority will “definitely intend to return” the next time they need something similar, and most will “definitely recommend” the store to four to five friends and associates on average. A huge drop in intention to return occurs when a great shopping experience was not encountered.

Of those who have had a great shopping experience, most report multiple drivers to that experience, which can be aggregated to five categories. But only two of the categories drive loyalty. “Brand experience” has by far the most meaningful impact on shopper loyalty, followed by “Engagement.” Brand experience is defined as “Exiting store design, consistently great product quality, making customer feel they’re special and that they always ‘get a deal.’” Engagement is defined as “Being polite, genuinely caring and demonstrating sincere interest in helping, acknowledging and listening. Retailers frequently do a job at delivering “Engagement,” but do poorly at delivering “Brand Experience.” Canadian shoppers crave excitement substantially more than U.S. shoppers.

Hard to impress: Shoppers over 60 years of age are harder to impress, requiring a large number of great shopping elements before inferring a great shopping experience. Gen Y and young Gen Xs are less likely to develop loyalty just because of a great shopping experience.

The easier targets: Men will tell half again as many of their friends about a great shopping experience, compared to women. But women are more likely to translate their experiences to loyalty.

Why managers should care:
This study should be viewed as one of many that are trying to define what constitutes “experience marketing.” This is one approach to establishing a brand. A trend in retailing in the advent of the product branded store, such as those implemented by Apple, American Girl, Nike, and others. These product branded stores have quickly become retail icons. Where are the other specialty stores? Is there a photo experience store? A hardware experience store? A floral experience store?

Can you help?
Comment back by sharing your experiences with creating are examples of a specialty store “Brand Experience.”

Are customer loyalty programs a good thing?

CHALLENGE:
Keeping the customers you already have in a down economy is especially challenging. Companies frequently spend much more to attract than to keep customers. Do customer loyalty programs deliver in this economy?

How they researched it:
Loyalty programs are systems that track and reward customers who keep coming back to repeat purchase. Consulting firm Aberdeen Group surveyed 165 retail enterprises between January and March 2009, to learn if loyalty programs lead to business success. The sample included supermarkets/grocery, (10%), specialty (9%), hospitality/leisure (8%), apparel/footwear (7%), retail banking (14%), consumer products (9%), and department store/general merchandise (5%). The respondents were from North America (61%), Asia-Pacific (20%), Europe (13%, South/Central America/Caribbean (3%), and Middle East/Africa (3%). The size of firms ranged from over US$1B (33%), $50M-$1B (27%), and under $50M (40%).

What happened?
The top performing retailers (20%) had a year-over-year average basket size increase of 19%, customer retention rate increase of 16% and customer attrition rate decrease of 5%. The bottom 30% of retailers suffered a 2% decrease in average basket size, 6% decrease in retention, and 5% increase in attrition. What are the differences between the top and bottom performers? Top retailers reward for increased customer purchase frequency or total customer spend. For example, a $3 off coupon for an ink cartridge and double reward points for a twin-pack purchase. Best Buy recently reinvented its loyalty program by introducing a premier tier and offering these members no-fee membership, free shipping, priority access to limited supply products, more liberal return/exchange policy and access to exclusive events. Since its launch two years earlier, membership has risen from 8 million to 30 million. In general, multi-tier programs are a current trend among top performing retailers.

In addition to the reward component, top performers also tended to capture the required CRM data at POP. This allows customer segmentation (especially to identify new customer acquisition), wallet share analysis and market basket analysis, thereby facilitating personalized promotions. Many retailers develop new acquisition programs, where new customers receive a coupon upon checkout for their next purchase. Web couponing is an extremely cost efficient mode of delivery, particularly when correlated to purchase history.

Another component of the loyalty program that top performers have is loyalty card application and redemption. Application refers to the capability of card scanning, capturing purchase data, and compiling loyalty credits. Redemption refers to the capability of tracking customer use of the loyalty credits.

Why managers should care:
Top performing retailers have better average market basket size, retention and attrition rates. In addition, they have 53% higher Compound Annual Growth Rate (CAGR). While solid loyalty programs do not automatically yield such returns, they are part of the mentality and management orientation that can lead to such stellar performance.

Can you help?
Comment back by sharing your experiences with customer loyalty programs, especially if you’ve found an inexpensive way to collect and use application and redemption data.

Sahir Anand and Chris Cunnane (2009), “Cutting Edge Customer Loyalty,” Aberdeen Group, March. A copy of this report may be found at
http://www.aberdeen.com/includes/asp/sponsored_registration.asp?ci=/launch/report/benchmark/5803-RA-customer-loyalty-retention.asp&spid=30410182

Can you reduce inventory?

CHALLENGE:
Pressure from the poor economy is forcing some stores to reduce costs, including inventory. But does inventory reduction lead to lower sales and worsen our business situation? Do consumers really want more choices? The empirical answer may surprise you.

How They Researched It:
University marketing professors wanted to find out if “more choice is better” in the retail setting. They set up a tasting booth of exotic jams in an upscale grocery store. The booth had only 6 choices to taste part of the time, and 24 choices the rest of the time. Shoppers were invited to taste as many of the jams as they wished and were then given a $1 coupon for any of the jams.

What Happened?
What happened? 260 shoppers passed by the 6-choice booth, 40% stopped and an average of 1.4 jams were tasted. For the 24-choice booth, 242 shopped passed by, with 60% stopping and an average of 1.5 jams were tasted.

The surprising result was that 30% of total shoppers bought a jam when they had only 6 choices from which to choose, whereas only 3% of the shoppers bought a jam after being exposed to 24 possible choices.

In an attempt to understand the mechanism underlying this behavior, the researchers repeated the study with students and used chocolates as choices. A questionnaire was also administered to get at underlying motivations. The behavioral results were consistent with the jam study. But the researchers also found that the choosers with many options enjoyed making the choice more and felt more responsible for their choices, apparently leading to more frustration with the choices made, and greater dissatisfaction and regret over their choices.

Why Managers Should Care:
It may not be necessary to overwhelm consumers with a wide array of different configurations of products or services in a merchandise category in order to achieve a relatively high level of sales. More on-shelf inventory of a particular merchandise category does not necessarily lead to greater sales of that category. An expert clerk with reassurances about the fit of the product to the shopper’s needs may help consumers feel good about the available (few) options, while leading to greater satisfaction and less regret after purchase.

Iyengar, Sheena S. and Mark R. Lepper (2000), “When choice is demotivating: Can one desire too much of a good thing?” Journal of Personality and Social Psychology, Dec., Vol 79(6), 995. You can read the original study here:
http://www.columbia.edu/~ss957/whenchoice.html