Reset! Engaging Consumers and Growing Market Share in the “New Normal”

Jon Giegengack, Chadwick Martin Bailey

Steven Dennis, Sageberry Consulting

Table of Contents

1. Introduction

2. The CMB Consumer Pulse Findings

• Changes in consumer mindset and spending

• What it means to specific kinds of products and purchases

3. Eight principles to help brands succeed

4. In Summary

Who is Chadwick Martin Bailey?

• Founded in 1984

• 65 employees in Boston

• Global, full-service custom market research company

• Dedicated Retail and eCommerce, Travel and Entertainment, Financial Services and Insurance, Healthcare and Technology Practices

• Specialize in brand, segmentation, product, and customer loyalty research

• Put out regular research results through our Consumer and Tech Pulse programs

3

Who is Sageberry Consulting?

• Growth and marketing strategy consulting firm for retail, consumer and luxury brands.

• Founded by Steven P. Dennis• 25 years at Neiman Marcus, Sears,

Lands’ End, and NutraSweet

• Prior to SageBerry, Steven was Neiman Marcus’ Senior Vice President of Strategy, Business Development and Marketing

• Executive in Residence at SMU’s Cox School of Business

• Blogger on the “Art & Science of Customer-Centricity”

4

How have consumers changed, and what does it mean?

• The economy has had a big impact on consumers of all stripes. (No kidding.)

• Many of these changes are permanent. With a few exceptions—today’s consumer is not the same person you served two years ago.

• What they spend on

• What is important to them

• How they evaluate brands and products

5

How have consumers changed, and what does it mean?

• Entirely new patterns of behavior are

starting to emerge.

• Not the pre-recession “spend at

will” habits

• Not the bunker-mentality habits of

2008-2009

• But a new set of criteria that

consumers have created, and

intend to stick to

6

How have consumers changed, and what does it mean?

• According to our most recent wave

of consumer research…

• 1/3 of people have seen their

personal financial situation get

worse in the last 12 months

• However--most (84%) think things

have leveled off or will improve over

the next 12 months.

• The implication: Many people

consider their current

circumstances temporary. What

will they do when those temporary

conditions have ended?

7

How have consumers changed, and what does it mean?

• Half-empty: many companies’ understanding of their customers and prospects is out of date.

• Half-full: for companies that understand the “new normal,” there are big opportunities to gain share.

8

How do we know?Details on our research study

• CMB Consumer Pulse• Online study of 1500 consumers ages 18-65

• Recruited from an online consumer panel

• Qualitative chat-based interviews with selected respondents using iModerate Research Technologies

• Asked about changes in perceptions, consideration, and spending across a range of categories

• The data set is available online via Tableau Public by following the links at the bottom of each page

9

10

What have we learned? Consumer spending is in flux.

11

What have we learned? Consumers have cut back across the board.

View and play with the data yourself at:http://public.tableausoftware.com/views/NewNormalShopping_1/SpendingByCategoryCondensed?:embed=yes&:toolbar=yes

0% 20% 40% 60% 80% 100%

Videogames

Vacations

Subscription

Jewelry

Home Improvement

Home Furnishing

Electronics

Dining Out

Designer Shoes

Designer Clothes

Books

Activities for Children

Stopped Completely Cut Back Same or More

The more useful story: what they intend to do next, and why.

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0% 20% 40% 60% 80% 100%

Video games/systems

Vacations

Subscription services

Jewelry

Home improvements

Home furnishings

Electronics

Dining out

Designer shoes

Designer clothes

Books

Activities for children

Return to my old shopping habits Establish entirely new shopping habits

Continue with my current shopping habits

View and play with the data yourself at:http://public.tableausoftware.com/views/NewNormalShopping_1/FuturePlans?:embed=yes&:toolbar=yes

0% 20% 40% 60% 80% 100%

Video games/systems

Vacations

Subscription services

Jewelry

Home improvements

Home furnishings

Electronics

Dining out

Designer shoes

Designer clothes

Books

Activities for children

Return to my old shopping habits Establish entirely new shopping habits

Continue with my current shopping habits

As many have suspected: many old priorities won’t be returning.

13View and play with the data yourself at:http://public.tableausoftware.com/views/NewNormalShopping_1/FuturePlans?:embed=yes&:toolbar=yes

However, only some of this change is driven by necessity. A lot is just more considered spending.

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• “I used to buy whatever clothes and shoes I wanted. Now I only buy when I need something…like clothes for summer and trying to use as much as I can from previous years”

• Conservative Spender, $75,000 to $99,999, 35 to 39, Female

• “[I’m] mostly cutting back on the more frivolous purchases and saving money for the important things…I’m just content with making smarter choices when it comes to things I want versusthings I need.”

• Liberal Spender, $25,000 to $49,999, 25 to 29, Female

%8-10

“I am far more willing to shop around for the best deals.” 49%“Reliable brands and companies are more important than ever when making purchase decisions.” 34%

“I have made sacrifices in brand choices.” 31%

0% 20% 40% 60% 80% 100%

Video games/systems

Vacations

Subscription services

Jewelry

Home improvements

Home furnishings

Electronics

Dining out

Designer shoes

Designer clothes

Books

Activities for children

Return to my old shopping habits Establish entirely new shopping habitsContinue with my current shopping habits

New habits are being formed. Significant market share has been uprooted, and is looking for a home.

15View and play with the data yourself at:http://public.tableausoftware.com/views/NewNormalShopping_1/FuturePlans?:embed=yes&:toolbar=yes

Designer shoes

Designer clothes

Jewelry Video games/systems

Subscription servicesBooks

Activities for children

Electronics

Home furnishings Dining out

Home improvement

Vacations

20%

30%

40%

50%

-90% -80% -70% -60% -50% -40%

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Smaller Decline

Greater Decline

Decline in Past Spending

Less Rebound

More Rebound

Degree of Future

Rebound

How have you changed your shopping habits?

The challenges and outlook differ by category. Some of the differences are predictable…

View and play with the data yourself at:http://public.tableausoftware.com/views/NewNormalShopping_1/CategoryMap?:embed=yes&:toolbar=yes

Designer shoes

Designer clothes

Jewelry

Video games/systems

Subscription servicesBooks

Activities for children

Electronics

Home furnishings Dining out

Home improvement

Vacations

20%

30%

40%

50%

-90% -80% -70% -60% -50% -40%

But there are also some implications one might not expect.

Things I don’t think about

Investments in my Life

Things that entertain meGuilty

pleasures

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Smaller Decline

Greater Decline

Decline in Past Spending

Less Rebound

MoreRebound

Degree of Future

Rebound

How have you changed your shopping habits?

View and play with the data yourself at:http://public.tableausoftware.com/views/NewNormalShopping_1/CategoryMap?:embed=yes&:toolbar=yes

Group 1: Things that I don’t think about. (Spending that is built into the budget.)

• People are less likely to cut back on things that they need to “opt out” of, as opposed to purchase decisions they need to make every time they buy.

• People are less likely to cut back on experiences (especially for/with their family) than things.

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Subscriptions: like broadband, cable or memberships

Activities for Kids: sports, camp, music

lessons, etc.

Group 2: Investments in my life (Items that I feel I deserve and will treat myself to.)

• Categories for which there is no easy substitute, or that are an experience vs. a possession, are more resilient: less likely to be cut back, and more poised for a rebound as people feel their financial situation improve.

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Vacations: Time to enjoy my family

Home Improvements/ Furnishings: Investments in where I live

Dining Out: Investment in my relationships

Group 3: Things that entertain me (Spending on fun diversions.)

• In the end, people still have time to fill. And in many cases, they are looking for more efficient ways to fill it: best balance of utility (i.e. fun) and price.

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Video Games/Systems

Electronics

Books

Group 4: Guilty pleasures (Spending that is unnecessary but enjoyable.)

• “Frivolous” purchases: expensive categories—particularly those where consumers can’t rationalize a tangible value—face the most difficult road to rebound.

• Particularly vulnerable: the aspiring affluent. People with expensive tastes, but with incomes that aren’t large enough to be recession-proof.

• Consistent across income levels: even more wealthy people need better reasons to buy.

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Designer Shoes Jewelry Designer Clothing

So…what do we do now?

A lot21%

A little40%

Not changed that much30%

Not at all9%

Consumers have adapted, have marketers?

• Recent poll: consumers are less inclined to believe that brands have adjusted their marketing to keep pace with this greater spending savvy

23

“Do you feel that advertisers have changed the way they market brands or products since the economy has changed?”

Adweek/Harris Poll, June 2010

To thrive in the reset economy, brands must become intensely customer-centric

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Slow Growth + Shifting Consumer Desires = Battle for Share of

Wallet

Today’s Competitive Advantage:

Understanding more about your customer than your competition

and turning that insight into action

Crafting a remarkable customer-centric growth strategy requires focus on 8 key principles

1. Identify opportunities along the customer relationship corridor

2. Treat different customers differently

3. Defy the “sea of sameness”

4. Redefine the value equation

5. Remember it’s the experience stupid!

6. Embrace the age of conversation

7. Avoid the trap of the promiscuous shopper

8. Ruthlessly experiment

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1. Identify opportunities along the customer relationship corridor

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Awareness/Familiarity

Consideration Discovery PurchaseRepeat

PurchaseGrow Preferred

Loyalist/evangelist

2. Treat different customers differently (by knowing what makes them tick)

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1Deep Customer

Insight

2ActionableCustomer

Segmentation

3RobustAnalytics

4CustomerSpecific

Strategies

2. Treat different customers differently

• Track results. Understand “the why” and “the why not”. Respond. Rinse and repeat.

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Employs persona-based segmentation to drive differentiated store design,

customer service and target marketing

Leverages updated loyalty program and segment specific targeting to retain high value customer and grow share of wallet with high potentials

3. Defy the “sea of sameness”Exclusive Product

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3. Defy the “sea of sameness” Reinforce brand value, regardless of price point

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Authenticity &Craftsmanship:

Rational benefits to justify a premium price

Incredible Bang For the Buck:

That gives a commodity item emotional value

3. Defy the “sea of sameness”Innovate the delivery

• Game-changing: challenges category assumptions (as opposed to a different execution on the same idea)

• Buzz-worthy: drives business but also attention to the brand

• Results: all passes sold out within one week• Generated user-created blogs, Twitter accounts

and Facebook groups

• Used as a foundation for marketing by other travel marketers

• Traffic to JetBlue’s Web-site up 700%

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4. Redefine the value equation Gilt Groupe’s New Business Model

• Positioning: Online “sample” sales of designer/luxury merchandise

• Tactics: • “Flash sales”: Limited quantities of deeply

discounted merchandise available for short duration

• Members only, base grown primarily through user networking

• Daily emails

• Results:• 2 million+ members

• Started in 2007; 2010 sales approaching $500 million

• Branching out into Men’s, travel and other categories

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4. Redefine the value equationMine emerging segments

• Positioning: Retail format designed for aspirational fashionista’s

• Tactics: • Evolve real estate strategy from factory outlet

centers to major metropolitan areas

• Source product directly from manufacturers to hit key price points

• Launch supporting web presence

• Results:• Off 5th (Saks): 55 locations and growing

• Last Call (Neiman Marcus): 30 stores and growing

• Nordstrom Rack: 76 stores, to open 16 this year

• Bloomingdale’s and Lord & Taylor set to open their own versions

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5. It’s the experience stupid!Find your “Purple Cow”

• Positioning: The super-store for shoes on the web

• Tactics: • Enormous assortment

• Free and easy returns

• Super helpful, empowered customer service reps

• Results:• Nearly $1 billion in annual sales in under 10 years

• Legendary customer service

• Acquired by Amazon for $1.2 billion last year

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5. It’s the experience stupid!Success story: The Container Store

• Positioning: sells just one category, comprised of products also available at other bigger stores consumers already visit

• Tactics: make big bets on the customer experience.• Every new full-time salesperson receives 240

hours of training—industry average is 7 hours.

• Pay 50-100% above the average (with no commissions)

• Invest in people and keep them.

• Results:• Created and own new category

• Weathered recession better than most

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5. It’s the experience stupid!Be channel agnostic

• Positioning: Accessible fashion and luxury in the store and on the web

• Tactics: Multi-year investments to create a seamless multi-channel experience• Shared inventory

• Virtual assortment available to in-store customers

• Unified messaging

• Results: Nordstrom continues to gain share from rivals with enormous growth in direct to consumer

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6. Embrace the Age of Conversation

• You are losing control of your message. Become aware, accept it and use it to your advantage.

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MGM: MGM is making changes to their training methods and property appearance based on online reviews at sites like TripAdvisor of their new Las Vegas hotel

Toyota: Toyota develops multi-execution Youtube campaign to create buzz and engagement for a new product launch (“Swagger Wagon”)

Comcast: monitors social media sites and reaches out to dissatisfied customers

Kodak: refined features and even the name of a new camera based on Twitter and Facebook feedback

7. Avoid the Trap of the Promiscuous Shopper.

• Don’t confuse activity with engagement or loyalty

• Don’t confuse sales with profits

• Target based upon current and future profits

• Don’t make it “wrong” to pay full price

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8. Ruthlessly Experiment

• The days of the big reveal are over and--most likely--you don’t have the gift of prophecy.

• Don’t be afraid to fail with a new idea

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A simple way to get started

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Start here

DIF

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IAT

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D I F F I C U LT Y

In conclusion

• There is a “new normal” characterized by fundamental changes in how consumers behave and make decisions. For most brands ”business as usual” just won’t work.

• The silver lining: Overall growth will be slow. However—there are also unprecedented opportunities for the best positioned brands to improve share of wallet.

• Deep customer insight and segmentation are the keys: Knowing what motivates customers today- and how to target customers and prospects who represent the best opportunity will dictate success

• Brands that embrace the “New Customer Centricity” will be best positioned for remarkable growth

• Let’s get started!

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Questions?

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Jon GiegengackDirector, Retail and eCommerce Practice

Chadwick Martin Bailey

Phone: (617) 350-8922

Email: jgiegengack@cmbinfo.com

179 South Street , Boston, Massachusetts 02111

www.cmbinfo.com

blog.cmbinfo.com

twitter.com/cmbinfo

Steven DennisPresident and Founder

Sageberry Consulting

Phone: (214)-520-6555

Email: steve@sageberryconsulting.com

100 Highland Park Village, Suite 200, Dallas, Texas 75205www.sageberryconsulting.comhttp://stevenpdennis.wordpress.comtwitter.com/stevenpdennis