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November 1st: Torsten Jacobi, CEO of Creative Weblogging, joins host Anita Campbell. Sponsored by Six Disciplines. Show details.
Wednesday, June 16, 2004
Price & Quality Count in Retail
The trend of bricks-and-mortar stores doing a better job of earning repeat business than online retailers continues, and existing customer-loyalty programs have a relatively small impact. A survey of 5,000 consumers conducted by Forrester Research reinforced these trends and the more obvious ones that product quality and price were the most important factors in determining customer loyalty.

Product quality was ranked either important or extremely important by 81% of the respondents, and 79% said the same about price. In fact, 40% said price was the single most important loyalty factor, while only 22% gave loyalty programs credit for returning them to a retailer. An even smaller number cited a retailer knowing who they were as an important influence on loyalty.

The trend of consumer reliance on price as a determiner of loyalty can be seen in the fact that Costco and Sam's Club were two of the top three ranking retailers. To be sure, there are other factors influencing the high ranking of these membership discount clubs. But what they promise above all else is low price and high quality.

Online giant EBay fell into the middle of Forrester's list, as did Amazon.com, with 45.6% of its customers indicating that they were loyal. Large multi-product online retailers have a harder time consistently pleasing consumers on the two key issues of price and quality. The sheer number and breadth of their offerings can work against them, making it hard to deliver the lowest prices and highest quality for all their many products.

Online retailers also suffered from a negative customer loyalty trend not seen in the bricks-and-mortar environment. Consumers who have a negative experience with an online retailer are less likely to purchase through other online channels. Bricks-and-mortar stores stand on their own. A bad experience at Wal-Mart is unlikely to make a consumer shy away from Target.

Price and quality are the most important points in determining customer loyalty...duh!

The real news here is the poor performance of existing customer-loyalty programs in the retail environment. The real danger is that smaller enterprises, reading how low the return has been for larger retailers who have invested in expensive customer loyalty programs, may throw the baby out with the bath water.

What this $249 Forrester report tells us is that there is no substitute for low price and high quality, not that customer-loyality programs won't work. I remain convinced that good customer loyalty programs will work and work especially well for smaller enterprises. However, customer-loyalty programs come after you have delivered the best price-quality equation for your business. Savvy retailers will get those two big factors under control and then turn to customer-loyalty programs.

More news... more trends... more insight...

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