Manage Consumer Expectations through the Recession for Life Long Customer Loyalty

By Thomas Safford, Director of Product Marketing Solutions Management -- Retail, QL2

January 26th, 2009, immortalized as Bloody Monday, saw 71,400 jobs eliminated from the manufacturing and service industry in a single day. Apparel retailers across the board, including Gap, Saks and Macy's, are reporting sales drops of more than 20 percent. To successfully weather the storm of dropping sales and companies going out of business, retailers must remain calm and make informed, strategic decisions that retain brand image and increase customer confidence.

The economic downturn has created chaos for all industries but the retail industry seemingly more so then others, especially in apparel and fashion. Consumer credit issues, shortened development cycles, shifts in consumer behavior, and the deterioration of the global economy are all contributing factors to the challenges that have caused this perfect storm impacting retailers in virtually all categories. This is a time for caution however - rapid response, short term tactics and other panic driven solutions are not the answer. Businesses that pilot the storm by a compass of increasing their value by focusing inward, on their core competencies will weather the storm and emerge as market. This couldn't be any truer for apparel retailers where customers look for more than a good sale when making purchasing decisions about clothing.

There is every indication that the changes retailers are seeing are not temporary changes that will turn around once the economy begins to pick up. Instead, this is a fundamental shift in how consumers perceive companies and how they spend their dollars. The economy is definitely complicating the retailer and the apparel consumer relationship, but the need for changes runs much deeper than simple dollars and cents.

We see retailers reacting to the initial, immediate impacts of the economic turmoil with panic. During a recession where consumers stay home and spend less, retailers are prompted to make cuts. The fallout of tactical decisions such as cutting jobs and slashing prices in an effort to minimize cost to the consumer has quickly flooded media outlets scaring consumers more and creating even tighter pockets and consumer outlook. The truth is, consumers are still spending, maybe less and maybe differently, but they are still spending. In order to capture these dollars a focus on total value and not simply price is crucial. It is key that retailers get to the root of the changes in consumer behavior and understanding what consumers value most.

In the face of the recession, the biggest consumer shift in apparel is the consumer's move to trading down brand lines while wanting to maintain quality and style. Clothing shoppers are now favoring the companies that continue to offer them the experience and trust they've come to know without deteriorating their brand. For instance, a company such as Nordstrom, which introduces a new line that fits into the financial constraints of the buyer, does better than the department store that removes higher end lines and slashes prices on all the rest. The apparel consumer wants more choices instead of having options reduced to what feels like sales-rack merchandise. Focusing on maintaining trust and consumer experience while offering more economical options that still fulfill the brand promise keep the customer loyal.

Apparel and fashion retailers must protect customer allegiance, brand integrity, and maintain their competitive position in the marketplace. When economic indicators suggest pulling back on investments and battening down the hatches, companies often erroneously start with a focus on short term tactics, such as reducing costs, but these tactics lack strategy and will backfire. Short term tactics that diminish brand value in the heart and mind of the consumer result in customers lost forever instead of customers who are temporarily cutting back.

When cost-cutting measures ensue, the consumer is left off the retailer's radar and no longer has an incentive to remain loyal because much of the original perceived value has been diminished. Reactionary re-branding initiatives are bound to fail when the goal is to appeal to consumers with the promise of cheap goods if the customer has always expected more. Re-alignment of brand in an effort to change consumer perception is the primary challenge facing struggling retailers.

To survive the economic storm successfully retailers need to focus on their core competencies to maximize their value and increase consumer confidence. Inward reflection needs to address the people, products, branding and performance metrics of the retailer. Online channels and the online market place have created a wealth of data the retailer needs to harness in order to obtain a comprehensive picture of what is on the consumers' mind and how competitors and the market are reacting to the consumer spending shift.

Now more than ever, it is imperative for retailers to use data from the web and other channels to gain a competitive edge by understanding their customer and consumer behavior better so they can deliver targeted communications, advertising, promotions while maintaining optimal price and product offerings.

Retailers need to base strategy on the most current consumer and market behavior - information from 12 months ago is not reliable. Up-to-date, accurate data on price positions of core products across markets and regional differences is crucial in determining price and product optimization that meets customer demand and the needs of the retailer today. Monitoring manufacturer, supplier and competitor variances and consistencies will allow retailers to identify new potential threats in the market as well as identify opportunities. Understanding where the customers are spending their dollars, and their perception of you, your services and value, is crucial.

Retailers that weather the storm by delivering increased value and superior service will be prepared to take advantage of the opportunities on the horizon.

Tom Safford has more than 25 years retailing experience ranging from store operations and merchandising to marketing and revenue management. Before joining QL2, Safford worked for a major drugstore chain. He was most recently with Petsmart, where he spent 14 years as part of the management team. Safford was responsible for leading the pricing and competitive intelligence efforts of the business, which totaled $3.5 billion in sales, with 700 stores, when he left. As an early adopter of QL2 technologies and services, Safford has long been an innovator in the pricing optimization and strategic pricing space. He is a former member of the Professional Pricing Society.

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