The meteoric rise of digital combined with economic uncertainty has changed the path to purchase forever, creating a whole new raft of challenges for anyone selling through retail channels. We address these challenges in a series of four blogs, entitled “The future of retail”. Shoppers see no reason to be tied down to particular retailers, channels or brands if they can get a better deal elsewhere. The explosion of choice and atmosphere of austerity have together challenged the whole concept of brand loyalty. We therefore continue our journey by discussing the challenge presented by the decline of loyalty and suggesting how retailers and manufacturers should respond.
Our FutureBuy research highlights that there are few reasons for shoppers to stay loyal to one brand and that brand switching is in fact increasingly common. Mature markets such as Germany, Russia, Japan and South Korea are seeing softening brand loyalty and in some countries including Brazil, France, China, Columbia and Argentina loyalty is plummeting.
Fewer barriers to entry means more competitors
One of the biggest challenges for brands, manufacturers and anyone using retail channels is the removal of barriers to entry, driven by the growth of online and the resulting multiplication of ways to sell. Niche players with no or low cost bases are entering markets, competing against the established brands with innovative products and keen prices. Hardware startup business Fitbit began by selling direct to customers, establishing themselves quickly and proving that a strong demand for their product existed, making the sell to retailers far easier. Many of these new brands have been successful at growing a loyal customer base, even to the point of using crowdfunding for expansion through their brand fans.
Online marketplaces such as eBay and Amazon have helped bring such products to an audience of millions through their PCs and letterboxes without the need for a listing at a supermarket, something that would have been unimaginable only a few years ago. By avoiding the financial cost of getting physical listings in retail, and the time-consuming process of competing for those listings, new market entrants are able to save time and money and focus on growing their business without the costs previously associated with retail. One example is biodegradable nappy brand, Bambo, which has grown from a start-up to an established challenger brand in the category by selling online and via Amazon – with no big advertising campaigns. Another example is subscription meal provider Gousto. They sell quality ingredients and easy-to-follow recipe cards, with food boxes delivered weekly. They would have struggled to be taken on by a conventional retailer, but digital created the channel they could sell through.
The latest thinking around brand loyalty focuses on physical availability, something the larger players in particular are well placed to implement. If a brand offers a product or service at the right time, and at the right price – then sales will increase. Impulse buyers are unlikely to be loyal to one brand, rather they will buy from a particular brand because it is there when they want it. Chewing gum by the tills in a supermarket is a classic reminder purchase for shoppers. They will add it to their trolley or basket as it’s convenient to do so, but may not go out of their way to seek it out.
Shoppers are most likely to buy from the brand which is there when they need it, and which has the closest association with the goal they wish to fulfill.
This race to physical availability requires retailers to think beyond their historical frame of reference to find new purchase occasions – perhaps by appearing alongside new categories or by being seen in a different context. It also means simplifying messages so that they can be communicated quickly and easily in a world where consumers are surrounded by “clutter”.
We are in an era where generating demand with the expectation that buyers are pulled toward your brand or service is getting harder and harder. Media and lifestyle fragmentation and the speed at which competitors recreate products or retail USPs mean that locking in a customer base is like trying to turn a tide.
Businesses should recognize that they are dealing with liberated shoppers with a super-abundance of options. Loyalty isn’t dead but it’s taking a markedly different form. In the new era of retail there is as much opportunity as risk. Accepting that people will shop around means that there has to be more emphasis on renewing relationships more often and casting the net wider to attract new shoppers.
Be sure to check out our other posts on the Future of Retail: "Can we be friends" & "Where do I find them?"
For more information, please contact James Llewellyn at James.Llewellyn@gfk.com.