Loyalty through Locality

Through the recent rough economic times and the declining retail sales numbers, many companies have to look to different avenues to increase their sales. One method they are exploring, which we have discussed heavily in class is, customer loyalty. With customers in today’s environment being so indifferent to everything except costs, creating customer loyalty plans seems like a waste. With loyalty programs out the window, firms are struggling to find a way to create customer loyalty on the basis of anything that isn’t price, because as we all know, price can never be a sustainable advantage.

The article that I came across in the DM News points out that shoppers, are cutting discretionary spending and shopping at low-priced chains such as Wal-Mart for necessities. In order to compete, others retailers are discounting aggressively, risking their profits and brand equity. A report from PWC on the future of retailing suggests that in spite of the recession, even if the economy was normal, retailers can no longer grow through expanding stores and the must learn how to increase sales in all the existing stores. Which begs the question, are there any alternatives?

The solution suggested in this article is as follows, “Take CRM, loyalty or point-of-sale data and use it to tailor the product selection for a store or group of stores to local needs is one way to drive sales on a per-store basis”. This is a concept that we might have touched on in class but one that definitely needs further examination. On one side the obvious rebuttal is by having a customized assortment of products in a store will eliminate all economies of scales for large retailers and increase costs. Though the case remains, this strategy is picking up steam because of the reality that there are fewer customers; there is less loyalty, so the need to be more focused in your assortment has become more important.

Some of the most successful retailers are looking to adopt this strategy. They are fulfilling the needs of their absolute core customers better than anybody else. Upon analyzing the data, once a program is in place to refine the product set, these retailers are extending the strategy to their marketing with Sunday flyers, which are also localized and support the in-store product selection. Creating this harmony between strategy, store and marketing has the potential to change the retail landscape. The goal is to not only drive sales but increase the value of the brand to their customer base.

For example, Macy’s began testing a localized product strategy last year called “My Macy’s.” With many of the retailer’s best-performing geographic markets also My Macy's districts; the company said in February that it would roll out the initiative nationwide.

The fact remains that regardless of how ‘risky’ or ‘expensive’ some retailers might deem this to be. As of now, it seems that they do not have much choice on the matter. With a poor economy and dwindling customer loyalty there must be changes. The customers require this customized and specific approach. Recession or no recession this is the evolutionary path of the retail environment. Especially when a big retailer like Macy’s takes the lead, it seems that it is only inevitable that everyone will follow suit. I believe that this is essential and it is a system that will make both the customers and retailers happier in the same regard.