Americas retail report

Transcription

1 Americas retail report Redefining loyalty for retail June 2015

2 Redefining loyalty for retail Today, American consumers have more shopping choices than ever before. They have access to more diverse retailers (physical and virtual), more brands (national and store brands) and more information to validate every decision. The result is that loyalty to a retailer or brand is being eroded. It is rarely a monogamous relationship anymore. Best case in many instances, loyalty is sporadic and transactional. Worst case is that it may be non-existent, especially with younger generations of shoppers. To understand how the dynamics of shopper loyalty are changing, the importance of rewards and loyalty programs and the impact for retailers in the future, EY commissioned a national survey with 1,000 adults and 400 teens (ages 14 to 17) referred to as Gen Z. Dan Valerio EY Americas Retail Leader daniel.valerio@ey.com 1 Americas retail report Redefining loyalty for retail

3 The tides have turned and the loyalty paradigm has shifted: consumers are in control. To win their hearts and minds, brands and retailers must increasingly demonstrate respect and loyalty to their customers, before asking for it. Marcie Merriman Executive Director, Retail Strategy, Ernst & Young LLP Americas retail report Redefining loyalty for retail 2

4 Loyalty: today, pragmatism wins over emotion Historically, loyalty has often been defined in high-level emotional terms, but today allegiance to retailers or brands is not what it used to be. This is partly the result of economic factors, partly the impact of technology and partly the effect of expanded retail choices. All of which have impacted shoppers expectations of experiences and features that have traditionally driven loyalty. When shoppers were asked to rate the importance of a range of loyalty program features, pragmatism won out. The majority rated free shipping and delivery (71%), special sales or discounts (69%) and flexible return policies (64%) at the top of their list. These are the price of entry today for any program. More personalized benefits, such as custom tailoring and concierge services, were important to fewer shoppers, on average 4 in 10. Gen Z was the most pragmatic of all generations. They placed much more importance on free shipping and discounts than older shoppers. It s not really surprising they are more price-sensitive since they have grown up in the aftermath of the global recession and have seen the impact it had (and still has) on their families. It is a current concern and a potential omen for the future. While price benefits were at the top of everyone s loyalty list, Millennials, Generation X and Hispanic shoppers expected a much greater range of personalized benefits from loyalty programs. Personalization and enhanced services (especially those that make their lives easier) were much more important to them than to other segments of the population surveyed. 3 Americas retail report Redefining loyalty for retail

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6 What is important to shoppers in retail rewards and loyalty programs Base: 400 Gen Z; 1,000 Adult Respondents for Generations and Race Free shipping or delivery Special sales or discounts Flexible return policy Get special offers via Get special offers sent to my home in the mail Can order online and pick up in the store Services available only to members (e.g., free tailoring, free returns, free samples, personal shopper, concierge service) Customized offers based on my purchasing habits Retailer involvement in supporting local community Invitations to member only events Special store opening times Adults Gen Z* Millennial Gen X Boomers Caucasian African Hispanic American 1, % % % % % % % % Q: On a scale of 1 to 10 where 1= not at all important and 10= very important, how important are each of the following features of a retailer rewards or loyalty program? Top 3 Box Summary * Participants limited to year olds, while Gen Z may in fact extend to younger ages. 5 Americas retail report Redefining loyalty for retail

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8 Retailer loyalty programs lose their luster In a 2010 EY study, half of American shoppers said they participated in a rewards or loyalty program. Clearly this was a high point. Today, only one-third (37%) of American shoppers say they do. The decline in participation in rewards and loyalty programs was across all major channels studied - with the exception of drug stores, which were flat. The largest declines were in supermarkets (-29 ppts), specialty electronics stores (-21 ppts) and specialty pet stores (-19 ppts). This attrition may be a result of several factors: for example, shoppers can get the discounts they expect from loyalty programs often without being part of a program (they just have to search the internet). The increase in retail loyalty programs (and other industry programs for that matter) over the last five years has meant that not only have the programs become less special and more commoditized, but they have also become a burden to manage. (How many loyalty cards can one shopper carry with them or keep track of?) That was reflected by one-in-five (20%) who said they ve cut back the number of programs they belong to. (That increased to 33% for Millennials and African-Americans, and 40% for Hispanic shoppers.) Loyalty or rewards program participation by channel Base: 1000 Adults vs ,000 difference % % ppts Total Participation Drug store Supermarket Department store Mass Merchandiser Specialty store for pet supplies Specialty store for electronics Specialty clothing store Specialty store for beauty care Q: You told us you bought something in the following types of stores in the last three months. Do you belong to a rewards or loyalty program for any retailers in these types of stores? 7 Americas retail report Redefining loyalty for retail

9 Clever retailers are striving to develop a two-way, mutual relationship of trust and loyalty with their shoppers. They have moved their focus from providing a place for transactions to creating a portal for the shopper to achieve emotional fulfillment. Marcie Merriman Executive Director, Retail Strategy, Ernst & Young LLP Americas retail report Redefining loyalty for retail 8

10 Rewards and loyalty programs do not necessarily translate to retailer loyalty Participation in a rewards or loyalty program no longer offers retailers the benefits they once did. Shoppers said loyalty programs don t draw them to stores or entice them to spend more. Only 32% of respondents said they would go out of their way to shop a store to use their loyalty rewards. None of this is surprising. Rewards and loyalty programs have been a staple of American retail for several decades. It is only natural that over time shoppers interest in them would wane, especially if retailers cannot find a way to keep these programs fresh, fun and functional. The overall perceived value of current programs has diminished in the shoppers eyes: the majority felt the benefits were not as good as they once were, and they certainly don t feel special (or valued) by being part of a retailer s program. That said, it is important to note that different demographic groups, in particular Millennials, African-Americans, and especially Hispanics, had a more positive view toward rewards and loyalty programs than older or Caucasian shoppers. 9 Americas retail report Redefining loyalty for retail

11 Attitudes towards loyalty programs (Top 3 box) Base: 400 Gen Z; 1000 Adults I try to use rewards every time I shop When a store I shop offers a frequent shopper program I join it. I use my frequent shopper cards more now than I used to. Frequent shopper programs have better rewards than they used to. I will go out of my way to shop where I can use my frequent shopper cards. Belonging to a store frequent shopper or loyalty program makes the store special to me Having rewards card makes me buy more than planned I trust a store more if I am a member of their rewards or frequent shopper program. I would rather receive exclusive invitations to special events than discount offers I may receive via or on a register receipt. I don t mind paying a small annual fee if the program benefits are worth it. Adults Gen Z Millennial Gen X Boomers Caucasian African American Hispanic % % % % % % % % Q: To what extent do you agree or disagree with each of the following statements about frequent shopper programs? 1 means you completely disagree and 10 means you completely agree. * Participants limited to year olds, while Gen Z may in fact extend to younger ages. Americas retail report Redefining loyalty for retail 10

12 Social media plays a limited role in driving retailer loyalty for now The lines between digital and physical stores are quickly blurring as more people use the internet to research and buy products (the omni-channel reality). However, this appears to have little impact to date when it comes to loyalty programs. Only 20% of shoppers said they used social media to recommend a loyalty program. Again though, this was substantially higher among Millennials, which no doubt speaks to the fact that this group is more digitally engaged overall. Social recommendation (Top 3 box) Base: 400 Gen Z; 1000 Adults I have recommended a frequent shopper program on a blog, social networking, or opinion site Adults Gen Z* Millennial Gen X Boomers Caucasian African Hispanic American % % % % % % % % Q: To what extent do you agree or disagree with each of the following statements about frequent shopper programs? 1 means you completely disagree and 10 means you completely agree. * Participants limited to year olds, while Gen Z may in fact extend to younger ages. 11 Americas retail report Redefining loyalty for retail

13 Of those who have recommended a program, the highest social engagement for adults was for online-only supermarkets (65%) and TV shopping channels (47%), possibly because it is easier and more seamless to click while shopping. Gen Z interacted the most socially with stores they care about - teen clothing (42%) and specialty beauty stores (37%). Engagement with social media by retail channel Base: Respondents who shopped in Adults Gen Z** channel in last 3 months % % Online only supermarket 65 * TV Shopping 47 * Department store Mass merchant Dollar store Drug store Supermarket Specialty Stores Specialty clothing for Gen Z Specialty vitamins/nutritional 39 * Specialty electronics Specialty clothing store Specialty pet supplies Specialty beauty * Sample size too low to be reported ** Participants limited to year olds, while Gen Z may in fact extend to younger ages. Q: Thinking about the channels where you have purchased something in the last three months, have you done any of the following on social media: liked a retailer, posted about a good experience at a retailer in the channel, posted about a bad experience at a retailer in the channel or posted a review of something bought in the channel? Americas retail report Redefining loyalty for retail 12

14 Takeaways and implications Different segments think differently about loyalty and shopping Companies must recognize that building a relationship with consumers is not a one-sizefits-all proposition. When it comes to loyalty programs, the youngest shoppers (Gen Z and Millennials) are much more pragmatic. It may be because they have grown up in a digital shopping world where features like free shipping and delivery are expected and not an added benefit worthy of their loyalty. Older shoppers, specifically Boomers, are less interested in benefits like special events, opening times, etc. This may reflect their lesser interest in and need for a shopping lifestyle as they age. Therefore, for retailers who serve a wider array of the population, loyalty programs must be flexible and nimble enough to cater to different sub-sections of their customer base. Challenges emerge for retailers The fact that in this study Gen Z rated free shipping and delivery, as well as discounts, as the two most important features of a loyalty program, significantly higher than adults, provides a worrisome glimpse of the future. Feeling they are getting a deal and allowing them to shop on their terms - in this case getting the product to them - are clearly prerequisites. This is a clarion call to retailers if they expect to attract this new generation of shoppers who may likely not respond as whimsically as those of the past. In today s competitive retail environment, price and convenience are not sustainable and differentiating loyalty propositions on their own. It is important, while still acknowledging them, to look at other factors that are relevant to shoppers in order to build longer-term loyalty. A meaningful store experience, personalized offers and seamless omni-channel access are the cost of entry with today s dealobsessed shoppers. Rewards and loyalty programs do not equate to creating more loyal shoppers today Many shoppers in many channels have reduced their participation compared to five years ago, and the majority is not as committed to rewards and loyalty programs as they were in This suggests that companies need to build a different level of engagement with their customers. It also suggests that the assumptions and estimates (i.e., redemption rate trend curves) used to account for these programs may not necessarily be indicative of the future. For more information EY is helping companies around the world recreate their relationships with their customers and transform organizations through customer experience design and purpose-led transformation (PLT). For more information on how we can help: Dan Valerio EY Americas Retail Leader (1) , Daniel.Valerio@ey.com Marcie Merriman Executive Director, Retail Strategy, Ernst & Young LLP (1) , Marcie.Merriman@ey.com 13 Americas retail report Redefining loyalty for retail

15 Methodology EY commissioned an online survey with 1,000 adults across generations and 400 teens within Gen Z (age 14 to 17) conducted January 2-13, Where applicable, data was compared to EY research with 1,600 adults conducted in September 17-22, Americas retail report Redefining loyalty for retail 14

16 EY Assurance Tax Transactions Advisory About EY EY is a global leader in assurance, tax, transaction and advisory services. The insights and quality services we deliver help build trust and confidence in the capital markets and in economies the world over. We develop outstanding leaders who team to deliver on our promises to all of our stakeholders. In so doing, we play a critical role in building a better working world for our people, for our clients and for our communities. EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. For more information about our organization, please visit ey.com. How EY s Global Consumer Products Center can help your business Consumer products companies are operating in a brand new order, a challenging environment of spiraling complexity and unprecedented change. Demand is shifting to rapid-growth markets, costs are rising, consumer behavior and expectations are evolving, and stakeholders are becoming more demanding. To succeed, companies now need to be leaner and more agile, with a relentless focus on execution. Our Global Consumer Products Center enables our worldwide network of more than 16,000 sector-focused assurance, tax, transaction and advisory professionals to share powerful insights and deep sector knowledge with businesses like yours. This intelligence, combined with our technical experience, can assist you in making more informed strategic choices and help you execute better and faster EYGM Limited. All Rights Reserved. SCORE No. CF0152 This material has been prepared for general informational purposes only and is not intended to be relied upon as accounting, tax, or other professional advice. Please refer to your advisors for specific advice.