Retail Cannibalization

As the Sears Holdings Corporation continues to post losses and sales declines despite more and more discounting, apparently the only thing standing between DIYs, artisans, and handymen and a new Craftsman 19.2 volt C3 Compact Lithium-Ion Cordless Compact Drill Driver is an actual visit to Sears.

This year Sears ranked 7th, or last place, in our Customer Loyalty Engagement Index. A ranking like that never bodes well for a brand. To end up last they had to rank lowest on most of the category loyalty drivers, a ranking that always correlates with positive – or in this case, negative – behavior. Sears managed to rank lowest on all of them: Reputation, Value, Merchandise Range. They did particularly poorly when it came to Shopping Experience. So it came as no surprise that they don’t have more store traffic and customers.

Well if the customers won’t come to you, one supposes that the only viable tactic left is to go where there are customers. Unfortunately for Sears, that turns out to be other retailers, and the company has begun a campaign to sell the only robust in-house brands they have through other retailers – like Costco and Ace Hardware.

While this tactic many sell more tools, selling the only successful and attractive brands Sears has at competitors falls into a marketing strategy know as “cannibalization.”

The Maori, an indigenous Eastern Polynesian tribe, have a proverb that goes, “only the foolish visit the land of the cannibals.” These days same notion applies to retailers.

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It’s Beginning to Look a Lot Like Christmas

That’s the title of one of the most recognizable holiday songs ever written. When Meredith Wilson wrote it back in 1951 it was originally called “It’s Beginning to Look Like Christmas” but whichever title you prefer it’s more appropriate this moment in time than it was 60 years ago. Because it is. Looking like Christmas. Earlier and earlier and earlier.

Over the past 5 years retailers have started to market for the holidays earlier and earlier. More than 90 days ago you could purchase Christmas and Chanukah gift-wrap and greetings cards at major retailers. Official “Christmas sales” are becoming a thing of the past. Oh, don’t worry. There’ll still be sales, but they won’t be as big or deep as they were, say, back in 2006. Retailers have smartened up regarding inventory control, so they’re actually planning on not having a lot of surplus stock that they’d have to put on “sale” a week before Christmas.

Nah, now there’s always sales, and consumers are on to that. Given an inability to create meaningful levels of retail brand differentiation and a uniformity of merchandise range on offer, what else can the retailers do? They’re afraid that if they don’t move merchandise now – before some other store – they’ll be out a sale.

Consumers are on to all this so they’ve started buying earlier and earlier for the holidays. Buying patterns have changed dramatically since Wilson wrote his song. In fact, in a recent study conducted by Brand Keys, 66% of the 16,000 consumers surveyed indicated they had already begun their holiday shopping, looking for deals and sales before ‘Black Friday’ or ‘Cyber Monday.’ Sixty-percent (60%) of consumers are talking to each other and comparing prices before they check out the brand. They think “category” first, “value” secondarily, and unless you happen to be Apple or Tiffany or Chanel, “brand” comes in a distant third. With all-sales-all-the-time, it’s getting harder and harder to tell when one holiday begins and another ends, but consumers don’t care as long as they end up as the beneficiaries of that marketing approach.

So reports that “holiday spend will only be up by X%” may be misleading, since consumers are no longer doing their holiday shopping within the traditional 30-day “holiday period” between Thanksgiving and Christmas, but are spreading spend over a shopping interval more than 4 times that, and may be spending far more than has been reported thus far.

Charles Dickens had Ebenezer Scrooge promise, “I will honor Christmas in my heart, and try to keep it all the year.” Retailers are apparently doing that too.

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It’s Necessities I Can Do Without

Oscar Wilde said that. But it was coupled with his request that he be blessed with luxuries. Along with the ability to resist anything but temptation. And apparently luxury shoppers are following this philosophy, as the French luxury conglomerate, LVMH (who own the likes of such brands as Louis Vuitton, Dom Perignon, and Christian Dior), reported a 15% gain in 3Q sales.

Luxury shoppers are apparently not as concerned with the threat of a global recession and an up-and-down stock market as other consumers, because LVMH also indicated their outlook for the rest of the year was going to be just as bright and shiny!

This is in stark contrast to some of the initial findings in our annual Holiday Shopping Survey where consumers – albeit consumers looking at more customary holiday gift purchases – indicated only a 2.9% increase in spending over last year. Not exactly an opulent spending forecast. Even in Europe, where economic worries continue to grow, luxury sales were up more than twice that!

Surprised? You shouldn’t be. Over the past half-decade luxury brands have managed to do what more basic brands have failed to do: have their brands actively perform as surrogates for added value. Differentiate themselves from the run-of-the-mill. Justify their existence in the marketplace. And their price.

The French have a proverb that goes, “it is impossible to overdo luxury.” We’re not sure that that’s absolutely true. What loyalty and engagement confirms though is – whether a luxury brand or not – it is impossible to overdo brand meaning or differentiation. Because an investment in that always pays the best interest!

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The Retail Gasp You Never Heard

Did you hear that? The gasp consumers just made? About the Gap?

Nah, just kidding! We didn’t either. To gasp one would have had to been shocked. Or surprised at the news. But nobody was. Surprised, we mean, at the news that the Gap is closing down 21% of their stores.

The Gap’s position is that demographics have changed so dramatically it doesn’t make sense to be in certain locations anymore. More likely they looked at their stores and realized that they could reduce real estate costs by another million square feet and put that toward their ever-shrinking bottom line.

The Gap has lost more than just retail outlets over the years. At one time, maybe 20 years ago, it made lots of money dealing in all things khaki and business casual. But the Gap lost meaning. It became a category placeholder, a brand consumers knew, but didn’t know for anything in particular. It reached a point that when consumers thought “Gap” they thought “khakis” or “black tee-shirts,” or, more likely, “when’s the next sale, ‘cause I can get those things at other retailers cheaper?” We thought, “Wow they’re 9th out of 10 retail specialty apparel stores on our Customer Loyalty Engagement Index, that can’t be good!”

And it wasn’t. When the Gap lost brand differentiation they lost customers. Apparently they lost their marketing moxie too. They only stuck with successful campaigns (think their “fit” campaign for denim) long enough to ratchet up sales a little bit, and then walked away to try something new.

The Gap has suffered from declining same-store sales for years, verging on the death-spiral. In fact, in its most recent quarter they reported a 19% decline in profits and – no gasp here either – a decrease in sales by 2% at stores open at least a year.

They are nothing if not consistent. But for consumers, consistency and differentiation are two entirely different things.

That’s no surprise to us either.

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Have I Got a Deal For You!

Amazon (#1 on our Loyalty Leaders List and a perennial customer delighter) took an initial stab into the daily deal space with AmazonLocal. Like it’s namesake it’s proving to further delight customers. Competing directly with deal pioneer Groupon, they’ve expanded into 40 markets and have tripled their revenues. Amazon is closely associated with and is, in fact, an investor in LivingSocial, which does one-day deals in specific cities too. Amazon partners with LivingSocial’s sales team to offer deals to merchants in local markets.

The business of daily deals created dozens of clones, but is too new for us to have created a category in our Customer Loyalty Engagement Index to measure them. But perhaps that’s for the best as the nascent industry is already starting to shake out. Nearly a third of all daily deal sites have either been bought up by rivals or have succumbed to the costs of running such enterprises.

Sure, it was easy to attract early-adoptor “members” when this whole deal thing started, but it costs much, much more today just to cut through the clutter and noise on the Internet. And acquire consumers. Oh, and you need a real sales force to line up offers from local merchants every day.

To give you a sense of what the business has turned into consider this: Groupon spent nearly $380 million dollars in marketing initiatives this year versus a seemingly real-deal expenditure of $36 million last year. Now Groupon has nearly a 1,000 employees, or nearly five times the payroll. Kind of puts things into perspective, doesn’t it? The big-4 in deal revenue?

1. Groupon
2. LivingSocial
3. TravelZoo
4. AmazonLocal

Entrepreneur Brian Koslow once noted, “The best way to make a good deal is the ability to walk away from it,” and apparently a good many deal sites have already taken this advice to heart.

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A Qwikster Change of Opinion

Yesterday Netflix, changing a decision made three weeks ago, killed its plans to turn its DVD service into a separate business named "Qwikster." That was a really good idea because customers hated the idea.

The brand, which had been rated highest in “delighting” customers in the January 2011 Customer Loyalty Engagement Index, was then able to meet consumer expectations by 99%, a considerable feat in these days of heightened customer anticipation for, well, virtually, everything.

The brand’s equity changed for the worse when it raised prices this summer, but given the then-available options, consumer griped but the brand held up somewhat, although the stock did take a hit. The weird proposed break up really slammed the brand, which fell to an historic low of 87% in meeting what consumers really desired from their Ideal provider. Since Brand Keys's metrics are predictive of consumer behavior, that change was accompanied by a defection of nearly 1 million customers.

Wall Street apparently agreed with consumers (and our metrics) because after Netflix unveiled its Qwikster plans, the company's stock changed too. It fell in July, and fell another 30%, from $155 in September to a low of $108. At it’s best Netflix was trading at $300 a share. Big change. You do the math.

Presumably yesterday’s announcement was supposed to change the opinions of disgruntled customers and investors. The stock was slightly higher yesterday but it has also been noted in the press and blogosphere that the about-face was a bit hasty and inconsistent with the buttoned-up, leading-edge, forward-thinking aura that used to surround the brand.

Brand history has shown that sometimes it’s the smallest decisions that can change a brand’s life forever. But brands that don’t take customer expectations into account can count on losing customers, their reputation, and their value. And those aren’t changes that any brand wants to watch.

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When the Shopping Gets Tough, The Tough Go With Their Guts

As the marketplace continues to churn, brands look to foster the consumer delight in their products that will motivate lasting loyalty. Brands, however, often mistakenly reduce their branding to the following pat formula: 1) add product features, 2) subtract price, 3) multiply advertisements.

Here at Brand Keys, however, we’ve long known that a product is more than the sum of its parts (no matter how cheap or well-advertised those parts may be). When consumers fork out hard-earned cash for a product, they are buying the emotion the brand gives them much, much more than a multiplicity of features. In fact, we’ve found that the ratio of emotional, subconscious influences to logical, conscious influences in the purchasing process is around 70/30.

An October 1st article published in the Wall Street Journal (entitled, “Attention, Shoppers: Go With Your Gut”) comes to this same conclusion some 27 years later, discovering that people make their best purchasing decisions using gut instinct instead of rational thought.

The article cites as an example a Cornell University study where undergraduates were asked to choose a car based on either the car attributes or the way the various attributes made them feel. The researchers discovered what we would have known: those who chose a car based on their emotional reaction to the attributes – or gut -- chose the better car. The article even states “positive emotions pointed to the best car 70% of the time [while] careful comparison of details scored just 25%. Familiar numbers…

So what happens to the brands that can’t find a way to put the ‘fun’ in ‘functional benefit’? You do the math.

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“Four Car Insurance Brands Drive Into a Bar”

A FREE LAUGH-AND-LEARN WEBINAR ABOUT HOW HUMOR IN ADVERTISING CAN BUILD BRANDS. SOMETIMES.

It’s been said that the saving grace of humor is that if you fail nobody laughs at you.

Such is not always the case, particularly when humor is incorporated into advertising. And in today’s message-saturated world, it’s hard to find categories where brands are not using humor to grab a laugh, when they think it can mean the difference between being watched or not noticed at all.

But, once you get ‘em, do these funny ads actually do the job that brands hired them to do? Do they move consumers closer to the brand? Getting watched is one thing; actually working to change minds, and especially hearts, is something else.

Once-upon-a-laugh-track, many brands kept the humor strictly off camera, but Brand Keys has put one of those categories under the research microscope to see how humor is working in a field once thought far too serious to put in the hands of comedy: Car Insurance.

On Tuesday, October 11, 2011, at 12:00 PM (EST) in a webinar hosted by the Advertising Research Foundation, Amy Shea, Brand Keys EVP Global Brand Development, will present the findings from a new study extending the body-of-knowledge on how humor can build brand equity. Or not. While there is some existing research on the use of humor in advertising, there is little linking predictive brand metrics to examples of different comedic approaches and we invite you to share in our insights.

Follow the instructions below to attend at no cost:



1. Go to http://my.thearf.org
2. On the left side of the screen, click on “Sign up for this upcoming Event, Forum or Webcast
3. Register for webcast “10/11/2011 – What’s So Funny? How Humor in Advertising Can Build a Brand”
4. Enter code “Loyalty” in the discount code box on the bottom of the screen and click continue

What kinds of humor are these top brands using to get the last laugh, and what does having a sense of humor really mean when it comes to effective branding? We’ll provoke questions and provide some key answers, using ads on-air this summer from four major insurance brands to see if they are reaching beyond entertainment.

And laughing all the way to the engagement-bank with consumers.

We hope you can join us.

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