Wednesday, March 26, 2014

Gods of Retail War 2014

Watch out, GameStop, Walmart has a double-barreled shotgun pointed at you! Or a neutron ray gun. Maybe even the Sword of Sparda. Not literally of course, but in that Walmart kind of we-have-you-in-our-sites way they get when they sense a market opportunity.

Starting today, Walmart is focusing their aim on the used videogame business. Used videos are a sore spot between retailers and the nearly $25 billion videogame industry, a kind of Blades of Chaos weapon in the battle for profitability. Right now nearly 10% of those billions are spent buying used video games at GameStop. That represents nearly 45% of the retailer’s gross profits for the last fiscal year. At retail, new games go for as high as $90 each. Used games go for a lot less and the used games represent a much higher profit margin.

In this case, Walmart intends to make it easy for shoppers. Consumers trade in used video games for Walmart gift cards, which could end up being as much as $35. Walmart is counting on the fact that customers will use the gift cards to buy groceries, or clothing, or anything not currently available at a specialty retailer like GameStop. Kind of like earning an extra life, if retail was a video game.

Anyway, Walmart ran a kiosk test program like this half a decade ago, but it turned out to be hard program to institute. Apparently there are really complex logistics to trading in used video games. You wouldn’t think it would be that hard, but there you are. And if it’s hard for a company like Walmart, it’s probably really hard.

For example, you have to take a used video game’s overall condition into account. And then you have to be pretty precise at approximating its worth. This is a business we’re talking about, after all, not a game. Well, you get the difference. And because they're used, you have to know how to refurbish them, and after that you have to keep an accurate inventory of what you have. If you don’t do that you end up with thousands of used copies of Double Dragon II: Wander of the Dragons, which MetroGame Central called, “the interactive equivalent of irritable bowel syndrome and one of the most bizarrely awful video games ever made,” so you probably don’t want to have lot of those sitting on shelves in the back room. See? OK, not quite the Battle for Middle Earth, but hard, like we said.

But these complexities – and good and bad gamer reviews – also raise a question regarding actual demand. Not demand for used videogames generally. There’s a lot of that and that’s already been established. No, how about demand for a specific game itself? The game’s brand, their franchise, if you will.

For how video game brand and franchises leverage among the gamer community, we took a look at how consumers rated this year’s Major League Video Games in our Customer Loyalty Engagement Index. Here are the results. For what it’s worth, it’s worth noting how many of the top-11 games have Roman numerals or a subordinate title after their name, a pretty good indication that it’s not the first of the game’s brand offerings.

  1. Call of Duty: Ghosts
  2. Grand Theft Auto V
  3. FIFA 14
  4. Assassins’ Creed IV
  5. Tomb Raider
  6. The Last of Us
  7. Batman: Arkham Origins/Bio Shock: Infinite
  8. Battlefield 4
  9. NBA 14
  10. Madden NFL 25

This time around Walmart, the country’s largest retailer with nearly 5,000 U.S. stores and who has already has a credit-for-used-tablet-and-smartphone program in place, is teaming up with trade-in expert, CEx-change, hoping to add a secondary armament to their retail arsenal, a partnership to unlock some extra weapons to use against competitors. Walmart announced they’ll selling used video games later this year, so the proverbial line has been drawn in the digital sands of Retailing World.

Right now GameStop isn’t ready to call in the Army of Hades for backup but they have said that when it comes to the used video buy-sell game they are the top player for now. GameStop has an affinity program, which tracks consumer purchases and trade-ins and develops customized outreach, a kind of Batman Glue Grenade used to create a gamer loyalty bond with their brand. Real loyalty and engagement – something that can't be jimmied apart even with a Grand Theft Auto crowbar – can also help in changing consumer habits, like migrating them to Internet games.

So the war of the used videos games has been declared. We’ll see how it goes and who changes the rules first. One thing for sure: retail is a lot like video games. No matter how good you get, there’s always someone out there with some weapon looking to cut your margin!

Connect with Robert on LinkedIn.

Find out more about what makes customer loyalty happen and how Brand Keys metrics is able to predict future consumer behavior: Visit our YouTube channel to learn more about Brand Keys methodology, applications and case studies.

Tuesday, March 18, 2014

Which Came First, The Consumer or the Brand?

It was David Ogilvy who said, “Consumers don’t say what they think and they don’t do what they say.” And he was right about that. At least most of the time. And in a more complex marketplace it’s only gotten harder to measure what consumers really think today. Not what they say they think. Measuring that is easy. But measuring what they really think, and how they’re going to behave? That’s an entirely different kettle of fish.

We specialize in predictive metrics and in identifying what consumers really expect, and how they are going to engage with brands, and we’ve found that sometimes it’s the consumers who take the lead, and sometimes it’s the brands that change the paradigm, so it’s nice when customer values and brand values come together. You can pick any category value and turn it into a “which came first, the chicken or the egg” discussion, but you can always see when a mutual accord of consumer and brand values makes themselves felt in the real marketplace.

For example, for years expectations regarding healthier food were something that kind of ambled along on relatively parallel tracks for consumers and brands. Neither consumer nor brand completely followed through for a lot of reasons, but mostly because consumer expectations – or more precisely, not enough real consumer expectations – were there to make it a worthwhile investment for brands.  But when consumer expectations go unfulfilled for a long enough time, through either scrupulousness or serendipity, some brand finally recognizes the opportunity and steps in to fill that gap between what consumers really expect and what brands currently deliver. And when they do, the brand usually does real well. And when one brand does real well, others follow.

But like we said, it can be a chicken-and-egg debate, or, following our theme, more precisely a chicken-and-egg whites discussion as to whether the consumer or the brand drives category change. As a value, “healthier food” has been around for years. It finally delineated itself, as something not quite a “quest for fitness,” but close, and something that sidled very near to “nutrition,” and has now, ultimately, resolved itself as a desire for “free-from” foods. You know, free-from. Free-from too much salt, or fat, or free-from preservatives, or antibiotics. Free-from artificial stuff. Like that. And that value is showing up and making itself felt as regards consumer emotional engagement and brand selection.

When we look, for example, at a menu of restaurant brands in our January 2014 Customer Loyalty Engagement Index, we find that – just like every other category – consumers better engage, i.e., behave better towards brands they see better meeting their expectations, and those brands that can do that end up at the top of their respective category lists. Being No. 1 is nice, but in the case of engagement being No.1 shows up more tangibly in sales, market share, and profitability, something brands love serving up to their shareholders. Here’s this year’s top-5 brands consumers see as doing the best job delivering against their expectations for healthy, free-from food:
  1. Subway
  2. Chick-fil-A
  3. Panera
  4. Chipolte
  5. Dunkin’

What, in particular, are these brands doing to meet customer expectations? Glad you asked.

Subway announced it was eliminating azodicarbonide, something commercial bakers use to increase softness of dough. BTW, it’s also used in manufacturing yoga mats. Chick-fil-A announced it would no longer sell chickens raised on antibiotics. Panera marked a decade of using meat raised free-from antibiotics. Chipolte has instituted new standards having to do with nontherapeutic antibiotics and says it will look to source meats that have never been given antibiotics. And last year Dunkin’ announced they were developing a line of gluten-free offerings.

There’s a Yiddish saying that goes, “Health is a relationship between you and your body.” And these days, consumers are extending that relationship to restaurant brands that better meet their emotional engagement expectations for, well, everything that drives loyalty in their respective categories. But as regards, this one particular value, it’s worth noting that while free-from food is generally more expensive than food that is traditionally processed or sourced, it appears that both customers and brands are putting their money where their mouths are.

No matter who came first.

Connect with Robert on LinkedIn.

Find out more about what makes customer loyalty happen and how Brand Keys metrics is able to predict future consumer behavior: Visit our YouTube channel to learn more about Brand Keys methodology, applications and case studies.

Tuesday, March 11, 2014

For Rent: Lots Of Space (Not Digital)

It was Andrew Carnegie who advised, “Invest in land. They’re not making any more of it!” Of course those were simpler times. Steel mills, railroads, libraries. They all needed some sort of physical space. Not anymore, apparently. Well, not so much the steel mills and railroads, but retailers are feeling what can only be called, the digital pinch.

RadioShack announced that they are closing 1,100 U.S. stores. They had a really bad holiday season what with deeply discounted competition from the likes of Best Buy, but mostly from online retailers. Same-store sales were down 19% and 4th Quarter losses were $192 million, nearly 3 times the loss from a year earlier. So they’re closing a fifth of their stores, which opens up a lot of space for someone to rent.

Staples, the largest office supply company in the U.S. indicated that they too were going to close stores – up to 225 of them, or about 10% of them disappearing by the end of next year. So a lot more space for rent. Ronald Sargent, Staples’ Chairman/CEO indicated that the stores had fallen short of expectations and that they had to “fundamentally reinvent” themselves. You think? So fewer physical stores and lot more e-tailing efforts.

It’s estimated that e-tail currently accounts for about 7% of total retail sales, and is looking at a compound annual growth rate of about 10%. And why not? Ninety-eight percent (98%) of the nearly 16,000 consumers who participated in our 2013 Holiday Survey indicated that they were going to shop online. Apparently they did, and will continue to − even more of it.

Why? Well, increased use of mobile devices has led consumers to shop online more and more. Online integrated selling tools such as zoom, adjustment of color configurations, and product customization makes it very nearly like being in the store without, of course, having to actually get up and leave your home. Oh, and then there’s that sense online offers better deals than bricks-and-mortar retail à la flash sales, daily deals, and loyalty programs. The rumors of Amazon’s delivery drones notwithstanding, consumers also have a feeling that they can get same-day delivery for virtually everything without actually having to carry their purchase home.

So who is going to rent all this empty space? We can’t say right now. What we can say though, is that any space  – digital or physical – occupied by a brand has to be able to meet the consumers’ rational and emotional expectations if they expect to see increased transactions and profits. Mr. Sargent also said, “stores have to earn the right to stay open.” Understanding what those expectations are and addressing them via your brand is a really good start.

Connect with Robert on LinkedIn.

Find out more about what makes customer loyalty happen and how Brand Keys metrics is able to predict future consumer behavior: Visit our YouTube channel to learn more about Brand Keys methodology, applications and case studies.

Wednesday, March 05, 2014

Are Phablets Finally Here?

Five years ago, while examining leading-indicator values and expectations in our annual Customer Loyalty Engagement Index in the then-nascent “tablet” category, we noticed that consumer values dealing with tablets and smartphones were blending.

This was back in 2009, and what we saw was that tablet attributes, benefits, and values were combining with one of the basic smartphone attributes, the one that let you make a call. Anyway, back in 2009 we called the fusion of smartphone and tablet technologies a “phablet.” OK, not the most creative of titles, we admit, but at that juncture it really didn’t matter what we called them because there weren’t enough of them to matter or measure. We did, however, mention they might require larger pockets in clothing. Just saying.

But, as regards brands’ desires to measure meaningful consumer values ahead of the competition, it’s worth calling out that some sort of amalgam of the two categories had shown up on the engagement radar screen back then. A little ahead of its time? Maybe. But that’s the nice thing about real loyalty and emotional engagement metrics. They’re leading-indicators, meaning they’re signs of what’s going to happen down the road, and what consumers really want, usually before these values get articulated in focus groups. We did mention this was back in 2009, right?

So, here it is five years later and we were gratified to read in Molly Wood’s New York Times “Machine Learning” column, “. . . despite a somewhat mocking moniker, the ‘phablet’ (phone plus tablet) is here to stay.” BTW, we weren’t mocking the concept when we called it that back in 2009. How customer values in categories shift can have serious repercussions for brands, and it seemed to be pretty self-explanatory. Anyway, Ms. Wood went on to predict that seven and eight-inch phones will replace tablets of the same size. And also that they might require bigger pockets. If only she had emotional engagement assessments the way we did, she might have written her column five years ago.

But corroborating Brand Keys’ initial insights and Ms. Wood’s current opinion piece, the big call by handset makers at this year’s Mobile World Congress in Barcelona, was. . . wait for it. . . bigger smartphones. It’s always nice to have your insights and metrics validated in the real marketplace, and, apparently, the new big thing is a big screen.

Huawei introduced their “MediaPad XI,’ which they are now calling a “phablet.” ZTE introduced a 6-inche model, but they’re calling it the “Grand Memo II.” Samsung introduced their Galaxy S5 (at 5.1 inches). It’s reported Apple is skeptical about the consumer engagement power of phablets, but we’ll see. They’ve been technological leaders, of course, but there are all those iPads out there. Technology is, indeed, driven by corporate innovation, but it’s also driven by consumer expectations. Brands that better meet those expectations always do better in the marketplace than those that can’t – or choose not to.

As it was insights from the Customer Loyalty Engagement Index that initially pointed us at the phablet, we turned to the 2014 results for the Tablet and Smartphone categories and “fused” the consumer assessments for four brands represented in both categories just to see how well they met consumer expectations regarding design and size. Here’s how customers of each brand rated those brands versus an Ideal (100%):

Samsung      95%
Apple            89%
Sony             86%
Google          84%

Keep in mind, that these ratings are how customers see the brands vis à vis phablet values. And, that there are a lot of other brands out there focusing on the phablet, too. So what do you think? Which values will supersede others? Smartphones? Tablets? Something else? Does size really matter? Will consumers call on this new configuration? And here’s one of our own based on our current category engagement metrics, where can I get one?

Four things for sure: First, consumer expectations will continue to grow when it comes to fusing technologies that have previously engaged consumers. Second, predictive loyalty and emotional engagement assessments can help answer questions like the ones cited above in the early stages (We did mention these value shifts showed up five years ago? Imagine what you might do with predictive metrics like that for your brand?). Third, These metrics can be a predictive call-out of non-presumptive innovation. And, finally, you really want those kinds of insights, because it prevents brands from confusing the art of possibility with the art of profitability.

Connect with Robert on LinkedIn.

Find out more about what makes customer loyalty happen and how Brand Keys metrics is able to predict future consumer behavior: Visit our YouTube channel to learn more about Brand Keys methodology, applications and case studies.