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Slide 1: igniting advocacy in apparel retail A growth strategy that fits.
Slide 2: executive summary advocacy in a tight economy Strong customer relationships and advocacy are increasingly important as customers tighten their belts. Our analysis shows that retailers with more advocates have experienced more profitable growth over the last three years. As consumers spend less, their worth should be calculated by their recommendations as well as their purchasing habits. an abundance of lukewarm customers Apparel retailers have a below-average number of advocates, and by far the greatest number of customer relationships are noncommittal, acquaintance-type relationships. Despite heavy advertising and aggressive sales, retailers aren’t sparking the word-of-mouth conversations they could be. target sets the standard With the best customer relationships and most advocates, Target enjoys the most vocal customer base in the category. They deliver on the customer relationship from top to bottom, performing well on the fundamentals while wowing the customer with their design, style, and communications. kohl’s and jcpenney have some momentum While these retailers have above-average advocacy, they also have more customers who are moving toward the brand versus moving away from it. We’ve identified gaps in each of their respective customer relationships that, if addressed, could increase their advocates and their word-of-mouth recommendations. macy’s in need of an experience people will talk about With its rapid expansion, Macy’s has a largely noncommittal base of customers and could greatly benefit from more positive word-of-mouth conversations. Its Achilles heel seems to be the brand experience as detailed by it’s customers. sears is solid but sliding As one of America’s most enduring icons, Sears has customer relationships that are built on a solid foundation but, as in years past, need modernizing. While they have an average number of advocates, they have more customers with fading relationships than with growing relationships. wal-mart fostering love/hate relationships Despite Wal-Mart’s continued growth, its customers feel trapped in their relationship with the retailer, feeling obligated to get the best deals in a down economy. It will be interesting to watch Wal-Mart’s growth as 33% of its customer base claims to be “moving away” from the brand. kmart is quickly losing its relevance With the lowest advocacy and momentum scores in the category, our data suggests this brand has an insignificant and narrowing role in customers’ lives. The basics of relationships aren’t being met and 40% of it’s customers admit they’re moving away from the brand. growing advocacy in apparel retail To forge relationships on which customers will act and advocate, these retailers will need to: 1) ensure more consistent customer service while integrating some unexpected surprises; 2) offer buzz-worthy experiences beyond low prices; and 3) continuously push for relevancy as fashion trends change and other retailers innovate. i
Slide 3: table of contents 01 02 04 06 09 12 14 16 about our research introduction: driving growth in a weak economy advocacy: how apparel retailers measure up the future direction of consumer relationships in apparel retail actions that build brand advocacy target: design in everything kohl’s: delivering on “great things” jcpenney: adding spark to the experience and the relationship 18 20 22 24 27 27 wal-mart: moving from an obligation to a relationship kmart: establishing a role in the customer’s life macy’s: in need of a brand experience worth talking about sears: modernizing a trusted brand conclusion: there’s value in monitoring consumer relationships about 22squared
Slide 4: about our research The 22squared 2008 Friendship Model Research Study is a tool that: 1) Measures advocacy levels and ratios within a brand’s customer base 2) Evaluates the health and nature of a brand’s customer relationships 3) Assesses brand performance on actions that drive advocacy 4) Predicts changes in advocacy levels in accordance with changes in performance We measure advocacy in a unique way that takes into account both the customer’s behavior (recommendations or critiques) and the customer’s attitude (commitment to the brand’s success or failure). In partnership with Karl Schmidt, founder of the research firm Consumer Insights Inc., we’ve studied more than 180 brands in 35 categories with over 20,000 customers. The research has helped us identify a set of brand behaviors that are shown to drive advocacy across categories. These behaviors are rooted in social psychology and the behaviors people exhibit in developing meaningful friendships. We interview only customers and recent customers of the brand, via an online methodology. For apparel retailers, we interviewed customers who have purchased goods within the last six months and, in many cases, more recently. There are no in-category comparisons across attributes; instead, the research provides a detailed assessment of the relationship between the customer and the brand and the customer’s influence on others. We then compare brands within its own category, along with analyzing the data within the context of our normative database. Brands and categories researched included durable goods, packaged goods, retailers, and service providers. Our research on apparel retailers was conducted in March of 2008 and included Target, Kohl’s, JCPenney, Wal-Mart, Kmart, Macy’s, and Sears. 01
Slide 5: introduction: in a weak economy, strong customer relationships and advocacy are critical to business growth “I LOVE Target! You can find anything you could possibly need at Target, and great brand names too! The clothing is darling for kids, and trendy or classic for adults. Plus, they have great prices!!!” Yelp.com As a result of September’s financial crisis, the American economy is firmly in a recession and household incomes are not keeping pace with inflation. Per the U.S. Department of Labor, the September 2008 Consumer Price Index (CPI) registers at 214.9 — its highest level to date.1 As a result, consumers are tightening their belts, which is hitting the traditional retail sector especially hard. Revenue growth within the retail sector is anemic 2.2% in 2008, down from 6.4% in 2004.2 The surge in fuel prices is driving price increases across everyday essentials, and inflation is forcing consumers to become much choosier about what and where they buy. Today’s technology provides consumers with real-time access to information and myriad offers are reaching them daily. But with the vast array of products and services available today, consumers need help discerning which brands and products they can trust, which reflect their values, and which will provide the experiences that will add to their already complicated lives. In return, consumers bestow loyalty and praise. Social portals provide channels for consumers to vocalize their experiences — as advocates or critic — and magnify the viral nature of consumer feedback, influencing their purchasing decisions of thousands of consumers who are evaluating entering new brand relationships. 02
Slide 6: The average True Advocacy for the retailer category is 17%, slightly lower than the multi-category benchmark of 21%.4 TM Taking consumer relationships to the next level requires apparel retailers to demonstrate that they are friendship material. A recent IBM study explored why advocacy matters to apparel retailers and found that “79 percent of customers will commit to a deeper product or service relationship after a satisfying experience” and that “31 percent of customers tell multiple people of their bad experience.”3 Despite this strong evidence, the 2008 Friendship Model Research Study, reveals that apparel retailers have significant room for improvement on the advocacy scale. The average True Advocacy score (% advocates – % critics = % True Advocacy) for the retailer category is 17%, slightly lower than the multi-category benchmark of 21%.4 True Advocacy = % advocates – % critics Each customer is classified into an advocacy segment based on relationship and level of commitment to advocating the brand to others. The critics are subtracted from the advocates, while the ambivalent buyers are left out of the calculation, to reveal the true number of advocates effectively sharing the brand with others. SHAREHOLDER EVANGELIST RECOMMENDER REPEAT SATISFIED ADVOCATE BUYER CRITIC MARGINAL BUYER DISSATISFIED BUYER ACTIVELY AGAINST 03
Slide 7: advocacy: how apparel retailers measure up Target holds the dominant position as a retailer with the strongest level of True Advocacy, 47%. The 2008 Friendship Model Research Study revealed that within the category, Target holds the dominant position as a retailer with the strongest level of consumer advocacy, 47%. “Expect More. Pay Less.” is an authentic and extremely compelling proposition for consumers who are doing just that — they are finding design in everything, purchasing cheap-chic fashions, and obtaining good buys at this contemporary retailer who is challenging the norms of apparel retailing. The other big box retailers, Wal-Mart and Kmart, are suffering from a significant number of outspoken critics who challenge their operating practices and unappealing store experiences, this is reflected in these retailers receiving the weakest category True Advocacy scores, 2% and –12%, respectively. In contrast, discount or value retailers are performing above average. JCPenney and Kohl’s received True Advocacy scores of 27% and 21%, respectively, indicative of their ability to stay on trend and maintain relevancy with their customer base. Today’s retailers have evolved beyond the traditional department store model. While the iconic American retailers—Sears and Macy’s— have cultivated more advocates than critics, they meet but don’t exceed customers’ expectations, leaving their competitive edge dull. These two retailers struggle with average advocacy scores— 17% and 15%, respectively. advocacy rates [True Advocacy = % advocates – % critics] Target JCPenney Kohl’s Sears Macy’s Wal-Mart Kmart 33% 34% 30% 29% 26% 15% advocate true advocacy* 51% 61% 53% 57% 57% 50% 59% buyer 45% 4% 6% 13% 13% 14% 24% 26% 47% 27% 21% 17% 15% 2% –12% 04 critic * Numbers may not compute exactly due to rounding.
Slide 8: True Advocacy is a predictor of sustainable business growth Insights from 22squared’s quantitative study on brand advocacy, the 2008 Friendship Model Research Study, reveals that brands perceived to act on the customers’ behalf have 32% more advocates.4 The study’s True Advocacy scores—the metric that predicts the number of consumers actively endorsing a brand in the marketplace—demonstrate a positive correlation between business growth and customer advocacy. True Advocacy is a predictor of customer endorsement beyond repeat buyers or satisfied customers. It is a measure of the commitment level of high-involvement customer types— shareholders, evangelists, and recommenders— and is, therefore, a good forecaster of financial growth. To measure the impact of advocacy on retailers’ financial performance, we took changes in operating income and revenue over a three-year period, along with average growth margin rates (from 2005–2007) and created a growth index for each retailer in our study. The growth index is highly correlated with True Advocacy scores (r = .762), suggesting that higher advocacy fuels better financial performance and growth. True Advocacy and financial growth 160 140 Kohl’s three-year growth index* Target 120 100 80 60 40 20 Kmart 0 -15 -5% Pe so n Co la ti on ci t en = JCPenney Wal-Mart Macy’s Sears . 2 76 e Co ffi e rr $61.5 ar Bubble Size = 2007 Revenue in Millions 5% %15 25% 35% 45% 55% True Advocacy * Growth Index combines Revenue Growth, Gross Profit Margins, and Operating Income Growth over a three-year period from 2005–2007. 05
Slide 9: True Momentum: the future direction of consumer relationships TM Macy’s True Momentum score of 5% is below the multi-category average of 7%, reflective of a brand whose customer relationships are not improving. While an unpleasant shopping experience handicaps Kmart, the continuing drumbeat of consumer activism has plagued Wal-Mart. Consumers have been outraged by Wal-Mart’s operating practices, yet they find themselves shopping with the retailer, suggestive of a relationship in which they are trapped. Not surprisingly, Wal-Mart received a negative True Momentum score -14%. The True Momentum score indicates the future direction of a brand’s relationship with its customers by measuring whether consumers are growing closer, pulling away or maintaining that relationship. Kmart is the only other retailer in our study with a worse True Momentum score, –28%. Yet, unlike Kmart, whose revenue is down an average of 4.5% over the past three years, Wal-Mart is generating revenue. WalMart claims to save the average household $2,500 annually, and today’s contracting economy is fueling Wal-Mart’s growth as consumers seek to “Save Money and Live Better.”5 Macy’s True Momentum score is below average, 5%, (multi-category average being 7%), reflective of an indifferent consumer base, neither growing closer nor pulling away. Sears is losing momentum, – 5%, as consumers grow closer to the more innovative, fashionforward big box and discount retailers. JCPenney’s and Kohl’s efforts at cultivating deeper relationships are paying off, rewarding them with customer relationships that seem to be headed in a positive direction, with True Momentum scores of 6% and 8%, respectively. Target is the clear leader shaping the new retail model and experience. This hip, innovative retailer surpasses the others with a 28% True Momentum score, indicating that consumers continue to grow closer to this brand. True Momentum [True Momentum = % moving toward – % moving away] target Kohl’s JCPenney Macy’s Sears Wal-Mart Kmart 33% 24% 20% 26% 18% 19% 13% moving toward true momentum* 61% 61% 66% 53% 60% 48% 47% stable 6% 15% 14% 21% 22% 33% 40% moving away 28% 8% 6% 5% –5% –14% –28% 06 * Numbers may not compute exactly due to rounding.
Slide 10: retailers hold “acquaintance” level friendships While over half of the retail brands tested have low involvement, acquaintance-type relationships, Target’s customers view the brand as a soul mate. Just as consumers shop for apparel that provides the best fashion, fit, and function, so too do they look for these things in their brand relationships. But current consumer sentiment toward apparel retailers is superficial and hints at an ambivalence representative of a noncommittal relationship. Successful brands aspire to be within consumers’ inner circles of friends. Residing in such a place are consumer advocates who endorse and evangelize the brands they admire and forgive them their missteps. Contrary to the negative sentiments consumers have about their relationships with retail banks—relationships they often report feeling “trapped” in — many consumers hold more positive feelings toward retailers, including big box, discount, and department stores. Unfortunately, these relationships skew toward “weaker” relationships filled with the ambivalence and indifference associated with acquaintances. Our research found that fewer than half of the seven apparel retailers we studied —Target, Wal-Mart, Kmart, Kohl’s, Sears, JCPenney, and Macy’s— are nurturing strong and potentially lucrative customer relationships. relationship types soul mate close friend niche friend new friend acquaintance family friend default fling forced unique connection, can’t live without inner circle, depend on, always there familiar in a narrow context on the road to becoming closer ambivalent, no expectations by association or inheritance lack of options, proximity, avoidance short-time experiment no choice, feel trapped, wish to escape 07
Slide 11: Over half of the retail brands in the 2008 Friendship Model Research Study have relationships of the low-involvement, acquaintance type, and few have nurtured deep friendships. The notable exception is Target, which has penetrated the inner circle, prompting customers to perceive their relationship with the retailer as a “soul mate.” Kohl’s and Macy’s relationships are more aligned with the earlier stage, acquaintance-type of friendship, but with some evidence of deeper bonds associated with “close friends.” Consumers’ stated relationships with Wal-Mart and Kmart are analogous to the “default” and “acquaintance” types reflecting the tendency among extremely value-conscious consumers to prioritize price over the shopping experience, creating feelings of a relationship in which they are trapped or obligated. Broad opportunity exists for retailers to move the needle toward deeper customer relationships and the generating of revenue from them. For retailers whose competitiveadvantage does not lie in the race to rock-bottom pricing, consumer advocacy is the asset that will help them achieve positive business growth, even in a sagging economy. relationship roles in apparel retail category Indicates the most prevalent relationship roles, out of 9 potential roles. (-) Role Acquaintance (+) Role 24% 28% 23% 33% 26% 22% 32% 45% Soul Mate Target Kohl’s Macy’s 20% Close Friend 30% Close Friend JCPenney Sears 26% Niche 25% Niche Default Wal-Mart Kmart 26% 28% Niche 08
Slide 12: actions that build brand advocacy These ten tenets of friendship depict how friends behave toward one another, quantifying the contribution to positive customer experiences. Consumers are people. They look for experiences from brands that add to their lives, exceed their expectations, help when they need it, and reflect their values, beliefs, and lifestyles. We believe every point of contact that a brand has with a customer is an opportunity to deepen or ruin the relationship and, in order for apparel retailers to deepen their relationships with consumers, they need to understand their current performance. The 2008 Friendship Model Research Study assessed apparel retailers across ten actions. These ten tenets of friendship depict how friends behave toward one another, quantifying the contribution to positive customer experiences. We believe these actions transform the role a brand plays in a customer’s life, affording it the significance necessary to gain advocacy. actions that drive advocacy: the 10 tenets of friendship be authentic | original, real, and distinctly meaningful be honest | transparent, make intentions clear be empathetic | understand their needs, desires, and lives support them | be helpful, act on their behalf spend qt | provide positive, immersive experiences share a pov | common lifestyle, belief system, or attitude be exciting | create a visceral spark or gut reaction give more | provide value beyond the purchase stay in touch | build anticipation, add value, communicate keep it fresh | surprise and delight 09
Slide 13: beyond the basics: keeping it fresh, attractive, and exciting Across the industries included in the 2008 Friendship Model Research Study — wireless, airlines, retailers, electronics, personal care, and retail banks — five tenets represent the fundamental behaviors inherent in successful apparel retailer brands: Honest and true, Authentic, Supports me, Quality time, and Understands me. While these are the platform from which advocacy is built, brand momentum is generated, and from which business growth is propelled, two additional tenets are critical within the trend-driven nature of the apparel business: Keeping it fresh and Attractive and exciting. In friendships, Keeping it fresh means integrating delight and surprise into the relationship and being consistent without total predictability. For the retailer, it is about differentiating through merchandising strategies, and we believe this is paramount for attracting consumer advocates. The Attractive and exciting side of friendship is the visceral spark and inspiration that friends bring to one another, creating a connection. path to advocacy for apparel retailers KEEP IT FRESH BE EXCITING tenets that are critical within the trend–driven apparel sector. BE EMPATHETIC Much like Maslow’s hierarchy of needs, apparel retailers must deliver on the foundational needs of a relationship in order to effectively excite their customers and earn their advocacy. fundamental behaviors inherent in successful apparel retail brands. SPEND QUALITY TIME SUPPORT THEM BE AUTHENTIC BE HONEST 10
Slide 14: Apparel retailers as a category scored below the multi-category average on all 10 tenets. The research found that apparel retailers as a category scored below the multi-category average on all ten tenets. Only one retailer really hits the mark with consumers on experience: Target, sets a new standard for product innovation and customer experience— in-store and online—against which the other retailers need to recalibrate their experiences to effectively compete. This is best described by one of Target’s advocates: “I decided to stop into Target. I found the shopping experience relaxing. Their store was clean and their employees were very helpful. There were three people in the [checkout] line, but they immediately called for back-up cashiers. It is a friendly, clean atmosphere, and pleasant place to shop.”6 Apparel Retail Category Mean apparel retail tenet performance 140 130 120 110 100 90 80 70 60 50 40 ng h Multi-Category Average Multi-category Average apparel retail mean target Tenet Score Index (Avg. = 100) 93 91 94 92 93 88 84 93 95 90 Apparel M Category R Target e on ue ic e e e es iv ti m m nt m tr m ti Ig fr co m an d nd or Ex ip ua lit an ut ta pp A sh th er s in io n es Su Q an on nd ng or hi iv la t ra ct et re G et m s A ee p So K C om tt m un m H U ic e at e es d t w it h ts he s y ci m e 11
Slide 15: True Advocacy Target: design in everything exclusive design partnerships keep apparel fresh and relevant 47% Target Multi-Category Mean 21% 17% Apparel Retail Mean relationship roles SOUL MATE 45% We believe that Target, which has even earned a bourgeoissounding nickname “Tar-jae” bestowed on it by fond customers, is designing the higher standard by which retailers compete. Target has been at the forefront within the category for democratizing apparel, and this has been a key point of differentiation for them, with designer partnerships such as Proenza Schouler, Liz Lange, and Isaac Mizrahi. Across the store environment, Target’s customer service experience shines through with clean, well-lit stores and friendly, knowledgeable employees. The retailer’s cheap-chic and design-centric merchandise selection contributes to its high score on Keeping it fresh, 127, its best-perceived attribute. Target’s Club Wedd® has one of the highest usage rates among online wedding registries. And, taking innovation with online offerings a step further, TargetLists® is a dynamic, multi-occasion gift-giving and shopping list that allows gift buyers to purchase, wrap, and ship to the recipient either online or from the store. design extends into nonapparel merchandise True Momentum 28% Target Multi-Category Mean 7% Apparel Retail Mean 0% Inherent in their brand DNA and core to their communications is Target’s delighting customers by infusing design into everyday products. Design is found in the most unexpected of items, including (redesigned) prescription drug bottles, surprising consumers with shape, color, and integrated color bands to help family members easily distinguish ownership. The Archer Farms product line, a Target private label brand, has designed resealable chip bags and cereal boxes. These seemingly discreet package redesigns differentiate the retailer, but also provide value to the consumer without asking for much in return. They also influence consumer perceptions about everything this hip retailer carries and demonstrate the authentic nature the brand. Plus, they are buzz-worthy. 12
Slide 16: While design and innovation infused into products and their marketing communications contribute to the positive experience, in February 2007 Target reached a new milestone in community leadership, contributing $3 million per week to arts, education, and social service programs — 5% of its annual income.7 Awarding the brand the highest scores on all tenets —Honest and true, 109; Authentic, 101; Supports me, 112; Quality time, 116; Understands me, 111; and Attractive and exciting, 113 — today’s consumers feel good about shopping at Target and are evangelizing it, generating an above-average three-year growth index of 127. Target: design in everything 140 Apparel Retail Mean 130 Target 120 110 Multi-Category Mean 100 90 80 70 ng sh ue ic e e e on e tim m nt m ci ti fr e tr m Ig co m hi p an an Ex or an ut lit pp ua A st th an d tio ns st Su er Q in on e U nd or e g et ct re So m G et ra ps K C om tt A ee m un ic hi n iv e la m H at es w ith ts he ds d y m iv e 13
Slide 17: Kohl’s: delivering on “great things” True Advocacy kohl’s exhibits mediocre friendship behaviors 21% Kohl’s Multi-Category Mean 21% 17% Apparel Retail Mean relationship roles ACQUAINTANCE 28% CLOSE FRIEND Kohl’s performs ahead of the competition, and is one of only two retailers other than Target that have above-average advocacy and momentum scores. Kohl’s is the retailer where one can “Expect Great Things®,” and is best described by an advocate: “Kohl’s is a great place to shop. The atmosphere is nice, the deals are great, and the people are always helpful. The stores are always clean, and you can count on finding something new and different that you have to have — for yourself or as a gift for someone else. I am not always happy about having to shop, but I always enjoy shopping at Kohl’s.”4 Kohl’s ranks ahead of Kmart, Wal-Mart and Macy’s on performing the basics, yet receives only average scores on exhibiting foundational brand behaviors: Honest and true, 95; Authentic, 91; Supports me, 96; Quality time, 84; and Understands me, 93. Kohl’s demonstrates authenticity and customer support through its Kohl’s Cares for Kids® initiative, to which the company donates hours and merchandise to improve children’s lives — a total of $85 million in 2007. Kohl’s excels as a corporate citizen. The Environmental Protection Agency (EPA) has recognized Kohl’s as the leading user of green power within the retail category. being a bit more remarkable 20% True Momentum Kohl’s 8% 7% Multi-Category Mean Apparel Retail Mean 0% Continuing to deliver great things and creating excitement, the retailer’s 2008 back-to-school campaign, “Designed by celebrities, worn by you,” is modern and smart, with enough edge to be relevant and on trend across generations. This retailer claims to be “not a destination, but an opportunity to discover” and consumers are taking notice.8 Kohl’s is one of the category leaders in the areas of Keeping it fresh and creating an Attractive and exciting environment. This extends to the company’s leadership in the democratizing of fashion by contracting with exclusive designers, such as Vera Wang for the Simply Vera label. Consistent with this direction and reflecting consumers’ desires, management has taken strides to improve the store experience, making it more visually exciting. While sales growth has been meager at 1.4%, the retailer has experienced soaring sales from its online channel—a surge of 29.5%.9 These combined efforts have contributed to their positive advocacy, momentum, and threeyear growth index of 153. 14
Slide 18: “This store came to our neighborhood only recently. I tried it out and liked the quality and selection. It’s not remarkable, but I’d go on another date without reservations.”4 Kohl’s performs well in creating excitement and maintaining relevancy, and it has less room for improvement than its competitors. This retailer needs to focus on the consumer experience along with enhancing foundational brand behaviors, as evidenced by the following testimonial we captured: “This store came to our neighborhood only recently. I tried it out and liked the quality and selection. It’s not remarkable, but I’d go on another date without reservations.”4 We project that a clearer emphasis on exhibiting the core behaviors of friendship—including authenticity, transparency, support, understanding, and quality time—would yield a 3% increase in advocacy and contribute to increasing top-line revenue growth. closing gaps in the relationship Closing the Gap = 3% increase in advocacy 140 Kohl's 130 Apparel Retail Mean Target 120 110 Multi-Category Mean 100 90 80 70 ci tin g h tr ue ic m e e e on es e tim nt m m m Ig fr an d st an d lit y Ex ut co hi ua th a pp A on e tio ns Su nd or e ng ct iv hi la et re K C om m A tt ra So m ps ee G et un U m H ic e at es an d st er Q in w ith s he or t s p n m iv e 15
Slide 19: True Advocacy JCPenney 27% 21% 17% JCPenney: adding spark to the experience and the relationship outperforming on the basics Multi-Category Mean Apparel Retail Mean relationship roles JCPenney outperforms the competition — particularly in performing the basics — and is one of two retailers other than Target that holds average advocacy and momentum scores. Consumer sentiment is best summed up by the following customer testimonial: “It [JCPenney] isn’t necessarily my first choice, but I know that it has quality merchandise. It may not have the most fashion-forward merchandise, but I can count on it for basics.”4 Throughout the years, JCPenney has performed exceptionally well in its core ability to meet customer expectations, allowing the retailer to uphold a higher True Advocacy score, 27%, and a positive True Momentum score, 6%. Recognizing the need to increase relevancy with its consumer base and to act with more authenticity, JCPenney has proceeded with both store and merchandise upgrades, along with a message change to “Everyday Matters®” from “It’s all inside®.” The data from the research indicates that JCPenney will continue to gain momentum. The company’s latest back-to-school marketing campaign, “Get that look”, inspired by The Breakfast Club, is sure to renew consumer interest. The campaign showcases “lifestyle brands that deliver style and quality at a smart price,” and it deploys ads, online games, and text messaging to communicate with and engage teens while helping them develop and express their style—whatever it may be.10 As an older retailer, moving into the digital space with communications that are highly relevant to today’s youth should raise the retailer’s below-average Attractive and exciting score of 87. ACQUAINTANCE 33% NICHE FRIEND 26% True Momentum JCPenney 6% 7% Multi-Category Mean Apparel Retail Mean 0% 16
Slide 20: moving toward a better fit “It [JCPenney] isn’t necessarily my first choice, but I know that it has quality merchandise. It may not have the most fashion-forward merchandise, but I can count on it for basics.” 4 JCPenney performs well on the basics; however, bringing a higher level of excitement, freshness, authenticity, and quality time comparable to Target would jump-start the experience and potentially increase advocacy by 3%. Deepening their consumer relationships, moving them from the status of “acquaintance” and “niche” types of friendships into higher involvement would further contribute to an already positive three-year growth index of 125. closing gaps in the relationship Closing the Gap = 3% increase in advocacy 140 JCPenney 130 Apparel Retail Mean Target 120 110 Multi-Category Mean 100 90 80 70 g h es iv e ue ic e e e on ci tin tim m tr nt m m Ig fr or ts co m lit y io ns hi p an an Ex an ut pp er st Q ua A th es in Su an on nd ng re la t or hi iv e et ct ra ps m et So A ee K C om tt G m un U m H ic at e es d t w ith he ds d m e 17
Slide 21: True Advocacy Multi-Category Mean 21% 17% Wal-Mart: moving from an obligation to a relationship Wal-Mart received the lowest of the True Advocacy and True Momentum scores following Kmart, indicating more consumers are pulling away from the brand than growing closer to it. Consumers perceive their relationship as one of “default” predicated by an obligation to shop with this retailing giant in order to take advantage of the best prices and convenience—a purposeful relationship, but one that is not meaningful. The sentiment is best captured by a patron: “I am fascinated by Wal-Mart and always find plenty to spend my money on there. In my area, there is only one I will go to because the others are unkempt and dirty. But, I like their prices and vast array of products. I don’t want a Wal-Mart in my neighborhood and I don’t always like their business practices…but, dang it, they have some really cool stuff.”4 Critics have weighed in on the unappealing atmosphere of Wal-Mart, and we can infer these complaints have led to Wal-Mart’s significantly below-average scores on the core tenets attributed to a positive customer experience: Honest and true, 73; Authentic, 76; Supports me, 80; Quality time, 69; and Understands me, 78. We do admire that Wal-Mart cares about the environment, and the company’s “Sustainability 360” initiatives are forcing change by requiring the companies they do business with to implement environmentally conscious practices, which is helping to mute some of the criticism. Apparel Retail Mean Wal-Mart 2% relationship roles ACQUAINTANCE 22% DEFAULT FRIEND 26% True Momentum Multi-Category Mean 7% Apparel Retail Mean 0% Wal-Mart -14% 18
Slide 22: elevating the customer experience As could be expected, consumers shopping at Wal-Mart get more than they give in the relationship — at least financially—with this super store. But that’s not saying much for a retailer whose customers describe the relationship with it as “default.” There is an opportunity to move customer sentiment beyond low prices and convenience, cultivating the deeper relationships necessary for generating positive buzz. Elevating the customer experience by increasing performance of the basics, represented by the five tenets, to 100 would raise the percentage of Wal-Mart advocates by 6%, and considering the millions of Wal-Mart customers in the United States, that’s no small number of people. closing gaps in the relationship Closing the Gap = 6% increase in advocacy 140 Wal-Mart 130 120 110 Multi-Category Mean Apparel Retail Mean Target 100 90 80 70 60 50 g h e ic e e e on es e tin tr u tim m nt m m Ig fr ut he m ith es m un ic at w s ds ci m iv e d rt y an st an Ex p po co ua A hi tio ns Su p es in an er Q on nd ng ct iv hi la U et re ra ps m et G m C om H So tt A K ee or e e th d t an lit 19
Slide 23: Kmart: establishing a role in the customer’s life True Advocacy Multi-Category Mean kmart has neglected friendships and in turn has been abandoned 21% 17% Apparel Retail Mean -12% Kmart relationship roles ACQUAINTANCE 32% NICHE FRIEND 28% True Momentum Multi-Category Mean Within the category, Kmart received the lowest True Advocacy and True Momentum scores, and the financial results emphasize that consumers are pulling away. The brand is experiencing a steady decline in revenue, on average a 4.5% decline from 2005 to 2007. Our study revealed that consumers hold poor perceptions of Kmart’s ability to meet basic customer service expectations; therefore the store plays an insignificant and narrow role in the customers’ lives—similar to that of an “acquaintance” or “niche” friend. Critics have expressed their unhappiness with Kmart, and this testimonial emphasizes the negative impact: “Our local Kmart is unappealing—not very clean, and has poor customer service, poor quality, and disorganized display of products. They are the closest store of their type, but I avoid shopping there, traveling farther to get a better experience.”10 Unlike Wal-Mart, which delivers on value, Kmart under performed on all ten tenets of friendship, scoring significantly below average on the core friendship tenets: Honest and true, 72, Authentic 77; Supports me 74; Quality time, 60; and Understands me, 76. We believe Kmart’s deceptive practices in advertising and selling its Kmart gift cards exhibited less than honest behavior. Moreover, consumers engaged in online shopping with Kmart unknowingly had spyware installed on their computers that transmitted customers’ personal logins and online behaviors for analysis, a clear violation of consumer privacy. renewing lost friendships 7% Apparel Retail Mean 0% -28% Kmart It cannot be disputed that Kmart has been a constant player on the retailer landscape, and we believe an opportunity exists to develop higher-bond consumer relationships tapping into former days of positive consumer sentiment. “Kmart reminds me of a childhood friendship because it was where I shopped as far back as I can remember anyway. Quite a few of my memories involve shopping trips there. I don’t go there quite as often as I used to, but it’s still comforting to know it is still there. 4 Moving in the right direction, Kmart’s online community ” and discussion board capture consumer insights on improving the in-store experience. Creating a trusted online experience would strengthen the retailer’s impressions on behaving in an honest and supportive manner. 20
Slide 24: With an index of 48, over 50% below the study average, on the tenet of Attractive and exciting, an opportunity exists to enhance the in-store experience. Well-maintained inventories, visually appealing in-store communications, and internal branding efforts would support employees contributing to breathing new life into the weak customer experience. Increasing the fundamental five tenets to 100 could increase Kmart’s advocacy levels to 6%. closing gaps in the relationship Closing the Gap = 6% increase in advocacy 140 Kmart 130 120 110 Multi-Category Mean Apparel Retail Mean Target 100 90 80 70 60 50 40 g h tr ue m on es iv e ic e e e ci tin tim m nt m Ig fr co m an an Ex or p an ut lit pp er st ua A hi th es t in Su an Q ns tio hi ng on nd or e iv e la et ct re G et ra ps m So A ee K C om tt m un U m H ic at es d w ith ts he ds d y m e 21
Slide 25: Macy’s: in need of a brand experience worth talking about True Advocacy Macy’s, an iconic American brand, has woven itself into the fabric of traditional American holidays from Fourth of July firework displays and the Macy’s Thanksgiving Day Parade to ceremonial Christmas tree lightings. This retailer brings entertainment and festivities to American consumers, and they rank Macy’s second only to Target in generating excitement and delighting them. Inside the store, however, the magic of Macy’s lags behind its competitors, Target, JCPenney, and Sears. While the relationship gaps aren’t pronounced, they exist in areas essential to shaping the customer experience: Honest and true, 92; Authentic, 94; Supports me, 85; Quality time, 97; and Understands me, 92. This is best articulated by a consumer, “Macy’s carries good brands/ labels. I would actually shop there more often, but the store is rarely organized, often a mess, and there are no sales help around for advice nor assistance—at least in the women’s clothing section.”4 The low scores in the area of authenticity and support could be a result of recent industry consolidation. In 2005 Macy’s almost doubled the number of retail stores to 869 from 459 (2004) through acquisitions such as Hudson’s, Rich’s, and Bullock’s.12 Risk is inherent in an expansion effort, with the possibility of alienating current customers as the Macy’s culture permeates the previously trusted local or regional retailer that is acquired. Due to Macy’s enduring market presence, consumers consider their relationship one of a “close friend” or the less involved “acquaintance” type. Macy’s is dependable; consumers enjoy the sales and rewards programs, find the product quality solid, and the prices reasonable—yet they lack the conviction and passion associated with higher-involvement relationships that lead to endorsements and recommendations. Macy’s communicates effectively with consumers through celebrity endorsements and high-quality direct mailers, and Macys.com has tapped into advocates by featuring consumer ratings along with the featured items. Macy’s Shop for a Cause is a charitable effort that deserves praise, along with its associated $35 million in donations to charity. Also, the company understands community needs, and it is reducing energy consumption and exploring methods for reducing operating waste. We applaud these initiatives and believe they contribute to Macy’s positive, but average, True Advocacy and True Momentum scores of 15% and 5%, respectively. But there is an opportunity to re-energize the shopping experience and increase their financial growth beyond the current three-year index of 96. 22 15% Macy’s Multi-Category Mean 21% 17% Apparel Retail Mean relationship roles ACQUAINTANCE 23% CLOSE FRIEND 30% True Momentum Multi-Category Mean 7% Macy’s Apparel Retail Mean 5% 0%
Slide 26: closing gaps in the relationship Closing the Gap = 3% increase in advocacy 140 Macy`s 130 Apparel Retail Mean Target 120 110 Multi-Category Mean 100 90 80 70 g h ue ic e e e on es e tin tim m tr nt m m Ig fr m an an Ex or p an ut lit co pp ua A st hi th es in Su an er Q ns tio on nd ng or hi iv la et ct re ra ps m et So A ee “Macy’s carries good brands/labels. I would actually shop there more often, but the store is rarely organized, often a mess, and there are no sales help around for advice nor assistance – at least in the women’s clothing section.” 4 investment in the store experience would complement the smart, fashionable marketing As an established retailer that has endured industry consolidation, now is the time for Macy’s to strengthen the core brand behaviors exhibited across customer touchpoints. With Kohl’s and Target shaking up the retail shopping experience, providing fast fashion at low prices, Macy’s provides a distinctive range of apparel and affordable luxury. But its behavior outside the store is more compelling than that found inside, evidenced by this retailer’s scores on the tenets of Attractive and exciting, 111, and Keeping it fresh, 105. Macy’s low Quality time score of 97 suggests employees could take a more active role in shaping the customer experience. And, an investment in the store experience would complement the smart and fashionable marketing activities, providing the brand with the boost it needs to generate higher advocacy levels. In comparison to Target, closing the relationship gap on foundational behaviors could potentially raise Macy’s advocacy level by 3%. 23 K C om tt G m un U m H ic e at e es d t w ith ts he ds d y ci m iv e
Slide 27: True Advocacy 17% Sears Multi-Category Mean Sears: modernizing a dependable trusted brand Sears’ American heritage is clear, and so are consumer impressions of the retailer’s model, which displays high levels of integrity, reliability, and dependability— but lacks a distinct personality and identity. Sears, like Macy’s, is an icon within the American apparel retail landscape, although not as contemporary as its peer. Our research found that consumers perceive Sears as meeting or exceeding their basic expectations, but its competitors are better able to keep their consumer relationships fresh and generate stimulating store experience. “I can always count on Sears. Sears is there when I need them. They have never failed.”4 Sears scores highest within the apparel retail category for holding attributes of honesty and authenticity: Honest and true, 110, and Authentic, 106. These perceptions are so strong that customers seem willing to forgive the retailer for the online transgressions it shares with the Kmart brand, suggesting that consumers, like Sears, have a softer side. Falling short in maintaining relevancy has fewer consumers feeling the brand shares common values with them, and in turn, Sears doesn’t understand the customer well. However, the lower ranking on the tenets of Attractive and exciting, 80, and Keeping it fresh, 87, identify an opportunity for them to increase relevancy in a category where such actions are essential to compete. Despite a sales dip, Sears has not spent heavily on promotion and advertising, or on in-store upgrades, but has opened an online boutique, viewed as one of the company’s initial steps in creating an online experience that would rival their legendary catalogue. 21% 17% Apparel Retail Mean relationship roles ACQUAINTANCE 26% NICHE FRIEND 25% True Momentum Multi-Category Mean 7% Apparel Retail Mean 0% -5% Sears 24
Slide 28: Unfortunately, a negative momentum score, -5%, reflects consumers’ lower involvement “niche” and “acquaintance” relationships—narrow and relatively dispassionate— affecting the brand’s ability to gain advocates and fuel conversation. Raising the performance on tenets like Understands me, Quality time, and Something in common — along with those related to relevancy and freshness to levels similar to those of the three strongest retailers—Target, Kohl’s, and JCPenney— would increase Sears’ advocacy by 3%. closing gaps in the relationship Closing the Gap = 3% increase in advocacy 140 Sears 130 Apparel Retail Mean Target 120 110 Multi-Category Norm 100 90 80 70 ci tin g h fr es iv e ue ic e e e on tim m tr nt m m Ig or t lit y m sh ip an an Ex an ut pp Q ua A st co th in d t Su io n es an er e hi ng on nd ct iv la t or et re ra ps m et So A ee K C om tt G m un U m H ic a e te s w ith s he ds d m e 25
Slide 29: conclusion: there’s value in monitoring consumer relationships 22squared’s 2008 Friendship Model Research Study highlights True Advocacy as a strong predictor of positive business growth for apparel retailers. From the research, it is evident that the category price leader, Wal-Mart, is the natural exception, with consumers seeking the best prices and compromising on the overall shopping experience —contributing to revenue growth while advocacy levels remain low. The downturn of the U.S. economy magnifies the competition that retailers are encountering against the big box stores. And, the friendship study shows that apparel retailers have considerable gaps to close in order to bond with consumers and create experiences that will deepen their involvement with retailers’ brands, resulting in advocacy. The three areas we recommended for immediate improvement are: 1) ensuring consistent customer service levels across vital touchpoints, while surprising and delighting; 2) offering a buzz-worthy experience beyond low prices; and 3) maintaining relevancy as the industry innovates. At 22squared we believe the Friendship Model and the insights it provides allow a brand to monitor consumer behavior in order to improve the brand’s customer experience. As traditional models are broken down by the innovative, fast-moving, consumercentric retailers like Target, tapping into the endorsements of existing customers should be an integral part of the business plan of any retailer that intends to remain competitive. 26
Slide 30: 22squared, one of the largest independent advertising agencies (we use the term loosely) in the U.S., provides strategic and creative advertising services across multiple business verticals. It offers an empirical approach to building brand advocacy and specializes in communications that drive business growth by building strong relationships with customers. The number 222 represents the exponential power of brand advocacy as well as the average number of friends a person makes throughout his or her life. 22squared is located in Atlanta, GA and Tampa, FL. For more information, visit 22squared.com. Consumer Insights Inc. is an independent research firm that specializes in custom quantitative consumer research. They have experience studying many types of industries, including automotive, package goods, financial services, government entities, healthcare, hospitality and tourism, retail, services, and utilities. Researched and prepared by 22squared. Contributors to this paper include Brandon Murphy and Carolyn Kopf. References: 1 September 2008, Consumer Price Index Summary, U.S. Department of Labor. Accessed October 21, 2008. http://www.bls.gov/news.release/cpi.nr0.htm 2 “Mass Merchandisers: Why Consumers Shop Where They Do.” July 2008. Mintel. www.Mintel.com 3 Badgett, Melody; Boyce, Maureen; and Hittner, Jeffrey. “Why advocacy matters to apparel retailers: Customer focus requires retailers to dress for success.” IBM Global Business Services. November 2007. http://www.ibm.com/ibm/ideasfromibm/us/retailers/ 01142008/index.shtml 4 2008 Friendship Model Research: A Quantitative Study of Brand Advocacy. 22squared. March 2007-March 2008. 5 Neff, Jack. “What Wal-Mart savings claim doesn’t tell you; Families spared $2,500 a year – whether they shop at retail behemoth or not.” Advertising Age. November 12, 2007: 1. 6 Customer testimonial about Target located on August 18, 2008 at http://www.readprint.com/coupons-reviews/14 7 “Target Reaches New Community Giving Milestone, Contributing $3 Million Per Week.” Target Press Release. February 15, 2007. www.target.com http://news.target.com/phoenix.zhtml?c=196187&p=irol-newsArticle&ID=963667&highlight= 8 Annual report. Kohl’s. 2007. 9 Recent earnings details revealed in SEC filings reviewed by Internet Retailer, June 18, 2008. http://www.internetretailer.com/dailyNews.asp?id=26807 10 “Teens ‘Get That Look’ at JCPenney This Back-to-School Season.” JCPenney Press Release. July 7, 2008. www.jcpenny.com http://ir.jcpenney.com/phoenix.zhtml?c=70528&p=irol-newsCompanyArticle&ID=1172326&highlight= 11 O’Donnell, Jayne. “Black-and-blue light special: Kmart, Sears hit hard; Parent company seeks new CEO for turnaround.” USA Today. January 29, 2008. Tuesday Final Edition: Money. 12 Annual report. Macy’s. 2007. about 22squared 27