Developing the customer relationship to win in 2011

Date : 11 January 2011

Developing the customer relationship to win in 2011

Household budgets look set to be stretched further by tax increases and inflation in 2011. Grocery retailers will therefore continue to focus on developing the relationship they have with shoppers in a bid to win sales from their competitors.

Here, we explore some of the ways in which this is being achieved and how these trends may evolve during 2011.

Focus on value

Price continues to be a major driver of shopper behaviour. While deflation in certain areas, such as air transport, provided some relief towards the end of 2010, continued inflationary pressure in the grocery sector means price will be even more critical for many households in 2011. Bread, cereals and meat all saw significant year-on-year increases at the end of 2010 and as we move further into 2011, higher inflation in non-food categories should not be ruled out.

As a consequence, retailers are focusing heavily on conveying value to their customers, with price guarantees and promotional innovation among the most important tools in their communication strategies. As part of these plans, IGD has identified two trends in particular that are set to grow in 2011.

Trend one - the internet

The first is greater use of the internet to communicate price credentials. Of course, some of this will be in conjunction with growing online sales, but it will also be used to convey a broader price message. Asda’s price guarantee and the Waitrose brand price match are two examples of how the major multiples have used the internet to reinforce their price positioning in 2010/2011.

Trend two - promotional mechanics

Strong promotional messaging seen at the M&S store in Westfield during IGD's recent visit

Secondly, in terms of innovative promotional mechanics, deals such as 'buy 1 get 2 free' are likely to be used more frequently by retailers. So too will meal deals and the ‘eat in for £x’ offers used by Marks & Spencer and Asda, among others. Some meal deal offers have the strength to evolve further into sub-brands in their own right, with associated shelf edge and media advertising. At the same time, events and meal deals will be more closely linked. Mother’s Day, Valentine’s Day and Easter are among those occasions becoming ever more significant within the retail calendar.

Loyalty cards and technology

Another powerful weapon for some of the major multiples is the loyalty card. These have been gaining momentum and since they differentiate the retailers, they are expected to be a significant battleground in the year ahead.

Tesco, in particular, stands out in this area, particularly as a result of its double Clubcard rewards offer. Sainsbury’s as also been making greater use of its Nectar card, running triple points events and linking offers to its financial services products. In addition, The Co-operative Group is likely to promote the benefits of its membership card harder in the future, now that the acquisition of the Somerfield business is complete.

Considered in conjunction with rapid technological progress, loyalty cards stand to play an even greater role in deepening the customer relationship in the future. As smartphone penetration increases and the variety of applications grows, retailers are enjoying increasing opportunities to engage with shoppers. While retailers in the US have thus far led the way, the trend towards tailoring offers, rewards and information to individual users looks set to increase.

Asda is just one of the major retailers planning to ramp up its non-food offer in the coming months

Non-food

Alongside their strong food propositions, consumer goods retailers are also developing their non-food ranges and this represents another significant opportunity for them to build brand loyalty. By 2014, IGD forecasts that non-food sales will reach £17.1bn.

Asda, Sainsbury’s and Tesco all have major plans for non-food growth in the coming years. Asda plans to increase its estate of standalone Living stores from 30 to 150 outlets within five years, focused exclusively on clothing and non-food. Sainsbury’s approach is to develop its hypermarket format and to dedicate extended space within that to general merchandise. Further highlighting this trend is Tesco, as it develops its position as a specialist in certain key non-food categories. Initiatives such as its baby shop trial in Walkden aim to push the brand further than it has been before and attract new customers.

Opportunities for the future

Competition within the consumer goods sector is set to intensify and while the economic backdrop remains challenging, the battle for shoppers’ spend will be keenly fought. The major multiples are seeking to deepen the relationship they have with customers on a number of different fronts, something which in turn creates new opportunities for manufacturers.

Understanding the priorities of the major retailers and aligning plans accordingly will be critical in the future. By doing so, manufacturers stand to maximise the sales potential as retailers strive for greater brand loyalty.

Retail

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