President Global CEM
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What should you do to drive in-store sales during a recession?

19th Dec 2009
President Global CEM
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“What should you do to drive in-store sales during a recession?”

A. Make customers feel more satisfied
B. Cut prices significantly
C. Reduce customer pain during a purchase experience
D. All of the above
E. None of the above

Keep your answer. You may think differently after I show you the findings of our In-Store Customer Experience Surveys.

More Satisfied ≠ More Purchases

“If customers are more satisfied, they will buy more.”

In a recession, most companies are trying to make their customers feel more satisfied because they believe when customers have less disposable income to spend, they will buy (and buy more) from those companies who make them feel more satisfied.

The rationale behind this approach is: “The drivers of satisfaction and purchases are the same; and satisfaction and purchases are positively correlated.”

However, the above statement is just an assumption and assumptions can be misinterpreted. Our findings from the in-store experience surveys of Louis Vuitton*1, Arwin Charisma Museum*2 (a beauty and healthcare mall in Taiwan targeting tourists), Starbucks*3, Supermarkets*4 and Automotive Showrooms all tell us a different story.

In the Louis Vuitton In-store Experience Survey, Service and related attributes are the most important elements in affecting satisfaction level for a Louis Vuitton shopping experience; but they are unimportant in driving repeat purchases*5. Instead, Exclusive feeling is the number one driver – Moment of Buying (MOB) – leading customers to buy again. The results of this survey were compiled from 2,569 respondents worldwide*6.

In the Global Starbucks In-store Experience Survey, a Comfortable seat is not important in driving satisfaction during a Starbucks in-store experience*7, but it is in the top five MOB in generating repeat visits for North America consumers*8.

In the Mainland China Supermarket In-store Experience Survey, Goodbye with genuine smile at checkout is unimportant in influencing the overall satisfaction level for a supermarket shopping experience*9; yet it is the number one MOB driving 2,267 Chinese respondents to come back to the same store again*10.

From over 10,000 respondents to the above in-store experience surveys, of the top five most important attributes / sub-processes for repeat purchases – Moments of Buying (MOB) – derived from regression analysis, half are not important to satisfaction. The non-correlated contradiction is even more serious for big-ticket purchases such as buying an automobile or luxury good than it is for shopping at a supermarket or having a cup of coffee at Starbucks, since half of the sub-processes or attributes during the automotive showroom and Louis Vuitton in-store experience are not even positively correlated between satisfaction and purchases. In other words, if you focus your resources on enhancing satisfaction, you’d have a 50% chance of missing the sales drivers! You might achieve great satisfaction scores and make your customers happy, but those satisfied customers might not buy from you again.

Unless you have a crystal clear idea of how satisfaction and sales work together, you may get confused. Why do we pursue customer satisfaction? Because we want to make our target customers feel good so that they will buy more from us and be more loyal. Satisfaction is the means but definitely not the end!

Answer 1: Focus on Moments of Buying (MOB) instead of simply on customer satisfaction if you want to drive more sales

Cutting Prices ≠ More Sales

“If we don’t cut our prices drastically, customers won’t buy.”

In a recession, most companies are trying to reduce price significantly in order to drive (or maintain) sales because they believe that when customers have less disposable income to spend, they will buy (and buy more) from those companies who offer the lowest prices.

The rationale behind this approach is: “According to Game Theory, even though you know you and your competitors will do the same thing – cut prices – and you think this action may be ineffective in driving more purchases, you still have to adopt this measure to stay competitive.” Believe it or not, you do have proactive options other than a drastic price cut. The key is to synchronize Who You Are and Why Customers Buy From You.

In the Global Starbucks and Louis Vuitton In-store Experience Survey, Price is the pain peak for both Starbucks*11 and Louis Vuitton in-store experiences*12. However, price is among the least important attributes in affecting the satisfaction levels of their customers*13. For Starbucks, price is the second most important attribute in differentiating the brand for customers in North America*14 and the first for those in Mainland China*15. For Louis Vuitton, price is the most important attribute in differentiating the brand for global customers*16.

Controversial, isn’t this? Price as an attribute, while relatively unimportant in affecting overall customer satisfaction, is certainly important in generating a differentiated customer experience. That does not mean that customers are satisfied with the prices at Starbucks or Louis Vuitton. It means only that premium pricing is one of the key attributes differentiating Starbucks and Louis Vuitton from competing brands. Theoretically speaking, if Starbucks and Louis Vuitton cut prices, assuming all other elements remained constant, they would be less differentiated from their competitors. Obviously they could go for a drastic price cut in order to maximize sales in this recession, but the outcome, an un-branded experience, will destroy the brand in the medium-long run.

Price cuts will work if ‘Low price’ is one of your core brand values, such as at Wal-Mart, Southwest or Dell. “Low price” brands not only have to reduce prices, they should consider reducing them much more drastically than their competitors, as long as they can sustain operational efficiency. These companies invest most of their resources in keeping a low price point (often the lowest), and they will have to cut significant spending on other attributes, those that are not their core competences. With low prices, they continue delivering a branded (reflecting brand value in low price) and an effective (focusing resources on those critical few attributes that work for them) experience in a recession.

What if your brand values do not include ‘low price’, but you drop prices more drastically than your competitors? There are several possible outcomes:
1. You can’t sustain low prices for long because you don’t have a comparative advantage in costs;
2. Your target customers become confused about your brand positioning; or
3. You have fewer resources and less energy to focus on what you are really good at doing.
The end result? Even if you could survive the recession, you will drive your target customers away and your brand equity will be severely damaged.

In a recession, you should reallocate your reduced budget – cut back spending on non-critical attributes during an experience and spend to excel at the critical few moments or attributes which are most important in reflecting your differentiated brand values, the Moments of Differentiation (MOD) – to deliver a branded experience.

Answer 2: Focus on Moments of Differentiation (MOD) as you find out what your brand means to your target customers.

More Customer Pain ≠ Customers Buy Less

“If we want customers to buy more, we have to minimize pain points in their experience.”

In a recession, most companies are trying to eliminate the pain points in order to deliver a pleasant experience to their customers because they believe, when customers have less disposable income to spend, they will prefer to buy from those companies who generate fewer pain points or even no pain points at all.

The rationale behind this approach is: “As human beings, we all want to maximize pleasure and avoid pain. Pain makes customers feel uncomfortable and drives them away. We can’t afford for that to happen, especially in a recession so we will offer less (no) pain.” However, pain is a necessary ‘angel’ – the same pleasure feels more pleasurable when contrasted with pain and allowing pain frees up resources and releases constraints. In fact, pain may trigger customers to push the BUY button on the spot. In a recession, we actually may need more pain.

No one will deny Louis Vuitton is a successful brand, yet it doesn’t seem like they provide a good retail experience. Unless you are a celebrity or dress like the rich & famous, the salesladies often ignore you. No one likes to be ignored, but this experience pain is so intense, it's strong enough to trigger our Psychological Immune System to rationalize that we are suffering for something of great value*17. This concept is further supported by research findings in the Louis Vuitton In-store Experience Survey*18. In this case, the great value is exclusivity – the most critical need of Louis Vuitton target customers and a core brand value – and this value is perceived significantly during the experience process. Thus, Louis Vuitton is delivering an effective and a branded in-store experience, although the experience may induce some pain and might not necessarily be considered a good experience.

It just doesn't sound logical. Think about the queuing up at Starbucks, DIY service at IKEA and flights without meals on Southwest; these are all examples of pain within an experience. Why do customers accept this pain? Because their branding lets customers know that they are not coming to Starbucks for speed and efficiency, they are not coming to IKEA for excellent service and they are not coming to Southwest for meals. Allowing some pain in the process not only helps to set up a contrast with the pleasure peaks within an experience, but also to frees up resources and releases constraints. By maximizing the gaps between pleasure peaks and pain peaks (Pleasure-Pain Gap or PPG), you can reach the optimal point in resource allocation and generate the paramount pleasure peak.

This phenomenon is further substantiated in other recently completed consulting projects. Potential automotive buyers with the largest Pleasure-Pain Gap (PPG) during a showroom experience showed a significant increase in their propensity-to-buy. On the other hand, those who experienced a moderate PPG, with a higher level of experience ratings and satisfaction on most of the sub-processes, did not show a higher propensity-to-buy. In another case, we were able to correlate PPG with actual buying behavior. In 1,032 face-to-face surveys conducted with customers immediately following their shopping experience in a cosmetics flagship store, customers who reported a significant PPG bought more items and in higher volumes, than those who had only a moderate PPG. Contrast helps when optimizing resources allocated and drives customers to push the BUY button.

Answer 3: Maximize Pleasure-Pain Gap (PPG) not for the sake of creating pains but to trigger intra-experience contrast and release resource constraints.

By focusing on Moments of Buying (MOB), rather than simply on customer satisfaction, you are driving results to achieve top-line targets. By focusing on Moments of Differentiation (MOD), rather than blindly adopting a me-too strategy to drop prices, you are protecting your brand equity by delivering a branded experience. By maximizing the Pleasure-Pain Gap (PPG), rather than just spending more to minimize pain, you’re using fewer resources to enhance bottom-line performance. In short, you’re delivering a more effective in-store experience in a recession.

I have shown you my answers. How about yours? Survival in a recession is not easy and being successful in a recession is even more challenging. So, stop wasting limited resources and copying me-too strategies, develop your own branded experience to lead you through survival, sustaining and ultimately success.

Footnotes

*1. Customer Experience X-VOC Research—Global Louis Vuitton In-store Experience, CustomerThink Corp. (U.S.) and G-CEM, October 2008.
*2. Customer Experience X-VOC Research—Arwin Charisma Museum In-store Experience, Corporate Synergy Development Center (Taiwan) and G-CEM, September 2008.
*3. Customer Experience X-VOC Research—Global Starbucks In-store Experience, CustomerThink Corp. (U.S.) and G-CEM, September~October 2007.
*4. Customer Experience X-VOC Research—Mainland China Supermarket In-store Experience,” CustomerSat Inc. (U.S.) and G-CEM, May-June 2007.
*5. The CIW™ (Customer Importance Weighting) of service and related attributes, such as ‘Staff level and availability’, ‘Staff image, attitude and demeanor’, ‘Professionalism of service’, ‘Rapid response to questions and issues’, ‘Personalized / customized service’ and ‘Value-added service’, are ranked among the highest out of the 27 attributes / sub-processes of the Louis Vuitton in-store experience.
*6. The PIW™ (Purchase Importance Weighting) of ‘Exclusive feel from wearing/owning Louis Vuitton products’ is ranked 1st out of the 27 attributes / sub-processes of the Louis Vuitton in-store experience.
*7. The CIW™ (Customer Importance Weighting) of ‘Ease of locating a comfortable seat’ is ranked 17th out of the 26 attributes / sub-processes of the Starbucks in-store experience in North America.
*8. The PIW™ (Purchase Importance Weighting) of ‘Ease of locating a comfortable seat’ is ranked 5th out of the 26 attributes / sub-processes of the Starbucks in-store experience in North America.
*9. The CIW™ (Customer Importance Weighting) of ‘Goodbye with genuine smile at checkout’ is ranked 23rd out of the 25 attributes / sub-processes of the Supermarket in-store experience in Mainland China.
*10. The PIW™ (Purchase Importance Weighting) of ‘Goodbye with genuine smile at checkout’ is ranked 1st out of the 25 attributes / sub-processes of the Supermarket in-store experience in Mainland China.
*11. The ER™ (Experience Ratings) on ‘Price’ is the lowest among 27 attributes / sub-processes of the Louis Vuitton in-store experience.
*12. The ER™ (Experience Ratings) on ‘Price’ is the lowest among 26 attributes / sub-processes of the Starbucks in-store experience.
*13. The CIW™ (Customer Importance Weighting) of ‘Price’ is ranked 22nd out of the 26 attributes / sub-processes of the Starbucks in-store experience to customers in North America; is ranked 26th out of the 26 attributes / sub-processes of the Starbucks in-store experience to customers in Mainland China; and is ranked 24th out of the 27 attributes / sub-processes of the Louis Vuitton in-store experience to global customers.
*14. The BIW™ (Branded Importance Weighting) of ‘Price’ is ranked 2nd out of the 26 attributes / sub-processes of the Starbucks in-store experience to customers in North America.
*15. The BIW™ (Branded Importance Weighting) of ‘Price’ is ranked 1st out of the 26 attributes / sub-processes of the Starbucks in-store experience to customers in Mainland China.
*16. The BIW™ (Branded Importance Weighting) of ‘Price’ is ranked 1st out of the 27 attributes / sub-processes of the Louis Vuitton in-store experience to global customers.
*17. "The psychological immune system is a defensive system, when experiences make us feel sufficiently unhappy, the psychological immune system cooks facts and shifts blame in order to offer us a more positive view." Daniel Gilbert, Stumbling On Happiness (Harper Perennial, 2007), 180-185.
*18. P. G. Zimbardo, 'Control of Pain Motivation by Cognitive Dissonance’ Science 151: 217-19 (1966). When people are given electric shocks, they feel less pain when they believe their sufferings are for something of great value. The intense shocks were pain enough to trigger the volunteers' rationalization system, but the mild shocks were not, hence the volunteers valued the club most when its initiation was most painful.

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