Retail, A New Ball Game? Some Tips For 2010

Nina Hendy, writing for Smart Company gives an overview of ways to get today’s ‘cocooning consumer’ spending again. She says till now, many Australian businesses have relied on the idea that consumers love buying new stuff, but around the world, this is changing.

Buying Things No Longer A Turn-On

In the US, many consumers are no longer turned on by buying new things. Research shows experiences make us happier than goods and today many are spending their money on experiences that create lasting memories, rather than buying ‘yet another pair of designer shoes’.

A report by Craig James, chief economist, CommSec, says:

“Aussie consumers have been shunning spending on non-essential or discretionary items in response to constant interest rate hikes from the Reserve Bank. While the ‘new conservatism’ exercised by consumers is positive from a big picture standpoint, it certainly isn’t a trend that has been applauded by consumer-focussed businesses such as retailers and airlines.”

How Spending Is Changing

The change in consumer behaviour is reinforced by the Bureau of Statistics’ latest retail trade figures, which showed retail sales grew by a dismal 0.7% in July.

Russel Zimmerman, of the Australian Retailers’ Association, says when spending declines cafes, restaurants and takeaways are hit first as people cut costs by cooking at home.

There is also anecdotal evidence to show more families are cocooning at home, killing time by watching movies or playing board games.

The stay at home phenomenon has also been noted by toy manufacturer Mattel, which reports a resurgence in the popularity of board games, such as Scrabble and Pictionary.

“We’ve seen an increase in Gen X and Gen Y-ers loving the traditional board game, together with friends and family,” says Mattel marketing manager, Meagan Reay.

Is Discounting The Answer?

Retailers need to dramatically change their approach if they’re to stay in the game, according to retail brand specialist Stephen Rinaldo, who works with retail start-ups and existing retailers. Optus Retail, Myer, Kmart and BMW are among his clients.

“The first piece of advice for retailers is to get to know your customer well. Retailers, first and foremost, need to know exactly who their customer is and what they want.”

He says retailers shouldn’t be tempted into the discounting cycle to encourage sales. Discounting diminishes the perceived value of the item, which in turn undermines marketing activity.

“It’s okay to discount if you’re a high volume, low margin business model (such as Costco or The Reject Shop). For all other retailers with high margin items, the last thing they should do is go down the discount path. There’s more at stake than profit margins; customer loyalty is also at risk, and repeat profits.”

Add Value To The Purchase

One answer to falling sales from conservative spenders lies in value-adding.

Rinaldo says value-adding – as opposed to looking at what value they can subtract – will win over conservative spenders.

Giving away a gift with purchase or improving the shopping experience should be considered, because conservative spenders love getting something for nothing, he says.

“Adding value is a far more effective means of encouraging customers into the store and retaining their loyalty.”

This theory works for Rolf Krecklenberg, managing director of online retailer oo.com.au, who offers free delivery on bulk purchases.

“We’ve noticed that people will often buy more than one product to be able to get free delivery. These conservative spenders calculate the value and know that for less than the cost of highway tolls, they can have the items delivered to their door.”

The Conservative Shop Online

Currently, online sales represent 3% of retail spending in Australia, but this sector is expected to grow by 40% by 2010, according to Forrester Research, which forecast that in 2010, Australians will spend $32 billion online, up from $23 billion in 2008.

Krecklenberg says online retail offers far more transparent pricing, which is a huge turn on for conservative consumers. Price is important to this sector, and online shopping enables them to compare prices of goods online at the click of a button. He says:

“Pricing has never been more transparent than it is right now. And the online players are often far more competitive with their pricing that traditional retailers.”

Homewares and electronics are among the biggest growth sectors, which supports those who believe that people are continuing to cocoon in their homes, according to Krecklenberg.

“Traditional retailers say it’s tough out there, and that people are more conservative about their spending, but there’s a complete shift in consumer behaviour. They’re shifting to online, which is why we’re giving traditional retailers a real run for their money.”

The frugal customer trend is even helping some online businesses get established. For example, take websites such as JumpOnIt (launched in May) and Cudo (launched in September) which sell discounted ‘experiences’, such as travel, spa treatments, fine dining or yoga classes.

While these are different models – Cudo uses the group-buying model, where a discount is only activated when a certain number of the community members buy in, and others use a straight discount coupon model – these sites are a hit with conservative customers.

Reconsider Your Marketing

Krecklenberg says online retailers need to communicate with its database regularly to maintain traffic levels to their site. he says:

“We also have banner advertising and encourage a high level of product reviews on our site, which works for us.”

Another study finds that Australian retailers need to invest in more sophisticated and broad marketing strategies to attract customers.

The study, Shopper Marketing: The Journey Begins, conducted by the Global Association for Marketing, found that so-called ‘shopper marketing’ tactics are being used by about a third of retailers.

These strategies are designed to go well beyond point-of-sale marketing and in-store promotion, and include elements such as:

• in-store media and theatre
• digital and electronic displays
• transit media
• websites
• social media
• more effective in-store lighting
• more interactive sampling/demonstrations

The key to these strategies is keeping the shopper in-store and engaged, to give retailers the best chance at convincing them to spend.

Very interesting – thanks Nina