Habit and familiarity drive the retail-consumer relationship
Competition today is more about relationships than differentiation
Kyle Murray is a professor of marketing and the director of the School of Retailing at the University of Alberta
by Kyle B. Murray
Most retailers are merchants at heart. They focus on products, rather than customers. Yet profitability and long-term success are not driven by products, they are the result of strong customer relationships. In the competitive retail marketplace, products are an essential component of the value proposition, but it is the customers who are of greatest value to the business.
The key to customer satisfaction is delivering an experience that exceeds expectations. A customer goes shopping with some expectation of what the experience will be like. When the retailer exceeds these expectations – for example, if it is easier to get to the store than expected and the product selection is outstanding – customers tend to be more satisfied. When the retailer fails to meet them – for example, if the aisles are difficult to navigate or prices are surprisingly high – customers tend to be less satisfied.
This is often referred to as the “gap” model of customer satisfaction, because what drives satisfaction is the gap between what customers expect and what they experience.
For a retailer, this requires an understanding of individual customers and their expectations. Market research, combined with a little competitive intelligence, can ascertain consumers’ baseline expectations for a shopping experience in a particular category. Customer surveys and focus groups can even uncover opportunities to enhance the experience as consumers reveal wants and needs that are currently unmet in the marketplace. However, many major breakthroughs are driven by ideas for products that customers do not yet know they want. For example, there was not a widespread demand for espresso drinks that led to the creation of Starbucks. Similarly, most consumers had no idea how important yoga clothing would be to their wardrobe before Lululemon Athletica.
That, of course, is part of the problem with constantly exceeding consumers’ expectations: it is difficult to come up with the next great innovation on a regular basis. Relying on such innovations alone to drive customer satisfaction is a tenuous approach to competition over the long term. Similarly, as ongoing market research and satisfaction surveys have become a staple of consumer marketing, it is difficult to uncover insights that the competition has not. As a result, whether through innovation or market research, it is increasingly difficult to improve customer satisfaction over time by consistently exceeding expectations. Fortunately, it is not necessary to do so.
Think about the relationship between a retailer and a customer in terms of interpersonal relationships. The first time a consumer shops at a retail store she has not previously visited is a lot like a first date. If the experience is considerably worse than what the consumer expected, the probability of a “second date” is substantially lower. In contrast, if the first experience was much better than she expected, the probability of future dates is far higher.
As that relationship grows, the consumer moves from the state of active evaluation that characterizes initial shopping trips to a more habitual purchasing pattern. Habit and the convenience that comes with familiarity drive many relationships between retailers and consumers. Of course, some relationships go beyond habitual behavior and connect the consumer to the business in a deeper and more meaningful way. For example, consumers who are passionate about coffee, electronics, yoga, outdoor activities or organic food may develop a strong relationship with their preferred provider of related products. Retailers such as Starbucks, Apple, Lululemon, MEC and Planet Organic have been successful in this regard.
Both habitual and passion-based relationships can provide the business with several important benefits that are difficult to obtain in any other way. These include efficiency (shoppers who are more familiar with a retailer are able to shop with less support), accommodation (consumers who feel connected to a retailer are willing to make more of an effort to accommodate that retailer), tolerance and forgiveness (solid customer relationships can help protect the retailer when it does not meet consumers’ expectations), perceptual bias (loyal customers evaluate the retailers they patronize and the brands they buy more favourably on price, quality, and other attributes than non-loyal consumers), trust (in a world of increasing complexity and an overwhelming array of choices, trust may be the most important currency in retailing) and advocacy (great relationships lead consumers to recommend the retailer to their friends and family).
Competition today is less about differentiation through store formats or products and more about the relationships retailers establish with their customers. Ultimately, it is more profitable to build and maintain a solid base of loyal customers than it is to constantly fight to attract customers away from the competition.