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According to a 2007 series of IBM surveys that polled nearly 20,000 consumers, those retailers that integrate customer-focused initiatives throughout their businesses have a greater number of Advocates and often outperform their competitors. Advocates are defined by three criteria: they are customers who recommend their retailer to their friends and family, who would increase their purchase amount if their retailer offered products found at other stores, and who would stay with their retailer even if another retailer offered a competitive product.
Transforming customers into Advocates is not a simple task, but retailers that are customer-focused, placing the wants and needs of their customers at the center of all core business strategies, are well-positioned to turn shoppers into Advocates. Further, customer advocacy often rewards retailers with a handsome financial benefit.
IBM surveyed U.S. consumers from five retail segments – grocery, large-format apparel, mallbased specialty (MBS) apparel, drugstore and online retailers – to identify the key retailer attributes that drive consumer advocacy. Knowing the underlying reasons why customers become Advocates enables retailers to pursue customer-focused initiatives and investments with greater precision and success, enabling them to reap the many rewards of turning their customers into Advocates.
Regardless of the customer segment to which a retailer caters, advocacy matters. Advocates are more valuable customers than Apathetics (customers who are indifferent to their primary retailer) or Antagonists (customers who actively dislike their primary retailer). Our study found that Advocates spend more with their primary retailer than other customers do, on average 17 percent more than Antagonists, for example.
Not only do Advocates spend more, they are increasing their spending year to year. Over the past two years, 41 percent of the Advocates increased their spending, which is 32 percent more than both Apathetics and Antagonists. Another financial benefit of customer advocacy is that Advocates spend a greater share of their wallets with their primary retailer. Advocates of MBS apparel retailers demonstrate the greatest difference, purchasing 32 percent more with their primary retailer than Antagonists do.
By increasing their number of Advocates, retailers can improve the quality of their customer portfolios, thereby positively impacting key performance metrics. Increasing these metrics can ultimately increase customer lifetime value. In fact, we found that for most of the retail segments, the retailers with the most Advocates were typically those that either had the greatest comparable store sales or gross margin return on inventory (GMROI).
But, retailers are struggling to transform their customers into Advocates. The average percentage of Advocates across all five segments is less than one quarter of the customers we surveyed. Grocery retailers lead all other segments with 27 percent Advocates, which is still barely more than one-quarter of the segment’s customers. The other segments fall below the overall 21-percent average. Specialty categories within each of the retail segments showed greater success at achieving customer advocacy. Specifically, regional and local specialty food stores, local and independent drugstores, and specialty apparel retailers located in malls had greater than average customer advocacy. While many of these smaller stores cater to the needs of their target customers and provide an enjoyable shopping experience, we found that advocacy is not just the domain of small stores. Large retailers can and do demonstrate the ability to transform customers into Advocates.
Each segment had stand-out retailers with advocacy share significantly above 21 percent, the overall average; these retailers can provide valuable lessons. Wegmans, for example, leads the grocery segment and tops retailers in every segment, with 53 percent of its customers as Advocates. (Grocery had many retailers above average, including Costco and Target.)
Building customer advocacy is harder than simply meeting customer expectations. In our sample, 78 percent of all consumers said their primary retailer meets their expectations, as compared to 21 percent who are Advocates. Understanding the expectations of customers and their reasons for shopping are simply “table stakes” or qualifiers for “getting it right,” but are not sufficient to transform customers into Advocates. While we confirmed what retailers have known for years, that the top two ways retailers can meet customer expectations are by having good prices and convenience, we also found that it is almost as important for retailers to provide the right product assortment.
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