Sixty-nine percent of general merchandise shoppers and 42% of grocery shoppers are multichannel shoppers. (Graphic courtesy of Dinesh K. Gauri)
Despite the increased popularity of curbside pickup, most shoppers still shop both online and in stores. Sixty-nine percent of general merchandise shoppers and 42% of grocery shoppers are multichannel shoppers (defined here as doing not more than 90% of their shopping in any one channel). Thus, converting entire stores into “dark stores,” as tried by a few offline retailers, isn’t advisable. Rather, reconfiguring existing stores to cater to both in-store shoppers and serve as a pickup point for online orders is preferable. By doing so retailers can also avoid regulatory restrictions on dedicated dark stores (BBC 2022; RetailWire 2022).
2. Winning Customer Loyalty
Pandemic-induced inflation, exacerbated by the Russo-Ukrainian war, is aggravating the retail world. As retailers compete with each other to retain and steal customers, discounts are a key weapon, but retailers need to target specific consumer groups. Our research shows that shoppers who value in-store features, like the ability to touch and feel the product and check produce and meat quality; a pleasant shopping experience; and employee friendliness, are easier to retain, as they want significantly higher discounts to switch to a new retailer. So, a critical step for an offline retailer to retain these customers is not to focus too much on discounts and to continue providing what attracted them to its store in the first place.
Results also show that price-sensitive customers want higher discounts to switch. This appears counter-intuitive, as one would expect such customers to move from one retailer to another in search of additional discounts that can save them money. But price-sensitive customers likely take additional costs such as the cost of transportation into account, too, when deciding where to shop. Therefore, retailers should consider their total costs when devising discounts.
Finally, results show that Amazon Prime members want higher discounts to switch. Their membership makes them loyal to Amazon for a number of reasons, such as the need to purchase a lot to recoup their membership fee, and their perception of lower search costs, given that Amazon is usually their first – and sometimes only – shopping destination, anyway. But this loyal purchase behavior extrapolates to their offline shopping, too. Thus, while Prime membership may reduce the share of purchases that offline retailers receive, they’re more likely to retain that share.
3. Strategies for Offline Retailers
Our results suggest three key lessons for offline retailers. First, they need to recognize two distinct stages in the consumer journey: product purchase and product acquisition. When competing with online retailers, they’re focusing too much on product acquisition. Instead, they should conserve their resources by offering efficient curbside pickup, which leverages their existing competitive advantage in the form of physical stores, and also reduces shipping costs. Retailers should reallocate those resources to compete better in the first stage of the purchase journey. They should beef up their online infrastructure – including accurate product information, real-time inventory, optimal website navigation and other digital user-experience tools – to be able to compete with pure-play online and other offline competitors. In this manner, they can differentiate themselves with better customer experiences and service.
Second, it’s short-sighted of offline retailers to write off those customers who subscribe to online retailers’ subscription services such as Amazon Prime. They should attract these customers by providing an improved online purchase experience and by offering “practically” faster modes of product acquisition like curbside pickup, which these customers prefer. Further, once attracted, these customers are more loyal and less likely to switch for small discounts.
Finally, retailers frequently use discounts such as price promotions and BOGO (buy one, get one free) deals indiscriminately to attract and retain customers. They need to develop targeted discounting strategies so as not to leave money on the table. Price-conscious shoppers look at the totality of their shopping costs, which include transportation, so targeted couponing based on geodemographic segmentation is a preferable discounting strategy. Resources thus saved should be used to improve the core business – by providing an enhanced assortment of brands and products, locational convenience, and a friction-free and pleasurable shopping experience – to attract and retain in-store shoppers for whom discounts aren’t the primary purchase decision attribute.
The COVID-19 pandemic and inflation exacerbated by the Russo-Ukrainian war have considerably changed the shopping behavior for frequently purchased goods. The next few years have the potential to make these changes perennial. Shoppers have a plethora of options and are truly “royalty” in the modern world of technology-driven retailing. Innovative retailers have a real opportunity to gain new shoppers, at the expense of slower counterparts, if they think strategically and act nimbly.