Symphony RetailAI’s Program Management Consultant Ann Azzopardi
Online grocery is having its heyday. Grocery retailers have been put to task to quickly enable this channel and its fulfillment options for customers who have preferred it during the pandemic, or who use online ordering to complement in-store shopping. In the big picture of omnichannel retailing, we’re coming to learn that online actually plays a critical role in building customer loyalty. As it turns out, Symphony RetailAI customer data-driven insights show that omnichannel grocery shoppers shop more frequently and spend up to 20% more compared to in-store-only shoppers. This signals the importance of online moving forward in the quest for shopper loyalty. Knowing this, and to meet the needs of omnichannel shoppers as they engage online, retailers must seek to understand which customers are motivated by price and which prefer to seek quality over price.
Key Items Are Best Identified by Segmenting Customers
On one end of the spectrum are your most price-driven customers. Price matters most to them, so they make purchase decisions based on the perceived value of those items. As such, they are willing to substitute products for a better price. On the other end of the spectrum are shoppers guided by perceived quality. They tend to be less price-conscious, caring most about a specific product attribute, ingredient or benefit as they shop. These customers won’t compromise on what’s most important to them either, and are willing to pay more for something they deem to be high-quality. The worst-case scenario for a retailer is to not understand what those key items are for each segment, and driving potential customers to shop elsewhere because of this.
Irrespective of where you sit in the market – a health-conscious fine-foods retailer or a low-price supermarket – it is essential that you take a systematic approach to properly identifying your key items for customers on that sliding scale of value and quality. This is important because by our analysis of shopper data over the past year, Key Quality Items and Key Value Items are both underrepresented in the online channel, leading to a potential yet significant loss of sales.
Biggest Opportunity: Ensure Online Availability of Key Quality Items
If online behaviors are as loyalty-boosting as our data indicate, then retailers need to assess if they’re offering the right products to omnichannel customers, based on what’s important to them.
We looked at 400 million grocery baskets in the United States and Europe, and zeroed in on Key Quality Items and Key Value Items to see which had better representation in the online channel. What we found was not all that surprising for the precedence of Key Value Items in the online channel. It makes sense that in this inflationary time, many are fighting to ensure products remain competitively priced. Keeping prices as low as possible is top of mind, and between Q4 2020 and Q1 2021, there wasn’t a whole lot of change in the number of Key Value Items that weren’t available online. But while retailers narrow the gap on Key Value Item representation (online vs. in store), they’re actually widening the gap in Key Quality Items availability online. There were more Key Quality Items not sold online in Q1 2021 (-4.5%) than there were in Q4 2020 (-3.7%). That means for customers for whom quality was most important, they were less likely to see quality-driving items when shopping online. Their quality-specific options online were essentially reduced.
The importance of price should hold weight as you strategize, but by doing so, you may actually neglect the needs of the most quality-oriented customers. The greatest risk of concern is that a customer will be forced to trade down, settling for something lower in their meaningful consideration set, or shopping elsewhere entirely. As evidence of this, there’s another gap that increased in looking at our data, and that is the obvious potential of missed sales opportunities. Not having the right key items – for both value and quality – can mean anywhere between 3% and 5% loss of sales.
Strike a Better Balance Across Value and Quality
Your next steps as a grocer are clear. First, de-average or segment your customers as you better understand their motivations and preferences – seeing your customer base as an averaged and homogenous entity will only dilute your efforts to reach them. Then, make sure you have the right key items in place for those customers. Once identified, work to ensure these Key Quality Items and Key Value Items are always in stock online, since omnichannel shoppers are likely to be your most loyal. Finally, you don’t have to compromise your Key Quality Items for the sake of Key Value Items, nor price match to the cheapest everywhere. In segmenting your customer base and learning what matters most, you can invest in the places that will matter most, resulting in better ROI and in the long run, improve and retain shopper loyalty.