• by Tanya Gazdik , March 29, 2010

Low prices are driving customer loyalty, with Walmart dominating the 2010 Colloquy Retail Loyalty Index, a vast departure from the 2008 loyalty index results.

The index ranks the top U.S. retailers according to customer loyalty ratings. The 2010 index was built from a December 2009 survey of 3,500 U.S. consumers in five regions surveyed across four retail categories: grocery, personal care, department stores and mass merchants. Cincinnati-based Colloquy is the publishing, education and research division of LoyaltyOne.

The report shows that customers claimed the highest loyalty to Walmart in many of these categories. Costco had the highest customer loyalty ratings in three out of five mass merchant regional categories. In the 2008 index, shoppers claimed the most loyalty to Costco, which ranked first in nine out of 20 regional and retail categories.

The 2008 index showed that loyalty marketers worked within a significantly different retail landscape, says Colloquy Partner Kelly Hlavinka. Customer service, store environment and a wide product selection were the underlying factors for customers' self-professed loyalty.

"But our 2010 index proves that the Great Recession became the great equalizer," Hlavinka says. "Two years later, customers view loyalty differently. We've witnessed a profound change among consumers since the recession hit: Low prices have stepped up to become retail's strongest loyalty lure, according to consumers. That is something which was simply not true in 2008."

While Walmart dominated most retail categories, other chains, including Kroger and Walgreens, edged out 2008 loyalty leaders.

But the highly fragmented Grocery sector, where neither conventional or discount grocers operate in every state, holds certain advantages for Walmart, according to the study.

Walmart's message of low prices and value resonates with customers -- and its ability to deliver on that promise by leveraging its broad distribution network -- translated to first-place consumer loyalty ratings for Walmart in the Northeast and Northwest, and third-place finishes in the Southeast, Southwest and the Midwest.

Several department store chains that made the top three spot in the 2008 Retail Loyalty Index for department stores fell off the 2010 top-three list, including JC Penney, Dillard's and Dollar General. As in other retail categories, these names were replaced in large part by Walmart and Target.

"With the recession acting like a second-stage booster rocket, Walmart has upended the status quo among its national retail peers by chewing into their last remaining frontier -- customer-professed loyalty -- at least for now," Hlavinka says.

"The glimmer of hope for retailers is that as jobless rates go down and consumer confidence returns, retailers may very well regain their footing -- if they continue to work towards customer-centric solutions and more sustainable strategies rather than combating Walmart on low prices."