Target Loses On Loyalty; Walmart Gains

Editor's note: This week, Marketing Daily brings you exclusive coverage of the Brand Keys 2014 Customer Loyalty Engagement Index (CLEI). Each day, expect a report on key product/services categories from among the 64 surveyed for this year’s study, including automotive, electronics, retail and technology. This installment provides highlights from the retail category.

When it comes to building and maintaining loyalty, retail brands had a tough time last year, according to the 2014 Brand Keys Customer Loyalty Engagement Index (CLEI), now in its 18th year. 

Hit by its massive data breach at the height of the Christmas selling season, Target may be the most obvious example. But it’s not just because of the theft, explains Robert Passikoff, Brand Keys founder and president. It’s also the result of faltering brand positioning, he tells Marketing Daily

Target was already vulnerable, “since backing away from its cheap chic marketing focus, and shifting to the ‘We’ve got everything and it’s always on sale’ approach. That just sets it up against the juggernaut of Walmart. Then when you feel one is less careful with your credit card, why not switch? When consumers have relatively comparable options, they have more room for second thoughts.”

Walmart continues to dominate the discount category and inspire great loyalty, despite the “love/hate relationship many people have with it.” It’s not that consumers are unaware or don’t care that Walmart is so frequently accused of discrimination, for example, or unfair labor practices. “People do believe in equal pay, and know glass ceilings are real. It’s just that there is a difference between what you feel is right, and what drives engagement and expectations in the category,” he says. 

“Most Americans don’t want soccer balls that have been sewn together by children, in a building that’s about to burn down. But they do want soccer balls that cost $4.99.”

Passikoff says he believes Target will be able to repair the loyalty hit its taken, “but not this quarter or next, especially when Target is interchangeable with other brands. I’m predicting it will take nine months. Consumers will say, ‘Yes, you can earn my trust back. But meanwhile, I’ve got plenty of other places to shop.’”

Among department stores, he says shifting value propositions have prompted a kind of “culling, and we’re seeing Sears and JC Penney in this death spiral of same-store sales.” Big changes are difficult for any store brand to achieve, “since they are all operating on razor-thin margins. So basically, the quality level stays the same.”

Within department stores, the value that seems to resonate most with consumers at this point is brand buzz. “Macy’s seems to do a good job with that, which explains why they are ranked first,”  he says. Kohl’s, which came in third, after regional player Dillard’s, does well in both emotional engagement and the concept of value for the dollar.

Among specialty retailers, what’s notable is the strength the top three brands — Victoria’s Secret, the Gap and Abercrombie & Fitch — showed, relative to the rest of the pack, “and then there’s huge drop-off.” J. Crew, last year’s winner, “has gone very bland,” and with H&M, has sunk toward the bottom of the heap.

Amazon retained its No. 1 rank among online retailers, followed by eBay, Overstock and Zappos. In the home-improvement category, the Home Depot earned the top spot, “but overall, it was very close to both Ace and Lowe’s, which in No. 2 and 3.” Lowe’s lost, he says, on a weaker score for knowledgeable service.

(A free copy of the full CLEI 2014 results can be requested through the Brand Keys site. In addition, short audio and MP3 summaries of key 2014 results and trends are available on the site.)

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