Loyalty rates down across the board

Loyalty to retailers in 2008 declined at its sharpest rate for the past ten years. Over 22% of shoppers – some 10.8m people – now say they are dissatisfied with the store they do most of their shopping at and that they would prefer to shop somewhere else. Although not every customer will act on their disloyalty, such a high level of fickleness is extremely worrying for retailers who are already struggling with weak consumer sentiment and spending.

“In the current environment it’s critical for retailers to hang on to every customer they’ve got; no one can afford to lose business” commented Neil Saunders, Consulting Director at Verdict.

“Such a low rate of loyalty demonstrates the extent to which people are shopping around and are increasingly willing to punish retailers that don’t meet their expectations. It should act as a wake-up call that retailers need to become better at meeting the needs of their customers”.

While the credit crunch, which has made consumers more inclined to shop around for bargains, is partly to blame for the increase in disloyalty – it is not the whole story. An increase in the choice of where consumers can shop has also driven the long term decline. The proliferation of new, often international, retailer entrants combined with an extensive selection of internet retailers has made it easier than ever before for shoppers to switch their custom.

“As competition has intensified it has become increasingly difficult to hold onto customers and retailers now need to work harder than ever before to retain shoppers” comments Saunders.

Discounters cashing in on low grocery loyalty

On a sector basis, food is a particularly fierce battleground with almost one-third of shoppers saying that, if they were able, they would shop somewhere other than their current main grocery store. Such a low level of loyalty comes despite the fact the major grocers have engaged in a variety of initiatives from price cutting to loyalty cards to retain consumers.

This is potentially good news for the discounters such as Aldi, Netto and Lidl which have been cashing in on disloyalty among the larger grocery chains and growing their own customer numbers. Verdict’s analysis shows that all three chains have increased their share of food shoppers over the past year.

“While their customer share remains low compared to the likes of Tesco, there can be no doubt that the grocery discounters have been successful in attracting significant numbers of new customers” commented James Flower, Senior Consultant at Verdict. “In the current environment their price focus has real resonance with hard pressed families”.

Loyalty leaders

While the general picture is bad news for retailers, some do manage to secure higher levels of loyalty. Verdict’s analysis shows that John Lewis in electricals has the highest loyalty rate of any retailer in the country: almost 91% of its main shoppers say there is nowhere else they would rather use. The retailer has achieved such a high level of loyalty by offering exceptional levels of service, good value for money and having deep ranges on offer.

“John Lewis understands its customers and it delivers on their needs in everything it does” said Neil Saunders, “it is a simple formula, but it’s one that’s extremely difficult to execute consistently.”

Marks & Spencer in footwear, Amazon in music and video and Dunelm in homewares, along with John Lewis again, this time in homewares, are the other top four retailers.

Lessons for retailers

Over the next few years retailers will need to work much harder in terms of understanding what their customers want and delivering this through products, prices and the store environment. Some of this will not be easy and may involve additional expense in terms of investment in customer service initiatives. Nevertheless, those that do not invest risk ceding customers to those that do.