1

Candace Adams, PhD., President, Global Retail Strategy, SmartRevenue

Suzy Silliman, Senior Managing Director, Management Science Associates, Inc.

IDENTIFYING THE DRIVERS OF LOYALTY TO OPTIMIZE DECISION-MAKING FOR THE

CONVENIENCE CHANNEL

2 SMARTREVENUE

Leadership Team

SmartRevenue is led by a team of highly-educated and experienced industry experts, many holding advanced graduate degrees. Our leadership team is skilled in collaborating with clients to define research goals and design high-quality, in-depth research products.

ExperienceSmartRevenue has conducted over 600 different studies with over 500,000 people in 72 categories in 134 retail banners in all US markets and 8 countries and specializes in leveraging shopper insights to drive actionable retail strategies and solutions.

Ethnographic Field Staff

SmartRevenue employs a global field staff of over 850 ethnographers fluent more than 40 languages, over half of which is enrolled in an advanced graduate degree program. We recruit from social science programs to a form a unique locally-based and nationwide research team. Our ethnographers receive extensive training in our methods, protocols, and technologies, as well as in manufacturer- and retailer-specific procedures.

TechnologySmartRevenue field staff use proprietary survey software and mobile technologies to efficiently and accurately gather point-of-experience observations and interviews. Equipped with our wireless handheld technology, ethnographers can rapidly deploy real-time surveys, complete voice scanning, take photos, and transmit data.

Advanced Analytics

SmartRevenue seamlessly integrates quantitative and qualitative data, including bio- and neuro-sensory tracking to provide the most accurate, data-driven, and insightful results. Our analytics team is highly skilled in data collection methodologies, analytics and data modeling, and integrated data analysis.

SMARTREVENUE SmartRevenue Brings A Unique Combination Of People, Methods,

And Technologies To Exceed All Project Objectives

SMARTREVENUE

SmartRevenue Provides Comprehensive Insights, Strategies, And Solutions Along the Path to Purchase

in-store

point-of-purchase

post-purchase

pre-shop

retailer choice

store experience

store dynamics

store atmosphereshopping style

shopping basketshopping route

in-store advertising

list-building

channel choice

media consumptionneeds & attitudes

occasion

familial legacy

shelf layout

signage

promotions

pack standout

pack communication

product satisfaction

family satisfaction

recommendation intentre-purchase intent

loyalty

GAP ANALYSIS consulting & assessment

CLOSE KNOWLEDGE GAPSidentify right methods & technologies

ANALYTICS & DATA INTEGRATION

RECOMMENDATIONS

CREATE & TEST

shopper type by category

SMARTREVENUE

About MSA Providing information-based solutions that

integrate strategic thinking, information technology, and analytics.

• cciPanel– Innovative mobile research panel of

convenience store shoppers• Captures purchase decisions, behaviors,

and attitudes• Zeroes in on the channel’s most likely

shopper, the 18-34-year-old• Optimal Item Assortment

– Store specific item assortments that maximize category profits

• Trade Promotion Allocation– Store-level promotion allotments based on

responsiveness to programs • Cross-Product Purchase Influence and Price

Elasticity– Which items increase the total sale and at

what optimal price-point?• eOrder Clearinghouse

– Automating the pre-book and void resolution process throughout chainMl

– Retailer web portal (joint offering between MSA and CSP)

Convenience Channel Services

• cciPanel– Innovative mobile research panel of convenience store shoppers

• Captures purchase decisions, behaviors, and attitudes• Zeroes in on the channel’s most likely shopper, the 18-34-year-old

• Optimal Item Assortment– Store specific item assortments that maximize category profits

• Trade Promotion Allocation– Store-level promotion allotments based on responsiveness to programs

• Cross-Product Purchase Influence and Price Elasticity– Which items increase the total sale and at what optimal price-point?

• eOrder Clearinghouse– Automating the pre-book and void resolution process throughout chain

• Ml

– Retailer web portal (joint offering between MSA and CSP)

BACKGROUND

The Retail Landscape Is More Challenging Than Ever• Consumers lack confidence as they face

economic hardship and high unemployment

• In the face of economic contraction, the retail landscape appears filled with all too many channels (migration), banners, and SKUs (consumption)

• Consequently, retailers need precise and differentiated analytics to optimize:– Capital planning– Branding– Marketing communications– Merchandising– Assortment planning– Operations

Retailer Loyalty Defined

The biased (i.e. non random) behavioral response (i.e. revisit), expressed over time, by some decision-making unit with respect to one store out of a set of stores, which is a function of psychological (decision making and evaluative) processes resulting in brand commitment.

METHODOLOGY

Important to Understand Drivers of Loyalty Across Channels

FoodDrugMassClubConvenienceDollar

Departments/Department Stores: Home Improvement, Electronics, Office Supply, and Apparel

Corporate Image

LoyaltyOverall Quality

BrandEquity

In-stock position

Service

Shoppability

Store Environment

Overall Shopping

Experience

Store Associates

Product Quality

Variety/ Assortment

Product Displays

Family Dynamics

Media/Communication

Influences

Convenience

Web Presence

Unique/InnovativeProducts

Green/LocalSourcing 

Retailer Value

Proposition

Purchase

In-Store

Post-Shop

Point-of-Purchase

Pre-Store

Segment

Sample• Robust, nationally representative sample• 8,500 US shoppers:

– Grocery in past 30 days (regional grocery included)– Drug, Mass, Convenience, Dollar, Club in past 60 days:

• Convenience Banners:– 7-Eleven– Speedway– Wawa’s– Shell– BP/Amoco– Circle K– Exxon/Mobil/On the Run

– Department Stores or Departments within stores past 90 days including:• Electronics• Apparel• Home Improvement• Office Supply

Questionnaire Outline

• Segmentation Questions/Algorithm– Shopping behaviors (i.e., list building and coupon clipping)– Price, Brand, Environmental, Health Conscious Drivers– Use of digital and on-line– Importance of web presence and green or local sourcing

• Pre-Store Variables– Influence of media and family

• In-Store Variables– Customer service, shopping experience, staff helpfulness/knowledge

• Point of Purchase Variables– Product availability, assortment, and quality; role of national brands

• Post Purchase Variables– Channel performance on key brand equity measures

• Loyalty Composite– Overall satisfaction, likelihood to recommend, store substitutability

Factors Behind Trips & Loyalty Are Inter-related; traditional methodology naively assumed linearity

Unique/InnovativeProducts

Navigation

StoreAssociates

Assortment

Quality ofProducts

Store Environment

Corporate Image

Overall Shopping Experience

ShopperLoyalty

Assumes linearity

Can only examine direct effects

Measure are one dimensional

Doesn’t account for temporality

Providing Leadership to Retail Partners• Research by McKinsey, Forrester and

others has shown that a better customer experience drives improvement for three types of customer loyalty: willingness to consider another purchase, likelihood to switch business to a competitor, and likelihood to recommend to a friend or colleague.

• SmartRevenue has been successful in helping retailers prioritize marketing and merchandising spend to increase ROI by understanding drivers of loyalty using structural equation modeling (SEM). In our research, loyalty is a composite of four variables: Overall Satisfaction, Quality of the Overall Shopping Experience, Ease of Switching, and Likelihood to Recommend.

• SEM allows you to quantify the relative contribution of variables along the path to purchase to understand where to expect the greatest impact or ROI.

• Understanding the priority of these variables and how they are interrelated, Nestle will be able to provide thought leadership to its retail partners and help them better target decision-making pre-store, in-store and post purchase

RETAILER STRATEGY &

SOLUTIONS

•Win in the consideration set•Increase Trip Frequency•Encourage Aisle Crossing/Cross Shopping

•Improve Closure Rates•Identify Conversion Opportunities

INSIGHTS•What drives store, department and category loyalty

•Quantification of key drivers to know which will return greatest ROI

•Prioritization of marketing, merchandising and operations spending

RETAILER STRATEGY & SOLUTIONS

•Growing trips and basket size•Enhancing the shopping experience

•Providing relevance to its shoppers

•Differentiating themselves from other brands

BRAND STRATEGY & SOLUTIONS

•Help key customers grow trips and basket

•Understand the business impact of marketing and trade spend

•Grow categories and brands

Advanced Analytics Used Key Metrics

• DRIVERS OF LOYALTY along the path to purchase identify which levers and strategies optimize marketing, messaging, and merchandising to:– Drive investment strategy based on high-impact levers– Scorecard select retailers/channels against other retailers/channels– Optimize assortment, product mix, and store layout– Drive pre-store and in-store communications

CORPORATE IMAGE

UNIQUE/INNOVATIVEPRODUCTS

NAVIGATION

STOREASSOCIATES

STORE ENVIRONMENT

ASSORTMENT

OVERALL SHOPPING EXPERIENCE

QUALITY RATING

QUALITY OFPRODUCTS

PRICE / VALUE

LOYALTY

Price /Value

Quality of Product

Variety of Assortment

Store Associates

Corporate Image

Overall Quality

$35 mm

$8 mm

$33 mm

$31 mm

$23 mm

$9 mm

The SEM Model Also Identifies Which Drivers Will Generate A Greater Return Of Investment

Advanced Analytics Used Key Metrics

• PERFORMANCE SCORECARDS to:– Develop strategies around relative competitive positioning– Identify opportunities for differentiation– Shift share from competitors– Determine which segments are the most profitable

AssortmentNavigation, Layout and Product Display

Store Environment

Unique / Innovative Products

Quality of Products

Price / Value

Employee Knowledge & Store AssociatesCheckout

Returns

Customer Complaints

Corporate Citizenship

Corporate Values

Loyalty Card

3.5

4

4.5

5

5.5

6

Cross ChannelFindings

CROSS CHANNEL FINDINGS

Overall Quality (0.49)Price / Value (0.35)

Quality of Products (0.25)

Equity (0.21)

Store Associates (0.2)

Assortment (0.2)

Store Environment (0.1)

Corporate Image (0.06)Shoppability/Navigation/Layout (0.05)

Family Dynamics (0.03)

In-store Digital Media/TV (0.03)

In-Stock Position (0.03)

Unique/innovative products (0.01)

Convenience (0)

Need for solutions/ideas (0)

Service (0)

3.50

5.50

7.50

Food/grocery Home improvement Electronics ApparelDrug/pharmacy Convenience Dollar Club

Convenience lags others on key drivers of loyalty

Convenience ChannelFindings

CONVENIENCE CHANNEL FINDINGS

While convenience drives trips, it is not the key to loyalty

Overall QualityShoppability/Navigation/

Layout Corporate Image

Service Convenience

Quality of ProductsEquity

Price / Value Store Environment

Need for solutions/ideasIn-store Digital Media/TV

In-Stock PositionUnique/innovative products

Assortment Family DynamicsStore Associates

0 0.1 0.2 0.3 0.4 0.5 0.6 0.7Direct and Indirect Effects on Loyalty in Convenience Channel

Direct Indirect

Effect

Shoppability/Navigation/Layout

Loyalty Drivers: All Retail vs. Convenience

Overall QualityPrice / Value

Quality of Products

Assortment Equity

Store Envi-ronmentCorporate

ImageShoppability

Store As-sociatesIn-Stock Posi-tionIn-store Digital

Media/TVFamily Dynam-icsUnique/innova-

tive products Convenience

Need for solu-tions/ideas

Service

0 0.1 0.2 0.3 0.4 0.5 0.6 0.7Direct and Indirect Effects on Loyalty

Direct Indirect

EffectOverall Quality

ShoppabilityCorporate

ImageService

ConvenienceQuality of Products

EquityPrice / Value

Store Envi-ronmentNeed for solu-

tions/ideasIn-store Digital Media/TVIn-Stock Posi-

tionUnique products

Assortment Family Dynam-

icsStore As-sociates

0 0.1 0.2 0.3 0.4 0.5 0.6 0.7Direct and Indirect Effects on Loyalty

Direct Indirect

Effect

All Retail Convenience

Implications of Convenience Loyalty Drivers

• Many of today’s leading Industry initiatives can be validated by the ranking of loyalty drivers across Convenience Stores:– Efficient Assortment/Focus on Core influence shopablility and quality

of products– Emphasis on better servicing the Independent impacts corporate

image – Education and automation fosters higher levels of service– Stocking National Brands assures high quality of products offered– Trade Promotions passed through to the consumer levels the playing

field for price/value– Social Media Engagement helps to build equity and improve

corporate image

Performance Scorecard: Top 3 Convenience Chains

Performance Scorecard: Bottom Convenience Chains

Grocery & Drug Outperform: Potential Convenience Encroachment

Over

all Q

ualit

y

Price

/ Va

lue

Qual

ity o

f Pro

duct

s

Equi

ty

Stor

e As

socia

tes

Asso

rtmen

t

Stor

e En

viro

nmen

t

Corp

orat

e Im

age

Shop

pabi

lity/

Navi

gatio

n/La

yout

Fam

ily D

ynam

ics

In-s

tore

Dig

ital M

edia

/TV

In-S

tock

Pos

ition

Uniq

ue/in

nova

tive

prod

ucts

Conv

enie

nce

Need

for s

olut

ions

/idea

s

Serv

ice

3.50

4.50

5.50

6.50

7.50

8.50

Food/groceryDrug/pharmacyConvenienceDollarMass/supercenter

EQUITY INDEX

Retailer Equity Defined

• The differential effect of store knowledge on customer response to the marketing activities of the store– First, the differential effect of the brand is determined by comparing

consumer response to the marketing of a brand with the response to the same marketing of a fictitiously named or unnamed version of the product or service.

– Second, brand knowledge is defined as brand awareness and brand image, characterized by conceptualizations and relationships among brand associations.

– Third, consumer response to marketing is defined as consumer perceptions, preferences, and behavior arising from marketing mix activity (e.g., brand choice).

Retailer Equity Defined

In sum, “a brand is said to have a positive (negative) customer-based brand equity if consumers react more or less favorably to the product, price, promotion, or distribution of the brand than they do to same marketing mix element when it is attributed to a fictitiously names or unnamed version of the product or service”

Dimensions of Brand Equity

Affect(Feelings)

• Feel Confident• Feel Good Shopping Store• Feel Comfortable• Feel Smart

Perceptions(Beliefs)

• Can recommend to friends• Pleasant atmosphere

Cognition(Thinking & Judging)

• Trust• Dependability• Keeps promises• Reliability

Operations(Production/

Performance)• Easy to shop• Good customer service• Layout

Advanced Analytics Used Key Metrics

• EQUITY INDEX calculated across 4 dimensions: affect, cognition, operations and perceptions. Can:– Tie to loyalty, trips and other business metrics (develop correlation

coefficients) to grow the company– Develop differentiated marketing, merchandising and operations strategies– Benchmark brand equity against best-in-class retailers

Retailer A Retailer B Retailer C Retailer D Retailer E Retailer F Retailer G Retailer H150

160

170

180

190

200

210

153.9157.7

170.7

179.6182.3 183.8 184.3

208.7

Equity Index – Top Retailers

Drug• Walgreens• CVS

Convenience• 7 Eleven• BP• Speedway

Mass• Target• Walmart

Dollar• Dollar Tree• Dollar General

Factors Driving Brand Equity for Convenience

• Compared to Food, Drug, Dollar and Mass Channels, the Convenience Channel was rated lowest on all dimensions of brand equity– This creates vulnerability for channel migration to Drug or small format

Mass Merch/Grocery who are encroaching on traditional Convenience territory

• While lower than other channels, scores were comparable on image perceptions but less so on operational and emotive (feelings) variables

• And although equity is a key driver for Retailer Loyalty within Convenience, it is not the only driver– 2 of the Top 3 “Equity” Retailers rank in the bottom “Loyalty”

“So What?”….for you, the Manufacturer

Why should you care about Retailer Loyalty? You have your own portfolio of brands to build equity and consumer loyalty for!

FoodDrugMassClubConvenienceDollar

Departments/Department Stores: Home Improvement, Electronics, Office Supply, and Apparel

Corporate Image

LoyaltyOverall Quality

BrandEquity

In-stock position

Service

Shoppability

Store Environment

Overall Shopping

Experience

Store Associates

Product Quality

Variety/ Assortment

Product Displays

Family Dynamics

Media/Communication

Influences

Convenience

Web Presence

Unique/InnovativeProducts

Green/LocalSourcing 

Retailer Value

Proposition

Purchase

In-Store

Post-Shop

Point-of-Purchase

Pre-Store

Segment

Drivers most influencedby Manufacturers

“So What?”….for you, the Manufacturer

• Isn’t building Retailer Loyalty the Retailer’s responsibility?– As Channel Leaders, you have a commitment to see that the Industry

remains viable– Sharing your knowledge with Convenience stores will facilitate stronger

collaboration and trust – build better partnerships• Can positively impact many of the top drivers

– Profit margins for products sold through Convenience are healthy for Manufacturers; mitigate the risks of the convenience shopper migrating to a more deal/price sensitive channel for those same purchases

– A loyal shopper is a satisfied shopper. A satisfied shopper will spend more time in store and make more store visits, therefore improving the odds that they will purchase one of your products on impulse and drive sales growth for you, the Category, and Retailer

CONCLUSIONS

• Across all drivers of retailer loyalty, the convenience channel falls behind all others; the convenience factor is the only exception

• Importance of Drivers Differ for ConvenienceLoyalty Drivers (All Channels) Loyalty Drivers (Convenience)

Price/ValueStore Associates

Assortment

Overall QualityShoppability

Corporate ImageService

Quality of Products

CONCLUSIONS

• WaWa, Speedway and RaceTrac represent the top 3 convenience banners. – Speedway matched WaWa’s scores on a couple of drivers (e.g., in-stock

position and assortment)– Speedway’s positioning likely influenced by being one of the first to

embrace a customer loyalty program

• The bottom 4 banners were 7-11, BP, Exxon and Circle K

• Convenience lags the aggregate on total retail on all drivers of loyalty except convenience. The risk here is possible shopper migration to other channels (e.g., Walgreens, small format mass/grocery, etc.)

EXAMPLES (Duane Reade)

EXAMPLES (Giant to Go)

EXAMPLES (Target Pfresh)

EXAMPLES (RaceTrac)

EXAMPLES (P&G – Walmart Food Truck)

EXAMPLES

CONCLUSIONS

• Equity is a leading driver of Loyalty, but not the exclusive driver

– So, basically we are defining equity in this context as the "r-factor" that causes a shopper to select one store over another if all other dynamics regarding the marketing mix, etc. are equal. This is more of an emotional influencer.

• As with loyalty, the Convenience channel rated lowest on all dimensions of equity. (This again, adds to the vulnerability of channel migration.)

• The dynamic retailer loyalty equation has some specific drivers that the Manufacturer (and Distributor) can directly influence. Most of these fall into point-of-purchase factors and include in-stock position, assortment, product quality, product displays. But there are many other areas that a less direct influence can still be achieved.

• The Manufacturer/Vendor might not realize that they should or why they should care about helping the Retailer build loyalty, but we’ve identified some high-level win-win's for those "so-what's"...basically a loyal and satisfied shopper will buy more!

SMARTREVENUEinsights strategies solutions

thank you

Candace R. Adams, PhDPresident, Global Retail Strategy

203-247-5241candace.adams@smartrevenue.com