Shopping in the New Economy: IBM Survey Finds Consumers Making Trade-Offs, Postponing Purchases and Shifting Loyalties to New Retailers
Emerging Category of Power Shoppers, the “Shifters,” Brings New Opportunities; Consumers Gravitate Towards Retailers They Trust
NEW YORK, NY - NRF Annual Convention & EXPO 2009 -- A new IBM (NYSE:IBM) national survey of 30,000 U.S. consumers found they are changing their shopping habits to deal with shifting budgets and incomes. IBM has found a valuable category of consumers called the “Shifters” -- shoppers who move their purchases to new retailers -- which will open up new windows of opportunity for retailers. 45 percent of Shifters have increased spend at their primary retailer within the past year, and overall Shifters are spending more year-to-year.
The study, titled “Shopper Advocacy: Building Consumer Trust in the New Economic Environment,” shows that tighter budgets and lower confidence have fundamentally changed consumer behavior. Two-thirds of consumers surveyed said they are postponing purchases or buying fewer items overall, while 60 percent of consumers indicated they are shopping more often for products on sale and using coupons more often. In light of this new shopping paradigm, the report warns retailers against relying solely on past purchase patterns to forecast future consumer demand.
The survey also revealed that, on average, consumers will drop allegiance to retailers after an average of 3.1 negative experiences. Market conditions and high expectations have made consumers more impatient, so retailers must stay focused on consistently delivering a superior shopping experience for customers.
An Emerging Power: The Shifters
Due to the changing economy, IBM projects that fundamental consumer shifts will change the way retailers operate. Representing 30 percent of shoppers are the Shifters, a segment of power shoppers who are motivated to seek new relationships with new retailers. Shifters are significantly more valuable than other consumer segments because of their monthly spend and average basket size. Shifters spend 37 percent more on average per month and 32 percent more during each shopping trip than non-Shifters. Shifters also have a higher average household income than non-Shifters, and more Shifters have more discretionary spend this year versus last year. This class of consumers is also more discerning, consciously sacrificing spending yet making more shopping trips.
The top three reasons Shifters bought products from new retailers were price/promotion, convenience and product availability/assortment.
Advocacy on the Rise: Consumers Turning to Retailers They Trust
The report also finds that the dramatic growth of Advocates serves as another bright spot for retailers, as advocacy rates have nearly doubled from year to year (2007-2008). Advocates are customers who recommend their preferred retailer to friends and family, who will buy more when the assortment expands and who will remain loyal to their preferred retailer when a comparable competitor enters the market. Even in the current economy, the report showed that 31 percent of Advocates increased spend with their primary retailer within the past year.
Over the past two years, the IBM survey showed that 41 percent of Advocates increased their spending. Advocacy increased across all product categories including grocery, apparel, pharmacy and home merchandise. Grocery retailers had the greatest percentage of Advocates (40 percent), and Home Merchandise retailers had the lowest percentage of Advocates (35 percent) in 2008.
“For retailers to succeed in the new economy, organizations must nurture both Advocates and Shifters,” said Fred Balboni, Global Retail Industry Leader, IBM Global Business Services. “Shoppers are calling the shots. Savvy retailers can use the new economic environment as an opportunity to drive revenue, margin growth and customer trust. Those that can strengthen relationships with new and existing customers will differentiate and dominate as the economy recovers.”
IBM forecasts that retailers who deliver on brand expectations and build consumer trust to court these valuable segments of consumers, such as the Shifters, will be best positioned to increase loyalty and market share in uncertain times.
Key findings of the report include:
Consumers have fundamentally changed they way the shop: Market conditions have compelled consumers to make more prudent buying decisions, restricting their non-essential purchases. The report found that consumers are sacrificing spending (90 percent) and tapping fewer discretionary dollars (45 percent) this year, as compared to last. More than 60 percent of consumers have decreased spend on consumer electronics, vacations, home improvement, sporting goods and home décor. 40 percent of shoppers also responded to budget shifts by embracing lower-priced products.
Valuable Shifters are seeking new relationships: The survey results found that the Shifters are a valuable segment of consumers who are worth attracting and retaining. Although Shifters state they are prompted mostly due to price, this segment ultimately spends more money when they become loyal shoppers. According to IBM’s research, Shifters have a higher average household income than non-Shifters, and more discretionary spend this year (23 percent) vs. last year.
Attractive Advocates have radically grown in number: More consumers are becoming loyal to their primary retailer, evidenced by the fact that 38 percent of respondents are now Advocates, compared to 21 percent from last year. In addition, 31 percent of Advocates have increased spend at their primary retailer over the past two years. Grocery retailers have the greatest percentage of Advocates (40 percent), and Home Merchandise retailers have the lowest percentage of Advocates (35 percent) in 2008.
IBM Survey Methodology
IBM’s Institute for Business Value conducted a survey of 30,000 US consumers in September and November 2008 to understand what is driving consumer behavior and spending across several product categories: Grocery, Apparel, Home Merchandise, and Pharmacy, Health & Beauty Care (Pharmacy and HBC).
For more information on IBM’s activities at NRF 2009 please access the company’s online Press Kit at www.ibm.com/press/nrf2009
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