GUARANTEEING SATISFACTION
INVESTING TO WIN CUSTOMERS
AND GROW MARKET SHARE
In the past, sales growth in retail came
from developing an effective store
concept and rolling it out across
hundreds of locations. But many retail
sectors have become saturated – sales
growth is now as much about finding
new ways to satisfy customers as finding
sites for new stores.
This article explains how retailers can
better understand what customers
want, and invest to serve them better
than the competition.
T
1. KEEPING CUSTOMERS HAPPY – WHAT’S
IT WORTH?
Although it’s easy to come up with ideas for attracting
customers, however, it’s much harder to predict which
of them will be effective. And since improvements to
the stores always require investment – in terms of
capital, lower margins, or additional operating costs – it
is vital to know what customers want, and how badly
they want it. Those retailers who can figure out whether
it’s better to invest in lower prices, new products, or
better stores and service have a significant advantage
over their rivals.
Measuring the relationship between customer
satisfaction and a store’s trading performance allows a
retailer to link what customers say, to how they actually
behave. Customer satisfaction can be broken down into
different components, each relating to a different
aspect of the retail proposition – as we will describe
below – to allow the cost of any improvement to be
compared to the sales benefits it will bring.
oday’s large retailers expanded by devising bigger,
more appealing, more efficient stores, then
sweeping aside weaker competitors in town after town.
But in many sectors and geographies this model has
run out of steam: the ‘land grab’ is over, and the
fundamental challenge is to win customers by investing
in the stores.
This paper explains how a retailer can answer three
fundamental questions:
• What does satisfying customers really mean for sales
performance?
• How can we better understand what customers really
want – not just what they say they want?
• What are the opportunities for driving growth by
better satisfying customers, given the competitive
landscape?
Putting a sales value on satisfying customers requires
understanding why customers choose to shop at one
store rather than another. Convenience plays a major
role – in most retail sectors, being closest to the
customer confers a significant advantage – but it’s
obviously not the only thing that matters. Customer
satisfaction is always at least as important.
Exhibit 1 is a disguised example from North American
grocery retail. It shows the trading performance of our
client (‘Retailer A’) compared to one of its major
competitors (‘Retailer B’), after taking account of
variations in real estate. It shows how differences in
satisfaction with key aspects of the proposition
translate into differences in sales. In this case, Retailer B
was seen as offering significantly better value for
money than Retailer A. Retailer A’s choice, quality, and
service levels were rated higher, but not enough to
offset this difference. Overall, Retailer B’s sales intensity
was around 2% higher for a comparable site.
It draws on our experience of working with retailers in
different geographies and sectors over the past two
decades.
Exhibit 1 How customer satisfaction affects sales performance
Customers perceive Retailer B as significantly
better value, and this translates into a sales
advantage of more than 3% in any given location
Retailer A has a slight edge in other areas,
but this is not enough to offset its value disadvantage
105
Sales per square foot
(Index − Retailer A = 100)
Overall, Retailer B’s stores are more
attractive – on average it will out-trade
Retailer A by around 2% on any particular site
100
95
Retailer A
Value
Choice
Quality
Staff
Stores
Retailer B
Aspects of the proposition
1
This insight relies on detailed statistical analysis of
customers’ shopping behaviour, their satisfaction with
different aspects of different retailers’ propositions, and
their proximity to different stores. Such analysis begins
with asking several thousand shoppers (hundreds of
customers of each major retailer) dozens of questions
to build up a detailed picture of how favourably they
view each competitor. By analysing the responses, we
can then distil out a small number of independent and
statistically meaningful dimensions – such as ‘choice’ or
‘product quality’ – and understand how performance
along each dimension affects overall satisfaction with
a store.
2. WHAT DO CUSTOMERS REALLY WANT?
The importance of appealing to customers is intuitively
obvious. But a retailer’s investment strategy must be
guided by more than intuition, and based on robust
analysis of what customers want – not simply what they
say they want. All large retailers collect data on
customer perceptions and attitudes, but this doesn’t
automatically translate into clear guidance on how to
improve the proposition.
2
I CAN’T GET NO SATISFACTION?
All retailers track customer satisfaction, but few
do so in a way that genuinely aids decision
making. Many retail executives are
understandably sceptical about whether research
data can really be translated into reliable financial
predictions. In our experience they can, but this
isn’t always straightforward. We find there are
three key points to bear in mind:
• Raw data is useless. To provide useful
management information, consumer research
results need to be analysed to identify
meaningful relationships. Part of the problem is
that superficially detailed patterns of responses
reveal only one thing: customers’ overall
satisfaction with a retailer. Understanding how
customers really feel about different aspects of
the store always takes further analysis, with the
ultimate goal being to identify the specific
strengths and weaknesses that underlie
customers' responses.
Using research to guide investment decisions is
difficult, because it requires understanding what
customers’ survey responses actually tell us about their
shopping behaviour. Customers would like to see lower
prices, higher quality products, and better service – but
there’s no practical value in knowing that customers
want to have their cake and eat it, while paying as little
as possible for it. ‘I Can’t Get No Satisfaction’ provides
some advice on how to use consumer research to
produce genuine insights, not just data.
• What matters isn’t what customers say, but
what they do. Customer research is only truly
valuable if it can be matched up to patterns of
shopping behaviour. In practice, this means
linking research responses to transaction
histories (which can be created by linking credit
card numbers, loyalty cards, or panel data).
Although this usually involves painstaking and
complex analysis, the insight it generates more
than justifies the effort. In the end, matching
customer perceptions of a retailer to their
shopping behaviour is the key to translating
customer satisfaction into sales revenue.
Over the past decade, we have carried out this analysis
in many different geographies and retail sectors. We
have consistently found that at the simplest level,
customer perceptions relate to one of two broad
categories: Offer (which covers range, quality, and
service), or Value (price, including the effect of
promotions and any loyalty programs that retailers
operate). Essentially, the retail proposition consists of
‘what customers get’, and ‘what it costs them’. The two
dimensions can then be further broken down to identify
more specific influences on store choice: for instance,
separating out product quality from breadth of choice,
as we did earlier in Exhibit 1.
• Location, location, location. Obviously,
convenience strongly influences store choice.
To understand the underlying relationship
between customer satisfaction and customer
behaviour, this effect needs to be stripped out.
The easiest way to correct for the influence of
distance to the stores is usually to use the
retailer’s own real estate model to understand
the shopping behaviour described above, and
to give customers a different weight based on
where they travel from relative to your stores
and competitors’.
Exhibits 2a and 2b show other examples of this
analysis, in this case focusing on UK grocery and
German home improvement retail. The charts show the
relative importance of different characteristics of the
store. Not surprisingly, choice, quality, and value for
money strongly influence customer satisfaction. In both
cases, customers see each as being of roughly equal
importance, but the balance between them varies
between the two markets. In addition, store brand
clearly has a much more powerful influence on store
choice in German home improvement than in UK
grocery (this difference is due to the fundamentally
different shopping behaviour that characterises these
two sectors). Besides the fact that the relative
importance of different aspects of the proposition is not
the same in different countries and retail sectors, it is
also worth noting that it changes over time.
THE IMPORTANCE OF DIFFERENT ASPECTS OF
THE PROPOSITION
Exhibit 3 digs deeper into the UK grocery research.
It shows how well the largest competitors perform on
each dimension, comparing each retailer’s ratings to
the overall average for the market. At the end of 2010,
shoppers perceived Asda, Morrisons, Sainsbury’s and
Tesco as being closely matched in terms of quality,
choice of products, stores and service levels. Although
there are meaningful differences between these
retailers on each dimension, they are small compared
to what we observe in other geographies. On the other
hand, Asda’s advantage in value perception is clearly
evident, as is the fact that Sainsbury’s lagged behind
its main competitors on this measure.
Exhibit 2b German home improvement example, Mar 2010
Exhibit 2a UK grocery example, Nov 2010
Offer
Trust and ethics
Non-food range
Healthy options
Stores and
service level
Food choice
Product quality
Value Value
Less
important
Offer
Importance
Important
Brand
Staff and store
Choice
Product quality
Value Value
Understanding customer attitudes at this level of detail
gives a comprehensive view of the strengths and
weaknesses of each retailer’s proposition. Such
research can provide a long-term barometer for
tracking the performance of the business as a whole.
It allows changes in performance to be accurately
compared with changes in strategy, providing an
objective view on what has worked well and what
hasn’t.
Less
important
Importance
Important
Exhibit 3 Customer perceptions of UK grocers
Ratings (Nov 2010)
Offer Trust and ethics
Non-food range
Stores and
service level
Food choice
Product quality
Value Value
Weak
Strong
Score
Morrisons
Tesco
Sainsbury’s
Asda
3
3. IDENTIFYING OPPORTUNITIES – VALUE AND
OFFER, AND THE CUSTOMER PERCEPTION MAP
investing and reinvesting to win customers: relentless
innovation is vital in this highly competitive market.
Detailed knowledge of how customers perceive
different retailers is invaluable for understanding how
the competitive landscape is changing over time.
Explaining who is winning and who is losing in
customers’ eyes – and why – generates clear insights
into where the key opportunities and threats are likely
to lie.
Customer Perception Maps for different geographies
and sectors look very different, but there are common
patterns in how they evolve – and in the long term,
movements on the Map really do translate into changes
in local market share. Those businesses nearer the
upper right-hand corner of the Map prosper and grow
rapidly, while those in the bottom left-hand corner
don’t tend to remain there for long: they either improve
their performance or (more often) are swallowed up by
more successful competitors. Retailers which are weak
on both Offer and Value rely upon convenience to
generate trade – a dangerous position for businesses
that aren’t convenience stores.
The Customer Perception Map is a simple but powerful
tool for doing this. Each retailer’s rating on Offer and
Value is plotted on the same chart, and movements can
be tracked over time. Exhibit 4 shows the most recent
Customer Perception Map from the UK grocery market,
showing how perceptions of each retailer developed
between 2006 and 2010. The most obvious change has
been the convergence of all the major players along the
Offer dimension, with customers now perceiving
significantly less difference between them. Note in this
context that the perception scores are all relative to the
average for the market, so the apparent worsening of
the retailers who previously had a bigger lead on Offer
(Waitrose, M&S, and to a lesser extent Sainsbury’s) is
likely to be the result of the other chains ‘catching up’.
This pattern underscores the importance of continually
The Customer Perception Map provides valuable
guidance when setting strategy. A retailer can gain
market share by moving ‘north’ or ‘east’ on the Map,
and improving customer perceptions of either Value or
Offer: which will be more effective depends on the
starting position relative to competitors. Because
movements in position translate into changes in market
share, the sales-driving potential of different growth
strategies can be balanced against the investment they
Exhibit 4 The Customer Perception Map
UK grocery retail: 2006 vs. 2010
Bubble size = market share
Strong
2006
2010
Waitrose
Sainsbury’s
M&S
Tesco
Offer
Asda
Lidl
Morrisons
Aldi
Iceland
Co-Op
Weak
Budgens
Weak
4
Value
Strong
will require. For example, differences in Offer
perception can be compared to actual differences
between retailers in the length of checkout queues.
This allows a retailer to understand how increasing
store labour hours would improve its position on the
Customer Perception Map, what degree of competitive
advantage this would be likely to produce, and what
level of sales growth it would imply.
CONCLUDING REMARKS
A retailer which knows how favourably it is perceived
relative to the competition is much better placed to
improve its performance – and to gain market share by
moving ‘north’ or ‘east’ on the Customer Perception
Map. In contrast, trying to appeal to customers based
on intuition about their needs and perceptions is a hit
and miss approach, and a retailer risks convincing itself
that it is doing enough, only to discover much later that
it was not. The value of a robust, consistent and up-todate view of the competitive landscape is clear.
Customer satisfaction isn’t the only factor affecting
financial performance: changes in the store estate, the
mix of products sold, or the competitor set can all have
a powerful impact on sales and margins. But in the long
run, the health of a retail business relies upon satisfying
customers at least as well as – and ideally better than –
the competition. Those retailers who can measure what
customers really want, and are honest with themselves
about how customers really perceive them, have a
distinct advantage in understanding the competitive
landscape. Over time, they can use this advantage to
open up and maintain a gap on the competition by
giving customers more of what they want, and less of
what they don’t. v
5
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Oliver Wyman is part of Marsh & McLennan Companies [NYSE: MMC].
In the Retail practice, we draw on unrivalled customer and strategic insight and state-of-the-art analytical techniques to deliver better results
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and a relentless drive to improve capabilities.
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retailers build theirs.
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