Can you predict which retailer will perform well? Kurt Salmon research indicates that analyzing a retailer’s relative consumer advocacy enables you to anticipate its top-line performance.
Each year, we assess unaided brand awareness and brand advocacy across 20 categories. This year, we surveyed nearly 7,500 consumers, who, on an unaided basis, named 4,800 different retailers. The resulting database provides a robust benchmarking tool for individual retailers and entire product categories.
Our top-level findings in 2007 are:
- Consumer advocacy is directly linked to top-line performance. While other factors certainly come into play, the relationship between movement in advocacy and same-store sales growth is statistically significant.
- Advocacy may be volatile for an individual retailer. Advocacy can shift rapidly for a retailer within a category, depending upon the retailer’s ability to anticipate and meet market needs.
- Advocacy must be placed into the appropriate context. While there may be ebbs and flows within, broad categories do not rapidly storm into or out of favor; but average advocacy varies widely from one category to another.
- Understanding a retailer’s source of advocacy is important when evaluating the stability of its brand position. Two retailers with strong advocacy momentum can coexist within a category if they have highly differentiated strategies.
Consumer Advocacy Linked to Top Line Performance
We measure two components to determine relative brand strength: unaided brand awareness and consumer advocacy. Unaided brand awareness is a proxy for brand reach, defined as top-of-mind identification by recent shoppers of a category. Advocacy is a measure of how strongly consumers recommend a retailer for a specific category.
When the results of the 2007 and 2006 surveys are compared, the relationship is clear: a retailer’s change in advocacy is directly tied to its same-store sales growth. Of 20 retailers across a range of 12 categories, the top 10 gainers in advocacy posted 3% same-store sales growth for the most recent quarter following the survey; the 10 worst performers in advocacy reported a 5% decline in same-store sales.
What is advocacy and why is it important?
Consumer advocacy is a calculated measure based on proponents (those who would highly recommend a retailer) netted against detractors (those who actively do not recommend a retailer).
Advocacy is important in that it provides a better understanding of what drives same-store traffic and sales. A proponent contributes to store performance in two ways. First, a category shopper is more likely to return to a retailer for which she is already a proponent. Second, a proponent acts as a field public relations operative, driving new traffic into the store through strong personal recommendation. With new traffic, the retailer has the opportunity to increase sales and gain additional proponents (or detractors) through the in-store experience, thus compounding advocacy over time. The opposite is true of a brand detractor, who provides negative publicity, and thus diverts potential traffic to competing retailers.
Clearly, some contributing factors to store performance are not captured in advocacy; namely, brand awareness, wallet size1 (driven by macroeconomic factors), and category dynamics (driven by demographics in teen retail or technology migration in electronics).
We see a direct correlation between the changing tides of consumer advocacy for a retailer and its top-line performance. Illustrated on the previous page, no retailer with increased advocacy saw a decline in same-store sales; similarly, no retailer with a decline in advocacy posted an increase in comps.
Quantified roughly, it’s a 10:1 relationship; every 10% change in advocacy moves same-store sales by 1%, although this is more clearly defined for declines in advocacy. For example, consumer advocacy declined 50% for Office Depot in the office supplies category, and same-store sales declined 5%.
While there is a clear relationship between a retailer’s store performance and shift in consumer advocacy, additional factors — such as store traffic or transaction size — drive top-line results. Efforts to improve core processes should be reflected in consumer advocacy, whereas traffic is not.
An example is Jo-Ann Stores, a clear outlier in the chart on Page 3, where same-store sales growth of 7% — the best performance for the company during the last five years — outpaced its 2% advocacy increase. The explanation is found in the second component of brand strength: brand reach, determined through unaided brand awareness. In our survey, Jo-Ann increased its unaided awareness by 700 basis points (the highest in its category) through a new advertising initiative that increased its ad budget by an estimated 20%. Combined, the increase in advocacy and brand reach drove outsized results.
Another outlier is Dillard’s women’s apparel, where advocacy increased by more than 20%, although same-store sales for the segment remained flat. Interestingly, women’s was Dillard’s best top-line performing apparel segment, which was echoed in the survey’s advocacy results. However, the company reduced advertising expense as it managed the operating line; the survey showed awareness declined by 25 basis points, and this may have contributed to flat performance.
These two factors — awareness and consumer advocacy — work in tandem to deliver top-line results. Of the two, however, advocacy appears to be the more important driver, with brand reach most useful as a means to understand outliers. Factors beyond the survey’s scope also contribute to same-store performance; most significantly, wallet size and other category dynamics.
Advocacy May Be Volatile for Retailers
We expect to see fluctuations in consumer advocacy for retailers at the category level, as merchandise (and service) inevitably exceeds or misses consumer requirements and preferences.
Let’s take a look at the women’s apparel category. As shown on the following page, Wal-Mart posted the highest increase in consumer advocacy, doubling this measure to 17%. During the past year, Wal-Mart has become increasingly focused on bringing its apparel offering back to basics, given last year’s failed attempt to compete with Target by stocking hipper, trendier merchandise. Consistent with its new “Save Money. Live Better” slogan, the angle is for category shoppers to purchase commodity items such as T-shirts at Wal-Mart, freeing funds for splurge items. Of course, by moving into a more commoditized product offering, Wal-Mart still trails the category average of 32% significantly — but shoppers appear to like the merchandise shift, and Wal-Mart’s advocacy trend is on an upswing for the category.
Talbots, on the other hand, posted one of the sharpest declines in advocacy for the women’s apparel category, with advocacy falling 33% to a below-average 28%. A month after we noted this downswing, Talbots reported weak results during its fall mid-season sale. The company recently reduced guidance (expecting a 5% to 10% decline in same-store sales for Talbots brand stores) and embarked upon a strategic review with a focus on brand positioning.
Advocacy Must Be Placed Into Appropriate Context
As seen in women’s apparel, advocacy can change rapidly for a retailer within a category. However, broad categories remain relatively stable over time, though some are certainly more heavily advocated than others. With advocacy stable at the category level, we believe analyzing shifts at the retailer level within a category becomes even more compelling.
Absolute consumer advocacy may differ greatly among categories. In 2007, consumers reported 40% for children’s apparel compared to just 9% for office supplies. Two key factors are driving the difference: category involvement and market dynamics. Categories in which the consumer is more involved consistently maintain higher advocacy levels. Involved consumers shop frequently and specifically. Whether it’s the hurried mother seeking particular sizes for her ever-growing
children or the avid crafter seeking a unique glass bead for her design, these consumers are demanding — but they reward retailers that meet their needs.
The second factor is related to market/category dynamics. The auto parts category, with 3% consumer advocacy, is a good example. Due to distractions such as management turnover, accounting issues, and cost-cutting initiatives, many retailers have focused less on service levels or optimizing their product offering. Advance Auto Parts, for example, continues to seek
a replacement for its CEO, who retired last May. This fall, the company announced a major restructuring plan, including job cuts, scaled-back store openings, and the potential elimination of all advertising.
While advocacy rates among categories may vary dramatically, broad categories do not shift markedly from year to year. This is why analysis of advocacy movement at the micro-level (by retailer within a category) is much more compelling and why we believe placing a retailer’s advocacy rating into the appropriate context is essential.
Understanding the Source of Advocacy
In the competitive marketplace, a retailer must have a unique offering to gain traction. A key survey finding is that consumers continue to shift toward highly differentiated offerings. “Me-toos” do not work. With online shopping a viable option, convenience of store location is no longer a key contributor to advocacy for many categories. It goes without saying that a retailer’s offering must be distinctive.
An example is the electronics category, which is poised to be a bright light this holiday season. In a category with arguably commoditized product offerings, and therefore low overall advocacy (just 8% in 2007), consumers reward retailers with highly divergent strategies. That is, two very different retailers can simultaneously garner advocacy momentum if the offering is distinct — on the one hand, an experiential offering; on the other, one based on deep value.
On the next page, four key players in the small electronics space are shown: Best Buy, Wal-Mart, Circuit City, and Radio Shack. We divide the space into four quadrants, defined by current advocacy levels and change over last year. The results are interesting and highly consistent with actual retailer performance in the category.
Best Buy is a star, with well above-average advocacy that continues to climb, based upon its highly differentiated experiential offering. The company is focused on moving up-market, with competitively priced high-end products and greater emphasis on services. Its compelling rewards program and strong brand tie with Apple (store-within-a-store and early exclusivity on product releases) also contribute to its firm position as a category leader.
Wal-Mart bridges the star and on-the-mend quadrants, with a major jump in advocacy pushing it past even specialty players in the category. As with Best Buy, the offering is a unique one. Wal Mart dominates the value side of the broad consumer electronics category with jaw-dropping entry points for consumers. Most recently, Wal-Mart announced a $348 laptop for the 2007 holiday season.
Circuit City and Radio Shack struggle to regain share, falling somewhere in the middle of Best Buy’s high-end push and Wal-Mart’s low-end dominance.
Understanding the source of advocacy can alleviate some of the concern that would otherwise be triggered by, for example, Wal-Mart making inroads against the category leader. Best Buy’s position appears sustainable; less differentiated retailers may find themselves in a more fragile position.
We asked 7,500 consumers which of 20 product categories they had recently shopped, followed by unaided identification of retailers where they could shop for those product categories. We then asked respondents how strongly they would recommend each retailer they identified. More than 4,800 retailers were named.
- Unaided brand awareness is the number of times a retailer was mentioned divided by the number of respondents for a particular category.
- Consumer advocacy reveals the percentage of positive advocates a brand has after subtracting detractors from strong advocates.
Our extensive market research experience yields a powerful survey designed to minimize survey fatigue and maximize confidence in its accuracy. The survey is highly rigorous in its approach, accurately gauging brand awareness without aiding the consumer, which means we evaluate more than 75,000 individually named retailer responses.
Kurt Salmon’s current brand benchmarking database includes the following 20 categories:
- Athletic apparel, footwear
- Home furnishings, housewares
- Underwear, lingerie
- Fine jewelry
- Casual jewelry
- Computers, computer accessories
- Books, music, DVDs
- Office supplies
- Auto parts
- Arts, crafts, party supplies
For more information, please download the PDF version of the report.
30 November 2007