Retail

Channeling Retail’s Inner Animal

Grab your cuppa Joe this morning and close your eyes.

Now, imagine that you’re a chipmunk, just living the life all cozy in your little chipmunk burrow. Instead of worrying about the retail industry or what those software developers are doing or why no one is downloading your shopping app, you’re stressed out about food — specifically, where your next meal is coming from. It’s winter after all, and you’re not like those big ol’ bears with their layers of fat who can sleep for months on end without getting hungry. Even though you’ve got some nuts and seeds stored, you’re still worried about getting your three squares and making sure that the little ones have enough to eat.

Making the decision about where and when to get those three squares can be a little complicated — remember, you’re just a chipmunk.

Should you go to that same old reliable place in the forest where it’s always safe to assume that nuts, grains and fruits abound? Should you go at the crack of dawn, like always, when the early-bird chipmunk usually gets the worms (and other food)? Or is this the time to mix it up and look for a new spot with potentially better grub?

How you, as that chipmunk, decide those questions, researchers say, is also how consumers tend to decide what stores they visit, how often they visit them and when they decide to change things up. They say that understanding how animals forage for their food is helpful in understanding how consumers forage for everything they buy — and even what type of credit risk they are in the process.

You, the chipmunk, will make a decision based on a number of variables that are driven by your past experiences and the current state of the environment. Your decision where to go — and whether you stay a little or a long time once you get there — will be determined by how rich and lush your favorite watering hole is and how far you’ll have to travel to find the next one. Since we know that you’re smarter than the average run-of-the-mill chipmunk, if it’s rich and lush, then you’ll stay and load up, even if other neighborhood chipmunks decide to join you. Why not? There’s plenty for everyone!

If there are a number of plentiful food sources nearby, maybe you’ll play the field so to speak — taking a few nuts from this spot, a few baby bird eggs from the next, an earthworm or two from the next. Playing the field might also depend on the time of the year or how crowded things get at your favorite spot. If you’re a chipmunk in Boston, you might not want to venture far or even stay out a long time when the weather is cold or snowy. Getting out and back to a place that is reliable to stock up — and doing that quickly — is the name of the game. And, depending on the conditions, foraging might mean that you have to use a few new tactics, like climbing a tree in order to find food since the ground is too frozen to dig into and bushes with berries on them are few and far between. If you find consistently that too many other chipmunks have beaten you to the punch and the pickins are slim when you arrive, you’ll take your little chipmunk legs elsewhere.

Your choice of where — and even what time — to forage might also depend upon how safe you feel. It’s probably not a wise move to do your foraging at night when those pesky owls and raccoons — or that stupid neighbor’s cat — are out doing their own foraging and you look pretty tempting. And during the day, depending on where you live, being efficient is also key in order to avoid running into the hawks circling overhead or foxes on the hunt.

But you’ll make all of these decisions instinctively and predictably, following more or less the patterns that have served you well over time. You’ll exploit known places until you’re forced to explore — and then exploit — new ones.

Just like the consumer that every retailer and innovator hopes to attract makes their decisions about where and how to shop in the physical store.

There’s some interesting data to back it up.

The most extensive research was done as part of a study conducted by MIT Media Lab Director Sandy Pentland. He and his colleagues examined nearly 16 million credit and debit transactions for more than 10,000 retail consumers over a period of three months. From that data, they drew a number of conclusions about consumer shopping patterns — and even their creditworthiness — after looking at three broad criteria: how many places people shopped and where those stores were located (diversity of spend), how concentrated their spend was at those retailers (brand loyalty) and the consistency of that behavior over time (the regularity of their shopping patterns).

What they found might not surprise the chipmunk in you.

Diversity, loyalty and regularity were all characteristics that all shoppers in their study exemplified. But consumers are, by and large, creatures of habit — far less likely to diversify their spend beyond their favorite places and far more likely not to stick to a regular schedule in doing so.

Consumers, they concluded, concentrate 90 percent of their spend in their three most preferred locations — while 65 percent of them don’t stick to a regular schedule when doing any of that shopping. And as many as 25 percent of consumers exhibit such low regularity in their shopping behaviors that they suggest that it could be a far better indicator of credit standing than how loyal to a store they happen to be.

A similar study on cellphone users’ behaviors, conducted by researchers out of the University of Buffalo, concluded much the same thing — but with an interesting twist. Now, while their work was done in the context of the environmental implications for city planners, it is equally insightful for retailers, when analyzed in the context of the Pentland work.

This study reported that mobile phone users spend 85 percent of their time in their three to five favorite locations — home, work, those three favorite stores. But here’s the interesting insight: The 15 percent of the time that’s left is spent in a number of highly diverse locations — in which consumers spend less than 1 percent of their time each.

Here’s what that means for retailers, why physical retail is in such a world of hurt and where the silver lining might lie.

Just like the chipmunk, unless something happens to change a consumer’s perspective on where they’ll go to do their shopping, they’re going back to the places they’ve always gone. Predictability of experience trumps even the distance they travel to visit that store, if the goods are delivered consistent with the way it’s always been done. Just because a consumer might go to the store on Saturday afternoons some weeks and Sunday mornings others, that change in shopping regularity doesn’t mean a change in retailer preference.

For 90 percent of the spend that consumers make.

So, if you’re a retailer, then you better the heck know who your most loyal customers are and you better the heck make sure that you keep doing what they like so they’ll keep loving you. Which might mean not even investing a ton of time and money trying to steal customers away from the stores they’ve shown a strong loyal brand preference for by plying them with big discounts or incentives. If the Groupon experiment showed us one thing, it’s that consumers might be loyal to a discount once or twice, but they always revert to the brand they love when the incentive disappears. Good money after bad is never good.

The studies also imply that keeping loyal customers loyal (and their spend with you) doesn’t always require margin-eroding discounts and big fat incentives. Price and accessibility to inventory are two of the big reasons that consumers decide where to shop and concentrate their spend. Having the right products at the right prices — not necessarily the lowest prices — is key, as is the speed of getting those products to those consumers. Buy online pick up in store is popular because it gives consumers the certainty of product availability and pick up without paying to have it shipped. Mobile order ahead isn’t about price — in fact, most establishments see a lift in basket size; it’s about convenience and a better retail experience.

So, keeping the 90 percent of the spend intact is a pretty big deal — and where investments in keeping those consumers loyal must be focused. It’s why, I suppose, Kohl’s and Target both have and/or are launching mobile payments apps that cater only to those loyal customers with retailer branded cards. And why megastores like Walmart offline and Amazon online are such formidable players for retail, writ large. The brand game for both is to make sure that, within their physical or virtual walls, consumers can get the products and the service that they want — regardless of the time of day or day of week that they shop. The data suggests that it’s far more likely for consumers to buy more things from a brand they know and trust that also economizes on their time than for consumers to diversify their spend across more retailers.

So, what does that say, then, about the 10–15 percent of the spend that’s up for grabs — the spend that’s spread across a diversity of retailers and locations that haven’t yet become a part of the coveted top three?

It’s precisely why physical retail is having such a tough time. There aren’t enough people spending enough of their time and money at those establishments for them to survive — when other, more fruitful options await.

Unless, of course, there’s something inherently special about the experience or the product that these retailers — and those who enable the experience — can deliver that can move them up the consumer’s retail hit list to number four or five or even six. When consumers divide the remaining amount of their spend across a large number of retailers, there’s a great opportunity for those long-tail retailers to use new tools and data to snag the attention of a consumer looking for something to buy — and to keep buying.

Because, in the end, just like the chipmunk looking for the best way to get her three squares for herself and her family, great retail is nothing more than eliminating the risk associated with making sure that the consumer gets what they want and need when they’ve decided to leave their cozy burrows and venture out to shop.

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