Global Customer Satisfaction and Experience Management [25] *

Customer satisfaction (CS) is a key performance measure for global marketers. Recently, there has been a shift to applying newer digital metrics. Others contend that customer delight may be a more relevant construct than customer satisfaction. How has customer satisfaction measurement changed in the past few years? Does it differ by country and industry sector?

Many marketers believe that customer satisfaction is the one customer value metric that matters the most.  A large research study (70,000 customers, 1,068 managers, and 97 countries) revealed that managerial perceptions of CS is not aligned with customer perceptions. Managers overstated CS and loyalty rates and underestimated the impact of customer complaints on future loyalty (Hult, et al., 2016).  The University of Michigan’s American Customer Satisfaction Index (ACSI) has found a strong correlation between CS and firm’s financial performance. Customer satisfaction analysis can predict and improve financial outcomes such as sales growth, gross margin, operating cash flow, market share, and shareholder return (Mittal & Frennea, 2010). 

Customer Satisfaction and Experience Management Applications

HappyOrNot is a Finnish company and innovator in customer satisfaction research. Their experience shows that if product/service assessment is made easy, people will readily provide feedback without the need for consumer incentives. Their core research tool is a terminal with four large buttons -- dark green/smiley (very happy), light green/less smiley (happy), light red/frowny (unhappy) and dark red (very unhappy) – accompanied with a sign asking customers to rate today’s experience by pushing one of the buttons. This simple premise has been used effectively by their global clients. This includes: a European gas station chain which measured managers’ overall performance; a Swedish sofa retailer for understanding why sales varied greatly throughout the day; medical facilities that evaluated doctors’ care and treatment; and the San Francisco 49ers football team to monitor the NFL game-day fan experience. In the latter application, more than 20,000 responses were recorded during the first game of the season via 60 devices – this was equivalent to the total feedback the team received for the entire previous season. The HappyOrNot devices track responses instantaneously to provide data-based, real-time feedback to organizations (Owens, 2018).      

The Temkin Experience Ratings (headed by Bruce Temkin, formerly of Forrester) ranks 331 companies in 20 industries based on feedback from 10,000 U.S. consumers. Three dimensions of customer experience are evaluated -- success, effort, and emotion. For example, in 2017, the wireless industry tied for 16^th place with a 65.5% customer experience rating which is up 7.5% from 2011. While AT&T matched the industry average (66%), they did increase their customer experience rating an impressive 10% from 2016 showing a strong commitment to improving customer service. (Their overall rank in the study was number 224). The top wireless carrier was US Cellular at 71%, ranked number 137, overall (Temkin Group, 2017).            

Customer Experience Impacts Business Performance

While under-performing firms may survive in the short term, they will not last long-term unless they change their ways and become truly value creating for customers. Two global billion-dollar companies clearly illustrate this point. A transaction-based company learned that customers with the best experiences spend 140% more than those with the poorest experiences. The second firm was subscription-based; they found that customers with the best experiences had a 74% likelihood of renewing for another year versus 43% of those with the worst experiences. Furthermore, those with the highest customer experience scores were likely to remain members for six more years (Demere, 2017).

METHODOLOGY

The “State of Marketing – Fifth Edition” provides insights and trends on customer satisfaction and related metrics from 4,100 marketing leaders in 17 countries in 13 business sectors (Salesforce Research, 2018). This report identifies the top 13 marketing metrics used by global companies and contrasts high- performing from under-performing organizations. Four metrics – revenue growth (74%), sales effectiveness (64%), web traffic analytics (61%), and customer satisfaction (60%) were used by 60% or more of the respondents. Nine other popular metrics – customer retention, customer acquisition rates, qualified leads, digital engagement, social analytics, customer referrals, customer acquisition cost, mobile analytics, and customer lifetime value – were used by 43-59% of the global marketing organizations.

Research Questions

RQ1. The usage of customer satisfaction as a marketing metric varies by country

RQ2. The usage of customer satisfaction as a marketing metric varies by business sector

RQ3. High-performing organizations are more likely to track customer satisfaction than low- performing organizations.

RQ4. The use of customer satisfaction as a performance measure has declined as global organizations are prioritizing new marketing metrics.

RESULTS AND DISCUSSION                                                                                                           

The following findings are based on the “State of Marketing” report. Customer satisfaction was rated as a top 5 marketing metric in 11 countries - Australia, Belgium, Canada, France, Ireland, Mexico, Netherlands, New Zealand, Singapore, The Nordics, and the United Kingdom. Surprisingly, it was not ranked as a top 5 metric in 6 major countries - Brazil, Germany, Hong Kong, India, Japan, and the United States (see Table 1). Hence, RQ1 was supported.

Customer satisfaction was rated as a top 5 marketing metric in 9 business sectors – communications, financial services, healthcare, hospitality, life sciences, manufacturing, media, transportation, and travel. It was not ranked as a top 5 metric in automotive, professional services, retail and consumer services, and various business sectors (see Table 2). Hence, RQ2 was supported.

High-performing organizations were 1.4 times more likely to track customer satisfaction than under-performing organizations (RQ3 was supported). The use of customer satisfaction has declined as global organizations are prioritizing new marketing metrics. Overall, CS has slipped from the number 1 marketing metric in 2016 to the number 4 marketing metric in 2018 by global companies (RQ4 was supported).

CONCLUSIONS AND IMPLICATIONS FOR THEORY AND PRACTICE

Undoubtedly, customer satisfaction is a key metric for global marketing. New digital metrics (e.g., customer acquisition and retention, mobile analytics, social engagement, and web traffic) have grown in importance in recent years. As a result, CS now shares the marketing dashboard with other insightful performance measures. Nonetheless, the effective use of customer satisfaction tracking is a strong differentiator for how high performing companies outpace their rivals.  Since customer satisfaction usage varies by country and business sector, specialized multi-country, multi-market studies represent a useful stream of inquiry. Marketing scholars may emulate the research approach used by John L. Graham and his team as they studied international sales negotiations in many countries for more than two decades (e.g., Campbell, Graham, Jolbert, and Meissner, 1988).

In addition, customer delight is related to customer satisfaction and has received much attention in the marketing literature. Barnes & Krallman (2019) advocate that customer delight is a distinct marketing construct – i.e., “an emotional state where customer expectations are exceeded.” Others believe that customer delight is an extreme form of customer satisfaction (i.e., highly satisfied) or a customer-centric business philosophy (marketing strategy). It is recommended that this variable be incorporated into future studies.

Art Weinstein, Ph.D., is a Professor of Marketing at Nova Southeastern University. His research interests are customer value, market segmentation and entrepreneurial marketing strategies. He may be reached at art@nova.edu 

* This material was presented at the Academy of Marketing Science, Annual Conference (virtual), December 14, 2020. 

Key References

Barnes, D.C. and Krallman, A. (2019), “Customer Delight: A Review and Agenda for Research,” Journal of Marketing Theory and Practice, 27 (2), 174-195.

Campbell, N.C.G., Graham, J.L, Jolbert, A. and Meissner, H.G. (1988), “Marketing Negotiations in France, Germany, the United Kingdom, and the United States,” Journal of Marketing, 52 (2), 49-62.

Demere, N.E. (2017), There’s a Correlation between CX and Revenue – and Here’s the Data to Back it Up”, Medium.com (January 25).

Hult, T., et al. (2016), “Do Managers Know What Their Customers Think and Why?” Journal of the Academy of Marketing Science, 45 (1), 1-18.

Mittal,V. and Frennea, C. (2010), Customer Satisfaction: A Strategic Review and Guidelines for Managers, Cambridge, MA: Marketing Science Institute, msi.org/.

Owens, D. (2018), Customer Satisfaction at the Push of a Button,” New Yorker (February 5).

Salesforce Research (2018), State of Marketing – Insights and Trends from over 4,100 Marketing Leaders Worldwide, Fifth Edition.

Temkin Group (2017), Temkin Ranking, Temkin Group Q1 2017 Consumer Benchmark Study, temkingroup.com/.

Table 1.  Customer Satisfaction as a Marketing Metric – A Global Perspective *

Countries	Respondents/ Percent of Sample	Customer Satisfaction Rating   in Top 5 Metrics
Belgium	150 / 3.7 %	1st
Singapore	150 / 3.7 %	2nd
France, Mexico, Netherlands	800/ 19.5%	3rd
The Nordics, United Kingdom/ Ireland	450/ 11.0%	4th
Australia/New Zealand, Canada	600/ 14.6%	5th
Brazil, Germany, Hong Kong, India , Japan, United States	1,950/ 47.6%	Not ranked in top 5
17 countries	4,100/ 100%	Varies

*Adapted from State of Marketing 2018

Table 2. Customer Satisfaction as a Marketing Metric by Global Business Sector *

Business Sector	Respondents/ Percent of Sample	Customer Satisfaction Rating   in Top 5 Metrics
Healthcare, Life Sciences	320/   7.8 %	2nd
Financial Services, Hospitality, Transportation, Travel	838/ 20.4%	3rd
Communications, Media, Manufacturing	674/ 16.4%	5th
Automotive, Professional Services, Retail and Consumer Services, Other	2,268 /55.3%	Not ranked in top 5
Various Business Sectors	4,100/ 100%	Varies

*Adapted from State of Marketing 2018

 

Rethinking Customer Experience Management in the Novel Economy by Brian Solis * [24]

New research shows that brands that embrace innovation and agility with an aim on humanizing the customer’s experience, outperform their peers, especially in a global pandemic.

COVID-19 has disrupted markets and lives at levels not seen by many. As cases around the world soared, executives were stunned, unprepared for the rapid shifts that would test even the most experienced of experts. The disruption wreaked by this pandemic was swift, unprecedented, and underestimated. While it largely reset the world we once knew, the term “new normal” became a staple in how we defined these novel times. But the impact on, and shifts in, markets and human behaviors were far from normal and definitely elusive of offering insights necessary to recognize any sense of normalcy or clear path forward.

Businesses that don’t take the time to understand what’s changing and why, as times and trends continue to evolve, will miss their opportunity to earn relevance and thrive in this new world. The most meaningful way forward is to place the customer at the center of your vision and decision-making in two distinct strategic phases: one with-COVID and the other, post-COVID.

Like the Novel Coronavirus, businesses are operating in uncharted territory. I refer to these times as the Novel Economy, a socioeconomic period that is, just like its namesake, new and unusual. Brands don’t have access to a disruption vaccine nor do executives possess a playbook for responding to and thriving in a global pandemic. At the same time, decision-makers are without best practices and case studies to skillfully guide their actions. The most direct source of insights resides in the signals and inputs customers willfully share with those who are willing to pay attention. What executives don’t want to do right now is make assumptions about customer needs and predilections. This was clear in the unanimous customer response to seemingly timed marketing campaigns in the early days of COVID-19. 

This isn’t a time to upset anyone. It is a time to be a light in the lives of consumers, to find ways to add value or remove friction, especially when customers feel overwhelmed and anxious by the impact of the pandemic in their lives. I call this #IgniteMoments. It’s an opportunity to humanize and enliven touchpoints, to touch the customer in a novel and refreshing way that creates memorable experiences.

The digital transformation of legacy marketing to modern, personal customer experiences

With a global pandemic still raging, marketers must operate with compassion and attentiveness led by a “with COVID” mindset. The existing brand style guide and marketing playbooks do not account for these times nor the speed and breadth at which they’re operating. Traditional marketing will no longer have the same effect moving forward. If anything, it will negatively affect customer relationships rather than enhance them. 

In its research, Salesforce learned that 69% of marketers say that today’s traditional marketing roles limit customer engagement — up from 37% in 2018. This sets the stage for more meaningful, personalized engagement now and also in a “post COVID” world aka the next normal. 

As such, customer-centricity, whether you call it CX or marketing or digital transformation, will be rooted in empathy, purpose, and compassion. This means that the next generation of style guides and playbooks need development in real-time.

COVID-19 accelerates digital customer behaviors and amplifies importance of empathetic experiences

A significant majority of customers are more than ready for brand humanization. According to Salesforce research, 84% of customers say the experience a company provides is as important as its products and services — up from 80% in 2018. This means that marketing is evolving from a classical, one-to-many approach, toward delivering customer experiences that connect, build trust, and guide mutually beneficial outcomes. 

In time of a global pandemic, when emotions are running high, experience is personal. That’s what an experience is after all, an emotional, mental and physical reaction to a moment. This is why CX leaders define the customer’s experience as the sum of all experiences a customer has with their business. Each touchpoint counts in their own right, but also are keystones to the bridges that connect entire experiences together. 

Marketing transformation takes on a new sense of urgency, requiring true 360 customer understanding and engagement

It’s critical for marketers to have a real-time 360 view and understanding of a customer’s full journey, at every stage, from discovery to engagement to retention and loyalty to advocacy. Sixty-nine percent of customers are reporting that they expect connected experiences. 

Legacy roles that only focus on stages of the customer journey, in isolation, without coordinating with those who manage other connected touchpoints, will lose favor with customers. By design, the brand message and the experiences they deliver will be disconnected and likely confusing. Said another way, if it’s not complementary, intuitive, and additive, individual experiences are likely taking away from its total potential. 

Data-driven empathy helps marketers deliver personalized and meaningful customer experiences as customer expectations and preferences evolve

Customers are changing as a result of COVID-19 and the emotions and health advisories guiding their well-being. Shelter-in-place, physical distancing, concern for their own health and well-being, as well as for their loved ones, is accelerating digital-first behaviors in every touchpoint across their journey. 

During these times of disruption, data-driven empathy enables empathetic marketing, customer engagement, and genuine experiences. As customers’ circumstances, needs, and sentiments evolve rapidly, accumulating a clear understanding becomes mission critical for AI-powered platforms and CX and marketing strategies.  Marketers are turning to an ever-increasing number of digital signals and data sources to assess transactional data, declared interests and preferences, known digital IDs, offline IDs, second-party data, inferred interests and preferences, and more. In fact, progressive marketers plan to use 60% more data this year than the overall industry average. Combined with AI, marketers can achieve personalization across the journey at scale by distilling insights from data and guiding teams on how best to take action.

The experiences that customers have in each touchpoint must also not only meet their needs, but also strive to surpass their expectations. High performance marketers report that they are increasingly turning to a sophisticated array of modern digital tools and intelligent, connected platforms. Artificial intelligence (AI), for example is helping marketers learn from real-time customer activity and corresponding data signals to personalize engagement with the right context at the right time in the right channel on the right device. Eighty-four percent of marketers report using AI, which is up from 29% in 2018 (an increase of 186% in two years).

Customer-centric metrics matter, count what counts to the brand and to the customer’s experience

CX is dependent on the “customer’s experience and as such, their experience, hence the apostrophe, becomes a key CPI (customer performance indicator). New and upgraded metrics, beyond those of vanity and general engagement, need to demonstrate performance and also customer-centered benefits. 

High performance marketers (72%), for example, are already analyzing performance in real time, versus 49% of underperformers. And, fewer than half (48%) of marketing organizations today track important experience metrics such as customer lifetime value (CLV/LTV).  There’s plenty of room for growth here.

Customer-centric metrics correlate to business performance. Experienced marketers are being more strategic about ways to invest in customer experiences to showcase customer satisfaction and retention in addition to complementing customer acquisition strategies. By measuring the customer’s real-time and aggregated experience, marketers can learn exactly how and where to improve them, in times with-COVID and post-COVID markets.

Innovation is the ability to see change as an opportunity

Innovation is defined as many things. But at its core, innovation is about creating new value that didn’t exist before. This is different than iteration, which incrementally improves existing value. Both are important.

During this pandemic, and even after there’s universal treatment, a vaccine, we establish herd immunity, or all of the above, the customer’s experience is not only an ongoing priority, but also a primary driver of innovation. 

Following the series of disruptive events, shutdowns, impacts on public health and global economies, and waves of setbacks, customer preferences and behaviors evolved rapidly and will continue to evolve as the Novel Economy unfolds. Even as the world starts to open up as it learns to co-exist with a novel coronavirus and even after its eradication, CX must always be human-centered to genuinely and effectively engage customers. The same is true for CX innovation. Research found that 76% of high performers say they do a great job at innovating marketing technology, tactics, and strategies, versus 47% of underperformers. 

Stay alive in an era of disruption, aim to survive in this interim normal, and learn to thrive in the Novel Economy

To thrive in the Novel Economy, during and following COVID-19 disruption, it’s imperative to unlearn BC (legacy) mindsets, learn from the high performers, and most importantly, learn from your customers. Furthermore, embrace a growth mindset and an empathetic heartset to effectively…

1.      Shift from classical marketing to a relentless focus on the customer experience.

2.     Embrace an ethos and commitment to helpfulness, relevancy, and trustworthiness.

3.     Create a culture of innovation in parallel with the continual practice of iteration.

4.     Also create a culture of data-driven empathy.

5.     Empower and incentivize employees to do the right thing while also learning the next thing.

6.     Personalize all forms of engagement and use modern technology to humanize experiences.

7.     Make the offline and online customer journey integrated, intuitive, productive, true, and even joyful.

8.    Transform touchpoints into #IgniteMoments to articulate and project what your brand stands for and empower mutually beneficial, memorable experiences; values beget value.

* Brian Solis studies disruptive technology and its impact on business and society. This post is an excerpt from his recent article in Forbes.com.  He may be reached at brian@briansolis.com and @briansolis (Twitter). 

The Value of a Value Proposition [23]

One of the most critical challenges for organizations is to differentiate themselves from competitors. It is easy to be like everyone else but great companies have their own identities and carefully conceived value propositions. Realize that different isn’t always better, but better is always different!

Think about the following 5 questions (and answers)

1. What is a customer value proposition (CVP)? How does it differ from a mission and vision, slogan, or positioning?

A value proposition is a brief but powerful statement of overall business strategy, such as Lexus’ ‘passionate pursuit of perfection.’ It is the company’s promise to the customer. It should be clear, concise, comprehensive and company-specific. A well-designed CVP is a strategic business tool that considers customer needs and wants, offerings, pricing, promotion, channels, and  a competitive advantage via people, processes and technology. Mission statements explain what the business is doing today while vision statements are forward-thinking. Slogans are creative advertising phrases that capture attention. Positioning may be product- or image-based and relate to designing and delivering value to target markets.

2. How about some great examples of customer value propositions?

• Amazon.com and you're done
• Citrix Systems - work anywhere and on any device
• FedEx - when it absolutely, positively has to get there overnight
• Gillette - the best a man can get
• Intel inside
• Office Depot - taking care of business
• Target - expect more, pay less
•  Uber - the smartest way to get around
•  Visa - it’s everywhere you want to be. 

3. How should managers build a customer value proposition?

Customer value consists of four core components: service, quality, image and price. These elements provide the basis of an organization’s value proposition. The S-Q-I-P diamond can be used to create value for customers, establish a solid business philosophy for the organization, guide strategic decisions and, ultimately, affect business performance. The vertical axis on the diamond — service and quality — represents the backbone of the firm’s offerings, while the horizontal axis — image and price — provide signaling/communicating cues to the target market. The key is to select one or two dimensions to dominate and stay competitive in the other areas. Examples include ‘where shopping is a pleasure’ for Publix’s service; ‘solutions for a small planet’ for IBM’s quality; ‘what can brown can do for you’ for UPS’ image; and ‘always low prices’ for Walmart’s pricing.

4. How does a customer value proposition relate to competitive strategy?

According to Treacy & Wiersema’s influential book, ‘The Discipline of Market Leaders,’ companies can excel by practicing one of three business strategies: best product like Nike’s product leadership, best deal like Target’s operational excellence, or best friend like Nordstrom’s customer intimacy. Innovation, process efficiency, low cost and relationship building are key in implementing value-based strategies.

5. How can organizations improve customer value propositions?

Current CVPs can be enhanced via innovation and adding value. Think about offering legendary customer service like Ritz-Carlton, cutting-edge products like Apple, unique customer experiences like the Virgin Group or pricing innovations like eBay. There are many ways to add value, such as adding benefits, branding, breaking ‘accepted’ industry rules, customization, dominant merchandise
assortments, frequency marketing programs, hassle reduction, internet options, segmented marketing, solving problems, supply chain management or technological superiority.

This blog post is the 11th in a series extracted from Superior Customer Value – Finding and Keeping Customers in the Now Economy, 4th Ed. (2019, Routledge Publishing/ Taylor & Francis). For further information, contact Art Weinstein at artweinstein9@gmail.com , 954-309-0901, www.artweinstein.com .    

The Value of Investing in Customer Value Management by Laura Patterson * [22]

My very first business job was in the financial services industry and my title was customer relationship manager. This was long before the emergence of customer relationship management (CRM) tools. My boss at the time was four decades ahead of the mainstream thinking articulated by Phil Kotler in his 2017 article, Customer Value Management - "a company’s job is to create superior customer value in the mind of the customer.” Looking back, I’d say a more accurate title would have been customer value manager because my job was less about the customer experience and increasing customer satisfaction and more about employing data to identify customers from whom we could create and extract more value. This is the focus of customer value management.

Peter C. Verhoef and Katherine N. Lemon, define customer value management (CVM), as the optimization of the value of a company’s customer base. CVM expands on customer relationship management. CRM focuses on how a company manages the interaction with current and potential customers with an emphasis on developing long-term customer retention. Relationship management emphasizes satisfaction and uses measures such as NPS or Gallup’s customer engagement metric. CVM focuses on aspects of the relationship such as commitment and trust and seeks to use and analyze customer data explicitly to increase customer value. Gautam Mahajan, president of the Customer Value Foundation reinforces this idea when he says, “CVM focuses on creating value for customers.”

Many companies are embracing and investing in customer value management. To achieve CVM, you must know what customers value, which can vary greatly among customer segments. You must discern what customers perceive as important, why they buy, why they prefer one company or product over another, and what benefits they believe the product or service delivers. An example of trying to surmise customer values can be illustrated in the traditional car purchase. If you’ve ever been in a conversation with a car salesperson, you may have heard this common question: “Which is more important to you, how much you pay a month or the loan rate?” Different customer segments value different benefits – such as return policies, warranties, service level, and as this example shows, financing options.

Creating a Metric to Determine Customer Value

Customer value reflects the economic value of the customer relationship to your organization. To create and extract customer value you need to know what is truly important to the customer in the buying process, the relative importance of price and benefits, and the associated attributes in relation to the value you provide and the value you derive.

Customer value management relies heavily on data and analytics to build long-term relationships and expand share of wallet without increasing the cost of acquisition and cost to serve. You will need data related to value attributes, tenure, share of wallet, recency and frequency of purchase, cost to acquire, and cost to serve. Fortunately, advances in data management and analytics are making it possible for organizations of all sizes to cost-effectively acquire this data and employ it to measure customer value. To support this work, we’d recommend you classify your customer data into four different categories:

1. Customer firmographic data (name, company, title, contact info, location info, industry, initial date of acquisition, etc.)
2. Customer transaction data (recent purchases, frequency of purchases, products purchased, quantities, pricing info, etc.)
3. Customer interaction/engagement data (behavioral data such as touches, channels, service tickets, content consumption info, etc.)
4. Customer financial data (cost to acquire, lifetime value, profitability data, rate of consumption, etc.)

As you gain insight into what customers value, you can use this data to determine which customers are of the most value to your organization. Use the data to evaluate customers in terms of:

• lifetime value
• transaction value
• referral value
• influencer value
• market share contribution
• customer profitability

This type of analysis enables you to identify and decide which customers to invest in and how to allocate your budget across customer segments. You can also use this analysis to identify what services and capabilities your most profitable customers leverage. It will also help you reap the value of your investment in CVM. Armed with the data and analysis you can create a customer value metric. To create a customer value metric, check out this companion post on a measure that provide insight into customer value. If you’re just getting started, a book I often recommend on the topic is Bradley Gales’ Managing Customer Value.

CVM as a Competitive Advantage

Every business must create value for customers to survive and thrive. When you see creating customer value strategically, you can develop the infrastructure, culture, strategies, and programs that optimize every opportunity to positively impact how customers perceive the value offered.

We can turn to three points emphasized by Art Weinstein in his book, Superior Customer Value, to ensure a company builds a competitive advantage in a climate where value reigns supreme:

1. Design strategies that provide superior customer value.
2. Focus on excellence. Customers will not pay more than a product is worth.
3. Build a customer-centric culture throughout your organization and mandate providing outstanding customer value.


The ability to determine and extract customer value is a competitive advantage.



Today’s customers are smart and have access to more information and choices than ever before. In such a market, your company must create maximum value and solve relevant problems. The ability to determine and extract customer value is a competitive advantage that reflects the degree to which your customers perceive your organization as more valuable than the alternatives. CVM helps you determine whether your brand is important to customers and what about it they value most. While customer value management requires a bit more effort than customer relationship management, it provides excellent guidance as to who and what to invest in.
Customer value is not something you can create in one day. To sustain it, you need to combine service quality, product quality, and innovation into a strategy.
* Laura Patterson is a marketing practitioner, consultant, and speaker. Contact her at  laurap@visionedgemarketing.com

Misconceptions About Store Brands by Selima Ben Mrad * [21]

National or manufacturer brands have been for a while the choice of consumers and a signal for quality. Consumers usually trust manufacturers’ brands and associate them with a certain level of quality. However, this is not the case for store brands. US consumers still lack the knowledge about private label and avoid buying them unless the product does not generate any risk. Private-label brand success is strongest in commodity driven, high-purchase categories and products where consumers perceive very little differentiation (Nielsen 2014) . While store brands or private label market share keeps growing in many European countries, this is not the case in the United States. Indeed, the market share in several European countries is more than 30% with UK , Spain, and Switzerland having the highest market share among European countries. (PLMA’s International Private Label, 2017). The United States private label market share has been lower than its counterparts in Europe and it is only lately that this trend has been changing.  Today, the market share of store brands has reached nearly 25% of unit sales in the U.S. and is expanding faster than national brands (PLMA 2017).

So What is Private Brand or Store Brand?

Private brand is any brand that comprises the retailers’ name or any name created by the retailer (PLMA 2017). Target, Walmart, CVS Pharmacy, and Walgreens market their own brands. For instance, Target has a store brand “Up & Up” in their household product line that is much diversified. Some retailers, such as Walmart, see private label as part of the road to their future success. Indeed, Doug McMillon, president and CEO of Walmart, when speaking at the Bank of America Merrill Lynch 2017 Consumer & Retail Technology Conference in New York, stated that “The widespread availability of name-brand products online will compress the margins of private brands over time.” He also added that "having a private brand from a margin mix point of view has always been important, but it is even more important now.”  Therefore, it is important to educate customers about private brands. Indeed there are some misconceptions about store brands:

1. They are of  lower quality than manufacturer brands
2. They are manufactured by the retailer
3. There is only one category of store brands
4. They have low prices
5. They generate high risk

The truth about store brands is that they are indeed similar to manufacturers’ brands and sometimes even of better quality. Here are some clarifications about store brands:

Who Manufactures Store Brands?

According to PLMA (2017), there are different ways that store brands are manufactured. They can be produced by:

• Large manufacturers who produce both their own brands and private label products.
• Small and medium size manufacturers that specialize in particular product lines and concentrate on producing private label almost exclusively.
• Major retailers and wholesalers that operate their own manufacturing plants and provide private label products for their own stores.

Categories of Store Brands

Private label brands are classified into generic brands, standard brands or copycat brands or flagship brands, premium brands, and value innovators.

1. Generic brands are usually cheap, inferior products. Usually they do not carry the name of the retailer on the package , but simply the name of the product, such as ‘milk’ or ‘butter’, in plain script . They usually use very cheap packaging .
2. Copycats or flagship brands or standard brands. They usually carry the name of the retailer and tend to copy the main manufacturer within that category, they have packaging and price points very similar to the main manufacturer.
3. Premium store brands are usually of higher quality than the manufacturer brand  and compete directly against the manufacturer’s  brand. Kumar and Steenkamp (2007) define two types of premium brands: the premium private label which is exclusive, higher in price, and superior in quality to competing brands; and the premium-lite store brand which is promoted as being equal or better in quality to the competing brands, while being cheaper.
4. The fourth category is value innovators which consists mainly of retailers reducing costs and processes to simplify the production and marketing of product ranges, so that a good quality product can be offered at very low prices. They are usually limited in number.

Benefits of Store Brands

Store brands provide retailers with several key benefits. It gives them exclusivity to offer their customers special products, which make consumers loyal to them. In addition, store brands create a unique brand image and generate more retailer brand recall and recognition. Finally, store brands increase retailers’ revenues and have higher profit margins.

Attitude Towards Store Brands

The positive or negative attitude towards store brands has been attributed to several causes. Consumers evaluate store brands based on price/value of those brands, the products’ attributes, on the perceived risk and on their own self-perception (smart shopper). Consumers who buy store brands realize that when they are indeed purchasing store brands they are paying for certain “marketing” practices for  manufacturers’ brands, which is not the case of retailers' brands.

References:

Hamstra M (20017) “Walmart CEO cites growing importance of private label Store brands seen as driver of margins, loyalty” www://www.supermarketnews.com/walmart/walmart-ceo-cites-growing-importance-private-label
Kumar, N  and J.B  E.M. Steenkamp, ‘Private Label Strategy’, Harvard Business School Press, 2007.
Nielsen (2014) https://www.nielsen.com/content/dam/nielsenglobal/kr/docs/global-report/2014/Nielsen%20Global%20Private%20Label%20Report%20November%202014.pdf
PLMA (2017) ; http://www.plmainternational.com/in

* Selima Ben Mrad, Ph.D., is an Associate Professor of Marketing at Nova Southeastern University. She can be reached at: sbenmrad@nova.edu