Millennials determine future of retail
It turns out that the Baby Boomer generation was just the opening act. The Millennials are here, and the world changed overnight, at least for marketers. Brand loyalty is out the window, transparency rules and convenience is king. Millennials are savvy about marketing, and they want what they want when they want it.
The Millennial generation is roughly defined as those born from 1982 to 2001. These are the children of the Boomer generation, and are sometimes referred to as “Echo Boomers” or “Generation Y.” They outnumber the Boomers, the oldest of them are just hitting 30, and they are beginning to flex their economic muscles. There is little doubt that over the next decade the Millennials will be the driving economic force.
Everything that we used to know as marketers appears to be up for grabs, from flavor profiles (this generation was raised in restaurants from which they developed very sophisticated palates) to packaging (cans are old-fashioned, but pouches and cartons are hip) to the shopping experience (the “fun” factor is a critical element in the shopping decision).
Digital media — which gets a lot of attention on its own — is important, but as a medium rather than a novelty. This is a generation that grew up with computers and online access, and sees connectivity as just part of daily life. Digital access is an expectation and cost of entry.
Price remains a primary component in the Millennial decision-making process, but with a twist. This group came of age in the worst economic times in recent history. But in addition to low price, there’s now an expectation for an emotional connection as well, and price is viewed more holistically as part of an overall value equation rather than a stand-alone determinant.
All of these factors are enough to keep even the most experienced marketer awake at night. The good news is that there is time to experiment, learn and adjust. The hard part for most marketers is in making the necessary changes to their thought processes and being willing to adapt to the needs of this challenging new market.
For drug stores, opportunity abounds. Drug stores already have convenience going for them, which is a big plus for Millennials. In fact, according to a recent SymphonyIRI study of Millennials, drug store spending is currently about 13% above average. This generation is just beginning to form shopping rituals, so there is time to influence those patterns before they are set. Despite their relatively modest financial status today, according to Pew Research, Millennials are expected to generate about $65 billion in consumer packaged goods sales over the next 10 years.
There are three major initiatives that drug stores can begin to undertake today to capture more of this market:
1. Pay close attention to Millennial shoppers. This cohort is very much still developing in terms of loyalties, behaviors and rituals. As with the Boomer generation, this growth will happen in ways that are unexpected in many cases, and the best strategy is to be open to those changes and willing to respond accordingly.
For example, Millennials are currently very value conscious, but as the economy improves and they move into higher-paying jobs, this behavior may change. Financial adviser Jefferies recently coined the term “YEMMie,” for young, educated, millennial moms. They will be a driving force for the entire generation, and will set the direction for much of the shopping behavior.
2. Combine digital/mobile media with other media. Make sure all communications are integrated, consistent in their message and relevant to this audience. They will check the price, but will also include convenience and other value-added considerations into the decision process. Focus on making an emotional connection via all media elements, including the store itself.
3. Partner with CPGs on packaging and product. Green, sustainable and out of the ordinary pay big dividends here. Take a look at store brands and make sure they reflect this direction as well; that will help to set the tone for the store overall. Think outside the can and box, and look for innovative packaging that stands out and provides unique benefits.
The next few years will show which retailers are going to prosper with the Millennial generation and which will be seen as part of the “old guard.” The challenge will be to keep up as this generation matures both intellectually and financially, and remaining part of the consideration set will be an ongoing learning experience for all retailers. The good news is that drug stores are already ahead of the game, so now is the time to get proactive and keep that advantage gap.
Jeff Weidauer is VP marketing and strategy for Vestcom International, a Little Rock, Ark.-based provider of integrated shopper marketing solutions. He can be reached at firstname.lastname@example.org, or visit www.vestcom.com.
Simplifying the sales tax
As of Sept. 15, California became the eighth state in which Amazon.com will levy sales taxes on purchases made by residents in that state. Pennsylvania joined that group two weeks prior. Add to that the five states that don’t have any sales taxes, and that’s 13 states where national brick-and-click retailers are competing on a level playing field with the pure-play online retail juggernaut.
But that still leaves 37 states where Amazon.com sells merchandise at a discount ranging between 2.9% and 6.875%. And given the recent GroupM Next study that found 45% consumers will shop in-store but buy online for as little as a 2.5% savings, those are 37 states where many brick-and-mortar retailers have become a little out of sorts over the whole online sales tax collection issue. “With an estimated $24 billion going uncollected each year, this disparity is threatening jobs provided by local retailers and is getting worse as more shopping moves online,” noted the National Retail Federation.
According to a 1992 Supreme Court decision, states can enforce sales tax collection on remote sellers if that seller has a physical presence in the state. “This issue didn’t start online; it started with catalog sellers,” Rachelle Bernstein, NRF VP and tax counsel, told DSN. “What the Supreme Court said was the problem was a commerce clause [issue] — there are 7,600 different sales tax jurisdictions between states and local governments,” she said. For example, one county might enforce a sales tax on a hat, where another county would exempt sales taxes on the purchase of a hat. With that many jurisdictions, remote sellers in many cases would have to go down to a SKU level to determine whether or not a sales tax should be collected, Bernstein said, so the Supreme Court ruled that in order for states to impose sales taxes on products sold by remote sellers, they would have to simplify the process.
Two federal bills in Congress are currently under consideration: the Marketplace Equity Act in the House and the Marketplace Fairness Act in the Senate, which would simplify the process on a national scale. Though not identical, the two bills would mandate simplification requirements — such as creating a single sales tax authority within a state or states providing software that facilitates collection — that would be applicable to remote sellers only.
According to the company’s latest annual report, Amazon.com is in favor of federal legislation that would require sales tax collection under a nationwide system.
While price and convenience are two significant competitive elements that favor online retailing, there is one advantage card being increasingly played by brick-and-click retailers: multichannel retailing.
“Today’s consumer increasingly is on the go and wants to be able to shop with a start-anywhere, finish-anywhere mentality,” noted Ian Kahn, PricewaterhouseCooper director, regarding PwC’s annual survey on the evolution of multichannel retailing. So the combination of the ease-of-use associated with shopping online with some of the exclusively in-store experiences can make for a very compelling proposition, Kahn said.
According to the GroupM Next research, customers who interact with an associate are 12.5% more likely to purchase in-store. “Nearly 10% of purchasers we surveyed chose to complete their purchase in-store, no matter the price discount offered,” stated Patrick Monteleone, GroupM Next director of research. “The key for marketers is to identify the next 10% — the group of customers [who] are sensitive to price, but can be swayed to stay in-store.”
Stores innovate loyalty programs, circulars
While traditional circulars still have their place within retail — especially when it comes to reaching older shoppers — there’s no doubt that the tides are changing as loyalty cards take a greater share of the promotional spotlight.
A recent study by market research firm Polaris Marketing Research, for example, found that Americans are participating in loyalty card programs more now than ever before, and many are participating in five or more loyalty programs.
The highest rated reason why Americans join is “to save money/get discounts” (93%) — not much of a surprise. The second-highest rated reason was “for the reward offers” (91%), confirming the demand for customers to receive some type of offer first (whether it’s discounts or free stuff) before they become “loyal” to that specific brand or company, according to the research.
When asked if having a specific brand/company loyalty card influences their decision to purchase a product or service, more than half responded that it “influences me a little” (53%).
Indeed, a more value-conscious consumer has emerged from the chaos and uncertainty of a flailing economy, and that is forcing suppliers and retailers to get more creative about how they deliver value to the consumer.
“Delivering truly shopper-centric value is going to be key, and neither manufacturers nor retailers can do it alone,” Navin Gautam, principal of client services for SymphonyIRI Group, noted during a June presentation at National Association of Chain Drug Stores Marketplace Conference in Denver.
Given this, one could surmise that manufacturers will increasingly shift their promotional support away from traditional circulars and more toward loyalty programs, and even social media, as retailers increasingly jump aboard the loyalty card bandwagon to capture more dollars and the loyalty of today’s value-conscious shopper.
This month Walgreens debuted its highly anticipated, new loyalty program Balance Rewards. The theory behind Walgreens program: Not just to offer blanket discounts to everybody who holds the card, but rather to segment offers to specific customer segments and reward them based on their value to the chain. (For more, see story on page 80.)
Meanwhile, CVS/pharmacy has been working to take its long-standing, highly successful ExtraCare loyalty program to a new level with a Beauty Club and the pilot of a healthy rewards program. The retailer also unveiled in June a revamped website that features a hub for ExtraCare members to help them manage their savings and deals.
That’s not to say, however, that circulars have completely fallen by the wayside. According to a U.S. Buying Trends report released in August by The Nielsen Co., value-seeking may be important to all shoppers when buying groceries, but circular use is the greatest among older generations.
Gautam also noted in his Marketplace presentation that, according to research, the use of coupons and circulars in trip planning remains strong, but there are slight differences that exist across generations. Younger generations tend to clip and use more coupons compared with older generations, who tend to research circulars.
Meanwhile, ECRM recently took a closer look at how retailers are promoting in circulars, zeroing in on the expansive personal care market.
“This is great data for suppliers to understand how retailers are promoting the category. When a supplier partners with a retailer to publish ads in their circular they should know how that retailer is promoting their category, and what their competition is doing. This will help them to plan and execute more efficient ads,” said Chelsea Kilway, CPG promotional business analyst for ECRM, of the recent ECRM study.
The “Insights on Retail Promotions” is a presentation that ECRM puts together for retailers and suppliers to highlight some key trends in the business prior to the category-specific events it holds throughout the year. It is a good example of how the company has evolved its business beyond the 100 or more events it hosts around the world each year.
“Before each event we provide the attendees with a promotional snapshot of how the categories they operate in are being promoted,” Kilway explained.
Among the findings for the 52 weeks ended Sept. 1, 2012: In retail circulars, hair care is the top promoted sub-category across the personal care category, followed by skin care and then oral care.
In addition, Procter & Gamble took the lead (26.2%) as the top promoted manufacturer across the personal care space, followed by Unilever at 9.6%.
What some industry observers might find especially interesting is that private label is the leading promoted brand across the personal care channel at 6.3%. The second highest is Olay at 4.3%, followed by Gillette at 3.7%.
While this specific ECRM data looks exclusively at retail circulars, Kilway noted that the retailer loyalty programs have — and will continue to — impact the personal care promotional space.
“We have seen a lot more of our clients take interest in these promotion types. … They are more interested as to what these rewards are that you get with these cards. So, based on the work we’ve been receiving, I can see there’s a greater focus on that. … As people are fighting for share of that market, I think it will be more prevalent, and we will see it more as time goes on,” Kilway said.
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