Oct 31, 2011

«Why low prices kill brand loyalty»

I think it might be just about time to say your last goodbye to Sears.

Launched as a mail order catalogue in 1888, the brand has survived recessions, depressions, booms, busts, wars, the technology revolution and just about every market fluctuation imaginable. But it could soon fade away into that great check-out line in the sky because of the latest in market trends – low prices.

I know that sounds a little odd to designate low prices as an actual trend. It does to me, too.

I believe that it is more than the economy that has caused the absence of customer loyalty. there remains a sizable number of consumers who are willing to pay more for value. the major problem is a lack of consumer confidence. As a result of that lowered confidence, retailers scrambled to gain share of the market by lowering prices. now, to sell for less they must cut their costs. On top of cost cuts, many were heavy in debt -- debts which they had to pay off, pay down or be forced to fold. Those who were unsuccessful went into liquidation (circuit city, linen's and things, mervin's and most recently borders). Sears is about to become a victim, as well.

One of the primary problems with that model is that quality is often sacrificed in order to appeal to consumers' desires for low prices.

There's an old adage that one gets what one pays for. Low price is often an indicator of low quality. It's the equivalent of buying a junker car off craigslist. If you pay $500 for a car, chances are it won't last long. The same thing is the case with consumer goods. Whatever is less expensive will also likely be of lower quality and will lack durability.

The logic thread continues and those consumers who sought low price are now complaining of low quality.
Consumers are up in arms about the low quality, but retailers are already in the hole because they have hardwired consumers not to pay full price. Now retailers must deal with that mentality.

Even upscale consumers have lost confidence in many major brands. They want value and they don't feel that they are getting it. Instead of turning to lower prices, in many cases they are purchasing less, not necessarily spending less. However, there have been retailers who have not sacrificed quality and are still giving their customers excellent service while striving to do better.

The recession had an effect on these retailers, and they may have closed some of their poor performing locations. however, they have survived by not altering their standards. by doing what they do best and delivering what their consumers value, they have maintained their loyalty.

But not Sears.

Officially named Sears, Roebuck and Co., Sears is an american chain of department stores which was founded by Richard Warren Sears and Alvah Curtis Roebuck in the late 19th century. As Wal-Mart became the dominant department store during the 1990s and 2000s, Sears began to struggle, so the company merged with Kmart in early 2005, creating the Sears holdings corporation.

The problem is that joining forces strengthened market share, but not revenues. Two dying giants who merge only create one larger dying giant. The competition between the two brands continued, simply under the same roof, with Sears losing the battle. Kmart reported a 1.6 percent decline in sales in the first quarter of 2011, while Sears dipped 5.2 percent.

The end result? Look for new ceo Lou D'ambrosio to shutter the lesser performing brand, Sears, and use the additional resources to bolster Kmart. It didn't have to be that way.

Savvy retailers are up on trends and keying into regional needs. Branding is a key element. When a company truly develops their brand and helps it evolve into a changing market, they create exclusivity. If you want that brand – and Sears has great brands like Craftsman tools and Kenmore appliances – you have to go to that store. The corporate management of Sears allowed their brand equity to be diminished by going after the low price consumer. Against that landscape, Sears couldn't possibly perform well. It's almost as if they set Sears up to fail. If they had simply stuck to Sears strategy of the 1880s – satisfy their brand loyal consumer – they wouldn't be looking at the gallows today.

written by Darlene Quinn a former senior executive with the bullocks wilshire department store chain and an expert in the consumer retail business.

1 comment:

  1. Ahh okay, now I know why it kills brand royalty. Thanks for this informative post.