The race for relevance

The race for relevance: Looking deeper into the holiday outlook

An explosion of choice and the race for relevance

In a market where consumers are presented with a growing range of channels, retailers face the challenge of building stronger, more relevant connections with consumers. In-store and online retailers are locked in an arms race to gather, understand and respond to insights about consumers and their needs.

It’s a race to meet and exceed customer expectations, which drives consideration and retention. If, as a consumer, you provide me with what I want, the way I want it and when I want it, then I’ll likely reward you with my repeat business. This speaks to the issue of relevance and begs the question, “What does it mean to be relevant to a consumer?” Our Canadian holiday outlook presents us with a window into what motivates and is relevant to holiday shoppers.

What does it mean to be relevant? It depends who you ask

Our report validated some of our thinking about consumer needs and gave us food for thought.

An important learning was that relevance is a multi-dimensional problem, and most importantly, it can cut across “traditional” approaches to segmenting and serving customers.

When we talked to consumers about how they choose what to buy, a complex web of decision drivers emerged.

How important is it for you to make holiday purchases from a retailer that:

What does it mean to be relevant? It depends who you ask
  • is local or independent?
  • has a strong commitment to making charitable donations?
  • is trustworthy?
  • is a second-hand or thrift-store-type retailer?
  • is able to personalize or customize products?
  • offers a wide selection of luxury brands and goods?
  • has a loyalty program?
  • sells products that are socially and environmentally responsible?
  • sells health and wellness-focused products?

What matters most to your customers?

Understanding why people make certain decisions helps retailers target what matters most to a consumer. Successful retailers, both online and in store, organize themselves around the unique needs of their customers. They create a consistent and coherent retail experience when it comes to the variety of products (what they sell); the price and promotional mix they project (how they show value); and the design, organization and choreography of the customer experience (service levels, scripting and flows) to be the most relevant to their customers.

Creating coherence among all these elements requires real choices and trade-offs, which recognizes how it’s difficult to be all things to all people. As a result, retailers need to make deliberate choices about what they sell and how they sell it to hone in on what matters to their customers.

Ages, stages and wages

The question faced by many of our retail clients is, “How can I maximize the number of customers I can serve without compromising on the quality, consistency and coherence of the experience I deliver?” Our review of decision drivers helped us better understand the boundaries of this problem.

When we looked at what drives consumer decision making, we found a mix of attributes that tended to cluster in different ways: some by age, stage of life and level of affluence, and others by their attitude (i.e. they’re a segment that cuts across traditional measures of income and affluence).

Table of attributes

Table of attributes

Choosing and living a strategic identity

Understanding how different drivers of relevance can manifest themselves in people presents retailers with strategic choices around how best to organize. These include where they set up stores, how they design and deliver marketing campaigns, the range of products they carry and the way they interact with customers.

Targeting customers based on their age or affluence leads to a well-established path. While reasonably straightforward to conceptualize and bring to life in store and online, it invites “me too” strategies and can often end in commoditization or a competitive arms race.

Focusing on other attributes, such as ones that hold stronger emotional connections to consumers (e.g. a social/environmental focus, a drive around artisanal provenance or wellness products), pose a higher risk and hold the promise of higher reward. For example, building a wellness-focused range of products that caters to consumers across age segments and affluence levels could be challenging, but there are benefits to building a deep connection to an attribute that matters to those consumers.

Building a segment-focused organization

Organizations that build enduring brands and deep emotional connections with consumers are ones that, unsurprisingly, have real conviction around their strategic choices. They understand — and welcome — the trade-offs they need to make in the pursuit of the consumer segments they aspire to serve.

In our experience, the organizations that do this well follow a handful of core principles:

Make investments to really understand the motivations of your consumers

These organizations go beyond simple surveys. They’re driven by a curiosity to seek out and understand what makes their customers different and what makes them tick.

Build conviction around the size of the prize

Before making the jump to prioritize segments, make sure there’s a case for value — a large enough “profit pool” available through serving the client over their lifetime, and a clear pathway to access it. Most organizations need to believe the case for investment in order to commit to making real trade-offs on resources allocation. Organizations that are successful in winning with consumers know how to show the economic and shareholder value of focusing on segments.

Rally the organization around a segment-focused view

While consumer segmentation can be a rigorous and complex mathematical exercise, organizations that own segments make their segmentation relatable and accessible to all employees. They engage the organization to make sure there’s understanding and alignment around the types of customers the enterprise aspires to serve (i.e. which segments and how were they developed), why they’re the focus segment and how to win with them (calling out the key drivers that matter).

Embrace your competitive position and commit to do better

Successful consumer-driven organizations recognize that they’re always facing competition. Using insights about consumers and how they decide, they understand who else their customers are considering for the need they’re serving. They relentlessly focus on being the uncontested leader of the things that matter most to the customers they choose to serve.

Make choices and focus your investments (make real trade-offs)

Arguably one of the most challenging values to bring to life, organizations that successfully win in segments make real prioritization decision. They focus their organization on their priority segments; which means that other initiatives may not get funded. Top segment priorities get the best service levels from the internal organization, and they’re often provided the best talent, the most investment and “first call” on resources. This could be uncomfortable and lead to difficult choices, but success is built on focus.

Design with your customers, and don’t compromise on the things that matter

Organizations that are segment focused bring their target customers into the design process. They understand what matters and use customers to co-create products and service experiences. Importantly, they focus on designing end-to-end experiences, products and service journeys rather than discrete attributes or “moments in time”. They recognize that consumers evaluate an end-to-end experience and that their experience is only as strong as the weakest link in the process. Making target customers design partners in this iterative process increases the likelihood of building lasting emotional connections with their needs.

Measure relentlessly and have honest conversations about performance

As important as the base product and service design are, successful segment-led organizations recognize they’re on a journey with their customers. They employ a suite of short-loop (e.g. Touchpoint NPS) and long-loop (e.g. relationship engagement measures) feedback systems, which make sure there’s a steady pulse check of the customer relationship. They align measurement with strategy and want to understand if they’re known by their target customers for the things they want to be known for. What’s more, they want to find out if “spikes” in recognition are translating into real incremental gains in customer value (e.g. retention, share of wallet, profitability).

What’s next?

Canadians plan to spend more this holiday season than they did last year — and millennial and Gen Z consumers have greater expectations than ever before when it comes to how and where they shop. With an explosion of choice and increasing competition for consumer mind share, the race for relevance is on.

Do the work to understand your customers’ decision drivers and motivations, rally the organization around segment-focused view of the world (with targets and measures to complement it) and build experiences that set you apart to the customers you’ve chosen to serve. This season, give the biggest gifts to the ones you love the most.

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