elcome to Customer Compass, our industry snapshots designed to give you new perspectives and interesting talking points to add color to your next Monday morning status meeting or to kick off your next brainstorming session. However you use these insights, you’ll find they’re designed to be hard- hitting conversation starters that shed new light on old problems and help get your creative juices flowing.
For this first volume, Apex is taking a look at Big Retail. The ten brands observed are some of North America’s biggest revenue drivers in their category, dealing mainly in commodity products, including housewares, grocery, health, and building supplies. You might be thinking these are huge, highly successful companies, so they must be doing everything right! Wrong.
Suppose the customer is taken at their word (and we always take them at their word). In that case, a lot is missing from the current customer experiences these companies deliver. You might also be thinking that what’s true of these monster organizations can’t possibly apply to your company (unless you work for one of them). Wrong again!
Embedded in these findings are truths that transcend these brands and what they sell because they're customers - the ones we believe should be calling the shots - are just everyday people like you and me. What they seek from these brands is often what they desire from many brand relationships. Any company would be better off taking some notes from this one.
Let’s get this conversation going!
We completed a study with 400 customers of ten of the biggest retail brands by revenue in North America. We evaluated each using the Apex Scoring System methodology, which provides a CX score outlining how well each brand delivers the type of experience their customers most desire. With it, we can unearth the specific feelings and rational attitudes that drive customer desires, and we’ve outlined the highlights of what we found in the summary report that follows.
As with any customer research study, there is much more data available than space in this report allows, so please reach out to us directly if you have any follow-up questions or thoughts on anything you read here.
While some are performing better than others, all of the brands tested need to do a better job meeting customer desires. While they are generally operationally sound, there are significant misses in the emotional aspects of the relationship; the ones we discovered are truly at the heart of driving loyalty in this category.
Well ahead of all others, Costco and Target are achieving the highest overall Apex CX Scores of the ten brands tested. This means they’re more effectively delivering the experiences their customers seek than anyone else. Furthest off the mark? Walmart, with a rating less than half that of the other two.
CSAT scores agree, and the gap seems to be getting larger: In a CSAT tracking study by the American Customer Satisfaction Index (ACSI), Costco topped the list of 19 leading retailers at 82 (out of a possible 100) points, up one point from their leading score last year. Meanwhile, Walmart ranked last on the list with a score of 70, down one point from their last place ranking last year. This also plays out in the online space, although to a lesser degree, with Costco getting a CSAT score 6 points higher than Walmart.
The Apex Score for these brands is also highly correlated with each organization’s annual growth rate. Sure enough, both Costco and Target’s most recently reported CAGR is more than 2.5x that of our lowest-scoring brands, Walgreens and Walmart.
Loyalty has hard business value. Nurturing it is an excellent use of time and resources. Our own research has repeatedly revealed similar stats across other customer categories. McKinsey recently came out with a study citing that 80% of the value creation of the most successful companies comes from unlocking new revenues from existing customers (i.e., building and nurturing loyalty.) Forrester Research classifies loyal customers as "Devotees." These customers feel more emotionally connected to brands, help brands acquire new customers by recommending the brand to friends and family, and generate more revenue for the brand than other customers. For retailers, the average annual revenue per customer is $1,855 for devotees — or 109% more than non-devotees ($886 average annual revenue). With supply chain issues, labor shortages, inflation, and other systemic risk factors still very much in the mix, retailers and brands must prioritize and invest in growing these super-loyal customers.
This is especially true in the health retail subsector (where brands such as Walgreens and CVS live), where loyal customers spend 206% more (!!!) than everyone else.
"80% of the value creation of the most successful companies comes from unlocking new revenues from existing customers."
Uncomplicated and Predictable experiences are where category players rate the highest. That makes sense because commodities are all about convenience, availability, and price. While focusing on operational efficiencies and pricing is important, they represent table stakes in this category, and no brand is meaningfully differentiating on them.
Customers are craving, yet are just not getting, much more emotionally-driven interactions. Above all else, they seek a sense of Relatability, meaning they want to see themselves reflected in these brands. Further analysis reveals that it comes down to one factor: Customer Service (friendliness and competence).
"They always make the customer feel right. Always helpful whenever I go there. You need a question answered they have the answer for you."
Functionally, strong house brands also play into this idea of Relatability. From a quality, value, and selection perspective, these products are a tangible takeaway that elevates the everyday customer relationship with the store brand even outside the retail environment.
Private label products also do a lot of work to instill trust in the retail brand. Brands can directly demonstrate their commitment to sustainability, value, and quality in developing these products. These artifacts become hand-held demonstrations of the brand’s values and give customers a reason to trust and lean into the retailer even more.
"I like that they have their own brand. Overall they stand for quality products at fair prices."
Authenticity - representing your core beliefs in your actions - is the second most important attribute driving customer loyalty. According to customers, how brands are perceived to treat their employees is one of the most critical drivers of it. There is a direct correlation between how well these brands are perceived to treat their employees and customer willingness to shop at and recommend them.
Combined with its high statistical correlation to Relatability (and the customer service indicators that ladder up to it), we see no stronger single driver of loyalty than how brands treat their people and how those people treat their customers. Treat your people well, and the rest will fall into place.
Among the largest companies (Walmart, Costco, Target, and Amazon), a new critical trait emerges, Joy. Shoppers of these brands wish not only to have a convenient, affordable experience but also one that leaves them with a smile on their faces.
None of these four brands meet customer expectations on this attribute. Costco and Target come closest, with Walmart furthest off the mark.
In a very linear fashion, younger respondents are less engaged with brands in this category overall. Our oldest 65-74-year-old respondents provided Apex ratings 36% higher than our 18-24-year-olds.
Our broad array of research tells us that younger audiences are less wowed by simple operational efficiency, even among these highly commoditized category brands. Doing the job well and keeping it affordable is table stakes. Raising the bar to meet some of their more purpose-driven emotional desires will ultimately separate winners from losers in the big retail game among the younger consumer set.
"I feel good using this brand every time I need anything. They take care of their customers and the people who work there."
In-store CX ratings are 24% stronger than similar ratings online customers provide. Perhaps with better, more visible access to those all-important customer service reps alongside a generally more immersive in-store experience, the online offerings just aren’t keeping up.
This is not age-related. Online shoppers of all ages provided consistently lower ratings than their in-store counterparts. For all their efforts, experiencing any of these retailers online is just lacking versus what the in-store channel offers.
This new research was conducted by Apex Scoring System using our behavioral science-driven methodology. Our goal was to uncover how North American customers really feel about their relationships with the ten biggest retail brands and what truly motivates their actions regarding their shopping habits. Our survey, which included 400 participants, was completed in March 2023.
*Apex's behavioral science-trained AI enables statistically relevant results using a fraction of the respondents traditional research studies require.