The hopes for strong holiday shopping season have grown dimmer in the weeks following September 11—and they weren't that great to begin with.

Retail Forward, a market research firm, expects fourth quarter sales for general merchandise, apparel, furniture, consumer electronics, and miscellaneous goods to fall 1.5%. The National Retail Federation, which tracks sales in general merchandise, apparel, furniture, home furnishings, electronics, and appliances, has projected that shoppers will spend as much as 3% more this year—less than the 5.3% increase recorded last year. Meanwhile, PricewaterhouseCoopers, which tracks all retail sales except gasoline and car sales, projects a 1.5% increase in the fourth quarter—much less than the 4.5% growth during the same quarter last year—making it the weakest holiday season since the 1991 recession when sales grew about 1.8% in the fourth quarter.

Online retailers may not fare any better than mall-based, bricks-and-mortar stores. Odyssey, a market research firm, found in its semiannual tracking study of American consumer attitudes and participation in e-commerce that online purchasers are significantly less likely to buy online again in the third and fourth quarter of 2001. Among those who bought personal items online in the first half of the year, the percentage reporting that they are very likely to purchase online again in the second half of 2001 dropped to 54% from 71% in 2000.

As for consumption plans, in a study of consumers released by the advertising agency network Euro RSCG Worldwide, 46% of American men and women plan to spend less money than usual this holiday season, and only 11% of men and 7% of women plan to spend more than they did last year.

Yet, some economists believe that further interest rate cuts, tax rebates, lower energy costs, and less travel may mean consumers will have extra money to spend for the holidays. House Democratic Leader Dick Gephardt recently told the Washington Post prospects are good for an economic stimulus package that would "get money out to people before the holiday season." Consumers may look for "toys" that provide sources of entertainment for themselves—DVDs and digital TVs—and their kids—toys and games—as they travel less, and stay home and spend time with the family more. Home goods retailers may also benefit from the house-buying boom as people refurbish and furnish new spaces.

So while the Grinch may not have stolen this Christmas yet, many retailers are undoubtedly tempted to drop prices further and rely on higher volume and cuts in marketing (e.g., inventory, advertising, and visual displays) to make up for the loss in margin. This line of reasoning certainly appears to make intuitive sense. You get the biggest piece of the pie when the pie is the biggest, or so the conventional retail wisdom goes. In other words, retailers get customers to spend more of their dollars with them while they are spending the most.

The problem is that, although volume might go up, costs also go up—if nothing else, stores are open longer hours—and this year already battered retailers can ill-afford to give away the store to make the sale.

While some retailers may have felt offering rock-bottom prices was a necessary evil to move the excess inventory they had accumulated this fall, the focus for the holidays should be on profits. Though some research suggests consumers are more intent on bargain hunting than in the past, less than half indicated that products on sale are the only products they are likely to buy, according to the Odyssey study.

So what about the other half of buyers that aren't just looking for the sales and bargains? It isn't that price is unimportant to them; it's that they prioritize other things like service, convenience, availability and quick delivery of merchandise, quality of products, and overall brand image above price. Why should retailers set their prices well below a customer's willingness to pay—and these days even below the costs of doing business—when they don't have to?

As on-line and off-line retailers make their final plans for this holiday shopping season, they need to focus on getting and keeping the most profitable customers. They should think about charging full-price for items and the other ways besides price they can add value to a purchase.

One way retailers can add value is through service. In general, consumers already have pretty low expectations when it comes to retail service, but even more so at the holidays. BizRate, an online shopping center and market research firm, has noticed customers have become less satisfied with customer service on the Web, even as they become increasingly satisfied with the improving appearance and performance of Web sites grows. According the Chuck Davis, the company's CEO: "Most sites already look slick and work great. If your site is tight on money, you don't cut corners on your face to the public, but you let your customer service representatives go."

Yet providing excellent service—especially during the holidays—adds to the convenience and desirability of shopping with a particular retailer. If a customer can get in and out of a store—or on and off a website—quickly, and get someone on the phone or a prompt e-mail response to an inquiry fast, they will want to shop with you.

Still skeptical? Take a look at Land's End, a catalog company in one of the sectors not expected to do well this holiday season: apparel. The company's stock has risen 21% since the Sept. 11 attacks and management attributes its better-than-expected results to cost controls and solid sales of full-priced merchandise. Land's End updated products, improved fabric and its catalog presentation, and built stocks of merchandise that had consistently proven popular. They didn't cut price, yet have been successful.

As Nick Donatiello, Odyssey's president and CEO said, "the challenge of balancing volume with per sale profitability will be greater this year than it has ever been before." With the average retailer bringing in 24% of annual sales in November and December [some earn even more—L.L. Bean usually captures about 85% of sales during the fourth quarter!], it's critical for retailers to make the most from every purchase.

With the surge in popularity of television programs like "Antique Road Show" and Internet sites like Ebay, amateur sleuths scour the earth for the trash that could in fact be a treasure. Garage and tag sales are popular stops for treasure hunters looking for the diamond in the rough among the jumble.

Just who are these "connoisseurs of junk?" Adults who report going to garage sales at least occasionally are more likely to have been unemployed in the past 10 years and earn less than $50,000 per year. More have children under 13 years of age at home and the average age of adults in this category is 43. Garage sale goers take a mix of conservative and liberal stances on political and social issues. They disagree with the idea of affirmative action and believe teenage premarital sex is wrong, but believe men should share responsibility for work and child care with women. This group also tends to be somewhat skeptical of the American systems of education and medicine and does not believe our economic system is the best. This group believes the government should create more jobs and, in an unrelated note, have watched an X-rated movie in the past year.

Those adults who insist they never go to garage sales, on the other hand, earn higher incomes and fewer have children under 13 at home. They have been employed consistently over the past 10 years and have a higher average age of 48. Though they support affirmative action in most instances and believe its OK for teenagers to have premarital sex—as long as they practice safe sex—they believe it's better for the man to work and the woman to stay home with the kids. This group has far more confidence in the U.S. education, medical, and economic systems, and believes the government spends too little on foreign aid.

Here are a few of the discriminating traits we found between the two groups:

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The one-thing companies seem to have plenty of these days is secondary data about the markets in which they operate. Whether it's in the form of one of the tens of thousands of off-the-shelf market research reports produced by hundreds of different publishers, or internal sales tracking or aggregate and individual customer information, most managers have vast stores of data at their finger tips.

With all of this data, they can see what's going on in the industry in general and what competitors are doing. They can get month-to-month, week-to-week, day-to-day, and—for some—even minute-to-minute sales information. For the most part, they can get information about the composition of an order, the frequency of purchase, and where customers are clicking on the website.

Managers might see some warning signs for their business in the data they have. For instance, an off-the-shelf report might reveal a competitor is about to introduce a new service to which the manager's company doesn't have a response. Or maybe sales are trending downwards month-to-month. Or perhaps customers are making purchase less frequently and the composition of their order is changing from big-ticket items to low cost alternatives.

Obviously these are important warning signs for managers—they can sound the alarm that the company needs to do something about an industry trend, a competitive action, sales decline, or detrimental change in customer behavior. But all companies have the same access to industry analyst reports for Forrester, Gartner, IDC, Yankee Group and other types of syndicated research. Almost all business also have some sort of sales tracking and customer monitoring data. They can all safely say, "We've got the numbers!" And there's certainly no doubt that they have a lot of numbers.

But beyond telling a manager—and in the case of off-the-shelf reports, all your competitors—that something is happening, what's the real value of these research reports? In many ways, the market data most companies use resembles a commodity—all the information pretty much does the same thing.

The real value-add of research isn't "something is happening" but "something is happening; here's why; and here's what we can do about it." It's not the numbers themselves that enable managers to make better decisions, it's knowing "why" the industry is changing, why sales are declining, and why customer behavior is changing. The "why" offers the insight into the cause of the problem and potential solutions (a.k.a., "here's what we do about it"). Just as importantly, the "why" is what most competitors don't have and can offer a competitive advantage.

For more insightful marketing discoveries, visit http://www.copernicusmarketing.com/discover/index.htm

Have a hot discovery for our next release? Contact us at info@copernicusmarketing.com

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If history teaches us anything it's that we can learn from the past. Many companies have faced tough financial and economic times, but somehow managed to come out ahead. We suggested taking a look at some of the successes of the distant and recent past for ideas for surviving and coming out more resilient from a recession, and offer our reading list of books on how other companies have approached the process of building strong and successful brands.

Building Strong Brands
by David Aaker (Free Press, 1996)
Aaker uses cases from Saturn, GE, Kodak, Healthy Choice, McDonald's, and others to demonstrate common pitfalls of brand strategists and guidelines for avoiding turning a brand into a commodity.

Built to Last: Successful Habits of Visionary Companies
by James C. Collins and Jerry I. Porras (Harperbusiness, 1997)
The authors identified 18 "visionary" companies and investigated what makes them so special.

Brand New: How Entrepreneurs Earned Consumers' Trust From Wedgewood to Dell
by Nancy F. Koehn, Ph. D. (Harvard Business School Press, 2001)
Particularly relevant because Koehn looks at entrepreneurs and the brands they developed during times of radical change, Brand New offers insight from great brands of the past and present.

Vision and Will: How Latecomers Grow to Dominate Markets
by Gerard J. Tellis, Peter N. Golder, Clayton M. Christensen
(McGraw-Hill, 2001)
We love books that debunk commonly held business beliefs and no myth looms quite as large as "First Mover Advantage." Vision and Will use several examples to demonstrate that having a clear vision and an obsession with achieving that vision will surmount a first mover advantage.

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As promised in last month's edition, we have available for download the two Copernicus presentations given at The Conference Board's Marketing 2001 Conference: Marketing Metrics and Execution. Our presentation on customer equity offers insights into using the tool to make the decisions about where to invest and where to cut that will return the greatest profit. Our presentation with ExxonMobil on the development and launch of Mobil's "Friendly Serve" campaign provides guidance to companies looking to break the price-cutting habit and developing truly differentiating marketing programs.

Click here to download, "Beyond Brand Equity: Using Customer Equity Insights to Make More Profitable Marketing Decisions."

Click here to download, "Mobil Service Stations: An Example of Transformational Consumer and Business-to-Business Marketing."

Please send an e-mail to info@copernicusmarketing.com if you have any difficulties download the documents.

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