The Reputation Equity Stimulus Plan

The U.S. Consumer Confidence Index (CCI) – which declined dramatically in June (to 54.3) – has decreased again in July (to 50.4) amid continued worries over unemployment and renewed fears of a global economic slowdown and a double-dip recession. While still well above its all-time record low of 25 in February 2009, the index is nowhere near a reading of 90, which indicates that the economy is stable. Financial analysts are reporting that for the foreseeable future consumers will continue to be cautious in their spending habits. In the midst of this gloomy economic environment, retailers are struggling to lure in wary consumers to shop.

In an effort to entice consumers, retailers are using rather creative methods to attract consumers to their stores. For instance, over the next month Microsoft* is showcasing its new hands-free video game console Kinect at a very non-traditional gaming location – Macy’s department stores. And there is absolutely no doubt that Macy’s is hoping that while the kids are playing, their parents will be shopping.

While these types of marketing tactics may be successful in the short-term, they may not establish long-lasting brand loyalty among consumers. In reality, purchase decisions are now more than ever influenced by a wide variety of factors beyond products and services – everything from a retailer’s community engagement, employment practices to its environmental programs. In short, a retailer’s reputation can have a measurable impact on consumer behavior. APCO’s Return on Reputation Indicator study of the retail industry has found that a company’s reputation plays a prominent role in improving the environment in which companies do business, from improving the policy environment, attracting and retaining high-quality employees, and especially in driving increased consumer spending and stronger loyalty among consumers.

The Return on Reputation Indicator study found that building reputation equity can have a significant impact in shaping the behavior of consumers. The study shows that an increase in the retail industry’s Reputation Index could lead to an increase in how much consumers are willing to spend, how likely they are to promote a store, and how loyal they will be to a store. For instance, with only a one-point increase in overall reputation (in the Retail Reputation Index ranging from 0-100):

• The average consumer would spend $133.05 more per year (margin of error of +/- $25.14)
• The average consumer’s loyalty to a retailer would increase by .48 percentage-points (margin of error of +/- 0.2%)
• The proportion of promoters (consumers who are likely to recommend the retailer to others) would increase by 4 percentage points (margin of error of +/- 0.002)

Not surprisingly, the study shows that consumers value the top service they receive at retail stores, and Customer Service is among the most important drivers of the retail industry’s reputation. However, the study also finds that consumers are more than shoppers, and they expect retailers to do more than just provide quality products and services. In fact, Community Engagement (building ties with local communities and cooperating with local governments to address community concerns) is the single most important driver of a retailer’s reputation for consumers. The study also shows that a retailer’s commitment to Energy Efficiency (reducing use of energy and using alternative and renewable sources of energy sources) is one of the biggest opportunities for retailers to positively move the needle on their reputation. The study also demonstrates how all 24 drivers unique to the retail sector impact the industry’s reputation.

Even as the economy improves, all signs suggest that consumers are remaining very cautious and are becoming even more discerning in  where they will spend their money. Building reputation equity can be a long-term solution to driving increased spending, brand loyalty, and share of wallet. Here’s something to think about:  If the industry were to improve its reputation by only a single point – leading to the average consumer spending $133 more per year – we could inject nearly $35 billion into the economy and the retail sector.  Let’s call it a reputation equity stimulus plan.

*APCO Client