Making Frugal Feel Good: How Budget Brands Win Premium Customers Through Superior CX
In an age of ever-growing income disparities, mid-range retailers like Sears are dying off. Across the US and UK, out of town retail parks and high street stores alike are struggling. The giants are being brought to their knees on both sides of the Atlantic.
Julie Wittes Schlack
SVP of Product Innovation at C Space
Julie Wittes Schlack is SVP of Innovation and a founder of C Space. A respected leader within the market research industry, and an oracle within the company, she has changed how companies understand customers, respond to emerging trends, and apply new technologies to create growth. Julie is a prolific and accomplished writer, with work featured in Harvard Business Review, Mashable, Ad Age and other publications. Julie is also a teacher, editor and researcher and has won awards for her fiction, her essays and her research.
Here’s the thing: The recession has changed how we think about value. As customers, we’re more cost-conscious. We want to buy the best quality product, at the lowest price possible. We feel smarter and prouder about discounted decision, rather than deriving value purely from how much something does or doesn’t cost.
That’s not to say we’re penny pinching – premium still has a role to play for many – rather as consumers, we’re more attuned to the benefits of cost saving; getting the most value, on both a functional level and an emotional level, when we shop. Savvy shopping has become more of a badge of honor. Under the right conditions, savings are something we wear with pride.
In the cost-conscious post-Great Recession years, retailers like Family Dollar and Harry’s have benefited from this reduced stigma around penny pinching – and they’ve been able to break into the mainstream. The retailers who are getting it right understand that in the right conditions, perceptions of value will easily and readily outstrip perceptions of luxury and even quality. A focus on the experience provided – and the emotional needs of their customers – enable these value brands to appeal to new, more affluent audiences.
To understand how and why, let’s look at two success stories; Costco and Southwest Airlines. Both are experienced as more intuitive and more customer-centric than their mass market (and traditionally higher end) peers.
Since 2016, Costco’s Customer Experience Score has steadily increased from 712 to 732 (vs a category average of just 227). Where things get really interesting is in the cut of the data. The number of mentions of Costco as a business that customers love has increased sixteen-fold amongst those consumers earning over $150,000. Put simply, Costco has become more appealing to higher affluence customers. Much more appealing.
Thanks largely to the retailer’s ability to negotiate bulk prices vs compromising on quality, the store is known for superior products, brand names and Kirkland, its well-regarded private label. Indeed, its high score is partially driven by perceptions of value; feeling “not ripped off” was one of the top-five attributes selected by affluent consumers.
But there’s more to it than that. Shopping at Costco delivers emotional rewards. It’s fun to go there—especially if you don’t have to. Free samples, a food court and an always-changing selection of products combine to turn a shopping trip into an occasion. That distinction matters for shoppers
with higher incomes for whom browsing a store can be as much recreation as necessity.
Indeed, Costco’s intentional movement of products around their stores makes the experience like a treasure hunt. Customers discover bargains serendipitously, thereby making them feel smarter and helping create a sense of achievement. Customers are surprised and delighted as and when they come across great discounts. And to overcome customer frustration of “moving things around”, Costco deploy friendly, helpful staff who are always on hand to guide customers to the things they need, in turn improving perceptions of great customer service and reducing the friction of having customers wander stores helplessly trying to find the light bulbs.
“They (and their employees) have the customer’s experience as one of their prime initiatives – they always try to make every experience as painless as possible for the customer,” wrote one study participant, using language that we would typically associate with high-end retailers like Nordstrom. “They treat their customers as I would treat people. They’re not just a business.”
And unlike its big-box competitors, Costco uniquely creates a customer experience that surprises and delights affluent shoppers by replicating the personalized, responsive service found in premium stores.
With three safety-related incidents in 2018—one of which resulted in the death of a passenger—it’s not surprising that Southwest Airlines’ Customer Experience Score declined from that of 2017. And at first glance, its 2018 CPS of 5.58 is hardly exceptional, until you compare it to the airline industry average of 1.55, that is.
So, what accounts for this relatively glowing performance—particularly among affluent fliers, who rate it even higher with a CPS of 6.56—in a generally despised industry?
Customer-centric policies, like free checked baggage and price guarantee, enables the airline to attract and keep a higher-income crowd even though it is a budget carrier.
But perhaps more critical is the fact that Southwest empowers its employees to infuse humor, spontaneity and surprise into an experience that would otherwise be memorable only for its low price and sparse amenities.
In very simple terms, Southwest is perceived to be just a bit more human. It’s an airline with personality. Where customers are treated like people – and the experience of flying is fun, not formulaic.
Employees can and do go the extra mile. Something relatively simple like singing “Happy Birthday” to a five-year-old passenger can elevate fliers’ moods. Similarly, during the 2017 solar eclipse, a Southwest flight crew took extraordinary measures to enable a photographer to take a stunning collection of photographs. They ensured that he got the best seat for viewing the eclipse, the captain cleaned the seat window’s exterior by hand before take-off, then got permission to do five 180- degree turns at full totality.
These are the types of actions that not only yield great press and free publicity, but help consumers feel valued and smart for having chosen that airline.
For affluent consumers, flying Southwest is much more of a choice—one they make because, in the words of one respondent, “The casual nature of their operation and excellent hospitality makes me feel at ease when flying with them. I feel as if I am a guest in someone’s home rather than a customer.” And that is precisely how more affluent consumers want and expect to feel.
The winning formula
When we drill down into the specific attributes on which both Costco and Southwest scored highly, we see that both make service and experience a priority. That in turn drives feelings of trust and authenticity. They are also seen as easy to do business with—they make it simple, “painless” and stress-free for their customers, regardless of income.
These attributes are all critical components of what would traditionally be seen as a luxury or premium experience. By focusing on these elements of customer centricity, these brands elevate the experience, separate from the product itself. Each has created a quirky brand identity—fun, playful, adventurous, and spontaneous. Most importantly, their policies are to be deeply human, and this is what transforms them from “value” brands to invaluable ones.
Download Customer, Experienced. here to find out more.
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