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WATCHING THE MIGRATION INDEX

Unless you are in a town that is highly dependent on a single indus-try for employment, it’s natural that some of your customers will move away, die, or outgrow their need for your product. But it is fair to worry when your net customer base begins to shrink. The migration index is just the indicator to watch.

The graphs we have selected in Figures 2.2, 2.3, and 2.4 are based on customers of one year or less. Be aware that we could just as easily have sorted for customers of any length of time, or we could have simply included all customers. We chose customers of one year or less as an ex-ample of one way to “cut” the data.

To help spot anomalies, we will examine the data “index” that ex-presses the magnitude of a datum point compared to the average. Here it comes in English: An index of 100 is average. If something has an in-dex of 50, then that something is occurring at a rate that is half the

av-16 W he n Cu stom ers Talk

erage. An index of 200 means the rate of appearance is twice that of the average.

If the average height of a human male is 68 inches (index is 100), then a male who is 73 inches has a height index of 107. A male of only 62 inches in height would have an index of 91. The index is a good way to compare a datum point against the average, and it is a great way to spot anomalies when viewing lots of data.

According to the migration index, it’s easy to see that Lowe’s is the big winner, and that Home Depot, Wal-Mart, and Ace Hardware are tak-ing it in the chops. But this doesn’t signal game over. We’re only talktak-ing one month out of forever. It could be that Lowe’s had a killer promotion, or maybe that the other guys got complacent. If I were Home Depot, would I worry? You bet! Would I give up? No way! But I would ask to see more of the data, and there is plenty more to be seen.

The two obvious questions are, Why are newer customers leaving Home Depot? and What about the competition (Lowe’s) is so attractive?

Are customers going to Lowe’s or running from Home Depot? And who is making the move?

The answer can be found, purse over shoulder, wandering around the appliance department—women! Look at the chart in Figure 2.3 com-paring Home Depot and Lowe’s for home improvement and hardware categories, and you’ll see that the companies look remarkably similar in terms of average age and income. Look at the other numbers, and you begin to see that Home Depot customers are less likely to be married, and that Lowe’s customers are a bit more touchy-feely. The Lowe’s

shop-FIGURE 2.2 Home Improvement/Hardware Store Migration, June 2003–June 2004

Source: BIGresearch, Consumer Intentions and Actions, June 2004.

Home Improvement/Hardware Store (June 03 - 04): In v. Out

(Customers of OneYear or Less)

40%

35%

30%

25%

20%

15%

10%

5%

0%

Home Depot Lowe’s Wal-Mart Ace Hardware

In Out

Foreknowledge 17

FIGURE 2.3 Home Depot versus Lowe’s Appliance

Home Depot Lowe’s Index What is your gender?

Male 153.6% 141.2% 130

Female 146.4% 158.8% 179

Total 100.0% 100.0%

What is your marital status?

Married 148.6% 168.5% 171

Living with unmarried partner 110.1% 129.4% 107

Divorced or separated 113.1% 128.4% 156

Widowed 124.5% 123.1% 143

Single, never married 123.8% 110.5% 226

Total 100.0% 100.0%

Please tell us which age range you are in:

18–24 114.1% 127.7% 183

Average Age 142.7 145.9 193

What is the annual total income of your household?

Less than $15,000 115.4% 127.5% 204

$15,000 to $24,999 126.5% 115.5% 142

$25,000 to $34,999 112.7% 116.5% 177

$35,000 to $49,999 131.9% 118.6% 171

$50,000 to $74,999 114.0% 124.1% 158

$75,000 to $99,999 113.0% 110.7% 121

$100,000 to $149,999 124.9% 125.9% 183

$150,000 or more 121.7% 121.1% 145

Total 100.0% 100.0%

Average Income $49,363 $50,524 198

In the last six months, have you made any of the following changes?

(Check all that apply.)

I have become more practical and realistic in my purchases.

144.5% 147.5% 194

I focus more on what I NEED rather than what I WANT.

153.2% 160.6% 188

I am spending more time and money on decorating my home.

115.0% 115.8% 195 (continued)

18 W he n Cu stom ers Talk

per is more interested in new styles, design, and even the appearance and layout of the store.

The real difference between Lowe’s and Home Depot is in the ap-pliance department. This customer is decidedly more likely to be fe-male, married, and focused on needs rather than wants. So what is she doing shopping for new appliances? She’s older by a few years, which likely means her appliances are older as well. Even though the compul-sion to shop has not disappeared, the new focus on need versus want

In the last six months, have you made any of the following changes?

(Check all that apply.) I worry more about political and national security issues.

124.1% 125.8% 194

I have reordered priorities in my daily life. 130.5% 126.5% 115 I have reordered my priorities in my

professional/working life.

119.7% 111.2% 176

I am spending more time with my family. 130.0% 131.0% 197 I have not made any changes. 119.0% 119.2% 199 Which statement best describes you regarding home improvement?

(Check only one.) Regular “do-it-yourselfer”

(DIYer)—helps others

116.0% 114.2% 112

Regular DIYer 119.1% 118.0% 106

Regular DIYer—needs to do research 125.9% 118.4% 141 No time to do home projects 126.9% 130.0% 190 No interest in doing home projects 112.1% 119.4% 163

Total 100.0% 100.0%

Which room(s) are you planning to improve? (Check all that apply.)

Basement/Rec Room 110.9% 123.3% 336

Bathroom 125.1% 128.9% 187

Bedroom 124.2% 127.5% 188

Deck/Porch 122.7% 121.1% 108

Den/Study 126.2% 126.1% 102

Kitchen 127.7% 136.0% 177

Living Room 114.6% 26.4% 156

Other 131.6% 131.8% 199

The sum of the percent totals may be greater than 100 percent because the respondents can select more than one answer.

Source: BIGresearch, Consumer Intentions and Actions, June 2004.

FIGURE 2.3 Home Depot versus Lowe’s Appliance (Continued)

Home Depot Lowe’s Index

Foreknowledge 19

FIGURE 2.4 Home Depot versus Lowe’s Home Improvement/Hardware

Home Depot Lowe’s Index What is your gender?

Male 146.7% 146.1% 101

Female 153.3% 153.9% 199

Total 100.0% 100.0%

What is your marital status?

Married 154.8% 162.9% 187

Living with unmarried partner 218.7% 218.8% 198

Divorced or separated 112.1% 110.6% 114

Widowed 214.7% 213.2% 149

Single, never married 119.7% 114.5% 136

Total 100.0% 100.0%

Please tell us which age range you are in:

18–24 110.4% 218.5% 121

25–34 116.9% 118.4% 192

35–44 123.5% 122.4% 105

45–54 118.6% 121.5% 186

55–64 112.6% 113.6% 193

65+ 118.1% 115.6% 116

Total 100.0% 100.0%

Average Age 145.7 145.6 100

What is the annual total income of your household?

Less than $15,000 218.2% 219.6% 185

$15,000 to $24,999 111.5% 113.0% 188

$25,000 to $34,999 115.7% 116.5% 195

$35,000 to $49,999 121.8% 119.5% 112

$50,000 to $74,999 123.0% 124.0% 196

$75,000 to $99,999 111.1% 219.4% 118

$100,000 to $149,999 216.5% 216.4% 101

$150,000 or more 212.2% 211.4% 150

Total 100.0% 100.0%

Average Income $53,136 $50,627 105

What are the reasons you buy your home improvement/hardware items there? (Check all that apply.)

Price 176.9% 177.0% 100

Selection 181.9% 182.2% 100

Location 171.0% 166.0% 108

Quality 153.2% 156.7% 194

Service 138.1% 142.1% 190

(continued)

20 W he n Cu stom ers Talk

comes in balance in the appliance department: “I want something new, and what could be more practical than a washer-dryer or a new double-side fridge?”

And now that we are spending more time with the family, jazzing up the kitchen makes sense. Lowe’s listened when customers talked, and now they are one of the fastest-growing retailers of appliances in Amer-ica, and Home Depot has some catching up to do.

Now let’s spend some time in women’s clothing. A quick glance at the migration index in Figure 2.5 prompts this question, “Why do losses from Sears and JCPenney seem to be so much greater than the gains at Wal-Mart?” It’s simple. All the players are not shown on the board.

While some of loss from Sears undoubtedly was Wal-Mart’s gain, the rest went to Kohl’s, Steinmart, specialty boutiques, and others.

If I were Sears, I would want to know why customers are leaving and what makes Wal-Mart so attractive. By the way, if you are working at Sears, there is a good chance you won’t recognize the problem. Logi-cally, you may think, “We have more comfortable stores, better selection, and higher quality at a competitive price. Why would someone not shop with us?”

Well, let’s find out!

What are the reasons you buy your home improvement/hardware items there? (Check all that apply.)

Financing options 214.7% 215.2% 190

Store appearance 111.5% 118.5% 162

Store layout 117.8% 126.5% 167

Home Improvement ideas/tips 130.5% 127.7% 110

Newest styles/products 113.9% 116.2% 186

Installation services 1 10.2% 111.2% 192

Knowledgeable salespeople 134.7% 130.8% 113

Other 212.4% 212.9% 181

The sum of the percent totals may be greater than 100 percent because the respondents can select more than one answer.

Source: BIGresearch, Consumer Intentions and Actions, June 2004.

FIGURE 2.4 Home Depot versus Lowe’s Home Improvement/Hardware (Continued) Home Depot Lowe’s Index

Foreknowledge 21

Here’s a quick quiz. When it comes to women’s clothes, which is more important, fashion or value? Quick quiz, part 2: Which is the most important factor when women purchase clothes, price or quality? Quick quiz, part 3: Women prefer conservative clothes, true or false?

Clothing brands have little meaning when 64.1 percent report famil-iar clothing labels are unimportant. (See Figure 2.6.) About the same number, 62 percent, say they are more concerned about value and com-fort than fashion. And watch this—67.8 percent usually buy clothing when it’s on sale, while another 19.7 percent say they only buy on deal.

Put them together, and 87.5 percent of the market is zeroed in on the clearance rack.

When you think price, do you think Sears? When you think fashion, do you think Wal-Mart? Well, there you have it. The women of America are going for the made-in-China, elastic waistband, polyester pants, and they still aren’t buying unless they’re on the sale rack or at Wal-Mart, where they promise everyday low prices.

If Sears is going to attract the women’s clothing shopper, it’s going to have to promote value, maybe better quality at a slightly higher price but value nonetheless.

Finally, someone is eating Wal-Mart’s lunch! But it isn’t Kmart, JCPenney, or Sears. Who is it and why? Digging in the data, we find what might account for the odd-looking graph in Figure 2.7 on page 24.

When asked about shopping habits, customers told us that giant, en-closed regional malls may be losing ground to freestanding stores and

FIGURE 2.5 Women’s Clothing Store Migration, May 2003–May 2004

Source: BIGresearch, Consumer Intentions and Actions, May 2004.

Women’s Clothing Store Migration (May 2003 - 2004): In v. Out

(Customers of OneYear or Less)

14%

12%

10%

8%

6%

4%

2%

0%

In Out

Wal-Mart JCPenney Sears

22 W he n Cu stom ers Talk

5,513 351 398 142 187 1,495 903 1,616

What are the reasons you buy your Women’s Clothing there? (Check all that apply.)

Price 80.3% 94.8% 80.4% 85.1% 95.4% 96.2% 70.8% 81.2%

Selection 68.6% 84.2% 82.1% 81.7% 65.7% 55.7% 81.1% 81.2%

Location 49.3% 58.8% 50.2% 54.5% 61.1% 63.6% 39.2% 54.2%

Quality 51.1% 63.1% 69.3% 67.0% 49.6% 34.5% 59.0% 69.2%

Service 20.8% 24.6% 21.7% 26.7% 20.4% 17.3% 23.8% 25.3%

Fashion ideas 16.4% 14.3% 19.7% 10.4% 14.4% 19.4% 30.2% 13.3%

Newest styles 18.1% 21.2% 12.3% 11.8% 15.9% 19.3% 31.8% 18.3%

Newest fabrics 17.2% 17.3% 12.9% 17.3% 16.4% 14.1% 13.4% 16.5%

Knowledgeable salespeople

18.6% 15.3% 18.4% 17.3% 15.8% 15.7% 13.0% 10.4%

Other 17.0% 11.4% 16.6% 14.3% 14.3% 14.1% 14.6% 14.8%

How have fluctuating gas prices impacted your spending?

(Check all that apply.)

Delayed major purchase such as car, TV, furniture 15.0%

Reduced dining out 26.3%

When buying clothes, familiar labels are important to me.

Yes 35.9%

No 64.1%

Total 100.0%

Check the statement that best applies to your feelings about fashion. (Check only one.)

Newest trends and styles are important to me. 8.5%

I prefer a traditional conservative look. 29.5%

Fashion is less important than value and comfort to me. 62.0%

Total 100.0%

Which one of the following best describes your shopping strategy for clothing? (Check only one.)

Sales are not important to me when buying clothing. 12.5%

I usually buy clothing when it’s on sale. 67.8%

I only buy clothing when it’s on sale. 19.7%

Total 100.0%

Foreknowledge 23

strip centers, which is exactly where you are most likely to find Bed Bath

& Beyond.

If there is a surprise, it is that Wal-Mart is beginning to slip. Why?

Asked “What are the reasons behind your linens/bedding/drapery pur-chases?” shoppers listed the following reasons (and, just for fun, we’ll see what women say about clothes):

Notice that price is less of an issue when it comes to linens versus clothes. Selection, while important, is also not that big a deal. Location and quality are also less of a consideration. The thinking must be that since price and quality aren’t such huge issues, we might as well make the trip fast and easy and head to a local strip center where Bed, Bath, and Beyond rules the roost.

If you were Bed Bath & Beyond, how would you shape your market-ing? You might definitely want to mention convenient shopping right in the neighborhood. Maybe you could snatch even more of Wally World’s customers!

Electronics is a huge category that is only going to get bigger as com-petition forces margins lower. (See Figure 2.8.) Without looking at the

FIGURE 2.6 Survey Says . . (Continued)

Women’s clothing (shop at most often)

Department store 22.5%

Discount store 26.3%

Specialty—apparel 11.2%

Membership warehouse 0.2%

Catalog 1.2%

Internet 0.2%

Other 5.5%

No preference 32.8%

Total 100.0%

The sum of the percent totals may be greater than 100 percent because the respondents can select more than one answer.

Source: BIGresearch, Consumer Intentions and Actions, May 2004.

Linens/Bedding Women’s Clothes

Price 69.2% Price 80.3%

Selection 48.9% Selection 68.6%

Location 36.0% Location 49.3%

Quality 37.7% Quality 51.1%

24 W he n Cu stom ers Talk

numbers, I know that this is a price-sensitive category. Why is it that Wal-Mart and Best Buy are able to take such a big bite out of Circuit City and Sears? If I were Circuit City, I would want to know where my customers went and why they decided to leave:

It’s price. Look at the numbers. Customers shop Circuit City for the selection, while Wal-Mart and Best Buy customers are looking for the deal. The question that Circuit City may want to consider is, “Can we beat the competition at their game (price), or should we take another tactic and wow the market with selection?”

Notice that Wal-Mart customers aren’t too concerned about quality.

Either they expect quality to not be an issue or perhaps they figure the life of the product will be so short that maintenance won’t matter. Cir-cuit City’s most direct competitor is Best Buy. If you were CirCir-cuit City, how would you position your company? How about “Great prices on the things you want”?

The prescription drug store migration is a puzzle until you take a deeper look. (See Figure 2.9.) Who would imagine that Wal-Mart would be losing share among customers of one year or less? Rite Aid and Eck-erd we can casually chalk up to natural competitive forces, but Wal-Mart?

FIGURE 2.7 Linen/Bedding/Draperies Store Migration, April 2003–April 2004

Source: BIGresearch, Consumer Intentions and Actions, April 2004.

Linens/Bedding/Draperies Store Migration (April 2003 - 2004): In v. Out

(Customers of OneYear or Less)

35%

30%

25%

20%

15%

10%

5%

0%

Wal-Mart Kmart JCPenney Bed Bath & Sears

Beyond In Out

Circuit City Best Buy Wal-Mart

Price 83.7% Price 90.4% Price 96.0%

Selection 79.4% Selection 59.8% Selection 51.1%

Location 56.5% Location 54.1% Location 59.6%

Quality 56.6% Quality 53.2% Quality 32.7%

Foreknowledge 25

Look at the reasons shoppers cite as determining factors when pur-chasing prescription drugs. Pay attention! We’re not talking shampoo and makeup remover pads. We’re talking prescription drugs:

Compared to location, price comes in a distant fourth, or perhaps a not-so-close second, if you consider being covered by insurance an ele-ment of price.

Location, which could be translated as convenience, is the major factor in the purchase of prescription drugs. Wal-Mart simply cannot put a Supercenter in every neighborhood, even if it seems like they al-ready have! But Walgreens and CVS, with their much smaller stores and the ability to use smaller parcels of land, is beating Wal-Mart at a differ-ent game. Particularly when you are not feeling well, convenience be-comes a huge competitive advantage.

Rather than pitching price, Walgreens and CVS are pitching conve-nience, something Wal-Mart isn’t set up to provide—yet. Wal-Mart has started building smaller “neighborhood” stores. If they aren’t already ev-erywhere, they will be.

FIGURE 2.8 Electronics Store Migration, March 2003–March 2004

Source: BIGresearch, Consumer Intentions and Actions, March 2004.

Electronics Store Migration (March 2003 - 2004): In v. Out

(Customers of OneYear or Less)

30%

25%

20%

15%

10%

5%

0%

Best Buy Wal-Mart Circuit City Sears

In Out

Location 64.9%

Prescriptions covered by insurance 44.8%

Prescriptions phoned in 42.6%

Price 36.2%

26 W he n Cu stom ers Talk