Indulge Splurging HENRYs

Bloomberg blog postings have been tracking the spending habits of HENRYs, defined as High Earners, Not Rich Yet, with an annual income between about $100,000 and $250,000. Bloomberg calls these shoppers, who are in the top 20% by income, the “heavy lifters” of the consumer economy. HENRYS interact with a broader range of retail brands than do other target populations. They’ll shop at premium mass brands like Ann Taylor, Banana Republic, and Williams-Sonoma as well as upscale luxury stores like Tiffany and Restoration Hardware.
     Last year, HENRYs were buying cautiously, concerned that their insulation of high income might disappear without a moment’s notice. In their state of perceived threat, their spending dropped about 8% during 2012.
     This year, HENRYs are spending again, but more often on premium brands than on the higher-priced luxury brands. To attract this demographic, have in your store the equivalents of Coach and Ralph Lauren.
     However, if you get HENRYs coming by your store, also have a few equivalents of Prada, Armani, and Gucci—the top-of-the-line, highest-prestige versions of whatever it is you sell. Do this because the current shopping patterns of HENRYs is to splurge on a few items from the top-of-the-line, then go a touch downscale for the remainder.
     To move the luxury goods, indulge the shoppers who are considering them. Spend extra time in explanations. Praise the good taste of those who show interest. Put special attention into wrapping the item after purchase. And do it all with show so that the other shoppers looking on get tempted.
     The showiness also increases the attractiveness of the less-expensive items. Stanford University researchers found that when a higher-priced alternative is added to the list of choices, the alternatives which cost less become more appealing to the shopper. Soon after retailer Williams-Sonoma added a $425 bread-making machine to their merchandise line, sales of the $275 unit doubled.
     People buy luxury items for many reasons. A top one now is functional. Consumers are willing to pay premium prices to ensure long-term value from products which are designed by craftsman, manufactured well, and customized to the purchaser’s characteristics. According to the current Bloomberg blog post, competition with your store for HENRYs’ dollars now comes from real estate—historically, a model of long-term investing.
     So maybe you’ll choose to win those dollars by gently reminding your luxury shoppers about how many house-flippers got torpedoed a few years ago.

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Speak to Shoppers’ Language Stereotypes

Signage on the walls of your store and packages or tags on the items you’re displaying may carry text in more than one language. Stay aware, retailer, that beyond what the text says, the national identity of the languages influences shopper perceptions of the quality of your offerings.
     Researchers at Old Dominion University and Chapman University used as the sample for their studies people whose primary language was English. These consumers were asked to evaluate products with packing that contained either English only, English plus Spanish, or English/Spanish/French. The products and the general package designs were the same; only the number of languages used on the packages differed.
     The highest quality rating went to the items in English-only packaging. Explanations for this include patriotism, ethnocentrism, and familiarity. Your shoppers are most comfortable reading signage, package text, and tag text which is completely in their primary language. Those whose primary language is Spanish would be most comfortable with Spanish-only text.
     The lowest quality ratings were for the items in packages with both English and Spanish text. But this was true on average, not for all the consumers in the study. Those participants who told the researchers they believed Spanish-speaking shoppers buy lower-quality products carried that stereotype into their product ratings calculations.
     This bias was reduced if the prejudiced participants were initially told a price for the item which was relatively high for that product category. As in other settings, the price-quality link strongly influences consumers. If an item costs more, it’s likely to be better, they think. An implication for retailers is that there are situations in which you can combat stereotypes by setting prices toward the high end.
     Items in the trilingual packaging received quality ratings between items in the other two conditions. Perhaps the stereotypes surrounding French consumers are especially positive, or maybe having the three languages implied a global endorsement of the item.
     This association of prestige with a national identity leads to an exception to the rule that shoppers will always be most comfortable with signage, package text, and tag text in their primary language. Researchers at University of Michigan and University of Minnesota explored the choice of language in advertising to consumers in India. The researchers found that the home language—Hindi, in this case—worked best when selling necessities, such as detergent. However, English worked best when selling luxury items, such as gourmet chocolates.

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React to the Reactions to Surprise Specials

When a shopper in your store encounters an unexpected discount on an item which is usually expensive, the shopper might or might not buy the item. According to studies at Columbia University and Hong Kong University of Science and Technology, this decision frequently gives you useful guidance about what to offer the shopper next.
     Those studies and others find that shoppers who end up making the purchase tend to experience a mix of happiness and guilt. They will respond to subsequent sales appeals which talk about prolonging the happiness by doing what’s “right.” If the discounted item is considered by the shopper to be frivolous, they’re open to then buying an item which will bring pleasure, but embodies responsibility.
     On the other hand, shoppers who resist the purchase tend to experience pride, but a sense of loss. Some of these consumers would be classified by consumer psychologists as tightwads.
     Tightwads aren’t the same as frugal shoppers. Frugality is driven by a pleasure in saving. Tightwads are driven by a pain of paying. Research indicates that the key to having tightwads spend their money with you is to reinforce their sense of responsibility.

• Congratulate tightwads on how they shop carefully. Tightwads take pride in limiting their spending, but feel more comfortable when loosening up within reason. 
• Remind tightwads that you’ll be responsible in what you sell to them. Then keep your promise by explaining how the products and services you sell give full value. Remember that tightwads suffer emotional pain when spending. Dealing with a responsible retailer eases the pain. 
• Accentuate the small. University of Pennsylvania and Carnegie Mellon University researchers offered tightwads the opportunity to pay extra for overnight shipping of a DVD they wanted. The extra cost was presented to some tightwads as “a $5 fee” and to the rest of the tightwads as “a small $5 fee.” The tightwads hearing the word “small” were 20% more likely to pay the fee than those not hearing that word. In contrast, there was no difference with a “$5” and “small $5” description among people who were spendthrifts—people who indicated on the earlier survey the opposite of tightwad tendencies. 

     The Columbia/Hong Kong researchers do point out that pride of a different sort can also arise within those who end up buying that expensive item with the unexpected discount. Scoring a great deal justifies a pat on one’s own back.

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Shelve Old Ideas About Shelf Space Allocation

What are the best ways to allocate your store’s shelf space? The classic study addressing this question was published almost two decades ago, so you might think some of the assumptions need revision. Research over the past few years by German researchers confirm the value of that thinking. Here are findings from those studies—at European University Viadrina and Catholic University Eichstätt-Ingolstadt—and other research:

• Across overall product categories, the biggest sales growth comes from expanding the shelf space allocated to impulse buy items. The elasticity is smallest for expansion with commodities and staples. There is substantial interchangeability among commodities and staples. As a general rule, if your particular favorite isn’t out on the shelves, you’ll settle for a close substitute. Impulse items have more individualized personalities. The more there are, the greater the urge to splurge. 
• An increase in shelf space allocation will have a greater impact on sales than will a decrease in shelf space for a product category. This means you could progressively build sales by rotating which product categories get more space. Behind this effect is that consumers are feeling overwhelmed by the number of purchase alternatives available to them. They’re attracted to a store by an abundance of variety, but are relieved when the filtering task is easier. An increase in space allocation attracts shoppers. A decrease in space allocation for a category can relax shoppers. 
• The nature of the shelf space makes a difference in the sales effects of allocation changes. End caps—shelves at the end of aisles or racks and facing perpendicular to those other shelves or racks—draw extra attention and stimulate extra sales. 
• Items which convey values have higher shelf space elasticities. Increase the shelf space for organic and nonorganic items, and the increase in sales will be greater for the organic set. 
• For many merchandising tactics, what large footprint retailers do can be a useful model for the smaller retail operation. You watch how a successful Big Box changes relative allocations of shelf space and then parallel those changes in a scaled-down version in your store. However, there is one way in which what works for the big doesn’t work the same way for the small: Large stores do well to pay attention to the different effects of changing allocations to product categories versus brands within the category. Smaller stores should not pay as much attention to this. 

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Duck Toward Attention-Getters

The front page of yesterday’s Wall Street Journal described how a certain bright yellow inflatable duck is helping retailers in Hong Kong.
     Shopping mall Harbour City arranged for the duck to occupy Victoria Harbor in order to attract store traffic. The objective is being met, with thousands of people coming by. Shops in the area are changing their merchandise mix to feed the fowl frenzy. Some restaurants are serving duck entrees. WSJ reports that another restaurant is now featuring a duck-shaped food sculpture created from taro and shrimp. Inquiries about rubber duck toys are flying high.
     In retailing, the payoff is in convincing prospects to buy. But you have to catch their attention first. Researchers at University of Southern California and University of Texas-Austin summarized what consumer behavior studies say about standing out. Here’s my adaptation of their list:

• Live large. Did I mention that Hong Kong’s rubber duck is fifty-four feet tall? Along the same line, consumers are more likely to notice bigger ads than smaller ones and to listen more closely to the same salesperson when she’s making effusive gestures rather than restrained movements. Enthusiasm persuades, particularly when the enthusiasm is genuine. 
• Color consumers’ worlds. Signage which employs a range of hues grabs more attention than the black-and-white. It is also true that B&W commands attention when surrounded by colorful stimuli, but this effect is weaker. Don’t overstimulate, though. That repels consumers. 
• Be bold. Product claims made in boldface print or in a slow, deep voice achieve perceptual prominence. To turn shoppers’ heads, surprise them with daring humor or unexpected claims. Do be sure to promptly follow up with a comforting resolution, though. 
• Personalize. People’s attention moves to what has personal significance for them. Harbour City inflated excitement about the duck’s appearance using a stream of social media messages and press releases saying the duck represented joy and playfulness at a time when Hong Kong residents are feeling gloomy from the weather, the pollution, and the economy. 
• Cement with concrete. Concrete words like apple, engine, and hammer are easier for consumers to process than abstract words like aptitude, essence, and hatred. Because they are easier to process, these words will stand out. This is not to say you should completely avoid abstract words. Once you stop the shopper with the prominent stimuli, you’d like them to spend time contemplating what you’re saying. Abstract words help do that. 

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Stand Out