Increased pressure from large online retailers is reducing brick-and-mortar retailers' sales and profits, causing numerous store closings on both local and national levels. But community engagement may be an answer for local retailers.
According to a recent study from the University of Alabama at Birmingham's Collat School of Business, community engagement brings positive outcomes for retailers in two ways: by directly building consumer trust in, and commitment to, the retailer; and by lessening the importance of the retailer's economic value proposition, or the perceived value of products and services sold.
"The retail landscape has been reshaped with the explosive growth of e-retailing, causing local brick-and-mortar retailers to rethink their marketing strategies in order to survive and thrive," said Donald Lund, Ph.D., associate professor of marketing in the UAB Department of Marketing, Industrial Distribution, and Economics. "Our findings show that local retailers build stronger customer relationships through community engagement, helping to overcome economic disadvantages compared to larger online retailers."
Results from a survey of more than 1,700 consumers show that, as retailers' community engagement increases, the impact of economic value decreased. This shows that community engagement, a relatively low-cost strategy more accessible to local as compared to online retailers, can help combat the economic disadvantages—such as smaller markets and lower volume, among others—local retailers typically experience compared to larger online competitors.
Local retailers should focus on building strong relationship with customers, and ultimately create value in these relationships to provide high returns on investment, as well as leverage other resources that result in better financial performance for the retailer.
"Our research shows that community engagement is one such strategy local retailers can employ to succeed," Lund said.
Indirectly, businesses can have positive success beyond community engagement, as customers become invested in the retailer and drive additional customers to the retailer through word-of-mouth.
According to Lund, this is not a new strategy for retailers; but it is one that too many large and small retailers overlook. Numerous retailers have established themselves as good community servants and benefited from their communities' loyal patronage.
Too many retailers today are failing because of their inability to compete with larger online retailers that maintain technological and economic advantages through innovative retail strategies, such as same-day delivery in some areas by online retailers. Local retailers cannot compete with economies of scale and scope based on a large number of potential customers and efficient distribution systems. This research shows that community engagement is one strategy local retailers can employ to more effectively compete against large online retailers.
"Community engagement and personal relationships will continue to be a strategic advantage for local retailers as they adapt to the changing retail landscape," Lund said. "Our message to local retailers is simple: Build stronger relationships with your customers, and get engaged with the local community. This research establishes community engagement as an important resource that both builds stronger relationships with consumers and allows the retailer to more effectively compete with online retailers."
Inexpensive initiatives that can have a big impact in the minds of consumers include:
- donations to civic groups
- employee volunteerism
- scholarship grants
- sponsorship of community events
- partnerships with other local retailers
The impact of community engagement may not be felt immediately by local retailers, but long-term benefits will be realized as customers develop strong relationships with highly engaged retailers. Customers with stronger relationships are less price-sensitive and less likely to patronize other retailers.
This study, which won Best in Conference at the Society for Marketing Advances Conference in 2015 and is currently in the review process, was motivated by challenges local retailers face due to the changing retail environment, and the need to identify strategies that allow local retailers to succeed despite the inherent economic disadvantages they face compared to large online retailers. The hypotheses were tested with data collected through a large-scale survey of consumers in the southern United States.
Retailers would benefit from future research investigating the differential impact of distinct community engagement strategies on consumer relationship quality and purchase behaviors.
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