With Kmart Australia, a rebrand was a necessary part of a survival strategy in the mid-2000s, when analysts were describing it as a "crumbling business flirting with collapse, dysfunctional and directionless". Store traffic was stagnant and the brand was indistinguishable from its competitors.
New chief executive Guy Russo, appointed in 2008, inherited a business which, despite turning over A$4 billion a year, had not delivered a profit in 10 years. Kmart, he said, was trying to be "all things to all people", simultaneously "Harrods and a five-and-dime store".
In a period of significant downturn for large retailers, Russo embarked on a major restructure and re-branding that has produced transformative results. It provides a key case study in recent Australian retailing of pathways to success.
Rejuvenating the brand
Some of the change at Kmart was operational, such as drastically reducing stock levels and transforming and streamlining logistics. Other changes were to the nature of the customer experience: the de-cluttering of its 187 stores through the broadening of aisles, the removal of dump bins, and refitting.
The boldest change was rejuvenating the brand proposition and in that Russo turned to some innovative market research and analysis methodology to drive the decision-making. It would, Russo said, be a data-driven approach, but one that also included an analysis of how positive feelings and emotions could be associated with a retail brand, and help drive store choice.
Kmart engaged Forethought Research to undertake a thorough analysis of both the cognitive and affective factors influencing store choice by consumers. In a collaboration between industry and academe, Forethought sought input from John Roberts, a professor of marketing at UNSW Business School, and Peter Danaher, a professor of marketing and econometrics at Monash University.
For their analysis, the team developed a new methodology which captured nine key emotions, ranging from surprise to anger, and then applied that to a model which predicted store choice. Their work is the subject of a new research paper, Repositioning Kmart: This Time with Feeling, co-authored by Roberts and Danaher, with Ken Roberts and Rohan Raghavan from Forethought Research.
The paper pays particular attention to Kmart's strategy of moving from discount pricing and the promotion of specials to everyday low pricing, a move that had been tried in the US by J.C. Penney, where it failed spectacularly, wiping billions of dollars off the company's value and leading to the departure of the chief executive.
"Given what had happened at J.C. Penney, this was a pretty brave move on Kmart's part," says John Roberts.
"So to do that, Kmart felt it needed a strong basis of fact to move forward, because traditionally the thing which attracts people to a discount department store is the idea that they are going to find a really good deal, or pick up a bargain.
"But if you look closely at the core target market for Kmart, these people are the main shoppers in their families – often female – and they are in a stressful situation of trying to balance their budget. Therefore, a random piece of luck in picking up a bargain is not actually as important to them as being able to budget and plan; knowing they will have enough money at the end of the week."
Visiting a discount store, says Roberts, can elicit a number of emotional responses from consumers. Some can "feel ashamed" that their financial status is forcing them into the store, while for others, it can be a much more positive experience.
"Some main shoppers feel pride that they are doing a fantastic job in terms of getting all the things they need for their family, while staying within their budget," he says.
"This pride has two parts: an internal part where you feel you have done a good job, and there is also a social or external part where you feel you can talk about this with colleagues and contemporaries."
'In just two years Kmart Australia has graduated from perennial problem child to the exemplar of managing the transition to everyday low prices’ – John ROberts
Tension between shame and pride
Kmart engaged Forethought Research in May 2011, and Creative agency BWM was appointed to take the Forethought findings and develop compelling creative communications in the form of TV spots, catalogues and point of sale material.
The Forethought team found the main driver for people to visit discount department stores was the desire to "live within one's means". An everyday-low-prices strategy resonated much better with this than selective discounting and promotions, contrary to prevailing industry wisdom.
The research support was both quantitative and qualitative, focusing on a sample group of mothers who had shopped at a discount department store in the previous four weeks. At the centre of this process was an understanding of the tension between shame and pride, insights that then fed into the development of a new modelling approach which looked at the value and pricing proposition.
Kmart's aim was for a campaign that would inspire a feeling of pride in its customers, rather than burden them with shame, and develop a brand message that would grow store traffic.
The outcome was the "1000 Mums" campaign, where Kmart closed one of its suburban Melbourne stores and invited 1000 "real mums" to guess the prices of certain everyday products. This then became the television campaign for the rebranding.
The response from key competitor Big W was almost immediate, with a "Get it for less" campaign that focused more directly on low pricing.
"If you look at the two commercials they are largely saying the same thing, but the Kmart one was saying it by engaging feelings and emotions, while the Big W commercial was totally cognitive, in terms of claiming price competitiveness," says Roberts.
The Kmart campaign, however, had a clear objective to reinforce the pride of living within one's means, and reducing the shame and anxiety of being dependent on low prices to make ends meet. Finding good value at Kmart, the campaign suggested, could be personally and socially rewarding, as well as a sensible thing to do.
Consumers seemed to agree. Two months after the campaign, fresh market research found that Kmart had succeeded in eliciting the targeted emotions – such as pride – in shoppers. The Big W ad, on the other hand, had no positive emotional impact, but instead had activated negative feelings.
The ultimate test, however, was whether the campaign increased store visits, and the results were decisive. In comparison with before the campaign, Kmart's total annual visits increased by 20% during the next two and a half years, while the number of items sold increased by 42%.
Finally, its EBIT was up 30%.
"In just two years Kmart Australia has graduated from perennial problem child to the exemplar of managing the transition to everyday low prices," says Roberts.
"Kmart has successfully applied a unique lens into how its brand is progressing emotionally and from this has successfully elicited positive emotions and mitigated the negative ones previously associated with its brand. In doing so, it has not lost sight of the cognitive drivers in this category, the most important one of which is value for money."