Target, Neiman Marcus feeling the pain of data breaches

By Dr. Robert Passikoff
President, Brand Keys

We figure that one in three of you are pretty concerned about this because, as it turns out, the cyber attack on personal and credit/debit card information previously reported to have included 40 million consumers, turns out to be closer to 110 million. So about one-third of the U.S. population.

Neiman Marcus, working with the U.S. Secret Service and a forensics team, is investigating a similar, mid-December breach of yet-undetermined size, but the term "millions" is being bandied about. Neiman Marcus tweeted last Friday that they "are taking steps, where possible, to notify customers whose cards we know were use fraudulently after purchasing in our stores."

Target ran full-page newspaper ads this week apologizing for not protecting the consumer information they gather when you shop with them, indicating what "next steps" they were taking to "earn back your trust and confidence and ensure that (they) deliver the Target experience you know and love," which we’re pretty sure didn’t include turning all your personal and financial information over to cyber criminals.

OK, so a nice sentiment and an interesting turn of phrase. Apologies and contrition are always the first steps in trying to turn around a brand debacle of any magnitude, let alone one that touches a third of the population. But to avoid a real disaster you need to understand the degree to which and in what specific ways values — in this case, those of trust and security — affect brand engagement.

Looking at the Discount Retail category, "Trust and Security" (defined precisely as related to this specific set of circumstances) is the third most-important engagement driver and makes a 28 percent contribution to consumer engagement and loyalty. That's based off what consumers expect from the category Ideal. (BTW, it makes an even bigger contribution for online retailers.) 

Before the breach the Target brand met consumer expectations for those values about as well as Walmart and Kmart. None of those three brands actually met expectations consumers held for those values for the Ideal. Consumers expect a lot these days, almost always more than brands deliver, but in this case all three retail brands fell within acceptable ranges, which is important even if we're not talking about personal and financial information. Brands that better meet expectations for specific values or on an overall category basis always do better than brands that don’t.

The engagement is off with Target

Anyway, as you might have guessed, Target isn't meeting trust and security expectations in that acceptable range anymore, having lost nearly 85 percent of their brand equity on those values. In fact, according to assessments from the Brand Keys 2014 Customer Loyalty Engagement Index, Target's current brand engagement level — the degree to which the brand is seen by customers to be able to meet their expectations for those values — is currently assessed at about 6 percent. So not doing too well and, based on metrics that correlate very highly with consumer behavior, not likely to in the near-term.

Target has already seen impacts to consumer behavior, or, more precisely, the lack thereof, and has already reported sales as being "meaningfully weaker" after the cyber-hack was disclosed. They expect same-store sales to fall in the quarter through January. Based on these engagement measures, so do we.

This has not, of course, been the first time retailers have been hit this way, but Target may turn out to be the biggest. In times past retailers had days to reach out to customers quietly to try and deal with breaches and mend brand fences. But with the kind of mobile and social networks in place, news of such attacks goes viral in hours.

W. Edwards Demming, American statistician and professor, who made significant contributions to Japan's reputation for innovative, high-quality products by creating design and quality standards that exceeded customer expectations said, "In God we trust; all others bring data."

But under the circumstances, perhaps satirist Jean Shepard's version is a better catchphrase for Target: "In God we trust; all others pay cash!"

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