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Quality service, not low prices, creates loyalty

Faced with declining foot traffic, many big chains have lowered prices, increased advertising and overhauled their store layouts.

Notice anything missing here?

According to a new report from Gallup—The State of the American Consumer—in their "panic to compete," brick-and-mortar stores "often overlook what really matters to their customers—service."

Thomas A. Clary | AFP | Getty Images

Price is important, but Gallup warns it cannot be the only thing that differentiates a store from the competition, because price is not the only factor customers consider when making a purchase.

"Gallup research has shown that customers only shop based on price when price is the only thing that separates competing offerings. In other words, customers shop based on price when there is no emotional connection to a particular retailer— when they are not engaged."

And engaged customers, those who love the brand, are the most profitable customers—they'll go out of their way to shop at that store. Think Nordstrom, Apple or Starbucks. Gallup's research shows that these loyal customers care less about price, so they typically spend more.

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Ed O'Boyle, global practice leader at Gallup, told CNBC there needs to be a corporate culture shift. Management needs to understand the value of having the right salespeople on the floor.

"If you have things in stock that people want and your salespeople are really helpful and deliver good service, that's when you hone in on driving engagement," O'Boyle said. "We have abandoned the talent profile of having great salespeople, who want to take care of customers who drive things forward in the store."

Bob Thompson, founder and CEO of CustomerThink and author of the book "Hooked on Customers: The Five Habits of Legendary Customer-Centric Companies," said retailers need to take Gallup's advice to heart. He believes focusing solely on price is an excuse for not dealing with the real problem—poor customer service.

"It's easy to slide into this mindset of, if we just match price then we're going to be fine, but you haven't given them a reason to go to the store," Thompson said. "Price is still a factor, but you can't build your retail strategy around price if you're a brick-and-mortar operation. That in-store experience is incredibly important."

Thompson noted that he shops for clothing at Nordstrom because the salespeople there help him make good decisions about what to buy.

"I know I'm going to pay more and I don't care, because that service is incredibly important to me," he said.

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What about showrooming?

Today's consumers want the best value for their money and the Internet has made it quick and easy to compare prices. That has created showrooming—where someone goes to the store to "test drive" a product knowing they'll buy it online for less from a competitor's website.

Retailers often blame showrooming for a drop in their in-store sales. And with the phenomenal growth of online sales—up 24 percent in the third quarter of 2013 from the previous year, Gallup noted—it's easy to see why.

But based on its latest survey information, Gallup says the threat of showrooming has been "greatly exaggerated."

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When U.S. consumers were polled last year, 40 percent claimed to have showroomed in the past, but just 6 percent said they had done so on their most recent trip to the store.

The vast majority of those surveyed said they either planned to make their purchase in the retail store (77 percent) or intended to return to the same retailer to make the purchase (6 percent). Another 7 percent said they no longer planned to buy the item.

The "people factor," not price, is the real way for traditional retailers to differentiate themselves from the competition, the report stresses.

"People are powerful, and they outweigh the combined effects of products, advertising, layout, technology, and—all of the various components that brick-and-mortar retailers often think define their competitive advantage," the report concludes. "While there may be various drivers of satisfaction in retail, customer engagement comes down to the human encounter."

—By CNBC contributor Herb Weisbaum. Follow him on Facebook and Twitter @TheConsumerman or visit The ConsumerMan website.

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