According to a recent news report report by Piper Jaffray analyst Sean Naughton, Target has launched a new loyalty program called REDperks. Target and Whole Foods, two of the best-regarded U.S. retailers, have now embarked upon new loyalty initiatives. With the press on Albertson’s public decision to discontinue their loyalty program and a number of highly successful grocery retailers choosing not to use a traditional loyalty program, many retailers have been left wondering if loyalty programs are right for their industry.
Loyalty: There’s more than meets the eye
Retailers understand the importance of satisfying the needs of customers to maximize their chances of earning customer loyalty and competing most effectively in the market. This activity around loyalty programs highlights the realization that leading retailers are not delivering the kind of value proposition that is meeting customer needs in the best possible way. The varied responses indicate that retailers are trying different approaches to address the business challenges that are being driven by increasingly informed, discerning shoppers in addition to heightened competition and new retail players.
Some retailers address the situation by avoiding the standard two-tier discount card approach, abandoning existing card-based programs, or by evolving their offerings. These approaches highlight a recurring challenge: loyalty programs are viewed simplistically when they should be part of a broader, strategic approach.
A loyalty program has two objectives: provide a customer identifier so needs can be understood and satisfied; and offer an additional marketing vehicle to the toolkit to reward and recognize loyalty – this is the key to a successful loyalty effort. When a program is used to drive value, the retailer is making an investment that is leveraging a small component of the holistic value proposition.
Customer data should be used to inform the overall strategy, so finite resources can be allocated to the best loyalty-driven opportunities. Once the strategy is set, if a retailer wants to maximize the value of their data and earn customer loyalty, they need to use data to drive decisions across price, promotion, assortment, marketing, and vendor collaboration efforts. The retailer should also be using data to enhance the benefit of their loyalty program so the standalone value proposition is most appealing to customers.
What’s happening in grocery retail and what about EDLP?
In the grocery sector, retailers are falling into one of three groups: those without a traditional program, those who had a program and abandoned it, and those who have a program and continue to leverage it. It would be misleading to assume that grocery retailers who don’t have a traditional loyalty program are not interested in loyalty– it would be more accurate to say that they use different approaches to earn it.
Leading retailers who don’t have a visible program employ different ways of understanding and satisfying customers’ needs better than the competition. Some use primary market research to understand needs, and others have store associates gather feedback by providing excellent in-store service. But even retailers that adopt these types of approaches are running other customer identification programs, such as email sign-ups, individual customer accounts on the website, in-store kiosks, and recently, deploying smartphone apps.
Some retailers who don’t employ a traditional program are offering a distinctive value proposition like the new, ultra Every Day Low Price (EDLP) players. They say they don’t need a loyalty program as they offer customers the low prices they’ve always wanted. There’s also merit to the “build it and they will come” approach that’s focused on low prices, as some consumers prefer this tactic.
What’s interesting is that Walmart has the scale, operating experience, negotiating leverage to drive costs, lowest prices, and competes solely on an EDLP level. But they’ve acknowledged that many consumers have different needs across the holistic retailer value proposition, from price, quality, availability, convenience, service and customer experience. Taking this approach doesn’t mean that a traditional discount card is the right solution; just look at Walmart’s recent launch of their smartphone app, Savings Catcher. It combines low price offerings with a value-added app, while also providing a customer identification mechanism.
Emerging value propositions and the future
For retailers that have abandoned their loyalty programs, it's interesting to see other forms of loyalty re-emerging. Some of the Albertson’s banners have a program called MyMixx, which requires a phone number as the identifier and a click-to-cloud option for coupons. This approach is gaining momentum and it could be a nod to retailers who don’t have a mechanism to identify customers. It’s probably an indicator that the traditional loyalty card is not necessarily the right mechanism, rather than suggesting that retailers don’t want to understand their customers’ needs.
Target has had their REDcard for some time, so why the stealthy introduction of a new loyalty card? The REDcard is a debit card with a required credit check, which limits one of the main objectives of a loyalty program – the easy usage of signing up for the program – thus reducing the number of sign-ups. But traditional loyalty cards fall short on the second loyalty program objective, which is to provide a differentiated value proposition that earns customer loyalty.
Perhaps this is why REDperks is being introduced – it should increase the number of customers who sign up for the program and provide Target with a greater percentage of sales tied to a customer identifier. This allows for a higher number of customer and transaction analytics, thereby expanding the reach of Target’s personalization efforts and further differentiates itself with more of its customer base.
I look forward to following the progress of these great retailers as they embark on their different approaches to loyalty. Although the marketplace is constantly changing, the most successful retailers will be those who use customer data to consistently satisfy customers’ needs better than the competition.