How Grocery Retailers Can Reinvent Their Loyalty Programs
Most loyalty programs within grocery follow a standard formula. It starts with getting physical cards in the hands of customers. Customers then scan their cards every time they check out, because they will qualify for the lower shelf-sticker price on items they buy, and maybe there are special coupons that customer can apply to their purchases as well.
All discounts and coupons are typically funded by the brands the customer is selling. The grocer sees such a program as helping customers save money, and if customers can save money, they’ll be more loyal to the chain.
There are two notable exceptions to this herd mentality, however. First is Publix Super Markets, a major Southeastern chain, and second is Whole Foods Market, a national upscale chain now under Amazon’s control. Both have proved that loyalty goes way beyond a card-based program for discounts and coupons.
Amazon replaced the traditional Whole Foods loyalty program with a version of its Prime membership that provided customers with even deeper discounts on items. It seems, however, that Amazon also eliminated the coupons that accompanied the old program. The difference here is that the new program offers both product discounts and a percentage off the entire basket, including additional savings if you use the Amazon Prime credit card, something your standard grocer almost never does.
Amazon has the resources to spend its own money on these types of discounts – versus brands typically paying – and is on a mission to ensure that almost every customer who shops Whole Foods realizes that the prices are much more affordable, and comparable to other stores, than consumers think. Amazon may be spending money upfront to change consumer perception regarding the chain’s high-end, pricey reputation, but it seems to be working, with Amazon dramatically slashing prices on many items for every customer – even those not in the Prime loyalty program – since it took over Whole Foods. This must be a sustainable strategy for the company. While there are discounts layered on top, the key focus is to reduce everyday prices for customers of all kinds.
Customer Service is Key
On the other hand, Publix has been famous for bucking the trend and avoiding a loyalty card-based program altogether. Although the grocer does offer digital coupons to shoppers that can be redeemed with the customer’s associated mobile-phone number, its definition of loyalty has always been much broader than that of other grocers. What’s admirable about Publix is that it believes that loyalty is about customer service, not just discounts. Sure, people want to save as much money as possible, but that’s becoming table stakes in such a competitive industry.
The key question is how retailers will differentiate against competition. One method is offering different ways to save money. The other avenues involve extra services and providing a better shopping experience that save people time. According to industry research, many shoppers say that they’d be willing to pay slightly more in money if they could pay slightly less in valuable time.
Publix isn’t perfect, but it seems that it’s invested heavily in its staff to ensure that customers are taken care of. Its stores are bright and clean, and there’s a fairly comprehensive assortment of products. Anybody following the grocery industry, however, agrees that the greatest assortments are those online via ecommerce offerings. The only thing differentiating one grocer from another is the store experience and customer service.
The big question is, how do the majority of retailers with legacy savings-card programs evolve with the times and reinvent their loyalty strategies for today’s customer with modern expectations? Here are three examples:
- Ditching your loyalty card programs, bring your prices down and layer on seasonal promotions. Take any savings and invest in staff upgrades and training to create a more enjoyable in-store experience.
- A subscription loyalty program in which customers pay $X per year and are entitled to a certain amount of savings each time they shop. Online retailers are testing this type of program to provide expedited and more expensive shipping options to customers, and store-based retailers could do the same.
- Keep the card program, but build several unique in-store experiences that attract and retain shoppers (there’s data showing that the longer the shopper stays in the store, the more she purchases). Consider programs like celebrity chefs doing cooking demos, inviting popular brands in to do demos of new product launches, and craft beer tasting for both male and female shoppers to enjoy the grocery shopping experience – I, for one, would actually want to go grocery shopping if this was standard fare.
At the end of it all, retailers need to differentiate loyalty offerings beyond discounts and savings. There are bold moves to be made in reinventing programs around experiences and services, with a small dose of financial savings. Well-executed programs like the ones mentioned above could actually increase loyalty and cost the grocer less than the current offerings. Progressive retailers like Publix, Wegmans, and new entrants like Amazon will likely continue to reshape what loyalty means in the grocery category. Only the bold will survive and thrive.