What Is the Price of Customer Loyalty?
The risk of losing customers must keep grocers up at night. So how do they avoid that scenario?
There are many ways to maintain customer loyalty, but experts say consistent and transparent pricing may be the most important. Moreover, getting the price right across all products all the time is a key ingredient in strengthening shopper loyalty. The trick is to do so profitably.
“Today’s grocery retailers have a unique opportunity to leverage price management and optimization tools to make the most profitable decisions,” explains Cindy Kim, VP global marketing for Revionics, an Austin, Texas-based provider of price optimization solutions. “But the advantage is being able to tap into the vast amounts of market, competitive and customer data to effectively manage and execute those pricing decisions without killing their margins.”
According to Kim, intelligent data can provide a lot of value in terms of the types of assortments by stores, demand, sensitivity to price, and shopper purchasing behavior and preferences, as well as understanding how competitors are pricing, which can affect the shopper at the product level.
Jim Sills, president and CEO of Scottsdale, Ariz.-based software and services provider Clear Demand, agrees, adding that customer loyalty is driven by price and experience.
“It’s a service equation that has to be informed by using pricing intelligence, which ensures an interconnected and consistent shopping experience,” notes Sills. “You must have rational line structures automated with a rules engine, which ensures products are priced rationally — that is, not in a way that forces shoppers to trade down because the gap between brands is too large. If loyalty really matters to a grocer, consistent, rational pricing strategies must be maintained.”
Knowledge is Power
What also must be maintained is a better understanding of shopper behavior than the competition’s, asserts Guru Hariharan, CEO of Mountain View, Calif.-based Boomerang Commerce, a company that advises retailers on how to make smart pricing decisions to boost profits. What’s more, he adds, grocers need recommendations based on knowing where to hold prices, even when a rival drops its own prices.
“That’s vital — that balance of knowing what price differential your customer will allow before starting a decision process that takes them elsewhere,” says Hariharan. “Hence the need for technology platforms that are fast and easy to use. If your competitor changes prices at lunchtime, you know the recommendation and act on it — not just for individual products, but across interrelated products.”
Todd Michaud, global VP and GM of NCR global enterprise, merchandising and supply chain solutions at Duluth, Ga.-based NCR, focuses on the link between pricing and the ability of grocers to give customers personalized offers based on their shopping histories and preferences, which he believes is the key to effective loyalty programs. Michaud contends that grocers must understand customer shopping data, interpret them and act upon them to deliver the right price or promotion to drive behavior.
He adds that price management systems also must integrate into loyalty systems to consume special pricing and offers, managing the related complexities, to ensure proper price execution. Increasingly important in an omnichannel world is “that a customer’s purchase history considers purchases across all channels, not just online or in store,” says Michaud.
Something of Value
Experts additionally point to shoppers’ desire for value as a key to the link between price management and customer loyalty. This is important regardless of the price sensitivity of various customer segments.
“All customers are cognizant of value,” explains Alan Lipson, global retail and CPG marketing manager at SAS, a Cary, N.C.-based provider of business analytics software and services. “Pricing plays a key role in the communication of a grocer’s value proposition. It is important for grocers to understand which products need to be priced appropriately to communicate their value to various customer segments. Customers will not be loyal to a grocer that does not provide value, regardless of how the value is defined.”
Mark Kelso, president of St. Louis-based consultancy Price Revolution, agrees that a properly crafted price management program will improve the shopping experience by creating a value proposition. “Price management is the glue that merges each component of the marketing mix — product assortment, promotion and the merchandising message — into one cohesive offering, improving the overall value as perceived by the grocer’s customers,” he notes.
According to research by New York-based McKinsey & Co., this search for value prompts most shoppers to check online for prices of sensitive items. Therefore, it makes sense for pricing to be more transparent and dynamic.
“Most consumers do this before, during or after the sale, not because they are switching to another grocer during that trip, but because they want to know what kind of deal they are getting,” says Channie Mize, general manager for the retail sector at Periscope, a McKinsey Solution. This impacts how consumers feel emotionally about a grocer.
“For example,” Mize goes on to say, “if they see a grocer has priced something very high — and higher than their competitors — it can negatively impact both customer loyalty and frequency if that happens too often. This makes gaining competitive intelligence and pricing appropriately more important than ever.”
The best retailers have smart technology providing them with tons of data and analytics to help them steer buying behaviors, according to Greg Wank, practice leader of the Food & Beverage Services Group at Anchin, Block & Anchin, an accounting and professional services firm based in New York. The information shows them the trends on which their customers base purchases of staple items in store. Grocers use that information to offer highly competitive pricing on those items to build customer loyalty and draw shoppers back to their stores.
“The grocers leverage that loyalty by offering non-staple [items] at better profit margins, which the consumer gladly purchases because of the savings they are getting on their staples,” he explains.
While price is a big factor, it’s not the only influencer of loyalty. Pricing executives also point to quality, assortment, digital and physical presentation, store aesthetics, checkout time, and anything that creates annoyance for the shopper.
“Any grocer that has been successful competing against Walmart understands a great deal about differentiated assortment, promotions and how to compete in the brick-and-mortar world,” says Boomerang’s Hariharan. “Now that they face new challenges with the introduction of digital channel competitors, the established grocers need new technology to manage pricing on a large scale and in near real time. Online competition is different; the digital channel is not just another store. It would be a big mistake to think so.”
“If loyalty really matters to a grocer, consistent, rational pricing strategies must be maintained.”
—Jim Sills, Clear Demand
“If your competitor changes prices at lunchtime, you know the recommendation and act on it.”
—Guru Hariharan, Boomerang Commerce
“Customers will not be loyal to a grocer that does not provide value, regardless of how the value is defined.”
—Alan Lipson, SAS