Where Do Consumer Loyalties Really Lie?
By Bernice Hurst, Contributing Editor, RetailWire
A new survey shows loyalty in specialty, drug, department stores and restaurants increasing while groceries decrease. Bulking up: The 2013 COLLOQUY Loyalty Census, reveals saturation in supermarket loyalty programs with a one percent drop in enrollment over the past two years.
Department stores have increased loyalty program membership by 70 percent since 2011, drug stores by 45 percent and specialty retailers 26 percent. Specialty is now close to passing airlines into second place behind financial services.
Restaurants grew by an "explosive 171 percent," airlines by 14 percent. Overall membership has increased by 26.7 percent.
COLLOQUY says "the number of active memberships (defined as members engaging at least once in the preceding 12 months) has grown in the previous two years." However, the study found that the percentage of active memberships in relation to total memberships actually slipped from 46 to 44 percent "which suggests either new programs can’t keep members engaged, or that both new and existing programs are failing to strike a chord."
COLLOQUY lists six possible reasons, with analysis and recommendations for change (or not).
"The overall focus must shift from acquiring new memberships to better engaging the customer base," COLLOQUY advises, adding tha "increasingly sophisticated programs" are "revitalizing engagement with existing members while attracting new participants."
Revitalized engagement includes Safeway giving members discounts plus coupons based on past purchases, and Fred Meyer sending coupons based on expenditure. Albertsons, however, notably abolished its card in favor of offering "great" prices to all customers.
COLLOQUY wonders why only 9.5 of 21.9 memberships (the average number per household) are currently active. Some conclusions raise further questions. Are people actually joining loyalty schemes because the economy is recovering, as the report says, or do they simply want more bang for their buck? Could apparently lower attrition rates be due to people living longer, indicating new members don’t replace older ones and artificially make membership appear high? The latter might also contribute to lower activity as people age, perhaps shopping less in the places they shopped when younger (and were more mobile).
Discussion Questions
What must retailers do to grow both membership in and engagement with loyalty programs? What must retailers avoid doing to achieve the same goals?
I think the mobile wallet will help keep some loyalty programs alive. Many consumers have achieved a saturation point with the number of loyalty programs they are willing to participate in, along with the number of cards they are willing to carry in their physical wallets. But if they can easily store them in one place on their mobile devices, they may be more likely to participate.
But the loyalty programs must go one step further and provide a uniquely appealing incentive, because today’s savvy digital shoppers are much more willing to jump the loyalty ship if they find the same product for less money at a competitor’s store or site.
Here’s the most revealing part of Bernice’s article: “Revitalized engagement includes Safeway giving members discounts plus coupons based on past purchases, and Fred Meyer sending coupons based on expenditure.” Perhaps the problem with declining enrollment in grocery “loyalty programs” is that they are purely price-driven. They may be more targeted and data-driven based on purchase history, but they are not likely to engender the kind of customer commitment driven by service, assortments or other relationship-building strategies.
The best loyalty schemes reward behavior you would normally engage in, in ways that are tangible to you.
For example, my local sushi bar knocks $25 off your bill for every $250 spent. For a loyal sushi eater, that amounts to a great deal of savings on money that you would have spent anyway, so the offer appears to be genuine.
Most supermarket cards, on the other hand, just get your bill down to what you ought to be paying, i.e., without the card you are actually getting up-charged, making the offer appear inauthentic.
So, I’d start by giving people a clear deal on things they want — many bookstore cards come to mind here. In fact, as bookstores have demonstrated, you can charge people for membership in a loyalty program if the defined benefit is clear enough.
Oh … and note to airlines: strangling the “benefits” with sub-clauses limiting your ability to enjoy said benefits is not a way to build loyalty. It’s just like — in an era of mega mergers — making everyone a Platinum flyer and then making them all sit in coach. Doesn’t really build loyalty.
I believe the time has come for retailers to first engage with their customers on a one-to-one basis and secondly, to add real value to their loyalty programs. Supermarket chains can no longer call the sales program for loyalty card holders their only program. Those that have added gas price reductions are on the right path as that adds more value, but more one-to-one promotions needs to be the ultimate goal.
Loyalty programs are so ubiquitous and and for the most part meaningless, that consumers feel free to join them and drop them. Big data was supposed to personalize these programs, to provide incentive for consumers to engage with them. This too, for the most part, has not happened. One important question that the study did not ask, “How often do you shop at a particular store due to their loyalty program?”
Retailers need to differentiate their programs by personalizing them, and by having the programs deliver real value to consumers in the form of rewards and/or time savings.
Until then, consumers will sign up to get an initial discount, but won’t really be loyal to a store.
Consumers are realizing that loyalty programs must be paid for through higher prices. The most successful retailers have found that the best loyalty program is no loyalty program. The highest sales per square foot supermarkets in the USA typically have no loyalty program. A loyalty program often involves the consumer being bothered by taking and extra step such as producing a loyalty card. No one wants to have twenty five loyalty cards on their key chain and be required to disclose their personal information.
What retailers need to do to engage people in their loyalty programs is to guarantee that consumers will have lower prices compared to the stores that have no loyalty program.
Loyalty is all about why the shopper should care — care about your stores, sites, etc. A critical element to me is that the retailer finds out at the moment of purchase why the shopper honored them — that pafticular retailer.
You can promo and price your business away, but the value and the gain is in the shopper’s head. What do they think of your business? Why are they shopping there? Etc.
How does a retailer do this? Their call, but the feedback is critical as the battle for the wallet increases.
Loyalty programs are less effective than ever, as loyalty to most stores is shallow at best. The bottom lines in our industry are razor thin, and with [ObamaCare] coming next year, there is very little wiggle room to keep giving stuff away without jacking up prices.
I believe in giving the very best deal every day, and this has been my philosophy for years. Can I be the lowest against the Big Boys on key items? No, but the effort is made to try, and with the great perimeter deals available, overall pricing is similar or better than the mass discounters.
You can buy your way to huge sales, but somebody has to pay the vendors who supply them. Stay close to your customers, and make sure you give great service to everyone, as you might persuade a deal shopper to become an everyday shopper, who trusts you to do the right thing.
Like many consumers I belong to over 30 Loyalty programs, but am really only active in a few. Why is that?
What retailers must do to keep me interested in their program and an active shopper:
1) Keep it simple – I spend/stay, I earn (Example: Stop & Shop)
2) Rewards need to be cash in store (Example: Walgreens)
3) Make it attainable. (Example: STAPLES)
4) Stay connected with relevant and meaningful snail mail and email (Example: Ace Hardware)
5) Make loyalty members feel special (Example: Marriott)
What not to do:
1) Use loyalty members as a place to blast generic messages
2) Offer nothing special to loyalty members
Loyalty programs are not for every retailer so understand your shoppers’ behaviors before you venture into the world of loyalty. Their is a price for getting involved so you want to be sure their is true value for you and your shopper before making that investment.
By my examples above, you can see the 5 loyalty programs I value most.
Prior to mobile taking over the developed world, 99% of retail “loyalty” programs had not secured the true loyalty of their customers. These programs only succeeded in giving mass, untargeted discounts because shoppers still feel the need to join these programs for fear of paying regular prices. This doesn’t drive loyalty, as shoppers simply join the programs of all retailers at which they shop. That certainly doesn’t exhibit a loyal following of a particular retailer.
Retailers of all product formats must engage their shoppers in unique and compelling ways to drive true loyalty. We can all think of the obvious examples where this is happening. Take a look at those examples. The “brand” culture is a huge driver of loyalty. If your brand doesn’t have a compelling, differentiating culture, then that is the first step to succeed in this arena.
Drive a unique, “gotta-have-it”/”gotta-shop-there” brand, even (or especially) in grocery. Just think of those grocers that have those kinds of brands.
Growing membership in a loyalty program doesn’t always mean the customer is loyal to the retailer. Many customers are members of a loyalty program to bet a better price. And, there is a big difference. The promotions to loyalty members is a marketing/sales tactic. When talking or writing about loyalty programs, this is something that I always bring up. The bottom line is that if the discounts or promotions were to go away, would the customer still be loyal? Or, is there something else you can give your “loyal customers” that would make them feel special and appreciated?
My take on many retailers’ loyalty programs… Buy five and get one free is not about loyalty. It’s about a “free lunch.” Great food and great service will get me in the door. The special promotion that makes me feel special, versus just a savings is what makes me loyal to the business.
Loyalty should be an emotional bond between the retailer and the consumer.
First off what is a loyalty program in the eyes of the customer—a way to get rewards? So what are the drivers for the customer—savings, special events, points accumulation? Retailers must first understand what the customers want, then structure the program to fulfill these needs.
It can’t be about identifying a customer then bombarding them with emails. It must be relevant to why the customer signed up in the first place. It’s no surprise restaurants spiked. People like to eat out and they have a favorite spot and want to be rewarded when they frequent it.
“I believe in giving the very best deal every day, and this has been my philosophy for years.” Tony Orlando says it all.
The retailer I grew up with had the same philosophy. He believed that “Every customer is our best customer.”
What are commonly referred to as loyalty programs in the grocery industry are generally nothing more than gimmicks to collect data. The issue with that is generally, it doesn’t return value to the consumer.
Retailers, especially grocery retailers, will have to someday learn that the customer owns loyalty. Loyalty is given by the customer to a retailer when they continually choose that retailer over they many choices they have. It happens when they see fulfillment of the value equation and a great experience. Simply giving sale prices that they used to get without a card doesn’t equate to generating loyalty.
Growing membership is not the issue especially when you must have the card to shop without paying a higher price. The issue in the concept of loyalty is returning value at a greater level than all the other choices that the consumer can make. If you do, they will choose you. The card or the “program” has little or nothing to do with it.
Giving each and every customer the “reward” of a good value and a GREAT experience generates loyalty.
Loyalty is the result of the customer developing an emotional connection with the brand, not points or dollars.
This is accomplished by delivering a consistently positive customer experience over time and building a relationship based on trust.
Loyalty programs must become more contextual, meaning relevant to consumers in and around the time they make a purchase. A big step towards achieving this relevancy is to drop the “loyalty asterisk” and become more simple to understand with less fine print to limit rewards.
By doing so, members will actually seek out loyalty apps on their smartphones as they stroll the mall and/or be more willing to allow push notifications based on their opt-in.
Good execution of contextual loyalty will reinforce brand promises, improve customer experience and stimulate engagement with both the brand and its loyalty program.
I also think we’ll see more evidence of “smart partnering” à la Best Western and Harley Davidson, or Thanks Again and Hilton Honors.
Membership and, more importantly, loyal use results when consumers get something of value. Some organizations are innovating by providing experiences their consumers want by partnering with other organizations—member-only concert tickets, movie tickets, a free facial. If the value offered, e.g., an upgrade or lower price, is either not available or offered to everyone else, the offer does not create loyalty. Making the reward difficult to get discourages consumers which does not create loyalty. Offering the same low price to everyone using the card makes people feel as though they need the card to get a “fair” price, but that does not create loyalty.
Another one bites the dust….
The problem with most grocery loyalty programs is that they don’t reward loyalty, they reward enrollment in the program. If all you are doing is offering discounts for being in the program, you increase enrollment, but don’t really drive loyalty. If you are rewarding purchase volume with an incentive upon achievement, it makes more sense than offering price discounts per item based on enrollment in the program.
The article speaks about an increase in loyalty in retail categories beyond grocery. The data does not support that statement—the only increase is in the participation in loyalty programs. When a family has a loyalty membership for Target Pharmacy and for CVS and for Walgreens, how much loyalty is actually generated?
To increase engagement, the strongest approach is to personalize and customize communication and benefits. Personalize = speaking to the customer directly and showing that the company knows who they are and values them. Customize = develop benefits that appeal to a group of customers, but not to all of them. Recognize that not all benefits must be in the form of discounts; rather content that fits customer interests supports loyalty in a way that is different than simply “buying their retention.”
The risk if retailers only rely on discounts is that loyalty will not be increased, but only the cost of doing business across the whole category.
I agree with several of the comments that many of today’s loyalty programs simply lack the personalization required to drive authentic engagement.
Too often, companies rely solely on a monetary incentive to engender loyalty and forget about the rich information they are collecting that if used properly, could create a unique and engaging experience and a more relevant value proposition.
This shift in strategic approach requires organizational alignment and change. The net result can be a solution that is difficult to replicate and one that creates a sustainable competitive advantage.
The facts are that if companies are willing to take the necessary steps to leverage customer insight, they will likely see a significant lift in sales and profits. If not, they may end up with an expensive discount program.
In this market, price is pretty much transparent, so for a retailer to compete, that they need to be price attractive is a given. If a loyalty program revolves strictly around some form of price or discount, it’s not likely to be embraced by the consumer. How many loyalty programs have some feature that add some value, engagement, and convenience factor to the shopper? Those are the ones that will be sustainable. In the end, racing to the lowest price won’t make a loyalty program endearing, or enduring.