Maximizing the value of a retail loyalty program
Grocery is an industry deep in debate on this very question, with key competitors coming to dramatically different answers. Some grocers have folded their loyalty programs completely, but is that the right solution? While I understand the reasoning behind this decision, it strikes me as a short-term solution that overlooks a well-designed program’s ability to drive long-term profits.
Grocers tend to be tightly focused on near-term profitability, but dropping a loyalty program is actually a lost opportunity. A published loyalty program can help grocers “de-commoditize” grocery shopping, which is why the industry should be examining ways to update loyalty strategy instead of ceding this ground, especially to competition from mass retailers.
I see four ways that grocers can improve their published programs:
- Develop a differentiated loyalty experience. Operational complexities have blocked many in-store experience enhancements (mention dedicated lanes to a grocery operations head and see if you don’t get an eye-roll). But compelling enhancements can be made for loyalty members, including in-lane redemption of rewards, the ability to pool/pay forward rewards, and testing scan/go or quick pick-up options for best customers.
- Incentivize targeted purchases and emphasize bonusing. Grocery programs today incent most purchases with a base reward rate. Consider instead a rewards structure built around store and vendor funding bonusing and support for key categories. Customer engagement is maintained and the financial liability is much more contained. Walgreen’s Balanced Rewards is doing this right, with points awarded for purchasing promotional items of the week, and consistent support for their bedrock pharmacy business.
- Expand upon fuel as an incentive. Fuel is a compelling reward category, but it does little to reinforce why customers choose a grocer over a mass merchant when purchasing their food. Generally, one-third of a grocer’s customers will not engage in a fuel-based program. Incentives need to reinforce the brand, aligned with a differentiating product or customer experience.
- Squeeze profitability from customer data. Data insights can inform merchandising decisions, promotions, sales messaging and more to build sustainable engagement. This pays dividends across all sectors of the business to shape a value proposition that customers see as a real differentiator. Kroger, Supervalu, and other retail leaders are overcoming traditional competitive challenges, by using data across the organization to reach and engage customers.