The recession has acted as somewhat of a catalyst for the rise of the discount retailer in the UK , a pattern seen in Germany over a decade ago. The 25% growth shown by Aldi in 2011 continues to provide just cause for the ‘Top 4’ grocery retailers to look over their shoulders, although a more modest 2011 for Lidl and Asda remind us that exponential growth cannot last forever.
Besides low price, another thing the likes of Asda, Morrisons, Aldi, Lidl, Ryanair and Easyjet all have in common is the lack of a customer loyalty programme.
The brazen position taken by Asda in defending its lack of loyalty programme (versus rivals Tesco and Sainsbury’s) offers the clearest insight into a perceived wisdom amongst many Discounters that loyalty programmes and low price retailing cannot co-exist. Indeed, Asda debates this so clinically it is as though it were an economist debating the fiscal relationship between interest rates and inflation.
But is the argument against investment in loyalty so simple? Did Waitrose by the same token spend years not investing in a loyalty programme to invest in high quality instead, or is there a more complex debate to be had?
In Asda’s defence there is validity in highlighting the prohibitive costs inherent with traditional points programmes. If done correctly, this does represent a significant investment in technology and people, before even taking into account the cost of customer rewards, which with the onset of IFRIC 13 legislation also includes a significant amount of deferred points revenue which must sit on a company’s balance sheet as liability.
The value of points programmes to customers are regularly benchmarked online and in the media, by mostly focusing only on the spend/points/rewards ratio offered to customers. For example, Sainsbury’s, Superdrug and Tesco loyalty cards offer 1% money back on shopping whereas the incredibly popular Boots Advantage Card offers a generous 4%. What such benchmarking does not reveal, however, are the countless unpublished things Sainsbury’s, for example, do to enhance the customer experience by using the loyalty data to better serve deserving customers. This approach is allowing Sainsbury’s to be dynamic and focus its business operation around the customer on key decisions such as store formats, product ranges, merchandising and targeted coupons on products customers actually buy. Boots undertake some similar activities but simply cannot afford to action insight at the same level due to the investment otherwise tied up in giving such a generous 4% back to the customer. It could be argued that Sainsbury’s customers actually get more out of Nectar from easier shopping, inspiring ideas, relevant ranges and targeted offers (all data driven) than Boots Advantage Card achieves via it’s more linear customer reward focus.
The salient point here is that it is myopic to measure the value of loyalty programmes by simply focusing on the economics of points and prizes when so much other incremental value is there to be created from customer relationships. The concept Asda fails to grasp in its rationale for ‘non loyalty’ is that the true purpose of a loyalty programme is not simply to discount, it is to obtain rich customer data that will help you do a better job for customers, something both Janet Smith and Terry Leahy have been vocal about when articulating the strategy behind Tesco Clubcard.
The key to discounters believing in the argument for loyalty programmes must begin with a broad view of the value that CRM can deliver to their business.
Applying this logic somewhat actually vindicates both Ryanair and EasyJet for not having loyalty programmes (ignoring Ryanair’s prepay card) as it could be argued that their e-tailing model, backed up by a decent database, already provides the means to achieve all of the above (the extent to which they actually do use their customer data to create value is another debate). No such excuse exists, however, for low price retailers such as Morrisons, Asda and Lidl, surely it’s time for one of them to take all of their eggs out of their low price basket and step up to the mark with a compelling CRM strategy.
Undoubtedly significant financial barriers exist for discounters to create points programmes but who said that every loyalty programme had to be points based? The simple goal is customer data.
It is possible that Waitrose may be showing the Discounters how it might be done with their innovative introduction of the My Waitrose card, a non-points based loyalty proposition providing relevant offers and ideas to customers in exchange for the customer identifying themselves each time they shop. Time will tell whether this proposition becomes compelling enough for customers to carry a card, but it’s great to see Waitrose finally recognising the need for customer data and doing something about it in a manner befitting their brand, and with a fraction of the investment that would have been required for a points programme.
It does make this writer wonder how frustrating it must be for anyone operating in the CRM function of a large customer facing organisation to flourish in the absence of quality behavioural data, and how difficult it must be at a business level to provide sustainable relevance and differentiation without rich customer insight. Time and science moves on, 100m sprinters get faster, media becomes mobile and brands can no longer truly operate at the top of their game without data.
Without a long-term data strategy the tactical promotions offered by retailers, such as Morrison’s £1 saver stamps for £49 of shopping, become disposable as they offer no sense of permanent value. How refreshing it would be to see one of the discounters follow Waitrose’s lead by making more of an effort to engage customers in a relationship.
So if points and prizes are not the answer for discounters, what is?
Here are a few initial considerations for discounters thinking of embarking on CRM:
1. Customers care about value, not points. There are several ways to create customer value within a relationship:
- Reward – discounts on things I want to buy
- Recognition – benefits because of how I have transacted or interacted with you
- Communication – inspire me with ideas, information, recommendations
- Interaction – connect me to relevant people, value my opinion, validate my thinking
- Operations – make it easier for me to do business with you
Waitrose have wrapped up elements of recognition and communication into My Waitrose which will provide them will a future platform to bring more value into their programme.
2. The goal is data. From the menu above discounters must ask themselves what value they can provide to customers so that customers will provide behavioural data in return i.e. identify themselves when they shop.
3 . Data is no good without an ability to do something with it. The right technical infrastructure to collect and analyse data is important as well as the ability to technically manage the relationship between customer behaviour and benefits provided in return.
4. It all starts with the right people and strategy. Having the tools is not good enough by itself. There needs to be a commitment in the business to using data to make business decisions to benefit the customer and then measuring the impact of the resulting activity. The goal should be for this culture to permeate the organisation. Price is one of many reasons a customer will visit a discounter, it should not be the whole strategic emphasis.
A rationalisation of Asda’s position against loyalty programmes could be that they are simply favouring an approach of focusing on price rather than making the best effort they could to learn about wider customer motivations. It’s simple, its single minded and successful to a point, but we need not look further than Tesco’s poor performance over Christmas 2011 as an example of where even a slight shift from customer engagement to discounting can take you. Sainsbury’s on the other hand have been widely heralded as the retailer who got it right by continuing to market value to customers in a broader way.
Incidentally, a 2010 survey commissioned by ICLP of over 1000 UK customers revealed a massive 47% would like to see Asda have a loyalty programme.
It could be argued that pure low price/promotional focus can only ever result in value erosion for brands and a race to the bottom. This is not to say that low price is not a valid strategy, indeed it clearly addresses a customer need. The point is that low price should not be seen as a substitute for seeking to better understand the customer and create wider value for them. In this day and age a non-data led approach to retailing is tantamount to a GCSE student seeking to pass his English Literature exam by reading someone else’s notes instead of the actual book. This approach will get you so far but you will miss out on realising true value. One might question whether such a focus on price over broader human connection is truly sustainable in the long term.
The logic of retailers such as Asda in highlighting the investment trade-off between loyalty and low price, is valid to a certain extent but primarily when considering traditional points programmes. Waitrose have tentatively shown more affordable avenues to CRM exist.
Currently there are no discount retail loyalty programmes in the UK. The dismissal of loyalty programmes by these retailers as being an expensive trade off to low price represents a narrow view. Could it be that this is simply being used as an excuse for not making an effort to better engage with customers?
With fantastic case studies such as Tesco Clubcard in the public domain, I am genuinely surprised that any retailer of importance today in the UK would not prioritise investment in some sort of data strategy, particularly during a recession where profitability and customer loyalty are so precious.
Following a period of concentrated growth, Discounters can now indeed class themselves as retailers of importance in the UK. So perhaps now is the time for some fresh thinking.