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[21 comments]

Will Kroger's App Replace Its Loyalty Card?

May 22, 2013

The future of loyalty programs is not in the cards or even keyfobs, for that matter. Nope, the future is digital and a new e-version of Kroger's loyalty card will allow consumers to get their discounts and a whole lot more.

Today, 96 percent of Kroger's customers use the plastic card it supplies to loyalty card members. The grocer's new app, which comes in Android and iPhone versions, keeps track of fuel rewards, renews prescription meds, and allows customers to see weekly ads and create shopping lists.

John Elliott, a Kroger spokesperson, said the new app is the next step in the evolution of Kroger's program.

"This is what a growing number of customer segments expect from us," Mr. Elliott told The Indianapolis Star. "It's not just the 20-somethings."

FINANCIALS:     [NYSE:KRO] [ ]

Discussion Questions:

Do you see electronic loyalty programs replacing plastic cards anytime soon? What must retailers do to get consumers to convert from plastic cards to electronic versions?

While we value unfettered opinion, we urge you to show respect and courtesy for people or companies about whom you comment. Keep in mind that this is a public, professional business discussion. RetailWire reserves the right to edit or refuse the publication of remarks that we deem unsuitable. We may also correct for unintended spelling and grammatical errors.

Instant Poll:

How long before loyalty apps on smartphones largely replace plastic cards at retail?

Comments:

It depends on your definition of "soon," but yes, mobile applications will eventually replace the need for carrying a key fob or card. The key determinant of that progression lies in the retailer's POS system and its ability to read electronically generated bar codes right off the smart phone. Once that hill is climbed, shoppers will gladly turn their cards in for the electronic option.

Further and equally as important in facilitating this transition is the consolidation of other shopping aides and functionality on the app. The most critical function being payment. Once shoppers are confident that their app replaces all or the majority of the necessities of shopping, adoption rates will skyrocket.

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Mark Heckman, Principal, Mark Heckman Consulting

Absolutely. However, the key for real usage of any of these continuity of purchase programs is to uniquely solve customer problems beyond simply providing price discounts. People will migrate to the platform that serves them the best. Solve customer problems and they will become your advocates, regardless of whether they use plastic or electronic. Focus on the customer, not the card.

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Richard J. George, Ph.D., Professor of Food Marketing, Haub School of Business, Saint Joseph's University

Let's face it. Walmart is now just an average priced retailer. There are stores that sell groceries higher than Walmart and those that sell them lower. Walmart is the bar, and Walmart is now in the middle, but still the most successful. Still, all the companies with loyalty cards are the premium priced retailers and Walmart adjusts their prices to beat loyalty card promotions.

The most successful grocers are the ones that do not have a loyalty card. A loyalty card is a barrier between the customer and the cash register. My guess is, if you made a list of all supermarkets that do $1 million plus per week, most of those stores do not have a loyalty card. At some point what I see replacing plastic cards is simply nothing at all. From what I see, stores that have plastic loyalty cards have lost market share over the past several years. Coincidence?

David Livingston, Principal, DJL Research

Plastic cards, while elastic,
With many folks they're fantastic.
True, its death may be looming
Caused by electronics' booming.
And Kroger will lead the pack
And put old folks on the apps track.

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Gene Hoffman, President/CEO, Corporate Strategies International

I do see electronic loyalty programs becoming more popular. It is easier to carry one's smartphone then any number of key fobs. The question is, how do I identify myself to the cashier? I can think of several ways, but very few if any retailers are prepared. Without a physical bar coded card, the cashier can enter my number, taking way too much time.

The retailers can upgrade their payment device to include NFC communication from my smartphone. Or the retailer can upgrade their bar code readers from laser to imager to scan the bar code from my smartphone. The only issue would be a cashier handling my smartphone and I would not like that too much. It will happen, but not until retailers make the investment and see the returns.

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Frank Riso, Principal, Frank Riso Associates, LLC

This one is so easy. I have already replaced my Starbucks reward card with their app. One less thing to carry. I can't wait for the other retailers to do the same.

What will it take? It is simple...offer the app. That is all.

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Gene Detroyer, Professor, Independent

I see electronic programs supplementing, not replacing plastic cards. While 96% of Kroger shoppers have plastic cards, a far smaller percent have smart phones (60-70%).

Retailers should move towards making there apps far more robust than they are at this time, but should not replace current plastic card programs until smart phone adoption has crossed 80%.

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Max Goldberg, President, Max Goldberg & Associates

Smart phones are owned by a large portion of the overall population and by the vast majority of younger shoppers. Given the predilection of Millennials and younger for mobile tech, I expect that they will embrace the concept of a loyalty app and gladly give up the cards in their wallets or the tags on their key rings.

An app can provide a mechanism to communicate directly with a customer. The trick will be to balance the amount of information sent to what the receiver wants to receive.

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Steve Montgomery, President, b2b Solutions, LLC

The plastic card is largely already dead, killed by alternative IDs like a phone number. A Kroger mobile app for affinity won't win purely by allowing people to get the plastic card out of their wallet (consumers really do want to get rid of the card, but have lots of options to do so).

The magic question is, do any of the utilities in the app offer long term sustainable utility for shoppers that will not only cause them to download it, but also use it regularly in their shopping trips? 26% of all mobile apps get downloaded, used once, and never again, so if it doesn't add value, it won't be used.

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Jason Goldberg, VP Commerce Strategy, Razorfish

This is an interesting discussion. I am sitting at a Panera Bread location in Dallas this morning. As I was in line to place an order, the person in front of me ordered. Then she sorted through maybe twenty plastic cards on her key ring to give the correct one to the cashier. So yes, as with everything else that evolves through technology, this will change. But because of the mindsets of different age groups; I doubt it will happen completely or within the next three to five years.

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Ed Rosenbaum, CEO, The Customer Service Rainmaker, Rainmaker Solutions

Retailers with frequent trips (grocery, drug, gas and even convenience) can pull off a mobile app. Apps that are not regularly used get lost and ultimately deleted.

For a retailer to convert customers you need to share with them the benefits of the conversion. Ease of use, tracking capabilities, larger and more frequent rewards, etc.

Near Field Communication (NFC) has not taken hold in the market yet because no one has been able to really show consumers the benefit of switching from plastic credit cards to NFC. If retailers don't show the benefits of Mobile App loyalty they will have the same issue with adoption. That said, I believe mobile loyalty has enough low hanging benefits that consumers will quickly convert.

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John Boccuzzi, Jr., Managing Partner, Boccuzzi, LLC

Yes and the speed at which this happens will be driven by the perceived shopper value of moving from card to mobile app. For some, convenience alone will make it worth it, for others there will need to be additional value add offered.

Additionally, retailers are going to have to start to deal with the "loyalty card burnout" being suffered by many who don't carry or use cards any longer because there are just too many to carry, track, etc. The same issue will suffered if each and every retailer has their own app. Innovative solutions are starting to emerge (see www.loccard.com) that present a huge opportunity for shoppers and retailers alike.

It wouldn't surprise me if in five years the only cards in the market are offered by those who have missed the boat.

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Verlin Youd, Principal, VPY LLC

For those customers with a smartphone, frequent shopper programs should be an application. I recently download an app that stores all my frequent shopper cards. During checkout I just bring up the card and the cashier scans the bar code on my cell phone. I don't have to carry around all those little cards. Converting these programs to a cell phone opens up many new options and/or features.

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W. Frank Dell II, CMC, President, Dellmart & Company

Apps will replace loyalty cards AND credit cards AND checkouts! THEN they will do a whole lot more! ;-)

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Herb Sorensen, Ph.D., Scientific Advisor TNS Global Retail & Shopper, Shopper Scientist LLC

Am I the only one who caught this? A card is not the loyalty program! A card gains access to the loyalty program, but so could a bar code on my phone.

As for Kroger, I don't carry their card because they let me key in my phone number and gain access to the program. Now we're talking.

I feel certain that a vast majority of us would welcome not carrying a card. Do I want an app for every store I visit? Nope. Do I want to participate in the loyalty program? Yep, as many as possible. So just give me another way to access the program and I'm in.

Now if you want to talk loyalty programs? That's a whole 'nother story!

Lee Kent, Let's meet share and succeed in Retail, YourRetailAuthority

While I am sure there will be widespread adoption, I don't anticipate the physical cards or key fobs going away any time soon. Since there are still people holding up the line to actually write a check versus using a debit card, my cynical side says this is a great benefit for most, but not a solution for all.

Jodi Rausch, VP, Strategy , rDialogue

Yes, it's already happening with the airline programs. Very few consumers need much convincing to carry one less piece of plastic in their wallet. There will be segments for a while that don't have smartphones, but for the majority of consumers, this is not far away.

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Martin Mehalchin, Partner, Lenati, LLC

Welcome to the post-loyalty era.

Card programs are not quite obsolete, but they are about to be absorbed by mobile apps. While a front-runner such as Kroger/dunnhumby may be able to convert many shoppers to its proprietary app for a while, the lasting future will be defined by electronic wallet solutions that aggregate frequent shopper plans, coupons and payments on the shopper's terms. NFC communication with the POS will likely be a key enabling technology.

An observation: The pure value of of frequent shopper data is approaching its zenith. It now diminishes slightly in relative significance as the volume of social media interaction grows. This is the mind-bending next stage in behavioral-based marketing: Things people do, say and experience outside the store may soon eclipse what happens within the four walls.

For retailers that have steadfastly bucked the loyalty-card trend (like Walmart), this may be a moment of affirmation. Or maybe they just got lucky.

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James Tenser, Principal, VSN Strategies

Keying on Lee Kent's comment about not wanting an app for every store: But of course. And you don't have a different credit card for every store! That's where the money pot is, a single app across ALL stores, or at least a large number of them. And that will BEGIN, really, with a mobile wallet that sweeps the world. Better yet, two competing mobile wallets. (The rest will be also-rans.)

This will be THE transformative phenomena and WILL drive the Third Wave of Retail!

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Herb Sorensen, Ph.D., Scientific Advisor TNS Global Retail & Shopper, Shopper Scientist LLC

I am sure there are some demographics for which the plastic loyalty card will always be the way to go, but I do believe that digital loyalty programs are the way of the future. With apps such as Passbook to help manage all of your cards, it is much easier and more efficient to keep your loyalty card online. Not to mention that retailers can add additional information to the app, such as reward/points level, purchase history etc. which is not available with a plastic card.

With so many advantages, I think their convenience is a huge selling feature; retailers will need to make consumers aware of the app's availability, and make sure to design an easy to use app that allows customers to modify and customize their preferred settings (i.e. how often/when they want to receive push notifications etc.).

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Alexander Rink, CEO, 360pi

The incredible speed of adoption for mobile digital will carry the loyalty apps into fast forward mode. With new technologies that allow existing 1D (red laser) scanners to "read" a barcode from a phone screen, consumers and retailers no longer need to wait for expensive and time consuming hardware and system changes. Consumers want to use their phones for everything from loyalty cards to coupons and payments. The time is here and now!

Christopher Sellers, Chairman, Mobeam, Inc.

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