RetailWire Pick-Of-The-Week: It's Not Loyal to Stop Shopping

If "loyalty" is giving me 50 cents of Cheerios and 20 cents of deodorant once in awhile, it doesn't cut it for me. I think stores have to look more at quality and convenience. They all say they do, but most don't, really. They see their loyalty card programs in the same light they see their store fliers, which, with the exception of Trader Joe's, Wegmans and a handful of others, is invariably about price. Part of that, I know, is listing all the brands in the ads for co-op money. But I see little in the way of genuine revisionist thinking about shopper loyalty. For some shoppers, price is absolutely the key. For others, it's not. But few retailers recognize that.
- Warren Thayer - RW Commentator

Okay, I am probably going to get lots or retailers and readers mad at me but here is my take: Retailers do have all the loyalty card information and scanner data. They know what sells but they do not really know the consumer. They don't know why it sells or the more "holostic" underpinnings of consumer insights. The answer is - retailers need to work closer with CPG's or other groups that understand consumers to better understand why consumers buy and why they don't buy or quit buying. As I have said many times in this column: The top two trends are performance (taste if food) and convenience, but my take is retailers really don't go after consumers deeply enough to get the "differentiating" answers that will bring someone back or, for that fact, increase their loyalty.
- Michael Richmond - BrainTrust Panelist

The reason why grocers are losing customers, despite loyalty programs, is simple. They are not meeting the needs of the customers. Offering items at a discount when the customer is already in the building, for example, does not automatically endear customers to shop in the future. Let's take, for example, two well respected companies�Wegmans and HEB. Wegmans has a loyalty card; HEB does not. Why are both of these companies growing their customer base? They offer their customers what they want, and some things they didn't even know they wanted (this can sometimes be most important; people like to be pleasantly surprised).

Both of these companies realize that innovative products, environments and prices that represent value are what win new customers and earn the loyalty of current customers. There are so many options for consumers today! The tired presentation of the standard grocery environment will not motivate people to want to shop; in fact, many customers find ways to avoid shopping these boring environments. Just today, my neighbor told me that if the local gas station sold produce, she would not shop at the larger grocery store down the street (that milk, eggs and bread are much cheaper there). Grocery retailers that are winning today's game are those that understand that success comes through much more than a loyalty program, and more than clean stores, it is about presenting an enjoyable experience at prices the consumers consider to be a value.

Loyalty programs fail if all they do is lower already high prices. They must motivate new and reinforce existing shoppers, and they must work in concert with the many other important facets of the total experience.
- Kevin Sterneckert - BrainTrust Panelist

Ah...so we've clearly established a negative correlation between loyalty cards and loyalty. What a surprise! While there are some very effective card programs, the majority of programs out there have failed to deliver ENOUGH of a tangible benefit to stop channel erosion. Put another way, the message of The Graduate was wrong after all. Plastic isn't the wave of the future.
- Ryan Mathews - BrainTrust Panelist

Supermarkets need to think of themselves as a convenience store, a meal solutions destination, a green grocer, a fish monger, butcher, baker, possibly a 'drug' store and, of course, a traditional food store. Some retailers do a great job of this - Wegmans comes to mind. Others have yet to see themselves in competition with these other retailers. How many of us still need to walk to the back of the store just to pick up a jug of milk? Sure, the hope is that, if you pass other items, you will impulse buy - but the reality is many never get inside the store when the gas station offers quick in and out and fresh milk too. Supermarkets need to reconfigure layouts to offer solutions for all these needs - and having one freezer cabinet close to the front door/checkout with even one brand, perhaps the store brand's milk/juice, etc., might help. After all, to encourage impulse shopping, one has to be inside the store!
- Marilyn Raymond - BrainTrust Panelist

I've recently interviewed a number of people on this very subject. Universally, where it is available, shoppers name Trader Joe's as their favorite place to shop. Trader Joe's does not offer a loyalty card. Their loyalty is garnered by offering unique and high-quality merchandise at a good price in a pleasant shopping environment. Honestly, like the woman cited earlier, if I could buy all of my food at Trader Joe's, I would.

People are leaving supers because they simply are not satisfying their needs as well as they used to, despite the fact that they, typically, offer much more than they used to. It is not that supers got worse - in fact, I believe they've gotten better. It's that other retailers were better still.

Supers are not using the obvious information available to them. What are retailers such as Trader Joe's, Costco and Whole Foods offering consumers that they're not? How can they compete? My local super knows more about me and my shopping habits than any other retail outlet in existence because of my loyalty card. And yet, they have not done one single thing to appeal to me to spend more, or enjoy shopping there more. They deserve the drop in my shopping dollar that they are experiencing. And, long-term, it just may kill them.
- Karen Kingsley - RW Commentator

I am a shopper and, throughout my years, I find food shopping to be the worst task of surviving that I have to perform. I hate going to the supermarket. WHY? Because it is boring. I shop for my family and, when the task is complete, I breathe a sigh of relief. When are the supermarkets going to do something about this problem? I have some great ideas, such as piping decent music into the intercom system instead of some screeching voice that can be the most irritating sound and gets me each and every time to quickly get my shopping done so I can get out of the supermarket. Have you ever watched the poor woman who is shopping with 2 or more unruly children? This too can be a better adventure for her and the children with just a little bit of imagination on the supermarkets part. When are they going to resolve this problem? Loyalty doesn't make people shop at your store - good pricing, good atmosphere, quality items, nice and helpful cashiers and a style that is unique that makes customers want to shop and spend their money at your store. Wake up CEO's and spend some money on entertaining the customer and fulfilling their needs and, once this is done, I guarantee that your profits will increase and so will your customer loyalty.
- lenny5155

I agree with John's comment that a big part of the problem is one-way loyalty. The retailer asks the customer to be loyal, but does not demonstrate loyalty to the customer.

I had an epiphany of sorts a couple years back related to this. I had always approached loyalty data as a tool to market more effectively (and efficiently) to customers. I still believe that it is valuable for that purpose, but the light bulb went off when I realized that the real power was in showing loyalty to the customer.

The sweet spot that I found is to use each customer's historical purchase data to alert them whenever items they buy are on sale. This obviously is a great way to help the customer, but how is the retailer to benefit? How will incremental sales be generated if the customer is only alerted about items they already buy at the store?

The answer lies in the channel migration mentioned in the Nielsen research. Supermarket retailers are battling every week to maintain their existing customer base, much of which is being lost to lower priced competitors and alternative channels. By communicating what items are on sale each week that the customer regularly buys, the retailer gives each customer a reason to visit their store every week. Not a reason to buy something new, just a reason to buy what they need at the retailer.

Customers respond by increasing their visits to the store (one measure of loyalty), but what is amazing to see is the positive response from customers who can't believe that the retailer is providing this wonderful "customer service." These customers feel as though they have a deeper relationship with the retailer and are less likely to switch to a competitor. That's probably a better measure of true loyalty.
- Ken Wyker - Loyalty Marketing Panelist

Funny, if all the good advice presented here were followed by food retailers, we would HOPE to see a decline in household penetration for the channel -- the exact symptom that has been presented as a dire consequence. Meaningful differentiation requires that you are not all things to all people.

The important question is: What are the most valuable shoppers doing?
- BrandManager

Maybe I'm getting old and forgetful. Didn't American business have this same discussion over the last twenty years about hardware, toy, appliance and sporting goods stores?

Wal-Mart has hammered home over and over that 85 million customers per week want two things: lowest price and convenience.

The one problem with progress is there's too much of it.
- jstephenpeek

Supermarkets are now "Paying the Piper." As chain stores expanded through acquisition and new store expansion, they found it increasingly more difficult to manage multi-geographic areas. To compensate, they went to a cookie cutter approach that created an unimaginative sameness. In many cases, the people who are planning the merchandising ends have never worked at the store level. The objective is more about accommodating manufactures who have paid for display space, than creating excitement and good merchandising.

The price is that we have bred several generations of managers who are not merchants, but operations people. The model was "successful" for a while in that it increased profits, but the long-term prognosis is terminal blandness.

Clean floor policies, mandated merchandising plans, have taken the excitement out of the neighborhood store. Regional brands are disappearing. Participation of the "Local Grocery Store" in community activity is not encouraged.

In an attempt to draw traffic, grocery retailers have gone to deep discount traffic builders such as "BOGO" or "Ten for Ten." The downside of that is high every day retail. Consumers are not stupid; they adapted quickly and learned to cherry pick ads and stock up on sale prices. Stores are focused more on velocity than variety, giving consumers even more reason to shop elsewhere. Efficient assortment (thoughtlessly applied) has helped eliminate a customer base.

So, when everyone is pretty much the same, what is the incentive for loyalty? The successful retailer knows how to put the "U" in FUN, and the "Y" in Loyalty.
- GMROI

Might, retailers want to define themselves to the shopping base in their marketplace or, said another way, tell shoppers "this is why we serve you better, and give you what you want" (why we are different).

Getting close to the shopper, the right and most profitable ones, takes more than a card called 'loyalty' that gives discounts. Hmmmm
- Stephan G. Kouzomis - BrainTrust Panelist

It remains to be seen, of course, if supermarkets really are "losing shoppers." First, I'm curious who was polled: Did this include folks in nursing homes, or older children still living at home, or more than one person in a household who considers themselves the primary shopper? Second, what was the question?: Did it have anything to do with "visiting" a supermarket, now that home delivery is growing? I've not made a single trip to my Safeway or Albertsons in the month of January - down from my usual of about four each - and yet I've received four home deliveries as of today and I've still got more than a week to go.

Third, was the determination made based on respondents who felt that the bulk of their nutritional input no longer originated from a supermarket somewhere, or just those who said they hadn't visited a supermarket at all? And fourth, if the population grew by more than 1% during the time period addressed by ACN, did supermarket visits really decline by 1%, or did they just fail to keep pace with population growth - thus, not really "losing" customers, but not gaining either?

Shoppers are eating, and they've got to get it somewhere. Since restaurant meals aren't up across the board, we've got to conclude that consumers are buying at retail. Supermarkets are diversified - I'm reminded of the time when Bruno's had five different formats under different names in the Birmingham area and consumers often didn't know they were really shopping at Bruno's. So, a shopper reporting that they skipped a trip to the supermarket in favor of a combo-store or convenience store may have just been shopping at a supermarket's subsidiary.
- Michael Banks, Ph.D. - Loyalty Marketing Panelist

Put the card to good use. Show the customer they get something more than a few discounts at the checkout. Some chains give your frequent flyer mileage on local airlines.

If you are a retailer using a loyalty card, you need to ask yourself why you have one? Is it because you are just being a copycat of the market share leader or is it because you want to use the information to build sales and better service the customer? Only about 25% of my retailer clients use loyalty cards, but I tend to specialize in working with smaller retailers. Its a luxury for me as a market analyst to work for those who do. I can quickly geo-code the data, easily determine trade areas, and then accurately calculate market share by neighborhood. Then with periodic updates, we can see geographically where sales and market share are increasing or decreasing. Address databases must be updated at least twice a year.

Those who don't use the cards... we make educated guesses. By guessing, our margin of error is usually 5% or less. There are plenty of good retailers out there who are doing fine without the loyalty card. The added benefit of only being closer than 5% is not worth the cost.

Look to see what percentage of store sales is rung up using the card. If it's 90% or greater, the card is important to the customer, whether the benefits are real or perceived. If only 65% or less of the customers are using the card, then it's probably not too important to them. Maintaining an accurate database is important. I worked for a company that never bothered to update the addresses of their customers. After geo-coding information that had not been updated in over 5 years, we really had no idea where our dollars were coming from and the information was useless. Then we bought a small one-warehouse retailer/wholesaler. Their employees were compulsive/obsessive with accuracy and were about a decade ahead in loyalty card technology. One neat idea they had was they tracked the top 100 customers from each store and the store director would personally visit each one of them along with a substantial Christmas gift. Some of my clients will often treat their larger customers (those who buy $1,000 a month or more in groceries) as though they were important business clients, presenting them with gifts like ball game tickets, treat their kids to theme park visits, or invite them to business functions.
- David Livingston - BrainTrust Panelist

Shoppers use them (cards) because they are forced into the annoyance. Supermarkets use them to reduce costs and to gouge the non-cardholder. Any other explanation is purely falsehood or misrepresentation. It may have been intended otherwise, but this is the net result.

Loyalty is a decision, not a response to a retailer's dictate of how you will shop with them. Retailers, supermarkets in particular, made a huge misjudgment in response to consultants that you can set the terms in which consumers will shop with you. Your consumers set the terms - period. Thus, the reason for declining sales is self-evident. They have made alternative choices when the supermarket failed to meet their needs or failed to innovate to meet the needs of the customer. Costco, Trader Joe's, Whole Foods, and others capitalized on innovation. Supermarkets have suffered long from stagnation.

The alternatives are here to stay and there will be more on the way. Loyalty is fragile. Consumers make decisions based on what you have done for them today, not yesterday. The basic supermarket experience is the same as it has been for decades. The offering, while dressed up in some cases with new decor, is much that of what it was in the 70's or earlier, in many cases. Yet, at the same time, our entire daily life has been transformed and our needs are totally different. Without real innovation in the experience and offering, supermarkets will continue to lose their share and standing with the consumer.

The 'card' and its premise may have been well intended. However, today it's been so misused and abused that it's left a 'no-value' taste in the consumer's mouth. Even with best intentions clarified or even optimized, I believe the method has outlived its value in the consumers view.

A novel idea might actually be learning names and actually engaging with consumers. That takes work. Consultants and multi-million dollar investments in technology can't replace it. It's a culture. It's not a technological solution. If however, the technology had been implemented as a compliment to the culture rather than a replacement for it, this commentary may have been completely different today.
- Scanner

Loyalty cards don't work because there isn't such a thing. They are discount cards. Instead of building a list of items that are on sale every week, the stores should let shoppers determine their discounts. If you buy XX amount of Brand 'A' over time, then you get a discount. People do like low prices and they do like convenience. They are also particular about various brands and it is purely subjective about what they like best. In today's programs, it is all about back-office deals. Chances are that if you buy Brand 'A,' instead of a store coupon to save on your next purchase of Brand 'A', you will get a coupon to buy Brand 'B'.

The chain that comes up with a true loyalty program will offer sales tailored to the customer's habits, not what they can get out of the vendor. Today's supermarkets are not about customer loyalty, service or even quality of product. They are about selling commodities at the best deal from the commodities brokers.
- wayneluke