CSD: Shell Leaps Into Loyalty
By John Lofstock
Through a special arrangement, presented here for discussion
is a summary of an article from Convenience Store Decisions magazine.
In
July, Shell Oil Products U.S. launched its Grocery Rewards program in alliance
with Ahold and The Kroger Co. Although still being rolled out, the oil giant
feels the new loyalty marketing program could be a “game changer” in
terms of cornering the market on fuel brand loyalty.
As part of Grocer Rewards,
customers can earn points at Ahold and Kroger supermarkets on grocery purchases
using the grocers’ loyalty cards — one point is earned
for every dollar spent. For every 100 points customers accumulate, they earn
a minimum of 10 cents off a gallon of fuel at participating Shell stations. The
offer is valid up to 35 gallons per month.
“The beauty of these programs
is that you have three partners — Shell,
the grocer and the dealer — all connected by a seamless loyalty interface,” said
Dan Little, North America fuels marketing manager for Shell Oil Products U.S. “So
when a Shell customer goes to a participating Shell station, they are prompted
to utilize their Kroger rewards card or their Giant rewards card, and when
they do so that dispenser will automatically authorize their reward. In addition
to the discount they are receiving, customers feel empowered by prompting the
immediate price roll back.”
For Giant Foods, which sells its own proprietary
gasoline at seven supermarkets in Virginia, Delaware and at a handful of stores,
the Shell partnership creates no conflicts. In fact, the company was quite
clear that it views the Shell loyalty component as a crucial part of its long-term
plan to attract and retain its customer base.
“We work hard to give our customers the greatest value and help our shoppers
stretch every dollar,” said Bob Bennett, senior director of front end
operations and cost containment for Giant Food. “In addition to the value
programs we currently offer, like free antibiotics and $9.99 generic prescription
refills, we’re able to bring our customers more value and savings in
a new area: transportation.”
Giant Foods is working to bring manufacturers
on board. For example, CPG companies, beginning in August, can now buy into
the program by offering customers an opportunity to earn extra points on purchases
of specifically promoted items.
“We want the customer that shops with us every now and then to stop hopping
from store to store and stay with us,” said Mr. Bennett. “As customers
become more aware of the benefits we’re offering, they may do some impulse
shopping elsewhere, but it will be in the back of their minds that they can
get a better a deal at Giant. At the end of the day, it will be hard for our
competitors to top that.”
Discussion Questions: What do you think of loyalty programs
that drive customers to other retailers — albeit-non-competing ones — and
vice versa? Specifically, what do you think of Shell Oil’s tie-in with Ahold
and Kroger?
This was done years ago in the UK. The Orchard card offered rewards to Sainsbury and BP consumers. Unless consumers see real value in the program, it will only enjoy moderate success. It could also confuse consumers who have a hard enough time trying to decipher the numerous promotions that are currently printed at the bottom of each cash register receipt.
You can’t be everything to everyone so finding a best-in-class partner for a service or product you don’t offer is a great idea. Your loyal customers will benefit and you create an opportunity to build new relationships with your partners customer base.
Things to remember when creating this type of program:
1) Find a best-in-class partner that is close to your demographic. Saks Fifth Avenue partnering with McDonald’s may not be a good partnership. Old Navy and McDonald’s could be interesting.
2) Keep it simple – If you have to jump through hoops to get the savings it will never work and in fact discourage your loyal customers.
3)Keep it fresh – each quarter find ways to drive exposure to your loyalty partnership by promoting special rewards opportunities.
Programs linking grocery purchases and a discount on fuel have been around for some time. In some cases, the discounts are based on the purchase of particular items and in others, such as the one in the article, to the purchase total. Both approaches have been successful in increasing the grocery sales (and therefore one can assume loyalty to the chain offering the discount).
Fuel is a known price item (by law the price has to be posted). We often say fuel is a non-involved, non-emotional purchase EXCEPT for price.
Consumers get very excited over the price of fuel. In many cases, the emotional impact outweighs the financial. The average fuel purchase is somewhere around 10 gallons. Even at $.05 per gallon, the total difference in the typical purchase is $.50–an amount that normally would not generate much excitement, but as the industry knows, not true with fuel.
Cross channel programs currently work for the fuel brand and the grocer. The real question is when every fuel brand and every grocer has one of these programs will it still make a difference. Might be a “needed to win” now, but will become a “needed to play” soon.
One of the most brilliant insights into this whole “loyalty” thing came in one of marketing guru Seth Godin’s newsletters. “Loyalty,” he says, is when a customer will pay a premium or go out of his/her way to buy your product over a competitor’s. Customers who go for the price discounts someone offers aren’t being “loyal,” they’re just being economically prudent–being a smart shopper if you will.
98% of customers are fickle and will drop you like a hot rock at the slightest provocation. The message to retailers is ‘get over yourself’. It takes a very special relationship (not based on price) to generate honest to goodness loyalty.
My good friend was absolutely “loyal” to the Raiders football team. Lived and breathed with the Raider Nation. Season tickets for over a decade. Not any more. The lack of performance finally broke the bond. If you as a retailer have loyal customers keep your eyes sharply focused on what could break the bond. It takes much less than you think.
Game changer? Come on. It might be a good thing for the Shell dealers, but I sure don’t see a game changer here.
Price and convenience drives the gas purchase decision, and I believe any loyalty program is going to run a distant third. Maybe it should be considered more as a rewards program and not a loyalty program.
Kroger, Giant Foods, Meijer, Sam’s, Costco and other grocers already have similar loyalty programs in operation but mostly with their “own” gas. Now Shell and Kroger–and Giant Foods–are marrying themselves to each other. That will strengthen the loyalty equation for both parties. That’s a good move for both but it may not be a “game changer” since other loyalty partnerships will be formed and become competitors.
Loyalty is constant, albeit a moving target. It was once said that “If you aren’t too long, I will wait for you all my life,” which translates to “I will be loyal to you forever if no one offers me a better deal.” Still what Shell, Kroger, and Ahold are doing is a good head start.
I think you have to be careful about loyalty programs linking retailers. If the other retailer does something that is unfavorable in public opinion, it could rub off on you. Imagine if Kroger would have linked with BP and then the Gulf oil spill happened. The same thing that happens with celebrity endorsements gone bad could happen with retailers linking up also.
When it comes to commodities like fuel, shopper loyalty is nothing more than a current habit wrapped up in a fantasy.
The Shell/Kroger program is a “thrift game” that may succeed in evoking some uncommitted repeat patronage–what behavioral researchers call “spurious loyalty.” This means that there is no affective (emotional) component sustaining the shoppers’ behavior. They can, and will, change habits as soon as another retailer offers a price that’s a nickel cheaper.
Programs like this will never succeed at creating enduring affective loyalty. Few shoppers are likely to be persuaded that the companies involved care about them personally based on a small discount and a complex set of rules.
If we drop “loyalty” out of the conceptual equation, we can better evaluate it for what it is–a method to gain permission and keep communicating with shoppers; an embedded reminder system; and a modest tangible demonstration of the retailers’ commitment to reward repeat patronage.
Not that there’s anything wrong with that….
A game changer? Gas for Kroger points? From Shell Oil Company? Wow! That’s exciting. And limited to 35 gallons/month? The average two car family in America uses 144 gallons month. Duh…Come on….exactly how naive do these companies think consumers are?
This is too little, for a non-destination location. Gas has very little loyalty, and it is certainly not found by tying purchases from non-gas locations to a premium brand for a small amount of reward. Instead, if Shell translated the savings into a discount per fill-up, it would excited consumers, and get a greater reward from a bounce-back program such as this. The key here is that the reward must be substantial to overcome a consumer changing to the gas station across the street or down the road.
I loved the old Shell Mastercard from Citibank. It gave me 5% back on gas, definitely earned my “loyalty” (or rather, bought it).
But loyalty programs are sprouting up everywhere now. The ones with the largest convenience and rewards should be the ones to win.
That doesn’t mean that the program has to be the largest and have the most partners. But history shows that some programs are more polished than others and the bigger guys have had a natural advantage through their economies of scale.
It will be interesting to see how the new disruptive technologies like location based services simplify and potentially empower smaller retailers to compete with the big guys.
One outcome I can already envision is more companies trying to go it alone with powerful new tools at their disposal. Another outcome is massive success for EDLP retailers like Aldi, who keep their margins tighter than the competition and “reward” their customers on every item.
People are not always looking for cost savings when you discuss loyalty. Knowing a little (lot) about the industry, people will and can pay for convenience, services and great customer service, CEM, engagement…. All of this creates product, brand, employer, and merchant loyalty. That is the most important idea that any employer/merchant can create.
The idea of one retailer partnering with another complimentary retailer isn’t a completely new concept. Partnership marketing is older than frequent flyer programs and continues to be (in our opinion) a vastly under-employed strategy.
Given how many retailers are running the same loyalty program–or none at all–partnership marketing can and should play a bigger role for retailers and other companies in the future.
Partnering complimentary brands is a proven, if underutilized, strategy as Phil Rubin points out. Combining two big players in high frequency daily spend categories is a winning combination.
In the case of Kroger and Shell, reports indicate that 40% of US households have a Kroger loyalty card and 80% of the population lives within 5 miles of a Shell station. Apparently, I’m in the outlier group as I have neither a Kroger card or a Shell station close to my neighborhood–hence an unbiased opinion.
My biggest concern about this program is the existence of business process patents that cover the management of rewards points at fuel dispensing sites. I recently read that litigation has been instigated against Kroger by the patent holder, Excentus and imagine that future development of this program will be influenced by the disposition of the litigation.
I live in the Washington, D.C. area and have experienced longer lines at Shell gas stations since the promotion began. I think it is a “win-win” situation. It allows the consumer to save up to 30 cents per gallon on gasoline and that is a real benefit to Shell and the grocery chains that participate. I have had numerous consumers tell me how much they like this promotion because they can clearly see their Giant rewards at the gas pump.
The benefit is up to 35 gallons per visit, not per month as Mike Romano indicated. That seems reasonable to me.