Safeway Canada Tiers Up New Loyalty Program
Mimicking the tiered rewards programs of airlines, Canada Safeway last month quietly launched a loyalty program focused on just its best customers.
Spending more than $125 each week over a six-month period qualifies a customer for the SafewayClub Elite Customer program. Perks include a five cents-per-liter discount off gasoline, 10 percent off roses and deli sandwiches, cash back up to $300, and refunds without receipts.
"The program recognizes our very best customers similar to those who may use a hotel, airline or car rental company with great frequency," John Graham, Safeway’s director of public affairs, told the Winnipeg Free Press, which broke the story.
Perhaps the most extraordinary feature is that the store manager’s cellphone number is given to Elite Customer members as a backstop to ensure any service provided meets expectations.
"If there’s ever a question about a product or one that you’d like to see brought in or a last-minute cake order that you’d like to make, we want you to have easy access to the management of your Safeway store to ensure we always meet or exceed your expectations," Mr. Graham said.
The program comes with increasing evidence that a retailer’s most loyal customers, often encouraged by rewards programs over the years, account for an inordinate amount of sales at their favorite stores.
Speaking to The Wall Street Journal in an article around discount-driven rewards programs, Keith Jelinek, director in the retail division of AlixPartners, said 15 percent of a retailer’s most loyal customers can account for as much as half of its sales.
Keith Colbourn, vice president, global loyalty practice leader at dunnhumby, was quoted in the same Journal article estimating that it takes between 12 and 20 new customers to replace a lost loyal customer.
Reviewing the launch for Colloquy.com, Sharon Goldman likewise raved about the potential for other chains to use tiered-based loyalty models. She wrote, "It’s finally a move towards using the data and segmentation to reallocate limited rewards and communications resources within their huge membership base based on calculations such as lifetime value."
Discussion Questions
Discussion Questions: What do you think of the SafewayClub Elite Customer rewards program? Can the tiered loyalty program model used by airlines, hotels and car rentals work at retail?
The root concept of exclusivity is compelling but today’s consumers are also doing a better job of crunching the numbers on loyalty plays to see if they make sense. If achieving “elite status” means being foolish with the family’s food budget, it likely won’t fly. If, on the other hand, higher tiers provide meaningful benefits and means of helping consumers stretch their dollars even further, then I would expect a positive response.
A well thought out well planned tiered loyalty program absolutely can work for a retailer but once all the retailers start to do it, it’s going to be very difficult to back out. So I advise proceed with caution.
“…sometimes it’s nice to go, where everybody knows your name.” With due credits to Norm of course.
Everyone likes to be recognized for loyalty and to have the proprietor acknowledge their importance to the business. This should work just fine in retail, as it has in every other industry I can think of that has tried it.
If you are one of Canada Safeway’s best $125 a week customers, you probably shop there because you like the offerings, the Safeway store location and aren’t bothered by the prices. Rewarding “elite” customers in some innovative manner makes sense but the name might eventually haunt them with “non-elites.”
However, does 5 cents off a liter of gasoline and 10 cents off of roses and deli sandwiches, refunds without receipts and cash back up to $300 have special meaning with customers already loyal to Safeway? Probably “yes” but does Safeway want to stimulate competition to follow it with an equal or more lucrative program? For instance, U.S. Kroger already offers 10 cents a gallon, up to $1 a gallon, to its large purchasers and Kroger advertises how any customer can earn such gasoline discounts.
People want to feel they are being treated special and rewards and loyalty programs have a place in retailing but they come at a cost which usually gets reflected in the price of goods and services–and then such programs are hard to cease. To me, the objective is to create a rewards program that isn’t easily duplicated.
Providing differential rewards to the very best customers (aka Access Pricing from Brian Woolf) is a smart move. DS-IQ’s research across multiple chains has shown the top 10% of shoppers drive 40% of sales and spent the least on marked-down goods (11%).
Picking up on Gene’s point, I question how Safeway is presenting the rewards, which seem disconnected from actual shopper behavior. Why provide blanket discounts on deli sandwiches and roses when Safeway:
*Can offer breaks on what shoppers really buy? (as it does in the US)
*Can offer disruptive prices on a rotating variety of items (as Tidyman’s has used to success)
*Can allow shopper to earn points to apply as they see fit? (as travel programs do)
With more tailored rewards, Safeway has a higher likelihood of not just retaining the top shoppers, but also encouraging those just shy of the $125 threshold to spend up to earn privileges.
I love the idea, but not the execution. This program might have more impact if Safeway offered customers a choice of rewards when they’ve achieved elite status.
The idea is good. But the timing might be slightly off because of the economy. A similar tiered program should be used by restaurants also. I actually think it would work better in the food industry than the retail industry. Many restaurants have a program of ten visits equals a free lunch or dinner.
There are many possibilities to make this work in retail. It has to be thought out better than the description given in the article for Safeway Canada. Spending $125 a week for 26 weeks gets me a deli sandwich for 10% off as an example does little to entice me. $300 cash back does excite me.
I think it is based on false economics and simplistic metrics.
Say I religiously buy only sale items and/or loss leaders. Could I spend a good deal of money with you? Yes! Would I be your “best” customer? Far from it!
Somehow we have to get past the digitally assisted version of cigar box math. It isn’t gross sales alone that we should be looking at it’s what percentage of goods were sold at a satisfactory profit; how much of the store customers actually shop; frequency, etc.
Building a gross sales based loyalty program is easy–and potentially suicidal.
Safeway’s focus on higher value customers adheres to best practices that voices in the loyalty industry has been sharing for many years.
It should be no surprise to any data-driven marketer that the Pareto rule is alive and well and that, as Mr. Jelinek stated, “15 percent of a retailer’s most loyal customers can account for as much as half of its sales.” This result is seen in successfully executed programs time after time.
Offering the store manager’s cellphone number is a nice touch and it would be fascinating to analyze the frequency and nature of calls over time to that number.
One head-scratcher: the high value threshold of $125/week seems low. Based on prices and shopping habits today, I would have imagined the number even higher.
Final thought: does this somehow vindicate Best Buy for “firing” its lowest value cherry-picking customers a few years ago?
Having access to the store manager by phone may be an incentive to be loyal at this level and people may feel like it is their store. However, I wonder how long managers will be interested in having this part of the program. Why not an email address? Are these incentives enough to make other customers more loyal or to keep these customers loyal? Time will tell.
It is being done already in many businesses. Airlines, hotels, casinos, and many other industries have tier rewards programs in place. The more you spend, the more they throw incentives to bring you back. It takes excellent profile-building technology, and constant marketing to make it work. I like being pampered when I go to a Marriott; a special Best Buy coupon is nice as well.
The stakes are indeed exceptionally high if replacing one loyal customer required 15-20 new ones, and that number can’t be too far off the truth. The new elite Safeway program should be looked at as a big positive. Although it is an extreme program, it is doing what loyalty programs were originally meant to do: cater to the best customers. Current loyalty program basically give access to discounts in the store, and many supermarkets, for example, give a discount on a particular item unless the shopper is a member with a card. There appears to be little member interaction. For this reason, many people carry many cards, because they do not patronize a single source. Indeed, they don’t feel there’s a reason to do so. Safeway’s extreme elite program heightens interaction to a pretty intense point. Having the store manager’s cell number is, I think, going the extra mile, if not extra miles. And interaction like this does seem to have the power to lock a shopper into a particular store.
Yes, yes, and yes! This rule of thumb is true for almost all businesses. Tiered loyalty programs work for so many other retailers, they should work for the grocery industry (if properly applied). The key to success is to make the perceived value good enough that the loyalty level is important to those who would attain it.
I favor the principle of devoting greater loyalty attention to higher-value supermarket shoppers. But “higher-value” should be carefully defined, and the airlines’ RFM-based conception of this is not appropriate for supermarkets.
Airlines have no channel-switching or market-basket metrics to guide their decision-making–just number of trips and quantity of miles flown. This makes for a pretty simple calculation of customer lifetime value and loyalty tiers–with real rewards way out of reach to the vast majority of fliers.
By comparison, supermarkets have access to much greater trip frequency and more behavioral details. Pure spending measures can be refined by applying behavioral indices such as promotion redemption or key item purchases. Rewards for best customers may then be designed for greater exclusivity, rather than greater value.
With those thoughts in mind, gasoline discounts seem calculated to appeal to the hoi polloi, not to the elite.
I agree with Cathy on this: if you look at how the mentioned providers reward loyalty, it’s with special perks that make you feel “special” (and ideally don’t cost much money). If Safeway wants to mimic this, it should offer things like preferential checkout and parking (and maybe for Canada, free seat warming while you shop)…only the “manager’s cell phone number” seems to approach that here (and as Camille notes, it seems like the least viable part of the plan).
Tiering a loyalty program or proposition is a fundamental tenet of loyalty strategy, which by definition is about differentiating customers and treating them accordingly. Differentiation can be driven by numerous criteria but certainly frequency and spend are at the top of the list. Also a priority for differentiation is potential incremental value, which is where loyalty profit comes from.
Sometimes such tiering is explicit, as in the travel category (frequent flyer and hotel frequent guest programs) and as in Safeway’s program; sometimes it’s unpublished which provides a lot of flexibility but less of a “carrot.”
While there are also numerous examples of companies proffering a one-size fits all loyalty program, the most successful loyalty and customer relationship marketing initiatives are all about recognizing that investing different amounts against different customers (and customer segments) is ultimately the way to maximize profits.
This is an easily measured initiative so Safeway should be able to quickly evaluate whether to continue and expand to other locations to quietly kill the pilot. More sales per elite customer, more purchases of higher margin products, etc., will give Safeway reason to expand it. As Safeway has an executive in charge of loyalty programs, this probably was given a lot of thought prior to implementation.
To the question of “Can a tiered loyalty program model used by airlines, hotels and car rentals work at grocery retail?” I’m not sure that this model has worked in the originally intended manner for airlines, hotels, or car rental companies.
A&P tried this five years ago, and like everything else they do, abandoned it quickly.
I was a platinum customer averaging over $100 a week in purchases. I got some cool premiums like a picnic basket full of America’s Choice products like condiments and hot dog buns.
I really do think a tiered loyalty program model can work in retail, especially in the supermarket sector. The store gets a loyal satisfied customer base, and the customer gets some perks. In the drug store sector, Rite-Aid does this already. It’s great having gold status with their wellness card, like getting 20 percent off regular prices everyday along with added discounts.