Loyalty Programs? We Don’t Need No Stinkin’ Loyalty Programs!

Without fear of (much) argument, it’s a fair statement to say that all companies want, and try to generate and achieve, optimum loyalty from their customer bases. They should want this, because study after study shows the financial rewards of having loyal customers. Some companies reach this goal through superior value delivery, built on quality products and services, and positive, consistent customer experiences. For the past several decades, many companies have relied on customer loyalty cards or programs, by which they can track purchase behavior and give rewards for repeat and volume buying activity.

Without fear of (much) argument, it’s a fair statement to say that all companies want, and try to generate and achieve, optimum loyalty from their customer bases. They should want this, because study after study shows the financial rewards of having loyal customers. Some companies reach this goal through superior value delivery, built on quality products and services, and positive, consistent customer experiences. For the past several decades, many companies have relied on customer loyalty cards or programs, by which they can track purchase behavior and give rewards for repeat and volume buying activity.

Customer loyalty programs are especially popular among retailers. During the years, retailers have found these programs to be powerful business tools within their highly competitive markets. But some retailers have completely disavowed loyalty programs, either never initiating them in the first place or canceling them, in favor of reduced pricing. In fact, this has become something of a trend. What’s behind it?

Let’s start with the biggest retailer—Walmart. The company has long claimed that a loyalty program isn’t needed because its prices are so low. Walmart believes that loyalty programs can, indeed, provide excellent information about customers who participate; however, as one Walmart executive put it: ” … some of the loyalty programs are very expensive, and we don’t think that serves everyday low cost and everyday low price.” Lower-than-competition everyday prices has been Walmart’s merchandising and marketing mantra since its inception. But, at least for groceries and sundry products, that often isn’t the case. Supermarket chains like Save-A-Lot and Aldi’s, neither of which has a loyalty program, will often beat Walmart’s item-for-item pricing by a significant margin. And other competitors can use their loyalty programs to selectively pick products, and individual customers, to offer pricing—which undermines Walmart.

As for generating customer purchase data, Walmart has a “scan & go” app for mobile devices, which allows customers to scan their own items as they shop; and this provides the company with valuable information on what customers are purchasing, the length of time they’re shopping in the store, and what offers and coupons might drive future purchases. Walmart uses additional methods of understanding individual customer purchases. One of these is Walmart credit cards. Another is reloadable MasterCard and Visa debit cards. A third is “Bluebird,” a prepaid debit card which functions as Walmart customers’ alternative to having a checking account, with which they can make deposits, pay bills—and shop at Walmart. Like Tesco is already doing in the U.K, Walmart has been considering development of its own bank, which would provide even more customer data.

Asda, a Walmart-owned supermarket chain in the U.K, also has no loyalty program. It’s the second-largest supermarket company, behind Tesco; and, as in the U.S., newer low-priced chains, such as Aldi, are actively competing with Asda. In place of a loyalty program, Asda believes it provides customers with what they want most, a “great multichannel retail experience.” The chain, according to executives, focuses on the key fundamentals: prices, quality, convenience and service. Alex Chrusczcz, Asda’s head of insights and pricing, offers two explanations of how the organization is endeavoring to build customer loyalty:

  • “Aspire to treat customers equally, or you’ll create a fractured brand and shopping experience. If you have someone paying one price and another customer with a coupon paying a different price, the perception of the brand is becoming fractured. Make sure it’s consistent.”
  • “Be pragmatic in terms of technology and analytics. They aren’t a silver bullet. Use these tools and combine them with the experience of your team.”

From my perspective, the second explanation is common sense; however, the first statement is really questionable—even counterintuitive, if a subordinating goal of loyalty behavior is to help drive customer-centricity. Simply put, all customers are not equal in value; and marketing strategies which treat them as such often create lower revenue.

In the U.S., regional supermarket chain Publix has no loyalty program. The company doesn’t have, as a result, the ability to track, at a household level, what customers are and aren’t purchasing in their stores. What Publix does, instead of loyalty cards, is try different alternative approaches to build sales. One of these, for example, was to test a program where shoppers could set up an online account where they could digitally clip coupons; and then, in the Publix store, the discounts they’d set up online could be automatically applied by typing in their phone numbers. Publix also has a BOGO program for their own brands, and accepts competitors’ coupons in their stores.

Some retailers do more than emphasize the sales and service fundamentals. They build genuine passion for, and bonding with, the brand by creating a more human, emotional connection. And, though there are few organizations like this, retailers such as Trader Joe’s are the exception that proves the rule. Trader Joe’s has no customer loyalty program. What they have is enthusiasm, achieved through differentiated, every-changing customer experiences, enhanced by upbeat, helpful employees. This has enabled Trader Joe’s to generate sales per square foot that are double the sales per square foot of Whole Foods. So, another way of stating that Trader Joe’s creates loyalty behavior without a program is to say: The shopping experience is, defacto, the loyalty program.

Now, we come to retailers which had customer loyalty programs, usually of long-standing, and elected to discontinue them. Actually, much of this has been done by one organization, Cerberus Capital Group, the early 2013 purchaser of multiple regional retail supermarket chains from Supervalu (Shaw’s, Acme, Star, Albertson’s and Jewel-Osco). Calling the new positioning “card-free savings,” and reflective of the first strategy stated above by Asda, each of the chains issued statements with themes like “We want buying to be simple for all, so that every (name of company) customer gets the same price whether a loyalty card has been used or not.” Additionally, and again like Asda, these chains have said they will go back to the basics: clean stores, well-stocked shelves, reduced checkout time, clearly marked sale items and creation of a more customer-focused culture. Some of their executives have also theorized that the chains will now adopt a more local-level approach, rather than customer-level, to their decision-making, and that individual store managers will now be more actively involved in driving successful performance.

So, the chains acquired by Cerberus appear to believe that “sunsetting,” or eliminating these programs, is a calculated risk and that they would still find good ways of providing value to retain more loyal customers, as well as incentives for those with the potential to move from purchase infrequency. Most analysts, however, felt that Cerberus eliminated the programs largely because the chains they purchased were either not mining card data, or not effectively analyzing and applying this material for better marketing and merchandising, thus making the loyalty systems too expensive to maintain.

Cerberus has entered into takeover discussions with California-based Safeway, which also owns Vons and Pavilion. If this sale takes place, it’s a good bet that these chains will also drop their reward cards, because Cerberus-owned supermarkets clearly don’t need, or want, no stinkin’ loyalty programs.

Author: Michael Lowenstein

Michael Lowenstein, PhD, CMC, is thought leadership principal for Beyond Philosophy, a U.S.-based international customer management experience consultancy. He's an international conference keynoter and speaker, workshop facilitator and trainer, author and a contributor to two customer loyalty newsletters and portals. He has more than 30 years of management and consulting experience with expertise in customer and employee loyalty research, CEM, loyalty program and product/service development, customer win-back, service and channel quality, customer-driven corporate culture, human resource development, and strategic marketing and planning.

"Marketing Nuggets" will include observations regarding trends, and often study results, representing current, real-world issues of high importance to direct marketers. Those issues include omnichannel communication usage, mobile marketing, content, informal offline and online social communication, consumer behavior, message personalization, internal customer-centric processes and organization, strategic customer life cycle planning, proactive employee contribution, etc.

One thought on “Loyalty Programs? We Don’t Need No Stinkin’ Loyalty Programs!”

  1. Some of those activities described can be regarded as a loyalty program, e.g. an online account for storing coupons linked to the consumers ‘ phone numbers, even though they are not miles/points or card-based loyalty schemes…
    The diversity of tracking technologies make it possible to maintain a consumer repository with all the traditional demographic/behavioral data without offering explicit benefits upfront eliminates the liabilities that a traditional Loyalty Scheme requires from retailers. It is, in my humble opinion, to be regarded as an evolution (and expansion) of Loyalty Programs rather than their sunset.

Leave a Reply

Your email address will not be published. Required fields are marked *