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Summary: Supermarket loyalty programs haven't changed in decades. And with the usage of loyalty cards on the decline because of the commoditization and devaluation of points-based programs, Cheetah expert Andy Kulina argues — it's time for supermarkets to change things up and with the right technology, it's entirely possible.
Let me recap the last 20 years of evolution in the European Supermarket Loyalty sector for you:
2000: Swipe/scan a card, get some points, redeem them for a voucher you can use in-store.
2020: Swipe a card/scan a mobile barcode, get some points, redeem them for a voucher you can use in-store or online.
Not much difference, eh?
Think about your favorite supermarket’s loyalty program. Has it fundamentally changed since the start of the century? To put this in perspective, Mark Zuckerberg was a freshman at Harvard in 2002; so, many of Europe’s famous loyalty programs pre-date Facebook, yet have hardly kept pace with the consumer digital evolution in terms of devices and engagement channels.
This explains my excitement when, during Cheetah Digital’s recent Signals event, Andras Szocs, Head of Customer Programs and Center of Excellence for Salling Group, shared his realized vision of what can best be described as the most disruptive customer loyalty proposition for super/hypermarkets launched in the past two decades.
No points. App download and usage is a must. Heck, it’s not even called a loyalty program. If you’ve not seen this very watchable session, watch it here.
From a loyalty program to a customer program
A bit of background: I’ve been involved in the supermarket loyalty sector, well, pretty much since there has been a supermarket loyalty sector! Way back in 1995, I was the technical lead when Kroger launched what is now the largest (60m+ households) supermarket loyalty program in North America, Kroger Plus.
I moved to the U.K. between the launch of Tesco Clubcard (1995) and Nectar (2002) to work with one of the early pioneers in loyalty marketing software. That gave me the opportunity to have a small part in the launch and growth of programs for some of the biggest grocery retailers in Europe including: Albert Heijn, Continente, ICA, and Migros.
So, with that experience to hand, I can comfortably say that Salling’s three programs (Bilka Plus, Fotex Plus, and Netto Plus) are truly disruptive. All of them are mobile-only, i.e., you must use the app to get all of the benefits. They are never referred to as “Loyalty Programs”; you can’t earn points. The reasons for customer registration are clear and powerful, being a member gets you:
The best prices on the products you purchase regularly
Access to frictionless refunds (a couple of taps) if you aren’t satisfied with the freshness of a product.
Why was Salling Group able to join launch a loyalty, uh, er, “customer” program 15-20 years after most of their peers had done so and instantly create such a successful and compelling* program? A primary reason is that they weren’t constrained by a legacy loyalty platform.
*All three apps spent significant time at the top of the leaderboard of the Danish App Store downloads
A big reason the rest of the European super/hypermarket sector has been slow to update their customer loyalty propositions is because of the legacy technology infrastructure most are built on top of. Looking back at my own experience, in the mid-1990s, our biggest challenge at Kroger was integrating POS systems from three different vendors with a loyalty solution that also required input from legacy (mainframe) category management, pricing, and promotions systems. Looking forward to now, the biggest challenge for someone in my old role as an IT Director today would be to unplug, or make any significant changes to, any of those legacy tech stacks without breaking the entire thing!
But if it’s not broke, don’t fix it, right?
The decline in loyalty card usage
But what if it is broken? Supermarkets for the most part have been immune to COVID-19’s financial impact. Quite the opposite, many have seen a significant increase in sales, both from new customers as well as increases in spend and frequency from existing customers. Retailers with strong eCommerce home delivery and/or click-and-collect propositions have gained valuable insight on their customers’ buying behaviors because online shopping inherently requires identification (e.g., email address) to complete the purchase. But most will lose this insight as customers return to old habits of in-store shopping and not bothering to swipe their loyalty card. “ID’d sales,” i.e., purchases identified with a loyalty card or similar, have become stagnant or declining for many years.
Why has there been a decline in the usage of loyalty cards? The primary reason has been the commoditization and devaluation of points-based programs. Many retailers have reduced the cash value of their points (e.g., from 1% of the transaction amount to 0.5% or even 0.25%). The last thing you should do in this digital-first, reward-me-now culture is lengthen the time for a customer to earn any type of significant reward. There is a direct correlation between the value of a reward, the time it takes a member to achieve it and their inspiration to swipe or scan their loyalty card.
At Kroger in the mid-90s, the best decision we ever made (credit for that goes to David Ciancio) was to simplify the proposition by not introducing the concept of points. We told customers that the loyalty card meant you no longer needed to clip coupons. The instructions “swipe the card and all store offers are instantly activated” were brief and clear. Bravely, we also told customers if they didn’t have/use a loyalty card, they paid full price. The result? Greater than 60% of transactions and 90% of sales revenue was identified with a loyalty ID, which gave us amazing customer insight data.
Jump forward to now. Every single transaction on Amazon by myself and my family is tied to our Prime account. How do you compete with that if you are a multi-channel retailer? You can’t, unless you have a persistent, permissioned customer identifier that is used both online and in-store every time a customer shops. But to achieve that, you need to have a modern, appealing value proposition for the consumer that compels them to use a customer/loyalty ID and rewards them immediately when they do so.
Modernizing loyalty programs
Salling Group has done just that by putting a modern technology solution (Cheetah Digital’s Customer Engagement Suite), built on top of a big-data platform (our Hadoop-based EDP) which seamlessly manages data exchanges between both legacy systems (e.g., Point of Sale, Item Catalog) and the new digital customer channels (e.g., web and mobile).
Their customer proposition is easy to understand and members get a tangible value exchange (personalized price reductions, digital receipts, hassle-free refund process) every time they shop.
So, what is stopping other super/hypermarket retailers from updating their own customer proposition to make it a “no-brainer” decision for an unknown customer to become a known, profiled, and therefore more profitable customer? For many, it’s the legacy platform dilemma.
Years, if not decades, of stringing systems together has created a loyalty stack that is a spaghetti network of data interfaces and platform integrations. Making changes to any part of these legacy stacks would be difficult and expensive. This ties the hands of IT departments that want to but can’t support the type of real-time decisioning, triggers, and channel communications required to modernize their legacy propositions for a younger, more digital-savvy generation of consumers.
But there is hope! If you are a marketeer chomping at the bit to update your customer proposition, let me help you. I’ve pulled together some business case inputs you can cut and paste in an email to your IT Director that will help to remove some of the common hurdles/pushback I’ve seen in my many years in this sector. Would you like to leave your Loyalty Legacy behind? Get in touch, this (literally) old supermarket loyalty geek would love to discuss how Cheetah Digital can help.
This article was first published by Cheetah Digital. Permission to use has been granted by the publisher.
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