What’s the deal with store loyalty?

Retailers in general and supermarkets in particular tend to be greatly animated by the concept of store loyalty. This is manifested in the widespread use of loyalty cards over the past couple of decades or so. It is also reflected in the use of various forms of promotions and special offers both in-store and through online channels. The use of mobile technology has expanded these opportunities in recent years.

I was interested therefore to read of a recent initiative that was launched by Waitrose, the up-market UK food retailer.

As you may or may not know, the UK food retail sector is currently in the midst of a very aggressive price war. The growth in market share of the discount retailers Aldi and Lidl has put pressure on the more dominant supermarket groups to respond with price cuts. As a consequence, the main players are looking for areas where they can gain any form of leverage or traction in order to give them a competitive edge in the area of pricing and promotions.

The use of loyalty cards has always engendered mixed views and opinion both from shoppers, experts and even retailers. Tesco’s Club Card has undoubtedly been the ‘star of the show’ since it was launched over two decades ago. It has been seen as a scheme that provides focused and relevant rewards for cardholders: mainly in the form of vouchers which can be used to get discounts off items. Over seventeen million shoppers in the UK hold such a card and they get quarterly vouchers which reflect the personal brand preferences of the individual shopper.

The basic principle of such loyalty card systems is that they are based on shoppers gaining points for their general spending.

Waitrose’s managing director argues that shoppers actually want immediate benefits: not rewards that may come their way some distance into the future i.e. when sufficient points or sending levels have been acquired. Waitrose has introduced what it sees as an innovative and customer-focused promotional campaign.

‘Pick Your Own Offers’ lets the shopper decide which items they want to include with respect to discounts. The scheme is based on the shopper choosing ten items for a twenty per cent reduction on each item. Waitrose has developed a list of 1,000 items from which the shopper can choose from. Every time they purchase them, they get the twenty per cent discount. This list was developed and launched in June by Tesco and reflected items that are typically purchased in the summer period (if there is such a thing in the UK!). Shoppers have to stick with the nominated ten brands until September. Waitrose will then bring in a new list to reflect the autumn season.

Waitrose has over 5.7 million loyalty card holders and in order to incentivise them to sign up for this deal they kept it open until July 7th 2015. Anybody who signed up received a £6 discount of a £60 pound shop.

This is an interesting development in so far as the retailer, while still retaining control over the items to feature in the promotional campaign, allows the shopper some degree of freedom and choice in the exercise. The benefits appear to be real: they receive twenty per cent off the price of an item when they purchase it in the store. For example if one of their nominated items was a Warburton’s seeded loaf batch, before the deal, the shopper would pay £1.50. As a result of participating in the campaign, the shopper would now pay £1.20 for that item.

Thus the benefits are immediate and contrast with traditional loyalty schemes where points and spending have to be built up and accumulated over time.

Can this campaign change the way in which retailers think about rewarding loyal shoppers? Will we see a move in this direction from the other large food retailers in the UK?

Is it a gimmick that is still largely loaded in favour of the supermarket?

Can supermarkets introduce other novel schemes? For instance Waitrose offers free coffee and newspapers to its members of its myWaitrose scheme.

I would welcome some comments and contributions on this issue.