Loyalty programs can be a good investment - SKUFood
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Loyalty programs can be a good investment

There are many opportunities to invest with retailers. With the incredible pace of change in technology, loyalty programs are a tactic used by many stores. The basic premise is to reward consumers for their loyalty by allowing them to accumulate a benefit that is tied to purchases. In theory the more they spend at that specific store, the better the benefit is. In exchange for the benefit consumers allow retailers to track their purchase history and build consumer profiles. Ultimately, the consumer data is the most valuable component of these programs.

Loyalty programs use rewards to incentivize consumers to buy specific products and spend more at specific stores. Many of the incentives are funded by suppliers to entice consumers to buy their products. Retailers collect consumer purchase data when the card is scanned and have the ability to analyze who is buying what.

Loyalty programs can be effective investments for suppliers. Retailers see these programs as ‘theirs’ and seem to look more favourably on suppliers who choose to participate. Signage does sell products and all loyalty programs include item specific signage to promote the offer and drive sales. Consumers do not always understand the math so a loyalty program offer does not always need to be the same level of discount you have with item and price.

Loyalty programs are not new

If I take you back to the early 90’s we had a loyalty program at Loblaw. It was initiated in Atlantic Canada and developed in house. We offered supplier funded discounts in “Superclub”. The technology at the time did not allow us to offer points to shoppers but we could collect their purchase information. Sobeys also introduced a loyalty program called Club Sobeys.

Shoppers completed manual application forms and we entered everyone into a database. When the cashier scanned the member’s card any products with Superclub discounts were automatically applied. It was essentially our version of the in-store special program.

From the retailer’s perspective it did allow us to increase margin slightly as the discounts were only for members. We did do some work to analyze purchase data and some target marketing like the obvious diaper coupons to people who purchased other baby related items. It was a benefit to suppliers in that they only paid for discounts on member’s purchases when they participated.

Perhaps it was ahead of it’s time. Superclub did not last but I like to think of it as laying the groundwork for the PC Optimum program which has millions of members across the country. Club Sobeys was folded into Air Miles when Sobeys adopted this third party loyalty program.

Different programs offer essentially the same model

The three large Canadian retailers all offer loyalty programs to their shoppers. Loblaw stores offer PC Optimum points, Sobeys shoppers can collect Air Miles and Metro consumers can take advantage of Metro et Moi.

All three programs offer instant discounts at point of purchase, other ‘special’ offers and the accumulation of points of miles. Sobeys program is unique in that it is administered by a third party. Consumers can collect Air Miles in many other settings like gas, travel etc

There is always a debate as to whether consumers attach more value to Air Miles they can accumulate in many places or retailer specific points like Optimum or Metro’s program.

Costco has their own version of membership which provides access to the stores. They only serve members. Within their business they do see their shoppers as part of the club and anyone who chooses not to join as outside their target market. It is the only paid membership but we do know they continue to grow and it is incredible how large a percentage of Canadian population have a Costco membership.

Walmart are the only major player to continue with no membership program. They focus on simple and efficient. Loyalty programs are expensive and they ad complexity. Walmart believe their everyday low price position is the most powerful form of loyalty program there is.

What’s in it for suppliers?

It is easy to get to the conclusion loyalty programs are one more option for suppliers to invest or spend trade marketing dollars with retailers. This is true.

When suppliers look at their trade marketing and where to invest loyalty programs can offer some advantages. As we mentioned earlier the two biggest considerations are:

1) You do not always have to invest the same amount as you do with item and price to generate the same lift in sales. Consumers see the sign and the offer and many will be enticed to buy. For some this might be even more exciting than .50 off.

2) Retailers see these programs as proprietary. When you invest here it is with them and perhaps a bit more specialized than just a .50 discount offered to all retailers. We know category groups have targets to meet and loyalty are included. They are charged with convincing suppliers to invest certain amounts with their programs.

There are other advantages:

1) Consumer data and purchase behaviours should be a bigger part of participation. They know who is buying your product and what else these consumers buy. If we had a more collaborative environment this data could be used to develop more loyal shoppers, deliver targeted marketing and drive more sales. I would always ask if you can get it. Ask up front, not after the offer. If possible, try to get to the loyalty program people. The merchandisers and procurement people do not understand or perhaps even have access. If you can get to the loyalty people you might get some data.

2) You do only pay for consumers who are in the program. This can reduce your investment slightly. Probably 70-80% of volume is to consumers in the programs.

3) Discounts are based on purchases, not what the retailer buys from you. Most loyalty programs work like an account. Suppliers purchase XX Air Miles or points and as the items go through the front end the amount of miles or points are deleted. This ensures you only fund the amount attached to purchases as opposed to retailers forward buying. This practice is not as common now as value of inventory is a big issue but it is always a consideration.

4) Loyalty offers are in-store so they do not have to be identical in all stores. One challenge of flyer items is the product has to be available everywhere. For suppliers in the local program or even trying to invest in one area or another it can be a good tool.

Loyalty can be an effective component of your trade spend

Your customers will always push you to invest in trade spend. It is part of their job. Loyalty should be a consideration in your plans.

Under the Influencer with Terry O'Reilly did an episode on loyalty programs if you're interested in diving deeper into the subject.

If you have any questions or require help with loyalty programs, you can always send me an email peter@skufood.com or call me at (902) 489-2900.


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