Quick Stats

Quick Stats

    You are here

    Data Make the Difference

    Rumors of loyalty cards’ death are greatly exaggerated, analysts say.

    By John Karolefski

    In the past 18 months, Albertsons, Shaw’s, Star Market, Acme, Jewel-Osco, Pathmark and Waldbaum’s have discontinued their frequent shopper card programs. To maintain customer loyalty, these grocers will focus on everyday low prices on staple items, and specials listed in weekly sales circulars.

    Is a trend emerging? Is what seemed like the birth of a breakthrough promotion three decades ago finally fading away?

    Consultant Mark Heckman, former VP of marketing at Indianapolis-based Marsh Supermarkets, recognizes that a number of “good retailers” have abandoned their programs, while other successful retailers feel vindicated because they chose not to invest in electronic card marketing.

    Michael Schiff, managing partner of Partners in Loyalty Marketing, a Chicago-based consultancy, predicts: “More stores will abandon their cards. It will be at a slower rate, and concentrated to those who see it as yet another way to deliver coupons.”

    But not everyone agrees with this promotional obituary.

    Several analysts, consultants and grocers are quick to rally behind loyalty card programs because they continue to be successful. Others hedge their bets by admitting that the “cards” themselves may disappear, but the programs need to remain in place if stores want to thrive and flourish. The key is accumulating and using shopper data appropriately.

    “A well-designed loyalty program that strategically uses customer data to make price, promotion and assortment decisions will position retailers to understand and best satisfy the needs of customers. This, in turn, will give retailers the best chance to compete in a sustainable manner over the long term,” says Graeme McVie, VP and general manager of business development for Toronto-based Precima, the data analytics division of LoyaltyOne.

    “The retailers who best satisfy the needs of customers will win in today’s competitive marketplace by earning the loyalty of shoppers,” he adds. “However, retailers that don’t have loyalty program data will have limited visibility to shopper behavior, and risk putting themselves at a competitive disadvantage.”

    Cards Carrying On

    Loyalty card programs in the grocery industry were introduced in 1985 by Richmond, Va.-based Ukrop’s Super Markets as a way to get to know customers by name and understand the behavior of the most valuable shoppers. This unique promotion — revolutionary at the time — spread throughout the grocery industry until it seemed as though every grocery operator had a card program.

    A 2014 Food Marketing Institute (FMI) report revealed that 81.3 percent of U.S. supermarkets emphasize a frequent shopper/loyalty program as a competitive strategy.

    Critics of loyalty cards claim that the proliferation of programs has diluted the benefits. Shoppers are known to have three or more such cards dangling from their key chains. No one is loyal to any single retailer.

    Don’t tell that to shoppers at Pittsburgh-based Giant Eagle, which operates nearly 400 retail locations in Pennsylvania, Ohio, West Virginia and Maryland. Its Advantage Card, launched in 1994, is the primary vehicle used to reward customers for shopping. The ways in which customers receive value through the card include weekly sales, e-offers, digital coupons and Fuelperks. Through the last program, which began in 2004, customers can use their Advantage Cards to earn 10 cents off a gallon of gas for every $50 spent at Giant Eagle stores. Customers can earn discounts up to and including free tanks of fuel.

    According to company spokesman Dan Donovan, “In addition to offers available to a wide array of customers, we also on occasion use customer purchase history to deliver unique and specialized offers to smaller groups of customers.” Schiff, of Partners in Loyalty Marketing, admits that chains really mining the data will continue to keep their cards because they deliver tailored content and offers to customers. The industry’s best example is Cincinnati-based Kroger. The linchpin for its enormous success is a long-term partnership with Dunnhumby, the analytics firm that helped drive Tesco to major success in the United Kingdom by mining shopper data gathered through a card-based loyalty program.

    Consultant Gary Hawkins writes in the book “The Essentials of Shopper Technology” (Outskirts Press 2012) that Kroger — through its partnership with Dunnhumby — has effectively “weaponized” shopper data in at least three ways, to the detriment of its competitors:

    • Personalized marketing: The partners leverage data to provide highly targeted promotions to shoppers, driving basket size, visits and retention over time.
    • Merchandising: Kroger takes the shopper segmentations and insights created by Dunnhumby, and drives this knowledge down to a store level, using it to tune each store’s assortment and inventory to the shopper base.
    • Direct monetization: Kroger charges brand manufacturers millions of dollars annually to access shopper insight and analytics provided by Dunnhumby. The manufacturers are expected to use the information to help the chain improve its business.

    Kroger has more than doubled the number of premium loyalty shoppers, according to Hawkins. “It is converting secondary, lower-value shoppers into loyal high-value shoppers. This growth in revenue is coming at the expense of other competing retailers, often independents and midmarket stores.”

    Leveraging Technology

    Hawkins knows all about competing as an independent against major chains. For years, he was president of Green Hills Farms, a one-store operation in Syracuse, N.Y. The store earned a national reputation for effective shopper engagement enhanced by a card-based loyalty program. Today, as executive director of the Center for Advancing Retail and Technology (CART), he aims to help small food operators take advantage of the newest technologies available. CART, which is an alliance partner of the National Grocers Association (NGA), powers a marketplace connecting stores, brands and solutions.

    One independent betting on technology is Lubbock, Texas-based United Supermarkets. This wholly owned subsidiary of Boise, Idaho-based Albertsons recently expanded its loyalty program from an April 2014 launch in seven Market Street locations in Dallas/Fort Worth to all east Texas United Supermarkets, Amigos, Albertsons Market, Market Street and United Express locations. Members may use their phone numbers during checkout instead of carrying a membership card.

    Heckman, the consultant, enthuses that “shopping technology” is exploding. Shoppers want automation, simplicity and consolidation of the many offers and rewards from each retailer. Consequently, he says, loyalty cards are gradually giving way to shopping apps, wireless chips and other technologies that identify the shopper both online and in the store.

    “Technology has finally arrived to deliver on the promised returns of loyalty marketing,” he explains. “It is now up to the retailer to either embrace a new model of holistic, technology-based loyalty or run the risk of being rendered irrelevant, even to their most loyal shoppers.”

    Trey Moser, senior director of retail analytics at Winston-Salem, N.C.-based Inmar, agrees, saying that maintaining shopper loyalty requires more than just a shopper card program. “An engaging, data-guided program that encourages and rewards purchases should be at the center of every grocery retailer’s CRM strategy,” advises Moser. “Some retailers have chosen to refocus marketing efforts elsewhere, but those who have continued to invest in their loyalty programs — and are now leveraging new personalization and targeting capabilities — are seeing real return on that investment.”

    “Some retailers have chosen to refocus marketing efforts elsewhere, but those who have continued to invest in their loyalty programs — and are now leveraging new personalization and targeting capabilities — are seeing real return on that investment.”
    —Trey Moser, Inmar

    “Technology has finally arrived to deliver on the promised returns of loyalty marketing. It is now up to the retailer to either embrace a new model of holistic, technology-based loyalty or run the risk of being rendered irrelevant, even to their most loyal shoppers.”
    Mark Heckman, former VP of marketing, Marsh Supermarkets

    By John Karolefski
    • About John Karolefski John Karolefski is a veteran business journalist with 25 years of experience covering CPG, retail and technology. Over the years, he has edited several trade publications and is the co-author of three books: "TARGET 2000: the Rising Tide of TechnoMarketing," "All about Sampling and Demonstrations," and "Consumer-Centric Category Management." He has appeared on CNN, CBS Radio and BBC Radio to discuss marketing issues. He can be reached at [email protected]

    Related Content

    Related Content