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According to a recent news report report by Piper Jaffray analyst Sean Naughton, Target has launched a new loyalty program called REDperks. Target and Whole Foods, two of the best-regarded U.S. retailers, have now embarked upon new loyalty initiatives. With the press on Albertson’s public decision to discontinue their loyalty program and a number of highly successful grocery retailers choosing not to use a traditional loyalty program, many retailers have been left wondering if loyalty programs are right for their industry.
Loyalty: There’s more than meets the eye
Retailers understand the importance of satisfying the needs of customers to maximize their chances of earning customer loyalty and competing most effectively in the market. This activity around loyalty programs highlights the realization that leading retailers are not delivering the kind of value proposition that is meeting customer needs in the best possible way. The varied responses indicate that retailers are trying different approaches to address the business challenges that are being driven by increasingly informed, discerning shoppers in addition to heightened competition and new retail players.
Some retailers address the situation by avoiding the standard two-tier discount card approach, abandoning existing card-based programs, or by evolving their offerings. These approaches highlight a recurring challenge: loyalty programs are viewed simplistically when they should be part of a broader, strategic approach.
A loyalty program has two objectives: provide a customer identifier so needs can be understood and satisfied; and offer an additional marketing vehicle to the toolkit to reward and recognize loyalty – this is the key to a successful loyalty effort. When a program is used to drive value, the retailer is making an investment that is leveraging a small component of the holistic value proposition.
Customer data should be used to inform the overall strategy, so finite resources can be allocated to the best loyalty-driven opportunities. Once the strategy is set, if a retailer wants to maximize the value of their data and earn customer loyalty, they need to use data to drive decisions across price, promotion, assortment, marketing, and vendor collaboration efforts. The retailer should also be using data to enhance the benefit of their loyalty program so the standalone value proposition is most appealing to customers.