Key learnings about effectiveness of loyalty programs for grocery retailers

Loyalty card programs offered by grocery retailers have intrigued me for quite some time. First, in my capacity as a cashier at Zellers (discount department retailer) where I earned a bonus for to signing-up customers for our rewards program – including the credit card. Secondly, in my teenage years where I used the SPC card wherever I could. Now, as a product manager for Checkout 51 and with the luxury of those past experiences, I’ve been working closely in the domain of loyalty programs for grocery retailers.

In this post, I hope to distill the key learnings in hopes of sharing my reflections with others who are also trying to solve problems within the retail space. In later posts, I hope to expand upon some of these points in more detail with links to supporting sources.

Key findings about Loyalty Programs

  • Expensive to Setup without evidence of ROI: Loyalty programs of any kind are expensive to set up and maintain for the retailer. Furthermore, there is little or no research evidence that any of these changes in behaviour justify the program costs. (Bowman and Lele-Pingle 1997; Uncles and Laurent 1997)
  • Little Impact of Loyalty Programs on Growth: loyalty programs seem to produce only very slightly loyal behaviour and do practically little to drive bottom-line growth. This is in part because of the large costs needed to set up and run the program and its on tangible bottom-line and intangible opportunity costs.
  • Loyalty Programs Target the Wrong Set of Customers: Loyalty program’s marketing efforts end up acquiring and resonating towards loyal and heavy consumers of a brand – a retailer or a CPG. Less frequent or “at risk off churning” consumers don’t see their loyalty program and if they do the can’t justify the point in joining it.
  • Efforts to Personalize of Loyalty Programs are Poor or Non-Existing: Grocery retailers hypothesize that the loyalty programs would provide vast amounts of data that would allow a better insight into customer behaviour, cost, ability to target and personalize loyalty program offerings. In practice, however, this is more trivial and expensive to analyse and use all this information for targeting purposes. Even when accomplished, it is debatable that personalization to that extent can return the ROI spent to get to it.
  • Loyalty Programs Miss the Why and Non-Consumers: Loyalty programs rarely do a good job in collecting complete customer data of decision making or customer experience. Furthermore, these programs tend to ignore the non-consumers and “why” for them as well.
  • Loyalty Programs Operate in an Incomplete World: Loyalty programs do not collect or normalize their data to the complete portfolio of brands or products bought. That is, they do not have much to say about the total market, lost potential, competitor marketing activity, or total category expenditure. This results in a self-fulfilling world for both the loyalty program operator and the brand as they could conclude any campaign a success in isolation the complete world.

Unfortunately, many of the above findings are in directly conflict with the objective and purpose of a loyalty program. On the bright side, this should serve as an inspiration for myself and others working in this area to solve problems for the retailers, CPGs, and consumers.

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