Head of Food Digital Operations and Development
Dave’s had 15 years of professional experience in the retail industry, gathered at companies like Tesco and Sainsbury’s where he led the online development and fulfilment functions. At Sainsbury’s as the Head of Food Digital Operations and Development he was accountable for the in-Store Digital channels and helped develop operational fulfilment of digitally enabled food transactions. Currently he is engaged as a consultant in the online retail industry.
Section 1: Current Loyalty Programme Challenges
1.1. How do you define customer loyalty in your industry?
Customers are driven by two things, I think it has been driven firstly by the rise in online shopping and secondly, by the move to shopping locally. So effectively, the people that have struggled in this one is the people that have great big box supermarkets, no convenience stores or little convenience presence or little local presence or little or no online presence. It has been a channel shift.
Prior to COVID, when somebody wanted to move into a local channel or wanted to move into an online channel, they were quite likely to go with a brand that they would normally get their regular supermarket shop from. COVID has really tested that because, it has moved so many people particularly into the online channel, where if they shopped with Tesco for instance, the first place they would go will be “tesco.com.” And then they would see I cannot get a slot. I cannot get a slot for a week and a half and I am very hungry. So actually, because of the local idiosyncrasies of the way that catchments work, you can get a slot with Ocado or Sainsbury’s, ASDA, or whoever.
There is a shift then in terms of which retailer you are going with predominantly because the channel is available. So, if I can get a slot in two days with Sainsbury’s, I will move from Tesco to Sainsbury’s. And then if I have a corner store, there is going to be a Morrison’s corner store or someone else, because I am staying local, because I am walking around my area more, I do not want to get in the car and drive. I do not want to go into other parts of town or whatever. I am far more likely to be loyal, not so much for reasons of a loyalty card, but I am loyal because that is the shop that is near me and that is the online channel that I have started using.
1.2. What is the leading customer loyalty program in your industry?
I would suggest Tesco and Sainsbury’s, I think those two are great. Firstly, Tesco, and in different ways, Tesco have always pioneered with Clubcard, and what they are doing well, what they have started doing with Clubcard, which no one else is really doing, they have always used it to tie people in with points of attraction. But, giving people additional discounts if they buy with Clubcard just gets people more tied into using their Clubcard. And the key thing here is particularly in smaller transactions, so Clubcard, a loyalty card would always be used when you are doing a weekly shop, let us say as a hundred pounds. A hundred-pound weekly shop, you give the cashier your loyalty card.
If you are going in there for four or five items, it is a quick visit, you cannot be bothered getting your card out for the sake of points that are worth a fraction of a penny. Suddenly, if it is worth 20p off this and 40p off that and it can save you a couple of pounds on your basket overall, you are going to do it. It is a really good idea. It will clearly be costing them a lot of money, but a really good idea to help people in a time where people are changing because of reasons that are beyond Tesco’s control. So, they are trying to go, “Ah, well, what can we do to either bring them back or make them particularly sticky if they can’t get an online delivery slot from us?” So that initiative from Tesco, it is expensive, it will be paid for by suppliers to a certain extent, but it is a really, really, smart idea.
Second one, I would point to Sainsbury’s scheme with Nectar, and that’s because Nectar is, it is a perfectly good supermarket loyalty scheme on its own. But, because it works across so many other retailers, so many other partner products, it has a far broader relevance just beyond the already broad Sainsbury’s product base. Sainsbury’s obviously own Argos as well, who were a non-food retailer. So, because you can use that Nectar card, that loyalty card when you are buying from other retailers, the relevance of it becomes deeper.
There are clearly other ones on the market, and they are, I would call them bog standard because you just buy something and we will give you some points and then you can redeem them for whatever it is, a book of stickers or whatever it is at the end of the year.
1.3. Why is it leading? What are its strengths?
Three key strengths, I think that they are innovative, and they try to keep themselves fresh. They are visible in store and online and wherever it is possible to get a non-intrusive but obvious promotion for those cards, they do it. And then thirdly, it is the fact that they make the accumulation of points or the use of the card, they make it relevant, and they make it a thing that people will value. If you go back 20, 30 years, when Tesco were giving out stamps to then get a t-shirt at the end of the year or whatever it was, you go, well, that is great. And it is in some cases, it was more about the collection of the stamps itself than it was about the thing. With the club card and with the Nectar card, it is not as great as it was, but certainly the ability to generate real value for a customer when you do want to cash in your points or whatever it is there.
And there is a time for redemption so most retailers or a lot of grocers will have times where they make the points worth double or potentially even more, so you can redeem far more against the points you have accumulated. And that is a genuine event. It is where people are spending their money on their shopping so they will redeem it against items, or they can just redeem it against their normal grocery shop. And that double up weekend, couple of days, whatever, you see a genuine spike in sales.
1.4. What are some of the challenges in developing a successful programme?
I think that the first one is convincing customers that it is always applicable. If you look at online, it is always used. In many cases, it is a stipulation of signing up for the accounts. If you sign up without one, they will just give you a loyalty card. In store for big baskets, as we were saying, it is normally used, but not always. And then as you drop the basket size, and then it is particularly as you get into convenience stores, it really falls away and the penetration of loyalty cards into convenience stores is low.
You get your card out to pay, it is a three-pound transaction. Can you be bothered claiming those points? No. Nobody can. So, having hook to ensure the relevance of that extra 10 second action, five seconds action in a convenience transaction, I think that is a big challenge because the retailers are using this loyalty card to build a picture of you as a customer. And, if you are shopping half the time with your loyalty card, then they have got a picture of half of you. It is better than no picture, but it is still not as good as the full picture.
Secondly, I would say they are generic right now. And if you look at what everyone as retailers is trying to do, is trying to make the promotions as relevant to the individual as possible, trying to make a website that is as relevant as possible. Amazon want a website that is pertinent to you as an individual, and you are the only one that sees that configuration of the website. With a loyalty card, it is still reasonably generic. So, if I am walking around Tesco with my Clubcard, I will still see 40 pence off a product that I will never buy. It is just not relevant to me. The rewards that I can claim when I want to cash my points in are still reasonably generic. And typically, in that case, people just go, “Well, I will have some money off my shop, please. Thank you very much.” So, making it truly personal to the individual will be the second one.
And the last one is convincing people that have huge banks of accumulated value within their loyalty cards to spend them and interact with them. Now, these guys are putting Clubcards or Morrison’s points cards or whatever through, an auto pilot, and they are accumulating these points. There is no real reason why they are doing it because they are not then cashing them in. So the engagement is almost unthinking. Making that engagement a conscious decision to do something because you appreciate the rewards and you use the rewards, that is when the loyalty card becomes truly sticky with an individual, and convincing people to get after those points, use those points as opposed to sitting there as a bank of unspent credit is the last transaction. That is generic across them all.
1.5. What has been the impact of COVID-19 on loyalty programmes?
The truth is they have not flexed that much when you look at them because they are simple mechanics. The trend has moved to local shopping and to big baskets and to online shopping, and online shopping in a big way. So, we have seen a bigger section of the population get more entrenched within the channel that they are particularly using. So, they will find a supermarket that they do not mind going to because they feel safe. They will find an online store that they like using. They will go to their local convenience store. And, what it means then is that the loyalty card is a supplement to that. It is a backup loyalty generator as opposed to a driving force.
What it means then, is that loyalty is a defense mechanism. As an attack mechanism, it is only really Tesco, as we were saying before, who is really going after winning back customers and winning customers who are really using loyalty in an aggressive way. And I think that it is very effective, and it is a great mechanic they are using. It is a very effective mechanic as well.
Section 2: Future of Loyalty
2.1. What does the future of loyalty programmes look like?
I think it will start to become more pertinent to the individual, and what we have seen is a gradual deterioration of the quality of reward you can get, how much points are worth for instance. As we look forward and the world opens back up again and more online capacity becomes available and people are more comfortable going back to in store, the real thing here is how do I make sure that I keep hold of the customers I have worn? And how do I make sure that I get hold of the customers that I have lost back again? And loyalty cards are a good, aggressive way of doing that. There are few other things beyond price, promotion, and advertising, which are all expensive.
I think loyalty cards will become a key tool in retailers’ arsenals. Not the only tool by any stretch, but the best value, or one of the best value tools they must try to do is defend the base that they have won and win back the customers they have lost. So that becoming pertinent to the individual, making it worthwhile to use that card, and, I can see, as you look even further forward, the question of how you make it pertinent to, or how do you make it relevant or useful to use your loyalty card with every transaction? Do you then start saying, “Well, actually, I’m going to link my bank card and my loyalty card? How can I do that? So, I am still only getting one card out. And if I pay with my MasterCard, I’m also getting my Morrison’s points as well.” So, there are things to be done out there to aid the simplicity of transaction, of gathering that loyalty for a customer and gathering that loyalty data for a retailer.
2.2. Do you think that technology is going to have a role to play in terms of loyalty programs?
The real brain power of loyalty schemes is not so much in the front-end technology, it is in the backend. The data and analytics in servicing, what are the relevant things that retailers should be doing? Because of how their customers are behaving. So certainly, as the branch of technology around whether it is AI (Artificial Intelligence), machine learning, whatever you want to call it, advances, there are data analytics advances that we can make the most of as an industry to really get under the skin of our customers, and how you want to do that. Do you want to just then market particularly for a customer? Does it inform your new product development? Does it inform your store configurations? All these things are coming from that loyalty data.
But secondly then, so there is the backend, the machine learning type elements and what you do with it, servicing is so what? It is really, important because there is just an absolute swamp of data. The second bit will be the front end, will be how we integrate that loyalty gathering of loyalty card process into the payment process as seamlessly as possible. So, and technology is going to help there, whether it is till technology, whether it is card technology. It is barcode technology, just making it as painless as possible so that we as an industry get as much data as possible, and we become as relevant to the customer as possible.
2.3. What is the role of sustainability in the future of loyalty?
It exists but is not ridiculously huge, I do not think. I think every retailer will look at everything through a sustainability lens at some point. It could be that sustainability is on the loyalty agenda, it could be loyalty is on the sustainability agenda if that makes sense. So, if there is a chief sustainability officer, are they sitting there thinking, well, how could we use a loyalty card to generate more sustainable activity? But frankly, as I go back to that data analysis, how do I use that data to reduce waste? How do I use it to optimize my supply chain? And all these things are, yes, you can look at them and say that they are cost saving, but they are also sustainability as well.
If I make a change to packaging, does that mean that I am more sustainable? You know, I can look at sales numbers, but I might see that customers are now buying into it and particularly customers who bought it before and not buying into it. So, I need to understand that as well. So, the data that you get out of loyalty can be used to drive, to inform the sustainability agenda. I would say that that is more relevant, rather than using loyalty to encourage sustainable practice by customers, but at the same time, you could. You could say, “Ah, I noticed that you brought your own bags. Here are X extra points for you today,” or some degree of, you’ve used your loyalty card, you brought your own bags. Thank you very much. There is a reward there. So, it can be used in both ways.
2.4. What is going to be the financial impact of these programmes?
The budgets are not there for it to be significantly greater than it is right now. So, it will be a case of how do we make the existing budget work within the confines of what we want to do? So, it will be a case of moving it around. And then if additional revenue is generated, then high-fives, we have made some additional revenue or saved some extra money. That will go back into price activity as opposed to loyalty, so I do not think that anyone is looking to spend significantly more money on loyalty. It would not surprise me though, if people were looking to spend it differently and really leverage the data and analytics sat behind that loyalty.
2.5. How will the strategic value of programmes change?
From a grocer’s perspective, no. I think everybody has them as a high strategic value and I think that will maintain. For some, the people that are really leveraging that loyalty program now, Tesco, Sainsbury’s, et cetera, it will remain a definite strategic weapon. It is more likely just to increase in strategic value for those guys that are less active with it now, and it may be that they choose to create another Nectar card, effectively, another cross-retailer card. You look at Morrison’s who are working across Morrison’s and Ocado, they are supplying to Amazon, they are wholesalers for McColl’s convenience stores as well. You suddenly realize there is a common thread there. And, there is a conversation to be had around loyalty which helps everybody as retailers and helps customers as well.
If a loyalty scheme is important now, it will keep being important. And if a loyalty scheme is important but not as good right now, then considerable effort will be put into making sure that loyalty scheme is as relevant to customers as humanly possible.