Loyalty schemes are nothing new – Co-op pioneered the field nearly 200 years ago through its dividend scheme – but the simple model of sharing cash rewards for loyalty is making a strong return in retail, driven by three key factors:
- Desire to win a greater share of consumers’ food budget
- Opportunity to leverage data to increase supplier engagement/funding and create traffic-driving deals
- A rise in the ability to create a new income stream through retail media monetisation
Tesco Clubcard changed how data is used to drive loyalty and increase items in shopping baskets through personalised coupon offers. This premise hasn’t changed with member pricing, but it’s now happening on a grander scale.
In the middle of a cost of living crisis, the price of an overall basket remains the primary loyalty driver. So, the combination of saving on core groceries, coupled with genuine offers and branded member prices, can further drive loyalty.
This strategy is shown in Tesco’s 22/23 FY results: “We are the most competitive we have ever been, with our market-leading combination of Aldi Price Match, Clubcard Prices and Low Everyday Prices changing the way customers perceive value.”
However, as customers adopt more loyalty schemes, simple mechanics will not be enough, and member pricing will just become the new price battlefield.
Retailers that win will secure fmcg supplier funding
Currently, member pricing is a means to amplify uptake of supplier-funded deals and offers. They allow retailers to demonstrate the uplift and incremental impact of promotions in stores, enabling informed supplier conversations to secure more deals.
Doing this well and showing strong results means suppliers will push more offers through the retailer that will help them grow sales and market share.
The retailers that win will secure supplier funding for promotions by demonstrating their programme is the one to invest in.
A major benefit to loyalty schemes is the data created at consumer level. Tesco is about to hit 80% penetration of loyalty sales. As they get there, personalised pricing will come, and done in the right way, could be hugely impactful – we’ve already seen this with Amazon.
Personalised coupon pricing at product level has existed for a while. But done correctly, individual offers and deals could help drive sales and category participation.
However, there must be genuine inspiration for customers. Adopting the “Spotify approach”, where individual prices are there for you to trial products you didn’t know you’d love, will be an interesting development.
Supermarkets are developing digital media space
Retail media monetisation is another route for promoting supplier-funded offers and a revenue stream to fund loyalty for retailers. As the noise around third-party data and cookie deprecation increases, media campaigns are becoming costly, and advertisers are looking for new ways to reach their audiences.
Supermarkets are creating a swathe of digital media space that will become hyper-targeted to deliver advertising revenue, which can be used to fund better offers, lower prices, and win a greater share of wallet. This in turn drives more engagement, more revenue, and competitive prices.
Creating new revenue streams from retail media so they can re-invest in price and promotion is how retailers can make their offerings stand out, and how they will win. As customers gain access to multiple apps, it will come down to who delivers the best prices and offers at the right time.
The retailer that can effectively leverage their data to invest and target the most relevant offers will win on price and, ultimately, on loyalty.
It will be difficult for retailers that do not have high frequency purchases to leverage member-style pricing, but accurate targeting and next best product recommendations will become their driver of loyalty, winning key moments for customers who show intent to buy.
First-party data is the new battleground for loyalty across retail. Brands are adopting this to understand customer buying habits so they can target them across all channels in a personalised way. Those retailers reliant on Google and Meta as key revenue streams need to be integrating and activating first-party data now, or they risk missing out on loyalty and media monetisation.