The subject of loyalty marketing has been on the minds of MNB users a lot over the past week or two, prompted by a story we ran about how Delta Air Lines was changing its reward system. Delta, it seems, is shifting to a method of rewarding fliers based on how much they spend for their fares, as well as how many miles they fly in the airline.
Our thought that was that this suggests that the supermarket industry ought to be considering whether or nor there ought to be changes in how they reward shoppers. Not everyone agreed with us. (When do they?)
In response to this piece, we got a thoughtful email from MNB user Glen Terbeek, author of “Agentry Agenda,” addressing these same issues:
Our thought that was that this suggests that the supermarket industry ought to be considering whether or nor there ought to be changes in how they reward shoppers. Not everyone agreed with us. (When do they?)
In response to this piece, we got a thoughtful email from MNB user Glen Terbeek, author of “Agentry Agenda,” addressing these same issues:
I have been reading the debate on loyalty programs over the last several days on MNB and would like to add some thoughts re the airline/supermarket loyalty "oxymoron".
I believe there are some significant differences between the airline and supermarket programs, and I am sorry to say, some similarities as well.
First of all; the airline programs are not ”playing” with the flyers' money in most cases. The majority of the frequent flyers' flights are paid for by someone else, i.e. a business. So the flyer gets free trips to Hawaii or other destinations as a reward or bonus for the amount of time they spend traveling away from home.
On the other hand, the supermarket shopper believes that the "rewards" that they get are funded out of their money. You might say the retailer is ”playing”with the shoppers’ money. If they don't use the loyalty priced product, is it a reward? Does someone else get the benefit instead, even though I am more loyal? Maybe lower net prices, in which the shopper chooses how to spend their money, might make more sense.
Second, the airlines reward very frequent flyers differently than occasional flyers. Every program has levels that acknowledge different levels of frequent flying. In other words, the more loyal you are, the more advantages you receive. As an example, I accumulated over 5 million miles on American Airlines during my career. I, like others with similar miles, had a special person to call at O'Hare for any need that I might have. Ginny got me on oversold flights with the only question, "Do you want your normal aisle seat." My wife and I were always upgraded to first on European trips, with no miles deducted. Ginny knew which flight I was flying on through their reservation system and would make an attempt to be at the departure gate. This was service above and beyond the loyalty system and “contract”.
On the other hand, I don't have any supermarket loyalty cards because I get the same price advantage and service as if I had a card. This is regardless on how often I shop or buy. Therefore, there is no reason to have a card. Every time that I have shopped in a store with a loyalty program, the cashier used the "check stand card" to give me the same discount advantage. Oh well, the manufacturer pays anyway.
This brings me to the third difference. Airlines aren’t distributors of another company’s products; their service of providing a seat to a destination is what the flyer is buying. This is obviously not the same for supermarkets. Manufacturers have interests that are not necessarily in line with the supermarkets loyalty program objectives, yet, shoppers are frequently loyal to ”their standard, core items”. This creates a significant part of the problem today; but could easily be part of the answer. If a shopper proves to be loyal to a store and loyal to “their standard, core items”, why don’t the retailer and manufacturer offer that shopper loyal pricing (every day low price) as a reward as long as they remain loyal to the store and product?
Now for the similarities. Unfortunately both airlines and supermarkets, as a general rule, play pricing tricks on ”standard, core items”; a seat on a standard airplane or a national brand respectively. These are ”standard, core items” in each case. I can fly to Paris through Charlotte from Hilton Head cheaper than I can fly to Charlotte from Hilton Head. My ticket price has been twice the price of the person's in the seat next to me on many occasions. We all have similar stories. The agents can't even explain the reasons for some of the prices.
Supermarkets of course do the same thing. A recent review I made over three months comparing Coke can prices between Sam's and "our supermarket" was very interesting. There is no doubt that on the average, "our supermarket" sells at a lower average price than Sam's does. However, the prices vary all over the board from the normal price of $3.99 for a 12 pack to 3 for $7.00 for this very ”standard, core item” in our household; making it work to shop for Coke. (It was my impression that Sam's had the lower prices at $6.78 for 24 cans (and margins) until I did this study.) When explaining this to an executive at another chain, her emphatic answer was "We will continue to run aggressive price promotions on Coke because it builds traffic"! What? Where does the same traffic go when it is at normal retail? Does high/low pricing on ”standard, core”items make loyalty sense? Even though we are loyal to this supermarket, we were almost forced to shop in alternative formats for “our standard, core products” due to the confusing high/low pricing. No wonder “alternatives” continue to take share without loyalty programs. The same is true for the airlines such as Southwest with every day low fares.
The second similarity is equally as interesting. The airline loyalty programs are almost identical; it's hard to tell them apart. The same is true for supermarkets' programs. So how do you pick an airline in which you want to concentrate your flying to get the escalated benefits? In my case it was easy, I picked American (in United's hometown) even before they had a loyalty program because of the special services that they offered through Ginny to make the flying experience great. I was a loyal flyer before I had my card. The loyalty program was a true additional reward, not a bribe. For retailers, maybe the differentiated shopping experience, particularly for loyal shoppers is the true loyalty program.
Why do we continue the "disloyalty" programs of high/low pricing on ”standard, core items”? Why do we continue loyalty programs (systems) with no perceived value or differentiation; (maybe negative value)? Why do we focus on supply chain productivity rather than the marketing productivity of the local store? Why do we continue to let the manufacturers interfere with shopper loyalty rather than support it? Why do we focus on store labor productivity vs. CRM? Why do we try to apply mass marketing concepts to loyalty (i.e. individual shopper) programs? Why don’t we have the shoppers’ equivalent of Ginny in our stores?
At one time, supermarkets "owned" the loyalty and traffic that the “alternatives” coveted. What happened? I believe supermarkets gave it away!
- KC's View:
- We’ve said it before, but it bears repeating. You should order Glen’s “Agentry Agenda” from Amazon.com. It is worth reading for its view of where the industry should be going.
