Food retailers could reach $70 million in incremental annual sales via a customer-centric loyalty strategy, according to Next Generation Loyalty: Get It Right in Food Retail Part 2: Loyalty In 3D, a report from the Food Marketing Institute and Precima. To achieve this, retailers must take a three-part approach to customer loyalty, focusing on loyalty as a strategy, as an outcome of daily decisions and as a program.
It’s not unusual for a food retailer to only capture between 50% and 70% share of spend for even some of their most frequent customers. For grocery stores to gain an advantage over digital retailers and other competitors, a focus on e-commerce is essential. While consumers prefer to purchase fresh and core food items overwhelmingly in brick-and-mortar stores, 25% prefer to buy snacks online, while 23% prefer to buy canned goods online. By cohort, about 50% of Millennials and 50% of urbanites are most likely to shop online at least once a month.
While manufacturers can play a role in helping retailers earn the loyalty of their customers, over 70% of manufacturers believe retailers aren’t using customer data enough, andonly 9% believe their retail trading partners share frequent shopper data.
When it comes to loyalty programs, a majority of retailers and consumers, at 60% and 87%, respectively, believe they are easy to use and understand.
But retailers generally believe most other components of their offering are more important. About 86% prioritize good customer service, while about 86% rank everyday low prices and about 83% rank good promotions as more important. However, shoppers report that only the core merchandising and shopper experience components are more important than the loyalty program.
When asked about different potential components of a loyalty program, retailers believe all loyalty program elements are more important than shoppers do. For retailers and consumers, the most important loyalty elements are points that can be earned/redeemed at their store, the option to select rewards they receive and exclusive access to personalized in-store discounts, but consumers put the option to select rewards they receive ahead of exclusive access to personalized in-store discounts.
Millennials’ responses were closer to those of retailers, whereas importance of loyalty program elements to Boomers were much lower on most options. Even so, the gaps between Millennials and retailers was significant across all but the three highest ranked options.
According to the LoyaltyOne’s 2017 Consumer Sentiment Study, 74% of U.S. loyalty program members report that they like receiving personalized rewards or benefits based on their purchase preferences.
Both retailers and shoppers find loyalty programs to be valuable, with 82% of retailers and 91% of consumers reporting that the loyalty program is either somewhat or very valuable, according to the Next Generation Loyalty report.
When asked about how well the loyalty program performs across various metrics, retailers don’t differentiate much. For instance, retailers rated retaining existing customers a 3.48 on a 1-5 scale, while they rated providing value to customers a 3.45.
However, when retailers are asked in qualitative interviews about the use of metrics to track loyalty program performance, they consistently report that program performance was not measured rigorously. This suggests opportunities may exist to make some improvements in program performance measurement, the report stated.
Leveraging efforts to earn loyalty across as many value-creating decisions areas as possible maximizes the value that is delivered. For enhanced loyalty programs, the ROI is 1-1.5X; for personalized marketing, 2-3X; for customer-centric merchandising, 4-6X; and for shopper-driven supplier collaboration, 5-8X.
The report states that customer-centered loyalty strategies could result in substantial incremental sales and profits. Customer-centric pricing could result in a 1% to 3% sales increase and a 2% to 5% increase in gross margin; customer-centric assortment, a 1% to 3% sales increase and 2% to 4% in gross margin; customer-centric pricing promotions, a 3% to 6% sales increase and 5% to 10% in gross margin, and customer-centric marketing, a 1% to 4% sales increase and 40% to 150% in marketing ROI.
For a $2 billion retailer with a gross margin of 25%, this would result in $70 million in annual incremental sales and $30 million in annual incremental gross profit.
For the full story, go to this week’s Food Institute Report.