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The new world of loyalty

What will it take to earn customer loyalty in the days and years ahead? More than points, say the experts

With customer loyalty poised to become more of a rarity in the post-pandemic world, grocers may be forced to rethink their loyalty programs. So says Sylvain Charlebois, senior director of the Agri-Food Analytics Lab at Dalhousie University.

Charlebois believes food prices will continue to increase as the economy grows. In response, consumers will become more frugal; they’ll also become choosier and will shop around more. As a result, “grocers need to become more aggressive in rewarding loyalty as much as possible,” he says. “The pandemic has allowed consumers to realize that they have more choices.”

With frugality set to become more of a factor, Charlebois suggests grocers should connect their loyalty programs with in-store departments where consumers are feeling challenged financially such as the meat counter. Grocers should also provide shoppers with the opportunity to earn more loyalty points in the periphery of stores. “You want to reward people who are buying fresh and buying products for which margins are much higher.” Consumers will also be trading down and looking for house brands, and retailers may want to encourage such purchases with more points, he says.

These strategies are just a few of the ways grocers’ loyalty programs are expected to evolve in the coming years, according to experts.

To an increasing extent, loyalty programs will be about getting shoppers to spend more time on retailers’ digital platforms to enhance their shopping experiences, says Amar Singh, senior director at data analytics and brand consulting firm Kantar in Toronto. “Before they even step into the store, you present promotions that are relevant to them, leveraging personalized data and advanced analytics and encouraging them to spend more time engaging” with loyalty program offerings and services.

Rexall’s Be Well app, for example, rewards members for interacting with the program when they choose personal health goals and stick to them, says Singh.

Similarly, the free PC Health app from Loblaw provides users with personalized tools and recommendations based on their health needs and goals. Members earn 20 PC Optimum points for each health program activity they complete.

Such services allow retailers to better understand consumer behaviour and preferences and, in turn, expose members to relevant promotions and create opportunities for everything from vitamins and supplements to personal care brands, Singh says.

“Grocery data is among the most predictive data in retail, so when you start mixing that with health behaviours, activities, outcomes and conditions, there is definitely a case to be made,” explains Sean Claessen, chief strategy officer at loyalty management firm Bond Brand Loyalty in Mississauga, Ont.

The jury is still out, however, on whether retailers such as Loblaw have earned enough confidence from consumers to allow their health data to be combined with their grocery consumption data.

Nevertheless, Loblaw appears to be doing much that is right when it comes to loyalty. According to the retail giant, more than half of Canada’s adults are members of the PC Optimum program. And a Bond Brand Loyalty survey found PC Optimum is, in fact, the No. 1 loyalty program in Canada in the grocery/pharmacy/warehouse sector, followed by Co-op Membership and Loblaw’s paid membership program, PC Optimum Insiders.

With loyalty programs, today’s shoppers are not only looking for transactional value, Singh says. “They want brands to help them simplify their lives. They want brands to take a leadership role in providing ideas and inspiration. That’s become a standard expectation for a successful loyalty program.” Consumers want to engage with a loyalty program to help them solve everyday problems, he adds, and this presents retailers with the opportunity to inspire shoppers and provide them with engaging services. “Share of wallet is going to become all about increasing and reinforcing the share of life so that you spend more time on a retailer’s loyalty platform,” explains Singh.

Brian Ross, president of Precima, a NielsenIQ company that specializes in global retail strategy and analytics, says personalization is the future of loyalty as opposed to the much broader programs of the past. With advances in technology, digital, mobile, e-commerce and analytics coming together to allow retailers to deliver individualized offers to consumers, “personalization is the new loyalty,” he says.

“Consumers join loyalty programs because they want additional savings,” says Dawn Buzynski, director, strategic communications at Iowa-based grocer Hy-Vee, which has more than 265 outlets in the U.S. Midwest. “Typically, they join because of an incentive, but they stay in the program because it’s a brand they know and trust and the perks and benefits are of value based on their lifestyle. The key to retention is to continually provide relevant value and that comes from personalization. We tie rewards to a customer’s wants and needs.”

Buzynski says the grocer’s loyalty program, Hy-Vee Fuel Saver + Perks, generally remained unchanged for the first six years after its 2012 launch. But “over the past three years, we have evolved our program to be more personalized and flexible,” and to adapt to the convergence of digital and brick-and-mortar shopping experiences.

A large percentage of customers moved to Hy-Vee’s e-commerce platform when the COVID-19 pandemic began, “which accelerated our plans to move Fuel Saver + Perks to a completely digital rewards program. Now, customers don’t need a card to use and redeem Fuel Saver rewards. They can simply scan their Hy-Vee mobile app card at the fuel pump.” Fuel savings are what consumers value the most in the program, she notes.

Precima’s Ross says the growing penetration of e-commerce in grocery will certainly continue after COVID, but for most grocers the big focus will be on understanding today’s omni-shoppers and the role played by the physical store, pickup and delivery in the overall customer experience.

A 2020 report by McKinsey in the United States predicts that in the aftermath of the pandemic, “the most successful retailers will be those that connect with consumers in new ways by leaning in on their digital, omnichannel and in-store technology ambitions.” The new loyalty paradigm is also rooted in “additional experiences and services that create new touchpoints.”

The pandemic showed retailers that e-commerce was one of the main ways to maintain connectivity and traffic, says Bond Brand Loyalty’s Claessen, and at the beating heart of e-commerce is a good loyalty program that communicates with customers.

Controversies surrounding Facebook and other sites have made social media less dependable places for grocers to spend marketing dollars. As a result, grocers are doubling down on loyalty programs, says Claessen. “They’re starting to realize there’s a reason to rethink and create some differentiation in their programs.” There is still too much mimicry in loyalty programs, he says, and marketers are asking: “How is my grocery program different from the next grocer? Those were distant questions in the past.” The ability to make loyalty programs unique is greater than it has ever been, he says, as the technology is cheaper and the techniques and skills are much more known and available.

According to Bond Brand Loyalty’s 2021 Loyalty Report, only 49% of Canadian marketers felt their organization’s digital strategy was strong enough prior to COVID-19 but 85% say the pandemic has accelerated their digital strategy. The influence of loyalty remains strong, the company also found, with 77% of consumers agreeing loyalty programs make them more likely to continue to do business with brands.

Usability is an important factor as well for a successful loyalty program in grocery, Hy-Vee’s Buzynski says. “The program needs to have an interface that allows customers to quickly find important data such as account information and rewards status. If a customer cannot quickly access that information or have a seamless way to redeem rewards, they will not stay in the program,” she says. “Redeeming rewards and credits needs to be easy and clearly understood. That creates the ideal user experience and leads to customer loyalty longevity.”

For its 2021 Premium Loyalty Data Study, Clarus Commerce—a firm that specializes in building premium loyalty programs—surveyed 2,500 consumers and found 76% are willing to pay for premium loyalty programs in return for free, faster shipping, instant discounts and giveaways.

Bruce Winder, a retail analyst and author in Toronto, says grocery loyalty programs are “at the precipice of a change” with more loyalty programs like PC Optimum Insiders set to enter the fray. He warns, however, that grocers who go down the paid membership path will have to offer great value, especially if Amazon decides to ramp up its grocery presence in Canada. For example, Loblaw’s premium PC Optimum Insiders program offers free click-and-collect but not free shipping. “I don’t know if that’s good enough,” Winder says.

As long as paid loyalty programs provide good value and services, akin to the offerings of Amazon Prime, consumers will see the benefits of joining, says Kantar’s Singh. With more than 150 million global members, Amazon Prime gives members access to unlimited free two-day shipping and perks like its streaming service in exchange for an annual fee. Singh notes Amazon Prime’s household penetration in Canada is almost at the same level as Canadian Tire’s free Triangle program, an offshoot of the Canadian Tire money program, which is one of the oldest loyalty programs in the country.

Looking to other sectors, Winder says one paid loyalty program with high potential is Lululemon’s, which is currently available only in Edmonton and Toronto in Canada. For an annual cost of $168, members get a free pair of yoga pants valued at more than $100, experiential benefits such as passes to online or in-person workout classes and events, live digital workshops and first dibs on select product releases. When you consider what members get in exchange for the cost, the program “has decent value behind it,” he says.

To a growing extent, consumers are not only looking for reward points but for meaning from grocers’ loyalty programs, according to Bond Brand Loyalty’s Claessen. “They want to know that Company X lives up to my value system, my view of the environment. If you can tell me my participation with you in said loyalty program carbon offsets my flight or the company is carbon offsetting the last mile of packages to my door, I will spend more money here with someone who lives up to my value system. That’s a bigger shift than most retailers have absorbed. This is a bigger motivational difference in consumers than we have ever seen.”

While value for money is important, says Claessen, too many loyalty programs have only played to that driver at a time when consumers are seeking greater flexibility and convenience in their lives.

This article appeared in Canadian Grocer'November 2021 issue.

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