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Thursday, July 18, 2024

A question of loyalty: supermarket spending challenges

Caroline Parkes asks, do retailers have a responsibility to customers in a cost-of-living crisis?


Data is more valuable than gold.

The most profitable businesses on the planet are built on it – Tik Tok, Amazon, Google and an array of retailers and FMCG brands.

Tesco has built its business on it. Launched in 1995, Tesco Clubcard has become a cornerstone of the supermarket’s success, offering a clear value exchange to its customers. Put simply – Choose Tesco, get rewarded, save money. Every little helps.

But amidst a cost-of-living crisis, UK supermarkets with loyalty programmes are feeling the pressure on several fronts.

  1. Customers are choosing lower cost supermarkets instead (even Samantha Cameron shops in Aldi now, I bumped into her in the Chipping Norton branch recently!)
  2. The government, via The Competition and Markets Authority (CMA), are investigating member pricing, examining whether member pricing is actually beneficial to customers, or simply a way of increasing pricing.
  3. And now, consumer group Which and debt charity StepChange are challenging supermarkets around their efforts to encourage customers to spend more than they can afford.

In May, Tesco launched a six-week campaign to encourage its top three million customers and regular app users to spend more in order to get more.

The Tesco Clubcard Challenge is a super smart initiative that utilises AI to give individual customers personalised challenges based on their existing shopping habits. Upon completing their bespoke challenges, shoppers are rewarded with extra Clubcard point and freebies with reward partners such as Pizza Express. It’s certainly an innovative approach to engage its members in a new way. But is it responsible? And does it encourage customers to spend beyond their means?

Do retailers have a moral, or commercial imperative to be responsible? And how could retailers – grocers and beyond – be more responsible in their activity towards consumers in these trying times?

Most of the pitch briefs that I’ve seen in recent years have customer centricity at the heart. Smart businesses know that designing customer experience around what’s right for the customer, pays dividends to shareholders. And one could argue that member pricing, and highly personalised challenges that reward you for purchasing items you might have bought anyway, are being just that.

The reality, however, is that retailers use highly sophisticated models to drive value from customers. Price-sensitivity models for example, measure which customers can be encouraged to purchase without an incentive, delivering more value to the retailer and driving brand equity.

Perhaps it’s time for retailers to think about other ways that they can be customer centric in their use of data and customer experience, that’s beneficial for all.

One trend in this space has been the ‘Thoughtful Marketing’ movement. Spearheaded by Bloom & Wild, the beloved online florist allows customers to opt out of potentially triggering Mother’s Day or Father’s Day messaging.

But there are other ways to be more thoughtful with data.

Predicting affordability 

Retailers could identify cost-crunched customers and make a responsible decision not to deliver ‘stretch’ promotions to them. There are various third-party data sources that can be appended to customer data to identify levels of affordability. These include Mosaic’s Affordability Score and Clear Data which allows retailers to see total credit card spend across all retailers. These are anonymised but do allow retailers to make postcode selections based on affordability.

This does come with risk though. For one consumer a ‘spend £100 in a month and get rewarded’ mechanic could actually save them money by switching from other stores, whereas for another it could be encouraging them to spend beyond their means.

Proactive budgeting help  

A more proactive way for retailers to be thoughtful with their data is to help customers with budgeting, and to employ progressive data capture techniques. Retailers could ask customers what their weekly grocery budget is and provide proactive suggestions for sticking within it.

For example, providing switching recommendations from branded favourites to highly rated own label options or providing weekly food plans based on their previous purchases. Whilst this wouldn’t employ that classic ‘increase ATV’ approach, it might result in a higher proportion of spend going to that retailer, and at the same time help the customer.

Delayed purchasing and inclusive marketing 

Of course not all retail spend is on ‘need it tomorrow’ milk and bread. Discretionary spend on cosmetics, electronics or fast fashion are areas that in a cost-of-living crisis should face more scrutiny for a cash strapped customer. But as nation we’re becoming more addicted to dopamine shopping, fuelled by social commerce.

But there is a consideration for retailers in relation to neurodivergence and mental health. Studies have shown that people with bipolar and ADHD can be susceptible to compulsive spending.

Brands might consider giving proactive advice to consumers such as “put an item in your basket and leave it for 24 hours before deciding whether to purchase” or even allowing customers to elect for a ‘delayed purchase’ option, where an item could sit in a basket for an hour until it can be purchased.

This feels counter-intuitive to the ways that fast-fashion retailers work (would Temu ever do this, I doubt it) but for retailers with different values, like Marks and Spencer or John Lewis, perhaps more responsible techniques could be explored.

Inclusive marketing can have a positive brand affect. Not just on its intended audience but as a halo effect, so this could be something that’s not just the ‘responsible’ thing to do but it might have a positive commercial impact.

Inclusive loyalty 

Providing inclusive customer experiences can be considered in other ways. One major challenge with loyalty programmes offering member pricing is digital exclusion. Age UK reports that almost six million people over 65 unable to use the internet safely or at all, and loyalty programmes that focus on digital members, like the Tesco Clubcard Challenge, actively exclude customers who could benefit from ‘every little helps’.

Perhaps it’s time that loyalty programmes think harder about affordability for all their members, regardless of whether they’re digital or card based. At RAPP we work with IKEA Family who are doing just that, and really thinking about how to help consumers in a time where money is tight. Knowing that this will make customers more bonded to the brand and ensuring better lifetime value.

As loyalty programmes and retailers are facing more scrutiny for their activity, it’s clear that there are alternative proactive approaches that could be employed. Some of which might just benefit both customers and shareholders. A Service Profit Chain that works for all; that using data for good as well as gold.

Caroline Parkes is Chief Strategy Officer at RAPP UK

She has 27 years of agency strategy experience, with deep knowledge of customer engagement & loyalty, and a passion for creativity. She’s worked on some of the UK’s best loved brands – IKEA & Boots, Virgin Trains & Virgin Media, Mini & Jaguar Land Rover, Gordon’s Gin & Nescafe – you name it, she’s quite possibly worked on it.

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