Shopper loyalty schemes: the challenges brands face

Are shoppers loyal?

Shopper loyalty is a hot topic in food and grocery. It is widely accepted that the recent recession has contributed to a decline in shopper loyalty, with more shoppers taking to shopping around, sniffing out the best value for money and choosing different stores and brands to suit.

Indeed in response, 2009 saw a renewed focus on loyalty schemes from many of the major food and grocery retailers, including Tesco, Sainsbury’s and The Co-operative. Tesco’s Clubcard now offers double reward points to all shoppers and money off vouchers through the post, while Sainsbury’s Nectar card distributes targeted coupons to shoppers at the checkout based upon their purchases in-store. Even Asda, notable for its lack of loyalty scheme, is reconsidering the use of coupons in the press.

And these schemes have proven largely successful to date, with both Tesco and Sainsbury’s reporting strong sales uplift and Tesco attributing its recent increase in market share directly to their scheme.

But what is loyalty?

Do shopper loyalty schemes actually foster real ‘loyalty’? Asda CEO Andy Bond doesn’t think so, remarking that “you can’t buy loyalty with plastic points”. Perhaps Asda’s shoppers are loyal simply because of everyday low prices? Why should the shoppers who shop the most be rewarded more?

Well, the lack of a shopper loyalty scheme surely makes it more difficult for Asda to glean detailed shopper buying habits than Tesco - and loyalty schemes are proven influence shoppers and generate sales uplift too. But still, do they really foster long term loyalty?

The majority of today’s retailers’ schemes are in fact underpinned by price promotion and money off coupons. They are very effective when it comes to influencing shoppers to return to the same store - and their behaviour in store - while there is something in it for them. But on the face of it, we are not convinced that there is much difference between this and simple price promotions without the ‘loyalty’ bit.

Surely shopper loyalty is about more than price and promotion centred point’s schemes? Why shouldn’t shoppers shop the loyalty schemes? At Evolution we believe retailers and FMCGs need to look beyond these types of schemes and embrace a broader spectrum of shopper marketing initiatives to promote true shopper loyalty.

The issue of brand loyalty

A classic example of this is the impact that price and promotion centred loyalty schemes have on brands and how they can react to promote true brand loyalty. Well there is no doubting that shopper loyalty schemes favour the retailer in the short term, the pressure on FMCGs to reduce prices in support of these schemes risks longer term damage to brand loyalty.

Traditionally private label and FMCGs brands have co-existed on supermarket shelves, targeting different consumer segments with different value needs. But in recent times we are seeing a real trend towards private label as credible alternative to brands for shoppers, whom are less loyal to particular brands or brand repertoires, and heavily influenced by the economic downturn and resultant ‘value’ focused mindset.

Retailers and private labels are attacking on all fronts, with quality perceptions and packaging improving. Products are increasingly colourful and attractive, with benefits and differentiators – particularly in premium lines – rivalling those of their branded alternatives.

In short, shoppers no longer see private label as simply a low cost lower quality alternative. Retailers are closing the quality gap and offering real credible alternatives that shoppers’ see as offering the same for less. In fact, in some cases private label premium ranges are priced higher than branded alternatives. How about shopper loyalty to private label?

Standing out from the crowd

With many FMCGs squeezed by retailers on price – compounded by loyalty schemes - advertising and marketing spend is often cut and in-store marketing of brands suffers. More than half of Tesco’s sales now come from private label, and Evolution foresees a greater battle ahead.

Manufacturers should not underestimate the decline in brand trust in recent times and increase in private label alternatives. Why should shoppers pay more for what they perceive to be the same? To promote brand loyalty, Evolution believes that FMCGs should avoid competing on price and promotion, instead seeking to improve their wider shopper strategy in-store. Long term brand loyalty and sustainable margins can only be derived from differentiation and not direct price competition.

Shopper marketing opportunities to build brand loyalty in-store and differentiate from private label alternatives might range from improved marketing of benefits and quality, through to more innovative schemes such as on-pack competitions, association with sporting events, sponsorship, donation to good causes and even in-store sampling or demonstrations. An excellent example is Procter & Gamble's promotion on packs of Pampers nappies, offering to fund tetanus jabs for babies through Unicef for each purchase.

Working in partnership

Of course where differentiation alone is not enough or not viable, opportunities to collaborate with the major retailers regarding their loyalty schemes can present an offset against the effect of continual price promotion.

Branded promotions ranging from increased reward points to coupons can drive significant sales activity for certain categories. Many of the major FMCGs are for example already signed up with Sainsbury’s Nectar scheme to offer tailored promotions, and at Evolution we believe there will be more examples of this during 2010.

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