Customer loyalty in a pricing war
The pricing war is in full swing in supermarket land. Aldi’s low price model is an increasingly disruptive force. Coles has been pushing its ‘Down, Down’ positioning for years, with significant success. Woolworths has admittedly fallen behind, but has recently flagged a complete strategic overhaul, spearheaded by a customer-centric focus and, you guessed it, an emphasis on slashing prices.
So, where does customer loyalty fit in this price-obsessed environment? Ironically, the aim of the major retail brands is to retain customers by lowering prices. The price war is, at its heart, a war over customer retention.
But the concern is that a continued emphasis on price will lead to an erosion of brand loyalty, where consumers increasingly don’t care where they shop, as long as they are getting the best deal. This is not just in the supermarket space, but is a concern for the retail space in general.
This can be attributed to a host of factors, but it does beg the question, is consumer loyalty a thing of the past? Has it given way to a new type of loyalty: price loyalty? The answer, in my view, is a definite ‘no’.
The RJMetrics 2014 Ecommerce Benchmark Report is just one of many that highlights repeat customers as one of the best assets a company can have. Similarly, Atomic 212 data reveals that loyal customers are highly likely to promote brands and companies among their friends and networks.
In a post-GFC world, notions like price and value are always going to be important to consumers. But a singular focus on price is not the only criterion on which retailers should focus. Of course, for some operators like Aldi, price is the primary factor. But ask yourself, has Aldi simply cut prices and hoped for the best? No. The company has a very clear notion of what it stands for, what it sells, what its character is, and most importantly, who it customers are. This permeates the brand’s advertising, its messaging and its instore experience. They own price.
But price isn’t everything in customer retention. A brand could own convenience, or customer service, for example. Or a retailer could own customer experience by investing in the digital space and online shopping, for example.
Look at Dick Smith Electronics. In recent years the retailer has transitioned from being a bricks and mortar giant, into having an incredibly strong digital footprint. The company’s website is home to online-only deals for computers, TVs, mobiles, and essentially any of the retail appliances you can find in the physical store.
Meanwhile the physical space continues to grow, and the company has continued to invest in the physical experience, creating a showroom of sorts where consumers can test and touch. The overall customer experience is holistic and engaging. It’s no wonder the company saw strong sales growth in both online and offline in the last financial year –largely from attracting repeat customers.
So, why are consumers were leaving loyalty programs in droves? It all comes down to what the customers are being offered. American Express is a good example of a company that knows how to properly execute a loyalty scheme. AMEX constantly focuses on new offers and more choice, allowing its customers to use their points to redeem shopping, travel or entertainment offers, and seamlessly integrating their loyalty points with digital features like the American Express iPhone app. The data accrued by the brand’s loyalty scheme is then used to further generate customer loyalty. For example, the app provides members with shopping recommendations based on their spending habits and their location.
This brings us to the most important component of customer loyalty: know thy customer. What does your customer want? Where do they shop? When? Why? You get my drift. This comes down to data and insights – loyalty program data, sales data, third-party data, whatever you can get your hands on to find out more about your customer. It’s no coincidence that Woolworths has recently bought data firm Quantium, and you can bet your bottom dollar that this acquisition will form a major part of Woolworths’ revamped customer loyalty play.
Value is more important than ever. But if you think you can focus on price alone without any regard for customer loyalty, then you’ll be in for a rude shock.
Jason Dooris is the CEO and founder of Atomic 212, and has a background in FMCG, retail, and automotive.