RESEARCH & INSIGHTS
How Shopper Data Helped to Identify Opportunity for Major Growth
Are you utilizing your customer data to optimize your assortment? Are you getting the most of your category segments? How can you identify the categories that have the highest opportunity for growth?
A major grocer turned to LoyaltyOne for help to answer these questions and to identify high potential categories where they could further grow customer spend. The grocer recognized its shopper data could be useful in recognizing opportunities and identify relevant actions to pursue these, but didn't know how.
Download this case study to find out how LoyaltyOne used data-driven results to identify a high-growth category and increase its' sales.
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Over the past year, our specialty retailer clients have increasingly been asking whether or not they need a Prime; that is, a premium paid membership program. Most indications point to it delivering fantastic results for Amazon, even though financial and behavioral results haven’t been widely shared.
Depending who you ask, Prime members spend 68 percent, or 140 percent more than non-members. But the more important stat is that U.S. Prime membership grew 50 percent last year – a compelling indicator that the value proposition is resonating, even after last year’s $20 fee hike.
Amazon isn’t the only brand pursuing this path either. GameStop’s Pro Rewards, the New York Times’ Premier subscription, Barnes and Noble’s Membership, GNC’s Gold Card, and nearly every premium credit card product are using the unique strengths of paid memberships to their advantage:
- Creating Commitment: With dollars invested, customers inherently look to use the benefits they paid for to improve their payback. This makes whichever brand they’ve tied themselves to their preferred choice in that category – driving lift in share of wallet and significantly raising the costs of switching to a competitor.
- Instant Gratification: The benefits of memberships are generally instant. For those who do pay, free shipping, exclusive perks and big discounts can be strong, persistent mental reinforcements of a good decision. We know from our years in loyalty that earning rewards works very similarly, creating a spend lift in the months following redemption.
- Differentiated Experiences: When customers pay premiums and commit to a brand, their fees and spend lift fund more robust or higher-touch experiences that couldn’t otherwise be created: exclusive perks, big discounts, luxurious lounges, rich content and more. When trying to fight commoditization, giving customers an exceptional experience – like Prime’s rich content and guaranteed two-day shipping – adds qualitative benefits to purchase decisions that competitors may not be able or willing to imitate.
These strengths make this strategy hard to resist, but it’s hardly a panacea for every customer engagement issue. There are several considerations that may dissuade you from pursuing paid memberships. Consider the following:
Could you feasibly offer a paid benefit that overcomes the obstacle preventing your target from shopping with you more?
Some obstacles can’t be overcome. If your target customer prizes a convenient location near home/work above all else or, more importantly, if you have critical issues with your customer experience or brand value proposition, a fee-based portfolio of benefits is unlikely to change their habits.
Is your target customer even open to the idea of paying for benefits?
According to a 2014 LoyaltyOne survey of 2,000 North Americans, only 17 percent said they’d be willing to be pay for same-day delivery. Of that 17 percent, males and Millennials were more likely to show interest. All this to say, extensive research and testing may reveal that the target for your benefit wasn’t necessarily who you’d expect it to be.
Could your target consumer shop with you often enough to need or want premium benefits?
Some customers, even valuable ones, don’t shop with you often enough to want any sustained relationship. You may be better off pulsing them twice a year or seasonally with relevant product discounts than pitching them a suite of benefits they can’t foresee using.
Would having exclusive benefits (visible or covert) for only some customers align with your brand without turning off other valued customers?
This is a case of culture eating strategy for breakfast. Bricks-and-mortar retailers that look to create communal, comfortable and ultimately egalitarian shopping experiences should pay special attention. We’ve been in boardrooms where visible preferential treatment has been shot down for this very reason.
Can you create a fee-based offering that is both compelling and financially feasible?
Some benefits may require economies of scale to become profitable, and not all your fans will jump at the offer the first time they see it. You must also determine if they are willing to pay the fee necessary to ensure financial feasibility of your program. Testing small-scale and business casing with the results will require executive support and patience.
Returning to the titled question, retailers need to evaluate an Amazon Prime-like strategy. There are clearly several considerations that should alter how and if you choose to execute, only some of which are listed above. That said, finding the right strategic fit could be the difference between you and your competitors securing your customers’ future spend.
Whole Foods is enjoying the fruits of its marketing labor these days, but its long-term success may rely more on its affinity for workers than affinity with shoppers.
Until 2014, Whole Foods had not so much as tested a customer-rewards program because it likely didn’t see the need to. Its shoppers sought out its stores for the quality of its natural products as well as for the amiable, knowledgeable staff – not for discounts.
But with the September launch of a pilot affinity (loyalty) program, called Whole Foods Market Rewards, as well as efforts to stock the shelves with more inexpensive items, Whole Foods appears to have recognized that price is becoming more of a competitive issue, regardless of its helpful employees and service.
Early indications are that Market Rewards is resonating with shoppers. Activation rates are high and member basket sizes are above the average, co-CEO Walter Robb told analysts during a first-quarter conference call Feb. 11. The program, launched in New Jersey in September, is now scheduled to expand into Washington, D.C., in the spring, “with hopes of having it live in a majority of stores for the 2015 holiday season,” Robb said, according to Supermarket News.
Whole Foods credits the program, along with its first national marketing campaign, for contributing to record first-quarter sales, up a better-than-expected 10.2 percent to $4.7 billion. But none of these efforts would be worth the increasing number of 365 private label products on Whole Foods’ shelves without the encouraged participation of its workers. The chain’s executives appear to know this too, in spades.
Gaining through employee rewards
Whole Foods’ compensation program is designed to reward all team members for positive stock performances. The rewards come in the form of stock options through annual grants for workers who achieve 6,000 hours (about three years full-time work). More than 58,000 of Whole Foods’ 87,200 workers are full-time. Roughly 94 percent of equity awards under the stock plan have been granted to non-executive team members.
In addition, Whole Foods offers an annual gain-sharing program which challenges each store’s roughly 10 teams of employees to outperform a labor budget. If the team comes in under budget, a portion of the excess is divided among the team members and the balance is deposited into a savings pool. If a team comes in over budget, the difference is taken out of the team’s savings pool or paid back through future surpluses. Those savings pools that end the year flush are paid out to their teams.
“Team members are involved at all levels of our business,” the company stated in its annual report. “We strive to create a company-wide consciousness of ‘shared fate’ by uniting the interests of team members as closely as possible with those of our shareholders.”
And the interest of Whole Foods’ shareholders has been well served recently. The company’s stock advanced by more than $3 a share on the day it posted first-quarter earnings, and reached a near all-time high of $57 a week later. However, Wall Street is a what-have-you-done-for-me-lately animal, and as competition becomes more of an issue, Whole Foods will likely need its employees to further distinguish the brand experience. Its Market Rewards program may be the necessary tool to do that.
Engaging through affinity
Let’s not forget it was not too long ago – May 2014 – when Whole Foods revised its earnings outlook for the third time in six months due largely to competition. The company responded by cutting prices in some areas, but this surgical tactic did not address the bigger issue of perception: A lot of shoppers avoid Whole Foods based on a belief – not experience – that it is too expensive. As a result, they miss out on the entire experience, which includes employee engagement.
With a loyalty program expanding, Whole Foods will gain the ability to understand the underlying dynamics of shopper behavior. These activities can illuminate how pricing may affect not only the sales performance of an individual product but also of adjacent products that are harder to detect in the traditional, basket-level analyses. For example, a higher price on natural yoghurt may prevent the customer from buying a couple pints of strawberries, effectively eliminating two (or three) purchases.
Not that Whole Foods should try to go mano a mayo with Kroger or other price-competitive chains, and it likely won’t – co-CEO John Mackey has pledged so much. Rather, it should use Market Rewards to craft strategic, experience-based promotions that are true to the brand and its value. Instead of discounts, its rewards can evolve to arrive in the forms of VIP cooking classes, recipes that involve products a customer often buys and personalized thank-you emails from employees of the week.
People shop Whole Foods because it stands for more than food, so it should consider the Market Rewards test as an opportunity to shape the full customer experience – price, advice, product preparation and product assortment. In other words, give shoppers a reason to want to pay more, through an exclusive experience, and deliver value where it needs to be evident.
As Mackey told analysts: “Whole Foods is about quality. It’s about service. It’s about selection. It’s about ambiance. We’ve never been and we never will be trying to be the lowest-priced supermarket.”
Combine its affinity pilot program with affinity for workers, and Whole Foods can be about the options it offers everyone.
This article originally appeared on Forbes.com, where Bryan serves as a retail contributor. You can view the original story here.
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THE LOYALTY LEAP
In his bestselling book, LoyaltyOne President Bryan Pearson draws on more than 20 years of first-hand experience. His expertise in building emotional loyalty in the information age is demonstrated through insightful stories from the trenches of the data-gathering and marketing communications fields.