Guest commentary, by Gary Hawkins, CEO of Green Hills Market and President, Hawkins Strategic, LLC
We had a guest commentary last Friday authored by Rick Ferguson, editorial director of COLLOQUY.com, in which he wrote, "customers have seen through the two-tiered discount shopping cards that have dominated grocery loyalty strategies for the past few years…"and he criticized food chains for not being aggressive enough about developing programs that make offers based on prior shopping behavior.
As we expected, Ferguson's commentary prompted a lot of reaction. The longest and most detailed reaction came in the form of a rebuttal article from MorningNewsBeat user Gary Hawkins, a retailer with Green Hills Market as well as a longtime advocate of effective loyalty marketing programs.
Hawkins' response:
We had a guest commentary last Friday authored by Rick Ferguson, editorial director of COLLOQUY.com, in which he wrote, "customers have seen through the two-tiered discount shopping cards that have dominated grocery loyalty strategies for the past few years…"and he criticized food chains for not being aggressive enough about developing programs that make offers based on prior shopping behavior.
As we expected, Ferguson's commentary prompted a lot of reaction. The longest and most detailed reaction came in the form of a rebuttal article from MorningNewsBeat user Gary Hawkins, a retailer with Green Hills Market as well as a longtime advocate of effective loyalty marketing programs.
Hawkins' response:
Supermarket loyalty programs have been slammed recently from many directions, including this past Friday’s story on MorningNewsBeat.com and the CBS Evening News story about supermarket card programs being just another consumer rip-off. It is time to present the other side of the story.
Those retail companies that have taken advantage of two-tier pricing, exaggerating the regular price so as to either bilk those customers not carrying a card or to maximize the savings shown to card-using customers, should be chastised publicly. But for those retailers committed to gathering and properly utilizing customer information, tying the card to their sale prices or markdowns is simply ONE cost-effective way of encouraging customers to identify themselves each time they shop. It is certainly not the ONLY way of providing value to customers.
My response to those who criticize retail loyalty programs is quite simple: in most cases, a retail company’s most valuable customers are actually paying more than they should be. These highest spending customers are not only generating profits to cover a store’s operating expenses; they are also subsidizing those customers coming into the store and purchasing only the deal merchandise.
To quote from my upcoming book, Customer Intelligence: “ Some consumer advocates say that it is discriminatory for supermarkets to link their lowest prices to the company’s loyalty card, feeling it pressures consumers to forfeit their privacy (by having to sign up for the program) so as to receive the deals. But is it fair that a store’s regular patrons are, in effect, paying extra to finance the customer who goes store to store purchasing only the loss leaders?”
At Green Hills we differentiate between our customers - and have for much of the past decade - providing more values and recognition to our more valuable customers. Our free Thanksgiving Turkey program has been well publicized but in addition we also regularly provide special savings certificates and substantial savings on key products to our regular customers.
One customer recently took exception to our policy of linking check cashing privileges to our customer segments and wrote an editorial to the Syracuse Newspapers criticizing our practice. I will sum up (my response) this way: As a lifelong merchant, I strongly believe those customers who shop with us on a regular basis deserve the best deals, services, and privileges. They should not have to pay extra to provide below-cost prices to consumers shopping with us only occasionally.
My editorial response struck a nerve with consumers from throughout Central New York. I received a number of e-mails, letters, and even phone calls, from our regular customers supporting our position. I have even had people stop me on the street or at social events to say it was about time that a retail company took a stand like the one I presented.
Retail loyalty programs are not about finding new ways to rip off customers. No customer will become more loyal to a retailer just because they carry a plastic card or key tag. Properly done, loyalty programs allow the retailer to discover just who their most valuable customers are so that the company can then provide greater values and recognition to them. And value can extend beyond simple monetary credit into services and privileges.
Going further, loyalty programs provide vast quantities of detailed customer information, from which leading retail companies are developing new ways of measuring and managing their business. These companies understand the value of their customers, and understand that customer value must be measured in years, not simply by transactions.
There are those who criticize the supermarket industry for collecting great amounts of customer data but then doing nothing with it to provide relevant offers targeted to individual customers. There are two primary obstacles that exist hobbling the efforts to further personalize mass retailing.
The first lies in the economic structure of the food retailing industry. Any price reductions being offered consumers by supermarket companies are based on promotions funded by the suppliers. The interest of the consumer packaged goods companies lies in increasing the number of cases being sold, not necessarily who the end consumers are purchasing the goods. This structure is at odds with true customer-focused retailing; basing promotions to the individual consumer upon their past purchasing history or preferences.
The second obstacle lies in communications. Direct mail is a prohibitively expensive method of communicating different offers to different customers. Further, once the offers are communicated, the vast majority of retailers need to rely upon paper coupons for delivering differentiated offers. Neither of these methods is conducive to retail companies going to market on a one-to one basis – yet.
We are, though, seeing some pioneers beginning to make more and more use of e-mail, kiosks in store, and websites to communicate personalized information to individual customers. These efforts are being joined by POS system providers that are building in capabilities to their systems supporting delivering personalized offers electronically, triggered by the customers’ loyalty card, when checking out.
As these systems become more fully developed and mainstreamed, the retail industry will undergo a massive shift – finally having the capability to truly become customer-focused rather than product-driven. If we think we have seen great upheaval in (particularly) the supermarket channel, just wait.
- KC's View:
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When Hawkins' book is published in the near future, we will deal with this issue in greater depth. The ability - and sometimes, the inability - of food retailers to effectively use customer purchase data to reward their best customers and create a more compelling shopping experience for core shoppers strikes us as one of the most important issues facing this industry.
It's also one of the most provocative. And "provocative" is our middle name.
By the way, we'll have more responses to last Friday's guest commentary by Rick Ferguson in our Your Views section below…
