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How Supermarkets Have Failed Customers With Their Loyalty Schemes

Recently I was was to add my comments for Cara Houlton’s Grocery Gazette article on how supermarkets are reducing rewards and increasing their spend thresholds, whether is it a wise or damaging move for retailers (read here with supermarket chain spokespeople comments) and what will be the knock on effects of these decisions.

Here are my full thoughts on why supermarkets like Tesco, Asda, Sainsbury’s, Aldi and Lidl have struggled to protect their customers and actively had to decide whether to add price hikes back to their customers and had to reduce the deals through their club cards and reward systems.

Not So Super (Markets)

Supermarkets had the opportunity to connect to their customers and reward their loyalty at the time that customers needed it most. Unfortunately, most have not taken this opportunity and took the view to put their revenue first. 

This is going to be a damaging move for many supermarket chains.

In the coming weeks, the top ten UK supermarkets have to decide whether their short-term revenue is more important than long-term shopper loyalty and will the available wallet (the actual money the customer has in their wallet or purse) be spent elsewhere. The upcoming quarterly revenue figures will be a decent indicator for Q4 2022’s figures. 

Kantar Recent Numbers For UK Top Supermarkets

Retaining and re-engaging customers is going to become a significantly increased cost to many supermarkets’ Marketing Departments, driving more messaging and more activities to customers’ inboxes. 

Costly Summer

Importantly over this summer, consumers experienced a number of negative changes: from the prices going up on everyday items, to the reduction of meal deals, to the shrinkflation of favourite products and SKUs and supply shortages leading to dropping demand on core items.
Brands choosing to put the price increases back on the customers in this time will have a lasting impact on those worst hit. 

Tesco’s hitting back at Heinz price hikes these headlines would have gone some way for some of their most loyal customers, while the other supermarkets have struggled to gain any wins. 

Even the biggest brand superfans will have to make hard decisions on their shopping habits and where is the most value.

Is Private As Good As Known & Loved Brands

Crucially the largest supermarkets have repositioned their own basic lines and private labels with savings and compared to large brands to promote lower trolleys, this tactic will look good in advertising, however, the savviest shoppers will be well aware of these Marketing campaigns and will be making adjustments. Many will continue to adjust their spending and have to try cheaper alternatives.   

Personalised & Loyalty Only Pricing 

Loyalty schemes actively shifted to reward card-only pricing and targeting you (via their own apps and emails) with personalised lower-cost items for you, this was a smart move by Tesco and Sainsbury’s (with Nectar) but are these items typically in your weekly shop and will it be enough to reduce the rising cost? Unlikely, however, this could influence customers to spend more on these items as they will be seen as bargains, likely. 

Savvy Vs Promiscuous

We have heard about the rise of the promiscuous customer for the last five years, what we are seeing is actually the rise of the savviest shopper, many will continue to go from supermarket to supermarket to gain the best deals and reduce their spending and hope to actually “save money”. 

In densely populated areas and coupled with a long drive to the leading larger supermarkets, shoppers are already charged a premium with local and metro stores. Most are driven to competitors to actually buy what they want and need. 

There will be a choice (to be made) about who and where the consumer spends their money, especially in the winter months and the savviest will spend smartly. 

Christmas is the next big shopping event and the savviest supermarket chains will have to be looking at reducing spending and rewarding their loyal customers directly.

Choice Paradox 

We are going to see a shift in where customers actually spend their money, whether it is at the large (hypermarkets) supermarkets, at the Local / Metro stores, ordering online for delivery or click and collect or through rapid delivery apps (Uber Eats, Deliveroo) their own services like Sainsbury’s Chop Chop, Ocado Zoom or Tesco Whoosh. There is often too much choice and that’s usually seen as a good thing but rarely is and when the costs are put back on the customer, while choice paradox is going to negatively impact spending.

Price Or Continued Value 

An important strategic decision was made at the largest supermarket chains to actively compete on price (not directly to compete on the value of the total shop) with the “discounter supermarkets” versus rewarding with loyalty points or other personalised deals on mass.
I would expect these types of decisions will be part of the annual review and marked down as positional mistakes. 

Controlled Spending 

In the very near future, we are going to see the hardest hit shoppers vote with their wallets and purses in-store and with online orders, without being rewarded supermarket loyalty will ultimately reduce (where possible for the consumer) especially when some will have to make incredibly tough decisions on what they can afford to buy and then actually potentially afford to then cook. 

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