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Woolies’ loyalty program offers glimpse into the future

Woolworthssign_2By Gary Mortimer, Queensland University of Technology.

Woolworths is set to launch its new loyalty program, Woolworths Rewards, claiming that the new scheme will enable shoppers to redeem cash discounts off their shopping basket, much faster than ever before.

It is estimated shoppers will acquire the necessary points to save $10 automatically of their grocery bill within seven weeks.

Resembling the model used by UK retailer, Morrisons, the new Woolworths Rewards program is a smart move for the retailer hoping to claw back some market share and curtail operational costs. However, there is no such thing as a free lunch.

While it will remove the costs of maintaining the Qantas-Woolworths relationship, estimated to be around AUS$80 million a year and allow them to re-invest at least AUS$65 million into stores, it may force shoppers into “brand switching” behaviour.

Interestingly, shoppers will only accrue points toward their $10 savings on selected ticketed items. Hence, the cost of maintaining the program will be met by suppliers who elect to have their brands featured with the big orange ticket. This is simply a way of moving supplier funded promotional allowances into a loyalty program, rather than a direct price discount.

Commentators have often voiced concern about the power of our supermarkets in encouraging us to purchase one brand, over another brand. When faced with the prospect of purchasing Brand A which attracts “Woolworths Dollars” versus Brand B, that doesn’t, it’s most likely shoppers will purchase Brand A. It is expected that shoppers may be critical of being forced into a brand switching situation to attain “Woolworths Dollars”.

Customers tiring of points loyalty programs

The larger issue facing Woolworths and others is there is no exclusivity when every supermarket, department store, dress shop and coffee cart offers you a membership card. As a result, shoppers grown tired of endlessly collecting points to eventually redeem on gifts, discounts or possibly a flight. Studies show that a third of members never redeem points.

Retailers imbedded loyalty programs to encourage repeat shopping, protect themselves from price wars and most importantly collect valuable shopping data. The first retailer in Australia to offer a loyalty program was Fly Buys, a joint venture between Coles Myer (now Wesfarmers) and Loyalty Pacific, 20 years ago.

Then, shoppers were quick to sign up, with the promise of “free” flights in return for their loyalty and of course their valuable personal shopping data, which included brands purchased, location, frequency and demographics.

Back then, the only way retailers could accurately track and target shoppers was through loyalty card usage, and while this still happens today, retailers have other more efficient channels, such as linked credit cards, like Coles Credit Card (Mastercard) and Woolworths Money (Visa).

As shoppers are more frequently “tapping and going”, retailers can now access a wider range of data, outside of simply their loyalty program members. Such programs also allowed retailers to distract shoppers from focusing on price by simply getting shoppers to focus on the ‘prize’ than the price.

Need for speed

Points fatigue occurs when shoppers are faced with months, if not years, of collecting points to ultimately redeem on a desired item or reach that elusive gold or platinum level. Today, shoppers are seeking immediacy and customisation.

Recently, Morrisons moved away from its complex “price match” loyalty scheme to a more simplified program where shoppers now earn five loyalty points for every £1 they spend.

Once a shopper earns 5000 points they immediately to receive a £5 voucher. Other retailers are also moving away from long-term points accruing programs to deliver instant and non-monetary rewards to shoppers, such as free newspapers or coffee.

The UK’s Waitrose recently re-launched their loyalty program of “pick your own offers”, where shoppers can choose from a list of 1000 relevant products and immediately save 20 per cent. Over time, the list changes, and shoppers get to select new products. The scheme has seen more than 850,000 shoppers sign up.

Non-monetary loyalty

The other problem with existing loyalty programs is that retailers have confused “loyalty” with “rewards”. Loyal shoppers will always consider their favourite brands and stores first and frequent them consistently. True loyalty programs should also strengthen the relationship between the retailer and customer.

UK retailer, Marks and Spencer, recently moved away from their strictly points-based shopping frequency scheme to reward shoppers for other positive behaviours, such as completing online surveys, writing online reviews or referring friends.

The program of “non-monetary” rewards – such as invitations to exclusive food and drink master-classes or fashion parades – demonstrates shoppers are seeking more than just generic deals and discounts. The program also allows M&S to demonstrate its corporate social responsibility credentials, with shoppers earning “sparks” points for donating unused clothing when purchasing new outfits, termed “shwopping”.

The future: Big brother is watching

What is the future of loyalty? While we see retailers around the world actively move away from long-term, points based schemes to programs that offer immediate gratification and non-monetary rewards, the next frontier will be instant customised offers.

Already, French retailer, Carrefour, and US retailer, Macys, have begun using Near Frequency Communications (NFC), which “pushes” targeted offers to their shoppers while they are instore, or nearby.

It is expected that the opt-in technology would be the natural evolution of loyalty programs, where members receive immediate and customised offers based on where they are standing and what they are looking at within a store.

Gary Mortimer is a senior lecturer at QUT Business School at Queensland University of Technology.

This article was originally published on The Conversation.

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