By John Karolefski
Through a special arrangement, what follows is an excerpt of a current article from CPGmatters, a monthly e-zine, presented here for discussion.
What key benefit do CPG brands derive from retail frequent shopper programs? There was no consensus among manufacturers who took an Instant Poll on the home page of the January edition of CPGmatters. The leading responses were “increased brand awareness” (voted by 26 percent); “increased sales” (24 percent); and “obtain trade support” (24 percent). Roughly one in ten said, “they don’t benefit” (11 percent) or “other” (13 percent).
“It doesn’t surprise me that none of these is leading the pack,” said Michael Schiff, managing director of Partners in Loyalty Marketing (PILM), a Chicago-based consultancy that advises CPGs and retailers about these programs.
“There’s a good and a bad here. The good is that it’s a powerful tool that we can use for a variety of reasons. The bad is that neither retailers nor manufacturers have put the energy into really honing the tool to accomplish any of those goals specifically. They all look at it as, ‘We’ll do all of these,’ as opposed to, ‘I’m going to do one thing really well.’”
Write-in comments by survey respondents elaborated on how differently they perceive the benefits of these in-store loyalty programs.
“CPG companies have the opportunity to target shoppers likely to buy their products with a message or offer that drives the consumer to the CPG’s brand,” said one executive.
Another said, “Benefits are suspect at best because manufacturers would be experiencing a much higher rate of return if all the above poll choices were happening. And, returns are not really growing incrementally or base business as the industry is mostly stagnant.”
In support of increased sales, one executive said, “In the event that the purchase of the product issues ‘points,’ then they increase sales.”
Several write-in remarks under “other” benefits included:
- Back
end shopper information - Increased brand loyalty
- More efficient trade spend
- Insight into MVCs for direct marketing (direct mail,
etc)
If manufacturers get involved with a program that works well with retailers, trade support shouldn’t be viewed as a “solo tactic,” according to Schiff of PILM. The strategy should be, “I’m going to do this program, put in the attention it deserves, bring it to the forefront of the retailer and help that trade support. So now you’re increasing both sides of the equation, both your base sales and your trade dollars.
“I think a brand that just focuses on driving trade is just looking to get in good with the retailer. That really should be a complementary objective, not an objective in and of itself,” he said.
Discussion Questions: Do you think the success rate of frequent shopper programs is being hampered by varying goals between suppliers and retailers? Do you agree that part of the problem is that many vendors are only looking to drive trade promotion rather than increase brand awareness?
BrainTrust
Discussion Questions
Poll
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Kai is right (see above)–brands, and to a lesser extent retailers, often exhibit little interest in serving a segmented market. In fact from the CPG standpoint, segmentation is threateningly at odds with a mass production economic model. Who wants to take the time and trouble–not to mention added expense and risk–to figure out how the brand might fit the needs of different segments? As one marketing VP of a household name brand summed it up, “Everybody buys my brand.”
So we get loyalty programs being used as a discount vehicle…If the retailer insists, the brand participates by shifting some general promotion funds to Account Specific Marketing; little interest in advancing customer insight or building a learning curve with long-term payout, because in a year or two the Brand Manager will have moved on.
Brand managers have different objectives. Some brands use frequent shopper programs to induce trial. Some brands use frequent shopper programs as a defensive measure, to retain share. Some brands are very aggressive, using every available tool to permanently increase share.
But most brands first look at the calendar, and copy 95% of what they did last year. Most retailers are also slaves to last year. Want to know what the competition will do? Just look at what they did last year and the year before. Chances are 95% they’ll do it again, at exactly the same time.
It would be interesting to see a survey of how many retail managers think the frequency cards benefit them. My guess is that the results would be similar. Unless both parties are really analyzing that data to derive insights about their consumers, all the frequency cards do is offer a lower price for some selected items during a particular week when the card is used. That doesn’t benefit anyone.
If the retailers provided a benefit specific to their store for loyal consumers, they might see an impact. If manufacturers provided the right assortment based upon frequency card data and/or a benefit to their loyal consumers, they might see an impact.
This is a common disjoint between retailers and manufacturers. Part of this lies in the obvious concern that neither has an integrated marketing program to target segmented markets while differentiating either products or product benefits to appeal to these. This gap causes a break-down in the integrated marketing which either side should be coordinating in-tandem with the other. Any failure of these features simply results in a disjointed marketing and communication focus that is largely ineffective.
Ask the question again if a substantial number of retailers ever move beyond using “loyalty programs” as a replacement for TPRs.
Overload, confusion, lack of clear benefits, poorly designed programs, and a host of other factors contribute to the mixed results, in my opinion. Many loyalty programs are thrown together because, well, you just have to have one. Many are designed from the company’s perspective without regard to the consumer’s perspective (or without sufficient thought about that perspective).
It is a tool which, when carefully crafted and executed well, can yield benefits for the company and the consumer. When poorly designed and weakly executed, it is a cost and annoyance better avoided.
Well, I would say the opinions here by my esteemed colleagues reflect the outcome of the poll–everyone has a different point-of-view. This also indicates that not only are the Retailers and Manufacturers doing a poor job optimizing the effectiveness of the promotions, but we ourselves do not know how to help them.
And a true partnership between the two factions for the benefit of all, and more importantly the consumer, seems like it won’t happen any time soon. There was a group at the last Category Management conference in Naples who were going to attempt this bridge; I wonder how they are doing?
I guess the question, from the manufacturing side, is whether they have actually done the research to say, “we do better in chains when we are part of their loyalty program than in chains where we are not part of the program.” It strikes me as an empirical question. And I do think Ben’s point is well taken (see above).
I have worked with a loyalty program for a major pharmacy chain and I have to say any benefit outweighs any cons! The data that is harvested is absolutely essential to drive sales.
What I’m seeing is actual marketing proposals from vendors to get on board with loyalty program marketing. If you want to build up brand awareness, hooking up with a chain’s loyalty program is the best way as customers actually do what they are told when presented with a marketing piece that is labeled with the loyalty brand.
The lack of common goals between manufacturers and retailers is bound to manifest itself in the variable effectiveness of loyalty card data.
That said, the question might more correctly be, “Ought the goals of the manufacturer and the retailer [past apple pie cliches about serving the consumer] really be the same?”
Manufacturers want to sell the most of their products they can. Increasingly smart retailers are using POS data to become inventory editors.
The point that goes unstated in the poll is that retailers have yet to truly study and take advantage of the huge volume of data they have on the shopping habits of their loyalty card holders. Tesco is probably the best at analyzing their data and has been able to mine it to their advantage. But it took a lot of time and money to achieve that goal.
Retailers have to ask themselves what they want to learn from the data, or is their loyalty program a promotional tool? Most retailers are not ready to put the necessary resources behind analyzing the data. CPG companies could help in this regard.
By analyzing and sharing data, both retailers and CPG companies could benefit. And who knows, consumers might see some benefit as well.
The true opportunity of loyalty programs is rarely achieved–mining the data to find actionable output upon which the manufacturer and retailer can partner to achieve a win-win scenario.
New product introductions could benefit greatly from data mining by targeting the right stores and consumers.
Regional promotions can be created to exploit the same benefits.
I agree with the offers that loyalty programs too often serve as TPRs for manufacturers and traffic builders for retailers.
At the risk of oversimplification–the quality of the dialogue between retailers and suppliers on the possibilities associated with frequent shopper programs has been terrible. Most retailers do not really look at the data for anything other than revenue creating list generation (i.e supplier funded direct mail).
And correspondingly, suppliers have not taken the time to understand the opportunities this new data source provides for their brands. The catch 22 is that suppliers need retailers to help them understand what data is available, and retailers need suppliers to help them understand how to use the data most productively.