OPINION: MILLS ON ... THE SAFEWAY LOYALTY CARD

Cheers Safeway. That’s one less loyalty card to clutter up my wallet, a slight reduction of the unsightly bulge factor in my jacket pocket. Plus, if Safeway is to be believed, an extra pounds 50 million saved by cancelling the card scheme which it can now channel into even lower prices with which to pursue the battle against the mighty Asda/Walmart. Yippee indeed.

Cheers Safeway. That’s one less loyalty card to clutter up my

wallet, a slight reduction of the unsightly bulge factor in my jacket

pocket. Plus, if Safeway is to be believed, an extra pounds 50 million

saved by cancelling the card scheme which it can now channel into even

lower prices with which to pursue the battle against the mighty

Asda/Walmart. Yippee indeed.



From where Safeway sits, it looks pretty straightforward. A new ’best

deals’ price-cutting policy introduced in October has seen like-for-like

sales rise by 5.7 per cent and 750,000 new customers visit the

store.



Safeway isn’t saying where those customers are coming from, but clearly

some must be from Tesco and Sainsbury’s, both of which run loyalty

schemes.



Conclusion: loyalty schemes don’t work and anyway they’re expensive,

especially if, like Safeway, you get into points inflation. Better,

therefore, to divert that money into price cuts. The City certainly

seemed to agree, marking up Safeway’s share price by 10 per cent.



Pardon me, but isn’t there a flaw in that logic? If, as Safeway

acknowledges, those new customers have been attracted by its price cuts,

what’s to say they won’t flit off to Asda when, as it surely will, it

fights back on price? If that happens, all that Safeway will have done

is to have fired off a new pricing war in which, in financial terms,

it’s the one with the pop guns while everybody else has the heavy

artillery.



Surely, having won those new customers, it is imperative for Safeway to

hang on to them. A loyalty card may be expensive, but that is the price

of staying in the game.



So, are loyalty schemes really a waste of time - ’boring to customers’,

as Safeway’s chief executive put it? Or is Safeway really trying to hide

the fact that it just failed in the implementation of its particular

scheme?



I’d guess the latter. This is where the term ’loyalty’ can be

misleading.



The cards can be used in a number of ways, of which loyalty is only a

broad generalisation and a way of making customers feel valued. Winning

new customers is another application (hence Safeway’s foray into double

and triple points), but so too is the opportunity to build a really

decent database and then mine that information for all it is worth.



As I understand it, Safeway really only used its ABC card as a means to

generate more customers while Tesco and, to a lesser extent Sainsbury’s,

have seen it as a way to increase their customers’ share of wallet and

to use that information to diversify into new areas such as financial

services, car insurance and so on.



With six million people registered for an ABC card, that’s a lot of

potential customer information for Safeway to give up on. In the end, we

must conclude that it was never as committed to extracting the database

benefits as its rivals.



Still, it obviously feels that is a small price to pay. Whither now?



The logic of Safeway’s strategy suggests it is preparing to go

head-to-head with Asda - which has consistently refused to have a card.

Good luck to it. But, without one, what is Safeway’s point of difference

and where is its competitive advantage?



dominic.mills@haynet.com.



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