After spending £60m buying Aimia, the owner of Nectar, it is little surprise that Sainsbury's is looking into some dramatic changes to the loyalty-card system.
Sainsbury’s yesterday announced that it would be trialling a new structure for how points are accrued in stores across the Isle of Wight. The scheme will be app-based and will allow customers to collect points based not just on how much they spend, but also on how long and how often they have been shopping with Sainsbury’s.
Clearly the retailer will be watching the trial closely to see how this could work across the rest of the UK. The Nectar acquisition was justified as a way for them to "know our customers better than anyone else". Now that Sainsbury’s has acquired this level of insight, they have decided to invest in arguably the most important customer asset: loyalty.
Sainsbury’s needed to make changes: its second-quarter 2017 financials reported a slowing in like-for-like grocery sales in the wake of strong competition from discount supermarkets. This will have forced a rethink of the company’s attitude towards engaging and driving revenue from the company’s most important and valuable customer segments.
It is well known that returning customers spend disproportionately more than regular shoppers; around 67% more according to some estimates. Our own research found that one of the most important ways to make a customer feel understood by a brand was through offering top customers perks that were not offered to everyone else.
Sainsbury’s has tapped into this with its proposed new trial scheme by rewarding loyal customers differently and on a more personalised basis. Exactly how the Isle of Wight experiment will play out remains to be seen but it will be interesting to see whether the rewards for those top customers actually differ that greatly from a "casual customer".
The supermarket is also offering an app with individual offers based on a customer’s shopping history. This is a no-brainer – brands that have unified data sources on their customers should be taking the opportunity to send out personalised offers, and Sainsbury’s is recognising the huge value of tailoring their offers to individuals. This personalised strategy is only going to increase in importance for the retailer and its competitors, too. Customer expectations tend to increase when you look at the newly-minted millennial generation. Ometria’s study found that 70% of 18- to 24-year-olds say brands that fail to personalise their marketing will lose them as customers.
What will set the real benchmark for customer loyalty, however, will be in how cutting-edge the personalisation is. If the retailer can use machine-learning to join up online and offline purchase behaviours, gaining a full vision of the customer’s spending habits, then this could become the new selfie stick – you didn’t know how much you needed it, until you tried it for yourself.
There is a caveat that, if the retailer fails to join the data dots effectively, the customer won’t be rewarded correctly, which risks dissatisfaction from the consumer. Imagine being continuously sent offers for nappies, after just once buying them for your brother as a favour, while being unable to redeem points on your favourite shampoo.
Sainsbury’s also is allowing customers to pick five "favourite" offers, so they can build more points on the items they regularly buy. This goes some way to sidestepping the nappy-shampoo conundrum, and is an effective way to tap into a customer’s regular habits, ensuring that they’re coming to buy from your store, rather than your competition – but it may not be enough.
The sticking point for customers in future may well be in the fact that they can only redeem points on certain products, rather than across all stock as they do now. Waitrose customers struggled with a similar concept, and it shut down its "Pick Your Own" offers just recently.
The reality is that, from a brand perspective, encouraging repeat purchasing is of far more value than a generic (and, often, low) reward. What’s more, if Sainsbury’s can pull this off, this is likely to work in the favour of their prized, most regular customers.
If the business does nail the proposition, I expect we’ll start to see changes in how Sainsbury’s conducts its general customer marketing strategy, rolling out this personalisation across all channels, like email, social audiences, direct mail, app push notifications and more.
It’s a bold move – and a completely necessary one in a market where the strong competition means that when it comes down to it, loyalty reigns supreme.
Ivan Mazour is chief executive and founder of Ometria