Loyalty Programs: What Do the Experts Say?

Written By:
Jay Jacobowitz
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Fresh & Easy, the new 10,000-square-foot food retailer, has opened 120 stores in the western United States in less than two years, and plans to open 200 more. The stores focus on quality prepared foods, fresh produce, everyday items at low prices and average $500 in sales per square foot per year. Fresh & Easy’s parent, UK-based Tesco, is the fourth largest retailer in the world.

Tesco is the world leader in customer loyalty programs, with its Clubcard, and owns dunnhumby, the world’s largest customer-loyalty analyst. For example, dunnhumby provides customer-loyalty analysis to Kroger, the second-largest U.S. grocer (after Wal-Mart), with 2,500 supermarkets.

With all this success and expertise, one might assume that Fresh & Easy would use the Clubcard program. But it does not. Why not?

When asked about the Clubcard at Fresh & Easy, Terry Leahy, Tesco’s CEO, said, “You need to be of a certain size to make good use of a Clubcard, because you have to develop quite expensive insight teams that can properly analyze the data and respond to the information,” adding, “It is important that it does not just end up being a cheap promotional tool.”

Leahy’s point: Unless you have the resources to analyze customer transaction data, create offers based on that analysis, evaluate results and adjust your offers, you merely create a very expensive discount program.
Recently, Fresh & Easy’s chief information officer, Doug Rutledge, told the National Retail Federation, “We’re trying to create loyalty, not with IT [information technology], but by trying to focus on offering a great shopping trip with honest prices.” Rutledge said the strategy is based on feedback from customers who said, “They didn’t want to be part of a loyalty program to get great prices,” adding, “They said they were irritated being behind someone in line with a key fob that unlocks a different pricing structure.”

Fresh & Easy is using a low-tech approach to consumer marketing. “Word of mouth is much more powerful in building a brand than what we would say in print or e-mail,” Rutledge concluded. If Tesco and dunnhumby need more than 120 stores to afford the team of analysts for an effective loyalty program, can independent natural products retailers with even a dozen stores hope to create more than just an expensive discount program? You can decide, but here’s dunnhumby’s tagline: “Understanding data is one thing. Knowing what to do with it is another.” WF

Jay Jacobowitz is president and founder of Retail Insights®, a professional consulting service for natural products retailers established in 1998, and publisher of Natural Insights for Well BeingTM, a holistic consumer marketing program designed especially for independent natural products retailers. With 31 years of wholesale and retail industry experience, Jay has assisted in developing over 800 successful natural products retail stores in the U.S. and abroad. Jay is a popular author, educator and speaker, and is the merchandising editor of WholeFoods Magazine, for which he writes a regular column called “Merchandising Insights.” Jay also serves the Natural Products Association in several capacities. Jay is next scheduled to speak at the NPA Southwest regional show in Austin, TX. He will speak on “How to Win After the Recession Ends” on April 24. He can be reached at (800)328-0855 or via e-mail at jay@retail-insights.com.

Published in WholeFoods Magazine, April 2009