Loyalty programs provide consumers with special discounts, and they give retailers loads of data on shoppers’ habits and preferences. So why are supermarket loyalty membership numbers falling? And why has one major grocery company pulled the plug on its loyalty program?
In the grand scheme of things, customer loyalty programs seem to be rapidly on the rise. According to a study by the research firm Colloquy, the number of U.S. loyalty program memberships grew by 26.7% from 2010 to 2012. Last year, Americans had a collective total of 2.65 billion loyalty program memberships.
But the study reveals that these programs may not be quite as ascendant as they initially appear. “Even though the average number of loyalty programs per U.S. household has grown to 21.9 (up from 18.4 in 2010), only 9.5 of those memberships – less than half –are currently active,” the report states.
What’s more, certain loyalty program categories actually saw a decrease in memberships. In 2012, Americans had 172.4 million supermarket loyalty program memberships, down from 173.7 million in 2010. That’s a decrease of only 1%. But considering that until recently loyalty program totals have generally only gone upward, and that most program categories saw robust growth, any decline in memberships is significant. Combine that with the fact that the percentage of memberships that are active has been falling across the board, and what becomes apparent is that many consumers have grown sick of having to fumble through a pocketbook to find a loyalty card at the grocery store.
Shoppers aren’t the only ones who are tired of loyalty programs. Over the last few weeks, the supermarket company that runs brands such as Albertsons, Shaw’s, Acme Markets, and Jewel-Osco has been announcing the elimination of all loyalty programs. Shaw’s, for instance, has been pushing the change as “Card Free Savings,” in which “Everybody gets a low price,” regardless of whether the shopper is a loyalty program member or can produce a card to get zapped at the register. “The card isn’t so special anymore,” the grocery company announced via its website. “Everyone has one. So we want to take the special step of not requiring one anymore.”
Many customers view the change as a win-win: no need to keep track of a card (or use a smartphone app) for discounts, and no (or fewer) concerns about privacy and personal data. Other shoppers who have become masters at using loyalty programs to their maximum potential for epic discounts have reason to be upset about the idea of merely getting the same discounts as everyone else.
What’s in all this for Albertsons and its sister brands? By getting rid of loyalty programs, aren’t these chains also giving up access to all sorts of data about its shoppers? Isn’t that data extremely valuable for marketing and pricing purposes?
Perhaps it’s not as useful as you think, as Chris Wilcox, a spokeswoman for Albertsons LLC, explained to the industry publication Supermarket News:
“We found that tracking individual shopping habits isn’t as critical to our overall strategy as knowing what our customers in our neighborhoods are shopping for. Tracking individual purchases can be one way to do it, but it’s not the only way. Getting to know our customers in neighborhoods, learning each store like it’s our only store, and offering best-in-class customer service is as much of a differentiator.”
At the same time, other supermarket companies are putting an even greater emphasis on loyalty programs—and the potential they give for customized marketing and personalized pricing. As CNBC and the Associated Press have reported, Safeway and Kroger’s, among others, have been stepping up efforts to use customer’s shopping histories to present them with personalized deals and coupons to boost spending. “There’s going to come a point where our shelf pricing is pretty irrelevant because we can be so personalized in what we offer people,” Safeway CEO Steve Burd said earlier this year, according to the AP.
Such a concept may strike some shoppers as being inherently unfair: How would you like paying twice as much for hamburgers or coffee than the person checking out in front of you? Then again, a scenario like that is likely to make you sign up for the loyalty program, which is sorta the point. Many customers will, in fact, love personalized pricing because it’ll make them feel special—like they’re getting a unique deal created just for them.
Regardless, Albertsons and its sister grocers aren’t the only supermarket chains skipping loyalty programs and personalized pricing. Whole Foods and Aldi represent the high and low end of grocers that have done very well without resorting to loyalty programs. But some analysts are skeptical that a business model without loyalty programs or customized pricing and marketing can be successful down the line. “In the future, it will be increasingly difficult for Albertsons to compete against retailers like Safeway that have loyalty programs and are advancing down the road towards personalization,” Jon Hauptman, partner at Willard Bishop, told Supermarket News. “That’s where the puck is headed.”