Sunday, 16 January 2011

ASDA launch a loyalty programme?


UK supermarket retailer ASDA has publicly stated a number of times that it doesn't believe in loyalty programmes. CEO Andy Bond famously said "You can't buy loyalty with plastic points" and their website actually has a page describing why they don't do "loyalty", saying:-

At Asda we reward all of our customers for their loyalty by charging low prices every day of the week, all year round.

ASDA has always prided itself on being an Every Day Low Price retailer. In a article last year, ASDA said:-

EDLP is very much at the heart of our pricing strategy. [The aim for 2010 is] sucking out the promotional money on offer from our suppliers [in order to] invest all of it in lowering prices across the board.

The problem with an EDLP strategy though is three-fold:-

  1. Hard to prove - Will consumers really believe you when you state you have the lowest prices. With so many deals around, so many different brands within the same category and so much HiLo style pricing strategies even within EDLP retailers, consumer are confused about what a low price really is.
  2. Lacks Engagement - Even if a customer sees initial savings on their first shop, this quickly becomes "normal" on subsequent shops meaning the whole EDLP strategy becomes forgotten. It may work initially for acquisition, but fails in the long term when it comes to retention.
  3. Encourages dis-loyalty - When EDLP are mixed with sales promotion activities this actively creates dis-loyalty. It plays to a promotional audience who will shop around and only buy products on special offer. Long term, rather than EDLP locking consumers in with a trusted promise, the sales promotion activity simply dilutes it.

When reviewing various retail loyalty programmes a couple of years ago, COLLOQUY stated “A marketing strategy focused solely on sale prices and promotions not only faces diminishing returns, but can also actually breed disloyal customers [..] retail marketers have an opportunity to shift their focus from EDLP towards loyalty drivers that build true customer engagement, larger transactions and improved margins.”

Despite all this talk about not doing loyalty programmes and how an EDLP strategy in some way doesn't fit with loyalty, have ASDA in fact actually launched one?

ASDA had recently strengthened its Every Day Low Prices (EDLP) strategy with a Price Guarantee. Not just a "refund the difference" guarantee, but a 10% less guarantee.

They state "We'll guarantee your comparable grocery shopping is 10% cheaper at ASDA or we'll give you the difference".

As an example they say:-

Your comparable grocery shop is £110 at ASDA, £100 at Tesco, £111 at Morrisons, £125 at Sainsbury's and £130 at Waitrose. Tesco are cheapest. 10% cheaper than Tesco's £100 comparable grocery shop is £90. As such in total you'll receive a voucher for £20.00 to ensure your comparable grocery shop is 10% cheaper at ASDA.

This is a bold promise.

Of course there are those who point out potential issues with this such as the breadth of products covered. Whilst 15,000 products are compared, about 10% of products are deemed "unique to the retailer" and are not included.

However in a recent article in Which? where they tested this promise, it did deliver (even if 50% of products couldn't be compared with Morrisons). Although ASDA were the cheapest overall, they were not 10% cheaper and so they gave a refund.

ASDA compare.jpgASDA value.jpg

What's different about this programme for ASDA though is that they now have the potential to both provide every day low prices and to build increased customer engagement - and here's why.

ASDA have made it really easy to check prices after a shop using their online website or in-store using their iPhone app and as part of this process the customer can register their email address.

And there we have it - they have created a loyalty programme.

They're connecting purchase data to customer data, creating the ability to run a loyalty programme. This isn't a points programme, it's a uniquely ASDA loyalty programme. But it is a loyalty programme.

There are even customer rewards in the form of the 10% money back and this bit is quite clever. Using this scheme ASDA don't need to be the overall lowest price all of the time, they just need to be low. Non-loyal customers pay the sticker price, but loyal customers can essentially be refunded (or rewarded) any difference. By flexing this margin they'll be able to manage short-term benefit versus long term engagement.

This ability to link transactional data to individual customers will also give ASDA increasing insight on their customer base and allow them to begin mining this data in ways which retailers like Tesco and Sainsburys now take for granted.

Finally, It creates a reason for customers to further interact with the retailer online and on the move, continually reinforcing the ASDA price promise.

There are many ways to improve this programme to make it work harder, but hats off to ASDA. I think they may have the start of an interesting and powerful EDLP loyalty scheme - even if they don't like the word loyalty.