There was an interesting result for the second year running in the latest Which? supermarket customer survey. This wasn't about the winner which was Waitrose (again), or the runner-up in second place Marks & Spencer - you could almost have predicted both of those. Instead it was about the brands which took the next two top spots, Aldi and Lidl (coming third and fourth respectively) and the distinct lack of two of the biggest retailers in the UK from the top 5 altogether with Sainsbury's and Tesco at 6th and 8th place.
You could immediately argue that in this climate, price was a major factor in swaying customer opinion - but then discount brand Netto came bottom of the table with just 41% back in 2010. Plus the top two spots were taken by Waitrose and M&S - neither of which you would describe as every day low price retailers.
In fact, the top 5 retailers in the 2011 survey all managed to increase their customer satisfaction score with Morrisons overtaking Sainsbury's by moving into 5th place with a 3% lift in satisfaction and ASDA increasing by 4% to 53%.
Yet Tesco stayed static at 49% and Sainsbury's actually went down 1 percentage point in customers opinion to 57%.
Outside of customer satisfaction, the most recent Kantar WorldPanel Survey shows Tesco holding it's market share and Sainsbury's showing a marginal lift for 2011 - however both Aldi and Lidl have shown almost double the lift in sales growth at almost 10% - almost twice that of larger chains and the market overall which is growing at around 4%.
So what's going on?
- Why is it that the two biggest retailers in the UK are getting scored lower by customers than discount retailers?
- Why are these retailers actually going down in customers opinions when all other retailers are on the up?
- More interestingly, why are these retailers not seeing an effect to market share if customers have such a low opinion of them?
The answer is I think, in a word - loyalty.
Uniquely both Tesco and Sainsburys have a customer loyalty programme which recognises and rewards customers for all of their purchases. Whilst a loyalty programme in itself cannot mask customers opinions on other factors such as pricing or service, it does create a very "sticky" customer proposition. Through a combination of regular customer communications, relevant and targeted offers and the inherent reward value within the points currency, customers are minded to continue purchasing even when the overall experience may not be on a par with others.
There may be other factors driving the lower scores attributed to these retailers which are more to do with their size and coverage of the UK market than simply pricing and service. In trying to be a jack of all trades, they are essentially a master of none. Whereas Waitrose, M&S, Aldi and Lidl each have specific customer segments they serve, both Tesco and Sainsburys look to serve all segments within one single store. This naturally creates complexity in both range and choice (Finest / Taste the Difference / Basics) - something which is known to cause more customer angst.
Again though, the loyalty programme allows them to respond better to this in the long run by being able to target relevant messages and promotions to customers within specific segments. This is more easily done online (and both Tesco and Sainsbury's see their online scores matching/exceeding M&S offline), but will always be a problem within the offline store due to the scale and range.
Loyalty will only stretch so far however and as other retailers provide more breadth of locations, increased range and competitive pricing this will be continually pulling on customer loyalties.
For the moment though I think both Tesco and Sainsbury's are seeing the benefits of their respective loyalty programmes, allowing them to hold onto market-share in highly competitive and increasingly price orientated market.