Black Hole or Treasure Trove?

Retailers dropping their loyalty programs are fumbling the ball.

Safeway PLC has discontinued its loyalty-card program, The Wall Street Journal reported recently. According to The Journal’s news report, the British retailer said the program was generating more information than could be managed – to the point where “much of the data wasn’t proving valuable.”

The article elaborated: “Safeway estimates it will save U.S. $75 million per year by discontinuing its loyalty-card endeavors. The savings will be applied to `deeper discounts across the board’ to all of its shoppers.”

While Safeway is not necessarily a bellwether retailer, the supermarket retailer’s move followed that of U.S. grocers Wild Oats and Nob Hill Foods. Perhaps more significantly, Wal-Mart, a retailer whose example others do tend to follow, has also said it will not pursue loyalty-card programs in the U.K., explaining that “it doesn’t see such cards as an important means of gathering information about consumers’ shopping habits.”

Yes, it’s true that retailers and brands alike often feel overwhelmed by the levels of data they must aggregate and analyze in hopes of gaining consumer insights, sales uplifts, and competitive marketing advantage. However, rarely has too much information been a problem.

In fact, the opposite is true. The major shift in power from marketers to retailers is due primarily to the retailers’ information knowledge advantage, which has grown as a result of scanner data and consumer loyalty programs.

To argue that too much information is not of value begs this question: How much information is too much? The key is to define what information is important, and then sort the data accordingly. With today’s technology, it is possible to segment and analyze an “infinite” amount of data quickly.

In the past, marketers set the plans, the programs, and the terms and conditions. Today, the retailer is controlling the ideas, plans, and programs. However, many of today’s retailers realize that they need partners who can help them grow categories that drive profitable sales volume.

This requires sharing information, which apparently has been very difficult for many retailers to accept. But the global dogfight over a finite set of consumers has forced many retailers to look for marketers who can function as partners.

Manufacturers typically are more than happy to provide data analysis, usually free of charge, and to suggest ways to test program opportunities. The manufacturing community should actually take the initiative rather than wait for an engraved invitation from retailers. This much is clear: If retailers appear inclined to follow the Wal-Mart/U.K. example, then it’s even more important for manufacturers to study the Procter & Gamble approach.

Having led the co-marketing agency that was responsible for developing P&G’s initiatives with the retail trade, I am acutely aware that information-sharing by both P&G and the retail trade was instrumental in developing joint programs that were mutually profitable. And yes, this included frequent-shopper (i.e., consumer-loyalty) information.

Think Ahead The notion that applying deep discounts across the board to all shoppers rather than bothering with the micro-marketing possibilities of loyalty-card programs is myopic. As every faithful reader of PROMO knows, deep discounting is a short-term tactic, not a long-term strategy.

Unless you’re Wal-Mart, across-the-board deep discounts are not likely to build profitability. Nor will these deep discounts provide a competitive point-of-difference. That approach did not work in the U.S. for retailers who depended on pricing discounts to compete effectively against Wal-Mart because Wal-Mart owns this territory, and retailers play Wal-Mart’s game at their own peril.

Ultimately, knowing your marketing return on investment (ROI) represents the difference between winning and losing in today’s hyper-competitive, global marketplace.

The movement known as Efficient Consumer Response (ECR) was all about gaining efficiency and driving costs out of the system. It also produced the data stream that enables a link between in-store marketing activities and sales results at the cash register. Indeed, the ultimate legacy of ECR is that it introduced retailers and manufacturers to the concept of real-time measurement of the ROI on in-store activities.

That is why the next great movement after ECR will be EMP: Effective Marketing Performance. Like ECR, Effective Marketing Performance is a set of disciplines that enables retailers and manufacturers, collaboratively or otherwise, to understand which marketing programs are working at retail and why – and then to use that information to build profitable sales volume on an ongoing basis. Unlike ECR, the focus of EMP is on marketing effectiveness, not just cost efficiency.

When EMP is embraced, stores and retailers will effectively focus on marketing strategies that build their businesses, as opposed to the shortsighted tactic of broad-based price discounts for all.