Customer loyalty: The battle of the supermarkets

The UK grocery market has become increasingly competitive in the past few years.  Certainly the growing strength of discount stores like Aldi and Lidl have really shaken up the market and began to take over the reign of current supermarket giants such as Tesco and Sainsbury. To further add interest, Pound shops are also gaining market share and nibbling away at the margins of the big supermarkets. For consumers it is largely good news with lower prices, lower profit margins and a raft of incentives from supermarkets trying to hold onto market share.

For most shoppers we all love a good bargain and when it comes to supermarkets such as Aldi and Lidl customer expect just that. From personal experience shopping at these supermarkets reduces my weekly shopping prices by £10/£15 and this is exactly why more and more people are choosing to switch their weekly shop to Aldi rather than Tesco, and Lidl rather than Sainsbury’s. Aldi concentrates on selling un-branded products for cheaper prices rather than supermarkets such as Tesco selling highly known, branded products for double the price. And in a time where customers are looking to save every penny can they really keep affording to pay £1.20 for a tin of Heinz beans when they can pay 30p in Aldi or Lidl for virtually the same product.

 

This is why more than ever big supermarket giants are introducing loyalty schemes to keep current customers from leaving to other supermarkets. Morrisons have recently introduced their ‘Match n More’ card to customers where they can gain points when they shop in store (previously mentioned in blog ‘Customer loyalty: The era of the loyalty card’). Also across the country in every Tesco, Sainsburys, Asda, Morrisons and others, sales promotions are on the up and prices are dropping. These supermarkets know in order to keep customers loyal they need to keep prices down and offer more and more promotions in store such as half price and buy one get one free. However at the end of the day the real winners of this supermarket showdown is the customers with low prices and never ending deals, so for us, keep battling.

Customer loyalty: Customer Relationship Management (CRM)

Customer relationship management also known as CRM allows companies to use databases to customize products and communications with customers, with the goals of higher sales and profits. CRM also incorporates technologies and systems to ensure all employees who have an interface with customers, to have up to date information to provide the highest possible service.

Successful customer relationship management programmes used by companies build bonds and long term loyalty with customers making it an effective means of creating customer loyalty. CRM programs were designed to go way beyond the development of a database and traditional selling tactics to the mass customization of both communications and products.

The basis of Customer Relationship Management is Telemarketing which can be classed as either in-bound or out-bound. In-bound telemarketing is the use of telephone services to enable responses from customers and out-bound is the planned use of the telephone to make unstructured calls to a measured audience.

CRM focuses on ‘share of customer’ which refers to the percentage of expenditure a customer makes with one particular firm compared to the total expenditure in that products category. So the real question is, ‘If more is invested by the company in developing a relationship, what will the yield be over time?’ When a customer makes only a quarter of her purchases of a particular product with a specific store, increasing the share of the customer would mean increasing that percentage from 25 percent to a higher level, therefore increasing sales revenue. The ultimate goal for any organisation would be leading the customer to make 100 percent of her purchases with one company.

Overall, CRM solutions provide you with the customer business data to help you provide services or products that your customers want, provide better customer service, cross-sell and up-sell more effectively, close deals, retain current customers and better understand who your customers are. This provides a service customers appreciate and are made to feel special therefore becoming and remaining loyal.

Customer Loyalty: The era of the loyalty card

Customer loyalty focuses on attracting customers, getting them to buy, buy in large quantities and purchasing again and again. Creating customer loyalty isn’t just down to one aspect. To gain customer loyalty, customers needs to be made to feel special and to be treated exactly how they want to be treated. Certain studies have shown that the cost of keeping an already existing customer is around 10% of the cost of acquiring a new one. Therefore, on an economical base it makes good sense. By putting together a good retention strategy the business will therefore benefit on their profitability as the longer the customer is retained the lower they will cost. There are other benefits to generating a lasting relationship with customers, including the fact that long-term customers are more likely to introduce your business to others, they’re more likely to purchase other products from you and if they’re completely happy with the service they’re getting then why even think about switching to another competitor?(Marketingdonut, 2014)

One of the most recognisable loyalty schemes known today is the ‘clubcard’ or ‘loyalty card’. The use of loyalty schemes was encouraged through the vast use of cards whereby customers gain points on their card every time they spend money, this is referred to as a ‘points accrual program’. They can then go on to gain rewards with these points such as money off vouchers, special offers and gifts. The benefit for the company is that the promised rewards encourage customers to repeatedly purchase from them to acquire more points, therefore ‘locking them’ into the loyalty program and preventing them from switching to another competitor.

One of the biggest and most profitable examples of the loyalty card scheme would be Tesco’s clubcard. Tesco currently give you one point for every pound spent, which is worth 1p. Which means for every 500 points or £500.00 spent you will get £5.00, which can be used on shopping or with club card rewards. Another benefit to the clubcard is that Tesco can directly track a customers buying patterns and customer trends and send them vouchers to match those trends, therefore creating a personal shopping experience for each and every customer. Customers will then go and use the vouchers next time they shop encouraging repeat purchase.

Many other organisations use the loyalty card scheme such as Boots, Morrisons, Subway, Millie’s cookies and Sainsburys. Some frequent flyer loyalty schemes such as BA executive club and Virgin have been extremely successful and their cards are used to track individual customers. Airlines offer cardholders special services such as airport lounges and magazines, the card can also offer a traveler’s favourite seat and any dietary requirements as well as free miles when the cardholder has accumulated a certain number of hours already. Overall there is evidence that sales lift by 2 or 3 percent when a loyalty card scheme is set in place therefore the era of the loyalty card will definitely live on for the foreseeable future.