By Igor Simic, Marketing and Commercial Manager, WorldSmart.
Interesting news in the world of retail, with Woolworths pulling out of its long-standing relationship with Qantas Frequent Flyer. Woolworths is not the lone ranger here, Sainsbury’s has already halved its Nectar rewards card and Tesco is rumoured to be in the process of revamping the Clubcard.
While Woolworths went to great lengths to cite cost and redemption rates as the reasons, if you read between the lines there is a consumer story playing out. Sure, consumers are demanding lower costs, but what has really happened is that they have fallen ‘out of love’ with the loyalty point and, as with all tragic love affairs, it usually means that someone has outgrown the other.
In the case of retail, the consumer just does not have any real relationship to the amorphous loyalty point. All consumers know is that it takes too long to accrue them and that you can’t do too much with them. All of this runs in contrast to the immediacy principle that runs as a core thread through retail. In short, the points represent no real tangible value to consumers, so good on Woolworths for creating more transparent value and immediacy in loyalty.
This might prove true in the short term, but, in the long term, I would suggest that Woolworths has fired up the race to the bottom and created a class of the most loyal shoppers that ‘money can buy’.
I grant that it is harder to build real loyalty than buy it, but this is a very myopic strategy and, ultimately, one that will not bring benefit to Woolworths or the industry. It’s not that shoppers are not loyal, it is just that retailers and loyalty programs have done a very poor job at understanding what loyalty really is.
We should take some guidance on the indisputable leader in loyalty management and systems, Don Corleone, from Mario Puzo’s novel The Godfather. Directed by Francis Ford Coppola, the movie’s first scene saw Bonasera the undertaker make an awkward attempt to request justice from Don Corleone for an assault on his daughter. In this interesting and insightful look at loyalty, the dialogue between the two parties shows that loyalty is a function of reciprocity. In the case of The Godfather, it was vengeance reciprocating for respect, which formed the basis for loyalty. What reciprocity highlights is that there is an exchange of value, and why the The Godfather analogy is so valuable is because it clearly shows that value is not a solid construct: it can be an intangible such as respect.
Why this is important for the retailer is because consumers are changing. We are now in a digital age, with more and more value being established in the virtual domain. Consumers will now value a virtual product in the same way they value something physical. WorldSmart has been operating loyalty programs for more than 25 years and is clearly seeing this trend – reciprocity used to be based on tangibles such as status and privilege, now we are seeing gamification or a virtual reward providing the same basis of value as a hard reward.
We are also seeing a strong social return context. While our SmartRewards platform has, for the past five years, offered the same features to IGA customers as Woolworths is now offering, it does allow points to be redeemed for charities and other social causes. This mechanism allows for a virtual value exchange based on the emerging trend of socially responsible consumption. So, in short, there are many ways to establish value in a reciprocal loyalty relationship other than deeper discounts.
While WorldSmart has pioneered some of the most innovative and long-lasting loyalty programs in Australia, it is quite clear that retailers and consumers are changing.
Retailers expect their loyalty system not just to capture data and provide insight through analytics but to provide a whole ecosystem that enables campaigns and manages activation programs. In short, retailers want loyalty programs that bring more people into stores and, when they are there, put more things into baskets.
Consumers, on the other hand, want loyalty too: reciprocity is the more inherent trait in human nature. What they don’t want is deep discounts, but, rather, the freedom that comes from having extra cash to spend because of deep discounts, Woolworths seems to have missed this in its calculations. If you follow this spare cash trail, then it leads to spend on wellbeing, health and family welfare and that is where the real value in reciprocal loyalty lies.
WorldSmart is developing a new loyalty system that bridges this gap yet generates loyal consumers based on high-value reciprocal transactions to drive footfall and basket growth in stores. The details are a trade secret, but if you are not part of one of WorldSmart’s loyalty programs such as SmartRewards, then you will want to be very soon. Contact your local WorldSmart sales manager to find out more.
About WorldSmart
WorldSmart is a leading technology provider to the independent groceries retail and hospitality sectors. Specialising in omnichannel software solutions, including POS, e-commerce and loyalty systems, WorldSmart has built a formidable capability in building solutions that drive revenue and reduce cost for customers.