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Lessons From Along Loyalty Lane
CEOs embrace loyalty programs because of their
economics. Consider the analogy of site location.
When evaluating two possible new store sites,
the one with the higher projected ROI will be
chosen. The same logic applies to customers. A
rational CEO will choose to focus on that customer
segment which yields the highest projected (or
actual) ROI.
Loyalty marketing is, essentially, all about such
economic differentiation. It’s about deciding
how to optimize our long-term yield from the limited
resources we have. Understanding our customers’
behavior and economics (derived from our loyalty
program) allows us to do just that. Some food
retailers whose loyalty programs exemplify this
thinking include Gerland’s, Dorothy Lane,
Big Y, A-Coop, and Tesco.
Access Pricing - The Fourth Way
Pricing strategy has traditionally been either
HI-LO (i.e., high shelf prices and low-margin promotional
items) or EDLP (i.e., Everyday Low Prices with no
promotional pricing). These two paths were supplemented,
beginning about 30 years ago, with PUF (Profit
Up Front) pricing. PUF pricing is seen in the
warehouse club industry (Costco, SAM's, and BJ's)
where qualified customers pay for the privilege
of buying items at bedrock prices with extremely
low margins. The profits earned from these up-front
fees account for about half of their pre-tax profits!
Today a powerful fourth way, Access Pricing, is
making its appearance. Its unique feature is to
significantly differentiate prices on basic items
between regular customers and occasional shoppers
in an open, transparent way. We are all used to
paying full price (and sometimes more!) for convenience
at convenience stores, sports stadiums, etc. In
retailing, it has been very difficult to offer
convenience pricing alongside lower prices for
regular customers within the same store. But technology
and a points-based loyalty card program now make
it possible.
Crazy Prices ... And More!
Imagine one of those behemoth discounters, with
their low costs and prices, having stores scattered
throughout your market area. You are a supermarket
operator. How do you differentiate yourself? High
quality meat and produce? A great bakery? Superior
service? Yes. Yes. Yes. But can you imagine
ever competing, at least to a limited degree,
on price? Can you ever dream of using as your
mantra, "Always the Lowest Price on Basics. Period."?
Yes, you can, and Spokane, Washington-based Tidyman’s
is doing it. Here’s how.
For the second consecutive year, Tidyman’s
is offering to its regular customers items such
as a dozen eggs for 9¢; bananas for 9¢
lb; a gallon of milk for 99¢; any brand of
12-pack soft drinks (e.g., Coke, Pepsi) for 99¢;
large Tide Detergent for $3.99; and Huggies jumbo
packs for $3.99. As any shopper immediately recognizes,
these are, indeed, Crazy Prices! For example,
a typical supermarket price for Huggies is $9.99;
at the behemoth it’s $6.99; but the Crazy
Price program offers it for only $3.99!
Is management at Tidyman’s crazy? On the
contrary; they indulge in smart thinking (coincidentally,
their tag-line). What CEO Mike Davis and his team
realized is: (1) the purpose of their Rewards
Card program is to reward and strengthen their
customers’ loyalty; and (2) the behemoth
doesn’t know who its customers are (no card
program!) and, therefore, offers the same price
to everyone who walks through its doors. A loyalty
program provides powerful advantages - such as
customer knowledge and the ability to differentiate
- and should be leveraged to the hilt!
This session will explain how Tidyman's does it, and how their pricing and loyalty strategy has helped them succeed despite fierce competition.
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