Sponsored by AppCard Inc.
Many grocers view loyalty and promotions as loss leaders or necessary evils for their businesses. They provide their shoppers with discounts on products to incentivize repeat purchases and shopper retention. Many retailers feel they are giving discounts even though shoppers will return anyway. They do it out of fear that competitors will siphon off shoppers with programs and discounts of their own.
True Value of Loyalty
Loyalty has long been viewed as a shopper retention tool. However, over time its utility and impact on shoppers has changed, and so too must grocers.
The true value of loyalty and promotions today emerges from data and shopper behavior. The value is not in retention or repeat purchases, this is a mere side effect. There is a greater profit center that these types of discounts provide to grocers, and it is driven by psychology.
We humans share a very peculiar and counterintuitive psychology when it comes to discounts. Instead of utilizing discounts to save money on our purchases, we tend to increase our basket sizes and purchase more in the face of each discount. We see a $5 discount and end up spending $20 more than we normally would.
The Key is Basket Sizes
Grocers need to drop their deep-rooted notion of loyalty as a retention tool and tailor it to aid in basket size increases. Companies in the independent grocery industry like AppCard have adapted to this change by turning the act of basket increase into a new science tailored for each grocer based on size, inventory, and market demographics. Across more than 1,000 independently-owned U.S. grocery store locations, AppCard achieves an average range of basket increases from 30% to 50%. How does AppCard do this?
Ingredients for Success
There are a few ingredients necessary for increasing basket size and shopper spend.
- Participation Rate: First and foremost, a high shopper participation rate is key. The more shoppers you can influence, the more revenue you can generate. You need to start with at least a base understanding of the makeup of your audience.
- Simplicity: Ease of participation needs to be a focal point of any program. Signing up and continued participation should be so simple that your grandmother can do it. This precludes the required use of a mobile app for participation. Your grandmother will not download that app, but she sure would like using coupons and promotions. The simple solution for participation is requiring nothing more than a shopper’s phone number, as we all have one. Across the board AppCard sees an average of 62% of shoppers participating in its program nationwide. This can be credited to the use of a phone number and a simple sign-up process.
- Engagement: It’s important to keep shoppers engaged with marketing programs. This requires predictability on a retailer’s part. Shoppers should be able to reap rewards on a regular basis. AppCard’s focus in working with retailers is to ensure a shopper can redeem a benefit at least every 5 weeks. Making shoppers wait longer than the 5-week mark tends to lead to a higher drop-out rate for participation.
- Doing the Math: To achieve this 5-week cycle target, we will need to perform just a little math. Consider this example. Let’s assume that an average shopper buys groceries once a week, with an average basket size of $25. If we set the first available reward threshold at $100, it means most shoppers will have spent enough money to be eligible for a reward by week 5.
When shoppers decide to redeem rewards, retailers will see basket sizes increase. Shoppers will often spend more than what the discount allows for. On average, shoppers will increase their basket sizes 7 to 8 times per year. This will roughly translate in most cases to an extra $80 to $100 more per year per shopper. This is not much; it is about $9 more per month for each participating shopper. However, when you couple this number with a 62% shopper participation rate, you now have a powerful new revenue generation center for your grocery store.
The industry is changing, technologies are evolving, and opportunities are everywhere. The beauty of increasing basket size through loyalty and promotions is that you aren’t working to dramatically change a shopper’s state of mind or behavior. You are simply harnessing a common psychology shared by all humans and turning it into a predictable cycle. The result is rewarding shoppers and growing basket sizes.
I hope you enjoyed this recipe; more too come in future posts.