loyalty based discounting at the point of sale

What retailers must do now – loyalty based discounting (LBD) at the point of sale

There are two kinds of competitors in Retail at present- brick and mortar retailers and Amazon. There are two ways to stay ahead of the competition. And here I take the tiger, chasing the two men in a forest, analogy. While the two men are running away to save themselves from the tiger, one of them suddenly stops and takes out running shoes from his bag, to which his friend asks-“You think you can outrun the tiger?”. To this the other man responds- “No, I just need to outrun you. So, instead of taking on Amazon, retailers need to focus on beating their brick and mortar competitors.

Millions of dollars are spent, both, by the CPG companies and by the retailers in running expensive campaigns through programs like Tesco Clubcard Mailer or the Kroger Loyalty Customer Mailer etc. A huge amount of time, money and personnel are also involved in these campaigns which add to the cost of discounts being offered on these campaigns. The execution of these campaigns, either physical or digital also come at a cost (direct marketing agencies charge for executing these campaigns). And in many cases the response percentages to these campaigns are very low. Many of these coupons are not redeemed- the marketing budgets earmarked for promoting those products are thus wasted.

The idea at present, behind these programs, is to drive customers to the store, to buy more of what they like buying and there is a predictive modeling involved to identify which product is relevant to each customer. It is not hugely accurate and as mentioned earlier, is very expensive.

The new idea is to replace this elaborate couponing system with a simple concept - loyalty based discounting (LBD) at the point of sale. And the discounts will vary for each individual for the products that are under promotion. The customers will be educated through in-store advertisements about products that are on promotion- through massive digital boards outside the store, through apps on their mobiles, and at the shelves. Thus, a shopper will end up getting a discount only if he buys the product. Also, customers will be educated on the fact that their discount amounts will vary depending on 2 metrics- their loyalty to the retailer and their loyalty to the brand that they are buying into. These two factors will determine the discount slab (high, medium, low) that the consumer gets clubbed to and the amount that he gets as a discount. Also, the first week and third week of the month will be announced as the weeks of promotion to drive consumers to the stores. Also, each store will have a specific number of discounts available per product based on their historical customer propensity for the product. Customers will be informed that discounts will be on a first come first served basis and once the discounts exhaust for a particular product, no further discounts would be given. A mid-week stock taking algorithm will re-distribute these discounts digitally to the stores where there is more demand for the products under promotion. Thus, it will ensure that most of the discounts are used up.

This will ensure pure customer centricity- discounts are provided to customers who are true buyers of those brands and reduce wastage because of irrelevant targeting or customers not using the discount coupons that are provided to them upfront.

These discount weeks (first and third weeks- when wages are given) will draw customers back to the stores as they will try and avail of these discounts before they exhaust. It will create a demand for products that are on promotion.

The tiered discounting will drive customers to become brand loyalists so that they can avail of the highest discounts. A digital statement, stating how much discount has been given to a customer brand-wise, will be provided with the bill at the till and also in the form a monthly consolidated mail to all Loyalty card holders.

CPG companies will only need to communicate the pot of discount that they would like to spend and the number of customers that they would like to target with the discounts and a computer algorithm will digitally allocate all the discounts to the respective stores of a retail chain in a jiffy (with more discounts being allocated to stores that have more brand loyalists).

Retailers - your time is running out. Get your act together now. Get LBD in your stores!

Tags: E-Commerce, Sales and Marketing

Snehamoy Mukherjee

Snehamoy is a part of the Strategic Leadership Team at Axtria, a New Jersey based Analytics firm, where he is responsible for business development, solution development, delivery leadership and strategy formulation.