The Sydney Morning Herald carried an article entitiled "Consumers paying high price for loyalty card rewards". The article was based on research from Choice (most likely similar to New Zealand's Consumer magazine). Their research argued that shopper loyalty cards offer "little benefit to shoppers" and profiled the value the key grocery retail programs offered .
An average Australian shopper (according to Roy Morgan Research) spends a mere $156 per week.
To earn a $50 gift card in Fly Buys requires spend of $15,000 at Coles (or think New World in New Zealand). At an average shopper's purchase rate of $156 per week that would take 2 years.
It would be faster at Woolworths Everyday Rewards program (think Progressive Enterprises Onecard in New Zealand) with customers earning the same $50 gift card after $11,000 or 1 year and 4 months.
One could indeed argue that for the average customer a $50 gift card in return for either 1.3 (Woolworths) or 2 years (Fly Buys) worth of dedicated shopping may not be enough return. That's debatable and some of our data would say otherwise.
However the real issue here is the use of "Average". There are no average customers and loyalty programs serve to enhance differences, especially financial ones, between them.
The figure shows an extract from an actual retail program. The customer base is ranked from best (buys the most) to worst customer along the x axis. The y axis then shows total sales from these customers. It's clear that the first few customers produce significant sales and the bottom customers very little.For instance - the customer base once laid out from best to worst - is then cut into 10 deciles of equal turnover. In this case total turnover is $44m and each of those deciles is worth $4.4m. The first $4.4m of sales (or Decile 1) comes from only 91 customers. Each spends $49,000.
The last $4.4m of sales (or Decile 10) comes from over 42,000 customers. Each of them spends only $104.
Looking at this distribution, different customers are treated differently and top customers get inordinate amounts of value. In return they provide inordinate amounts of sales.
Agree with your premise that "average" is unhelpful. A more profound problem with the Choice article - a basic flaw actually - is that they assumed customers only collected points from supermarkets. In the case of FlyBuys, member households that buy groceries also fill up their car with petrol, buy liquor, visit discount department chains like Target and Kmart, and have credit cards - and collect FlyBuys points from each of those activities. None of them rely solely on collecting points from supermarkets, which is exactly what Choice assumed in its "analysis".
ReplyDelete