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Aldi pokes fun at loyalty programs, but they’re rapidly changing

Aldi has made headlines with its campaign attacking “pointless” loyalty schemes. The hard-to-forget TV ad and PR campaign focused on the value that customers receive from the “base earn” feature – for example, a point for every dollar spent – of programs, such as flybuys and Woolworths Rewards.

But Aldi’s campaign was selective in focusing on only one element of retail loyalty programs. The reality is that retailers are evolving their programs away from this type of undifferentiated reward as technology enables personalised programs that also improve customer experience. A leading example, which Aldi did not highlight, is Amazon Prime.

Prime flipped the traditional loyalty model on its head, with customers paying to join and receiving no points or monetary reward. Prime’s long-term goal is a completely new retail proposition in which it uses data to predict and deliver what customers need, potentially before they are even aware themselves.

Most retailers with loyalty programs are moving in the same direction as Amazon, leveraging the program to build personalised connections with customers. To take a few examples:

  • Coles and Woolworths both run bonus points promotions on products across the entire range. Coles is also piloting “flybuys max”, a subscription service which includes free shipping on online orders, discounted produce and even movie streaming.
  • Sainsbury’s in the UK is piloting a new version of its Nectar loyalty program in which “base earn” is turned off and customers choose the offers that earn Nectar points.
  • The 14 million members of Loblaw’s PC Optimum scheme in Canada now receive a set of weekly offers in which both the products and the rewards are personalised, resulting in over 125 million personalisations each week.

As an everyday-low-price retailer, this kind of personalised price promotion would not be appropriate for Aldi. The retailer’s straight-talking head of customer service, Graham Christie, had a great response when challenged by that Aldi is missing out because it lacks data about individual consumers:

“It doesn’t matter to us. We know if store A sells more chips than store B we’ll put more chips in store B. We don’t need to know the individual person and send them a half-price offer.”

My own belief is that every-day low-price retailers (not only Aldi but also brands like Bunnings and Kmart) do have a way out of this data conundrum. The secret will be finding ways to build personal connections with consumers that do not require discounts.

As an example, several retailers are now piloting “scan-and-go” technology in which customers use their smartphone to track purchases around the store and eliminate the checkout. Amazon Go and Alibaba Hema pioneered scan-and-go but it’s now been adopted by other retailers, including Woolworths in Australia.

Although the early versions of the technology are expensive to set up and maintain, in the long-term scan-and-go has the potential to be a cheaper and simpler way of operating a supermarket, which completely aligns with Aldi’s own retail philosophy. Aldi’s Graham Christie asked a great philosophical question about loyalty programs:

“A loyalty program is great for insights that can manipulate and can help shape the market. But in terms of value, is that value for the customer or for the shareholder?”

For me, the interesting challenge for EDLP retailers like Aldi, Bunnings and Kmart will be finding ways to deliver no-discount loyalty programs that benefit customers and shareholders. Digital-first retailers like Amazon and Alibaba are leading the way with technologies such as scan-and-go. I anticipate that within a few years even Aldi will have changed course and be connecting digitally with individual customers.

If such a radical change in strategy seems unlikely, consider that Aldi in the US is now planning to roll out online grocery delivery to the whole country, responding to another shift in the retail landscape some twenty years after some of its rivals.

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