Loyalty: who's earned it?

The term ‘loyalty card’ is a misnomer. The sort of cut-price promotions offered by such schemes are just as likely to alienate shoppers as engender their trust. As are promotions in general, according to an exclusive study into shopper loyalty for The Grocer by customer experience consultancy Satmetrix.

The survey’s findings present a fascinating insight into the impact of what former Asda boss Andy Bond so memorably described as “weapons of mass distraction” on customer loyalty - and will certainly raise a few eyebrows.

While it’s not particularly surprising that Waitrose tops the loyalty league, it will come as a shock to many that it’s not Ocado, M&S or one of the big four in second place, but discounter Aldi - and not by much. Another perhaps unlikely outcome is that at the opposite end of the spectrum, The Co-operative Group, pioneer of one of the country’s first loyalty schemes, the Divi (launched in 1965), has the least loyal customers, while M&S has the second least loyal and Tesco - operator of Clubcard, the mother of all loyalty schemes - the third least (see table overleaf).

The irony won’t be lost on those at the bottom that while they often have long-standing loyalty schemes, the strongest performers have no scheme or have only launched one recently. Low prices and promotions aren’t necessarily the differentiating factors either - or why would Waitrose have scored so well? So if not card schemes or promotions, what does instil loyalty in the nation’s shoppers? And more importantly, what bearing - if any - does loyalty have on company performance?

Promoters and promotions
Aside from intrinsic brand equity, there are a whole host of reasons a shopper will show loyalty to a particular retailer and price is just one tiny part of the equation, reveals the Satmetrix poll of 1,200 consumers. Shoppers were asked how likely they would be to recommend their supermarket of choice to a friend and what factors they would base this decision on primarily. They were then divided into: ‘promoters’ - loyal enthusiasts who will keep buying and refer others: ‘passives’ - satisfied but unenthusiastic customers who are vulnerable to competitive offerings and ‘detractors’ - unhappy customers who can damage a brand and impede growth through negative word of mouth.

By subtracting the number of detractors from the number of promoters, Satmetrix then calculated a ‘net promoter’ score, a crude but effective measure of loyalty that an independent study by the London School of Economics (LSE) in 2005 found “may be useful not only in predicting sales growth but also predicting share performance and employee productivity”.

Judging by the recent performance of the supermarkets, the link between net promoter scores and company performance might not be as far fetched as it sounds. The Co-op, which scored a dismal minus 14 in our poll, was forced last week to axe hundreds of head office jobs. In the same week, shares of M&S, which scored minus 10 in our ranking, had 53 points wiped off its value. Tesco’s poor score of minus 8 reflects the supermarket’s lacklustre Christmas performance and subsequent profits warning - its first in 20 years.

The findings are particularly revealing in relation to Tesco, believes Satmetrix MD Robert Salvoni. “Tesco is the 600lb gorilla in this category. It now looks like it could be under threat,” he says. “Our analysis shows that there are cracks forming around its customer loyalty. The survey was conducted around the same time there was a lot of negative press about Tesco and when they introduced the price drop. Our analysis bears this out. There is lots of evidence to support the link between financial performance and net promoter score.”

And not just at the bottom of the table. Waitrose and Aldi have been among the two fastest-growing grocery retail chains in recent years. “This survey shows that posh versus cheap is no longer enough of a nuance,” says Salvoni. “For example, there is a stark contrast between Waitrose at the high end of the spectrum and M&S at the bottom. Success is down to more than just being ‘posh’ or ‘cheap’.”

The gulf between Aldi and Lidl bears this out, believes Tony Baines, MD of corporate buying at Aldi UK. “Lidl’s growing at about 10%, while we’re at 40% to 50%,” he says. “That’s because we’re doing things differently. Not only are we convenient, we cover 95% of our customers’ needs and we’re benchmarking against the leading brands on quality. Then you get to the till and your trolley is 20% to 30% cheaper. That’s why our customers are quite evangelical.”

This quality focus is key as the factor that consumer loyalty depends upon most is the ability to offer good quality products for a good price, according to Satmetrix. Factors such as ethical sourcing, special offers and rewards schemes are far less significant, claim shoppers. In fact, their response to the question ‘Which supermarket do you trust the most to represent prices and special offers accurately?’ reveals that the pricing mechanisms employed by some supermarkets may actually be eroding loyalty.

M&S comes out worst on this metric. Just 22% of M&S shoppers rate the retailer as being the most trusted when it comes to accurately representing its prices and special offers (next is Ocado with just 29% of shoppers rating it as most trustworthy and The Co-op, with 31%). At the opposite end of the scale is Asda, with 67% of its shoppers rating it as most trusted, followed by Sainsbury’s (55%) and Aldi (54%).

Asda, Sainsbury’s and Tesco would not comment on their scores. But for Aldi’s Baines the message is clear: keeping your pricing clear and uncomplicated is the way to win loyalty. “There is a plethora of confusing price messages out there,” he says. “Customers are increasingly not trusting retailers that constantly mess around with prices. That’s why 95% of what we do at Aldi as a business is long term low price. Our inflation is running at about 1%. The multiples are running between four and 6%. We have absorbed a lot of our cost increases. The fundamental Aldi principles are definitely striking the right chord with our customers.”

Challenging customer preconceptions is another way to their hearts. Aldi is seen as at the opposite end of the pricing spectrum from premium players such as Waitrose and the introduction later this year of tiered private label offerings - along the same lines as the ‘good, better and best’ proposition espoused by the big four - won’t change this, but it will improve its quality credentials, believes Baines.

Conversely, Waitrose has won over consumers by improving its value credentials with its Essentials range and its decision last year to benchmark its prices against Tesco, says Waitrose marketing director Rupert Thomas. “Our Essential Waitrose range has played an important role in building loyalty as customers really respond to competitive prices with no compromise on quality or welfare standards,” he says.”Combined with our Brand Price Match and increased level of promotions, customers are confident they can do their full weekly shop with us. We have also invested a great deal in our unrivalled top tier.”

Paradoxically, both Aldi and Waitrose have broadened their appeal while avoiding the dangerous middle ground. This is the last place retailers want to be in the battle for consumer loyalty, says Salvoni. “Being average isn’t good enough anymore,” he explains. “The Co-op came last because this was the organisation that got the most people saying they were average. That’s a very interesting observation. Any management team in a store or at executive level that is thinking of doing what the politicians are doing and grabbing the middle ground is doomed. You can’t create loyalty just by being convenient, you have to do so much more.”

The Co-op accepts that it has made mistakes. “We fully recognise that convenience should never be at the expense of great all-round value and we are investing significantly in reducing prices and developing further our product and service offerings to meet our customers’ needs,” says a spokeswoman for Co-operative Food. “We’re confident that as we move forwards, increasing numbers will see us as a great place to shop as well as being very convenient.”

And in these straitened times, it’s that deceptively elusive combination of quality and value that makes somewhere a great place to shop - and wins loyalty.