What a paradox we have with the concepts of loyalty and promotions. 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.
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.
AppCard is a Member of the Intel IoT Solutions Alliance. A global ecosystem of more than 800 industry leaders, the Alliance offers its Members unique access to intel Technology, expertise, and go-to-market support, accelerating deployment os best-in-class solutions.
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