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Bloomberg has a piece about how in the UK, food retailers are doing battle with market share-grabbing discounters Aldi and Lidl with more aggressive marketing of their loyalty card programs.

This has become even more important, the story says, as food inflation has had an impact on prices and consumer spending.  Promotions have become critical, and mainstream retailers are using  loyalty schemes to make these efforts more targeted and, hopefully, effective.

"Tesco Plc, Britain’s biggest grocer, kicked this off in April 2019, when it first introduced special prices for holders of its Clubcard," Bloomberg writes.  "These have now expanded to encompass all of Tesco’s deals. Sainsbury has followed suit with offerings for members of its Nectar program. Asda Group Ltd. has introduced a loyalty app, while Wm Morrison Supermarkets has beefed up its More Card. Health and beauty retailer Boots has lower prices to Advantage Card members. And unusually for a discounter, Aldi has a loyalty app, through which members can access special offers, for example on its 'Middle Aisle' non food products.

"Grocers like loyalty programs because they lock in customers and generate huge amounts of data about what they buy. That enables stores to offer personalized promotions and better ads. Tesco, for example, is charging consumer companies to advertise in its stores. The better the data, the more targeted the ads can be — perhaps tied to a Clubcard deal — and the greater the return for the manufacturer.

"Consumers enjoy the savings, too. Tesco said Clubcard holders could save up to £390 ($480) a year — that equates to about £7.50 a week."

Bloomberg points out that it all seems to be working:  "Tesco now has 21 million Clubcard members, up from 19 million in 2019. The percentage of sales, by value, that use a Clubcard is 80%, up from 62% in 2018."

According to the story, "consumer-goods group Which? has begun to draw attention to the offers. It says a gap is opening up between member prices and those available to everyone else. As promotions ramp up, there could be more focus on the disparity.

"The bigger danger, though, is that the industry gets carried away and starts confusing customers with too many deals, making the the discounters’ low prices shine once more. For example, Tesco has Clubcard prices and it matches Aldi on 650 products. Another 1,000 prices are being reduced until the new year and it has cut an average of 12% on another 2,500 lines.

"The way to prevent customers from jumping ship is for Tesco to go on the offensive. It should introduce a wider range of deeper reductions and make them available to everyone, not just Clubcard members. After all, as more retailers hop on the loyalty bandwagon, its initial advantage will be diluted. And while Aldi price match is effective, it does give free advertising go the arch rival. This needs a rethink."

KC's View:

The story is revelatory - especially those figures about Tesco's Clubcard usage and volume - but I disagree with the Bloomberg conclusion.

One way to look at these loyalty programs is that they are exclusionary.  But they also are inclusive in the sense that if you are a member of the Club, you get preferred prices, products and services.  If I'm a company like Tesco, I double-down on this.  I want there to be a disparity between what members get and what non-members get.  In fact, I'd want to create an even greater disparity by breaking out benefits by deciles - my top 10 percent of customers get the best prices and benefits, the next 10 percent gets a little bit less, and the next 10 percent a little bit less again.  And I'd be rigorous and transparent about it - customers are earning benefits by their behavior, in the same way that airline frequent flyer programs work.

Part of the goal would be to figure out ways to make sure - even if people belong to three or four or five loyalty programs - that people are most loyal to my store.  And I'd do that by looking for ways to demonstrate my store's loyalty to them.