Driving loyalty: What retailers are doing wrong and how to fix it

July 25, 2016; 00:16 am by Bill Bishop

Every once and awhile a person comes along who really can shake things up. David Ciancio is just such a person. This post highlights the radical ideas about loyalty he developed while helping Kroger build its best-in-class approach. I think the concepts he talks about change the whole framework for implementing loyalty. They can help retailers do do two things better that are critical for success and growth: translate loyalty into a focus on what’s happening inside the store, and increase the sales-driving effectiveness of category management and shopper marketing. 

Ciancio is the person who originally recruited dunnhumby to work with Kroger, where he served as VP of Loyalty and Customer Relationships from 1999 to 2009. After that, he spent six years in working with dunnhumby in London. Today, he runs his consultancy, Peak Loyalty, LLC. We appreciate his contributions to this blog and suggest you fasten your seat belts – loyalty is about to be turbo charged.

Correcting misconceptions about loyalty

Traditional efforts to build customer loyalty often fail to produce meaningful results because we get three things wrong right from the start, says Ciancio: We get the definition backwards, we think it’s a program, and we confuse it with CRM.

Here how he re-frames those concepts.

1. Loyalty is NOT about customers being loyal to the retailer – it’s about the retailer acting loyally to its customers.
2. Loyalty is NOT just a program – it’s an approach that puts the customer first in all the decisions a retailer makes.
3. Loyalty is NOT just the CRM – it’s about the STORE.

“What makes a loyalty approach so powerful is putting the customer first,” explains Ciancio. “Customer First isn’t a slogan, it’s a long-term strategy that produces sustained sales growth by making the customer the top priority when setting objectives and making business decisions.”

For the retailer, the first decision has to be, “Who is the target customer segment we want to serve?” Once that’s in place, you have a powerful way to unify category management, shopper marketing, and loyalty programs – which are too often operated as separate functions/departments.

A better way forward: Customer First

Ciancio was surprised at how little progress the grocery industry had made in focusing on customers when he returned to the States after six years in London. Retailers were very comfortable managing categories as strategic business units – but they hadn’t developed a common language for managing customers as strategic business units across categories.

“Until there’s agreement on who the target customer is, a lot of the effort and investment put into category management won’t pay off,” Ciancio says.

• When you make shopper understanding the key input, the question for category management changes from “What’s best for the category? to “Who is the target customer and what’s best for them?”
• Do this for all categories, and instead of every category pulling in a different direction based on its own priorities, the store aligns across all categories and they pull in the same direction toward the same goal – how to best serve the target customer segment.

Ciancio’s first question for category management plans is always, “Who is the strategic customer?” His second is: “What’s the shopper activation plan?” In other words, how do we need to approach the customer? Where? When? In what format? With what kind of content? This is the shopper marketing piece. Ciancio also considers it the final page of any category management plan.

What “retailer loyalty” looks like

When you have a common language about customers across all the disciplines of the retail business, you can execute for it all the way down to the store level. Kroger is a great example of what this looks like in practice.

First, Kroger analyzed the data collected via its loyalty “program” to identify its core customer.

Then, the retailer identified three types of stores based on the type of customers who shopped them.

1. value stores that served predominantly price-sensitive customers
2. mainstream stores that served a typical mix of target customers
3. upscale stores that served predominantly assortment-sensitive customers

Finally, they tailored each type of store around the mix of customers who used them. Different customers meant different needs, which resulted in different decisions.  

• Different planograms.  (More facings of Suave in the value store, for example, and more facings of Pantene in the upscale store.)
• Different sample and demonstration programs. (Value customers responded to different products than upscale customers.)
• Different shopper marketing emphases.
• Even different decorating decisions. (Should upscale stores be finished with wallpaper and value stores with paint?)

The net result? The stores became “more loyal” to their respective shoppers by better reflecting their needs and priorities. In effect:

• Value customers had more choices in value stores.
• Upscale customers had more choices in upscale stores.

Ultimately, some Kroger divisions even reorganized their management structure around these target customer mixes by appointing value store district managers, mainstream store district managers, and upscale store district managers. Different customers, different needs . . . different store management challenges.

Loyalty is a two part process

Ciancio says it’s important to remember that there are two important parts to a strategic loyalty approach.

• LOYALTY PART ONE is about the target customer segment. It’s about putting this segment first in all decisions so that the store and advertising/promotions are aligned to the target customer’s needs.
• LOYALTY PART TWO is the customer activation piece – here, the focus is on individual households with promotions, mailings, cards, and programs. This is where the arts of shopper marketing and personalization come in – for both content and communication formats.

This customer first loyalty approach can be a powerful sales-building differentiator: Food retailers who successfully put the customer first in business decisions become the customers’ first choice, increasing organic sales and brand value purchase by purchase and customer by customer.