How Safeway Built Loyalty?Especially among second-tier customer
By Arthur Middleton Hughes
While the best-known loyalty programs are airline frequent-flier plans—many of which have worked extremely well—companies in other industries are having successes, too. This is the story of the Safeway Savings Club built by PreVision Marketing in Concord, MA.
by Arthur Middleton Hughes
Safeway is the third-largest grocer in the United States. Before it started the club, all of its stores were equipped with POS terminals that would accept a barcoded membership card along with the product scan, and permit the computation of member benefits on each product during the transaction. Although Safeway had a points program in mind, PreVision got Safeway to think through the economics and its objectives by asking:
• "How much can you afford to spend on your best customers to get them to change their behavior?" When Safeway worked out the economics, with the thin margins in the supermarket business it amounted to about $2 per month. Two dollars a month isn't going to change much behavior.
• "Whose behavior do you want to change?" This was a much more rewarding question. Looking at the economics, PreVision found that the top quintile of customers at Safeway represented about 40 percent of sales. The application for the Safeway Club membership asked two questions: How much do you spend on groceries every week, and where else do you shop? An analysis of customer spending patterns by quintile looked something like the chart below.
One problem for anyone starting a loyalty program is to recognize that the people who will make most use of the program will be your top customers. But you will run the danger of cannibalizing your business by giving rewards to people who are going to shop with you anyway. You will spend a lot of money, and not change behavior. It is better to target loyalty programs mainly to those whose behavior you want to change.