Welcome to the first post in our quarterly retail industry insights series that gets behind-the-scenes with critical CPG and retail issues and trends. During this three-part series, we will examine rampant issues affecting both retailers and CPG companies. And, we’ll highlight how the most innovative companies troubleshoot pressing challenges and thereby reshape the industry.

Shopper Privacy

In this post, we discuss shopper privacy concerns relating to retailers who are mining their loyalty programs and others who are doing away with them altogether.

“37% of leading CPG companies make decisions predominately on data and sophisticated analytics versus 9% of lower performing CPG companies,” states a recent IBM study.

Big data, one of the buzzwords of industry analysts and marketers today, is gaining traction not only among our numbers-oriented peers, but also within the C-suite. Retail executives are now demanding big insights from the big data cloistered within their loyalty programs. How has this scenario unfolded in recent months?

 

Downfall of Loyalty Cards

Loyalty cards are not tokens of shoppers’ commitment to stores. Most shoppers carry multiple cards for similar retailers, especially for supermarkets and drug stores. How’s that for customer loyalty?

One retail banner recognized the need for a shift in its shopper strategy. In an unexpected move to eliminate its loyalty card program at its supermarket chains, AB Acquisition could be setting a new standard for retailers.

According to Christine Wilcox, Communications Director at AB Acquisition’s Albertsons, “Once upon a time, a shopper card set customers aside. It meant that you were taking extra steps to save money, and we offered special items that were only available at special prices when you had the special card. The card isn’t so special any more. Everyone has one. So we want to take the special step of not requiring one any more.”

Not all retailers will follow suit. In an effort to personalize the shopping experience and customize deals for shoppers, many retailers remain bullish on loyalty card data. Some have developed programs and hired analysts to comb through the data, like Sobey’s.

“We’re tailoring offers directly to shoppers based on their purchase history, which has increased the effectiveness of communications sent out by the marketing department,” reports Dave Eddy of Sobey’s in a case study.

An alternative to data-heavy loyalty card programs does exist. Instead of focusing on individual shoppers’ purchasing histories, some retailers favor store-level purchase information. By analyzing this location-specific data, retailers can determine which products are most popular in each store. No loyalty card data required.

Will loyalty cards continue to be a source of valuable data to retailers, or will they fade away as retailers choose alternative methods for collecting shopper insights?

 

Privacy Concerns of Shoppers

Scores of brick-and-mortar retailers are experimenting with technologies to collect information about shoppers’ behavior in-store. Shopper reactions to these seemingly invasive methods are not always positive.

When Nordstrom launched experimental WiFi in-store shopper tracking, many shoppers were outraged about their perceived loss of privacy.  Nordstrom ended the test after only eight months. Though shoppers have little issue with cookies and online tools used to collect their data, many find physical surveillance of any kind to be intrusive.

Shoppers are more concerned about protection of privacy, including their shopping habits and purchase history. Privacy advocate, Katherine Albrecht, holds the position that customer loyalty cards intrude upon consumers’ privacy. She also purports that food shopping data could potentially be used by the government or insurers to draw conclusions about consumers’ health. Is this stance warranted?

One caveat, Millennials could be more receptive to this type of technology if they received personalized deals in exchange for providing the retailer or brand with their shopper behavior data. Think quid pro quo.

Retail technology companies are currently collaborating with privacy advocates, regulators and the Future of Privacy forum to create a set of best practices by November 2014. Retailers and brands continue seeking innovative data collection methods while attempting to mitigate shoppers’ privacy concerns. 

 

Towards Disloyalty or Personalization

Many shoppers embrace the disloyalty shift in supermarkets where loyalty programs have been disbanded, like Albertsons. Shoppers will still receive the best deals without using their cards or store apps. Plus, their concerns about privacy are alleviated. On the other hand, former loyalty card “power users” are angered that they will no longer receive steep discounts as before.

It may appear that customer loyalty is on the rise, but a recent study by Colloquy reveals a different perspective. “Even though the average number of loyalty programs per U.S. household has grown to 21.9 (up from 18.4 in 2010), only 9.5 of those memberships – less than half – are currently active,” states the report.

For those chains that do choose to ditch their loyalty programs, there are potential missed opportunities for in-store shopper personalization. Industry analysts advise retailers to take a longer term view of the industry, where customized pricing and marketing will become the norm.

“In the future, it will be increasingly difficult for Albertsons to compete against retailers like Safeway that have loyalty programs and are advancing down the road towards personalization,” stated Jon Hauptman to Supermarket News.

Which shift will take precedence in the industry, disloyalty or personalization?

Retailers and brands continue to struggle with the avalanche of data now available from various sources, loyalty programs included. There are multiple reasons to collect both short-term and long-term data about shoppers. A choice must be made how to collect this data, whether through loyalty programs, in-store purchase data or experimental technologies. The truth remains: there is no longer a single proven method.

 

How do you see these trends affecting your brands or customers? Reach out to us in real-time on Twitter @Quri.