Originally posted in Loyalty360

In early July, shoppers at Shaw’s, Albertsons, Acme, Jewel-Osco and Star were greeted at the door and asked to hand in their store loyalty cards. These chains, recently acquired by Cerberus Capital Management LP, all shut down their loyalty programs, focusing instead on everyday low prices and storewide sales.The move left some industry analysts scratching their heads, questioning why the brands would kill off decades old programs with millions of members. They pointed to the vast quantities of information that can be harnessed improve merchandising and marketing, and to customize products and messages. They hypothesized that the stores hadn’t invested in the data mining activities needed to extract insights. Perhaps…

Or perhaps the financial experts at Cerberus had done the calculation and determined that in today’s marketplace, the loyalty program – and its strategy and value– was standing in the way of profitable growth.

Think about it. What impact do the grocery store loyalty program cards you carry on your key chain have on your behavior?  Can you point to any benefit you’ve received beyond the ‘loyalty member price’ and coupons at check-out? Can you point to any special benefits you receive from your primary grocery store?  Or do you get the same level of benefits whether you spend $1 or $1000 per trip?

I think there are 3 compelling reasons these grocery stores don’t need a loyalty program to drive customer loyalty:

1. They need to compete with Wal-mart: These brands have to compete with Wal-mart and other warehouse stores offering EDLP (everyday low prices). To grocery and drug store shoppers, price matters!  And to sustain a business and drive profits at low prices, the brands need to focus on operational efficiency – not customer intimacy promised by a loyalty program.

2. They can take a local approach: The executives at these brands promise that analysis will be done at the store – not the customer – level.  Mining the data at the individual store level will, they theorize, provide plenty of data on what merchandise is important to shoppers and the impact of marketing decisions on spend. They also believe that taking a local approach – where store managers can make marketing and merchandising decisions – will enable stores to better meet customer needs.

3. They can focus on what matters to shoppers: Most customers are applauding the move to consistently lower priced products.  In addition, they suggest the brands focus on the basics – the features that drive their shopping decisions, including: (1) clean the store; (2) stock the shelves; (3) keep sufficient registers open to reduce check out time; (4) mark sale items clearly; (5) create a customer-focused culture.

In most locations, shoppers have many choices and in the absence of consistent delivery on these core elements, customers won’t shop at the stores, loyalty points or not.

“Sun setting” a loyalty program is not a low-risk decision. But program managers in every industry must be prepared to defend their programs by answering the following questions:How do you recognize and reward your most loyal and valuable customers?  How do you make participating in the program worth their while…and something they would miss if it were not present.

• If you ran a grocery store program, how would you treat the person who spent $1000 per trip? Would your first check-out register be for those with 10 or fewer items?  Wouldn’t you help the shopper get the items into their car?  Into the house?  Into the pantry? Do you really have to make them come to the store and shop? Do these customers get any special recognition in store?  Could they visit customer service to get a free cup of coffee or a piece of a new signature pastry when they enter the store?

What mechanisms are in place to grow the share of wallet from light shoppers?  What incentives and processes are in place to support your shopper’s goals and encourage them to spend a higher share of wallet with you?

• Could you look in my basket and make recommendations for recipes that my family might like?  Or like Amazon and Netflix, develop a recommendation engine (people who buy xyz also buy abc)?  Would you price match on identical items to prevent shoppers from fragmenting their baskets?

What has your organization learned from the data collected from the program?  Think about the tactical (e.g., merchandising, marketing) and strategic (e.g., location selection, branding, pricing) decisions supported and how you can get more value from the data you collect.

• Have you shared insights with store managers?  Your media partners/ad agency?  If not, schedule some meetings and connect data you have with what’s relevant to them. Today.

Consider what would happen if your loyalty program “went away?” Are you prepared to answer the question “Do you need a loyalty program to drive customer loyalty?” in a way that would satisfy your CFO?

• Get and communicate data on the value of your program, and how to drive additional value.  

It will be interesting to see the impact of Cerberus’ decision on the industry as a whole.  Will other grocers, to compete with Wal-mart, follow suit and disband their programs?  Or will we start to see some retailers ‘break away’ from the pack and to drive incremental behavior and true loyalty?

Where would you place your bet?

Judy is VP of CMB's Travel & Entertainment practice and loves collaborating with her clients. She's the mom of two college students and the wife of an oyster farmer. Follow Judy on Twitter at @Judy_LC

Headed to TMRE next month? Use our code CMB2013, and get 25% off of your registration.