The Future of Grocery Promotions

Symphony RetailAI's Jonathan Tye-Walker knows what a dumb promotional offer looks like: It looks, for example, like the baby-product coupons his partner receives from one local grocer, despite the fact that the couple don't have children. 

"She regularly gets baby offers," he said, merely because the retailer has identified her as a woman in a certain age cohort. "That doesn't develop an emotional link," Tye-Walker, director of client relationships for enterprise artificial intelligence provider Symphony RetailAI, added. "In fact, it's the opposite."

At a time when more consumers are returning to in-store shopping and are happy to spend but still focused on getting the most bang for their buck, retailers need to become savvier about their promotions to ensure they're reaching the right audience at the right time in order to drive visits and customer loyalty, Tye-Walker said. 

Newer capabilities such as location tracking of mobile devices and smart analysis of customers' purchase patterns let retailers build better consumer profiles, he said. When stores are able to drill down into when and how customers prefer to shop and what they're likely to be looking for based on past purchase frequencies—consistent buys of a given item, rather than one-offs that may have represented a gift or a donation—they're better able to create personalized offers that resonate, Tye-Walker said. And that, he added, can help retailers avoid wasting money on, say, offering diaper discounts to consumers who have no need for them.

Smart use of AI can enable retailers to say, "We know that you're in the area; we've noticed from your purchase cycles that you purchased dog food two weeks ago; here’s an offer on dog food that might feel like it's timely," he said. "When I'm making the choice between four retailers all within 2 miles, that’s going to influence my decision."

In a recent conversation with Winsight Grocery Business, Tye-Walker talked about how grocery retailers' promotions need to evolve as consumer behavior itself evolves late in the COVID-19 pandemic.

Christine LaFave Grace: What has changed in the past year that should factor into promotional decisions?

Jonathan Tye-Walker: Customers everywhere, no matter where they are in the world, their behavior has changed—the world is still fundamentally different. What that means in terms of your behavior in-store is that people are still uncertain about what the future holds.

People are looking for value out of everything they buy in-store, so retailers have to make sure that when they’re putting one promotion in-store, it's helping all segments of customers realize that value. If you’re, for example, a quality-driven household, you’re price-insensitive; you want this brand and it doesn’t matter what happens, that’s great. But an increasing proportion of the population is migrating toward becoming price-sensitive, so therefore they’re looking for those deals; they’re looking for the right item in the right categories, not just throwaway promotions—things that are going to help them drive value into their basket to support their family. So retailers are under pressure to help customers drive that value, and if they’re not driving it through the mass-media promotions, they need to be supporting it through targeted marketing promotions.

I think that one of the biggest misconceptions [with promotions] is that you can just do last year’s plan this year, tweak a couple of the details and that that’s acceptable for your customer base.

One thing that helped grocery retailers last year was a decreased reliance on discounting—strong consumer demand meant it wasn't as necessary. But now, in an environment of rising producer costs and also value-seeking among consumers who are starting to dine out more, how can retailers balance those competing pressures when it comes to promotions?

You’ve got to make sure that what you’re doing is right, [that] you’re not wasting money on huge discounts; you’re putting the right brands in there that are talking to your customer base. Through your segmentation exercises, you understand who your most loyal customers are, who your price-sensitive customers are, who are those customers who are most [responsive] to promotional activities, who are those customers who are more likely to respond to targeted marketing, and through which channels?

You have a view across all of these things and you have applied those learnings accordingly, so you’re not, say, wasting brands on mass-media promotions when they’re perhaps more niche and there’s only a certain segment of the customers who will be responding to those, so you’re able to channel those funds into targeted activities. So you’re balancing your trade funds between in-store promotions and targeted-marketing promotions, and that targeted marketing is relevant; it’s timely; it’s through the right channel. That’s how retailers have to operate—more effectively in that middle ground, leveraging artificial intelligence to help them make and compute more complex decision-making processes quicker, allowing them to scale and to drive volume.

With the past year's growth in online grocery sales and consumers' expanded options for getting their groceries without setting foot in a store, are consumers more fickle than they were a year ago? What's necessary now for creating promotions that drive loyalty over time?

Loyalty over time comes from relevance. You have emotional loyalty; you have behavioral loyalty; and you have rational loyalty. A customer who is executing behavioral loyalty typically is [doing so] because the store is convenient to them. If they’re rationally loyal, it’s because they’re able to get the products they want, typically at the right prices, or the loyalty program’s keeping them there. If they’re able to drive emotional loyalty, that’s when customers tend to trust the retailers increasingly, and it’s delivering a personalized service that gives them a unique kind of experience. I think people are looking for that emotional loyalty, people want to feel as though the retailer is really listening to them, but rational loyalty is probably the most common.

Are they becoming fickle? I think it’s unavoidable, with the increase of deliveries and click-and-collect. But if a retailer has that kind of end-to-end proposal, and they have delivery options, they can tick the box on behavioral loyalty—they’re convenient. They’re supporting people when they can get to the store; they’re supporting people when they can’t get to the store. And they’ve got the rational loyalty piece, and then the emotional loyalty piece is, how can they make [an offer] customized for them as an individual? How do they combine their mass-media promotions with their targeted-marketing promotions to create an experience that says: “You know what, looking at these offers that have just come through on my telephone, these guys get me. They know what I need.”

What’s the tipping point with promotions that gets shoppers into a physical store?

I guess from a behavioral perspective, some people just need to be out of the house at the moment [laughs]. As someone who’s become a home worker, going out to the supermarket has become a bit of an adventure.

But in all seriousness, it’s true—you go to the store right now and it’s kind of cool to see other people. But from an operational perspective, if I can put, for example, promotional offers in the hands of my customers that are relevant to their attitudes toward pricing and their value quest and are relevant to their lifestyle, they’re more likely to have a probability that they will be used. That’s the kind of thing that can actually get them out of their seat.