Digital loyalty quickly changing and here to stay

As the grocery store industry grows increasingly complex and shoppers find their purchasing power hit harder by rising prices, grocers large and small are working to gain an edge in the market by investing more heavily in digital loyalty programs.

More than half of U.S. consumers (53%) are turning to loyalty programs to save money, according to a recent survey by Eagle Eye Solutions Group, a loyalty technology and marketing firm. It was the second highest category in the survey “Grocery’s Great Loyalty Opportunity,” following the 62% who said they mainly look for sales and promotions to stretch their spending dollars.

Loyalty program managers across the retail spectrum are kicking it up a notch, too, by reducing the barrier to entry in using their rewards programs. Over the next three to six months, 54% of loyalty program managers in the survey said they expect to implement new strategies that will make it easier to earn and redeem loyalty points.

For customers, that means more specials to consider, more points to count and generally more avenues to pursue in their ongoing effort to save a buck. But what will that look like for grocers competing to keep their shoppers loyal and coming back for more?

Grocers see the opportunity

Grocers that may have been reluctant to get into the digital loyalty game prior to the pandemic are likely reconsidering, due to the growing popularity of the programs and the desire by shoppers searching for ways to mitigate the rising cost of food and other goods. While many consumers are new to digital rewards, as they enter the world of loyalty, they are generally unhappy with what they’re seeing.

A recent survey, “Shopper Loyalty in the Digital Age: Hard to Win, Easy to Lose,” a collaboration between FMI - The Food Industry Association, data firm Incisive and customer-data platform Loyal Guru, showed that less than one in five shoppers (17%) were satisfied with their digital loyalty program.

It could be that they’re not getting the benefits they believe a rewards program should include. The survey showed that 82% of those enrolled in loyalty programs expect price discounts and points as a result of their participation. “[G]rocers are reporting more engagement with loyalty programs that offer exclusive deals and discounts, private label growth and a need to explore new monetization opportunities,” said Borja Sanfeliu, CEO of Loyal Guru, in a statement in March.

Eagle Eye Solutions said its survey shows that grocers are responding to shoppers’ displeasure with the loyalty programs. The survey of more than 1,300 shoppers and just under 200 loyalty program managers in North America, Asia, Australia and the United Kingdom, showed that over the past year, 86% of grocery program managers have offered “deeper discounts and more value-driven promotions” in the previous year. Fifty-five percent said they have deeper loyalty discounts planned the next three to six months.

Who’s the most loyal?

Loyalty programs are rising in popularity, but who is most likely to sign up? The “Grocery’s Great Loyalty Opportunity,” survey showed that the younger the shopper, the more likely they are to have joined a loyalty program to save money.

Generation Z respondents led the list with 43% saying they joined a program to save. They were followed by millennials at 35%, Generation X at 29%, baby boomers at 17% and the Silent Generation at just 8%. More than half of those surveyed (59%) said they save money by using loyalty points, discounts or savings.

“There are differences in how shoppers in various age groups prefer to save money too; 61% of Gen Z shoppers look for products on promotion, outpacing the survey average, and three-quarters of consumers older than 65 are using their loyalty points,” the Eagle Eye survey noted. “But overall, the loyalty program plays a central role in helping shoppers achieve their most important stated priority: saving at the shelf.”

Independents defend their market share

Saving shoppers money can be particularly challenging for independent and regional grocers that do not enjoy the economies of scale and other resources afforded to larger national grocers.

That’s where Bill Gray, president of Givex Rewards, comes in. Gray, who is a veteran of customer loyalty business, works with small and midsize grocers to increase their digital loyalty presence.

He says that the entire industry is about to change with the increased use of artificial intelligence, and smaller grocers need to pay attention. “AI is coming rapidly, and if independent retailers don’t get on the stick, big-box margins are going to increase, and it will be harder for independent grocers to compete,” he tells Winsight Grocery Business.

His company takes deals from manufacturers in the form of digital coupons, and they are able to use data to target those customers for certain deals. “We don’t send generic ads out with Huggies — that just goes to families with babies,” he explained. He said Givex is using Microsoft’s SynapseML technology, a platform that enables machine learning to analyze the purchasing habits of millions of users.

Not only has the technology advanced in leaps and bounds, but there has also been a huge shift in who is working to lure shoppers, according to Gray. He said that over the last five years, digital advertising spend has surpassed that of newspaper ad purchases. So retailers are now spending with digital coupon manufacturers and ad agencies like Quotient Technology and Inmar, with whom Givex partners.

Gray’s company is able to also use the shopper data to build profiles and then do targeted ad buys in certain areas and communities through social media outlets like Facebook and Instagram, he said. 

Big grocers in the game

Other companies like Denver, Colorado-based Ibotta have upped their game in recent years, as well, but with an eye toward the large retailers. With a little over a decade in operation, the rewards technology company has enjoyed a rapid rise in the world of grocery loyalty. The company originally worked just with CPG brands on its grocery side of the business, but its reach has expanded to relationships to among the largest grocery retail operations in the industry.

The company works with more than 2,200 CGP brands and some 2,000 retailers, the biggest being retail giant Walmart. Ibotta wasn’t the first rewards tech company in the industry, but they’ve seen a lot of competitors enter the space. They now face competition from dozens of tech startups like Fetch and Drop and longtime players like Rakuten Rewards (formerly Ebates) and others.

Chris Jensen, chief revenue officer for Ibotta, said the company, which was founded in 2012, scaled up with its direct-to-consumer platform that offers cash back rebates to consumers who purchase products in the Ibotta ecosystem.

While grocery has always been the company’s primary focus, Jensen noted, “Over time we expanded that to offer more than just grocery and more than just cash back on the items you buy in the grocery store.”

Ibotta realized, however, that they had a problem scaling the business. “Only so many people are willing to download another app and put it on their phone, and we found a good number of people willing to do that, but we also recognized that there’s a whole lot more people out there who are interested in these offers on places like Walmart’s website,” Jensen said.  

Over the last several years, Ibotta has grown its network by working directly with its retailer grocery partners. Instead of their offers living exclusively on the Ibotta app, the company began putting their deals directly on third-party sites, Jensen explained. That’s opened the door to bigger partnerships. “We realized the value proposition we had created for brands to have a higher standard for performance marketing could be valuable for the retailer at which those brands are sold and beyond,” Jensen said.

Digital driving customers away?

While digital loyalty programs are only likely to become more popular moving forward, there are a number of potential pitfalls to putting a digital strategy in place, according to “Shopper Loyalty in the Digital Age: Hard to Win, Easy to Lose.”

A bad third-party experience can drive customers away, according to 88% of grocers surveyed. Another 76% said bad experiences on the web or mobile portal can also hurt a grocer’s business.

“For example, many shoppers may find it difficult to track and redeem their rewards online or through a mobile app. Additionally, the user interface for these digital components may not be user-friendly, making it difficult for shoppers to navigate and understand their rewards,” the report noted. “Furthermore, a poor web and mobile experience may also contribute to low satisfaction with the digital aspects of grocery and loyalty programs.”

But while the leap into digital loyalty could pose potential risks, experts like Gray say getting started now is imperative, even if there are some hurdles to overcome. “With AI, big-box retailers are going to take it to another level, and we are trying to help with that,” he said. “The independent grocers’ market is under attack, but it’s still going to be around — people are still going to want their local grocer.”