Don’t underestimate devoted customers

Loyalty. It’s an issue Woolworths has looked at from both sides now, and is at the crux of many of its ­recent woes.

Loyalty. It’s an issue Woolworths has looked at from both sides now, and is at the crux of many of its ­recent sensational woes.

At one end, Woolworths has been the victim of apparent loyalty among Australians to Bunnings, which culminated spectacularly in the inevitable and many say belated decision yesterday to wave the white flag on the loss-making Masters business started under Michael Luscombe.

At the other end, once-loyal Woolworths customers are now flirting or even wholeheartedly shacking up with Aldi and Costco.

The Masters demise came partly because the products sourced via partner Lowes’ global supply chain did not sell well in Australia due to seasonal differences, and also stiff competition faced by whitegoods from other retailers, such as Harvey Norman and ­Retravision.

Although the operations have grown substantially over the past five years, Bunnings’ own strong growth meant its market share has only marginally decreased.

The retail customer is undoubtedly becoming harder to read and predict than 10 years ago .

Corporates are doing their best to make information sharing a two-way street, and customer loyalty schemes are front and centre of this knowledge war.

But as if Masters, Aldi and that Anzac advertising fiasco weren’t enough to contend with, shortly before Christmas Woolworths bowed to a customer backlash and agreed that “Woolworths Dollars” could be converted into Qantas Frequent Flyer points under its overhauled loyalty program.

The revamped rewards program offers “Woolworths Dollars” on orange-ticketed items, though these have represented only about 1 per cent of the offering and originally were not convertible to Qantas points.

That Woolworths had to capitulate to the social media outrage is another worrying demonstration that the former market darling does not know its own customers. One man’s Facebook post complaining he earned just $4.80 in rewards on more than $1000 worth of shopping went viral with 60,000 likes.

“Loyalty programs are one of the most important tools marketers have to connect with ­customers on both an emotional and rational level,” says a consumer and shopping report from McKinsey.

But the once profit-driving introduction of loyalty cards, points, and rewards have started to suffer from ubiquity, and are no longer any guarantee of customer retention. McKinsey says data should be used to personalise customer offers and these must be kept fresh to ensure customers want to feel like they’re getting something of real value, not just the same old accumulation of points.

McKinsey notes the “right partnership can give your loyalty program a whole new level of appeal”. Loyalty programs must offer something of real value — points, coupons, discounts, travel miles — in exchange for repeat business.

“Just because you have a loyalty program doesn’t mean it’s working. Too many companies have built loyalty programs that don’t actively engage their customers or give them compelling reasons to want to use them,” says McKinsey.

In the fickle world of retailing, Woolworths underestimated customer loyalty to incumbent Bunnings, and over-estimated loyalty to its food and liquor business, with disastrous results.