Brazilian supermarket chains have launched their own loyalty mobile applications. In the process, they've turned technological differentiation into a commodity by focusing on one single motivator: discounts. That strategy is a losing proposition for customers, for vendors, and the retailer.
One of the biggest retailers in the country pioneered a mobile app strategy which has led a wave of followers and look-alikes. But is it a good strategy? In this article we explore several questions related to this app "boom" and its effects on the customer, the retailer, and the shopping culture.
- Is the loyalty value really being delivered?
- Is relevancy to customer being created?
- Are discounts alone powerful enough?
- What are the common mistakes retailers are making in the execution process?
WHY DID DISCOUNTS BECOME SUCH A BIG DEAL SO QUICKLY?
To answer that question, you need to look beyond retail strategy into the culture and economy of Brazil. The Brazilian economy is struggling. The behavior of the Brazilian shopper has changed dramatically due to the economic crises that have hit the country. The Brazilian GDP experienced an extraordinary decline between 2015 and 2016 (-3,5% and -3,3% accordingly) and only recovered slightly between 2017 and 2018 (1,1% in both years).
The economic environment created an unprecedented change in customer behavior. Basket sizes suffered across the board. Purchases that had once been considered staples suddenly became indulgences and had to be eliminated from household budgets. Dining out virtually disappeared.
The economy - and the consequences of it, required old business models to be re-cast and reconfigured. What emerged was a focus on lower pricing strategies and heavy (even store-wide) discounting. The discount strategy became the new norm.
A recent study of shoppers from a large Brazilian retailer shows that 37% of the customers do not decide to purchase based upon rational benefit (discount motivator) or emotional benefit (points motivator). However, when asked, 15% of the customers stated that they were price-driven and that discounts mattered (price motivator). 25% said they care about so-called emotional benefits (points motivator). The other 23% decide their purchase by mixing the stimulus of both discount and points motivators.
Exhibit 1, 48% of respondents indicate points as their primary motivator whereas 38% indicate discounts as their primary motivator. The data suggests that there is a significant opportunity for retailers to adopt a combination strategy involving multiple motivators in their mobile apps and at POS - rather than focusing exclusively on one or the other. Combining these motivators can drive a higher level of customer engagement, adoption, and return.
Exhibit 1: Drivers and stimulus that consumers respond in retail market. Dotz Loyalty Brazil - 2018
When you analyze the data, it becomes clear that there are opportunities to leverage more than one motivator to drive customer engagement and loyalty in Brazil.
POWERING THE MOBILE APP WITH A ROBUST RECOMMENDATION ENGINE CAN CREATE EVEN GREATER OPPORTUNITIES TO DEEPEN ENGAGEMENT.
On the other hand, a recommendation engine linked with a mobile app without the right motivators will fail to deliver a better value to customers.
Discounts + Points + Experiences are the right path to deliver value to customers.
MORE REVENUES AND MORE MARGIN
The right offer, with the right price, in the right channel applied to the right customers are the right elements to deliver value to the customer and generate value to the company.
SMART SEGMENTATION IS KEY.
Each cluster or segment dictates a unique set of tactics. The effectiveness of the recommendation engine increases with the quality of the customer data - the more robust the data, the better output. A strong loyalty strategy will aggregate data both from inside the business and outside, will therefore be able to create more effective offers which, in turn, will lead to better margins.
Note: Brazilian retailers often make short-change themselves by using customer datasets that are too narrow - usually based on one touchpoint in the customer journey rather than several touchpoints across different retailers and locations.
CUSTOMER BEHAVIOR - FROM COMMODITY TO A DIFFERENTIATION STRATEGY
The right use of the right motivators (discounts + points + experiences) drives even deeper customer engagement. Recent research shows that 57% of shoppers would exchange discounts for rewards if they could do so while 65% indicated a preference for rewards over discounts.
By looking at the behavior of engaged customers of two Brazilian retailers, we see evidence of the benefits of combination motivational strategies: engaged customers who responded to the combined motivators of discount and points showed higher frequency, higher spend, and higher basket size as compared with customers with a single motivator.
A year of data showed the frequency of these customers was 5x higher than the average customers and the lifetime value as 12x greater. The basket size of those customers that responded to both motivators shows double the SKUs as compared to the basket size of customers that respond to a single motivator. The right use of motivators has proven ROI.
Exhibit 2: Drivers and stimulus that consumers respond in retail market. Dotz Loyalty Brazil - 2018
In conclusion, the recent discount-focused mobile app boom in Brazil provides significant opportunities for retailers to reconfigure their loyalty strategies and exploit the weaknesses of that approach. By using the right motivators (a combination of discounts and points), powered by a robust data-backed recommendation engine, retailers can deliver a better loyalty proposition to customers and better returns over time.