#6: How offsite media is influencing broader retail strategy?
The great scramble for customer data
Introduction
Prior to Covid-19, most UK retailers ran promotions accessible to all shoppers. Loyalty cardholders would get some additional discounts, and could collect and redeem points based for their purchases. The savings from loyalty card were minimal.
Over the last couple of years, two of UK’s biggest retailers, namely Tesco and Sainsbury’s, have substantially changed their promotional strategy. They now run deeper promotions on many products. However, these deep promotions are now reserved for loyalty cardholders, leaving non-cardholders with high shelf-price. This transformational change increased Tesco’s loyalty membership from 1 million to 21 million within a year.1 A similar impact is likely to be seen by Sainsbury’s who only recently made a similar change to their loyalty programme.2 What explains this significant shift in major retail loyalty programmes in the UK?
Scramble for more valuable customer data
Despite increased e-commerce penetration due to Covid-19, in-store sales still account for over 85% of grocery sales in the UK.3 Retailers have struggled to monetise the significant footfall in their stores. This is due to three reasons. First, there has been limited demand for in-store media so far. This is because such media cannot be targeted and provide very little measurement (if at all any). Second, retailers have had very minimal data on customers that shop in-store. They have struggled to tie a transaction in-store to a customer. This was only possible if the customer scanned their loyalty card at checkout alongside scanning other items in their basket. But only a tiny share of the population used loyalty cards. Third, even if retailers had some customer data for in-store transactions, they could only monetise it by selling aggregated insights on shopping behaviour to FMCG brands. The value of such insights did not always scale with the amount of customer data.
The rise of offsite media has solved the third issue. With offsite media, retailers have a new way of monetising their customer data, where the value scales with the amount of customer data. In particular, retailers that can offer customer data at-scale to advertisers are very much in-demand. But to benefit from this, retailers had to figure out how they could collect more customer data for in-store transactions. The solution was to re-design their loyalty program to offer steep discounts to cardmembers while punishing non-cardholders with high shelf prices.4
This forced more customers, including myself, to sign up to a loyalty program. In return for the steep discounts, loyalty cardholders are implicitly selling their data. As an individual who values privacy, I have leveraged my understanding of cookie consent to opt-out of sharing my data for any advertising or analytics purposes. Perhaps that is free lunch for me?
Closing thoughts
Just the way AI is setting off a great scramble for unstructured data5, offsite media is pushing retailers to come with new ways of collecting customer data. Its influence is starting to permeate various aspects of retail strategy, most notably in promotional strategy and loyalty programs. Both Tesco and Sainsbury’s will collect lot more customer data through their re-designed loyalty programs, which should yield reasonable offsite revenues given their scale. However, as I argued before, retailers should think through the longer-term case of offsite media before investing heavily into this space and before changing other aspects of their retail strategy. In the short-term, I would not be surprised if other omni-channel retailers follow suite.
https://www.thegrocer.co.uk/marketing/tesco-reveals-it-is-reaping-rewards-from-revitalised-clubcard-scheme/660621.article
https://www.thetimes.co.uk/money-mentor/article/what-sainsburys-nectar-card-changes-mean-for-you/
https://www.chargedretail.co.uk/2022/02/08/online-grocery-sales-jump-market-share/
It would be interesting to see if this strategy reduced the number of shoppers overall or the value of transactions from those who did not sign-up for loyalty cards.
https://www.economist.com/business/2023/08/13/ai-is-setting-off-a-great-scramble-for-data