Author: Jonathan Reeve, General Manager - ANZ at Eagle Eye Solutions Ltd
Several of the world’s most successful retailers place everyday low price ("EDLP") at the heart of their customer proposition. The likes of Aldi, Bunnings, Ikea, Officeworks and Walmart commit to consistently provide the lowest prices in their categories. This approach is proven to inspire loyalty from customers who trust they do not need to spend time comparing prices or waiting for sale periods.
However, many EDLP retailers now face an existential challenge from the rise of digital retailers like Amazon whose approach is founded on analysing customer data. At the heart of the data-driven approach is a digital connection to individual customers. This connection is what enables the retailer to deliver personalised communications at different stages of the shopping journey. Most EDLP retailers are struggling to get started with personalisation, because a pure EDLP model provides no means for collecting individual customer data, for example through a loyalty program.
A recent experience with Aldi highlights the lost opportunity. On 30th December Aldi sent me an email which led with their Bedroom and Gardening Special Buys. Unfortunately for Aldi, these products held no interest for me whatsoever.
An un-personalised newsletter
The data opportunity for EDLP retailers
However, when shopping in my local Aldi a few days later I spotted a 24-pack of Little Creatures Pale Ale on sale at $59.99 a case. To me this was a highly attractive proposition – except I had just bought the same product from another retailer at a higher price. Both Aldi and I lost out in this situation, because Aldi had no way of personalising its emails based on a simple analysis of data about my past purchases.
At Eagle Eye, we work with several EDLP retailers who are learning to find ways to connect digitally with individual customers, without compromising on their price promise. The secret is recognising that without a loyalty program you are unlikely to find a “magic bullet” that persuades the majority of customers to identify themselves. However, by providing a number of options that each appeal to different segments, EDLP retailers can still find ways to access enough data to run their business in a customer-driven way.
To illustrate the opportunity for EDLP retailers, the matrix highlights the two key drivers of success when retailers try to connect with individual customers:
The costs and benefits of acquiring customer identities
- The cost of the initiative as a percentage of sales
- The take-up of the initiative as a percentage of sales
Solving the data challenge without breaking the price promise
A traditional loyalty program sits in the top-left quadrant. A successful program like flybuys or Woolworths Rewards might see over 70% of sales linked to an individual customer id. However, a base earn loyalty program may also cost 1-2% of sales to operate.
In the bottom-right quadrant are lighter-touch initiatives EDLP retailers can use to persuade customers to identify themselves. There are many options here, and the right mix will depend on the individual retailer’s circumstances. Examples used by Eagle Eye clients include:
• Single-tap payment / stored value
• Digital gift cards
• Subscription programs
• Scan and go
• Prize draws
• Charity donations
• Brand-funded offers
It’s worth noting that a few retailers have managed to hit a “home run” with initiatives that deliver high participation for relatively low cost. One example is Pets at Home which makes a company-funded donation to the customer’s preferred animal charity with each purchase. Although there is no personal financial benefit to the customer, the program has high take-up and builds Pets at Home’s reputation for doing the right thing by the community it serves.
In summary, there are many ways EDLP retailers can start the journey to data-driven personalisation without compromising their ‘lowest price’ promise. Without the ability to personalise their communications, EDLP retailers will find themselves competing on an increasingly uneven playing field with Amazon and the e-commerce pure-plays.