The recent focus on the Australian supermarket giants Coles and Woolworths for their cross-subsidy shopper docket strategies raises some interesting lessons for brand owners managing a portfolio.
The supermarkets are providing a great insight into the power of understanding how customers see their world. They worked out long ago that their customers value a discount on petrol far more than they do for their grocery purchases. It is the very reason why the supermarkets will push back against the suggestion by ACCC head Rod Sims, that if the supermarkets wish to offer a discount that it should be off supermarket products, not petrol. Sims’ concern is the impact the shopping dockets are having on the viability of independent fuel sellers.
However, if we put the anti-competition claims to one side, and reflect on what Coles and Woolworths are doing, then there are some powerful lessons available. The first relates to how they have actively sought to leverage value from having a portfolio of businesses, rather than simply seeing them as discreet businesses. By rewarding desired behaviour in one business (grocery) with rewards in another (petrol) they immediately gain benefit from their large established supermarket customer base. By building the connection they also get to grow both businesses. It is a reminder to all brand or business portfolio owners to creatively explore how they can get 1 + 1 to equal 3 or more
The second lesson relates to understanding what motivates customers. Research has shown that customers have a great sense of being ripped off and manipulated by petrol retailer, with their seemingly rapid and unpredictable price fluctuations. As a result any opportunity to get a discount is highly valued. The supermarket owners know this and are exploiting it to the hilt. That is why the relatively modest 4 cents a litre discount has been escalating to where some offers are now at 40 cents a litre. But it does require a bigger shopping basket from customers, and the supermarkets keeping upping the ante. One of our clients, who has a Coles loyalty card, has seen Coles shift her target spend to earn certain discounts from $130 per shop to $210. What is very positive about the approach of Coles and Woolworths is that they keep experimenting with where the upper limits reside with shopper behaviour and discount rewards.
However, the challenge for all brands is to make sure that in the process customer loyalty is not burnt in the experiment. Loyalty cards are therefore very potent tool for keeping such experiments targeted and discreet.