Woolworths, one of Australia's largest supermarket chains, has recently introduced member-only pricing in their stores. I'm quite interested in this new strategy, how it may impact my clients' businesses and if it provides any good ideas for them. Our POS System can handle it so it is relevant to our clients.
How the Member Pricing Works
The member prices seem to be based on Woolworths' standard shelf prices. The member prices are marked with special shelf tickets or symbols on the Woolworths website. Only some products are given a discounted price that only members of the Woolworth Rewards can use. So their customers need to join the supermarket's Everyday Rewards program which is free and then scan their registered loyalty card at checkout to get that discount.
This Strategy Isn't New
Woolworth did it about a year ago and then gave up on the idea, so I am curious why they are doing it now particularly as none of the other supermarket chains copied it. Having said that this type of loyalty program is used by other major retailers in Australia such as Dan Murphy, which has a 90% usage of their customers using their loyalty program.
The Potential Benefits for Woolworths
Here are some benefits that I can see with Woolworths trying this member-only pricing:
It provides a real need to their customers who want that product as using it those people get a discount.
The offers are open to a small percentage of shoppers (37%) that shop at Woolworths, so it's hard for other retailers to compete on those specific products as the majority 63% do not shop at Woolworths.
The discounted products keep changing rather than being permanently reduced, so the products on offer are hard to track.
Woolworths wants more customer data. Industry-standard claims this data can be worth around 1% extra revenue.
How It Compares to Loyalty Points Programs
There are some key differences between member pricing and points-based loyalty programs:
It feels more rewarding psychologically as points accumulate. Studies show most Australians want points.
Much of the cost of the points never happens, as many points are not redeemed
Points can work on the total sales, not just on selected items.
Provide clear savings upfront on purchases which customers can relate to as they are real discounts
Only items that can be discounted are discounted. With points, it is hard to justify to customers why these items are given points and these items are not.
Customers will only scan their loyalty card if an item is discounted to members.
The Bottom Line
Loyalty programs are said to be worth 1% to 2%, my studies suggest closer to 1%, but your shop might be different.
If you are considering selective member discounts in your own business, well your POS software can handle it.
If you do so the primary purpose of a loyalty program is to get you more customers and get them to spend more. Is it? So you do not just have to check the sales totals but also the basket size, profitability, etc. We have a whole section in our software that helps you do that.
Pre-membership vs. post-membership spending
What do you need to know that it is working?
The figures can be found here.