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Why should retailers consider member pricing?

By 17/10/2023July 3rd, 2024Blog Posts, Pricing, Thought Leadership
A consumer uses a loyalty app as she shops.

Customer loyalty programmes aren’t new. In fact, 70% of the UK’s population are members of a loyalty scheme. Co-op paved the way 200 years ago with their dividend scheme (yep, two centuries ago). Fast forward to 2023 and Tesco Clubcard is making waves with member pricing as the UK’s top digital loyalty platform.

Retailers investing in loyalty benefit from lower costs, increased profits and a stronger brand reputation. You could say loyalty pays for itself – especially considering acquisition costs 5 to 25 times more than retention.

Why’s member pricing the flavour of 2023?

Member pricing, also known as loyalty discounting, is a customer loyalty mechanic. Consumers unlock discounts on a range of products, simply by checking out with the retailer’s loyalty card.

It’s especially relevant in a cost-of-living crisis.

Member pricing is the first move away from the simpler model of cash rewards for loyalty. Tesco’s ‘Clubcard Prices’ is a great example – it’s propelled the grocer to loyalty success, with members accounting for 80% of sales.

Loyal customers grow retailers’ share of wallet.

Member pricing is gaining traction, but loyalty programmes will always need to reward customers outside of product pricing alone. This is the reason to shop with that retailer over the competition.

We’re already beginning to see changes in the way loyalty is rewarded – for example, Asda’s gamified approach. But at the core, loyalty schemes generally offer cash rewards (like points to spend in store) as a basis for adoption. And adoption is the first critical step to enable member pricing.

The new pricing battlefield.

Member pricing is set to become the new promotional and pricing battlefield.

In the middle of a cost-of-living crisis, overall basket price is the number one driver of loyalty. Member pricing is currently focused on brand offers to complement the core basket and grow discretional spend – think impulse purchases like pizza and confectionary. It’d be a PR disaster if consumers were forced to join a loyalty scheme to access the best price for milk, for instance.

Put simply, member pricing shouldn’t punish price conscious consumers. If it does, they’ll walk away and shop the simpler, cheaper offerings of discount retailers.

Let’s take Tesco’s Clubcard Prices as an example. When it launched, it no doubt influenced huge adoption. However, the scheme will need to target >80% participation of sales before it can be a genuine mechanic for offering member prices on core essential groceries. The risk of alienating shoppers is too big.

Similarly, supermarkets can’t afford to turn away less tech savvy consumers, or shoppers who don’t want to share their data. Digital loyalty helps build a detailed understanding of consumers – but take care not to cut off segments of shoppers with solely app-based programmes.

A shopper scans a loyalty QR code when buying groceries.

Suppliers want share of wallet, too.

Member pricing has only amplified the fight for suppliers to get their products in consumers’ baskets.

It’s another way of increasing basket size and customer footfall through hero deals. For example, those historically seen in the alcohol aisle; where 25% off wine or £10 bottles of champagne at Christmas incentivises customers to come into store. The key? Individual loyalty schemes combined with the intelligent use of data to inspire customers with relevant offers and deals.

For grocers, member pricing is a way of positively engaging with brands, to secure supplier-funded deals and offers. The rich data created by loyalty schemes allows for the accurate measurement of ROI, uplift and incremental impact. This capability helps compare the merits of investing in Supermarket X over Supermarket Y or Z – and ultimately helps grocers secure more deals. The difference now, though, is retailers and suppliers can be more targeted via personalised pricing.

Ultimately, successful retailers will secure supplier funding by demonstrating why they should invest in their member pricing programme.

Creating FOMO through personalisation.

Loyalty isn’t just a cost line on a retailer’s P&L. Once a programme is in place, the opportunities are (almost) endless.

Let’s take personalised pricing, for example. If it’s done in the right way, it could be hugely impactful. It’s existed at a product level for a while now, but in the form of coupons, which are less exclusive and enticing for non-members.

Individual offers and deals could help drive sales through tailored inspiration which drives category participation. It must be genuine – such as recommended products they’ve yet to try – otherwise, you’ll be teasing discounts on items they don’t really want.

Fundamentally, personalised pricing needs to complement the everyday value offered by a supermarket. It can never replace it.

Member pricing and retail media – the perfect partnership?

Member pricing goes hand-in-hand with retail media monetisation.

As the third-party cookie deprecation deadline nears and the cost of media campaigns increases, advertisers are seeking different ways of reaching consumers (instead of Google and Meta). Retail media is a new path to profit for retailers – and another route for promoting supplier-funded offers.

Swathes of first-party data is generated by customer loyalty programmes. This data presents retailers with the opportunity to sell suppliers advertising space at the point of sale. The revenue can then be used to fund better offers and lower prices, in turn winning a greater share of wallet. This drives more engagement and revenue, and lower prices.

Investing in retail media for pricing and promotion is a great way for retailers to make their offerings stand out. It’s how they’ll win. As the member pricing battle intensifies, it’ll be driven out of the data created by loyalty schemes. At the end of the day, it’ll be down to which retailer delivers the best prices and the most relevant offers to the right people, at the right time. Sound familiar?

What about the rest of retail?

We’ve focused on member pricing examples across grocery retail – but loyalty programmes are prevalent and growing across other retail sectors (e.g. MyMcDonalds Rewards).

It’ll be more difficult for retailers that don’t have high frequency purchases to leverage member-style pricing. However, personalising offers, accurate targeting and next best product recommendations can drive loyalty; winning key moments for customers when they’re showing intent to buy.

What’s clear is the importance of first party data for customer loyalty across retail. Without it, brands cannot fully understand customers’ buying habits, nor target them across all media and channels in a personalised way.

Retailers effectively leveraging data, then investing and targeting relevant offers will win on price, and ultimately, loyalty. Fancy a chat about member pricing? Contact us to speak to our specialist consultancy team.

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