As the cost-of-living crisis continues to bite, shoppers may feel they are having to work harder to secure discounts at stores. According to retail analysts, that perception is an accurate one.
While it’s difficult to calculate the relative generosity of discounts at a time of rapidly rising prices, there have been substantial changes to the way that retailers present their intertwined discounting and loyalty strategies.
One factor is hard to ignore: discounts are no longer for everybody. While reduced-price promotions were once available to all, they are now ‘paywalled’ in many stores, the cost of entry being membership of the retailer’s loyalty scheme.
“There is a conditionality being put on a lot of discounts,” says Institute of Grocery Distribution (IGD) global insight leader Bryan Roberts. The condition is generally ‘no card, no deal’ and shoppers may have to get used to it.
“The member-only approach is going to be incredibly commonplace. It’s now in place in Tesco, Sainsbury’s, Morrisons, Boots and Superdrug and there are elements of it elsewhere,” says Roberts. He expects the trend to be adopted by more retailers, perhaps too by companies in sectors outside retail.
Tesco led the way by introducing Clubcard Prices in 2019, which gave members of its loyalty scheme exclusive discounts on certain products. Before this, shoppers saved up points towards discounts to spend at a later date. Sainsbury’s followed suit with its Nectar Prices scheme and in May Morrisons launched its More Card, which also offers card-holders cheaper prices.
Many shoppers have welcomed the immediate discounts, getting a buzz when they see their bill tumble at the checkout to reduce the sting of rising grocery prices. But food inflation is not the only reason for the change to ‘no card, no deal’ strategies.
Why the new loyalty schemes are all about customers’ data
Retail media networks provide retailers with a valuable new revenue stream, allowing them to sell consumer data, insights and access to consumers. According to The Business Research Company, global retail media network revenue is set to grow to $27bn (around £22bn) by 2027, making it one of the fastest-growing elements of the advertising industry. But collecting usable data requires shoppers to use loyalty schemes, hence the push from retailers to encourage customer sign-ups.
There is a conditionality being put on a lot of discounts… and shoppers may have to get used to it
IGD research finds that shoppers are generally aware that they are giving up their data to retailers and that they are happy to do so, as long as they feel it is worth their while in terms of benefits. This suggests that shoppers are aware that their data is now a product to be sold in its own right but that they expect to gain something in return.
According to Morrisons, its new loyalty strategy is a result of customer demand. As well as exclusive discounts, it lets customers save up points to earn Morrisons Fivers – a £5-voucher which can be spent on a future shop. “Customers have been telling us how much they have missed the Morrisons Fivers and so we’ve brought them back as part of a radical overhaul of the loyalty scheme,” says Morrisons chief customer and marketing officer Rachel Eyre.
How can retailers make everyday essentials cheaper?
Retailers more generally have responded to criticisms of the value of their discounting strategies, especially on staple items that have seen exponential price increases. In May, Tesco announced a further round of price cuts for some of its store-cupboard essentials. Having already reduced the price of milk, butter and bread, the retailer knocked around 10% off the price of 30 various own-brand pasta and cooking oil ranges.
The company says it is working with suppliers to deliver the best possible value for customers. “As we see deflation coming through on key cupboard essentials such as pasta and cooking oil, we’re pleased to pass these savings on to customers,” says Tesco chief product officer Ashwin Prasad. “We hope that by reducing prices on these 30 products which are bought week-in, week-out, we can help customers spend less.”
Sainsbury’s highlights its Aldi Price Match and Nectar Prices offers. Like Clubcard Prices at Tesco, Nectar Prices offer relatively deep discounts that are only available to members of the scheme. “Over the past two years, we have invested £560m into lowering prices as part of our goal to put food back at the heart of Sainsbury’s,” says a spokesperson for the chain. “We’re committed to doing everything we can to support customers with the rising cost of living.”
For supermarkets, it is the only real way that they can compete on price with Aldi and Lidl
The reactions highlight another factor in discounting trends, for grocery retailers at least. Deep and visible price cuts at the checkout are important if they are to stem the tide of shoppers heading for discount rivals.
“For supermarkets, it is the only real way that they can compete on price with Aldi and Lidl. They can’t offer the same consistent everyday low pricing, but they can offer these big promotions that also serve to mask how much prices are going up on other ranges,” says GlobalData associate analyst Joe Dawson.
Dawson points out that slick technology now makes it easy to join a loyalty scheme, and mobile phone apps mean customers don’t need to carry a wallet full of plastic cards. He also notes that younger customers are generally more comfortable with sharing their data with retailers than older customers.
What can be done to change shopping habits?
There is evidence of retailers trimming their sails in other ways when it comes to what they offer their most loyal customers, though again the calculations are complex. While Tesco is offering immediate cash discounts to Clubcard users, for example, the value of the points they can collect and redeem against days out or restaurant bills has been lowered.
Boots too has reduced the loyalty of the points it gives for purchases but has introduced a 10% discount on own-label products to holders of its Boots Advantage Card. The retailer is also offering deeper discounts on some “big item” purchases.
What does all this mean for sales? One impact of the high inflation that has made life so difficult for shoppers has been that while retail sales figures have been buoyant, sales volumes have been going in the opposite direction. A graph of the two shows lines going in opposite directions, as shoppers cut back on what they buy.
“Sales volumes in the food and grocery market overall are going down, and they have been going down progressively. It has been a real case of value going up, volume going down,” says Dawson.
If shoppers have got used to being careful with their purchases, it may take a substantial economic shift to change how they shop. “A lot of habits are forged by necessity and economic downturns and a lot of those habits can be quite sticky,” notes Roberts.
While the cost-of-living crisis has caused sales volumes to decline, offering targeted discounts for loyalty card-holders may help retailers buck this trend – and, in the process, make shoppers feel that they’re getting a good deal too.
