Monday, March 24, 2008

Loyalty Without Coupons

The more I read about loyalty programs that use coupons, the more I am convinced that coupons are no longer a differentiator that will create loyalty. I now see coupons as a commodity; that is, something one must do to maintain a place in the market. Since most, if not all companies that use coupons, are competing in similar markets, the value of the coupon becomes the attraction. As soon as a coupon with better value is offered, the appeal of one company over another is lost.

Perhaps the most important point is that a coupon has an intrinsic value that is NOT based on the company, service or relationship of the company offering the coupon. The coupon is only based on the product. As long as its price is the lowest (with the coupon, it will attract customers. A dismal store with untrained personnel and no interest in anything other than moving products can offer coupons (and most of them do). The life of a company that depends on future sales from coupons, and only coupons, will only survive as long as their coupon values are the best. And example in the LA area was a discount chain called Adray's. This company was the quintessential of what I have just described. The store was not visually appealing, the clerks were not there to build relationships, only to sell product. Adrays is no longer in business.

I continue to see coupons offered for grocery stores. The purpose for some of the coupons is to entie people into the store when a holiday is nearing. For exaample, the beer and soft drink industries offer coupons just before Memorial Day, July 4th, and Labor Day. No surprise. The local store will encourage the use of coupons so that the customers who come in for the "super deals" on drinks will also buy the rest of their holiday shopping articles there.

My purpose for writing this blog is to note that one grocery chain has found a way to create loyalty that is, in my mind, very novel. The chain is Hy-Vee, a chain in the midwest with more than 200 stores that has been working with Dr. David Katz, an internal medicine specialist at Yale University. Dr. Katz has developed a computer model that scores food products on a nutrition scale of 1 to 100. The scale takes into account 30 nutritional properties such as fiber, vitamins, cholesterol, fat, etc. The computer computes a score that will soon be placed on the shelves so that people who are diet and health conscious can better manage their diet.

The system which is now being implemented is called Overall Nutritional Quality Index (ONQI). Hy-Vee is expecting to roll out the ONQI system in September and have the ratings in place for 40,000 products this year.

Bottom line: You don't have to use coupons to create customer loyalty, you just have to listen to the customers and find a way to fill their needs.

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