Personalizing Loyalty Programs: a mirage or a real opportunity?

After mapping out current trends that emerged from a review of available information sources, our qualitative work with opinion leaders in Italian large-scale distribution centered on the strategic evolution that retailers need to set in motion. Specifically, LPs should be seen not simply as marketing tools but as actual assets, in business and relational terms. These assets serve to build a long-term relationship with consumers, so strong that it can withstand the forces that sweep through the market: from inflation to geopolitical uncertainty, not to mention changes in customer preferences. In such a scenario, personalization has become a mainstay.

Our research team set out to answer the following questions, again as they relate to Italian grocery retailers:

• Is more attention being paid to price promotions rather than opportunities to upgrade LPs via personalization?
• As far as managing LP personalization, what does it take in terms of time, skills and investments?
• Can LP personalization be framed within broader trends of sustainability and digitalization?

In determining the potential of LP personalization, a critical starting point consisted in the insight from the desk analysis of current trends: 

• Demographic evolution gives rise to new consumption and purchase needs; consumers want to see their unique needs addressed.
• Unfair wealth distribution, fueled by inflation and interest rates that are eroding the buying power of families, materializes in the polarization of purchasing and consumption decisions.
• Growth in private labels and discount stores, along with attention to the promotional dimension, reflects the ability of consumers to make more informed, intentional choices.

We interviewed 19 top managers who work in Italian large-scale distribution. They shared a clear vision of the future potential of LP personalization, designed to incentivize not only purchases, but also to establish an emotional bond and to build trust in the retail brand, all crucial components of customer loyalty. But till now these players have been struggling with an interior conflict of sorts. They have to guarantee short-term economic results, so they invest in price-based promotional levers. At the same time, they want to shore up customer relationships through personalization, but they have to synchronize various trends that shape customer trust.  As things stand today with LPs, priority goes to short-term over long-term objectives.

Fully comprehending the need to transform LPs from undifferentiated tools to personalized value drivers, grocery retailers are linking personalization to digital innovations and new technologies such as Artificial Intelligence (AI), which make it possible to collect and analyze immense volumes of data on consumer behaviors and preferences. These tools allow marketeers to carefully tailor value propositions and experiences, enhancing the engagement and interest of their customers. To manage such huge amounts of highly complex data, the present (and future) challenge is to develop advanced technical skills (possibly acquiring them from the market), while investing in security to guarantee data protection and compliance with privacy regulations. It’s a mix of elements of complexity that is not yet completely under control.

In the connection between LPs and digitalization there is another element that’s essential to fully realize personalization: sustainability. This area is currently aspirational, but rarely actually activated. In other industries, retailers that encourage sustainable behavior (for example by rewarding recycling or promoting eco-friendly products) not only reinforce the relationship with their customers; they also enhance their brand image, which becomes synonymous with social responsibility. However, in large-scale distribution a truly integrated strategy that combines sustainability and loyalty is still lacking. This limits the positive impact of these initiatives as far as building customer loyalty. End users, in particular the most loyal customers, for years have been frustrated by seeing advantages offered to everyone, with no differentiation whatsoever, and no recognition of their history with the retail brand, or their behaviors or habits.

Today demand is mature, which means that retailers must overcome undifferentiation and create a loyalty proposition that accentuates the role of personalization by leveraging digitalization and sustainability.

Granted, grocery retailers must be competitive on the market (as far as their value proposition). Yet we see the need for a cultural evolution regarding LPs, stripping away objectives that that are merely promotional and embracing a more value-based dimension which, through personalization, can intensify the process of building consumer trust in the retail brand. But personalized LPs will become experience drivers for end users only if the data make it possible to create ad hoc experiences and advantages, with omnichannel accessibility and a clear commitment to sustainability.

Castaldo, S. (2024). La fedeltà del cliente. Teoria, misurazione e gestione. EGEA, Milano. EAN 9788823847804.

Read other articles in the customer loyalty series:

Castaldo - Moving beyond flash promotions: Building loyalty via personalization and sustainability.

Branca - Measuring customer loyalty: Bridging the gap between theory and practice.