Home World Business Woolworths uses data to build Amazon-proof fence

Woolworths uses data to build Amazon-proof fence

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Woolworths is using its once-troubled loyalty scheme to fortify the supermarket business and try to build an Amazon-proof fence around its customers.

Seven months on from dumping its unpopular orange ticket program, a scheme that radically reduced the range of grocery products shoppers could earn rewards points from, Woolworths claims its simplified Rewards scheme now boasts 9.7 million members.

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Supermarket chain Woolworths has beaten rival Coles in sales growth for the first time in over 7 years.

But the power of the new program is the data it collects and analyses through its $200 million stake in data analytics operation Quantium Group.

The supermarket giant very quietly launched the data operation that is the engine room of its loyalty program in August 2016, at the same time as it dumped its unpopular orange tickets scheme and unveiled a new partnership with Qantas Frequent Flyers.

Woolworths' secretive "personalisation engine" is using shopper data to build unique, digital catalogues. Woolworths’ secretive “personalisation engine” is using shopper data to build unique, digital catalogues. Photo: supplied

Woolworths director of loyalty and customer data Ingrid Maes would not reveal how much the company had invested in its personalisation machine, but she said the conversion rate of its personalised communications was so successful the scheme paid for itself in less than three months.

Combating Amazon

Ms Maes said Amazon already played “heavily in this space” and combating the likely launch of the digital giant in Australia would require the help and participation of every Woolworths staff member as well as a tight focus on shoppers.

“Our core priority is to be focused on our customers and when our focus is on them … you automatically protect yourself against any new entrant,” Ms Maes said.

Woolworths claims its loyalty program is focused on reaping the rewards of delivering tailored, relevant communications to shoppers from a sector where brand loyalty is still trumped by price and convenience.

Woolworths is using powerful data analytics to drive sales through its loyalty scheme. Woolworths is using powerful data analytics to drive sales through its loyalty scheme. Photo: Andrew Quilty

However, retail insiders claim the simplification of the scheme, which earns shoppers an automatic $10 discount for every 2000 points or $2000 they spend, is that it encourages customers to participate by swiping their cards at the check-out or registering it online, delivering its data machine valuable information.

Retail analysts allege Australia’s supermarket loyalty schemes are increasingly about getting more out of each member, whether that’s store visits or spending than garnering true loyalty, which hasn’t existed in Australia’s intensely concentrated grocery sector for decades.

Woolworths says its partnership with Quantium gives it an advantage. Woolworths says its partnership with Quantium gives it an advantage. Photo: Peter Rae

Cutting through

“The more a program is relevant to you and your benefit and the more you see value out of the program … the more you will engage with the program,” Ms Maes said

“Australians are increasingly frustrated with excessive amount of un-targeted and low valued communication.

“If you have a program that can cut through that, by default you will end up with a program that customers value.”

Advertising expert Adam Ferrier said the marketing sector was divided on the role of loyalty programs in retail and whether new customers were more valuable than trying to squeeze a bigger spend out of existing shoppers.

However, he said retailers that used data to the advantage of their customers as well as their own business would gain a significant strategic benefit, particularly as the sector braces for the arrival of Amazon.

“The old adage that customers like advertising when it’s relevant to them, rings true in this sector,” Mr Ferrier said.

He said Woolworths’ partnership and 50 per cent stake in data analytics business Quantium gave it a powerful edge in the data game and its loyalty program was, consequently, highly regarded.

Coles runs its loyalty scheme under the flybuys brand and shoppers can earn points through a wide coalition of retailers, including the supermarkets as well as its own credit cards.

Coles claims to have more than 5.5 million members and the discount earn rate on its points is almost exactly the same as Woolworths.

Coles also targets members with “personalised catalogues” and claims to reach two thirds of Australian families through its member database.

Loyalty programs are increasingly influential on shopper decision-making, according to broker UBS, which claims shoppers now rate loyalty as the fourth most important driver of decisions, up from tenth in its June 2016 survey.

Analyst Ben Gilbert said the increasing prominence of loyalty schemes reflected increasingly targeted promotions from retailers and the relaunch of Woolworths program last September.

“We have previously been dismissive of loyalty schemes with the view that every-day low pricing was the best loyalty scheme but with all major retailers offering every-day low pricing differentiating via loyalty schemes is an increasingly important driver of spend,” Mr Gilbert said.

Woolworths invested about $20 million for a half stake in Quantium in 2013 but recent corporate activity in the data sector suggest the business could be worth as much as $400 million, valuing the retailer’s interest at about $200 million.

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