Investing Strategically in Price, Promotions and Loyalty

Retailers face immense pressure to compete aggressively on price, lock in customers through attractive loyalty benefits, and trade the business hard through promotions. Billions of pounds are allocated across these levers. Analysing 10m+ consumer ratings from OC&C’s Retail Proposition Index suggests retailers are allocating funds ineffectively, on average costing 2%pts of margin.

Price vs. Loyalty Investments – Consumer Responses

The return on price and loyalty investment across retail sectors is broadly similar on average. However, younger audiences are 30% more responsive to low prices, while Gen X and older generations are 60-80% more responsive to investments in loyalty. A similar pattern is observed in the type of loyalty benefits consumers respond to, with 50% of Gen Z consumers preferring member discounts and promotions while older generations are points and service seekers.

The cut through achieved by retailer’s loyalty programmes and price investments also differs markedly, for example:

• Prime’s benefits are twice as important as low prices in securing Amazon’s top 10 retailer proposition rating
• Shein’s loyalty programme is as important as it’s low prices in securing the adoration of younger shoppers
• Tesco’s Clubcard offering is 50% more effective than Sainsbury’s Nectar at improving customer perception of the overall retail proposition.

So what’s to be done? Here are our key lessons for brands:

1. Identify which buttons to push: understand the relative responsiveness of different consumer groups to different commercial levers, and the potential ROI of pulling each.
2. Set outcomes, not budgets: Allocate investments targeting specific customer outcomes, working broadly across commercial levers – price, promo, loyalty – to achieve this.
3. Beware of double dipping: Ensure overlap between commercial investments is understood and minimised.
4. Increase the gap from base to peak: Invest the minimum viable amount in universal commercial levers to give headroom for targeted investments.
5. Play the long game: Take a CTLV view on investments, avoid short-termism from campaign level ROI.

For more of our insights into consumer-oriented commercial optimisation, please contact John Franklin. To access our 2024 Retail Proposition Index, click here.

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