Is JC Penney’s “No Discount/No Loyalty” Trend Contagious?

Uh oh.

Shaw’s Supermarket here in Boston made a little bit of news in the run-up to the 4th of July holiday. It’s dumping its loyalty card program. Well to be technical, Albertson’s – the Idaho-based North American grocery chain that owns Shaw’s – decided that all of its brands would. So Shaw’s made its announcement that it would follow suit at the end of last month.  And, they weren’t kidding around, either. Store employees were actually stationed at the front entrances to stores and confiscated the plastic cards and mini key chain cards from customers as they entered. They replaced them not with a fancy mobile app, but with a paper coupon, and a verbal promise that customers no longer needed a card or even a coupon to get low prices. Every day low pricing was the new mantra.

Sound vaguely familiar?  Why yes, it does. It’s just what JCP decided to do a little more than a year ago.  (Did Ron Johnson land at Albertson’s?)

As I said, Uh oh.

Or maybe not.

I was reading Contagious, the New York Times bestseller written by PYMNTS Summer School commencement speaker, Jonah Berger over the 4th of July holiday. It’s a really interesting book about why ideas and products go viral. (Did I mention that all Summer School Fellows get not only to hear his speech about how mobile payments can be contagious but also get a signed copy of the book???). Berger’s framework is very thought provoking. He actually addresses loyalty cards in one of his chapters and basically says they’re useless. Here’s his logic.

Berger’s view of the world is that in order for something to be “contagious,” aka go viral, it has to have practical value that people can actually see. In practical terms, it’s like when you see an article, read a book or make a purchase that you think others would also value, you then share that content because (a) you think other people would also find it valuable and (b) you would also look good doing it. Applying that criteria to the loyalty card, it clearly has practical value since it saves people money, but it isn’t public. Other people can’t see how much you’ve saved and sometimes it isn’t even obvious to the loyalty cardholder how much she has saved using it. Berger’s view is that to make loyalty cards more valuable and contagious, store clerks should ring a bell every time someone with a loyalty card saves more than $25 or that checkout lanes should have an electronic sign that flashes how much the person checking out saved using her loyalty card.

Okay then.

I personally think that implementing that sort of strategy would have accomplished the same thing as having Shaw’s confiscate people’s cards at the door since I suspect people, en masse, would have happily turned in their cards. Who would want to be THE person who triggered the ringing of the bell by the store clerk? I mean, for crying out loud, people hate it when the restaurant waiter brings over a piece of cake with a candle in it on their birthday and, God forbid, if that is accompanied by everyone singing “Happy Birthday!”  Who hasn’t wanted to crawl under the table when that happens? And would you really want to have how much you saved broadcast to people all over the store? After all, as we all know, when it comes to savings, size does matter.

Seriously, the public piece of the loyalty card discussion sort of ignores the practical value associated with having one – savings – and the association of that savings with a particular brand, and how that benefit alone can make the concept go viral.  People with a card who have received a benefit will tell their friends, etc.  I agree that “public” as a condition of “contagious” is important but not so sure that as a use case, it applies neatly with the notion of loyalty cards.

One of Berger’s other concepts, “social proof,” really does apply. Social proof is about how certain ideas and strategies position people as “insiders.” Having a card that provides access to things like specials, promotions and other benefits that others don’t get, also creates contagion, according to Berger. Maybe rather than glomb “public” as a condition for making the practical value of loyalty cards viral, emphasizing the “social proof” aspects might be better and even more appropriate.

Now back to the “uh oh” part of this piece.

JCP took this same path about a year ago and got rid of discounts, coupons and its loyalty card. It turned out to be pretty ugly, in spite of how “public” the every day low prices were to people. So, according to Berger, this strategy should have worked!  But it sort of bombed, and now JCP, a once iconic brand is in trouble and has been scrambling ever since to bring back the stuff that its former CEO summarily trashed.

I wrote a whole piece on JCP  and why its strategy flamed out under Ron Johnson so I won’t rehash it here. What I will do, though, is offer a few thoughts on the implications of Shaw’s decision and some new observations on JCP and loyalty cards and coupons.

What JCP did and maybe Shaw’s is doing is underestimating another irrational yet real consumer behavior that is also contagious: the recoil that people feel when something has been taken away from them and when that also removes a very important, tangible and actionable reference point. When JCP offered coupons in conjunction with a promotion, people knew precisely that they were saving $XX on something that usually cost $XX + 30 percent (I’ll note that consumers didn’t need a sales clerk ringing a bell to let them know they saved money.).  They replaced that experience (I saved real money – I am so smart!!) with a single price every day so that no one could really calibrate or measure savings any more. They also eliminated the thrill of the hunt and snagging the sale! It replaced all of that with a lot of questions in the consumer’s mind (Is $XX price really the best price – how can I be sure?). It was reported that after JCP implemented this move, customers felt “betrayed” by all of this. I think that they probably felt that way because they were really confused. What then became contagious was that shopping at JCP wasn’t as clear and cut and dry (or even as fun) as it used to be. Shoppers soon found other places to go.

So, let’s turn back to Shaw’s. The grocery business is cutthroat and is a business characterized by thin margins. When Shaw’s (and Albertson’s) decided to ditch loyalty cards, it made a decision to buck a really big trend in the grocery business (and all of retail frankly), which is the loyalty card and the savings that having one delivers to those members. I know you’ve seen the stats, but Colloquy just published them for 2012. There are more than 2.6 billion (yes billion) loyalty memberships in force in the U.S. – which is up nearly 27 percent from last year. Drug and grocery stores are among the most vociferous “issuers” of such programs. And sure, most people are members in way more loyalty programs (~22) than they actually use in practice (~10) but I would bet my next grocery bill that among those 10 active memberships is a grocery store (or even two).

Customers plan their shopping around the promotions that are attributed to loyalty program memberships, even stock up, and otherwise remain loyal to the store in order not to miss out on those benefits. Of course, there are exceptions to this rule. Whole Foods and other high-end grocers don’t offer loyalty cards but they trade on and sell their brand and a lot of other intangibles.  At the other end of the spectrum, there are discount grocers who are truly “discount” brand driven and who don’t offer a loyalty program either. Then, there’s Wal-Mart that does a huge grocery business and already has the EDLP market locked down. But all of these establishments and types of establishments started out that way – they didn’t change horses in mid-stream. Those consumer reference points that they created have been consistent over time. It may be that Shaw’s, which competes with Stop N Shop in the Boston area and which has a loyalty program along with a clever mobile app, may now find itself reliving the JCP experience unless it can really prove that every day on every item it is really cheaper. That sounds really tough.

There is one more thing that Shaw’s is giving up by ditching its loyalty program, which in this day and age of mobile, seems like a really crazy thing to do.  They’re missing out on the opportunity to capture individual data on consumers’ purchasing habits so that they can, in turn, provide a more targeted shopping experience and monetize that data in a whole host of ways. Shaw’s and Albertson’s say that they can get that data another way, but unless they plan to survey shoppers on their way out of the store, I have no idea how they think they can do that efficiently.

Perhaps the most interesting thing about reading the Shaw’s news was the ability to think about it in the context of the concepts in the Contagious book, and realizing just how nuanced getting something to go viral really is. Sure, there are lots of obvious things that seem relatively straightforward- like the $100 Cheese Steak or the blender that is so powerful that in seconds it blends marbles into dust that Berger writes about in his book. What struck me in reading it is just how much of “going viral” is about understanding frameworks for making decisions and then thoughtfully applying them. Nowhere is this more fun, interesting, challenging, infuriating, or difficult as it is in payments right now.

I’m looking forward to hearing how Jonah Berger has applied his Contagious framework to mobile commerce and to even challenging some of his thinking (who me???)- and to learning from it. And, I do hope you’ll join me!

If you’d like to be part of our Summer School experience, then, please email me directly here and I will make sure that you are taken care of.

Oh, and if you think Summer School is for you, don’t forget to make it contagious. If you do that and you tell me who you’ve referred, you might even save some money for you and your contagious colleagues (no loyalty card required).


New PYMNTS Report: The CFO’s Guide To Digitizing B2B Payments – August 2020 

The CFO’s Guide To Digitizing B2B Payments, a PYMNTS and Comdata collaboration, examines how companies are updating their AP approaches to protect their cash flows, support their vendors and enable their financial departments to operate remotely.

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