Personalized Pricing: Friend or Foe of Loyalty Programs?

May 24, 2013

Personalized Pricing and Loyalty Programs, Brand LoyaltyIt’s coming up to a year since I first commented on the topic of personalized pricing and the debate rages on. While Safeway’s “Just for U” loyalty program has expanded beyond the initial test area of Denver, some are questioning both the benefits and drawbacks of personalized pricing and to what extent it elicits genuine brand loyalty.

Although I’m supportive of this practice in general, I also advise caution.

As some of my colleagues at Kobie have written in various blog posts, marketing a brand on pricing (and discounts) alone could backfire. That’s because consumers feel there is something inherently unfair about items being priced differently according to the individual. That’s true especially if those price differences are based not on general loyalty program membership, but on what shoppers do for a living, how much they earn, what they typically purchase or how much they spend. Excessive couponing or hyper price-based personalization could also turn discounts into consumers’ drug of choice.

J.C. Penney remains a prime example of this as the brand limps its way back into the hearts, minds and wallets of its former customers, reinstituting everyday low prices that shoppers had come to expect and demand.

Airlines, too, are considering similar pricing methods. The International Air Transport Association (IATA), an airline industry trade group, recently endorsed Resolution 787 which, among other goals, paves the way for airlines to offer travelers individualized pricing using a host of metrics gleaned from the personal information they readily share online. A recent Wall Street Journal article found that businesses across many different industries like Staples, Discover Financial Services, Rosetta Stone Inc. and Home Depot are also adjusting online prices based on available shopper data.     

Kobie’s belief, however, is that inspiring true brand loyalty requires something bigger than competitive or individualized prices. At a time where the typical shopper could visit numerous supermarkets, big box retailers or Mom and Pop stores for their grocery purchases – think Target, Whole Foods, Walmart or the corner convenience store – customer experience is equally if not more important. Prices can still be individualized. But the marketing focus needs to change.

Here’s how:

  • Before hyper-tailored prices go into effect, start with unmatched transparency. Inform consumers directly and honestly about any changes to an existing customer rewards program. Better still, encourage and incentivize their early feedback and engagement across multiple channels. What’s the point of launching a new program if your customer base is opposed to the proposed changes?
  • In addition to individualized prices, make certain multi-channel mortar shoppers can easily compare prices between different stores and that product information is readily available.
  • Make shopping fun and less of a chore – perhaps by giving customers additional rewards just for posting their in-store/aisle whereabouts or trying on the “right” item at the right time of day!

The Takeaway:

As Big Data continue to get bigger and privacy fears lessen, individualized pricing is likely to become commonplace. Or, as Safeway CEO Steve Burd said during an analyst call earlier this year, “There’s going to come a point where … shelf pricing is pretty irrelevant.” If that is the case marketers, brands and consumers must work together in establishing new relationships and new data usage boundaries. Done right, personalized pricing in concert with transparent marketing can be a major driving force in customer engagement and true brand loyalty.

What’s your view of personalized pricing? Is it a friend, foe or the future of hyper-targeting? And how will it affect brand loyalty?  I’d love to hear your thoughts on this important topic.