Will Morrisons new Match & More card build profitable sales? Management hopes so: it's same-store sales were down 7.4% in the recent half year ending 3 August...
The World's First Almost No-Cost Points Program
This month, Bradford, UK-based Morrisons is rolling out its Match & More customer card. Debuted by this 509-store chain, it is creatively designed: most likely the world's first-ever almost no-cost points program. How so? No points are offered to customers for total spending, a common (and expensive) point-program feature. Instead, points are issued when customers buy any of the "hundreds of featured items" around the store. The points on these items, one may reasonably assume, are fully funded by manufacturers because they are weekly specials that have been switched from price-off to points-on or are special long-term point shelf promotions.
The second primary way to earn points is when a customer with a Match & More card buys items at Morrisons that are cheaper at designated dominant competitors: Tesco, Sainsburys, Asda, Aldi, and Lidl. The largest comparative difference calculated is refunded in the form of points. As these price-difference rebates reflect corporate competitive pricing their costs, one assumes, are charged to their respective departments and not to the card program.
A third way, one assumes the only points that are funded by Morrisons, is the offer to members of 1p (10 points) per liter of petrol purchased in their petrol stations.
Each time a customer accumulates 5,000 points she automatically receives, when checking out, a Morrisons certificate for £5 (ie, each point is worth 1/10th of a penny).
Pricing Instability in the UK
As background, the UK's food industry's pricing tectonic plates have moved over the past year. The four food majors (Tesco, Sainsburys, Asda, and Morrisons) as a group, have lost market share to the two discounters, Aldi and Lidl, who have been enjoying strong double digit sales and profit gains. Customers are hurting economically and are stretching their budgets by shopping more often at the discounters. The majors have fought back. For example, Tesco and Sainsburys issue an instant rebate coupon for the largest difference found on comparable items sold at the other majors, provided the customer has at least 10 items (about £20 in value) in her basket. But that move has not slowed Aldi's and Lidl's surging growth.
And now Morrisons has thrown a grenade into the game by announcing that with its new Match & More card it will give, on orders over £15 containing at least one comparable item, a price-matching rebate against not only the other majors but, more significantly, against Aldi or Lidl, too!
What's so dramatic about this is that Aldi, although selling mostly private brand items, has a comparable basket cost that is 22% less than Tesco, according to Nielson research, as quoted in the Telegraph (29 Sep 2014). For context, Morrisons' prices are similar to Tesco's and Lidl's are similar to Aldi's. The battle lines have thus been drawn.
The questions currently swirling include: Will the other majors follow Morrisons lead? Can Morrisons sustain the price and profit erosion implied in their program? Can they take on both the other majors and the discounters at the same time? (It seems like fighting on two fronts.) And what happens if the two discounters decide to selectively but dramatically lower their prices?
The raison d'etre of such discounters is that they must be the cheapest, never equal, in price compared to the majors to maintain their marketplace differentiation. They cannot afford to have the current price gap they enjoy significantly shrunk. Morrisons have, therefore, launched a dangerous battle. Matching Aldi's prices against Morrisons involves less than 10% of Morrisons item range; the program is an expensive encounter for Morrisons. But, for Aldi, it may be life threatening. Aldi is being price-matched not just on 10% of its items but on almost 100% of them! Their total marketing point of difference is being attacked. For Aldi, as opposed to Morrisons, this is a do-or-die, locked-horns encounter and, in its mind, it has to win. No other option is acceptable.
It seems apparent that pricing instability will be around until the nation's pricing tectonic plates find a new equilibrium.
Pricing at Morrisons
Dalton Phillips, Morrisons CEO, told Marketing Week (11 Sep 2014) that their previous 3-month "I'm Cheaper" campaign was to regain customer trust and, further, that their recent shift to an EDLP approach means that "the price drops are permanent". Match and More indicates a continuation of that mindset. With this background, let's look at their new program through three lenses: the Positives, the Concerns, and the Question Marks, to better understand what might lie ahead.
The Question Marks
These are the questions whose answers, if known, would help us predict the situation 3-5 years hence:
Morrisons disappointing past performance has pushed them into a proactive price-matching strategy: one that creates operational issues and may trigger a violent reaction from the discounters.
They have conflicting, inconsistent promotional strategies: everyone else's prices and their own EDLP and weekly promotions. A clarifying path is needed.
Ahead, a competitive battle is brewing where all major UK players need to increase sales to offset their price cuts and price matching- but they all can't win.
Morrisons mission is to build customer trust in them as a brand. Trust building does not occur overnight-but over years.
Furthermore, customers do not live by cards alone. No matter how enticing the Match & More card offer, when the customer is in the store what matters most is a combination of Selection, Quality, Value, Service, and Cleanliness: experiences that register on customers' "loyalty meters" influencing their attitude and return frequency.
Let's hope Morrisons have the patience, both emotional and financial, to see this creative challenge through.
Brian Woolf is a global leader in loyalty marketing and has written three definitive works on the subject, Measured Marketing: A Tool to Shape Food Store Strategy, Customer Specific Marketing, and Loyalty Marketing: The Second Act. He devotes his time to helping retailers develop, critique and strengthen their loyalty programs.
The techniques and metrics Brian Woolf has developed have become guiding principles for those operating some of the world's most successful programs. He is the President of the Retail Strategy Center, and has consulted, and spoken at conferences, in the US, Europe, Japan, and Australasia.
Prior to his total commitment to loyalty marketing, his corporate roles included Deputy Managing Director of Progressive Enterprises, a major New Zealand retailer; and Chief Financial Officer of Food Lion, a leading US food retailer. He has an M.Com. (Economics) from the University of Auckland, New Zealand, and an MBA from the Harvard Business School.