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Right Question, Relevant Answers?

A recent RetailWire article discussed how Target and Whole Foods are both testing points-based loyalty programs. (Yawn…) And then it posed a good question to start a discussion among its panel of experts:

Do points-based programs make sense for Target and Whole Foods?

Pretty simple question, but powerful. My take is Yes for Target, No for Whole Foods. Why? Because Target is a (relatively) high-velocity retailer selling a large proportion of commodity products that you can get elsewhere, and a loyalty program with tangible benefits can help sway consumer decisions about where to shop. And price is likely a key decision factor for a large proportion of the Target shoppers, so adding another incentive can play a large role in choosing their shopping destination. Leaving aside whether or not the structure of the program currently being tested is appropriate (5% discount after $500 in spend?) to drive desired results, theoretically it could make sense and drive substantial value if done well.

But for Whole Foods, which is often referred to derisively as “Whole Paycheck”? Price doesn’t seem like the driving motivator for its shoppers, so a program involving collecting and redeeming points might be expected to achieve a lower level of penetration than at other retailers. More importantly, the product selection is fairly unique, focusing on natural and organic products that are not widely distributed elsewhere. This has implications not only for the consumer decision process about whether or not to shop at Whole Foods, but also for the volume of trade dollars that flow to Whole Foods compared to other grocery retailers and the role that would play in supporting a loyalty program. Hard to see how a points program leads to increased customer acquisition, or incremental visits/spend from existing customers. So maybe we’re back to making the case that the cost of the program is less than the value of the data collected, but I’m not sure I would try to make that case for Whole Foods. Certainly Albertson’s and its private equity owners decided over the past couple of years that it wasn’t justified for many of its more mainstream grocery labels, but that is a topic for another time…)

That’s my take, but what I found most interesting about the article was the discussion among the experts. There was a divergence of opinion about whether or not these programs were good ideas for these retailers, which was not surprising. What was surprising was the slant that many took – most comments focused on the value of loyalty/points programs in general, and provided their own personal experiences or viewpoints. Only a couple addressed the brand positioning of Target and Whole Foods specifically and how that related to the use of a points program. And that’s what is truly relevant in thinking about whether or not these programs make sense – for these specific retailers.