Will Asda pay price of loyalty?

Everyday-low-prices may be usurped by a loyalty scheme at Asda, if the cost does not scupper its plans. James Quilter reports.

When Archie Norman saved Asda from near demise in the early 90s, he took the sensible decision to emulate the most successful retailer the world has seen.

Religiously following Wal-Mart's everyday-low-prices (EDLP) strategy and large store formats enabled the retailer to secure not only the number-two supermarket spot but also its eventual acquisition by the US retail giant.

However, in recent years, market forces and consumer shopping habits have led Asda to take tentative steps away from this model. The shift toward top-up shopping has led the supermarket to open an Essentials format, comprising smaller own-brand stores, and last year it wavered on its EDLP-only policy, introducing buy-one-get-one-free deals. Now it is considering taking this further by launching a loyalty scheme, (Marketing, 1 November).

The fact that Asda is considering such a scheme marks a major shift in thinking that embraces the Tesco philosophy of the importance of customer data. A loyalty card could retain customers and induce less-loyal top-up shoppers to stock up at Asda, rather than Tesco.

It also suggests that Asda is recognising that in an increasingly commoditised retail environment, a marketing positioning based on offering the lowest prices is no longer as effective as it was.

'EDLP is uninspiring,' says Nick Gladding, senior retail analyst at Verdict. 'It does not pull in customers. There is a shift in the market toward EDLP-plus, which means stores complement it with other in-store offers. B&Q has done this by introducing offers on bigger products, such as kitchens, while keeping EDLP for smaller items, such as paint.'

Brian Roberts, global retail research manager at Planet Retail, says this is something with which Asda has experimented. 'Last year it tried out a modified form of EDLP, but while Wal-Mart's head office is always keen to point out that Asda is autonomous, Wal-Mart makes the final decisions,' he says. 'EDLP pervades the Wal-Mart ethos, so it would take a lot for it to agree to a loyalty scheme.'

Asda's official line is that it has been researching ways to improve customer loyalty and although a loyalty scheme is a possible solution, there are, as yet, no plans to introduce one. However, sources say a report into the advantages and disadvantages of such a strategy rests with Asda's executive board.

It is believed the report advises against the approach - not because the board does not feel it is necessary, but due to the vast cost involved. With Wal-Mart, which made a loss in the last quarter when it axed its German operation, hungry for profit, Asda would need to pay for the loyalty programme itself. The report is understood to indicate that the scheme would cost the equivalent of one hour's running costs per store every day, so any customer loyalty gained could be negated by the attendant cost.

Moreover, according to one source, it would be out of character for Asda to collect customer data. 'Traditionally, it has never used data very well and hasn't done much CRM,' he says. 'It has access to Retail Link, which was developed by Wal-Mart, and says it is a more powerful information system than the Pentagon's, but Asda hasn't even scratched the surface of what it could do with it. It is worried about top-up shopping and stores being too big, but a loyalty card is not going to rectify that. It is a short-term, quick-fix solution to an issue that is far more complicated.'

Roberts believes a loyalty scheme would put pressure on other areas of the business. 'The scheme would have to be funded by either customers, suppliers or staff,' he says. 'Asda has acknowledged that the quality of stores has declined, and last year it made redundancies at head office to fund store improvements. You cannot ask customers to fund a loyalty scheme, which shifts the burden to suppliers, who are already squeezed.'

Asda's market share is stable, despite expectations at the start of the year that it would lose its number-two spot to Sainsbury's. In fact, for the 12 weeks to October, Asda managed to widen its lead, according to TNS.

This has largely been due to its strong non-food offering, including the George clothing range. However, with Sainsbury's pledging to add more small stores, and Morrisons, whose poor performance had been supplying much of other supermarkets' customer growth, beginning to steady, Asda's reliance on EDLP values might not be enough.

'Supermarket brands must stand for more than simply product and price. Tesco's strategy is centred on how much it loves its customers and ClubCard is a big part of that,' says Martin Butler, chairman of retail specialist RPM3.

Perhaps now is the time for Asda to emulate a successful British retailer rather than a US one.

Discussion

Before commenting please read our rules for commenting on articles.

If you see a comment you find offensive, you can flag it as inappropriate. In the top right-hand corner of an individual comment, you will see 'flag as inappropriate'. Clicking this prompts us to review the comment. For further information see our rules for commenting on articles.

comments powered by Disqus
Brand Republic Jobs

subscribe now

Latest

Oasis #springasmile digital campaign gets people doing good deeds
Coca-Cola: 'Don't approach bloggers with a fait accompli'
Tesco CMO Matt Atkinson: 'It is so important not to stereotype mothers'
McDonald's gives Ronald a new look ahead of global 'Fun times' social media push
In pictures: BrewDog opens first craft beer shop BottleDog for 'beer aficionados'
Facebook ad revenue leaps $1bn as it invests in targeting
Malteser or Maltesers? Mars takes Hershey trademark dispute to court
Apple Q2 profits top $10bn as iPhone sales soar
Lynx tells men not to leave love to fate
HBO captures awkwardness of watching sex scenes with parents
Primark to open first US stores with Boston chosen as flagship location
Marketing spend on the up but a reality check is needed before celebrating
Top 10 ads of the week: Jackpotjoy and BT Broadband fend off Kevin Bacon
Lidl beats Tesco to 10m Facebook fans
Center Parcs ad banned for encouraging parents to take kids out of school
Coca-Cola, Cadbury and Amazon named top brands for targeting youth market
Leaked document shows Nokia to be rebranded as Microsoft Mobile
Nike lays-off hardware staff in move that casts doubt on future of FuelBand
Greenpeace says save the bees or humans will die
What brands need to know about changes to VAT and online downloads in 2015
Jimmy Savile victims urged to claim compensation in new ad campaign
UKIP launches biggest  ad campaign and stirs up 'racist' accusations
Apple boss Tim Cook provides voiceover on ad touting firm's renewed green commitments
John Lewis walks consumers through its history to celebrate 150 years of business
Waitrose boosts content strategy with 'Weekend Kitchen with Waitrose' C4 tie-up
Hottest virals: Cute puppies star in Pedigree ad, plus Idris Elba and Fruyo
Amnesty International burns candles to illuminate new hope
Tom of Finland's 'homoerotic' drawings made into stamps
Toyota achieves the impossible by calming angry Roman drivers
YouTube reveals user habits to appeal to 'older' marketers