How Raley's Supermarkets is Transforming Customer Loyalty

When you think of grocery stores’ loyalty programs, discounted pricing might be the first thing that comes to mind. However, West Coast supermarket chain Raley's is trying to change that perception. Mike Molitor, head of e-commerce and loyalty at Raley’s, discussed this and more yesterday at the Case Studies in Digital Marketing & Loyalty session at Groceryshop in Las Vegas. Molitor was interviewed by Ken Fenyo, the consumer markets lead at Fuel by McKinsey, McKinsey & Company.

Molitor explained that Raley's started its loyalty program, Something Extra, in 2012. The grocer signed up 1.8 million members, and of that 1.8 million, 800,500 are active and 400,000 are what Raley's would define as "extremely loyal." Raley's has also achieved a 70 percent sales penetration with its loyalty program. So, what's the secret to Raley's successful loyalty program, and what makes it different from others in the marketplace?

"The main benefits of the loyalty program are personalized offers based on what you actually buy," Molitor noted. "Also, members are rewarded rebate dollars that are used quarterly, which drive additional behavior and transactions for the customer."

Raley's looks at the transactional data it has collected from its loyalty program members to determine customer purchasing patterns. With that data, it then segments members based on how they interact with the supermarket. For example, Raley's can identify customers that are price sensitive, as well as gauge loyalty based on the frequency of purchases.

A lot of grocery stores incorporate what Molitor calls "two-tiered pricing" into their loyalty programs, meaning customers with a loyalty card get a different price than customers who are not part of the loyalty program. Raley's doesn't do this.

"We have a uniform price for people, and then you earn rewards and other benefits if you're part of the loyalty program," Molitor explained. Raley's believes that's what the "next generation" of loyalty should look like.

"Customers are changing rapidly," said Molitor. "The reality that you have to deal with is in the traditional buying cycle there’s a lot of friction, right? People have to go through a number of steps in order to complete a transaction in a traditional matter."

Raley's is aiming to remove that friction from the purchase process and allow customers to shop in the easiest way possible. Molitor believes that's the key to loyalty. "We started to think about and work with other people about this idea of relationship commerce vs. what I would call transactional commerce," Molitor said. "If you think of the way traditionally things happen today, there [are] promotion-driven transactions. That’s the way that most of retail operates today. How do you move from that to a very proactive, ongoing predictable relationship with customers. For me that’s the Holy Grail of loyalty, where you’re actually getting customers to have a relationship with you vs. just doing transactions with you."

Finally, Molitor explained that the biggest difference in Raley's loyalty program compared to its competitors is the personalized offers customers receive. "When everybody goes online and looks at their web experience, it’s different," he said. "We truly have a one-to-one web experience for people because when they go to their offer section, those offers are tailored to them individually. And we see that individualization is a major step in garnering loyalty."