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Annual Report for FY23

Eagle Eye Annual Report FY23

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3 min read

Everyday Low Price Retail’s Digital Challenge — How to Connect with Individual Customers?

Everyday Low Price Retail’s Digital Challenge — How to Connect with Individual Customers?

Everyday Low Price! Many successful retailers place everyday low price (“EDLP”) at the heart of their customer proposition. The likes of Aldi, Bunnings, Ikea, Officeworks, Walmart and The Warehouse commit to providing the lowest prices in their categories. This approach inspires loyalty from customers who trust they do not need to compare prices or wait for sale periods. And the retailer can operate a simpler and cheaper model without the cost and complexity of running loyalty programs or promotional cycles.

However, EDLP retailers now face an existential threat from the rise of digital retailers like Amazon, whose approach is founded on analysing customer data. At the heart of the data-driven approach is a digital connection to individual customers. This connection is what allows the retailer to deliver personalised communications at different stages of the shopping journey. Most EDLP retailers are struggling to get started with personalisation because a pure EDLP model provides limited means for collecting individual customer data, for example, through a loyalty program.

My own experience highlights the lost opportunity. I regularly receive emails from EDLP retailers about products that hold little interest because the retailer knows my email address but cannot link this identity to my in-store shopping history. However, I am much more likely to open emails from Amazon, Coles and Woolworths, whom all use my shopping history to personalise my emails.

The challenge to deliver personalisation

There are two critical ingredients for an omnichannel retailer seeking to transition to real-time personalisation at scale:

  1. Firstly, the retailer must be able to identify the customer (i.e. create a “connection”). The most common approach is a loyalty program, which is not an option for a pure EDLP retailer. However, there are many other ways to create connections with individual customers, from subscription programs to charity donations (discussed below).
  2. Secondly, the retailer must be able to manage a personalised marketing campaign in real-time while the customer is in the store. This is a technology bottleneck faced by most omnichannel retailers (not only EDLP) as they are held back by legacy systems. To deliver personalisation at scale, a retailer may need to issue tens or even hundreds of millions of personalised offers or entitlements. When a customer is at the checkout, the point of sale needs to access the individual customer's entitlements after all products have been scanned but before the customer sees the total to pay. The data storage and processing power needed to perform this calculation are far beyond traditional point of sale hardware. An analogy is that it's like attempting to access today's bandwidth-heavy media platforms like Netflix using a 1990s dial-up modem.

Some retailers have overcome this systems bottleneck by managing their digital marketing programs in the cloud. When a customer presents at the checkout, the retailer's POS calls the platform in real-time. The platform checks the customer's entitlement and responds immediately to confirm the adjustment that the POS should apply. The matrix below highlights where most omnichannel retailers sit on the path to personalisation at scale.

The personalisation maturity matrix

EDLP - Personalisation Maturity Matrix

In the bottom left, #1 quadrant, sit EDLP retailers with no loyalty program. Aldi faces precisely this challenge. With no loyalty program or other means of recognising its customers, it is unable to create a connection and observe what individual customers are buying in its physical stores.

Most retailers with loyalty programs sit in quadrant #2 – they have a connection with many of their customers through the loyalty program and have analytics teams who can provide insights about these customers. However, they are held back by legacy systems - if they wanted to run a one-to-one marketing program, their technology wouldn't allow them to deliver it at the checkout.

A few digital marketing leaders combine the ability to identify customer-level data and the ability to issue real-time personalised offers, allowing them to deliver personalised digital campaigns at scale to in-store customers. These offers need not be a loyalty "earn" or promotional discount – they just need to give the customer a reason to be recognised. Some examples used by Eagle Eye’s clients that do not break an EDLP price promise include:

  1. Subscription programs
  2. Personalised charity donations
  3. Supplier-funded customer acquisition on 3rd-party platforms (e.g. Google or Facebook)
  4. Digital gift cards
  5. E-receipts
  6. Single-tap payment / stored value
  7. Scan and go
  8. Supplier-funded continuity programs

When the customer of one of these retailers presents at the checkout, the POS makes a sub-second call to Eagle Eye’s cloud computing engine to execute the personalised program. These retailers can now give their individual customers a “reason to be recognised” without operating a loyalty program or discount or adversely impacting their existing supplier trading terms.

I have experienced technology-driven retail transformation before, having worked for Tesco.com in the early years of online retail in 2001. Several EDLP players got left behind because they didn't see quickly enough how they might integrate the new technology into their businesses to improve customers' lives. I believe the application of digital technology to physical stores will be just as transforming for store retail as e-commerce was twenty years ago.

Will we see history repeat itself with some EDLP players being reluctant to invest in the full potential of digital technology to improve the shopping experience? Or will they avoid mistakes of the past and capitalise on the potential of in-store personalisation to create value for customers and earn their long-term loyalty?

Only time will tell.

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