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MKG701 Marketing Management

TASK 3 Case Study
Semester 2 2016
NOTES TO CANDIDATES:
This assessment task is worth 40 percent (40%) of your overall assessment this session.
This assessment consists of:
four (4) compulsory case study questions, worth 10 marks each for a total of 40 marks. There
is a word limit of 1,000 words (+/-10%), that is approx. 250 words per question.
Do not exceed suggested word length. Only the requested number of words (+/-10%) will be marked.
Answers should be short answer format that relates syllabus theory to the case study, no in text
referencing is required.

Complete the case study questions offline and then submit your answers as you would any other
assignment report by the cut off time of 5.00pm Monday.
Please clearly identify your submission with student name and number etc on a cover sheet

The Case Study: Woolworths Loyalty Scheme

The following two newspaper articles summarise issues around changes in Woolworths loyalty scheme
in 2015/16.

Article 1: Don't underestimate devoted customers

Author: Maxwell, Miranda (The Australian, Jan 19, 2016, p 21)
Loyalty. It's an issue Woolworths has looked at from both sides now, and is at the crux of many of its recent
sensational woes.
The retail customer is undoubtedly becoming harder to read and predict than 10 years ago.
Corporates are doing their best to make information sharing a two-way street, and customer loyalty schemes
are front and centre of this knowledge war.
But as if Masters, Aldi and that Anzac advertising fiasco weren't enough to contend with, shortly before
Christmas Woolworths bowed to a customer backlash and agreed that "Woolworths Dollars" could be
converted into Qantas Frequent Flyer points under its overhauled loyalty program.
The revamped rewards program offers "Woolworths Dollars" on orange-ticketed items, though these have
represented only about 1 per cent of the offering and originally were not convertible to Qantas points.
That Woolworths had to capitulate to the social media outrage is another worrying demonstration that the
former market darling does not know its own customers. One man's Facebook post complaining he earned just
$4.80 in rewards on more than $1000 worth of shopping went viral with 60,000 likes.
"Loyalty programs are one of the most important tools marketers have to connect with customers on both an
emotional and rational level," says a consumer and shopping report from McKinsey.

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But the once profit-driving introduction of loyalty cards, points, and rewards have started to suffer from
ubiquity, and are no longer any guarantee of customer retention. McKinsey says data should be used to
personalise customer offers and these must be kept fresh to ensure customers want to feel like they're getting
something of real value, not just the same old accumulation of points.
McKinsey notes the "right partnership can give your loyalty program a whole new level of appeal". Loyalty
programs must offer something of real value -- points, coupons, discounts, travel miles -- in exchange for
repeat business.
"Just because you have a loyalty program doesn't mean it's working. Too many companies have built loyalty
programs that don't actively engage their customers or give them compelling reasons to want to use them,"
says McKinsey. In the fickle world of retailing, Woolworths underestimated customer loyalty to incumbent
Bunnings, and over-estimated loyalty to its food and liquor business, with disastrous results.

Article 2: Woolworths' loyalty backflip

Author: Eli Greenblat (The Australian, Aug 22, 2016, p 23)

Woolworths has been forced into yet another embarrassing backflip over its troubled in-store loyalty program,
which has fallen flat with shoppers and suppliers alike.
The supermarket giant is expected to unveil another reboot of its rewards program in the next two weeks as it
battles to win over customer loyalty.
The prime bugbear among shoppers -- they must search through stores for products tagged with an orange
ticket that then go into the shopping basket to earn "Woolworths dollars" -- will be eliminated and is likely to
be replaced with an easier system that will see Woolworths customers earn one point for every $1 spent in-
store.
A leaked confidential Woolworths document sent to store managers and widely circulated online and on social
media revealed the new rewards program -- the third reworking of the problem-plagued loyalty scheme since
October -- will now allow 2000 points to be converted into $10 of Woolworths dollars.
It is unclear how the new scheme, set to start from August 31 according to the leaked memo, will affect
Woolworths' deal with Qantas whereby 10 Woolworths dollars can be turned into 870 Qantas points.
For Woolworths, the continued confusion, speculation and uncertainty over its loyalty scheme comes as it is
fighting a losing battle with Coles for shoppers while also leaking customers to German discounter Aldi and US
warehouse store Costco.
The Woolworths loyalty scheme was first overhauled in October where, to the anger of many shoppers, the
retailer ditched its Qantas frequent-flyer points-based program and replaced it with the new rewards scheme,
which triggered loyalty points only when certain products tagged with an orange ticket were bought.
There was an immediate backlash from customers over the offer, especially on social media, as points were no
longer earned on any basket of more than $30 value, but rather hard-to-find orange-ticketed groceries, while
Qantas frequent-flyer points were slated to be dumped.
Suppliers were similarly unhappy and many refused to participate in the new scheme, claiming the orange
ticketing system was too costly and only served to benefit Woolworths, rather than support their marketing
and sales programs.
By December, Woolworths was forced to restructure its rewards scheme, allowing shoppers to convert
Woolworths dollars into Qantas points at a conversion rate of 870 Qantas points for every 10 Woolworths
dollars.
The minimum $30 outlay to earn Qantas points was removed.
But the orange ticketing system was kept, although that now looks set for the scrap heap as shoppers continue
to rebel against being forced into buying a limited number of grocery brands to trigger points on their cards.
A spokeswoman for Woolworths declined to comment on the leaked memo that details the new rewards
program.

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"We won't comment on speculation but we have said for some time that we would make improvements to the
program and include a partnership with Qantas. We look forward to unveiling the details soon," the
spokeswoman said.

Questions
1. Marketing research can provide insights for a company on their customers. It would appear that
Woolworths either did not conduct customer research into the potential impact of the initial changes
to its loyalty program or had issues with the research they did conduct.

Describe the research that Woolworths could have conducted before introducing the changes to their
loyalty scheme. Outline and justify the overall research design (exploratory, descriptive, causal or a
combination of these) and identify and justify the specific methods and sampling recommended
within the chosen design.

2. Loyalty schemes provide a means for companies to attract and retain customers and build a
relationship with their customers. How and why do loyalty schemes influence a consumers decision
making process when selecting a supermarket? What characteristics do consumers value in loyalty
schemes?

3. To compete more effectively, many companies adopt segmentation, targeting and positioning to focus
on those consumers they have the greatest chance of satisfying. Woolworths and Coles both use
loyalty schemes as part of their marketing strategy. Aldi positions itself as a price discounter and does
not offer a loyalty program. Costco promotes itself on a cost basis, with customers paying a
membership fee to be able to shop at Costco.

Discuss how the target markets and positioning for the 4 companies mentioned above differ.

4. Woolworths changes to its loyalty program involved removing the ability to accumulate Qantas
Frequent Flyer points (for which Woolworths paid Qantas) to a scheme where customers accumulated
money savings by buying selected products. The initial scheme accumulated rewards for every
purchase over $30, while the revised scheme only accumulated rewards for specific items, that is, you
could spend several thousand dollars for no reward.
The basic goal of any business should be to deliver customer value at a profit. Discuss this statement
by comparing and contrasting the initial and changed customer loyalty schemes in relation to
customer value and profit.

MKG701 MARKETING MANAGEMENT S2 2016 Task 3 3