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Building Trust & Loyalty in Retail: What Swiss Retailer Migros is Doing Right

As in previous years, Migros has lead grocery retail in 2014 with a 33% value share[1], growing revenue by +1%[2]. These results are very strong, especially considering that Aldi and Lidl, the leading German discounters, are aggressively developing their business in Switzerland. What’s more, Migros have been topping the reputation ranking of Swiss companies established by GfK[3] for the 5th year in a row. In 2014, Migros is +9.8%[4] above Coop, the #2 Swiss retailer on the reputation index computed in the study.

To put these results in international perspective, Migros surpasses Rolex, the famous watch manufacturer, by a whole +14.8% on reputation index among the Swiss population. We have also observed that Migros is consistently stronger than others on trust and loyalty in studies we conduct in Switzerland. But how has Migros managed to earn Swiss consumers’ trust and keep it, exactly?

We believe that there are two important factors explaining this, and price is not one of them. Even if Migros is known for having low prices, especially compared to Coop and Manor, their prices tend to be higher than discounters’, a growing channel in Switzerland.

1. A heritage of values While some other retailers escalate communication on “Swissness”, a too common trap in Switzerland, Migros only needs to communicate about their long and rich story to get the point across, and make others look pitiful. Migros is perceived as being close to people. Their perceived proximity comes from their history, as the group started with trucks that drove to many villages to sell their products. Migros was coming close to their consumers in incredibly remote places through the Swiss Alps. This sounds incredible today, but it worked. Migros has built this unconscious association of proximity; “they made the first step”. Nowadays, their 648 stores and their monthly journal (the journal with highest readership in Switzerland) ensure they remain geographically and mentally close. Migros is perceived as ethical. From the start, the retailer chose to promote a healthy society and to date they are not selling any alcohol or cigarettes. Migros is perceived as generous. Migros is a cooperative; they give a certain percentage of their revenues to associations, cultural events and other social activities.

2. A fantastic loyalty program Now, their heritage doesn’t explain how Migros is able to turn these positive feelings into actual sales. And an explanation can be found with their loyalty program. They have built and kept strengthening their loyalty program, to the point we believe it is among the top few loyalty programs globally[5]. And this is even more remarkable in mass retail; “creating non-price differentiation is difficult in retail […] because development of such advantages [loyalty programs] takes time and is difficult to execute”[6], experts say. In fact, a large study done by McKinsey in 2013[7] highlighted that Loyalty programs are not necessarily building bottom line, and in many cases they are not even delivering top line results. Migros has figured out a few things about human psychology that make their own loyalty program beat the average by a large margin. We started experimenting with the program to get a better idea. Basically, we shifted all shopping towards places where the loyalty card could be used (Migros and affiliates), and took advantage of points multiplication promotions by location and occasion. The effects of the loyalty program could be seen quickly, and were quite impressive from a shopper standpoint. We received a large amount of cash-equivalent vouchers and targeted promotions by the dozen. The reward obtained with Migros loyalty program was:

  • Direct: there was a direct link between focus and “efforts” to be loyal and tangible rewards
  • Fast: it took just over a month to pick the fruit of the extra loyalty
  • Valuable: the amount exceeded 100 CHF, which is clearly not bad for a “small household”
  • Playful: with all these little vouchers it felt just as if we had won a Monopoly game!

Needless to say, fast gratification feels good; and when it’s the direct outcome of a small effort, it really strikes a chord. It is undoubtedly providing positive re-enforcement for the new shopping routine / extra loyalty. Rewards were, from what we could tell, not tailored. This is the biggest improvement opportunity for their loyalty program, but Migros has taken steps to analyze card data together with web visits more intentionally. It makes no doubt that more tailored promotions will appear shortly.   In addition to their ongoing loyalty program, Migros run an extra loyalty promotion over January and February 2015 with points to collect to win a “surprise gift pack” filled with Migros products. This promotion is the ultimate case study for loyalty-building activities; this is true inspiration. It provides insights on what it takes to build long term trust and loyalty. The main ones are here for anyone to steal:

  1. Timing. The best time to give a gift! Christmas was not so long ago, filled with warm memories, everyone was giving and receiving so much. Now? A pretty tough landing; another year, another set of resolutions that are already falling apart, blue Monday, cold weather, taxes… A real emotional need for being cheered up.
  2. Location. Big piles of surprise boxes were placed close to the entrance of Migros stores so that every Migros shopper would see them, to maximize the visibility and reach of the program among Migros shoppers.
  3. Surprise. A “surprise” is playful and exciting. In the end, aren’t we all just slightly older kids? At the very least, the “surprise” aspect triggers attention, which can cut-through the clutter.
  4. A gift. The surprise box looked and felt exactly like a gift. A gift is a token of appreciation, usually given by people close; good friends, family. A gift is intimate.
    • Short-termists would say that a gift triggers a feeling of reciprocity by the receiver; that Migros shoppers will feel like giving back and shop more/more often at Migros. Well, this is true, but there is a lot more to it…
    • For Migros, this is moving the customer-retailer relationship in the realm of social relationships. It’s about giving something, not providing a discount in an economic transaction. This distinction is a key factor as these mental categories are far apart in the brain; they trigger different brain activities/ mechanisms (skewed towards emotional as opposed to rational ones), associations (warm/positive vs. cold/neutral) and different behaviours (loyal vs. price- or promo-focused)…
    • Finally, moving in the feeling/social territory and towards intimacy is a prerequisite to trust. Trust, which in-turn will transform into loyalty in the long-term. Obviously it is quite desirable for a retailer to move away from ongoing retail price- or promo-wars; and emotional loyalty (fuelling behavioural loyalty) will do just that.
  5. Savvy business management. The promotion is not only spot-on in building loyalty, it makes a lot of sense from a business standpoint.
    • Experts have highlighted that a company needs to “maximize [the] difference between perceived value and real cost”[8] to make a loyalty program sustainable. This is exactly what Migros has done by giving products at production cost that are valued at market price by consumers.
    • Migros is giving its shoppers the opportunity to test and experience their own brands. It is like giving a full-size sample of their products; if a product delights consumers after-use, chances are that repeat purchases can be expected over the long term.
    • Finally, aren’t these gifts a fantastic way to deal with logistical challenges posed by non-moving stock or to give a last try to a dying product? We can’t really judge here, but it seems the promotion makes sense in the light of stock-management as well.

Impressive, isn’t it? We have seen that Migros’ main loyalty program is effective, and that they are adding brilliant other trust and loyalty-building promotions. Migros has also found the right communication message to earn consumer trust and loyalty. They action the right levers to build trust and loyalty from a behavioral economics standpoint. These actions make them more resilient to price and promotion competition, and build an overall very positive equity that they turn into sales growth. We said Migros earned trust; in fact they are also growth hacking through loyalty…

[1] “Grocery Retailers in Switzerland”, Euromonitor. Country report, 03/2015
[2] “Migros 2014: erfolgreich, kerngesund und innovativ”, Migros. Press release, 31/03/2015
[3] “Business reflector 2014”, 3’500+ respondents representative of Switzerland and 52 companies studied
[4] “Die 20 beliebtesten Firmen der Schweiz”, Tages Anzeiger, 02/04/2015
[5] Top 10 Retail Loyalty Programs, 2013, Bigdoor. The most-rewarding retailer loyalty programs, Perks abound for faithful shoppers at these outlets, 2013 ShopSmart Magazine
[6] “Six Myths about Customer Loyalty Programs”, Marcel Corstjens, Chaired Professor of Marketing at INSEAD, and Raji Lal, Sr. Professor of Retailing at Harvard Business School. Forbes, 24/2/2014
[7], [8] “Making loyalty pay: Lessons from the innovators”, Lowell Doppelt, Associate principal, and Marie-Claude Nadeau, Consultant, Mckinsey, 07/2013 “The Chain of Effects from Brand Trust and Brand Affect to Brand Performance: The Role of Brand Loyalty”, Arjun Chaudhuri and Morris B. Holbrook, Journal of Marketing Vol. 65, 04/2001, No. 2, pp. 81-93. “The role of loyalty programs in behavioral and affective loyalty”, Blanca Garcıa Gomez, Ana Gutierrez Arranz and Jesus Gutierrez Cilla, Journal of Consumer Marketing 23/7 (2006) 387–396.

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