A recent article in the Wall Street Journal mentioned that Discover, the credit card company, will utilize artificial intelligence to assess unusual characteristics about personal-loan applicants, to minimize rising losses. One such characteristic mentioned was, any ability to show a history of discount-store shopping would boost an applicant’s chances of getting a personal loan. This has the potential to be significant driver of growth in an already rapidly-growing channel. The reason - shoppers will be rewarded and incentivized to shop at discounters that other formats will be unable to match.
Discounters consider themselves the alternative channel and most of their energy goes into convincing shoppers to switch stores from their usual shopping destination. For low income and financially distressed shoppers this is easier to do as they need discounters to help them reduce spend and are seen as the most practical place to shop.
Source: Kantar Consulting
The traditional view of the channel is that when a shoppers’ financial situation improves they revert to more conventional channels for their shopping needs. This is a problem for Discounters and as a result they have had to continually focus on ways to prevent desertion. Some like Dollar General are investing heavily in reinventing the offer to be less about practicality and more about relevance i.e. focusing on food consumption and new missions. The Discover credit card news will come as a big boost to Discounters as it offers a unique incentive for shoppers to keep shopping these stores, without doing a lot of the hard work themselves. As a result, expect many retailers in an out of the channel to focus their messaging and loyalty initiatives on helping shoppers budget better as well as track their spending in the future.
Additionally, discounters must work hard to convince more financially secure shoppers to adopt the channel differently to how low-income shoppers would. For this they give shoppers reasons to seek value beyond necessity. The way they do this is to change t core message as shoppers move from sceptics to adopters of the channel. First, they convince you to come to the store, they then try to surprise you when you are there and finally create a sense of urgency around the idea when it’s gone, it’s gone” to drive frequency across multiple missions.
Discounters will likely start adding to these messages to incentivize more shoppers to switch to the format, especially those currently worried about debt.
Source: Kantar Retail ShopperScape®, January 2019
Over 20% of all shopper indicated my/my household’s level of debt as big concerns for 2019 and therefore infiltrating shoppers’ worries around household debt will be a big opportunity for discounters going forward. Depending to what extent the loan initiative is rolled out across Discover and other lenders, it has the potential to be another disruptive force in an already disruptive channel.