Retail Loyalty Programs – Tapping Into Their Hidden Benefits October |2010
Retail Loyalty Programs – Tapping Into Their Hidden BenefitsFrom supermarkets to electronics stores, gas stations to coffee shops, loyaltyprograms are abound in the retail sector, and flourishing more than ever. But it’sthe rare retailer that has truly tapped into the value lying within the program’scustomer-related data…Loyalty programs in the retail sector are nothing new. One of the best-in-classprograms – luxury department store Neiman Marcus’ InCircle – last yearcelebrated its 25th anniversary. Supermarket powerhouse Tesco also recentlymarked an anniversary (the 15th) for its Clubcard program.Albertson’s, the Southwestern United States supermarket chain, also recentlycelebrated an anniversary, of a much different kind though – the 3rd since thedemise of its Preferred Card. The reason behind the program’s failure, accordingto an anonymous company source (who spoke with eWeek after the program wasdiscontinued), was that the chain was not using the data it collected about itscustomers.Regardless of sector, loyalty programs that are considered best-in-class have onetrait that is common across all of them – the companies actively use the datacoming out of them in their day-to-day decision making process, be it to improvethe way they serve their customers, capture more share-of-wallet, keepcustomers, or win back customers.In its simplest form, loyalty program data can be analyzed to take the followingactions:1. Identify customers who are spending less than in the past, indicating their potential to churn – companies can intervene and take specific actions to ensure not to lose such customers.2. Identify customers who can spend more, based on the fact they are not giving full share of wallet – companies can likewise incentivize such customers to shift all category spend to themselves.3. Identify high value customers, based on their relative spend across all loyalty program members – companies can provide an added level of service to such customers to ensure longevity in terms of relationship.4. Identify customers who have churned, through the fact spend on the loyalty card has completely stopped – companies can offer incentives to bring such customers back into the fold.The above is the tip of the iceberg, though, in terms of how loyalty program datacan be used by retailers to impact their bottom line. By digging deeper into thedata and identifying ways in which data can be used relative to specific store
locations, we believe companies can add to the value their loyalty programsgenerate for their company.Driving this opportunity is the fact that there are vast differences in retailers’retail points – each specific location has a different set of customers, withdifferent demographic profiles, spend patterns, behaviors, preferences, needs,etc. To most effectively serve such different customer groups, companies need totake such different factors into consideration and reflect this throughcustomization of each retail point – but they rarely do.For the most part, companies have a cookie cutter approach to their retailoperations, having the same layout, products, messages, selling points, stocks,etc., across all of them. Loyalty program data can help this change, helpingretailers customize each and every location so as to best serve their customerbase, one location at a time.Three specific value-added location-related reports can be prepared throughanalyzing loyalty program data, reports we believe are not being widely used byretailers today:1. Store-by-Store Customer Mix Profile Report – Using loyalty program data, areport can be prepared for each store that profiles its own personal customer mix– the number of customers, their age, nationalities, gender, marital status, wherethey live, how far they travel, the top spending demographic groups, etc.Through conducting such a profiling effort, each store can immediately beginconsidering what it does in terms of servicing its most critical demographicgroups. For example, one store may find that their most valuable customers areyounger Asian men, whereas another may find that it’s older Arabs that arecritical to their bottom line. Accordingly, each one would need to address thesegroups differently, ensuring that the products they buy are in stock, that suchproducts are put out in the front of the store or on eye-level shelves, or even thata native speaker is available among the employees to assist them should theyneed help.Knowing critical demographic groups can even assist in the way messages aredesigned and communicated – based on the group’s profile, the medium used foradvertising (the group watches certain television channels in higher proportion),the key words in the communication (to appeal to the group specifically), thelocation and timing of the communication (billboards in the neighborhoods thegroup lives in), and even the language of the communication (based onnationality) can be customized.2. Store-by-Store Spending Profile Report – Layered on top of the CustomerMix Profile Report, this report profiles the spending behaviors and patterns of thevarious demographic groups – when they spend, how much they spend, whatcategories they spend it on, how frequently they spend, how profitably they
spend, etc. This report would also highlight the actual most valuable individualcustomers for each store.Through such a report, a store would be able to understand when they need tokeep higher levels of staff on-site (based on time-of-day spend patterns), whatcategories of products need to have high safety stock levels and should be locatedoptimally in the store (based on category spend observations), what is considereda valuable customer (based on the mean and median in terms of monthly orannual spend per customer), and who specifically is a valuable customer and thusshould be treated differently (based on each customer’s actual profitability, basedon per-product and basket margins).Empowering store managers to take actions on their most valuable customers is amust in such a case; loyalty program managers should consider how toincorporate such micro-level localized customer treatment into their marketingmix.3. Store-by-Store Product Mix Profile Report – This report would profile whatspecific products are purchased by each demographic group in what pattern –what they buy the most, what they buy the most uniquely, what they buytogether, what products in their baskets are high-margin, what products in theirbaskets are low-margin, etc.Used together with the prior two reports, the Product Mix Profile Report canidentify tactical level actions that should be taken on a product-by-product level –where products should be located throughout the store, which products shouldhave high safety stock levels, which products can be bundled together or locatednear each other, which products should be considered in campaigns, and whichproducts can be removed.Each of these decisions need to be taken in light of the value specific productsplay for different demographic groups, and how they are or are not purchasedtogether in baskets. Products critical for high value customers need to be playedup, those critical for low value clients can be considered secondary in tacticaldecisions.The reports mentioned above need to be produced on a monthly basis so as totrack changes in patterns over time. What matters to different demographicgroups at a given moment in time will not down the road, and thus, trends mustbe identified through observing the changes in spending patterns, productspurchased, time of purchase, frequency of purchase, etc. Accordingly, tacticstaken must accordingly change to address customers in the most effectivemanner possible.
About Forte Consultancy GroupForte Consultancy Group delivers fact-based solutions, balancing short and long termimpact as well as benefits for stakeholders. Forte Consultancy Group provides a varietyof service offerings for numerous sectors, approached in three general phases –intelligence, design and implementation. For more information, please contact firstname.lastname@example.org Forte Consultancy Group | Istanbul Office www.forteconsultancy.com