2. Retail Loyalty Programs – Tapping Into Their Hidden Benefits
From supermarkets to electronics stores, gas stations to coffee shops, loyalty
programs are abound in the retail sector, and flourishing more than ever. But it’s
the rare retailer that has truly tapped into the value lying within the program’s
customer-related data…
Loyalty programs in the retail sector are nothing new. One of the best-in-class
programs – luxury department store Neiman Marcus’ InCircle – last year
celebrated its 25th anniversary. Supermarket powerhouse Tesco also recently
marked an anniversary (the 15th) for its Clubcard program.
Albertson’s, the Southwestern United States supermarket chain, also recently
celebrated an anniversary, of a much different kind though – the 3rd since the
demise of its Preferred Card. The reason behind the program’s failure, according
to an anonymous company source (who spoke with eWeek after the program was
discontinued), was that the chain was not using the data it collected about its
customers.
Regardless of sector, loyalty programs that are considered best-in-class have one
trait that is common across all of them – the companies actively use the data
coming out of them in their day-to-day decision making process, be it to improve
the way they serve their customers, capture more share-of-wallet, keep
customers, or win back customers.
In its simplest form, loyalty program data can be analyzed to take the following
actions:
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 data
can be used by retailers to impact their bottom line. By digging deeper into the
data and identifying ways in which data can be used relative to specific store
3. locations, we believe companies can add to the value their loyalty programs
generate 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, with
different demographic profiles, spend patterns, behaviors, preferences, needs,
etc. To most effectively serve such different customer groups, companies need to
take such different factors into consideration and reflect this through
customization of each retail point – but they rarely do.
For the most part, companies have a cookie cutter approach to their retail
operations, having the same layout, products, messages, selling points, stocks,
etc., across all of them. Loyalty program data can help this change, helping
retailers customize each and every location so as to best serve their customer
base, one location at a time.
Three specific value-added location-related reports can be prepared through
analyzing loyalty program data, reports we believe are not being widely used by
retailers today:
1. Store-by-Store Customer Mix Profile Report – Using loyalty program data, a
report can be prepared for each store that profiles its own personal customer mix
– the number of customers, their age, nationalities, gender, marital status, where
they live, how far they travel, the top spending demographic groups, etc.
Through conducting such a profiling effort, each store can immediately begin
considering what it does in terms of servicing its most critical demographic
groups. For example, one store may find that their most valuable customers are
younger Asian men, whereas another may find that it’s older Arabs that are
critical to their bottom line. Accordingly, each one would need to address these
groups differently, ensuring that the products they buy are in stock, that such
products are put out in the front of the store or on eye-level shelves, or even that
a native speaker is available among the employees to assist them should they
need help.
Knowing critical demographic groups can even assist in the way messages are
designed and communicated – based on the group’s profile, the medium used for
advertising (the group watches certain television channels in higher proportion),
the key words in the communication (to appeal to the group specifically), the
location and timing of the communication (billboards in the neighborhoods the
group lives in), and even the language of the communication (based on
nationality) can be customized.
2. Store-by-Store Spending Profile Report – Layered on top of the Customer
Mix Profile Report, this report profiles the spending behaviors and patterns of the
various demographic groups – when they spend, how much they spend, what
categories they spend it on, how frequently they spend, how profitably they
4. spend, etc. This report would also highlight the actual most valuable individual
customers for each store.
Through such a report, a store would be able to understand when they need to
keep higher levels of staff on-site (based on time-of-day spend patterns), what
categories of products need to have high safety stock levels and should be located
optimally in the store (based on category spend observations), what is considered
a valuable customer (based on the mean and median in terms of monthly or
annual spend per customer), and who specifically is a valuable customer and thus
should be treated differently (based on each customer’s actual profitability, based
on per-product and basket margins).
Empowering store managers to take actions on their most valuable customers is a
must in such a case; loyalty program managers should consider how to
incorporate such micro-level localized customer treatment into their marketing
mix.
3. Store-by-Store Product Mix Profile Report – This report would profile what
specific products are purchased by each demographic group in what pattern –
what they buy the most, what they buy the most uniquely, what they buy
together, what products in their baskets are high-margin, what products in their
baskets are low-margin, etc.
Used together with the prior two reports, the Product Mix Profile Report can
identify tactical level actions that should be taken on a product-by-product level –
where products should be located throughout the store, which products should
have high safety stock levels, which products can be bundled together or located
near each other, which products should be considered in campaigns, and which
products can be removed.
Each of these decisions need to be taken in light of the value specific products
play for different demographic groups, and how they are or are not purchased
together in baskets. Products critical for high value customers need to be played
up, those critical for low value clients can be considered secondary in tactical
decisions.
The reports mentioned above need to be produced on a monthly basis so as to
track changes in patterns over time. What matters to different demographic
groups at a given moment in time will not down the road, and thus, trends must
be identified through observing the changes in spending patterns, products
purchased, time of purchase, frequency of purchase, etc. Accordingly, tactics
taken must accordingly change to address customers in the most effective
manner possible.
5. About Forte Consultancy Group
Forte Consultancy Group delivers fact-based solutions, balancing short and long term
impact as well as benefits for stakeholders. Forte Consultancy Group provides a variety
of service offerings for numerous sectors, approached in three general phases –
intelligence, design and implementation.
For more information, please contact
info@forteconsultancy.com
Forte Consultancy Group | Istanbul Office
www.forteconsultancy.com
