Clear messages from experts at Templeton Workshop
"Is your sole purpose to reward customers or do you want to understand how your business works?" was one of the questions that Clive Humby asked delegates at the recent Loyalty Marketing Workshop at Oxford University's Templeton College.
This annual workshop attracted a truly international group of senior managers and consultants/specialists representing sectors as varied as telecommunications, digital media, oil marketing, grocery, financial services, general retailing, and airline and airport operators. The participants had travelled to Oxford from New Zealand, Australia, the US, Canada, Israel, Russia, the UK, Netherlands and France.
Understand customer insights Clive Humby, Chairman of Dunnhumby, the consultancy that manages the customer insights that leverage the value of the data from the Tesco Clubcard programme, was clear in his message that a retailer needs to decide, when embarking on any kind of loyalty marketing activity, "is your sole purpose to reward customers or do you want to understand how your business works?"
The clear and compelling message about the Tesco programme is that it is being used to understand the customer in order to deliver both better customer service and improved operational efficiency. According to Humby, the challenge of this objective is that organisations must translate raw data into a clear picture of a customer and, in addition, be able to achieve this with a high degree of accuracy for (in Tesco's case) some ten million people in the UK.
Lifestyle segments Humby explained how the mantra "you are what you eat" is the used by Dunnhumby to assist Tesco to construct customer lifestyle segments, and to use this segmentation approach to promote special offers in relevant and timely communications via ten million statements with over with over four million variants that are mailed four times a year. He explained how 85% of Tesco sales are linked to the loyalty card; 90% of reward vouchers are redeemed, and that its promotional coupons achieve a response rate of over 30%.
What was even more intriguing was the description of how critical business questions on price, promotions, range, store locations and re-stocking are used to construct efficiencies between the retailer and its suppliers as a win/win proposition for both of them. The data is used to quickly spot new trends and drive own-label product innovation. The benefits from these insights deliver five to ten times the size of the communications prize inherent within the programme.
Dr Richard Cuthbertson introduced and facilitated the debate on "Should every successful business have a loyalty programme?" His presentation highlighted the complexity of the overall process of customer loyalty and the even more complex nature of the modern consumer. The overall conclusion from this session was that loyalty data enables the continual development and communication of a relevant offer.
Changing FFPs Robert Cook, a senior consultant working with BT, outlined the changing nature of airline frequent flyer programmes in the era of the low cost carrier, and the rapid international growth of these airlines as they successfully exploit the South West Airline model of "no frills, safe travel at a very low price, for short-haul travellers". The fragmentation in flying patterns and the erosion of the business of full service airlines have both created a customer group that Cook identified as the 'Fragmented Frequent Flyer', who is effectively excluded from the traditional FFP top-tier benefits. He outlined the opportunity that this market shift is offering for the growth CRM in Airports.
Financial issues CM4P's Michael Llewelyn, in his workshop presentation, outlined the financial issues that lie behind every customer management programme and the crucial importance of understanding the fixed and variable cost drivers. His discussions ranged across risk analysis, exit strategies, complex scenario modelling and the importance of clearly identifying the major stakeholder interests in any large scale customer loyalty scheme.
The workshop then focussed on the downstream oil market with a presentation from Ruud van Munster, the Global Loyalty Strategy & Marketing Manager for Shell, on the importance of loyalty programmes in delivering customer segmentation and communication as a differentiator for the Shell brand. Van Munster reviewed the loyalty framework that helps Shell understand customer lifetime value and differentiation. He emphasised how the manner in which a programme is launched and then maintained can destroy business value if it is implemented poorly. Measurement and value creation are constant metrics in the Shell approach to customer loyalty.
Accurate predictor The workshop also reviewed some very interesting work being developed with selected French retailers by Prof. Marc Vanhuele at HEC in Paris. His detailed statistical modelling is designed to deliver an accurate predictor of share of wallet and household classification into a matrix of 4x4 segments. This is embryonic research but offers great potential for the future understanding of customer behaviour.
Bill Hanifin, General Manager of the Colloquy Group, gave two presentations covering the management of change in loyalty programmes and the analysis of customer loyalty information. His experiences with several programmes across different cultures and continents had identified three challenges faced by any potential programme manager: whether to award on issuance or redemption; how to manage a currency revaluation, and how to manage too much choice within a programme.
Hanifin further emphasised the value of experience, but the crucial nature of situational analysis as the key to success. He also reviewed the difficulties in maintaining a loyalty programme, compared with the challenges of launching a programme. Measurement, key metrics and importance of both marketing and finance departments working together are the keys drivers of success.
Access Pricing Internationally renowned author and loyalty consultant, Brian Woolf, led a lively and insightful discussion on a way several grocery retailers are developing a new pricing strategy for loyal customers built around "Access Pricing" - a technique that is being very successfully implemented by some innovative grocery retailers in the US and Japan in order to combat hard discounter pricing competition from larger and deeper resourced competitors. Woolf's key message is to use the loyalty programme to re-allocate loyalty currency and the total available marketing budget to lock in best customers and offer them access to market leading prices. According to Woolf, this kind of innovation in approach will be essential if retailers are to differentiate their offer in an increasingly crowded market.
On the second day of the workshop the focus shifted from current best practice and strategic issues to consideration of technological impacts and the changing nature of the 'super consumer'.
Key trends Lisa Modisette, from telecoms consulting organisation Info Insight, reviewed an environment in which customer data grows exponentially with new channels and more direct contact. Increased speed and supplier responsiveness to the changing consumer environment characterise 21st Century Marketing.
Key trends that Modisette identified included micro-segmentation, personalisation, community and viral marketing, as well as the use by some suppliers of inspirational rewards. She also highlighted the issues that are increasingly surrounding customer privacy and increased IS costs that organisations are incurring.
Consumers getting smarter Dr Jonathan Reynolds from Templeton College presented his view on how consumers are changing in a world with "too much stuff out there" but not enough of it personalised to the individual. He reviewed the global trend to value and price deflation in all but a few luxury markets and he also outlined the generational effects and their behavioural consequences. Consumers are getting smarter, better informed due to the price transparency effects of the Internet, and are also seeking greater value even as they are getting wealthier. While reaching the customer has never been easy, reaching the right customer at the right time in the right place and for the right reason has never been more difficult.
Finally Dave Birth, a founder of the consulting group, Consult Hyperion, gave a fascinating review of the Sky interactive TV smartcard and the technical challenges being faced by the main suppliers in this area while they strive to grow their customer base yet retain a simple front end for the consumer. His overall conclusion for the UK market was the intriguing insight that e-Government may well lead the way for greater engagement online with consumers as citizens.