Consumer insights are key to loyalty, study finds

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By: Wise Marketer Staff |

Posted on October 1, 2007

Consumer insights are key to loyalty, study finds

The true reward of loyalty lies beyond points and discounts and, as consumers around the world are looking for more, real customer insights can be the key to success, according to a research article by The Nielsen Company.

Loyalty Marketing programmes are an established part of the retail landscape. Yet after years of accruing points or earning discounts, some consumers are still looking for the real benefits. Retailers are beginning to use purchase-level data to drive their business with a customer-centric focus. While their customers are pleased with the results, they want to see what's next.

Consumer response to retailer loyalty marketing programmes around the world seems to be a resounding chorus of "We want more!" While many consumers are beginning to see the benefits from retailers that have made the switch to customer-centric marketing and merchandising, new research shows many other customers are not. The use of purchase-level data to create shopper insights that are shared across the enterprise and with supplier partners is necessary in order to build programmes that matter to customers. A recent survey of nearly 20,000 respondents from a world-wide Nielsen 2007 omnibus survey revealed several interesting insights about customer attitudes about loyalty marketing programmes.

Different programmes, similar response Most fast-moving consumer goods retailers in North America have programmes that focus on weekly discounts which are advertised through traditional advertising circulars. European programmes typically offer points or accrued rewards where customers receive quarterly mailers detailing recent activity, point accruals and corresponding rewards plus targeted coupon offers. In the Asia-Pacific region, collaborative programmes are more common with retailers working in partnership with an airline or a national bank to entice customers to participate in a programme that offers a variety of incentives.

While customer participation rates for such programmes vary by region (see chart 1 below), these programmes are generally accepted by shoppers. Nearly 80% of North American respondents answered always compared to 50-60% in Europe and Asia Pacific. Significant numbers of additional respondents across all regions use their card frequently.

 Chart 1: How frequently do you present your Loyalty Marketing card when shopping?

Programmes diverge over time Initially, retailers presented loyalty schemes to customers as a sales promotions tool to tempt customers into becoming more exclusive in their shopping habits and to internal constituents or suppliers as a way to connect with shoppers at a deeper level. Maintaining the initial up-tick in same-store sales became a consideration for keeping the programmes as retailers grappled with storing vast quantities of data, mining consumer purchase details and making sense of the derived insights for relevant merchandising and marketing applications.

Retailers who have made the leap forward with their programmes have done so, not with technology-based solutions, but rather by company leadership embracing a focus on consumers as their mantra and inspiring staff functions to make the switch from a category to a consumer focus. Over time, implementation efforts have been aided by improved analytic and reporting tools, but the catalyst for change came when everyone within the retailer enterprise began to talk in terms of customer and customer segments.

Understanding your customers A multi-layered segmentation approach provides new views or lenses to understand households. These lenses add insight into customer thinking, current purchasing habits, spending levels, household dynamics or motivation to respond to promotions.

Within retailers that have already adopted this approach, their teams speak in terms of real people every day because their segmentations describe customer groups in sufficient detail to change faceless data into a dynamic view of customer behaviour.

Retailers even label their segments either by name or by shopping activity to reflect idealized customers. They report on customer segment measures on a regular basis to show where they are over and underperforming – at a store, category, and product level. The knowledge gained drives remedial or opportunistic marketing activities targeted effectively at the most appropriate customers as opposed to costly mass marketing channels.

A single version of the truth Sharing a commonly accepted view of the types of people shopping the store is paramount. A tool set that offers intuitive, easy-to-interpret reporting and analytics provides a means for sharing consumer understanding within the retail business and with supplier partners. Reporting and analytics must be customizable to adapt to the end-user needs and enable greater productivity – not impede progress because of complex training or separation from other systems.

Working with consumer data sets that combine shopper loyalty insights, consumer research panel insights, store scan data, and customer segmentations enables a more complete portrayal of customer needs, characteristics, and shopping activities. In this way, the retailer and supplier teams coalesce on a single version of the truth – a complete understanding of customers inside and out (i.e., shopping behaviour at the retailer and its competitors) – which drives decision-making that is both strategic and tactical. Companies that make this transition are going to market with programmes that address a wide variety of customer needs – in the items carried, promotions offered, pricing structures, customer communications, and customer service hotlines.

Room for improvement While there are examples of retailer success in loyalty marketing throughout the world, the Nielsen survey identified opportunities for improvement too – especially in terms of customer perception. Customers are engaged in these programmes so it is not surprising that they want more. They understand there is an implicit acceptance in the use of their own personal information for participating in these programmes. Retailers track a wide variety of customer household dynamics including name and address, preferred payment method, specific item and category purchases, total spending and shopping habits such as use of coupons or time of day shopped. In response for making such data available, customers expect benefits in return including offers for products they want, useful information about nutrition or tips on food preparation.

In the survey, consumers were asked to think about their main grocery retailer and rate the retailer's ability to meet expectations across a variety of areas (see chart 2). While respondents replied with an affirmation of mostly when queried about appropriate item ranging and assortment, responses in other areas were not as positive.

For all other focus areas, the nearly equal response level of sometimes may be indicative of customer ambivalence and the incidence of the rarely response in the survey may even reflect potential dissatisfaction among customers – especially with respect to relevant communication and providing useful information. Further analysis of loyalty data – particularly within a retailer – could identify opportunities by customer segment and create positive changes in programmes targeted to those customers. There is clearly scope for retailers to improve and those that do should excel in winning customer loyalty.

 Chart 2: Thinking about your main grocery retailer, do you feel they...

Better results: A case in point Innovative retailers are improving their programmes through a process of test, measure and modify. Data analysis enhances decision-making for assortment or item ranging, price or promotions optimization and customer communications including direct mail. In one example, a retailer used their newly-derived customer knowledge to re-think the purpose, content and impact of their quarterly customer mailer. Working together with the retailer, Nielsen Loyalty was able to produce insights which helped identify realistic and achievable thresholds for total spending increases by Spend/Value segment, incentives for customers to shop in categories in which they had a high needs potential based on Lifestyle segment, and tailored rewards for items the customers purchase currently based on Product Affinity segment.

The mailer became a vehicle for communicating with customers about chain news, local store events and offers for items that mattered to individual customers. Shoppers responded positively to the changes as measured by the one-point market share gain in the first weeks of the programme alone – a result with which the retailer was delighted!

Positive impact The survey research also reflects the potential that loyalty marketing programmes have to impact consumer behaviour positively. Despite the possible shortcomings that some programmes may currently have, chart 3 demonstrates that customers around the world acknowledge the influence loyalty marketing programmes can have on their purchasing behaviour. A majority of respondents in the Asia-Pacific, North American and emerging markets say their purchase decisions are at least somewhat influenced by loyalty programmes.

 Chart 3: To what extent are your purchase decisions influenced by the Loyalty card programme?

Time for change Customers do want more. They want retailers to use the purchase-level data and household information collected from loyalty marketing programmes to provide more meaningful services, item selection and relevant offers. A shift in retailer corporate culture is needed to focus on customers rather than category. Customer-centricity encompasses the values and language that retailers around the world can use to plan and act on more effectively. With a customer-centric focus, all facets come together – data, segmentation, strategy, execution, measurement and improved marketing results – to serve the shoppers better.

Publisher's note: This article is published here with kind permission from The Nielsen Company, drawn from the 'Consumer Insight' online newsletter, Issue 4 (September 2007) - click here for the full newsletter.

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