How loyalty data translates into better marketing

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By: Wise Marketer Staff |

Posted on July 31, 2008

Stronger and longer-lasting customer relationships can be achieved by a sound analysis of shopping behaviour, leading to targeted marketing programmes that reach them more effectively, according to a recent article in Nielsen Consumer Insight.

Nielsen argues that retailers that tailor their promotions using insights from loyalty card data are building a foundation for future success.

Loyalty data's true value
According to Nielsen Loyalty's marketing director, John Chesak, and Nielsen Analytic Consulting's VP of promotion analysis, Mark Laceky, loyalty programmes present a valuable mechanism for retailers and their supplier partners to build long-term affinity with customers.

The resulting data that these programmes generate provides a vast resource for understanding shopping behaviour and developing targeted programmes and communications. While direct mail has become a typical way to tailor offers to specific customer groups, customer insights can also be used to drive other types of more traditional retail promotions such as features in weekly circulars and POS-triggered coupon offers.

Incorporating customer data into decision making for activities which make up the vast majority of promotional activity can change the dynamics of retailing by focusing attention on customers and their needs-rather than on categories or brands.

Foundations of loyalty
In an increasingly competitive marketplace, companies that use their loyalty programmes to establish a deeper relationship with their customers are better positioned to prosper. Two foundational factors are especially important within any loyalty scheme:

  1. Maintaining good customer data with insights, which can be easily distributed throughout the organisation for decision-making;
  2. Developing a business culture that constantly looks for ways to improve programmes that benefit customers by applying shopper insights.

Creating a process for gathering insights, testing programmes and learning about customer response is important. While a few interesting facts about a cardholder's household composition might come from the initial card application, such information and even deeper insights may also be derived by capturing sales history and assessing information about customers from transactional-level purchase data.

Sales data not only tells an analyst about additional family members in a cardholder's household, but it also identifies opportunities to target the household more uniquely through a better understanding of preferences for specific categories, products and brands to satisfy the special needs of a child or any other household member.

Analytical models
Increasingly-sophisticated models also enable analysts to understand why customers shop, how they shop, what they buy and how sensitive they are to various price structures. If properly collected and assessed, sales data can point out everything from pets in the home to family health and nutrition needs. Analysis of the data becomes one way to answer those burning business questions:
·  What do customers want?
·  How can I keep them shopping in my stores?
·  What opportunities exist to increase sales?

The data, analysis, and decision-making are only as good as the commitment by business leaders to continuously apply the insights to developing programmes that positively impact customer behaviour. This kind of transformational change and the impact it has on the enterprise takes time. If leadership embraces the use and application of customer data, the business will follow. Even then, the business must adapt in other ways.

Structural changes needed
Organisational and structural changes are required to re-align goals and incentives or develop planning processes that place a focus on the customer. The end result, however, works. Nielsen Loyalty has witnessed established retailer programmes achieve:

  • Sales effect increases of 1% to 5% in same store sales;
  • Loyal customer basket sales increases of 5% and 9%;
  • New customer retention rate increases from 20% to 40%;
  • Supplier funding for insight and communications rises from 0.05% to 0.1% of sales;
  • Promotional budget savings from 20% to 40%;
  • At least 75% of sales tracked at customer-item level.

Every aspect of a retail business and the interaction with supplier partners must embrace the needed changes for these levels of success to occur. It does not happen quickly, but the sooner the shift in focus occurs, the sooner all parties can begin trialling new solutions.

A good example
One North American retailer, well known for rewarding it best "Platinum Fans" customers, wanted to use its Loyalty card programme to further build customer affinity and grow sales. By all accounts, this grocery chain has earned some measure of success-achieving over 85% of sales on card by reinforcing a message of customer value, targeted offers, and special services. These loyal customers received periodic special in-store gift cards and coupons presented to them directly by the store manager for maintaining high loyalty thresholds.

But leadership within the organisation realised the need to understand customers on a deeper level and engaged Nielsen Loyalty to provide insights and analysis that identified which promotions worked for which customer segments and why. Promotions within three normal business activities were assessed to understand how customers in certain segments were impacted.

Featured-item analysis
Analysis of featured-item promotions from the front page of the weekly circular yielded insights about the promotion's incremental impact on category, total grocery department, and total chain sales. In one example, a major name brand laundry detergent was promoted at US$9.99 (with no minimum spend limit) in one week and again at US$8.88 (limit one with a US$10 purchase) in another week.

A comparison of sales by customer segment for each promotion showed that the second item promotion was able to drive additional positive performance among all shoppers. Specifically, the lower-priced item, even with the limit, was a key driver of significantly higher sales-especially among typically lower-spending and less-loyal shoppers. In this case, the increase in sales within the category and total grocery department significantly offset the reduction in margin from the discounted price.

The complete analysis of front page item promotions offered category managers, marketing and supplier partners with recommendations to consider when selecting advertised specials. In general, feature items promoted in the weekly circular appeared to have a better impact for higher price items, longer purchase cycle items, planned purchase/fixed consumption items, many products at the same price point, and less loyal customers.

Product selection
While the advertising circular appeared to be a good mechanism for driving visits into the store, product selection is an important consideration in order to optimize the impact of this marketing activity. As part of a process of Test & Learn, it was recommended that the retailer continue to refine item selection and the use of minimum purchase requirements as a way to improve promotional effectiveness and encourage customers to shop throughout the store.

A second analysis of direct mail promotions targeted toward highly engaged and highly loyal shoppers (in terms of spending and trip frequency plus Spectra Share of Wallet) underscored the importance of matching relevant offers to customer groups. In this example, reward mailers were sent to specific customers in the "Platinum" segment including "Fans," "Loyals", and "Switchers" in each of four separate months. Analysis revealed that the highest percentage of lift in trips was among the less-loyal switching segment: 12% to 19% increase for "Switchers", compared to 3% to 6% for "Platinum Fans". This approach was effective in driving less-loyal customers into the store and could be used tactically for situations where there is high competition.

Of the four promotions, month one was the most effective, delivering nearly US$500K incremental dollars with little drop off after the promotion. Combining the targeted mailing with a seasonal event (such as Easter) was even more effective since it captured the spend uplift and did not simply bring forward future transactions.

Coupon redemptions
A third analysis in the series investigated the redemption of point-of-sale coupons and the impact on incremental sales. One of these coupons featured a discount of US$2 off any produce department purchase of US$10 or more. The campaign generated a great response, in general, with the coupon mechanism and discount level effectively driving incremental visits at the store, department and category level. Incremental trips to the store were up nearly 10%, while trips to the department increased by nearly 15%.

Leadership was particularly pleased as this promotion helped communicate its overall marketing message of the store for freshness, quality and selection. As with the featured item promotion in the weekly circular, this type of promotional mechanism was particularly good for increasing visit frequency for less-loyal customers. While not all the POS coupons delivered the same results, the lessons learned by testing ideas and refining the communications or targeted offers led to refinements of future promotions.

Five lessons about loyalty
Loyalty programmes can provide customer insights which can be applied by both the retailer and the supplier for better decision making when developing targeted programmes or communications. While consumer-focused analyses can help both sides understand customer response to specific promotions, other generalised lessons can be applied. For example:

  1. Refresh customer segments often to ensure all shoppers and all shopping behaviours are being monitored to track changes in loyalty and set up response triggers to measure changes. It also ensures the latest view of customer behaviour is being used within the targeting of offers.
  2. Report segment and customer key performance indicators regularly so the business can define progress in building loyalty and identify issues/opportunities as they arise.
  3. Maintain customer segment history on the database to track customer changes and enhance the communications strategy to identify recent down-graders, lapsers or even new customers.
  4. Tailor offers and incentives for different segments, based on spend, visit and category behaviour.
  5. Capture contact history to enable accurate measurement of communications effect and identify customer contact by date, channel, offer/incentive, creative, response, etc.

Loyalty programmes can therefore provide the foundation for better understanding of customers, their needs, current shopping behaviours, and future targeting opportunities. With proper analysis and guidance, loyalty programmes can transform a retailer's business and create stronger partnerships with suppliers, which focus on providing more relevant, engaging promotions and help to build stronger customer relationships.

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