Is customer intimacy the next loyalty frontier?

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By: Wise Marketer Staff |

Posted on October 28, 2010

Is customer intimacy the next loyalty frontier?

Supermarkets have done a good job of achieving a real sense of 'customer intimacy' by making their customers feel like they really know them, according to Andy Wood, managing director for GI Insight, who explains how consumer intimacy may be the next signficant frontier in the battle for customer loyalty.

It seems that "know your customer" is a mantra that almost every marketer understands and embraces, or at least acknowledges. But a recent study by GI Insight sought to find out how well companies are actually doing in terms of putting the processes and systems in place to really get to know their customers - and then using that information to drive meaningful marketing communications.

To measure how successfully companies are engaging their customers, GI Insight asked consumers what level of 'intimacy' the brands they buy (and the suppliers they use) demonstrate in their communications and offers. In other words, consumers were asked to rate how intelligently personalised various marketing communications had appeared to be.

On a sector-by-sector basis, the 1,000+ UK consumers surveyed rated their service providers, the shops they frequent, and brands they regularly purchase on a scale that went from 'knows me like a close friend' to 'treats me like a total stranger'. The results were then converted into a Customer Intimacy Index (CII) with a score of 100 representing the total overall average.

The index revealed that sectors with frequent transactions, regular customer contact and strong loyalty programmes among key players fared the best. Consumers gave the highest marks to their main supermarket (126), internet service provider (117), bank (116) and entertainment providers (116), recognising these firms as those that seemed to 'know me like a close friend'.

Following closely behind were mobile phone providers (109) and holiday, hotel and travel firms (108). Companies in these sectors are clearly taking the most sophisticated approach to their customer interactions and relationships, through comprehensive loyalty schemes, data-driven CRM programmes, and other forms of database marketing.

Sectors in which firms were seen to treat their customers as strangers were often those that sold big ticket items such as cars (80), computers (78) and houses (61). Also performing poorly in the index were consumer food (88) and drink (72) brands, whose direct contact with consumers is largely controlled through third parties such as retailers and dealers. The results for these firms indicated that they will need to step up their efforts to create dialogue and build relationships with their consumers.

Utilities providers (103), general insurers (98), charities (97) and the clothes retailers (103) were seen as 'friendly acquaintances'. Companies in these middle-level sectors show some degree of sophistication in building relationships with their customers but not the same level of insight or contact that we see in the 'knows me like a close friend' group. These companies should therefore be looking for ways to take a more tailored and personal approach to their customer communications and offers while creating opportunities to gather the sort of data that would feed such activities.

Clearly, the gathering and dissemination of customers' data - details of their transactional histories, their behaviour, their preferences, their demographic characteristics and their lifestyles - is central to getting to know these consumers.

But collecting this information and putting it into a database obviously isn't enough: too many companies fail to properly analyse the data they have to hand and then to use that information to gain insight into which customers they should be focusing on - those who are potentially the most valuable and loyal - and into how they should go about expanding their relationships with these people.

One of the most effective ways to collect the necessary data from customers - and then to develop a dialogue with them that will grow into a long and fruitful commercial relationship - is to build a loyalty programme (which is really a misnomer; it should really be thought of as a 'data collection programme').

An efficiently run loyalty programme is, for most companies, the shortest route to customer knowledge that can then be used as a basis for greater satisfaction, more interaction and, ultimately, increased profitability.

By collecting and managing customer data through loyalty schemes, companies are able to gain a better understanding of their customer's habits, tastes and more generally what makes them tick. This enables them to use well-chosen messages and incentives to make sure clients stay with them while getting them to spend more or more often - or both.

Loyalty schemes are an increasingly popular option for companies wanting to gather more information on their customers and put it to good use. Between 2000 and 2008, the top 250 companies operating loyalty schemes grew more than fourfold, according to a 2008 report by the Institute for Direct Marketing. Another GI Insight report from earlier in 2010 found that 71% of marketing decision makers believed that the previous two years of economic downturn had made loyalty schemes even more important to the success of their business.

However, a survey by YouGov in April 2010 suggested that, while loyalty schemes are spreading, they are not being managed with the same consistency and success in every case. The survey found that, while 80% of UK consumers have a loyalty card, only 50% actually believe that collecting points is worthwhile. Only a disappointing 17% actually chose where to shop on the basis of their loyalty programme memberships. The survey also revealed that 52% prefer to collect discounts at the till rather than saving up for a specific reward.

In fact, the YouGov research indicated that, when effectively managed schemes get their targeting of consumers right, the relationship between the brand and the customer is further cemented.

The most popular schemes were confirmed to be those with particular emphasis on providing customised offers:

  1. Tesco Clubcard (66%);
  2. Nectar (55%);
  3. Boots Advantage (48%).

The brands that really achieve success with their loyalty schemes are those that analyse their data and use the resulting insights to engage customers with more relevant communications and offers.

While most organisations that collect a lot of customer data are managing to provide their customers with personalised, highly relevant offers and communications, there is still a long way to go before this becomes the norm across - or even within - sectors. Loyalty programmes remain one of the best ways of gathering that data and disseminating individualised communications.

There are businesses that have regular contact with customers and ample opportunities to collect data that are not doing enough to exploit those and to develop loyalty schemes that help them to better cement relationships with customers.

For those companies that don't have the same frequent contact with consumers - those that sell big ticket items - and firms whose contact with the end customer is through retailers and dealers, there are ways develop dialogue with buyers and gather data on them. That can be achieved through innovative loyalty programmes and customer clubs that provide regular communications such as newsletters, announcements of promotions and events, servicing reminders, upgrade offers and other brand and product information.

As the UK begins to emerge from the economic flat period that has followed a deep recession, it is vital for businesses to take some learning from the downturn with them into the recovery. One such learning is the value of customer data and its vital importance for retention, cross-selling and up-selling. The key for companies that want to get closer to their customers and be welcomed by these consumers is to set up a mechanism that allows them to do that.

With this in mind, basing all dealings with a customer on a full profile of that person's preferences and behaviour is essential. Only then can a company or brand be viewed as trusted by its customers and its communications welcomed as those of a good friend.

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