Loyalty data drives the most relevant offers

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By: Wise Marketer Staff |

Posted on May 26, 2008

When it comes to directing targeted and relevant offers to customers, retail sectors currently fare better than financial services, and this finding correlates strongly with the penetration of loyalty programmes - which are often the main vehicle for understanding customers' value and spending patterns - according to a research report by GI Insight.

However, according to the 'Study of Communications and Marketing Relevance', despite the apparent success of retailers' loyalty-based customer communication strategies, young consumers are consistently treated in a far more personalised and relevant way compared with people aged 45+, even though older consumers tend to be in the highest earning phase of their working lives. This, the company suggests, may reflect marketers' tendency to concentrate on acquiring customers in the early stages of adult life rather than developing and fostering them in their later years.

Key findings
The research also examined Citizen Relationship Management in the public sector, a phenomenon inspired by the success of Customer Relationship Management (CRM) in the private sector. Government initiatives still seem to have much to learn, as British consumers perceived there to be a wide gulf between the relevance of communications from commercial organisations compared to the poorly targeted messages reaching them from public sector bodies.

Other key findings from the report include:

  • Supermarkets (+19%) are the clear leaders at using the information they gather about their customers to communicate relevant and personalised offers;
  • Fashion retailers (+8%), e-commerce firms (+4%), department stores (+4%) and music retailers (+4%) are also significantly above average in their customer understanding and communications relevance;
  • Financial services firms are less successful. Banks (+3%) and building societies (+1%) beat the all-sectors average, while general insurance (-2%) and credit cards (-6%) fell far behind;
  • Mobile phone companies (+1%), a sector which experiences massive annual customer churn (in the region of 30% per annum), have also recognised the need to treat customers on an individual basis, but still need to do more to rise significantly above the average;
  • The poorest performance was found in the public sector, both at the local and national government levels (-18% and -19% respectively), showing that Citizen Relationship Management initiatives have some way to go in their real-life implementation;
  • Regionally, organisations in London (+5%) and Lancashire (+4%) were found to be particularly good at personalised and relevant communications, while the worst were found in the South and South East (-5%);
  • East Anglian supermarkets (+25%) came out best for targeted communications, with banks scoring highest in Scotland (+9%), London (+6%) and Yorkshire (+5%);
  • People aged 45+ (-8%) felt that the communications they had received from public and private sector organisations were far less relevant, targeted and personalised than for younger age groups;
  • The 18-24 age group (+40%) felt the communications they had received from commercial and governmental organisations was highly targeted and relevant;
  • The 55+ age group reporting receiving particularly poorly targeted communications from the music retailing industry (-16%);
  • Banks were the worst at targeting their communications to the 45-54 age group (-6%), which is surprising considering that this group is potentially in its highest lifetime earnings phase and should be a prime market for investment management products.

Relevance's impact on loyalty
The company's research showed a correlation between relevant communications and customer satisfaction, which is an absolute prerequisite for any customer retention strategy. In other words, relevant communications help cement customer satisfaction, and customer satisfaction encourages customers to stay and spend more.

To implement an effective and relevant customer marketing strategy, the report argued, marketers need to embrace the notion of a "customer journey", moving from less loyal, infrequent spenders to being highly-loyal, frequent spenders. The customer journey is simple enough in principle, and it is linked to the idea that more profit from customers can be driven from four basic actions:

  • More customers;
  • Spending more;
  • Spending more often;
  • Less attrition.

Different customers, different approaches
Five customers spending 500 a year may look the same. However, analysis of their profile and spending patterns reveals that they fall into very different groups, each requiring a distinct marketing strategy. For example:

  1. Customer one - spent 500 in the last 12 months but it was during Christmas;
  2. Customer two - spent 500 in the last 12 months but is spending every week with weekly transactions, averaging 28, and is new in the last six months (so there's not yet a full year's data;
  3. Customer three - spent 500 in the last 12 months with a monthly spend pattern of 80 but has not spent for the past three months;
  4. Customer four - has been a customer for three years and spent 500 in the last 12 months, but spent 1,500 the year before (so their spend pattern is decreasing);
  5. Customer five - has been a customer for three years and spent 500 in the last 12 months but spent 200 in the previous year (so their spend pattern is increasing).

As each customer is spending the same amount, a company might treat them all the same way. However, a proper analysis of their different transactional profiles might also suggest the following approaches:

  1. Customer one - encourage them to spend more frequently outside the Christmas period;
  2. Customer two - keep them spending. They joined six months ago and have good potential returns, so incentivise them to spend more through stretching average transaction value thresholds;
  3. Customer three - incentivise them to spend in the near future to re-engage them;
  4. Customer four - drill deeper to understand why the customer is declining and use promotional mechanics to halt that decline;
  5. Customer five -maintain the revenue growth.

The mature techniques of British supermarkets stand head and shoulders above the other sectors studied. As an aggregated set of sectors, retailers in general are obviously getting their targeting right more often than financial services, although the finance super-sector's average is being dragged down by the poor performance of credit card issuers.

And it can be no coincidence that these findings correlate strongly with the penetration of loyalty schemes in each of these sectors, suggesting that such schemes are critical to collecting sufficient data on the customers, especially in terms of associating transactions with customers. The research report is available directly from GI Insight.

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