Five steps for turning loyalty cards into cash
How much is customer loyalty worth? It's a question that most brand teams will have asked themselves. And it's a question that, increasingly, the switched-on resellers of their products and services, are asking themselves too.
On the one hand, the latest market data shows that promotions are now responsible for almost a third of all grocery volume, and that customers are more promiscuous than ever, suggesting that the increasing trend for promotion in retail is actively reducing customer loyalty.
On the other hand, back in January, Justin King, CEO of Sainsbury, made a strong case for the increasing importance of the loyalty card as both Sainsbury and Tesco moved forwards on trading, largely due to customised, loyalty-card driven promotions. In fact, King went as far as to describe a future retail divide between the loyalty data "haves and have nots".
But loyalty cards have been around for years, and so far, no divide has emerged. So is King misguided? Have Sainsbury's loyalty card partner LMG (the owners of Nectar) sold them some pie-in-the-sky vision? Or is he really onto something?
The key to understanding the paradox is to understand the difference between the loyalty value of the card, and the potential value of the data the card gives you. Because it's the data, and what you do with it, that actually has the potential to be very valuable indeed.
Here are five steps to creating value from loyalty card data:
Mine the data to identify and understand customer groups. This tells you which demographics are really worth chasing, and what really motivates them. It will tell you things that you already know, maybe that young mums are a very important market for you, but will also tell you things you didn't know, like how single mums shop in radically different ways to those with stable partners. Interesting? Yes. Valuable? Maybe. Game-changing? Probably not.
Run the database against a broad suite of potential offers. This helps you target activities such as direct mail. Maybe sending groups of similar customers vouchers for all of their favourites, with a few compatible extras added in, all adding up to 25% more than their average spend. Valuable again, but not game-changing, and this is where loyalty seems to have plateaued over recent years, but things are now moving again.
Mine the promotional sales to understand which customers are most easily influenced, and to what degree customers are loyal to individual brands and products. When I first saw this kind of insight, I was surprised how weak the loyalty often was on "leading" brands. Not only does this information help target the most responsive customers for behaviour-changing deals, it can radically shift the balance of power between consumer brands, and the well-informed retail channels (King's "loyalty data haves").
Link individual customer data to in-store and on-line systems, generating bespoke offers that will prompt specific, measurable behaviour changes at an individual level. Not only can retailers stimulate high volume, low-cost trial, they can measure the loyalty of customers to whatever new brands they are influenced to try. This helps to establish the true long-term value of different types of promotions, on different products, with different customer groups. Without loyalty card data, it's impossible to see which customers stick with the promoted brand after trying it, and which drift back to their old brand straight afterwards - information which is potentially of huge value to brand marketers and account managers alike.
Draw together mobile, on-line and electronic displays, link them with phone-enabled GPS, and deliver high-powered bespoke deals tailored to customers, that will drive traffic into store, improve navigation, and create a truly customised shopping experience. Picture a mobile app or an in-store virtual assistant that walks you to your ideal product, offering relevant deals that will interest you along the way, giving you an individual deal on anything you show to the camera, all driven by a detailed understanding of your needs, preferences, brand loyalty and price sensitivity. Could it happen? Yes. Would customers want it? Who knows.
But one thing we do know, is that it's all based on a deep understanding of the customer as an individual. And that requires an account, or a loyalty card, to build up. So maybe King's vision does have some legs. Maybe there is the potential for a divide to grow between the loyalty haves and have nots.
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