LOYALTY MARKETING
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In Defense of Card-Based Loyalty Programs
By Graeme McVie
Some grocery retailers such as Albertsons, Jewel-Osco, Pathmark and others recently discontinued their frequent
shopper loyalty programs. While retailers should always be looking at the return they’re generating from their
investments, the value generated from a shopper loyalty program is only partly linked to the benefits delivered. The
more critical element of these programs is the use of data to better understand and satisfy shopper needs across the
organization.
The issue is a large number of retailers use the data from loyalty programs to primarily drive only their program. This significantly limits the retailer’s ability to deliver a positive ROI as the data is only being used in one decision-making area of the company. Some leading retailers are doing a good job of using the loyalty data to drive customer-marketing campaigns, however for many the data is used quite sporadically and not across the enterprise. There are only a few retailers who have managed to successfully and consistently leverage their loyalty data into the price, promotion and assortment decisions made on a daily basis by the merchandising team.
It’s understandable that retailers would stop investing in loyalty programs that have a low ROI, but discontinuing the program rather than ensuring they are extracting maximum value from it will only leave them in the dark.
Analyzing the data from a shopper loyalty program allows retailers to better understand all of their customers, which enables them to deliver personalized offers that will be most relevant for each individual shopper - a good outcome for all parties. Retailers don’t have unlimited budgets and need to ensure they are allocating their investments to deliver the best ROI. This could involve rewarding customers for their loyalty, encouraging shoppers to consolidate their spend with that retailer or delivering relevant offers that introduce customers to relevant new products.
Loyalty programs provide customer data that fuels multiple key decisions across a retail organization that drive significant customer, competitive and financial value. From a strategic perspective, it enables a retailer to understand where the largest opportunities are to grow the business from a category, customer and store perspective and then to allocate resources to pursue and capture the largest strategic growth opportunities.
From a merchandising perspective, the retailer can align their price, promotion and assortment decisions with the greatest needs of their most loyal customers. Using shopper data, retailers can make price reduction decisions on items that are most important to their most loyal customers; design, deploy and allocate trade funds to promotions that are most valued by loyal customers; and ensure that low productivity items are only removed if they are determined to be unimportant to loyal customers.
Retailers need to develop the organizational capabilities to turn loyalty program data into actions that consistently satisfy the needs of customers - from strategy and marketing to merchandising, store operations and vendor collaboration. This requires a combination of technology, analytics and experienced analysts who can ensure that the data is consistently translated into actionable insights. This is a continuous process, not a one-off periodic activity that happens on a project-by-project basis. Senior management support is essential and the required change in organizational mindset should be factored in to the change management process to ensure maximum value.
At LoyaltyOne, we find that that when retailers take a customer-centric approach by using shopper data across pricing, promotions, assortment and marketing, there is measureable improvements of a 1-4% increase in overall sales and a 4-7% increase in gross profits. For a $2-billion retailer this can equate to an additional $80-million in sales per year and an additional $30-million in gross profits.
Retailers should take a holistic view of loyalty and view it in 3D: Loyalty as a strategy, loyalty as an outcome and loyalty as a program. First, retailers can drive their overall strategy by using customer data to ensure they are focusing resources on the opportunities that will maximize customer loyalty. Next, retailers should leverage their loyalty program data across marketing, price, promotion and assortment decisions.
Last, retailers need to take a broader view of the loyalty program itself as too many view them as two-tier price and discount mechanisms without enough understanding of the right mix of hard and soft benefits, fixed and variable incentives or covert and overt rewards. Retailers should be looking at their loyalty programs as a way to develop an enhanced and differentiated shopping experience with compelling benefits that reward loyal customer behavior.
Graeme McVie is Vice President and General Manager of Business Development of Precima, the data analytics division of LoyaltyOne). Graeme can be reached at GMcVie@loyalty.com. For more information: www.LoyaltyOne.com.
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SECTION THREE
