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Conference report:Loyalty programmes remain massively valuable if handled the correct way

Measuring the return on investment (ROI) of loyalty programmes can be a challenge for retailers, which is why the best way to calculate their value is to consider a variety of metrics. By Glynn Davis

GENERAL MERCHANDISE

Conference report:Loyalty programmes remain massively valuable if handled the correct way

Measuring the return on investment (ROI) of loyalty programmes can be a challenge for retailers, which is why the best way to calculate their value is to consider a variety of metrics. By Glynn Davis

Sainsbury’s operates its Nectar card by considering both the rational and emotional benefits of its programme as Helen Hunter, director of customer data and relationships at Sainsbury’s, suggests “the two cannot be separated and you need to include both as well as using the right blend of metrics”.

Mixing metrics to measure ROI
Speaking at the 5th Retail Bulletin Customer Loyalty Conference 2014, sponsored by Tibco Loyalty Lab in London this week, she told delegates that mail-out campaigns deliver short-term rational ROI gains from uplifts in sales but the best campaigns should also deliver some emotional ROI that helps build a deeper relationship with the customers and in Sainsbury’s case assist it in its over-arching aim of being the most trusted grocery retailer in the UK.

To measure the ROI of these two areas needs more than a single metric and instead requires a mixture that includes the likes of Net Promoter Scores, share of wallet, days to second purchase etcetera. And in terms of using the life time value (LTV) of a customer metric Hunter says this is measured over just 12 week periods at Sainsbury’s.

Dispelling loyalty myths
Andy Wood, managing director at GI Insight, says many myths have grown up around loyalty programmes, which has created the negative perception about achievable ROIs. He dispels the myth that they are expensive by suggesting that although at between £3 and £5 per annum per customer to run this could add up over many millions of shoppers, it is insignificant if these individuals typically spend as much as £400 to £500 each year.

He adds that the real key to gaining benefits from loyalty programmes is to “believe in them” and to have them as an integral part of the overall strategy. David Standing, commercial director at Associated Independent Stores, agrees that launching one is to some extent a jump into the unknown.

“The costs are always easier to quantify – including the set-up, marketing, and communications – whereas the potential uplift in sales is a leap of faith. The marketing director will say, we’ll get two-times the visits or two-times the spending from customers, but it is a leap of faith. Does the board as a whole want to get behind it?” he asks.

Even with their backing it can still be tough to get a loyalty programme to work as Ellie Kirk, director of loyalty and retention at Orange, says many have then subsequently not been fully supported and withered without the necessary long-term commitment: “They then under-perform and will be considered a failure.”

Recognising the value of the data

What underpins the value of all programmes is the data that they throw off and the insight this then gives retailers. Wood says: “It’s not about points or a loyalty card, it’s about information and how you apply this information. You need to learn and apply, learn and apply. Loyalty programmes should be about retailers being loyal to the customer - and what they owe them - and not the other way around.”

In order to gain value from the data he says retailers need to employ analysts with a hybrid of skills that includes good commercial aspects. David Rosen, head of strategy, analytics & customer insights at Tibco Loyalty Lab, agrees: “Retailers used to be artists but now they need to be mathematicians who use this [knowledge] to optimise the spending of customers by taking communications from mass to one-to-one.”

Introducing mathematics
Although retailers might well have been reluctant to embrace mathematical thinking in the past things are changing, says Rosen, who cites research that found 48% of CMOs are prepared to use ‘big data’ and that 73% of CMO job descriptions now require consumer intelligence skill-sets – with as many as 20% even leading on this attribute.

Despite the encroachment of science into retail, the collection and use of data does not necessarily have to be overly complicated, according to Shetal Bhatt, European Subcard programme manager at Subway, who questions whether many retailers are actually using even the most basic of data they hold.

Keep it simple
She therefore is strict on only asking customers for additional data when there is a specific need to do so. Bhatt cites the Subway tie-up with Disney that prompted her to ask customers if they had children as a good example where it is justified.

Her thinking also extends to using the data for straightforward customer engagements. For instance, Subway uses its loyalty programme to select customers to help it trial new products, which adds benefit to the customer as well as helping the company test new items and flavours.

Likewise, its giving of a free cookie to members’ on their birthdays is very simple but drives both engagement and footfall, which leads to increased sales. This fits in with the Subway primary objective of its programme driving incremental sales.

Kirk agrees: “It’s about using basic data better. It might be a birthday gift or, in our case, free SMS”. But she warns that the key aspect is relevancy because free SMS has little value if the customer already has plenty in credit on their account.

Mobile enhances engagement
This personalisation of the communication is becoming increasingly important with the growing penetration of smart-phones and mobile devices, which enable targeted offers and engagement on a real-time basis.

At Subway, Bhatt says the company re-launched its ‘Your Way’ app in November and new features were recently added with greater content, and the ability to have the QR code scanned at the counter to collect loyalty points. The opportunity to pre-order via the app is also a possibility in the future.

The immediacy of mobile devices also helps with giving instant gratification to customers, which Denise Watts, head of loyalty, CRM and insights at Whitbread attaches value to as she can see the potential to more easily identify a high value customer and act immediately to address any potential problems they might have.

“This is a massive opportunity,” she says, adding that technology will be the key driver of loyalty over the next two to three years. But this comes with a warning from her that the technology in the hands of customers is outpacing that used within businesses.

 

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