Review - The Retail Bulletin Loyalty Conference 2010
Speaking to a capacity audience at The Retail Bulletin Loyalty Conference 2010 in London David Oliver, partner at Diamond Management and Technology Consultants, suggested to delegates that there had been a number of reasons why it had been a tough challenge for retailers to set up loyalty programmes through which they could then accumulate customer data and analyse it for insight.
The challenges have included: retail culture traditionally being more product-led than customer-led; the cost of customer data capture being seen as prohibitive’; typically loyalty programmes have involved a high upfront investment for a long-term payback; and there has been a limited view of the business case benefits of loyalty schemes.
Loyalty programmes must move beyond marketing departments
Oliver says the schemes to date have predominantly focused on giving out rewards and running promotions rather than leveraging the insights from the data. Loyalty activity has typically therefore been kept within the domain of the marketing department and has not had any connection with the trading, buying and merchandising functions.
Steve Gray, chairman of Emnos and former managing director of dunnhumby – that runs the Clubcard loyalty programme for Tesco, says the reason for loyalty being used only by marketing departments is because it is hard to push it into other parts of a retailers business.
“The tough bit is integrating it throughout an organisation...but those companies that do it can reap the benefits,” he explains.
This is something that Tesco has done to great effect and it has even extended the utilisation of its customer data and insight into its suppliers’ businesses. “Tesco took the decision to open up the data set and this attracted more incremental supplier investment. There was a huge shift in where Procter & Gamble spent its direct marketing budget and this trend is continuing today,” says Gray.
The interesting thing was that most of Tesco’s suppliers initially took the view that they would use the data to determine which customers had bought rival products and to then target them. However, Gray revealed to delegates that Tesco had taken the counter-intuitive view that its loyalty programme would be of most benefit if it was used to focus on its most valuable (most loyal) customers and to reward them accordingly.
Reward your most loyal customers
Focusing on the most loyal customers is fundamental to the programme in place at Hertz where a stepped structure provides different levels of rewards depending on the value of the customer.
David Oliver, formerly director of CRM (EMEA) at Hertz Europe, says its top loyalty scheme members spend 20-times more than those at the lowest level, their frequency is 12 times greater, and there is only a 10 per cent dormancy rate (over a 12 month period) among this grouping compared with 65 per cent for the least valuable members.
Hertz chose to split its membership into five specific grades, which has involved it not only tailoring its offers to these separate grouping but also using the structure as the basis for a feedback mechanism that enables it to better adapt its business to its various customers’ needs.
Oliver says Hertz found from this feedback that its more frequent customers preferred a painless experience when picking up a car and that its top members also enjoyed the ‘softer’ benefits such as being greeted by the manager when picking up their car and the individual knowing their name.
Loyalty programmes drive targeting marketing
Oliver says the company also developed tailored direct mail for each membership group that helped it to achieve significantly higher response rates - the increases are greatest the higher you go up the membership scale. This has helped the company to achieve an impressive return on investment on its programme.
This increased relevancy of communication to consumers is regarded as one of the key drivers of the growing numbers of shoppers joining loyalty programmes, according to Will Shuckburgh, business development director of Nectar, who also points to the recession and media fragmentation as playing a part.
He cites figures from the US that show a 10 per cent per annum increase in consumers joining programmes between 2006 and 2009. And the average shopper is a member of a staggering 14 loyalty schemes. Tesco in the UK has also enjoyed an impressive uplift in members of its Clubcard.
Moving towards a single customer view
One of the big challenges for retailers today is to track their loyalty programme members across multiple channels. Both Anne Brunsdon, head of group customer marketing UK and EU at The Carphone Warehouse, and Andy Tudor, senior technical development director at Aurora Fashions, told delegates how they were focused on having a single customer view across all the channels through which they trade.
Tudor says this single customer view is being extended into the mobile channel: “We have seen a strong uptake of mobile and with our single CRM database we’ll be able to track customers over all the channels, including mobile. With the appointment of a group multi-channel director we’re showing how joining up customers across channels is important.”
Never forget data is the key to loyalty
At the heart of CRM solutions, single customer views, and loyalty programmes is data. Although Gray suggests, rather surprisingly, that data was initially only a “by-product” of the Tesco Clubcard scheme there is no doubt that it is now fundamental to the programme.
Highlighting data’s importance was Ed Wrazen, vice president of marketing at Trillium Data, who suggested 70 per cent of CRM project failures are primarily down to data quality issues. Without clean, up-to-date data then it can be more damaging to a retailer than beneficial.
This is a big challenge for retailers who are using data from their loyalty programmes to influence all parts of their businesses. On average Wrazen says customer data changes two per cent per month, which equates to 25 per cent per annum. “Maintaining and improving data is a constant battle,” which he says is today being further complicated by the enormous number of sources from which data now flows into retail organisations, including more latterly from social media platforms.
He says that with multi-channel propositions retailers have lots of data stored in different systems and that this data is transformed as its moves between systems, which involves care being taken as “there is a big impact downstream from data that has been entered upstream”.
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