Loyal to the last

Many retailers are revisiting loyalty cards as a means of incentivising much-needed repeat purchases, and rewarding customers whose finances are stretched. Homebase (with Nectar), Waterstone’s, Play.com and Debenhams all say customers are responding well to the carrot of earning points on purchases through their relatively new schemes.

Boots with its new Treat Street concept is allowing Advantage Card points to be collected when customers shop online at 50 other companies, bolstering the benefits for cardholders. But are retailers gaining genuinely useful insights into customer behaviour - often cited as the real value driver of loyalty programmes?

“Using customer data more smartly is what’s driving this refreshed interest in loyalty cards,” says KPMG head of retail Helen Dickinson. “We all know how Clubcard has enabled Tesco to get ahead of the game when it comes to customer insight. Other retailers realise that if they can get it right too, data mining could make a significant difference to their business.”

Debenhams senior beauty marketing manager Deborah Parrott says the Beauty Club reward programme, which launched in April 2009, was conceived with the strategic objective of making Debenhams stand out as one of the country’s top premium beauty retailers. “The scheme is also a value proposition to customers that will

generate loyalty. The data we collect through customers activating their cards online and signing up to email marketing will give us a strong tool with which to drive sales,” says Parrott. “We’re aware of competitors’ schemes maturing over time, so we don’t want to sit there without a proposition.”

Trend spotters

The endgame of loyalty must be attaching sales information to customer information, says Paul Poser, product manager at retail software vendor Itim. “It’s about knowing what your customers buy regularly so you can segment them, be sympathetic to their needs, and market to them accordingly. Getting it right means you’re driving better value from your marketing campaigns because they’re relevant and genuinely useful to the customer,” he says.

However, Poser says marketing departments are not always sufficiently sophisticated. “A classic mistake is pushing deals on a product because a customer has previously bought it, without realising they purchased a book or beauty product as a gift for someone else, and have no personal interest,” he says. “This is where

customers become irritated, being bombarded with marketing messages that completely miss the mark.” Data analysts must spot underlying trends within segmented groups, and design algorithms that will make the data work in a more meaningful way.

Tesco Clubcard senior marketing manager Alison Wright says: “Many companies have data, but very few use it. It’s only when a company takes the approach that it needs to be relevant to its customers’ needs and expectations that they can use data effectively.”

Clubcard data enables Tesco to understand current customer trends, the products that are most important to customers, and those that may appeal to them. “Using this insight we can make judgments as to which products customers would like to see in-store and the kind of promotions that are most likely to benefit them,” says Wright. “Our knowledge of customers has also enabled us to expand the business. For example, our dotcom offering could not have been created without the knowledge we gained from Clubcard. Similarly, Clubcard fuelled the growth of our non-food sector by identifying possible customers and communicating the new medium through the Clubcard mailing.” Tesco sends out 9 million variations of the Clubcard statement to ensure customers get rewards that are relevant, which means no three customers get the same statement.

The bigger picture

Mike Fisher, chief futurist at direct marketing firm Indicia, says that by looking at segmented groups’ purchases over time retailers can paint a more vivid picture of demographics. “With this kind of information, retailers are sending out marketing prompts that might incentivise top-up shoppers to become full weekly shoppers, or introducing them to new departments they know similar customers make use of,” says Fisher.

Also, with new stores opening where retailers may be lacking local knowledge, loyalty card data can help companies quickly build up useful information. “It’s important to combine data from different sources - customer loyalty programmes, point of sale and traditional market research. Combining data means you can understand not just what customers say, but what they actually do,” says Fisher.

By signing up to a card - giving contact details - customers are providing a bridge for retailers to reach them with marketing messages. It quickly becomes clear which methods of communication they respond to best, so less marketing budget is wasted on mail-outs or emails that aren’t acted upon.

However, about 30% of adults don’t carry any form of loyalty card so there are plenty of people not providing that bridge. The answer may not always be a loyalty scheme. People who have goods delivered to them from a retailer’s website or who are signed up to a catalogue are providing the necessary data to facilitate CRM activities, and many companies - including Boden, Asos, Amazon - are making use of such data to great effect. “The web is even more useful as a means of building CRM,” says Fisher. “You can analyse how customers browse and can flag up products they recently viewed but didn’t purchase when they return to the site. That’s not something a loyalty card can help with in stores, as you’ve no knowledge of people’s interest in products until they actually buy something.”

Simply asking for customers’ home and email addresses and inputting details straight into the EPoS system is another means of creating a CRM link to customers. Kids’ clothing retailer Pumpkin Patch signs people up to become a Patch VIP in store or online using a Microsoft Dynamics CRM solution, and it has now built up a vast global customer database. There’s no loyalty point-collecting system involved and no cost of producing cards, but customers agree to be marketed to if they want to receive exclusive offers and email news.

Deep data mining is starting to influence many areas of business for big players like Tesco and Boots. But for many high street specialists today, loyalty schemes aren’t doing much beyond gathering contact details for untargeted email campaigns and providing a thank you for repeat business. “The next stage might be as simple as identifying your highest-spending customers,” says Dickinson. “If you can understand their preferences and use that insight to competitive advantage, you’re on the path to sales-driving CRM.”

It’s worth befriending your best customers as mobile marketing takes off too. Virtual points schemes - for instance Facebook’s Places scheme - and location-based SMS rewards are predicted to take loyalty to a whole new level.