Frequent shoppers aren’t necessarily loyal
Through a special arrangement, presented here for discussion is a summary of a current article from MarketingCharts, a Watershed Publishing publication providing up-to-to-minute data and research to marketers.
A frequent customer is not always a loyal one. That a conclusion of a new study from Cardlytics based on a "whole-wallet" analysis of transaction records held by banks for nearly 70 percent of U.S. households. The research indicates that customers who frequently visit specific retailers tend to be heavy "category spenders", meaning that they also frequently visit other retailers in the same channel. Instead, true loyalty is often the domain of "light customers" who make fewer trips to stores but typically shop at the same ones.
The analysis looked at five retailer channels: restaurants; apparel; gas and convenience; grocery; and general retail. Rather than simply analyze how often customers of these channels visit specific stores (which might be how the stores themselves determine loyalty), the whole-wallet approach based on transaction records looks at how often customers visit stores as a percentage of their total channel visits.
Looking at how customer loyalty differs among restaurants, apparel and grocery:
- For restaurants, 44 percent of customers dine at the same one for more than half of their dining trips out;
- For apparel, 53 percent shop at the same store the majority of the time;
- For grocery, 81 percent visit the same store most of the time.
On the surface, that shows a significant degree of loyalty to favorite stores.
But a deeper analysis indicates that loyalty (defined here as at least 50 percent of category trips made to the same store) is much more prevalent among infrequent than frequent customers of each channel.
In each case, "light" customers (fewer than 52 trips a year) were more loyal than "heavy" customers (130 or more trips). Here’s how those comparisons broke out at the extremes by channel:
- The gap was more severe in apparel, where just 15 percent of "heavy" customers made more than half of their trips to their favorite store, compared to 75 percent of "light" customers;
- The gap was much narrower in grocery, where 86 percent of "light" customers visited their favorite store at least half of the time versus 72 percent of "heavy" customers; and
- A similar pattern was apparent for general retail, where 89 percent of "light" customers visited the same store the majority of the time versus 65 percent of "heavy" customers.
Obviously, heavy visitors to a channel are going to account for more dollar sales than light visitors — even to particular stores. And in general, the top 20 percent of customers accounted for a greater share of spending in each category (63-69 percent) than share of trips (56-60 percent).
Discussion Questions
Is the frequency of shopping visits a flawed metric in determining customer loyalty? Should stores be exploring ways to tap into the infrequent yet seemingly loyal customer?
Well, I’m thinking that a retailer reading this would say “Well, who cares about the loyal one? Give me the frequent one every time.” So maybe what’s flawed is our definition of loyalty.
In fact, some retailers don’t even call their programs loyalty programs. They call them frequent shopper programs. The question is really “What are you trying to measure?”
Of course it’s a flawed metric – why would anyone think this is a measure of loyalty? It is a fair measure of “heavy” vs “light” user, but this should never be confused with loyalty.
Well, last time I checked, the best measure of a customer’s “loyalty health” was RFM – recency, frequency, and monetary value. So while consumers who shop more frequently than others may tend to spread it around more, their lifetime spend with any one given retailer may still be enough to peg them as “loyal” from the perspective of “worth keeping.” Frequency is but one measure – but one measure alone is not enough to get the full picture.
Is it me or the times we are living in? Being able to access the transaction records of 70% of US households through our banks seems incredible and creepy at the same time. There is a “cost” of going “cashless”!
The “whole-wallet” data confirm the changing patterns of the new normal of omni-channel shoppers. As shoppers increasingly go online and shop using mobile devices, they may in fact make less trips to stores. Yet, they may still be buying from the same retailer but having it shipped home. Future “whole-wallet” analyses will have to account for both in store and online sales.
Almost all retail stores are seeing declining traffic in store, so optimizing trips is a concern. However, trips do not pay the bills … margin dollars do. If retailers can contain their urge to “race to the bottom” by competing on price, both “light” and “heavy” shoppers can be profitable through assortment optimization and category management.
I am always troubled by the use of the term “customer loyalty.” Individuals can be loyal to their country, family, church and alma mater. But loyalty to a retailer makes no sense to me. Instead retailers need to be loyal to their customers. How? By delivering on their promises to their customers.
Loyalty cards should be labeled discount cards. Consider how many you have in your wallet or Cardstar app? The way to generate continuity of purchase at only your retail establishment is to solve your customers’ problems better than anyone else. How? By giving them more reasons to shop beyond price. In food retail for example, we know customers dread checkout. How about dedicated check out lines for high purchase shoppers or using technology to speed the process? Shoppers abhor cluttered, crowded aisles. How about having “display free aisles” beyond end caps? How about having all specials in stock? How about a dedicated nutritionist to help with menu preparation?
Any or all of these tactics could lead to a shopper making more purchases at only your store.
Nikki is exactly right: Looking at frequency is only part of the loyalty equation. Stores also need to consider how recently customers visited and (most important) the ongoing value of their transactions. Shoppers who visit a store weekly — but only to cherry-pick that store’s advertised loss leaders, and then move on to its competitor — can’t be considered loyalists in the same way as a committed customer who may only visit once a month.
Frequency is not by itself a flawed metric for loyalty, but it’s also neither the only, nor the most important measure. Share of customer, size of customer, total spend and trend (i.e., is a customer spending more than previously or not?) are all important metrics, but it really depends on the nature of the business, how “loyalty” is defined for that business, and what’s being done to drive “loyalty.”
Frequency of visits is not a flawed metric, but it is not the only metric to measure loyalty.
Actually, I too am always troubled by the concept of “shopper loyalty.” The shopping trip is often driven more by context than loyalty. One may prefer to shop at a certain store, but it may not be convenient to that trip or carry a certain item.
I prefer the concept of “store equity” which measures the propensity of a shopper to select a given store under the same context or similar conditions.
Hmmm. As a retailer, I think I’d be much more interested in those customers who may or may not be “loyal” but shop frequently in my store and spend money. If I get 100% of a loyal customer’s spend of a very small amount, or a 50% share of a frequent customer’s spend that is a much larger amount, I know where my vote goes.
The real trick is to get beyond just the data here and research the why. Why they do what they do is hard to get via survey data, and that’s because many of the decisions shoppers make are more emotional at their core, and it’s very hard for consumers to tell those stories – our emotional brain center doesn’t really have a voice box!
That said, any data only default won’t really tell a true holistic story. But since we live in a data world, tapping into a better understanding of the light shopper is clearly worth spending time on.
Frequency is a very important matter when determining the value of the customer. The most frequent customers tend to purchase more over time as well as purchase more product categories. That makes these customers critical to a business’s success.
In all of our research, we are seen that the best customers of our clients are often best customers of their competitors as well. That does not mean that those customers are not deserving of extra effort to earn their loyalty; rather, these customers have a demonstrated level of interest in the category, which makes earning their loyalty even more important.
Targeting frequency without loyalty makes as little sense as targeting loyalty without frequency. The most valuable customers are those that combine the two.
Highly loyal, low value customers support the brand from an advocacy standpoint, but should not be confused with those customers who “keep the lights on.”
The research underlines that each customer group needs to be analyzed on an individual basis and that the particulars of a business need to be taken into account to guide strategy decisions.
Generally speaking, higher frequency can’t be a bad thing and would seem to correlate to higher brand affinity or loyalty. In my opinion, the outcome of the reports cited are playing on semantics to gain attention.
This wallet share approach was first talked about by IPSOS in its recent work as they tried to correlate the value of wallet share for individual shoppers to a loyalty measure.
Each brand has to set its own objectives for developing customer marketing strategy. Increasing wallet share is an important measure to consider to build financial returns for the business. A well designed strategy will take into account multiple measures of customer behavior including frequency, total amount spent and an estimation of wallet share.
Customer loyalty has turned into shorthand for lots of things including frequency of visit, dollars spent per visit and per period, share of wallet, trend of spend, etc. If I usually stop at the same store on the way home from work and pick up a loaf of bread or bananas, but on the weekend I go to another store and spend a whole lot more money on a regular basis, how do you measure my loyalty? Yup, you need more than a single variable to explain or define it.
A flaw in this study is the singular focus of limiting data to store visits only and equating percentage of visits to ‘loyal’ customers. And what happens to the “results” if you redefine loyal to say 345 or 40% of visits (instead of 50%)? What are my choices in my community (for restaurants, apparel, grocery…). If I’m a “heavy,” I might get bored quickly by eating at the same restaurant more than 50% of time, no matter how good their menu and chef might be. But as a “light,” I can probably tolerate that a bit more.
There’s a lot of arbitrariness here lumped together with a loose definition of loyalty while being blind to the omni-commerce reality of today’s consumers.
As a retailer, I’d want to get repeat business (store and online) so I can have the opportunity to engage and personalize, so I can increase the $ spend/visit.
Frequency and loyalty are two different things for retailers today. I have customers who shop 3 days a week, but spend 8-10 dollars to get by, until they spend the bulk of their money at a wholesale club once a month. What would you rather have? It comes down to who the customer believes is going to have the rock bottom values for their big shopping trips.
What we need to do is give them a reason to pause for a few seconds when they do come into our stores, by displaying something unique, a must have item, or a can’t-pass-up-this-price kind of deal product. That is the additional purchases we need to gain some extra margin, and each retailer needs to determine how to go about that.
In spite of all the metrics, and research done on consumer spending, it still comes down to a great deal, for the 80-85% of the shoppers, so to me it makes sense to provide those sort of offers every week. I know this is simplistic, but with social media, you can showcase these deals as soon as they hit your store, without going to print 4-5 days later.
Sampling, Sampling, Sampling!!! In supermarkets, if you sample deli-bakery items you want to feature, sales triple!
You can and must build loyalty through the unique offerings, that stand out, regardless of what type of retailer you are, and make sure that you keep your customers informed through all media on what cool things you bring into your stores.
Frequency as the determining factor in defining loyalty is absolutely a flawed metric. Depends on what the retailer is trying to measure, but maybe share of wallet spend in a category is the metric retailers care about. Loyalty is just a byproduct of spend.
Many of my fellow responders have already and often said frequency and loyalty are two differing metrics. It is the amount of the spend that counts heavily at the end of the month when sales are tabulated.
It’s shopping, not marriage. “Loyalty” can’t possibly mean “I don’t shop anywhere else” — that’s a flawed standard. I consider myself “loyal” to Trader Joe’s, but I shop plenty of other food stores. With restaurants even more so, since diversity of food and experience is so important.
What loyalty should mean is that shopping a store is normal part of my routine under certain recurring conditions, ideally because I like and value shopping there (but sometimes because you regularly buy me with discounts and points).
Loyalty by that definition should be important to retailers, since giving shoppers the reasons to visit is critical to success. But I agree with others that the loyalty of high spenders is and should be worth much more focus!
Trying to figure out customers and explore their buying psyches is fun and employs a fair amount of people. But really, to what end? I think most often (at least for grocery) it’s based on convenience and practicality (and price) among that shopper’s proven acceptable options. Richard J. George’s comment above was spot on.
Here’s an example. My business and casual travels in the metro area take me in all directions — but in a different direction almost every day. If I have a grocery list and I’m coming home from the west, I shop at Sunset. Coming from the southwest it’s Aldi; from the north, Mariano’s; from the south, Jewel; and from the east, Garden Fresh just off the expressway. How would a study *ever* pick this up and be able to evaluate it effectively for any of these five fine grocers? Yet, in my way I am very “loyal” to all of these five. No matter what they do, Jewel (just for example) is going to have a very hard time convincing me to drive down to shop them when I’m going to drive right by Sunset.
True loyalty is a measure of how often a shopper passes by a more convenient store location to shop at their preferred store. Acknowledging that 95+% of your shoppers use their “frequent shopper” card is no indication of loyalty. The shoppers know they must use the card in order to get the best deal. This in no way exhibits loyalty.
Share of wallet is key as well. Simply asking your shoppers what they buy at other stores is a way of seeing where you need improvement.
Merchants need to measure the metrics that are key to their success, which, depending upon their operations, they are likely to know. Is it Conversion of Customers, Retetion of Existing Customers, Acquisition of a New Customer, Frequency of Trips of Existing Customers, or Ticket of the Traffic entering the door — the CRAFT.
Figure out which is the most relevant. Then, keep the organization — Marketing, Store Operations, Merchandising, etc. — focused upon it.
Vocabulary continues to trip us up in our conversation about shopper loyalty. When we apply a word that describes an emotional state to define a behavior pattern it’s no wonder that confusion reigns.
Consumer behavior academics have understood this problem for a couple of decades at least. In published research, “affective” loyalty describes the consumer’s favorable feelings toward a brand or institution. “Behavioral” loyalty may be defined by the RFM metrics mentioned by others in this thread. And “spurious” loyalty describes repeat patronage behavior motivated not by positive affect, but by the sheer inconvenience of switching.
Since many shoppers routinely assemble a total pantry solution from visits to several stores, our typical analysis of frequent shopper card data tends to miss the majority of the actual behavior – the part that takes place in competitors’ stores. Even if they come to our store every week, the real measure of loyalty may be tied to share of wallet, which trip types are captured, or even which key items are purchased on a repeat basis.
Card data can’t reveal this due to its inward-looking bias. RFM analysis remains useful because it doesn’t depend solely on the number of trips. A high RFM score may have less to do with affective loyalty, however, and more to do with location convenience, prices, and the size of the household budget.
The research presented here from Cardlytics does at least one thing right by examining total trip frequency and share of wallet. Applying this principle on a continual basis would be no mean feat because we don’t capture that type of data from card usage.
I just wish they had avoided the term, “true loyalty.” When it comes to complex shopper behavior, I’m pretty sure there is no such thing.
If we want to define a loyal customer as one who shops “exclusively” in my store, I’m not sure what good that is if they are seldom there. On the other hand, a customer that’s in the store frequently – even if they are also in other stores – meets my idea of loyalty. By their frequent presence they value what we are offering, and each visit gives us an additional opportunity to stand out from any others they may also visit, and earn their next purchase.
100% “Wallet Share” is a lofty goal. It might also be an unreasonable one at the same time. If a restaurant has a “regular customer” who comes in once a week for lunch, I’d consider that a loyal customer, even if he/she dines elsewhere the rest of the week. I think it would be a bit unreasonable to expect a customer to eat every meal at the restaurant. So, what’s the magic number that defines loyalty? Is it 20%, 50%…?
If a customer shops at a store strictly out of convenience or price, regardless of how often he/she shops there, that customer is a risky customer at best. These types of customers shop because of (as already mentioned) convenience or price, not because of any sense of loyalty.
The key is to create enough value or build an emotional connection that makes a customer loyal. Then, define by a number. What % of wallet share is your definition of loyalty?
Frequency is a behavior, and loyalty is an emotion. You can push frequency by driving enough incentives to create repeat purchase, loyalty is the emotional response to the brand and drives purchase without incentive. I tell people when you make a mistake as a brand, the customers that defend you and return to you without an incentive/promotion, those are your loyal customers.
Yes, in a sense, Loyal customers can be defined as “exclusive shoppers.” However, the exclusive part alone cannot define customer loyalty. I have a problem with this study as it is overly centered around frequency and “exclusive shopping.” After all, as retailers, we are not concerned just about exclusive shoppers, but more about: 1) the money that they spend, and 2) the experience and the engagement they have by visiting us often.