Card Programs: Loyalty Not Included
By George Anderson
As retailers know, there is a big difference between a customer having a store’s loyalty card and that customer being loyal to the store.
According to a report in the St. Louis Post-Dispatch, nearly 90 percent of customers carry at least one loyalty card but only 20 percent say the cards are important in their decision where to shop.
Some, such as Frederick Reichheld, author of “The Loyalty Effect” and a director at Bain & Co., have come to the conclusion that most loyalty programs do little to keep customers from defecting to other stores. What often happens, detractors argue, is customers purchase items they would have anyway but, instead of paying full price, they buy at a discount.
“I see companies pouring enormous resources and energy into loyalty programs that really don’t create loyalty at all,” said Mr. Reichheld.
Others suggest that the problem is not with offering a loyalty program but with executing it properly. Retailers, loyalty card proponents argue, are not using the data they capture from cardholder purchases to tailor offers to their needs.
“Take a step back and reconsider what the true objective is,” said Mr. Reichheld. “Is it just to push more merchandise on the consumer, or is it to build a better relationship?”
Retailers, for their part, still remain committed to card programs as a means to better serve customers. Chains such as Chico’s and Circuit City, for example, use the information from loyalty cardholders in determining product selection on a store-level basis.
Nordstrom sees the combination of its superior level of customer service and the benefits of its Rewards’ card program (discounts based on purchase levels) as the right approach to achieving shopper loyalty.
Company spokesperson Deniz Anders, said, “Customers that have more of a relationship with Nordstrom through Rewards, or through their salesperson, do end up shopping more with us.”
Moderator’s Comment: What is preventing retailers from using loyalty card data to its full potential? Are there retailers successfully tapping into card
data to generate customer loyalty? How are they doing it? –
George Anderson – Moderator
Many retailers adopted loyalty cards as a “me-too” tactic, simply copying their competitors to prevent customer defections. Very few retailers have any real strategy beyond that. In fact, what proportion of retailers have a winning strategy for any form of competitive dominance?
The issue or problem for retailers in the grocer business isn’t technology. It is being creative and offering more than price discounts.
Consumers use the BFD ads, rotos, and/or website of retailers to learn the prices available, major features or small price reductions.
Again, loyalty is not built on price; it’s the total package of the retailer’s offering, i.e. service, convenience, information availability, location, perishable offerings, etc. etc.
Retailers hire the right people to build loyalty. Hmmmmmmm
The key issue here is “bought” loyalty vs. “earned” loyalty. Anybody can discount products to increase share, but that is not a sustainable long-term strategy. Companies need to earn loyalty through a combination of personalized marketing and superior service instead of buying share through discounts. Discounts are the easiest marketing ploy to copy, which may be why so many marketers use them (lazy).
Mr. Hennessy is right on getting some programs in market, but I don’t hear anyone discussing the difficulty retailers face in delivering the offers to the consumer at a time when they may actually get used — prior to their next store visit. That means mail, and that means lots of costs, when you’re used to running ROP ads and color inserts.
One solution could be to build relationships with these members that offer extra value for going online — to the retailers website, where by logging in with their card ID, they could get their specific offers. They could print coupons, or assuming a sophisticated IT platform, “accept” offers which would be reflected on their receipt when they checked out at retail with those items within a proscribed timeframe…
In the meantime, the programs have devolved into a cents-off nightmare, with little actual loyalty or affinity built with the consumer.
Loyalty cards are misnamed. In many cases they only give the shopper the prices that should be the true everyday shelf prices anyway. In return the retailer gets a lot of valuable information to use as it sees fit. A skeptic might be reminded of what Ruth said, that’s Ms. Ruth mentioned in the Bible:
“Intreat me not to leave thee … for whither thou goest, I will go …” providing you don’t discontinue the Loyalty Card.
The data that shopper cards provide has rarely been utilized for more than TPR’s. With all the talk in the business about “differentiation,” using the data to identify individual consumer preferences and dialogue with them through meaningful promotions, new product information and menu help etc. would seem to be an obvious step. The cost of this is very high and until the potential of RFID technology is fully realized we will continue to see little loyalty based on the cards.
Experience tells me that most of the loyalty card programs are just a storehouse of data. I recall that I could inquire of the IT department and they could slice, dice and parse the data and give you the percentiles and deciles and all that. Me, I just wanted to sell more.
I finally got the IT guy to give me a weekly update on my top 20% spenders and we worked them. They got birthday cards signed by the entire staff, birthday cakes, a large Christmas Poinsettia, sent them a tray for graduations and so forth.
We did have a few of the 80% that were disappointed they didn’t get all the perks, but if they were close or an above average customer we added them. When the 800 pound gorilla showed up, we were down for about three weeks and started to recover. The loyalty card showed we lost in the bottom two deciles, the cherry pickers and the ones that shopped everyplace. In terms of profitability we didn’t lose a thing.
The take-away is, most of the store directors and other managers don’t know to exploit the wealth of data that is collected.
There is loads of information on shoppers and shopping patterns that is not being used for the retailer’s benefit. In some cases, the reason is managers have created data silos that they protect and do not share across business units. In other cases, retailers have focused resources on the supply side and emphasized demand creation rather than putting resources behind demand data gathering. It’s the old sell what you buy vs. buy what you sell debate. Technology is available to address either of these scenarios.
Tesco does a great job analyzing customer data by using a data mining tool to deliver offers when and where the shopper is most receptive to those offers. Saks is doing something very interesting with unstructured data, that is information not in a quantifiable form. They take customer comments and written observations of shopping behaviors and turn it into data that is analyzed and used to improve customer offers and product assortment.
Loyalty Cards, for the most part, are scams that allow retailers to charge inflated prices. I have participated in these programs out of necessity. I use the cards only so I will receive “pass through” discounts on goods. Manufacturers are the primary victim of the “Loyalty Card” scam as they typically discount their pricing on their invoice. Retailers have always “bought in” deal merchandise in hopes of increasing margin on left over merchandise after the sale is over. By using a loyalty program, the retailer is able to retain more deal merchandise and sell it at full price. The cure for this situation is for manufacturers to insist on reimbursing retailers for product sold at retail only, instead of discounting at invoice. Loyalty cards can be used to track these sales and provide “proof of sale” to the manufacturer. Could it be that the “Loyalty Card” scam can be turned on the retailer – I think so.
As an aside, I never furnish accurate information on a loyalty card application. They may be able to track my purchases but they cannot connect the purchase to me, therefore, I am protecting my privacy. I believe that the purchasing power of a dollar should not be controlled by the retailer, but buy the consumer.
As noted in previous comments, most food retailers treat the card solely as a discount card. In fact, a significant number of shoppers carry two or more such “loyalty” cards in their wallets. I would have a hard time explaining to my wife why there are pictures of two or three other women (not children or grandchildren) in my wallet.
If we are going to effectively implement a “frequent shopper” program, we need to focus on solving the “problems” confronting these shoppers. How about a dedicated check-out line or reserved time for check-out for them? How about a personal shopper? How about valet parking? How about a customized shopping list? How about using data from the card to assemble unique meal solutions or product assortments? Although the mantra is to treat everyone the same, it is okay to reward customers differently based on behaviors that are favorable to your organization and desired by the customer.
The data from the card can provide excellent insight into the profile of frequent shoppers: when they shop, what they buy, how often they buy, amount of product bought on deal, combination purchases, perimeter store purchases, etc. Understanding this data and utilizing it in a way that “rewards” the frequent shopper can transform a card program from simply a discount card to a point of positive differentiation.
I agree with Mr. Lilien. It’s a me-too thing for a lot of retailers. Lack of skilled personnel keeps many retailers from using the data to its full potential. Some of my clients have collected tons of information on their loyalty card data but didn’t have a clue what to do with it. Large chains generally have the personnel to manage the program and mine the data. But many might be surprised at just how many large chains are clueless on how to manage the program and get taken for an expensive ride by farming it out. Those companies they farm it out to can usually prepare reports in seconds but tell their clients it takes weeks and then sends them a huge bill. Small retailers have neither the personnel nor budgets to have someone in-house manage the programs. I’ve help a few by geo-coding addresses and sales to determine market share by neighborhood and determining the percent of sales that come from a defined geographic area. Then put all the info on a color thematic map. That is just a sample of the valuable information that can be mined. It’s also useful in finding out who the best customers are. I had one client who personally called on his top 100 customers and made sure he knew them on a more personal level – sending them Christmas gifts and ball game tickets, etc.
If I have a “loyalty” card and the only benefit is that I actually get the lower prices advertised on the shelf, it has nothing to do with me. It is only about the store and the fact that I get the sale price if I have the card. There is no bond to create loyalty. It is just a price discount card. The cards need to be used to obtain insight about customers and offer them a reason to connect with the store. It does require an investment of time and software to do the analysis. Without it, the card allows me to get a discount on whatever the retailer has decided to put on special for whatever reason, but the card has nothing to do with me personally. Until the card relates personally to consumers, there is no loyalty.
They shouldn’t be called “loyalty” cards — they have almost nothing to do with loyalty, per se. Retailers should use these cards to gather information in order to assist in resource allocation tasks; this is a very important activity which can yield significant improvements in marketing efficiency. But it is exceedingly rare that these cards will actually induce loyalty. Retailers need to understand this before they begin using such programs.
The problem with loyalty card data isn’t the data, it’s the approach.
Stop analyzing and start executing. You know what you want to do. So do it!
You know there are shoppers who don’t buy key products that you offer and they need; like toothbrushes.
Use purchase data to set up a rule that gives a toothbrush offer to shoppers who have never bought one from you but buy toothpaste. You could even match the offered product to the brand of toothpaste they buy.
Simple. Profitable. No analysis necessary. Just incremental sales as you use purchase information to satisfy an unmet need and increase sales.
How about shoppers spending $100 a week and not buying any paper products? How about shoppers who buy large dog biscuits but no big bags of dog food? You know there are shoppers who should be enjoying more of some products you offer. Help them.
Some shoppers purchase 4 or 6 or 8 … units of yogurt per visit. They’ll run out less often (and use more) if they get offers to pick up 6 or 8 or 10 … at a time.
If you had a friend who was missing out on something you had that they would enjoy, you’d help them discover it. Why not use what you know from purchase history to help your shoppers discover products you offer that they are missing out on or need to enjoy more often?
You can create an endless list of ready-to-execute sales growth opportunities by speaking to category managers and marketers. Pick the best and execute. While your competition is figuring out how to store, sort, report and analyze its shopper data so it can “discover” something mildly interesting, you’ll be worrying about how to satisfy the new demand you’ve helped create. That’s a nice problem upgrade.
Full disclosure – I’ve heard from shoppers who I’ve helped get offers on items they enjoy and should be enjoying more often. It’s gratifying to have them thank me for helping them spend more.