Loyalty or Defense
By John Hennessy, Vice President, Concept Shopping, Inc.
(www.conceptshopping.com)
In the pursuit of loyalty, lots of databases full of customer information have been created. An article by Jill Griffin on MarketingProfs.com suggests some ways to use that information to gain lessons on loyalty by identifying and understanding “problem” customers.
Some of Ms. Griffin’s suggestions are:
- Detect fraud. Shoppers who take advantage of generous return or other policies can be identified and encouraged to play by the rules. This may require combining data from several sources. For example, a high spending customer looks good in sales data alone but might be identified as a return problem only when that sales data is combined with returns data.
- Identify flawed business practices. If you’re rewarding for new customers more than selling to existing, high customer churn and low retention rates will indicate this problem.
- Beware of the fickle factor. Customers who can be bought by the lowest price — their loyalty is price deep. Sometimes a longer sales cycle is a good thing. In the end, you’ve truly earned the customer’s business.
- Identify variety seekers. These customers quickly tire of the old new and move to the new, new – skipping from brand to brand in the process. Their loyalty is fierce but temporary. It’s possible to use their enthusiasm while you have it, but understand that they will soon be gone and are not worthy of lots of your attention.
Moderator’s Comment: Are most retailers using the shopper data they collect for offense or defense?
This article got me thinking about balance in the use of customer information.
It’s certainly important to detect and eliminate fraud, but it’s also important to pay attention to your better shoppers and shoppers with the potential
of becoming your better shoppers. Shopper information should be used to answer the question, “What can I do to earn more of their business?”
My concern with a lack of balance in approach is that it can invade how the company interacts with its customers. If the tools, practices and polices are
on defense, customers are viewed as suspects and treated as such. If the tools, practices and policies are on offense, customers have high value and are pampered accordingly.
There’s probably room for a little more emphasis on the latter. –
John Hennessy – Moderator
There is some danger in making general comments about whether retailers are using their customer data for offensive or defensive purposes. Among the largest retailers, particularly large discounters technology has been used to improve the supply chain, inventory replenishment, and other operational functions. While most supermarket chains have built massive databases of customer information, only a few are utilizing the power of that information. Yes, this is a generalization of the situation but, the nation’s three largest supermarket chains with frequent buyer programs have yet to take full advantage of the opportunities presented by having all of this information on their customers.
At the same time, a growing number of very successful specialty retailers are using customer purchasing information to leverage relationships with their best customers. Customer purchasing data is used to bring the best customers back into their stores with greater frequency and sell merchandise that meets the customers specific needs. Many of these retailers are also using this information to better understand why some customers shop in their stores, why others don’t and why some stop altogether. The decisions to use this type of data for leveraging customer relationships is far more important and cost effective than for any other use.
All four of the options seem defensive to me. And, as a consumer, I would take offense at the mere thought that my data was being used offensively. Why are we treating retailing as a combative situation? Surely it should be far more seductive with both products and environment being irresistibly tempting – my motto in the days when I had my own retail operation. We have had so many discussions with people bemoaning the ill use, misabuse, abuse etc of data gathered. Perhaps it is finally time to stop and re-evaluate and seek improved methods for everyone’s benefit.
I’ve often wondered why a specialty retailer would be interested in my zip code when I buy a pack of AA batteries. The cashier is ringing up my order, and without missing a beat asks me my street address, and berates me until I give up the vital state/county code information. In fact it seems that I can’t give them my three bucks until they have completed their “process,” something I don’t think the fine folks at Kroger or Walgreens would submit me to.
If the retailer would explain the reason for asking (or requiring) this information, I might be more likely to release it. Show me how this additional data will improve the products or services I purchase from you. Explain how knowing how far I drove to get to your store will mean better products that are delivered faster and cheaper. Reward me as a frequent shopper by offering product discounts and special purchase opportunities.
However, collecting data for the sake of collecting it doesn’t do me any favors and ultimately bogs the retailer down with useless information. Ask me what you want, tell me why you want it, and make sure that you answer the big question hanging over my head – “What’s in it for me?” Otherwise, take my three bucks, and give me my batteries.
Most retailers are using it for offense to announce sales, etc., with seemingly little thought to demographics and truly targeted offerings. From personal experience, Staples and CVS do better than most. Supermarkets seem, for the most part, considerably behind the curve. I’m seeing more third-party providers offering services here, but many retailers still seem reluctant to pay for their services. More credible, high profile instances of ROI and real loyalty will help speed this along. As for using it for defense, mail order companies have been doing this for years, as well as major CPG manufacturers. So there’s a good base of working knowledge there, and some shared databases on nightmare customers.
Although no one can argue with the validity of the arguments that some customers are more valuable than others, retailers need to use caution when segmenting customers. First, although your behavior can GENERALLY be classified, do you ALWAYS behave the same way? Second, what are the peripheral effects of segregating activities? Having been at a major retailer that embraced the concept of customer segmentation, these concepts are 1. costly to implement and 2. have the effect of making your brand more confusing to the consumer.
These concepts will be pervasive in the next 10-15 years, but in my opinion this will not be true until on-line shopping (not necessarily spending) eclipses traditional shopping; the technology to support segmentation becomes more mature; and last, but not least, public policy on privacy rights is settled.
There is a general feeling in the supermarket channel that these “robust” databases that retailers have built from their frequent shopper programs have been woefully under-utilized. I think that is a fair assessment, but those that have made good progress with CRM get unfairly swept away with those that have not.
In fact, those that have made significant progress are also the retailer’s that are least likely to race to the podium and tell the industry about their success. “Stealth Marketing,” as data base marketing is often referred, does not lend itself for public discussion.
Common characteristics of those that are making good CRM progress and using their database proactively are very telling. These conditions include:
-internalizing CRM as the mainstream marketing initiative of the organization
-bringing in the right people to implement a strategic-based consumer dialogue with their customer groups
-linking their CRM effort to their merchandising group in order to populate communications to shopper groups with rich and relevant content, (the intelligent transfer of trade and account specific funds from mass initiatives to targeted programs)
-understanding technology and a means to distribute offers without relying solely on expensive direct mail, meaning electronic offers through email at the home PC, in-store kiosk, as well as other touchpoints in the aisle, on the cart, through the cell phone, etc.
Progress is out there, but by definition, it is not always easily recognized by those who are not in the target audience.
“It was the best of times, it was the worst of times.” A timeless quote. It applies to the retail environment as well. It applies to the utilization of information. You can say it is the time to be proactive and reward loyalty and it is the time to defend against losing customers and having flawed business practices. Retail, in my opinion, is undergoing a transformation. Retail is saturated, some might say over-saturated. Retailers must, in order to grow, either take market share from their competitors or increase the average transaction size. What better way than to learn about their customers? For the past few years retailers have begun to collect more and more information about their customers. The key is in learning what to do with the data and how to maximize the results. Those who listen, take action, retrain their employees and then measure results will be successful.
A majority of Customer Loyalty Programs are laughable at best, much less useful. I have seen examples of test and control promotion cells where the control out-sells the test the majority of the time. All they are, are two or three tier customer discount pricing. Since most retailers don’t have a clearly defined target customer set, they have no base for a real customer loyalty program. In our house, we have cards for every store. Somehow, that does not seem to drive loyalty. The shop decision is more related to daily travel. Retailers have two options. Either discontinue their program and significantly improve their profit line or create a real program like Tesco’s. Get out of discounting and into selling. If a retailer ever did true customer profitability, they would find many of the best customers contribute very little to the bottom line, all the while giving away the store.
The thing I always find interesting in the discussion of frequent shopper data is the realization that our (arguably) most successful retailer does not have a card. If a card was truly necessary to have a successful retail operation, I am sure Wal-Mart would have one by now. In my mind, this minimizes the “defensive benefit” in particular because at their margins Wal-Mart cannot afford too much shrink.
On the other hand, Wal-Mart has such a strong offensive image (no pun intended) that just about every day the consumer is exposed to some kind of news announcing how other businesses are protesting Wal-Mart’s aggressive marketing and discounting practices. The Wal-Mart name has become synonymous with “savings.” They don’t need to offer a discount card because everyone knows they have the “best prices.” They also have just about “everything you need,” so they are not a category killer that needs to make an extra stop worth it for the consumer.
Not everyone has the same news coverage and breadth of assortment as Wal-Mart. So the offensive benefits of a card program make sense for retailers who must stratify their customers by using targeted promotions. Whether the offer is for price, additional service, or an unusual product the frequent shopper program can enable focusing on a customers needs.
The point of database marketing is to learn about your customers. There is no “one size fits all” approach. Companies need to investigate their data to determine important characteristics about their consumers – they should not be investigating databases to learn only one thing. The most important characteristics are the ones that describe and/or are important and/or relevant to your consumers at a particular point in time.
I hate to say it, but most retailers are barely using the shopper data they collect for any beneficial purpose. Those that lead with fraud detection set the wrong tone for a customer-centric enterprise. Of course it make sense to weed out systematic abusers, but I suspect the sensational examples are rare. If potentially loyal customers feel the retailer mistrusts them, the game is up before it’s begun.
Analysis of data on unprofitable customers does offer lessons – about poorly designed service policies or pricing strategies; about customer-attracting promotions that attract only least-desirable customers. But if you feel the “gamers” are cheating you it’s probably because of the way you set up the game.
Like many kids of the 60’s my first job was in retail.
My boss told me something I never forgot. “Jeff, the customer that complains the most and the loudest, is our best customer.”
I didn’t get it at first, but after a short apprenticeship, it finally made sense.
The customer that complains, is a customer empowered… a customer who cares… a customer who is LOYAL. If the retailer listens and constructively responds, the retailer gains a customer for life, and this customer is not as price sensitive as the passive customer.
Today, I am a passive customer in most instances. I have retail choices. I very rarely find myself selecting an alternative on the store shelf if my expectations are not met. I go to the store next door.
In almost every retail category there is a ‘store next door.’
I very seldom have anyone in retail available to listen to my concern, very rarely is there anyone willing to help me, and I’m OK with that because I have lower prices resulting from minimal staffing.
How does all the data measure my passive behavior of simply going to the ‘store next door’?
Loyalty programs are not a be all or end all. Loyalty programs can be a part of a program. Originally, such programs were designed to reward customers who purchased on a frequent basis. At the same time it was discovered that frequent or loyalty cards may, and I repeat may, tip the scales of where a shopper buys if all things are equal.
If the customer experience is not what suits the consumer, then a loyalty program will not get the consumer to become a customer. We sometimes tend to over-analyze the data which is collected and perhaps forget the fundamentals. Those are very simple; give the consumer a good product at a fair price and provide good customer service. That will turn a consumer into a customer.
Here’s the deal: Database nimrods (newbies) collect mountains of data and count on these mountains to stimulate “deep thoughts and questions.” This plays well in the retail industry, which spends far more energy in getting ready than in execution (sell-through). With their built-in, buying-oriented mentality, retailers – especially supermarket operators – are much more involved in acquiring stuff than in selling stuff. This mindset is biased toward collecting customer information, but not toward ways to use it.
A former boss I often disagreed with said some guru-like things that I still reference. George Off, former Bull Moose and Senior Factotum of Catalina Marketing used to ask, “Why collect a heap of information, when you can define the question ahead of time and collect only the information required to answer it?” Brilliant. It made the nimrods do their work upfront, rather than never.
Are most retailers using the shopper data they collect for offense or defense? Neither. MOST retailers aren’t using it efficiently or productively at all. But, among the minority of retailers actually using their shopper data, most do so in protective, control-oriented ways. Of course, this fits with their go-to-market predisposition.
“Me-too” mediocre retailers have “me-too” loyalty programs. Almost none of the me-too loyalty programs use the data in any creative way. They are discount cards that may have a subsidy from certain suppliers when the suppliers want to promote their products. Retailers dominant in their segment don’t need loyalty programs. Is the loyalty program driving profits at Abercrombie, Wal-Mart, J.C.Penney, or Cartier? How to measure your customer loyalty: if you have a loyalty card program, your customers aren’t loyal.
Careful. When pointing a finger back at a ‘problem customer’ you likely always have four fingers pointing back at you. That’s a problem. Any retailer focused on their ‘worst’ customers or ‘problem’ customers are focused completely in the wrong direction. What’s also a problem is the concept that you can learn this from ‘data’ and draw conclusions from that in itself. That concept is dangerously flawed.
As discussions continue for some time here now about loyalty, I’ve tried countless times to find a way to understand how it can be created through a ‘program.’ That is to say, how it can be created through data, rewards, withdrawals, etc, etc?
In all the review I can make of the retailers to which I feel loyal and, in some cases, intensely loyal, none is the result of their use of data on my behalf. Quite to the contrary; it is the result of the experience they have created to keep me as a customer when there are countless alternatives. That remains my definition of loyalty and, in the many attempts understand other means – experience remains the single most important factor.
Retailers not solely focused on the single factor of experience and all the elements that make it up, will continue to be distracted from the real means of creating loyalty. Those retailers that focus upon the understanding that each customer is important will gain greatly. Those retailers that focus upon continuous improvement of the experience will remain those that create and maintain real loyalty. Sidetracks as discussed so many times will continue to lead retailers astray from what they are in business for in the first place – the customer. When that comes to the forefront, discussion of your ‘worst’ customers isn’t a thought worth having. And in turn, real success is at hand.