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Customer loyalty programmes: How can we resolve their erratic results?

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28th Aug 2014
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Customers are at the heart of today’s business landscape. They are tech-savvy, opinionated and, thanks to social media, they can dictate how brands are perceived, not only by their friends and family, but by the wider social community.

It is hardly surprising then that keeping customers happy is an increasingly important priority for retailers – made even more so by the fact that the cost of acquiring a new customer is roughly five times that of retaining an existing one. 

Loyalty programmes, which are fast becoming a pre-requisite for every large retailer, offer businesses a way to ensure they are constantly ‘surprising and delighting’ their customers, as well as providing retailers with an invaluable source of data.

Yet, despite the fact that 95% of UK consumers have at least one loyalty card, 40% of CMO’s are unhappy with the ‘erratic’ results of their loyalty programmes. Customers are often unaware or do not fully understand the benefits of loyalty programmes, and many simply do not remember, or even bother to carry their cards or vouchers with them while making a purchase. 

The solution?

From the onset, every customer loyalty programme must have a data-driven and customer-centric approach, offering more than simply standardised vouchers and points. According to Forrester Research, 50% of UK customers are more likely to use a retailer again if offers are personalised, and retailers need to deviate from the trodden path in order to keep their loyalty programmes fresh and relevant to the customer.

1. Differentiation

What works for Marks & Spencers' customers may not work for Asda’s. It is crucial for retailers to formulate a definitive loyalty programme strategy according to the retail genre, geographical market, clientele, etc. Customers should be segmented based on their purchase patterns, demographics, personality types and preferences. 

2. Engagement - not just transaction

We have all been delighted by the experience of being treated as a ‘special customer’ – be it at the local grocer’s or a large department store.  A loyalty programme that doesn’t entail special benefits to its members is bound to be forgotten, or worse, just ignored. The airlines industry, for example, excels at helping its customers feel ‘privileged’ - frequent flyers are often able to use their loyalty cards to gain access to swanky first class lounges and special check-in and in-flight privileges.

Retailers need to adopt a similar approach and move away from the run-of-the-mill birthday or anniversary ‘rewards’ to strategies that actively engage the ‘loyal’ customer at every interaction. Waitrose’s new loyalty scheme, for instance, gets rid of the traditional points system – instead offering free tea, coffee and newspapers to its members. 

3. Personalisation 

The customer loyalty model is more than 25 years old, and has traditionally prioritized rewards for transactions. But the increasing amount of customer data that retailers have access to means it is now possible to tailor offers for members based on both their historic and real-time activity. Tesco is taking advantage of this with the launch of its new digital Clubcard. The Clubcard will still offer a points system, but will allow customers to be rewarded based on their own tailored goals – such as healthy eating, for instance.  

4. Social media integration

Integrating the social media strategy with a loyalty programme is an added advantage for both retailers and customers. Social media provides a sounding board for customers where they can voice their experiences and opinions freely and take peer reviews into consideration before making any kind of purchase decision. Having a sound social media interface to attract, engage and reward active customers is a strong starting point for retailers in the digital age. 

Implementation 

While the answers might seem obvious, implementing the solutions can be a different ball game altogether. Some retailers have already been successful in creating analytical assets such as customer segmentation and share of wallet, but the majority of them are still at sea about how to make sense of the plethora of customer data pouring in at an alarming speed. 

Understanding and making use of customer data is fast becoming a top priority for retailers, as became clear during the Christmas period of 2013. While retailers with established loyalty schemes such as Waitrose and John Lewis saw their sales soar, Morrisons attributed their fall in sales (5.6% during the Christmas period) to the fact that they did not have a data-driven loyalty scheme, meaning they were disadvantaged by their inability to provide tailored offers and discounts.

And, while Big Data has immense potential, by itself it is not a silver bullet for all customer related concerns. Retailers also need to look at the bigger picture by combining advancements in technology with smarter analytics, and exploring new avenues such as digital or mobile loyalty cards. These help solve two of the biggest challenges facing loyalty programmes:

  1. Customers simply forget to carry their loyalty card. Mobile technology makes it simpler for customers across the board and helps retailers in increasing the adoption rate for the loyalty programmes. 
  2. Identification of customers or their behavior in-store – Check-in networks like Four Square and Google Check-In offer location intelligence and video analytics from the CCTV cameras placed in the store help retailers identify their customers and predict/study their shopping behaviour or mood.

Several companies are already beginning to facilitate this move to the digital. Boots, for example, has just upgraded its Advantage Card to a digital app, allowing customers to use personalised deals at the checkout, and even Nandos has replaced its famous chicken stamps with a digital ‘chilli balance’.

To get these digital programmes right, identifying the right kind of customers and tagging them to the right loyalty programme is critical. Data from different sources (social media, loyalty cards, store sales data, sensor data, location data from GIS enabled mobile devices, etc) in conjunction with real-time advanced analytics enables retailers to differentiate and engage with customers in a seamless manner. 

For a loyalty programme to remain sustainable, retailers should continually gauge, monitor and, ultimately, influence customers’ purchase behaviour. They need to go the ‘Decision Sciences’ way with skilled analytics professionals using the right technology to sift through structured and unstructured data, and deriving meaningful, business insights from it in order to enable better decision making.

Uday Shankar Rachapudi  and Pushkar Kumar are engagement managers at Mu Sigma.

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