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How to create a successful loyalty scheme

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22nd Feb 2010
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Gareth Mitchell-Jones looks at what it takes for a company to design its own loyalty scheme from the ground up.

The Tesco Clubcard has in recent years become a byword for a successful and thriving loyalty scheme. Its model has had such success that I have found myself in conversation with at least twenty non-retail businesses who have come to me with the express aim of ‘becoming the new Tesco’ or, at least, in mimicking its success. Nor is it solely a retail sector phenomenon; these companies range from international telcos to travel, media and financial services companies. They have two things in common: firstly, a need to drive insight from the data the business holds and secondly, a misunderstanding about just what is involved to achieve their goal.
The common misconception about a scheme like the Tesco Clubcard is that success will come purely from data, loyalty cards and technical infrastructure. What they usually fail to appreciate at this stage is that it also relies on accepting a different way of thinking and behaving – and, of course, that it is not a low cost endeavour to undertake.
Despite this, the high profile examples of companies setting up similar schemes continue to come thick and fast. In the last year alone we have seen reports of Amex and Barclaycard among others establishing capabilities to create loyalty programmes that rival Tesco’s – but what does this actually mean in terms of practical implementation?
Creating the system
Perhaps the place to start is with the development and build of the loyalty system itself. This includes data collection; creation of a suitable points solution; the reward programme itself, along with its partner network; and of course the promotion and marketing for the scheme.
The chances are that this system will remain separate from the core business operational systems, although it will need to be able to integrate at several key points. There are inevitable associated challenges based around the cost/time aspects of the integration especially when it comes to ensuring that the expansion of existing operational systems is as seamless as possible. If not done correctly, this can ultimately prevent the release of the marketing system’s capabilities as the vehicle for collection, update and interaction management, which will remain instead at an operational layer.
Using the right tools to extract data
There are a number of tools and processes available that can extract, transform and load the raw data received from the core business, its partners and third party vendors. This ranges from the customer’s personal details to their demographic breakdown, household composition and any linked accounts, addresses, products or services they may have within the partner network. Beyond that they will dig into the transactional data: sales, calls, visits, offers, surveys, orders and (if relevant) complaints.
The range of data that can be pulled will inform and improve the loyalty programme at all stages of its evolution; from locations to marketing programmes, product libraries and hierarchies to the metadata including descriptors for each preceding area, stats on loads, including passes, failures, validity and conformity, tolerances allowed on data received and processed, and useful groupings of data items.
The good news is that databases do exist that incorporate all of the data above in a single, tuned solution with a series of assets that harness the data and turn it into useful output. The most effective ventures will enable this with a dedicated team that manages, operates, develops and maintains the entire solution from both a business and technical perspective.
Company-wide support
To make the scheme a success it needs input and support from stakeholders across the business; this is not a programme run by one department alone. It needs involvement from the commercial teams, including finance, legal, commercial, project management and HR – potentially supplemented by suitable non-executive directors who can add further value to the venture. In addition, it needs business analysis and development teams to specify build and enhancement solutions to bring new ideas to fruition; this team will include DBAs, architects, developers and business analysts.
Infrastructure and software specialists incorporating networks, security, finance, legal and disaster recovery will provide another crucial aspect; equally essential are the service management and support teams, including helpdesk, training, operational readiness, development and production staff. Add in the customer intelligence specialists like analytics, campaign managers, planners, business and specialist consultants and you begin to have a picture of a fully-integrated programme that can draw on expertise from across the parent company.
Exploiting the assets
The data is crucial but once you have it, it is equally important to understand what it can tell you. For this an organisation needs a series of powerful, velocity focussed tools that can access and exploit the assets that have been created. In broad terms this will involve a series of data analysis tools: from geo-spatial to statistics, reporting, marketing automation, optimisation, real-time decisioning, web analysis, knowledge-capture and also a collaboration tool that may or may not be merged with the knowledge management toolset.
It is also necessary to invest in specific analysis outputs that will drive key mechanics. If you don’t know how the data output will appear, you will not be able to use it effectively. Four requirements for analysis outputs for consideration are outlined below:
  1. Cubes or marts – Customer, Service, Product, Partner, Channel, Stores, Promotion, Campaign are all useful and different variations.
  2. Models – price elasticity, product and offer propensities, contact timing, response, conversion, default payment, churn, retention, renewal, activation and winback, to name but a few.
  3. Segmentations – of which there could be hundreds of useful lenses to choose from but value, contribution, headroom, lifestage, lifecycle, preferences, habits, channel usage, promotional suitability, share of wallet and advocacy are likely to be key requirements.
  4. Reports – KPI trackers, business performance data, flexible profiling and detailed, dynamic, guided train of thought tools.
Ultimately what this data will provide is hard facts. To colour and supplement those facts there is a need for extra research that can make sense of what this means in human terms: to understand the why instead of just the who, what, where, how and when. In practical terms this is not only useful for current work but also future developments and product strategy: from customer satisfaction and product / service usage to new product / concept development and launch or response to performance and recall marketing and creative campaigns.
Taking the next step
There is no easy route to a successful loyalty scheme; it is not something that can be bought off the shelf, but rather something that is material to everything that happens in the organisation, including customers, suppliers and partners. Tesco’s Clubcard scheme was not designed solely with money in mind: they adopted a stance which meant they would  only do it  if it makes business, customer and financial sense. This message was pushed through to their suppliers, whose performance was measured on that basis. This is why the Tesco story is different for me and why almost every business that tries to recreate that success for the sake of money alone will most likely fail in their efforts. What they are after is the capability, the rewards, the insight and understanding: what they need in order to achieve that goal is the ability to develop the scheme as a collaborative journey, and not just a destination.
So for those savvy organisations who bear all this in mind, surely it will not be easy to get started on their mutually beneficial, integrated loyalty scheme. "When do we start?" I hear you ask; and more importantly, "When do we finish?"
The answer is certainly not in six weeks time – perhaps not even six months or years. It took Tesco a long time to create its position of market dominance, and it was not done through the Clubcard alone. The nirvana that these businesses are seeking, like all good relationships, won’t be a quick fix but a slow burn. There will nights of passion and argument along the way; there will be tears, sleepless nights and endless weeks of negotiation and tip toeing around each other – but ultimately, when you look at back at what you made, you’ll be able to do it with pride.
The question for me is who really wants that success; which of these companies combines the commitment, the leadership and the capability to echo the success that Tesco has created for itself. More than that; which of these companies is ready to commit to such a long-term relationship that requires so much work to create something great? The answer? Not many. But perhaps, with an appreciation of what is required and an understanding of what success through partnership really means, more than a few.

Gareth Mitchell-Jones is director of analytics within Experian Marketing Services.

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