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Customer data can provide a foundation for understanding shoppers and tailoring promotions. But marketers still wonder why some promotions hit the mark and others don’t?

By George Mikaelian

Loyalty programmes present a valuable mechanism for retailers and their supplier partners to build long-term affinity with customers. The resulting data that these programs generate provides a vast resource for understanding shopping behaviour and developing targeted programmes and communications. While direct mail has become a typical way to tailor offers to specific customer groups, customer insights can also be used to drive other types of more traditional retail promotions such as features in weekly circulars and POS (point of sales)-triggered coupon offers. Incorporating customer data into decision making for activities which make up the vast majority of promotional activity can change the dynamics of retailing by focusing attention on customers and their needs—rather than on categories or brands.

Building the basics to succeed
In an increasingly competitive marketplace, companies that use their loyalty programs to establish a deeper relationship with their customers are better positioned to prosper. Two foundational factors are especially important within any loyalty scheme:

1. Maintaining good customer data with insights, which can be easily distributed throughout the organisation for decision-making
2. Developing a business culture that constantly looks for ways to improve programmes that benefit customers by applying shopper insights.

Creating a process for gathering insights, testing programs and learning about customer response is important. While a few interesting facts about a cardholder’s household composition might come from the initial card application, such information and even deeper insights may also be derived by capturing sales history and assessing information about customers from transactional-level purchase data. Sales data not only tells an analyst about additional family members in a cardholder’s household, but it also identifies opportunities to target the household more uniquely through a better understanding of preferences for specific categories, products and brands to satisfy the special needs of a child or any other household member.

Increasingly sophisticated models also enable analysts to understand why customers shop, how they shop, what they buy and how sensitive they are to various price structures. If properly collected and assessed, sales data can point out everything from pets in the home to family health and nutrition needs. Analysis of the data becomes one way to answer those burning business questions: What do customers want? How can I keep them shopping in my stores instead of the competition? And what opportunities exist to increase sales?

Commitment is a key
The data, analysis, and decision-making are only as good as the commitment by business leaders to continuously apply the insights to developing programme that positively impact customer behavior. This kind of transformational change and the impact it has on the enterprise takes time. If leadership embraces the use and application of customer data, the business will follow. Organisational and structural changes are required to re-align goals and incentives or develop planning processes that focus on the customer. The end result, however, works.

Revealing customer-focused insights
One example of a retailer, well known for rewarding it best “Platinum Fans” customers, wanted to use its loyalty card programme to further build customer affinity and grow sales. By all accounts, this grocery chain has earned some measure of success—achieving over 85 per cent of sales on card by reinforcing a message of customer value, targeted offers, and special services. These loyal customers received periodic special in-store gift cards and coupons presented to them directly by the store manager for maintaining high loyalty thresholds. But leadership within the organisation realised the need to understand customers on a deeper level and wanted insights and analysis that identified which promotions worked for which customer segments and why. Promotions within three normal business activities were assessed to understand how customers in certain segments were impacted.

Analysis of featured-item promotions from the front page of a weekly circular yielded insights about the promotion’s incremental impact on category, total grocery department, and total chain sales. In one example, a major laundry detergent was promoted at $9.99 (with no minimum spend limit) in one week and again at US$8.88 (limit one with a US$10 purchase) in another week. A comparison of sales by customer segment for each promotion showed that the second item promotion was able to drive additional positive performance among all shoppers. Specifically, the lower-priced item, even with the limit, was a key driver of significantly higher sales — especially among typically lower-spending and less-loyal shoppers. In this case, the increased sales within the category and total grocery department significantly offset the margin reduction from the discounted price.

The complete analysis of front page item promotions offered category managers, marketing and supplier partners with recommendations to consider when selecting advertised specials. In general, feature items promoted in the weekly circular appeared to have a better impact for: Higher price items, longer purchase cycle items, planned purchase/fixed consumption items, many products at the same price point, less loyal customers. While the advertising circular appeared to be a good mechanism for driving visits into the store, product selection is important in order to optimise the impact of this marketing activity.

Matching rewards win
A second analysis of direct mail promotions targeted toward highly engaged and highly loyal shoppers (in terms of spending and trip frequency plus Spectra Share of Wallet) underscored the importance of matching relevant offers to customer groups.

In this example, reward mailers were sent to specific customers in the “Platinum” segment including “Fans,” “Loyals” and “Switchers in each of four separate months (See end of article, Building a Loyalty Segmentation). Analysis revealed that the highest percentage of lift in trips was among the less-loyal switching segment: 12 per cent to 19 per cent increase for “switchers”, compared to 3 per cent to 6 per cent for “Platinum Fans”. This approach was effective in driving less-loyal customers into the store and could be used tactically for situations where there is high competition. Of the four promotions, month one was the most effective, delivering nearly $500K incremental dollars with little drop off after the promotion. Combining the targeted mailing with a seasonal event (such as Easter) was even more effective since it captured the spend uplift and did not simply bring forward future transactions.

Coupon redemption cashes in
A third analysis in the series investigated the redemption of point-of-sale coupons and the impact on incremental sales. One of these coupons featured a discount of $2 off any produce department purchase of $10 or more. The campaign generated a great response driving incremental visits at the store, department and category level. Incremental trips to the store were up nearly 10 per cent, while trips to the department increased by nearly 15 per cent. Leadership was particularly pleased as this promotion helped communicate its overall marketing message of the store. As with the featured item promotion in the weekly circular, this type of promotional mechanism was particularly good for increasing visit frequency for less-loyal customers. While not all the POS coupons delivered the same results, the lessons learned by testing ideas and refining the communications or targeted offers led to refinements of future promotions. Loyalty programmes can provide customer insights, which can be applied by both the retailer and the supplier for better decision making when developing targeted programs or communications.

Building Loyalty Segmentation
Any segmentation must meet two important criteria to be effective. It must accurately describe and define customers within distinctive groups. It must also enable the targeting of customers with promotions to influence shopping behavior and measurement of behavioral changes. A loyalty-based segmentation is useful for assessing customer engagement with the store and monitoring changes in spending patterns.

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