The Future of Loyalty Schemes – Part 1

This is Part 1. See Part 2 here.

I think we can now all agree that loyalty schemes are here to stay.

Whether it’s a Clubcard, a Nectar card or even a ‘Hi-Life’ dining card, loyalty schemes have become a part of our culture, and they play an increasingly large part in shaping our buying behaviour.

It may not be a surprise to learn that Tesco are leading the development of the next generation of loyalty schemes. They are pioneering joined-up, intelligent schemes that not only reward loyalty, but influence future buying behaviour with highly relevant vouchers & offers for high-margin items that the shopper has previously bought (but, often, and this is key, not for a while).

For example, Tesco customers buying Douwe Egbert’s ground coffee a couple of times before switching to a brand that was heavily discounted, would probably find a voucher for Douwe Egbert’s appearing along with their till receipt at some point in the future. This is Tesco attempting to influence your buying behaviour, by rewarding the habit of buying high margin products.

Another way retailers use this voucher scheme is to target existing customers and promote more profitable alternatives. For example, (and to carry on the Douwe Egberts analogy) Douwe’s might strike a deal with Tesco for reduced prices if they promote their products to ground coffee drinking consumers not currently choosing their brands. Therefore all Clubcard users who have bought ground coffee recently will receive a voucher for Douwe Egberts coffee next time they settle up at the till.

Tesco is a good example to use, because they have been developing their club card since 1993. They segment their consumer database into around 40 different segments, each, reminiscent of the Geodemographics profiles of the 1990s, with an entire persona developed around them, modelling consumer behaviour, media choice and predicting trends.

The data that comes back from the tills is combined with other Clubcard data from the Supermarket’s brands & partners, all of which is used to:
1. Verify that the customer actually is in the right segment
2. Confirm the customer is still exhibiting the same behaviour as before
3. Build highly relevant, personal offers for each shopper in that segment based on what they buy

The recent massive improvements in CRM software means that this kind of segmentation & one-to-one relationship marketing is available to almost any business that is willing to make certain small concessions to get the project going.

However, like any change, its not always easy to maintain momentum in those early months where the ratio of effort to results is pretty poor. But those businesses who are tenacious will be rewarded with increasingly valuable data, that not only can help them profile, and then specifically target prospective target customers, but also sell more to the existing customers by offering them more of what they actually want & buy already.

Don Peppers, the author of the ‘One-to-One Marketing’ book series, talks about ‘share of wallet’ as opposed to share of market, and this applies perfectly here.

Businesses should be looking to increase each transactional value, of each of their existing customers, rather than pursuing the expensive new customers which can be costly and unpredictable.

So how would the ‘Clubcard model’ work in a different sector?

Take the example of a 40 year old man, married, with 2 kids who eats in Pizza Express.

He might currently visit under 2 different circumstances:
1. With work associates or new clients, predominately to talk about business.
2. With his close family members, for a family night out

Currently, Pizza Express does well and gets a good ‘share of wallet’, as he visits, on average, once every 6 weeks. But, if they learnt more about him, his eating habits, times he visits, who he visits with and the purpose of his visit, they can start tailoring offers just for him that might encourage him to visit more often, (or at a time which is traditionally quieter for Pizza Express).

Perhaps by offering a meal for just him & his wife, they might get an extra 4 visits a year, which can be a significant profit gain. (Pizza is high margin, so even if the pizza was heavily discounted, the remainder of the menu, plus drinks would more than make up for the discount. However, in some cases, the only incentive needs to be that the customer has been personally asked).

By encouraging an extra visit once every 3 months, they’ve increased his spend by almost 50% a year.

Retailers don’t even need a massively complicated till system to do this.

In 1923 Claude Hopkins, the widely acknowledged father of modern advertising, developed the coupon mechanism for tracking successful advertising campaigns. This is still a great way to virally spread offers, but also to track buying behaviour.

By simply making it a condition of redemption that the diner answers a couple of questions, a ‘bribe to come in’ can be transformed into a valuable profiling tool.

Taking it one step further, the restaurant manager could print a duplicate receipt and staple it to the voucher. This would enable the CRM (Customer Relationship Manager) software to track not only the times he visited, and the reasons for that visit, but even what he ate. This data is immensely powerful when creating personalised offers.

This is Part 1. See Part 2 here.