Customers are constantly telling you their stories through their shopping behavior. Are you using this data to build deeper, more exciting and more profitable relationships? In a chapter of Shopper Technology Institute’s “The Little Book of Big Data,” Graeme McVie of Precima explores how to truly hear what shoppers are telling you.
Every time customers shop, they are telling retailers stories about their needs through their behavior. The question is: Are retailers listening?
When they do listen, truly listen, to the stories shoppers tell through data, retailers are able to create a customer-centric approach that helps create sustainable improvements in business performance year after year. Precima engagements have found consistently measurable improvements – including a 1% to 4% increase in overall sales and a 4% to 7% increase in gross profits – when retailers and CPG manufacturers took a holistic customer-centric approach across pricing, promotions, assortment, marketing and supplier collaboration.
Loyalty data provides an excellent mechanism for listening to customers and a significant source of “big data” – the sum of all data collected by an organization (point of sale, social media interactions, marketing responses, loyalty programs and so on) from which value can be extracted. However, there’s a gap between how well retailers think they’re listening and how well customers think those retailers are listening. Indeed, Precima primary research on customer-centricity found an interesting contradiction: Among top U.S. retailers, 88% said they consistently deliver personalized one-to-one marketing communications, yet 64% of consumers said they think they’re getting the same offers as everyone else.
Clearly, there is much work to be done. Luckily, leveraging loyalty data wisely to listen to and understand shoppers provides a path to keeping shoppers coming back, deepening their engagement and forging a path to sustainable and profitable growth.
The key is to approach loyalty holistically in three dimensions: loyalty as a strategy, loyalty as an outcome and loyalty as a program.
Loyalty as a Strategy
Retailers and CPG manufacturers have limited resources and must make some thoughtful decisions about where to make investments. Begin by understanding which individual customers, categories and stores present the greatest opportunities for growth, as well as those already performing well.
Understanding customer needs, from a loyalty strategy standpoint, has three primary analytical elements:
- Customer analytics – rooted in demographics and psychographics (life stage, lifestyle, etc.) and requires scoring every customer against a variety of behavior metrics to identify shopper needs, values and wants.
- Marketing analytics – the linchpin for designing one-to-one communications, to create deeper and more effective marketing rooted in granular and timely data.
- Merchandising analytics – analyzes data at the customer/transaction/item level and employs prescriptive analytics to determine optimal price/promotion/assortment plans across the total store and down to the individual customer level.
Having leveraged these three types of analytics, the retailer is in a position to determine how to allocate resources to earn the loyalty of customers. That could be done by making more customer-centric decisions in merchandising, marketing and operations; by employing a loyalty program; or by pursuing both simultaneously.
Loyalty as an Outcome
Loyalty as an outcome begins with the premise that you must earn the loyalty of your customers. Simply put: Do you satisfy customers’ needs better than the competition? This is only possible if you use customer data across all aspects of the business to create a truly customer-centric company.
One example of a retailer doing this well is Safeway, which taps data on customers’ purchases through its loyalty program to offer personalized discounts and manufacturers’ coupons through its Just for U program. Former CEO Steve Burd has observed, on the topic of savvy use of data, “There is going to come a point where our shelf pricing is pretty irrelevant because we can be so personalized in what we offer people.”
Loyalty as an outcome can be seen in a number of areas:
- Marketing – done well, personalized marketing can move response rates from an industry average of less than 5% to rates higher than 40%, with incremental sales growing from 1% up to 4%, from Precima clients’ experience.
- Price planning – delivering total store optimized prices aligns all prices across the store with customer needs. By understanding which items are most important to loyal customers, retailers are armed with the ability to invest appropriately in lowering prices to improve price perception.
- Promotion planning – understanding which promotions matter most to loyal shoppers allows retailers and their CPG partners to design promotional plans in a shopper-centric manner.
- Assortment/space planning – understanding which items are most important to loyal shoppers and which items have low demand transfer ensures that only low-risk items are identified for removal from the assortment. Space allocation can be adjusted to reflect the needs of loyal shoppers and the most productive items and categories.
- Store operations – high-value growth opportunities can be identified for individual stores, and additional store personnel can be employed to meet specific needs in specific stores. For example, if a group of stores has an attractive opportunity to grow sales in the seafood category, adding personnel to the seafood counter could be a good way to facilitate higher seafood sales.
Competing on all areas might not be possible, but competing on the areas that are most important to loyal customers can maximize customer satisfaction. It also boosts regular sales anywhere from 1% to 3% and increases gross profits from 2% to 5%, from the results Precima clients have seen.
Loyalty as a Program
Loyalty continues to evolve, from traditional offers with little to no tracking mechanism, to multi-faceted programs that are amplified with digital, mobile and social media components. Traditionally loyalty programs have been viewed as a “card” that provides access to shelf discounts. But more and more retailers are introducing alternative versions of loyalty programs that no longer conform with the traditional card-based approaches of old. For example, Walmart’s Savings Catcher smartphone app is a loyalty program in all but name.
In general, loyalty programs have two main objectives:
- Identify customers so that data can be captured and analyzed to better understand and serve their needs.
- Provide a differentiated offering that rewards customer loyalty and enhances the overall experience.
For retailers that are looking to design a new loyalty program, it’s essential that it have the right mix of benefits to deliver a compelling value proposition while at the same time being cost-effective. Factors that could be considered with regard to the value proposition of a loyalty program are the balance between base and variable rewards, the degree of hard and soft benefits and the amount of overt versus covert benefits, to name a few. The structure of a loyalty program can also include or be enhanced by including multi-partner efforts, including coalitions, or short-term efforts with CPG partners or other retailers.
Retailers that already have a loyalty program must look at two key areas when assessing its effectiveness: Is it consistently delivering a meaningfully differentiated experience that shoppers value? And, is the program sufficiently innovative and unique, delivering an ROI more attractive than other potential investments?
Getting Better and Better
By truly listening to the stories customers are telling them through their interactions and transactions, retailers also will understand how best to use data to create excellent customer experience as well as financial reward.
The effective collection and use of data insights to satisfy shoppers better than the competition is what will increase ROI, sales and profits and earn true,