Knowing what is your customer’s cup of tea

A good many loyalty schemes are failing, says a new study. Unless marketers collect data on customer preferences and make them core to brand strategy, these programmes will never stir up a big response. By Steve Hemsley

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A well-designed loyalty scheme based around robust data can be a winner for brand and customer. However, many marketers admit that their loyalty programmes are underperforming or producing erratic results, according to a report published by Forrester last month.

It reveals that 40% of those questioned aren’t sure about how accurate their schemes are.

There is little differentiation, poor communication and promotional support, while many programmes are not integrated with the sales cycle or in sync with branding, says the study. There are also problems with measuring results and targeting the same consumers too often. The drive for loyalty should fuel a brand’s entire marketing strategy, says Forrester’s report.

For retail marketers, it informs store layout and the profile of product ranges. Tesco, for instance, uses its Clubcard data to ensure the products on the shelves of its Metro convenience stores meet local needs, and is the envy of other convenience store brands, according to Forrester vicepresident and principal analyst Luca Paderni.

“The problem is that many brands fail to set long-term objectives for their schemes and are too focused on immediate sales and customer acquisition. Instead, they need to look beyond tactical activity and study what is driving customer value.”

He says consumer intelligence has a big role to play. “Brands need to discover who would buy a product whether they were rewarded or not, who will move from one promoted brand to another and who really needs to change their behaviour.”

Loyalty must be earned and is usually the result of a series of compelling brand experiences which the consumer enjoys over time, Paderni adds. He suggests marketers build their brand strategy around a three-point cycle of customer engagement, interaction data and actionable insights.

Leisure customers may only travel once every four years but having miles gives them equity in the brand

Alan Lias, Virgin Atlantic

Virgin Atlantic has used its Flying Club to provide a significant boost to its business. It has 2 million members worldwide and is a profit centre in its own right. Alan Lias, head of loyalty marketing at the airline, says the customer relationship management scheme achieves a net margin of 30% after costs, such as running the call centre, because its global airline partners help to fund the scheme.

The airline captures data from Flying Club members and Lias believes the company has achieved the best of both worlds of having a profitable CRM scheme and a long-term brand strategy.

“The Flying Club is open to leisure and business travellers, and having a physical currency such as air miles keeps the brand in the customer’s mind,” says Lias. “Leisure customers may only travel once every four years but having miles gives them equity in the brand and means that when they are looking to fly long-haul again we are on their shopping list.”

Retail executives certainly understand the importance of loyalty schemes to the wider business. The decision to launch Clubcard across the UK was taken by the Tesco board, which subsequently approved an extensive internal communication plan.

There is top-level support at Sainsbury’s too, and it is using data effectively to improve its instore experience and boost customer retention.

More than a paper
More than a paper: The Telegraph is extending its loyalty scheme offering

Nectar is the UK’s largest loyalty programme with more than 50% of UK homes collecting points. Brands in the scheme can see which consumers are high value and which will always buy a product whether there is a reward or not, according to Sainsbury’s data analyst LMG
Insight & Communication.

Sainsbury’s used Nectar intelligence to remerchandise its wine displays after data revealed shoppers search for red wine by country of origin and white wine by grape type. It has since seen double-digit sales growth in this category.

It is not alone in understanding the importance of data to generate loyalty. The Daily Telegraph wants to add value to its loyalty scheme and
encourage subscribers to redeem offers from its dining, beauty, home and film clubs.

Telegraph Media Group marketing director Graham Horner says data from the programme informs all of his communications and subscription
strategy. “Year one of any loyalty programme is all about testing, learning, putting offers out there, trying new ideas and measuring response,” he says. “Only in the second year do you really know what your key levers are and when to pull them.” The Telegraph has a 335,000-strong subscriber base and data tells Horner who has registered to use the loyalty portal online. “We know who should receive emails versus non-digital forms of renewal communication,” he says. “At the moment of renewal we want people to think about the whole package they get from the Telegraph and not just the weekly price.”

Data fuels bespoke marketing campaigns. For its Film Club, subscribers are offered free preview screenings and those who live within a 30-minute drive of participating venues are targeted with email invites.

Elsewhere, Barclaycard wants to increase take-up of its Freedom pounds-for-points loyalty scheme by 50% this year using event-based marketing. It had already signed 1 million customers in a year.

Marketing director Sarah Alspach says there are two streams of data to master. One reflects consumer spending and the other the
management of card payments for retailers. Both produce valuable insight to share with partners such as Shell and Pizza Express.

This data-led approach means cardholders who have benefited from retailer special offers spend two and a half times more than cardholders who do not take up the rewards. Another plus point of the scheme is that Barclaycard collects information on a customer’s full spending habits across retailers that are not partners.

Elsewhere, Barclaycard wants to increase take-up of its Freedom pounds-for-points loyalty scheme by 50% this year using event-based marketing. It had already signed 1 million customers in a year.

“A customer may visit restaurants that do not operate Barclaycard Freedom,” says Alspach. “This knowledge allows us to target these people with geographically specific introductory offers for outlets that are within our coalition.” Many loyalty schemes lack differentiation because marketers can wrongly assume consumers always buy on price.

Paul Davies, customer analytics specialist at business advisory firm Deloitte, says coffee shop loyalty schemes are a classic example. “These
are predicated on the idea that buying something like coffee is a price decision when in reality it might be a taste, service and convenience one,” he says.

He believes these schemes would be worthwhile if the data captured revealed a customer’s frequency of purchase, their product preferences or contact details. In reality, stamped cards rarely capture any data for use in customer analytics.

Davies says the supermarkets demonstrate how data-driven targeted offers on relevant products can generate repeat business. “These techniques reduce marketing costs, increase conversion, quantify demand for products and inform pricing decisions,” he says.

Forrester expects mobile marketing to become increasingly important to brands in the quest for loyalty.

More mobile barcodes are being used to create a direct dialogue with consumers, with the scan, response rates and user data sent to marketing teams in real time.

These barcodes provide valuable intelligence on a customer’s location at a particular time, according to Mobile Marketing Association chief marketing officer for EMEA Paul Berney.

The data is fed into demographic and other opt-in information so future marketing is even more targeted.

“It ensures the message hits the consumer’s ’sweet spot’ and this encourages additional engagement and action, gives marketers maximum reach and provides them with analytics on which to base subsequent loyalty campaigns,” he says.

As part of any well-honed data-led loyalty strategy, it will tempt consumers back for more.

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Richard Higginbotham
Head of marketing
Transactis

Nearly 80% of the 2,000 consumers questioned for our Data Wastage report will stop providing companies with personal information or swap their brand allegiance altogether if the offers they receive are consistently irrelevant.

The heart of the problem is that many organisations do not have a single database for the intelligence they gather, including from their loyalty scheme, website, transactions and customer service interactions. Unless every bit of communication is informed and relevant the perception of the brand is hit and customer loyalty can be lost.

Loyalty schemes are ideal for collecting valuable data which must be captured and stored in an actionable format. However, they only provide a perspective, not the complete picture. Loyalty data shows someone’s purchases over the past few months, the time they shopped and whether they buy discounted or premium brands, but this is not enough to ensure relevant communication to generate loyalty over the long term.

If, for example, the data available provides a detailed view of someone’s purchases, but not the promotional offers they received or the customer service issues they experienced then vital intelligence may be missed. What a marketer believed to be a highly relevant communication can then appear ill-considered or even a turn-off.

The intelligence could also be wasted if marketers are unclear about what they are using it for. Is data at the centre of what you do or just informing what you plan to do? If it’s only the latter, the intelligence will give you insight to plan 12 months’ of marketing activity, but it can mean you miss what is changing. While historical activity is a great predictor of future behaviour, it should be informing communications triggered by what a customer is doing now.

Integrating data to boost loyalty does not have to be expensive nor involve using expert analytical resources. Merely using the tracking data from web and email to drive follow-up communications can create a highly personal experience. Simple segmentation (as simple as male and female) on personal landing pages can generate rich insight that is immediately actionable.

And ’triggered’ communications such as these can also provide a rich vein of insight on current preferences to add to existing data assets.

Brand in the spotlight
case study – Ladbrokes betting on long-term gains

Multi-track thinking
Multi-track thinking: Ladbrokes uses its Odd On! card to cross-sell between racing and football

The immediacy of the betting industry meant the first year for Ladbrokes’ Odds On! loyalty programme in 2008 was tough. Marketers running the scheme, including Ladbrokes CRM manager Craig Kent, had to explain to the board why the programme would not be an overnight success and had to be data-driven.

“The people visiting our high street shops were invisible in terms of what we knew about them,” says Kent. “Now we can look at groups of customers and analyse what they are staking, how much and on which days and products.”

Customers receive one point for every £2 spent and points are redeemed for bonus vouchers and free bets. Cardholders now account for 40% of turnover spent in Ladbrokes shops with up to 300,000 active customers.

“At the time of the Cheltenham Festival the European Champions League was on, so we used the data to cross-sell between football and racing,” says Kent. “We rewarded our highest-spending customers on football with a free bet if they also bet on the horse racing.”

His aim is to get more cardholders to opt in to receive relevant offers around specific events. Free bets are tempting people into a Ladbrokes shop on days they would not normally visit. Currently 55% of cardholders have opted in, with 70% requesting to be contacted by mobile and 30% by email.

Ladbrokes works with mobile marketing company 2ergo to send out personalised loyalty messages. It claims that for every 1,000 customers contacted by text twice a month, about 7% will action the message.

top tips you need to know

  • Get senior buy-in, particularly within the finance team.
  • Integrate a CRM system that acts on insights.
  • Consumer insights must always have priority over accounting considerations.
  • Allow the loyalty strategy time to mature.
  • The best schemes are not developed to reverse a short-term sales decline.
  • Ensure brand experiences are informed by customers’ current preferences, not what they did last year.
  • Engage with customers who want to define their own rewards. They will appreciate personalised offers and become brand advocates.
  • Surprise loyal customers with extra rewards now and again.

Source: Forrester

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