JOIN THE CLUB

When Tesco set up its Clubcard loyalty scheme in February of last year, it was embarking on one of the biggest data-gathering exercises known to the retail world.

Every transaction, including every item on every till receipt run up by its 7 million cardholders is recorded on Tesco’s massive databases. In return for giving valuable purchasing information to the retail giant, customers receive vouchers and information about special offers, to a value of more than 40m already.

Tesco enjoyed a 15 per cent profit surge in its interim results to August on turnover up 25 per cent, so its latest salvo in the supermarket price war certainly seems to have hit its target.

Sainsbury’s, which dismissed the Clubcard as a gimmick when it was first introduced, rushed out its own card – the Savercard – within months. The first run of that tactical scheme is now ending, while Sainsbury’s withdraws to consider what to do next. The remaining big two supermarkets, Asda and Safeway, have also since launched schemes of their own, based on catalogues and other incentives beyond simple voucher and discount programmes.

One lesson to be taken from this is that companies must decide what they want to know and what uses they are hoping to put the information to, before attempting to establish a loyalty scheme or database of this sort.

This is something that very much concerned Keith Willis, managing director of the UK’s fifth-largest optical retailer Specialeyes, which has just set up a data-driven loyalty marketing initiative through The Computing Group. Optical retailing is a prime case for a loyalty scheme, because of the perfect opportunity for targeted mailings when an eye examination reminder is sent out – usually every couple of years. The system was in development and testing for two years before roll-out, which began a year ago and is scheduled to be in all 64 outlets by June.

The first stage of the programme involved taking the manual records held at the chain’s 64 outlets and integrating them with the company’s computer systems.

But the development of the marketing database was hampered by the uses to which the company’s computer systems were already being put. “The basic software was geared to the prescriptive needs of the business, such as payroll, finance and supply. The marketing demands came later, so compromise was needed to fit them in with the existing systems,” says Willis.

Customer details are captured at point of sale and sent by modem to the central office in Greenford, where the information is broken down for analysis and the database is built up. The information is stored in relational format and different users have access to different parts of the database. “You don’t want to flood people with information they don’t need,” says Willis.

The categories of customers are divided on the basis of what products they buy, and the time-critical mailings are sent out accordingly. Willis says it generally takes three or four reminders to get people to come in for an eye examination, so the warm-up goes out in month 23 followed by reminders until month 27, where necessary. The messages are basically generic in terms of the medical call to action, but Specialeyes has created about 15 letter variants to send out with the reminder to encourage customers to think about purchasing different products.

The immediate and unforeseen benefits of the initiative, according to Willis, are that more upmarket, higher-margin product has been sold because staff have more information at the point of sale. It is therefore easier for them to persuade consumers to pay for more expensive products without substantial effort. In the case of optical retail, these added-value products are features such as anti-reflection coatings.

The next stage of the programme will be to analyse the existing customer base, integrate it with other marketing software packages and so identify like-minded prospects living near stores. In the absence of above-the-line marketing, the retailer relies on targeted marketing, and Willis hopes the new-found information will help identify prospects, possibly for door-to-door or off-the-page advertising.

One of the disadvantages of the scheme for Willis is that it is dependent on the retail staff to input customer information at point of sale. Staff are encouraged to ask customers for lifestyle information to enhance the database, but the staff are unwilling to do so, preferring to concentrate on the short-term advantages of an immediate sale. Specialeyes has found that a profiling software system actually gives a more accurate picture of the target group than the genuine customer information being captured for the database.

Equally, Willis says the staff are not accurate enough in keying in information, so the retailer is using address enhancement systems to check the accuracy of the database.

Tesco’s scheme is not reliant on the store’s staff to gather its information, but it too is taking its time to analyse the information it is gathering and deciding how best to make use of it.

A Tesco spokesman says the retailer is taking things very slowly. While the information-gathering process is ticking over, segmentation started only recently. For example, just before Christmas, customers began to be divided into groups on various grounds, such as family status and age.

“You could have two single people, aged 18 and aged 90,” says the spokesman. “They could spend the same amount, but on totally different things. So, for example, you might decide to give the younger one a voucher for Hooch, while you give the older one a voucher for Harvey’s Bristol Cream.”

Likewise, when Tesco handed out turkey vouchers to its loyal customers before Christmas, all the vegetarians on its books were offered vouchers for fruit and vegetables. Diabetics also had their own targeted mailings. Expect to see much more segmentation and specific targeting as time goes on.

One aspect of the Clubcard scheme which Tesco claims as a strength but rivals cite as a weakness, is that the scheme is national and in every store. Critics say the retailer will end up rewarding customers who may not be encouraged to spend any more, so all the vouchers are doing is eroding margins that in the grocery trade are already painfully tight.

One observer suggests a segmentation exercise that could prove particularly useful to the retailer would be to classify people on the basis of which departments customers are spending their money in. Mainstream packaged groceries have very low margins, compared with alcohol or meat, for example, so booze and beef buyers should be disproportionately rewarded to encourage them to buy more.

One loyalty programme set up by agency M-S-B+K was for another tranche of the retail trade where there is obvious incremental business to be won just as soon as it can be identified – shoes.

“The shoe market is notoriously promiscuous,” explains managing director Ian Maclean.

“Women probably buy five or six pairs a year from three different shops, so there is business to go for. Getting them to buy even one more pair from your store would be a big leap in business.”

M-S-B+K’s programme for Hush Puppies encourages consumers to spend more on each purchase and offers incentives to individuals and families who take part in the scheme, while disproportionately rewarding people who buy more shoes.

The matter of throwing away margin on customers who have no intention of defecting was of primary concern to M-S-B+K when it worked on a loyalty scheme for Mothercare last year. Maclean explains: “Mothercare’s clarity of positioning was both a strength and a weakness. First-time mothers feel vulnerable for a few weeks and some 88 per cent of them turn with relief to the comfortable, nannying aspects of the store.

“However, after about six months, the mothers gain confidence and dare to go elsewhere, such as to Hennes or Marks & Spencer, for example.”

The scheme’s task was to win the mothers’ loyalty in the first few months, but without rewarding them too heavily for custom that was pretty much guaranteed, and then prevent them from lapsing when the paranoid period had passed.

“Children’s needs change very quickly,” says Maclean, “so the scheme is highly segmented and has a number of packages for different age groups. There is also a strong emphasis on fashion – for which the store previously had a poor reputation – and designer Liz Davies is the new director of the store. Modest incentives are also being offered to come in and buy.”

The fast-growing Divertimenti mail-order company, which produces a catalogue of upmarket cooking accessories, has found that very little can be taken for granted in terms of where your most loyal customers are likely to come from.

The company has built up a list of 30,000 customers through a process of trial and error using various bought-in lists, co-ordinated through list brokers HLB. Some of these proved fruitful, while others were dismal failures according to Divertimenti managing director Dean Lundell. Upmarket people who like cooking, travel and theatre, for example, which sounds like a promising start, proved to be “one of the worst ever lists”, he says.

Likewise, while off-the-page ads initially generated high responses, these customers tended not to convert to repeat purchasers.

Divertimenti has discovered that its best response has come from recent, regular, high-spending, mail-order customers, but Lundell insists the key to building loyalty lies in the service and products provided rather than in short-term incentives based on the information in the database.

“We’ve built up our own customer service team,” he says, “because no outside team could do the job as well as us. Staff need intimate product knowledge so they can answer questions like ‘Will it work on a ceramic hob?’ and talk about the products with authority.”©

He adds: “There is an element of surprise with anything bought mail order. You have to ask yourself if consumers will be disappointed when they open the parcel, because that will kill a product off straight away.” Inevitably, things go astray or get broken in the post, he concedes, but the company ensures “mistakes get fixed pronto”.

Despite starting up just two years ago, Divertimenti now has a database of loyal customers, and without resorting to the price promotions and incentives favoured by other retailers. “Special deals will get people to buy once,” says Lundell, “but it’s the product that enables you to keep them in the long term.”

This point is echoed by Specialeyes’ Willis: “The optical market is awash with two-for-one offers. Giving away product isn’t difficult, what is difficult is getting people to part with more of their money.”