Retail Loyalty Programmes
Retail Loyalty Programmes
Contents• What is a loyalty programme?• Loyalty Success Factors• Introduction to Retail Loyalty Programmes• Loyalty Programme Structure Secrets• Loyalty Programme Promotions - Driving Sales• Loyalty Market• Summary
What is a loyalty programme?
What is a loyalty programme?• The systematic collection of customer data in return for rewards or
benefits, often used to give customer additional privileges or services to best/loyal customers
Opportunities• Understand customers• Give discounts to best customers only• Adjust real price for certain customers• Use data to negotiate with partners
Loyalty Programme OptionsPoints Discount Rebate
Earn points and redeem for rewardsGood -Offers control-Customer understands-Lower costBad- Points cost are knowledge- Accrued liability
Immediate discount for presenting cardGood -Easy and instant- No liabilityBad- Discount has to be large (+10%)- No control
Reward spend over timeGood -Easy to manageBad- Little control- Easy to copy e.g. stampcard- Little emotional connection
EssoSmiles
Jusco
Starbucks
KrisflyerPrivilege
Earn points and redeem for rewards plus tiers of privilegeGood -Privileges lead to loyalty-Offers control-Customer understands
Bad- Low spend customer disillusion- Competitors can match
CathayMarco Polo
What is a privilege program?Tiers of benefits over and above points for miles.
Loyalty Programme Options
CoalitionSingle Owner
Lucky Chances for spendUp to $200
Rebates for spend over $200
VIP Privileges and private sales for spend over $1000
Hybrid ModelCoalition Model
Octopus
How does it work?Nets & Credit
BankData
122132
TransactionDatabase
Customers
Analysis services
Marketing Planning & Promotion tactics
Data entry
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name
emailmobile
Application Form
agefamily
NRIC
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name
emailmobileagefamily
NRIC
Customer card
Considering a programme?Steps to launchPlanning1. Feasibility audit2. Customer research3. Financial planning4. Develop programme modelImplementation1. Implementation – develop systems/communications2. LaunchManagement (operations)
Loyalty Success Factors
Balancing Loyalty Investment Against Return
Loyalty Programme is a cost of learning about customers
Additional Customer Profits
Loyalty Programme Investment
+Loyalty Promotions
Costs>
Critical Success Factors for Customer Loyalty
TargetAudience
BrandPositioning
CustomerLoyaltyDrivers
Degree ofParticipation
Choice of rewards
Generosity
Delivery of rewards
Liabilityrisk
InvestmentCost
Getting Customers to
join
CompetitorStrength
SalesFocus
Jusco Program• Barcode cardHybred model• Instant privileges• Discounts for members• Birthday privileges• Points
How is it successful?
TargetAudience
Regular shoppers
BrandPositioning
- for everyone-Birthday treats-Members only
CustomerLoyaltyDrivers
Use membershipTo make offers
Degree ofParticipation
High
Choice of rewards
Choose from whole store
GenerosityVery generous
rebate up to 20%
Delivery of Rewards –
rebate vouchers(cash effectively)
LiabilityRisk
High but alsoHigh redemption
InvestmentCostHigh
Getting Customers to
JoinEasy – free
membership
CompetitorStrength
n/a
SalesFocus
Very High
Loyalty Program Structure Secrets
Loyalty Programme Structure Secrets
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Data Collection
Sales PromotionIntegration
Loyalty Programme Mechanics
Brand Extension
Clubs withinprogramme
FMCGPartnerships
ValueProposition
InvestmentRatio
Loyalty Programme Structure SecretsStrategy• Capture all data relevant to the customer relationship
Approach• Use Loyalty cards to capture all customer transactions, point
redemptions, online transactions and calls to any touch-point• Segment the data according to shopping behavior, lifestage,
lifestyle and other differentiating factors
Advantages• Understanding of customer behavior, identify valuable
customers and communicate one to one with customers creating a more personal relationship
Data Collection
RFM
Lifestyle Lifestage
Basket
Attitude ShopHabit
Geo-Dem
Data Warehouse
Segmentation Engine
Segmented Promotion Marketing
Interest
1
Application form is the single most important point of data capturea)Gather all data in formb)Gather data incrementally using electronic channelsKey Information-Contact-Age/Gender-Family/No family
Today
Loyalty Programme Structure SecretsPrimary Retail Segmentation Approaches• Recency, Frequency, Value (RFV): e.g High Value Frequent
Shoppers, Low Value Frequent Lapsed• Lifestage: e.g. Young Adult, Young Family, Older Family, Empty
Nesters• Lifestyle: e.g. Organic, Fast Food, Home Cooking, TV Diners,
Ethnic Dining based on basket• Internet Shopping: e.g. Trial, Cautious Developing, EverythingData Collection
VisitVisitVisit
Frequency RecencyFrequency Value $
Recency , Frequency, Value Segmentation
1
Time
Loyalty Programme Structure Secrets
• Basket analysis to get shopper type
Health Conscious Price sensitive
Brown Rice
Brown Bread
NaturalYogurt
OrganicCarrots
Low far milk
Eco-WashingPowder
Lowest pricecola
No fresh itemsUses 2-1
offers
Basket <10 items
Lowest price noodles
Cheapest washing powder
large format
New organicchocolate New large value
biscuits
Current Basket Recommended
46 other shopping types – tv dinners, deli divers, traditional, ethnic explorers, meat feast, vegetarians etc
Chance
Loyalty Programme Structure Secrets
Strategy• Develop a research proven value proposition for
the loyalty programme underpinned by loyalty drivers
Approach• Value proposition has emotional and practical appeal
and the Loyalty programme aims to deliver the proposition in the customer experience.
Advantage• Customer benefit is clear and in-line with a customer-
focused organization• Boots research showed that customers see
programme as ‘more indulgent, different, generous and offers better rewards’
Value Proposition
2
Savings
Privileges
Design nice benefits for members – Ikea does it well in Singapore
+ points on top of everything else
Ikea get blog reviews like this…
Loyalty Programme Structure Secrets
Strategy• Define the right loyalty programme mechanics to
minimize cost while driving customer loyalty.
Approach• Points because it offers them greater control to
stimulate spend, but use in different ways.– $1=1pts use points for rewards: voucher
redemption integrated with sales promotions.
Advantage• Greater control while driving customer loyalty.
Loyalty Mechanics
3
Carrefour’s Incremental approach to loyalty
Lucky Chance Card Rebate CardRebate Card& Privileges& Target of 1
Easy to launchNo liabilityDevelop card mgt experienceCapture all details and transactions
Reward only when customers hits threshold spend . Tier rebates at different reward levels$200 get $10 (5%)$400 get $40 (10%)$1000 get $150 (15%)
Layer on privileges for best customers.Target every customer with individual statements.
Loyalty Programme Structure Secrets
Strategy• Understand investment margins to determine
reward investment and frequency ratios for the market.
Approach• Average investment is between 1% - 3%. Some
retailers are offering under 1% to keep cost down.
Advantage• Determining the right level of investment is
balanced against the rewards that motivate loyalty drivers.
Investment Ratio
4
Normally 1-3% reward
Spend $1.25=1ptFill up $100 get 80ptsFill up 4x $400 and earn enough for a free coffee worth $5 (1.25%)
Loyalty Programme Structure Secrets
4Investment Ratio
$1.00Spend for 1pt
$0.01Value of 1pt
$1,000Total Store Sales
$800Sales on Card (80%)
800Points Earned
$8.00Value Points Earned
400Points Redeemed
$4Value Points Redeemed
0.50%Investment Ratio
Octopus – opportunity to earn at hundreds of retailers
• Octopus card offers a chance to earn with a large number of retailers in Hong Kong – Watsons, 7-Eleven etc
• Comes in smartcard form or keyring• Reward rate can be chosen by
individual retailer– At Wellcome, for example, one point is
earned for every HK400 – Watsons 0.5% per dollar amount of sale
A customer consolidating their spend across the members could earn a significant amount of reward $ every month
Loyalty Programme Structure Secrets
Strategy• Data collected drives ALL marketing activity – it is not
operated in isolation.
Approach• Use data to target sales promotion activity
– Lifestage, Shopping Habits, Location• Always offer loyal customers something extra!• Target sales promotions by customer segment – mass
marketing costs have been greatly reduced.
Advantage• Greater ROI from all marketing activities
Sales Promotion Integration
5
Loyalty Programme Structure Secrets
Strategy• Develop Clubs within the loyalty program that use
knowledge gathered from grocery purchasesApproach• Create Clubs for key interest groups where product
marketing efforts can be targeted and incremental purchase is easy to stimulate
Advantages• Create greater relevance for Club members and
reduce cost of generating incremental spend
Clubs within Programme
6
Specially organized kids activities at Ikea
Loyalty Programme Structure SecretsStrategy• Extend brand using new services
Approach• Develop strong own-brand products new non-
grocery services• Leverage grocery database to offer re-
branded services
Advantages• More reward earning/redeeming opportunities• More data from partners and greater
marketing reach
Brand Extension
7
Brand Extension Examples – not from Singapore thankfully
1 2 3 4
5 Petrol
6 Utilities
Loyalty Programme Structure Secrets
Strategy• Offer FMCG companies access to
customer knowledge.Approach• Offer FMCG brands that pay a fee
access to customer knowledge that allows the brand to plan promotions that reach the correct target audience.
Advantages• Stronger offers to the right audience
create better returns.
FMCG Partnerships
8
Customer
Grocery Retailer
Loyalty Programme Structure Secrets
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Data Collection
Sales PromotionIntegration
Loyalty Programme Mechanics
Brand Extension
Clubs withinprogramme
FMCGPartnerships
ValueProposition
InvestmentRatio
Loyalty Programme Promotions - Driving Sales
Promotions
1. Statements2. Personal shopping lists3. Geo-targeting4. Events5. Layered promotions6. Regular communications
Loyalty Programme Promotions - Driving Sales
Strategy• Use data collected to personalize
vouchers/coupon offers and upsell
Approach• Statement types are personalized based
on shopping habits – RFV– Lifestage– Shopper type– Lifestyle– Shopper Type models
Advantages• Increased response rates compared to
standard – 90% to vouchers– 30% to cross-sell/upsell
Example Loyalty Statement 1. Statements - online/offline
Loyalty Programme Promotions - Driving Sales
Strategy• Use data collected to personalize
basket when repeat shoppingApproach• Can make recommendations
based on basket• Slip in the up-sell offersAdvantages• Personalization offers a tested
formula for increasing response/redemption rates
Online Shopping Basket2. Shopping lists – online/kisoks
Loyalty Programme Promotions - Driving Sales
Store Catchments
Store Competitor Store
Promotion Target Area
Strategy• Store catchments areas in
overcrowded markets need to be defended from competitors
Approach• Use loyalty program data to run
targeted promotions on areas of highest competition
Advantages• Powerful threat defense only for
customers in risky areas
3. Geo-marketing
Loyalty Programme Promotions - Driving Sales
Strategy• Most valuable customers are invited for store
evenings, where specially hosted events are put on around themes such as wine and cheese.
Approach• High quality store presentation and grocery
expertise allow retailers to create a conducive environment for offering high end grocery products
Advantages• Meet and reward the best customers in
person, while extending sense of privilege that is popular in all markets.
Wine Tasting Events are a regular features for Wine Club Members
4. Events
Strategy• Offers attract interest and offer
incentives for immediate purchase
Approach• Types of incentives
– 2.Personalised shopping list– 3. Rebate type vouchers– 4. member prices– 5. Free gifts
Advantages• Customers see lots of opportunity
to participate – right offer for right person
Loyalty Programme Promotions - Driving Sales
5. Layered promotions
Offer: Shop Online Offer: Mothers Day
Offer: WineOffer: DVD’s
Tips• Weekly emails for grocery
but with different themes each week
• Offers are rotated• Messages are
personalised• All Opt in email
Loyalty Programme Promotions - Driving Sales
6. Regular communications
Summary
Summary
• Programmes offer opportunity to get to know customer – that’s cost of knowledge that must be recovered
• Opportunity comes from using the data – to drive more spend - personal shopping lists
• Customers enjoy being part of programmes if they get privileges of whatever value therefore work hard to give them value