loyalty programme marketing

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

122132

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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1

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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


• 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


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…


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.


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%)


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


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


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


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

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5 46

1

37

8

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


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


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


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


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


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


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