By Lena Bourgeois, IXI Services, a division of Equifax
There’s no mystery as to why loyalty programs are popular with retailers – they work. A June 2016 study from Accenture Interactive shows that members of such programs generate 12% to 18% more revenues than those consumers who have not joined. Members of loyalty programs are often the number one source for target audience insights that fuel marketing campaigns; however, many retailers have concerns about the quality and quantity of their loyalty program members.
Addressing these concerns and expanding loyalty programs can be made all the more difficult because many retailers are working with inadequate data. A deeper dive into existing data could help retailers fine-tune their marketing strategies by identifying high-value consumers who deserve more attention; consumers outside the loyalty program who could benefit from it; and consumers who are part of the program but may not be as valuable to the retailer.
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Problems With Current Data
For retailers, there are three potential key problems with their current data. First, it’s hard to identify “category enthusiasts” who do a fair amount of shopping with rivals – in other words, shoppers who aren’t loyal.
Second, their segmentation systems can be lacking. Though retailers may bring in hundreds of new customers a day, they may not have methodologies in place to benefit from those consumers’ preferences by delivering them tailored special offers.
Finally, it can be hard to identify which customers have a lower lifetime value and may never meet the criteria to be considered truly “loyal.” A consumer may make one big purchase, for instance, but have no intention of returning. Trying to woo that customer back to the store could be a waste of marketing budget.
Add Insights
One way to address these issues is to add insights. Where do those insights come from? It can start with reframing the retailer’s own segmentation strategy using both purchase data and the loyalty program. Once this is in place, retailers can better identify high-spending repeat customers who may be good candidates for their program. This will require the retailer to determine their criteria of a “frequent” shopper (perhaps those who made multiple purchases over the course of more than 12 months) and then, using the data from both sources, identify which consumers are currently outside the loyalty program. These are the kinds of shoppers who should take part in the loyalty program, because they appear to show a high lifetime value through frequent purchases. Therefore, they warrant increased marketing attention.
The same segmentation process can be applied to new customers who haven’t met the frequency requirement yet. Applying estimated financial measures to new customers provides insight on their likely spending capacity as customers. This allows the retailer to better allocate marketing resources to the segments that show potential for becoming frequent, loyal customers, simultaneously promoting the loyalty program.
This data should also be used to assess current members of loyalty programs. Segmentation helps to reveal a picture of potentially the most loyal, highest lifetime value customers within the program itself, of course. But it can also highlight customers who haven’t purchased recently, or those who may have lower spending power. The ability to identify those segments is valuable as well, and allows the retailer to focus loyalty program efforts on their top customers.
Better Data, Better Choices
Retail chains face many challenges and to succeed, retail marketers need to squeeze every ounce of efficiency out of their marketing budget by focusing on the right customers with the right messages.
Loyalty programs can be valuable tools for rewarding frequent shoppers and bringing them back into stores, but marketers need to leverage their loyalty programs as data resources as well. Retailers need to scrutinize the way they spend on their loyalty programs as thoroughly as they review every other marketing expenditure. By using the right data, they can develop a loyalty program that helps reward both the customers and the retailer itself.
Lena Bourgeois is Vice President of IXI Services’ Consumer Markets Group where she leads business development and client management for IXI’s consumer markets verticals, including Auto, Communications, Insurance, Restaurant, Retail and Travel/Leisure. Previously she was Vice President of Business Development for the Consumer Decision Support Solutions Group at IXI Services where she was responsible for managing the business development, customer relationship management, implementation and support development of IXI Services’ Decision Support Solution technology.
