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www.planetretail.net - Planet Retail 2011

Executive summary 1

1. Are you driving loyalty? 2

Ready to Strike 2

Capturing the ‘Share of the Heart’ 3

Capturing the ‘Share of the Wallet’ 3

2. Is it a new concept? 4

Long term loyalty cards 5

Short term loyalty marketing programmes 5

3. Short term loyalty marketing 6

Benefits of thinking short term 7

4. Case studies 8

Collection Programme - Hypermarket in Eastern Europe 8

Kids Programme - Supermarket in Europe 9

5. What next for short term loyalty? 10

Contents

Planet Retail 2011 - www.planetretail.net

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Executive summary

s is well known, the retail sector is highly competitive and ever changing, requiring retailers to adopt a more and more flexible approach in order to succeed and maintain

loyal customers. Particularly evident during the recent global economic slowdown is that changing habits and spending force retailers to react, in this case price took centre stage. At the same time, the wider realisation that price alone is not always enough to win and be sustainable in the long term is leading to the development of more customer-centric approaches. In reality, there are a number of marketing tools a retailer can use to hold on to and attract customers in such a competitive environment. It is critical that these methods are each evaluated and used effectively from a financial standpoint.

While much has been discussed of the benefits of loyalty card schemes - which are very much a long term approach - to keep customers coming back, short term loyalty marketing programmes seem to have received less attention and will be the focus of this paper. Short term loyalty marketing programmes are used in a variety of ways and have attracted the attention of many major companies such as Rewe in Germany, Carrefour in France and Italy, El Corte Inglés in Spain, Albertsons in the USA, Comercial Mexicana in Mexico, Morrisons in the UK and many more. This paper will delve deeper into how short term loyalty marketing programmes have emerged and how they fit into the strategy as a key component of a retailer’s overall marketing strategy.

The wider realisation that price alone is not always enough to win and be sustainable in the long term is leading to the development of more customer-centric approaches.

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1. Are you driving loyalty?

Aims of a retailerUltimately, a retailer’s aim is to improve profitability by investing in the right way to: increase basket size and visit frequency of existing customers; attract new customers and improve customer perception while differentiating from competition.

The ultimate aim of every retailer is to increase sales. In basic terms, retailers can do this by attracting new customers and gradually turn them into loyal customers, as well as improving the loyalty level of existing customers in order to get the most out of them. To do this retailers have a ‘marketing toolkit’ which they use to their advantage to influence customers both through the wallet and the heart. This includes a wide set of tools such as branding campaigns, weekly promotion campaigns, loyalty cards, employee trainings, short term loyalty marketing programmes, weekly leaflets and many more.

Ready to Strike

The marketing tools retailers use can have either a long or short term commitment. Short term in this context stands for a chosen strategy that can be implemented and/or adapted in the near term, instead of being planned for an extended period. Long term however is really embedded in the organisation and is the crucial element for a customer centric approach, but also means less flexibility in reacting to competition.

As an example of short versus long term price-orientated initiatives, Coop in Sweden gives a 5% discount to all loyalty card holders who spend over a certain amount. Whereas Albert Heijn in the Netherlands adopts a bonus system which rewards its customers with price discounts that change on a weekly basis. Using its flexible bonus system, Albert Heijn can react quickly to changing market conditions, something that is crucial in today’s ever-changing environment. However, Coop - which has already invested in the 5% - has been less able to react to competitors lowering prices, leaving them at a disadvantage.

In the UK, shoppers have traditionally received a 1% discount from leaders Tesco and Sainsbury’s through their respective Clubcard and Nectar loyalty card schemes. Tesco, having relaunched their Clubcard in 2009, began offering double points on an ongoing basis while rival Sainsbury’s offers triple point weeks in order to keep attractive offers on their loyalty cards. As customers are already accustomed to the 1% they begin to demand more, creating a situation where there is little retailers can do to differentiate in a sustainable way.

Most marketing tools fit into a retailer’s long term strategy but also have the flexibility to be adjusted in the short term in reaction to changing conditions. In times of economic uplift, for example, a retailer can focus more on product quality and store experience, while during an economic downturn they can become more price focused. As retailers are continually trying to outwit their competitors, being flexible and adapting in the short term is certainly key.

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Capturing the ‘Share of the Heart’

Share of Heart (or “attitudinal loyalty”) is all about pursuing a positive perception and image. Although winning the heart of a customer does not always directly translate into expected behaviour (i.e. purchases), it definitely fits into long term strategy. Amazon, for example, didn’t just focus on the wallet from day one, it created a place in the heart of consumers long before the public started to buy online.

Creating attitudinal loyalty is almost like story telling. The retailer which uses its ‘marketing toolbox’ to tell the best story usually wins the consumer. But how does a retailer tell the story of price? In the UK, both Asda and Tesco are investing highly in claiming to have the lowest price through initiatives such as price promises. Meanwhile, by the nature of being known as a German discounter, retailers like Aldi and Lidl are perhaps perceived as offering the lowest price.

There are many opportunities to invest in storytelling, not only through price, but also other factors such as quality. Technology is a great method to engage the customer, for example Walmart’s ‘Smart’ network of instore digital marketing has proved to be successful in guiding and influencing shoppers throughout the store. They have taken the lead from specialist retailers that focus on engagement instore, for example Disney draws in the consumer through interactive displays and service. Carrefour also aims to revive its hypermarket format in this way, investing in becoming a ‘house of brands’ giving specialists instore showcase space to engage the customer.

Today, retailers have many different unique selling points or ‘stories’ to tell to connect with the ‘heart’ of the consumer, from innovation and quality, to ethical and sustainability. However, the question remains who has the best tools to tell the story?

Capturing the ‘Share of the Wallet’

Taking share of the wallet (or “behavioural loyalty”) is the action of purchases and repurchases. The better this is influenced,

the higher a company’s turnover. Behaviour is a highly influential part of loyalty as a very strong price offer alone can attract a customer to a store. The question is always how much a retailer must invest to get a positive return on investment? Just attracting turnover is not enough; it is all about attracting profitable turnover.

Highly promotional retailers look to influence behaviour through price campaigns. Methods such as couponing and heavy discounting are used to win customers through price and counter Everyday Low Price claims. But with so much focus on price it begs the question of where can it go next? Can retailers top triple coupon offers, and will it ever truly drive loyalty if there is little to differentiate one retailer from another?

A trend currently going through Europe and now also starting slowly in the US, South America and Asia are short term loyalty marketing programmes (or Collection and Kids programmes). These programmes have shown to be a successful marketing tool to influence the behavioural aspect of loyalty while also focusing on strengthening the storytelling presented to customers. The next chapters will further discuss the short term loyalty marketing programme approach to driving loyalty.

Creating rumour around a store by telling the right story would have a strong impact on attitudinal loyalty.

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Loyalty marketing programmes are not a new concept; in fact they have been around since marketing began. The concept is based on the Pareto Principle or ‘Law of the Few’ that explains the general rule that 80% of sales come from 20% of customers. So it comes as no surprise that retailers have been rewarding their most loyal customers for some time.

One of the first retail loyalty programmes to be developed based on the Pareto Principle was called Green Shield Stamps (trading stamps) dating back to 1896 when Sperry & Hutchinson began selling stamps to US retailers. Eventually it spread to other markets such as the UK in the 1950s, where it went on to be incredibly popular. Trading stamps began with local independent stores, but since it was applicable for mass retailing it was soon adopted by large retailers.

2. Is it a new concept?

Putting it into practice was simple: a store purchased the stamps from a trading company, and then gave them away to customers as reward for purchasing certain amounts. Once the customer had collected enough, the stamps could be exchanged for a variety of free gifts from the trading company’s catalogue. The basic idea was that the more you spend the more you get, meaning that the most loyal customers received the highest reward. A shortcoming of Green Shield Stamps was its long term approach which locked the retailer into the scheme, and allowed all retailers to participate which also reduced its impact. Retailers could only really differentiate through double, triple and even quadruple stamps, at which point the programme ended, having spiralled too far out of control.

From this critical point the development of loyalty programmes went two separate ways: loyalty cards and short term loyalty marketing programmes.

Popularity with customers never in doubt: A 1966 survey reported that 49.3 million American households, 83% of the national total, saved stamps.

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Long term loyalty cards

Tesco, which encountered competitive challenges in 1995, became one of the first companies to go back to the principle of Green Shield Stamps by introducing Clubcard (a loyalty card scheme which now boasts 15 million members in the UK). The company tracks data from the cards to offer targeted product offers to specific customers, while at the same time rewarding customers with 1% of every pound they spend (or 2% with double points). The customer data it gathers from Clubcard is highly valuable for the long term and therefore investment in the 1% or 2% is not something it could easily discard. This long term approach has been very successful for Tesco in the past and today a number of retailers have followed suit with loyalty cards that often reward longer term spending behaviour in exactly the same way. However with this competition it has led to the offering of double and even triple points.

Tesco’s Clubcard in the UK is an example of a very successful long term loyalty card programme (left) while Rewe Group in Germany partnered with animal charity WWF for a short term loyalty programme (right).

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Short term loyalty marketing programmes

These have continued in many different varieties using short periods to attract the attention of customers, asking them to change their behaviour for a certain length of time. Short term loyalty programmes are commonly used in supermarkets, drugstores, gas stations, but probably the most well-known (and fully integrated into their long strategy) is the Happy Meal of McDonald’s, offering a free toy with every child’s meal purchased.

Short term loyalty marketing programmes have been under pressure for the last decades, due to the importance of return on investment and lack of suitable methods to measure ROI in the past. However, as research methods have become more sophisticated through GFK and Nielsen household panels for example, as well as via more transparent retailer sales figures, results have actually become more quantifiable.

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3. Short term loyalty marketing

Many of the largest retailers in Europe now see short term loyalty marketing programmes as a vital component in their overall ‘marketing toolkit’. Carrefour, Albert Heijn, Rewe, Migros, Auchan, Esselunga, Morrisons and many more all use these types of schemes and have adopted them into yearly planning. Their

Kids ProgrammeThe mechanism

• When spending a certain amount (e.g. EUR10) the customer receives a small incentive.

• The incentive is normally targeted at households with young children and tries to create a hype among kids.

• There is a whole set of licensed products to collect and trade.

• It’s an easy way of telling a story about your store.

The effects

• Hype around the store draws new customers. Measurable increase in turnover due to new customers.

• Customers become more loyal because of the whole set they want to collect.

• Improved image through a story connected to a store’s strategy.

Collection ProgrammeThe mechanism

• When spending a certain amount (e.g. EUR5) a customer receives a stamp.

• When a customers has a certain amount of stamps he/she can redeem an A-branded product for free or at a very high discount.

• There is a whole set of A-branded products to collect.

• It’s an easy way of telling a story to a large audience.

• Targeted at housewives.

The effects

• Measurable increase of turnover due to an increase in share of wallet.

• Customers become more loyal because they need to work to obtain the reward.

• Customers experience the programme as being a service element that connects them with the store.

strength is to change consumer behaviour and tell a clear and consistent story about the retailer’s brand, while keeping the flexibility to adapt quickly to a changing competitive environment. There are two types of short term loyalty marketing programmes defined – Kids and Collection programmes.


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Benefits of thinking short termA customer has to actively participate

As the programme is only for a certain period of time (usually between 8-20 weeks) this allows for the customer to keep their eye on the reward and focus on the process of collecting rewards. The involvement rate of a short term scheme is high in order to receive the highest quality reward, thus leading to high satisfaction levels.

Long-term approach

Although the name short term indicates differently, these types of marketing tools connect to the long term strategy of a retailer. Strategic plans can be created on the message a programme has to tell and the return on investment these programmes have to deliver. It just takes the long term approach with flexibility to adjust according to market circumstances.

Flexible

With each new programme a retailer has the flexibility to adjust certain parts of the programme both in an offensive and defensive way to cope with changing market environment. For example, there is the possibility to target specific customer groups with different programmes all depending on the design of the programme.

Connecting to specific segments

Through the design of short term loyalty programmes different customer segments can be targeted. The aim is to design the programme in such a way that the targeted group will change their behaviour over a certain period of time resulting in a measurable ROI.

Measurable return on investment

Return on investment of these types of programmes can be measured via different research techniques using internal sales figures of a retailer as well as companies such as GFK and Nielsen for external research.

Low financial risk

The end time for a programme is set. At this time all collected points/stamps will become unusable for future programs. This makes sure there is no long term financial risk of non-redeemers.

Telling a story

On average, 70% of a customer base is aware of a short term programme which is running in a store, making it a very effective tool to communicate certain messages such as being social responsible, value for money, being close to the customers and more. This makes it possible to claim and enhance the positioning of a retailer for the long term.

Short term loyalty marketing programmes are an effective way of improving the profitability of a retail company, either by attracting new customers or increasing the share of wallet of existing customers. The programmes are able to increase turnover in an effective way while also telling a story at the same time. All depending on the design of a programme, specific groups can be targeted in a way that is both flexible and connecting to a retailer’s long term strategy.

With shoppers not giving away their loyalty easily, these types of programmes are again becoming very popular. This, coupled with the fact retailers have the peace of mind of being able to measure the ROI more accurately, the schemes have developed.

Both the Kids programme and the Collection programme are popular types of loyalty campaigns. The following case studies show how each programme described opposite can be implemeted successfully within a retail environment.


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4. Case studies

Collection Programme - Hypermarket in Eastern Europe

The programme

A hypermarket chain in Eastern Europe recently ran a collection programme in its stores where customers could collect for a strong discount on cutlery. Depending on the reward, collecting anywhere between 25-50 stamps led to large discounts. During a 14-week period, customers could collect stamps for a whole set consisting of 10 different items. The offer benefited from the cutlery being from a high quality brand and having a high perceived value.

The results

The final results can be split up in two parts:

• Share of the Heart - during the programme, almost 70% of all customers were aware of the programme which in turn led to very high participation levels and brought the ‘story’ to many different customers.

• Share of the Wallet - the aim of the programme was to reward the best customers. During the programme market share showed a significant increase. The main strength was the increase in share of wallet. The shoppers participating in the programme were triggered to spend more in the store while there were also slightly more customers.

Conclusion

The collection programme at this retailer was a success with a focus on the most loyal customers. This lead to a strong growth in market share which was triggered by a much higher share of wallet of the customers in the store. Consumers recognised the programme as a service element connecting the store with the consumers and offering value.

Collection Programme

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Marketshare

Buying Households (%)

Share of Wallet

Visit Frequency

Average Receipt (EUR)

5.1

42.7

10.5

11.2

7.55

Pre-promo6-weeks

5.8

43.3

11.5

11.2

8.92

Promo6-weeks

Market Share based on Household Panel DataSource: Brand Loyalty


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Kids Programme - Supermarket in Europe

The programme

During an eight-week period consumers could collect for free animal stickers. For each EUR10 a consumer spends in the store they receive a flow pack with five animal stickers for free. Also, with certain promotional products out of the assortment a consumer could receive a free flow pack. Customers could fill their collection album with a total of 160 different stickers. The initiative also benefited from cooperation with an NGO, a strong plus for consumer perception towards social responsibility and being green.

The results

The final results can be split up in two parts:

• Share of the Heart - the programme created a huge hype in the country with much media coverage, children in front of the store, successful collection days and excitement. Customers indicated being aware of the “green” theme around the store.

• Share of the Wallet - market share development during the campaign was one of the strongest in recent years with household panel data indicating a uplift of 0.5% in market share compared to the period before the campaign. The growth of market share was pushed by both a higher penetration in the store and also a higher percentage of customer’s share of wallet.

Conclusion

The kids programme at this retailer was a huge success with the right mechanics to trigger both existing customers as also new customers to come to the store more often while at the same time telling the story of being environmental friendly, green and social responsibility.

Kids Programme

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2

3

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5

Marketshare

Buying Households (%)

Share of Wallet

Visit Frequency

Average Receipt (EUR)

5.2

16.1

32.7

4.1

23.39

Pre-promo6-weeks

5.7

16.6

34.6

4.2

24.43

Promo6-weeks

Market Share based on Household Panel DataSource: Brand Loyalty


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5. What next for short term loyalty?

It has become clear that thinking short term has a place in a retailer’s overall marketing strategy. As loyalty programmes develop in certain markets, this type will take its place as a differentiator tool. While in Europe loyalty marketing programmes are becoming an increasingly important part of the marketing toolbox, the US and emerging markets such as Latin America, Asia are still in the beginning of the cycle where there are signs of initial (early adopter) initiatives.

It is expected that there will be further development of these schemes, alongside development of wider marketing strategies.

As international operators in emerging markets such as Brazil turn the corner from focus on purely physical expansion, toward investment in improving the business in other ways, loyalty strategies will be developed and top of mind. Likewise local players will be stepping up their game against the threat of global operators and their low prices by developing loyalty programmes.


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www.brandloyalty-int.com [email protected]


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2011

Loyalty Marketing - planetretail.net · El Corte Inglés in Spain, Albertsons in the USA, Comercial...

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