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15 reasons why a retail franchise should acquire, store, manage and track customer loyalty data.

Here are 15 reasons why a retail franchisee should acquire, store, manage

and track customer loyalty data.

Aloyalty program is a popular marketing tool for retailers. So if you’re investing in a retail franchise it’s important to understand the value of loyalty card data. Here’s why.

REASON #1: CUSTOMER RETENTION

According to Bain and Co., a 5 per cent increase in customer retention can increase a company’s profitability by 75 per cent.

A loyalty program quite simply helps customers continue to purchase from your store and the reward points accumulated can help the customer benefit from higher levels of service.

In exchange, the information received about customers helps retailers to meet their needs efficiently, effectively and engagingly.

The symbiotic process helps customers stay customers. The energy starts building once the customers start redeeming points.

The data generated by loyalty programs helps to segment customers for sales, marketing and customer service. Customer needs and desires vary based on time, location, occasion, destination and intention. All this can be understood easily through loyalty data.

REASON #2: CUSTOMER ACQUISITION

Once customers start redeeming rewards, word of mouth creates a flow-on effect that brings more interested prospects through the door. You need to make sure you have the mechanisms and reasons for existing, happy customers to broadcast.

Do you need to extend your reach? In addition to nurturing existing customers, look at upselling, discounting or cross selling opportunities. An easy way is to identify the demographic and psychographic look-alike segments of existing best customers that fit the criteria. These existing best customers should be progressively targeted as new prospects.

REASON #3: LADDERING UP

Think video game rewards – as customers move up the loyalty tiers they unlock a new set of rewards. Their ability to access greater benefits in turn helps create a more defined profile for the business.

This is often linked to increased spending or spending on particular goods or services within a timeframe. This could also be location specific while you are building traffic to a new location that has just opened up.

REASON #4: RETIRE UNWANTED CUSTOMERS

These are the customers you don’t want or need. These customers are unprofitable, waste your time, complain without reason and create a bad brand image. You need to retire them immediately (do it now). Losing them will create room within your business to go out and acquire new customers. Some call it cherry picking; we call it well segmented. You may very well send them to your competition.

Your loyalty program should reward good customers and not bad ones. You can use a scoring criterion to measure the degree of bad experiences with the customers in conjunction with potential lifetime value.

Your loyalty data should easily indicate if the lifetime value and satisfaction levels are rising for that particular customer. Should both be going down for reasons beyond your business, then consider retiring them (this is very simplistic; however, real analysis may need to dig deeper).

Philip Kotler’s adaptation of the Pareto Principle suggests that the top 20 per cent of customers generate 80 per cent of the profits, while the bottom 30 per cent of customers eat up 50 per cent of the profits that the others produce. This is a good reason why you should aim to eliminate, sack or fire dud customers.

REASON #5: WIN BACK CUSTOMERS

It is easier to contact previous customers who have not used your business for a while than it is to attract unknown prospects. Once you have customer information in your database it’s easy to get in touch, either using existing communications channels or finding new platforms to engage with them – options could be email messages with vouchers if postal notifications haven’t worked at getting the customer back to your store.

REASON #6: CREATING SNEEZERS

As Seth Godin1 would put it. These are champions who promote your offerings, exhibiting the highest form of loyalty. They infect others with their passion for your products or services. A measure net promoter score2 is something you should look for if you want to measure the willingness of your existing customers in recommending products and services to new prospects.

These sneezers would infect others; in other words they are so passionate about the products or services they received from you, they will tell others about your product. A classic example is Amway, which uses multilevel marketing and this mechanism to garner new business.

REASON #7: SELECT NEW TRADING SITES

Poor site selection can be a significant drain on infrastructure, resources and the mojo of the company.

Selecting a new store location can be done easily by loyalty card data. It enables you to find the profile and demographics of existing best customers, and then find the demographic and psychographic lookalike for new locations.

Additionally, if the addresses of existing customers are known they can be plotted geographically and a new location can be identified where there are large numbers not served by existing stores.

REASON #8: MANAGING PRICING

If a reasonable number of your best customers are willing to buy a product at a price then reducing the price further simply suggests you are attracting occasional cherry pickers. These may not be entrenched enough to give you an ongoing revenue stream. With loyalty card data it is easy to find established customers and their willingness to pay3 based on past purchases or discounts. This information can be drilled down to customer segments, and the most profitable pricing for a product or service can be set.

REASON #9: COMPETITIVE RESPONSE

Using the loyalty data it is easy to link purchases to customers and you can then identify the customers that are likely to move to new competition. They can be lured back by providing customer-specific special offers or by direct outreach.

Using loyalty data, it is easy to differentiate between regular shoppers and others and incentivise regular shoppers via mail or electronically when a new competition opens up and starts operating in the area.

REASON #10: CUSTOMER LIFETIME VALUE ENHANCING

In the simplest terms the profit from each customer should be more than the cost of acquiring them. It is the calculation of net profit from a customer during the entirety of relationship.

In mathematical terms it is the net present value of projected future cash flows from business from a given customer. Retaining customers and getting them to keep coming back is part of the game.

As an example, if a business loses 30 per cent of its customers each month and does not acquire any new customers, in five months they will have no customers.

An enhanced customer lifetime value (or CLV) will increase the value of business.

REASON #11: BEST CUSTOMER MARKETING

This concept simply suggests identifying the best customers and then spending energy, time, money and resources on them to maximise return on investment. You can then look at moving the customers who are not best but not far from the best customer criteria into the best customer pool or stop serving them. This might sound like a ruthless approach, however it pays to serve the best customers and make room to invite other best customers in.

REASON #12: EFFECTIVE STOCK SELECTION

Keep the stock in line with what the best customers buy frequently and expand on those lines. When you align the stock to the most profitable customers, the entire store becomes more appealing to your best customers and prospects who are similar to your best customers. It is a slow process but is a combination of inviting customer “lookalike”. Self-selection and exclusion of customers who don’t fit your best customer category occurs by using this process.

In terms of stocking, you can gradually remove the lines that your best customers don’t prefer and add the lines they do, and gradually your business will be shaped in line with the market you wish to serve.

Take an example of a Louis Vuitton shop, with security at the entrance and a queue that only allows a certain number of prospects in the shop. They make you feel elated and privileged to enter the business premises. This works as a filter to keep out those who are unlikely to buy, but the sense of privilege boosts the willingness to pay for those who may be sitting on the fence.

REASON #13: RELATIONSHIPS

Most successful businesses reduce the friction between the customer and transaction, irrespective of type of business (online or offline). The reduction in friction simplifies the customer journey, feeding the energy back into relationship building and increased bottom line profits. If the customer tries to move to another provider, the increased friction of transaction elsewhere will bring them back to you.

You would have come across the saying “It’s who you know” – the purpose here is to reduce the transactional friction by dealing with someone you may already know.

That said, you need to choose who you want to build relationships with. Attempting to partner with all customers, regardless of their characteristics, might not always be the best way forward as you may end up picking dead weight.

REASON #14: MERCHANDISE PLANNING

When you run a basket analysis for a set of customers you can identify which lines or products are bought at the same time, and in particular which are bought by your best customers.

Planograms (placement of products in 3D) can then be planned accordingly to encourage cross-purchasing. Basket analysis without any loyalty program is sufficient for this purpose.

However, once you include detailed knowledge of who the customer is, their spend, where they live, work or travel, then you can decide whether it is worth putting a display of items that are bought together by a specific segment of the market on a specific day of the week.

REASON #15: OPTIMISING SPEND ON PROMOTION

Moving to targeted advertising. Instead of sending out thousands of flyers of which a significant chunk is thrown away, or newspaper added that people skip as irrelevant, targeted advertising reaches out to individual customers providing a tailormade offer.

This can be done via email based on past sales. The more sophisticated type of loyalty program can target advertising material almost individually to its many millions of members and can accurately measure the response rates to those advertisements. UK supermarket Tesco does this. Its Clubcard magazine, packed with targeted money-off coupons, is mailed to approximately 13 million customers four times a year. Not only does this form of advertising save Tesco money, it earns it money.

Should your customers be also online you can use tools from companies like Digital Envoy4 to tailor your entire website based on customer’s preferences and past purchase; further you can use their IP address to identify their location or shopping behaviours.

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