15 Reasons Why your business should acquire, store, manage and track customer loyalty data?
Reason #1.
Customer retention: According to Bain and Co., a 5% increase in customer retention can increase a company’s profitability by 75%.
Loyalty program creates a basis which helps customers to continue to buy. The reward points they accumulate can help seek higher levels of service. The information received about customers reciprocally helps in meeting their needs efficiently, effectively and engagingly.
The symbiotic process creates a lock in and helps customers stay customers. The energy starts building once the customers starts redeeming points.
The data generated by loyalty programs helps to segment customers for sales, marketing, customer service. Customer needs and desires vary based on time, location, occasion, destination and intention. All this can be understood easily by Loyalty data.
Reason #2
Customer Acquisition: Once the cycle of redeeming reward is initiated by an existing customer, the value appropriated thus creates a voice that works like a reference or as Robert Cialdini would call, creates social proof. Customers start generating word of mouth.
The 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 entrenched and happy customers to broadcast.
Birds of a feather flock together, so rewarding existing market will lead to word of mouth in the target market providedyour targeting is correct.
If you need to go up down or sideways in the market, then in addition to nurturing existing customers, upselling, discounting or cross selling opportunities must be looked at. An easy way to look at it from data perspective 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 continuously.
Reason #3
Competing with self and laddering up: Get the customers to move up tiers and as they move up they unlock a new set of bands of reward segments. Very similar to how most video games work. Their ability to unlock greater benefits will help them create a better version of themselves for the business.
This is often linked to increased spending or spending on particular goods or services within timeframe. This could also be location specific whilst you are building traffic to a new location that has just opened up. Though it should not be your primary purpose, but you should know that gift cards usually have an expiry date on them and as customers may not be able to redeem them you may end up collecting cash upfront for goods or service that you may not ever provide.
Reason #4
Retire unwanted customers: These are the customers that you don’t want or need. These are unprofitable, waste your time, complain without reason and create 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 ones. Some call it cherry picking we call it well segmented. You may very well send them to your competition.
It may be profitable to lose them to acquire new good ones. This is cherry picking.
Your loyalty program should reward good customers and not bad ones. Simple way to measure it is to have a scoring criterion measuring the degree of bad experiences with the customers in conjunction with potential life time value.
Your loyalty data should easily indicate if the lifetime value is going up or satisfaction for that particular customer. Should both be going down and your business has nothing to do with it you should consider retiring them (this is very simplistic, however real analysis may need to dig deeper).
Designing a loyalty program that rewards better customers without rewarding this bad segment will certainly show them the door.
Philip Kotler’s adaptation of the Pareto Principle suggests that top 20% of customers generate 80% of the profits, while the bottom 30% of customers eat up 50% of the profits that the others produce. That is a good reason why you should aim to eliminate, sack or fire dud customers.
Reason #5
Win Back Customers: Once you have information on a customer in your database, their address and their demographic and psychographic profile, it is easier to reach out to them if they have not visited your business for a while.
It is easier to reach out to them than if they have shopped with you than to reach out to new unknown prospects and attracting them into business.
However, if they are not responding to you via existing channels you may try other options viz sending coupons or offers electronically instead of using snail mail (if this is what you have tried earlier). This option is also helpful if the customers have moved to a different geographic location and they are unable to shop at the usual location.
You can consider servicing such customers via online platform or if you have large number of customers co-located a new area, you may consider establishing a new outlet depending on the critical mass of prospects for your new establishment.
Reason #6
Creating Sneezers: As Seth Godin[1]would put it. These are champions who promote your offerings, exhibiting highest form of loyalty. They infect others with their passion for your products or services. A measure net promoter score[2]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 or in other words they are so passionate about the products or services they received from you that they are overwhelmed and will go around telling others promoting your product. Amway uses multilevel marketing and uses this mechanism, it does not replace the natural level of enthusiasm a passionate customer may bring but it does work. At times you may have noticed that you make up your mind for a particular product or service you may be buying but if a close friend recommends something different to you, you are very likely to be swayed by that opinion and may compel you to change your decision.
Reason #7
Select new trading sites: Many businesses still select new site for a store by sticking a pin on the map and/or then close the stores which are underperforming. This 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 finding the demographic and psychographic look alike 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 they are large numbers and 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 pay[3]based on past purchases or discounts. This information can be drilled down to customer segments and 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 then identifying the customers that are likely to move to new competition. They can be lured back to provide customer specific special offers or by direct outreach.
Using loyalty data, it is easy to differentiate between regular shoppers and others and incentivize 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 to get them keep coming back is part of the game.
As an example, if a business loses 30% customers each month and does not acquire any new customers, in 5 month they will have nil customers. Hence there should be an impetus on customer satisfaction. That said not all business, like funeral homes may expect repeat sales at the pace of online platforms but the service should not be compromised as it creates an ongoing word of mouth.
An enhanced customer life time 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 the best customers to maximise return on investment. You can then look at moving the customers which are not best but not far from the best customer criteria into best customer pool or stop serving them. May sound like a ruthless approach however it pays to serve best customer and making room to invite other best customers in the market.
Reason #12
Effective stock selection: Keeping the stock in line with what the best customers buy frequently and expanding on those lines. When you align the stock to most profitable customers the entire store becomes more appealing to your best customers and prospects which are similar to your best customers. It is a slow process but is a combination of inviting customer “look alikes”. Self-selection and exclusion of customers who don’t fit your best customer category occurs by using this trick.
Some businesses do have a nasty habit of sending their loss making, angry or irate customers to competition, so be mindful when you see this game being played as this can be a significant drain on your energy and resources.
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 Louis Vuitton shop, with the security at the entrance and queue which only allows 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 those out 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 with you. This simplified journey feeds 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 and de-risk the transaction by dealing with someone you may already know.
That said, you need to choose who you want to build relationship 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 what are the lines or products bought at the same time and in particular by your best customers.
Basket analysis can identify what lines are bought at the same time, particularly by best customers, and planograms (placement of products in 3D) can be planned accordingly to encourage cross-purchasing. Basket analysis without any loyalty program is suffice for this purpose.
However, once you include the dimension of knowing who the customer is, their spend, where they live work or travel, you can confidently 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 spraying and praying, laser sharp targeting of customers can be made to the category of one. Instead of sending out thousands of flyers of which a significant chunk is chucked away, or newspaper adds that people skip being irrelevant, targeted advertising reaches out to individual customers providing tailor made offer.
This can be done via email based on past sales to customer. 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 viz Tesco. Tesco’s 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 Tesco money. Should your customers be also online you can use tools from companies like Digital Envoy[4]to tailor your entire website based on customer’s preference and past purchase, further you can use their IP address to identify their location or shopping behaviors to the utmost precision.
[1]https://sethgodin.typepad.com/seths_blog/files/2000Ideavirus.pdf
[2]The One Number You Need to Grow Frederick F. ReichheldHBR, DECEMBER 2003
[3]How to Find Out What Customers Will Pay Rafi MohammedHBR, SEPTEMBER 07, 2012
[4]http://info.digitalelement.com/?gclid=EAIaIQobChMI9Y6sod6i3QIVQj5gCh0r5AGpEAAYAiAAEgJ6XfD_BwE
Sameer Babbar
Speaker | Mentor | Trainer
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