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 Options

Points
Esso Smiles

Discount
Immediate discount for presenting card Good -Easy and instant - No liability Bad - Discount has to be large (+10%) - No control

Jusco

Rebate

Earn points and redeem for rewards Good -Offers control -Customer understands -Lower cost Bad - Points cost are knowledge - Accrued liability

Reward spend over time Starbucks Good -Easy to manage Bad - Little control - Easy to copy e.g. stampcard - Little emotional connection

Privilege

Cathay Krisflyer Marco Polo

Earn points and redeem for rewards plus tiers of privilege Bad Good - Low spend customer disillusion -Privileges lead to loyalty - Competitors can match -Offers control -Customer understands

What is a privilege program? Tiers of benefits over and above points for miles.

Loyalty Programme Options

Coalition Model Hybrid Model

VIP Privileges and private sales for spend over $1000

Rebates for spend over $200

Octopus

Lucky Chances for spend Up to $200

Single Owner Coalition

How does it work?

Bank Data
Nets & Credit Data entry

Application Form name NRIC email mobile age family 122132

Customer card
122132

Transaction Database

Customers

Analysis services

Marketing Planning & Promotion tactics

Considering a programme?
Steps to launch Planning 1. Feasibility audit 2. Customer research 3. Financial planning 4. Develop programme model Implementation 1. Implementation develop systems/communications 2. Launch Management (operations)

Loyalty Success Factors

Balancing Loyalty Investment Against Return

Loyalty Programme is a cost of learning about customers Loyalty Programme Investment + Loyalty Promotions Costs

Additional Customer Profits

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Critical Success Factors for Customer Loyalty

Target Audience

Degree of Participation

Delivery of rewards

Getting Customers to join

Brand Positioning

Choice of rewards

Liability risk

Competitor Strength

Customer Loyalty Drivers

Generosity

Investment Cost

Sales Focus

Jusco Program Barcode card Hybred model Instant privileges Discounts for members Birthday privileges Points

How is it successful?
Target Audience Regular shoppers Degree of Participation High Delivery of Rewards rebate vouchers (cash effectively) Getting Customers to Join Easy free membership

Brand Positioning - for everyone -Birthday treats -Members only Customer Loyalty Drivers Use membership To make offers

Choice of rewards Choose from whole store

Liability Risk High but also High redemption

Competitor Strength n/a

Generosity Very generous rebate up to 20%

Investment Cost High

Sales Focus Very High

Loyalty Program Structure Secrets

Loyalty Programme Structure Secrets

Data Collection FMCG Partnerships

8
Brand Extension

Value Proposition

2 3
Loyalty Programme Mechanics

7 6 5 4

Clubs within programme Sales Promotion Integration

Investment Ratio

Loyalty Programme Structure Secrets

Strategy Capture all data relevant to the customer relationship

1
Data Collection
Lifestyle RFM Attitude Interest Shop Habit Geo -Dem Lifestage Basket

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 Warehouse
Segmentation Engine Segmented Promotion Marketing

Application form is the single most important point of data capture a)Gather all data in form b)Gather data incrementally using electronic channels Key Information -Contact -Age/Gender -Family/No family

Loyalty Programme Structure Secrets

Primary Retail Segmentation Approaches

1
Data Collection

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, Everything

Recency , Frequency, Value Segmentation

Frequency Frequency Recency Value $

Visit

Visit Time

Visit

Today

Loyalty Programme Structure Secrets

Basket analysis to get shopper type
Health Conscious
Brown Rice Low far milk Natural Yogurt Organic Carrots Brown Bread New organic chocolate

Price sensitive
Lowest price cola Basket <10 items Lowest price noodles Uses 2-1 offers New large value biscuits No fresh items Cheapest washing powder large format

Eco-Washing Powder

Current Basket

Recommended

46 other shopping types tv dinners, deli divers, traditional, ethnic explorers, meat feast, vegetarians etc

Loyalty Programme Structure Secrets

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

2
Value Proposition Chance 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

Loyalty Programme Structure Secrets

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.

3
Loyalty Mechanics

Carrefours Incremental approach to loyalty

Lucky Chance Card

Easy to launch No liability Develop card mgt experience Capture all details and transactions

Rebate Card
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%)

Rebate Card & Privileges & Target of 1

Layer on privileges for best customers. Target every customer with individual statements.

Loyalty Programme Structure Secrets

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.

4
Investment Ratio
Normally 1-3% reward

Spend $1.25=1pt Fill up $100 get 80pts Fill up 4x $400 and earn enough for a free coffee worth $5 (1.25%)

Loyalty Programme Structure Secrets

4
Investment Ratio

Spend for 1pt Value of 1pt Total Store Sales Sales on Card (80%) Points Earned Value Points Earned Points Redeemed Value Points Redeemed Investment Ratio

$1.00 $0.01 $1,000 $800 800 $8.00 400 $4 0.50%

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

Loyalty Programme Structure Secrets

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

5
Sales Promotion Integration

Loyalty Programme Structure Secrets

6
Clubs within Programme

Strategy Develop Clubs within the loyalty program that use knowledge gathered from grocery purchases Approach 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

Specially organized kids activities at Ikea

Loyalty Programme Structure Secrets

7
Brand Extension

Strategy Extend brand using new services Approach Develop strong own-brand products new nongrocery services Leverage grocery database to offer rebranded services Advantages More reward earning/redeeming opportunities More data from partners and greater marketing reach

Brand Extension Examples not from Singapore thankfully

1 2 3 4

5 6

Petrol Utilities

Loyalty Programme Structure Secrets

8
FMCG Partnerships

Grocery Retailer Customer

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.

Loyalty Programme Structure Secrets

Data Collection FMCG Partnerships

8
Brand Extension

Value Proposition

2 3
Loyalty Programme Mechanics

7 6 5 4

Clubs within programme Sales Promotion Integration

Investment Ratio

Loyalty Programme Promotions - Driving Sales

Promotions
1. 2. 3. 4. 5. 6. Statements Personal shopping lists Geo-targeting Events Layered promotions Regular communications

Loyalty Programme Promotions - Driving Sales

1. Statements - online/offline
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

Example Loyalty Statement

Advantages Increased response rates compared to standard

90% to vouchers 30% to cross-sell/upsell

Loyalty Programme Promotions - Driving Sales

2. Shopping lists online/kisoks
Online Shopping Basket

Strategy Use data collected to personalize basket when repeat shopping Approach Can make recommendations based on basket Slip in the up-sell offers Advantages Personalization offers a tested formula for increasing response/redemption rates

Loyalty Programme Promotions - Driving Sales

3. Geo-marketing
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

Store Store Catchments

Competitor Store Promotion Target Area

Loyalty Programme Promotions - Driving Sales

4. Events
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

Loyalty Programme Promotions - Driving Sales

5. Layered promotions
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

Loyalty Programme Promotions - Driving Sales

6. Regular communications
Offer: Shop Online Offer: Mothers Day

Tips Weekly emails for grocery but with different themes each week Offers are rotated Messages are personalised All Opt in email

Offer: DVDs

Offer: Wine

Summary

Summary
Programmes offer opportunity to get to know customer thats 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