The intelligence behind customer loyalty

Like most good researchers, the team from Kellogg School of Management found an itchy question that needed scratching: What makes some retail loyalty programs fail while other flourish?

In recent years, the technology available to consumers has altered the retail relationship. With ever-increasing shopping options, consumer loyalty has been rigorously tested, often leaving retailers on uncertain footing due to increasing competition. Smart retailers know that a loyalty card alone is not going to ensure sustainable revenue. Instead, they recognize that loyalty programs can fill an important role in an overall profitability strategy. Today’s retailers accept that one newsworthy gaffe can wipe out much of the goodwill gained from a loyalty program.

That aside, an effective customer loyalty program will have a positive effect on sales. And the way to implement and manage your program begins with understanding and differentiating your customers.

To help, SAS has collaborated with the Kellogg researchers to create Shopper Insights to Improve Retail Loyalty Programs. The paper is based on survey research and consumer perceptions about shopping and loyalty.

Targeting the right shoppers

The research results offer some insight into the customer’s perspective of retail loyalty and how to best structure rewards based on three categories of shoppers:

• Necessity shoppers. The largest group of respondents (66 percent) placed themselves in this category. For this group, shopping is not fun, so they put off shopping as long as possible and want to be done with it as quickly as possible. It won’t surprise you to learn that more men fall into this category than women. And because they also tend to be infrequent shoppers, they are less likely to be loyalty program members.

• Practical shoppers. These shoppers comprise 19 percent of survey respondents. They enjoy shopping and find the experience satisfying. Getting a good deal is a priority for practical shoppers. They are the group most likely to belong to a loyalty program and tend to be younger and female.

• Pleasure shoppers. This group, at just 15 percent, is the smallest. For them, shopping is a treat, and they will shop far and wide to find what they want. Most of them have loyalty cards for stores they frequent, but this may not always translate into steady sales because their shopping patterns are less likely to be habit-based.

The rules of the game

Here are some helpful ideas the research uncovered that you may want to consider when enhancing your loyalty program:

• Correctly tune the customer experience before you implement a loyalty program. The best loyalty program will not make up for poor customer service or substandard product quality or selection. Among those interviewed, the consensus attached the highest value to “top-notch service, quality products and value pricing.”
• Use your data. Your customer data contains troves of insights: shopping patterns, product preferences, pricing thresholds, just to name just a few. The research revealed that women asked for more targeted benefits and a personal relationship with the retailer. And you make more sales if you invite a young mother to a toddler clothing event than to a wine tasting. A pleasant shopping environment was rated as important. Programs that make offers around birthdays and anniversaries are also well-received. Men, however, were more concerned with speed and convenience. Discounts and special sales were less important to them than programs that enhance convenience and offer shortcuts in the shopping process.

• Tailor your programs to match shoppers’ needs. Your loyalty programs will be more successful if they appeal to specific needs. How do you do this? By knowing key shopper segments and the loyalty benefits that are important for each segment. Depending on the diversity of your customer base, you may need to offer different loyalty program offerings by your segmentation. Good analytics software can help in your segmentation analysis.
• Adopt social media, but don’t discard your other promotional channels. It’s important to connect with customers using the channels they prefer. According to the study, just one in five shoppers used social media as a communication channel for their most visited retailers. Facebook is the primary platform where shoppers look for discounts and news. Based on prior research, department stores have a higher level of social media engagement than other retailers.
• Fight someone your own size. The big discounters dominate when it comes to earning loyalty, so don’t go toe-to-toe with Walmart. Spend your efforts where they’ll make a difference – the customer experience and relationships. In the research, Walmart was the winner with twice as many unaided mentions as the next closest retailer. By offering both low prices and convenient locations across the country, it offers the benefits that shoppers seek.

Don’t forget to download the white paper to find out which retailers are doing it best and to get more ideas about how you can assess your customer and your loyalty programs, including the benefits customers like most.