Loyalty programmes are nothing new, but their importance to retailers is increasing. Evan Schuman discusses what is happening in the loyalty market this year.
For decades, loyalty schemes have been about getting to know each customer, so the chain can both make better decisions about product choices as well as have the ability to market to every customer individually.
But the fact that many shoppers don’t use their loyalty cards very often - and usually don’t even have them for all of the retailers they shop with - has limited how effective customer relationship management (CRM) programmes can be. Mobile technology and social networks could change all that and 2012 was the first year where true mobile CRM efforts started to take shape.
Tesco, the world’s third-largest retailer, for example, is taking ecommerce customisation one step further than most of the market, displaying higher-priced items only for customers it believes can afford them. Although what Tesco is doing is bold, bolder yet are its public statements that it is not relying solely on purchase history.
Decisions on what products to display are also based on comments customers make on social sites, which payment cards they are using and, perhaps most controversially, various types of mobile phone data.
Walmart took in-store mobile data several steps further by testing the integration of mobile technology with existing self-checkout point-of-sale systems. But the trial was about everything other than accelerating the checkout process. The chain saw it as delivering everything from a back door into a CRM system (which Walmart has never had) to making coupons and other offers more effective. It even looked at gathering in-store customer location data from smartphones for marketing analysis. This sort of data could show, for instance, that 50 TVs have been sold this week but that 300 people stood in that area for six minutes or more suggesting work needs to be done on pricing or promotions.
The Walmart app allows shoppers to scan each item as they work their way through the aisles. In this way, it enables real-time promotions, delivered at a point in the process where they are quite likely to change purchases - either to more profitable products or to those where the chain has a manufacturer incentive.
This approach could effortlessly offer a coupon for a rival peanut butter brand with a 75p-off coupon, for instance. If this offer is sent to the shopper at the checkout, it will likely be ignored, forgotten or lost. The chance of a large number of shoppers bringing that coupon back for the next shopping trip is small. But if that offer is made while the shopper is still in the peanut butter aisle, it is likely to be much more compelling.
When the shopper has finished scanning items and has filled a cart with dozens of items, they push the cart to the self-checkout lane. Given that the products have already been scanned, all that the shopper does is scan the single 2D barcode from the Walmart mobile app into the self-checkout system. That code includes all the products in her cart. The shopper then pays for the purchases through the self-checkout system. The self-checkout prints out a regular hard-copy receipt and the order is complete.
But mobile CRM is potentially much more extensive than plastic CRM. Not only does it include every item scanned, it would know every item a shopper scanned but then decided to put back on the shelf. It would know how long that item had been in the cart and where customers were when the decision was apparently made.
Did some signage change their mind? Was it a different product? Was it when the customer was near a free sample area? And if it was mobile signage, the system could look up to determine the exact advert being delivered at that exact moment. Did two shoppers, each using mobile checkout, stop and seem to talk with each other?
And did that immediately precede the product purchase changes? Is that other shopper - whose identity is also known - an influencer?
Everything in its place
Digital wallet services are one of the most hyped areas of mobile and CRM technology, because they will eventually enable consumers to keep every loyalty card, plus anything they would put into their physical wallet, on their phone. The problem - for 2012, at least - has been that almost no shoppers have bothered to do it, given that it is time-consuming and there are few incentives to bother.
But will cards - even in a digital format - eventually even be needed? Smartphones themselves give off so many signals it is possible to identify their owners using just those devices, making cards potentially defunct.
In November, JC Penney chief executive Ron Johnson said during a conference call with analysts that his chain could now have a loyalty programme for children. That comment was interesting for two reasons. First, most retailers usually steer clear of any programmes that track children, especially those younger than 13. The fear is not that the programme would be abused as much as that any such efforts to track children would likely be seen as overly intrusive by parents.
The second reason is that JC Penney has zeroed in on a loophole in US law, a hole that is based on legislation not having kept up with mobile technology. US law severely restricts what marketing can be done with children online, but there are no restrictions in-store. The rationale was that activities online can be tracked so much more closely, making it necessary to protect children from online marketeers.
Today, though, the opposite is true. A shopper with a smartphone can in theory be tracked even more precisely than online shoppers. Geolocation services are becoming more popular - giving the ability to track the physical whereabouts of your shoppers as they move through or near your stores. Several types of location techniques are being trialled by retailers and they all have the same effect - retailers can track shoppers as they browse in-store.
The idea that consumers’ in-store activities are not as well monitored as their online activities is no longer true.
In the longer term, the biggest potential for CRM and mobile integration in-store is for customised pricing for individual consumers. One way of doing this would be to have customers scan a product barcode with their phones, which would then display a price especially for that customer, based on their purchase history, their demographics, how long they have been a customer, or other items in their shopping cart. Not only could this push sales, but it gives the shopper a solid reason to scan every product they are even a little interested in. That is great data for a CRM file.
It could complicate things in some areas, however. For instance, price-matching programmes, such as John Lewis’s ‘Never Knowingly Undersold’, match the price of rivals and may need to begin to factor in individualised pricing. As individual pricing develops, it might make price-matching more complex. The rules may change - and should change - for different customers. If you’re trying to attract a new type of shopper, offering them more favourable pricing is an effective way of doing so. You want the ability to offer your highest volume or your highest margin shoppers better prices.
Specific product preferences is another factor. Even if a group of customers might not be your overall highest-margin or highest-revenue shoppers, they might be regularly purchasing a handful of very high-margin products or products that you need to keep moving and are therefore still worth targeting.
This coming year will continue to be CRM’s time to shine - with spending tight, it’s a difficult period to maintain customer loyalty. Collecting and using data properly will be an ever more important part of a successful loyalty strategy.