The Value of Information Part 3From Melody Vargas, Part 3 in a Series on Loyalty RetailingIt seems innocent. Retailers offer frequent shopper cards to their customers so that they can better understand them. Understanding their customers allows retailers to make better assortment decisions and improve the efficiency of the supply chain. A more efficient supply chain and better assortment allow retailers to target their customers with goods and services that meet the customers’ needs. Meeting needs creates loyal customers and drives retail sales. Everyone wins, right? It depends. When the data is used strictly to aid in category management, it can be a tremendous asset. If the retailer shows a lack of respect for customer privacy (as we examined in part 2 of this series) or customer intelligence, it won’t inspire loyalty and may become an annoyance. How many frequent shopper cards do you have in your wallet right now? Chances are if you live in an area with more than one supermarket, you have several. The consumers are not showing loyalty to the store by signing up for their cards. They are showing that they will do what they have to in order to get the discounts. They are submitting to being tracked and are willing to present their cards in order to keep their food bills within budget. Active anti-card privacy group, No-Cards Shoppers, believes frequent shopper cards insult shoppers and do not really save anyone money. More and more customers are beginning to agree. Several local news stations around the country have run tests in response to disgruntled shoppers’ claims that retailers inflate prices only to offer savings equal to the old price. It’s hard to argue when the price of a gallon of milk is raised a $1.00 the week before a frequent shopper card is instituted, only to be discounted a $1.00 for customers who use the new card a week later. There is no actual savings over the old method, only now, the individual customer’s milk purchases can be tracked. This is hardly a way to win friends and create loyal customers. Other retailers may not increase prices prior to implementing a frequent shopper program, but they almost all significantly decrease the number of non-card discounted items they offer their customers. The items that would have been offered to anyone at the discount before the cards were implemented, now cost non-card holders the regular price. These retailers haven’t anticipated each specific customers’ need for milk. But now, they know who is buying milk, in what quantities, and at what price, and especially, in conjunction with what other other products. The grocery retailer armed with the information that this customer buys two gallons of whole milk a week and 1 mega-pack of diapers, but does not purchase baby food, would be able to assume that this family has at least one child at home between 1 and 2 years old. Now the retailer can begin to target and use the data to anticipate this particular shopper’s needs. Anticipating needs is the holy grail of loyalty marketing. When retailers can anticipate their customers’ needs they begin to win loyalty. Retailers who match products to their customers’ behavior are focused on their shoppers. Using collected data to target their product categories and give customers what they need, when they need it is what these programs are supposed to be about. The best category management has always focused on the customer, even before the advent of loyalty programs. Smart retailers combine their targeting with their category management and learn how to use their data in collaboration with manufacturers. Both retailers and manufacturers bring unique knowledge and insights to the table. Combining business knowledge of both with a customer purchase history database makes it much easier to target specific offers to specific customers. Using the data from loyalty programs to determine that shoppers prefer traditional red, white and green Christmas decorations in contrast to fashion colors and making those the largest part of your assortment is good. Using data from loyalty programs to determine order quantities for a special promotion of new line of pantyhose is good. Using the same data to notify customers who typically buy several pairs of pantyhose a month that there is a sale this week on a new line in her preferred brand is great. Determining quantities, deciding if a new product fits in a particular store, and selecting colors for spring fashions are excellent uses for data that help the customer. So is using frequent shopper data to personalize the shopping experience for the customer.
Is personalization being used wisely by retailers? We’ll cover this and more in the remainder of our series, as we continue to explore the pros, the cons, the alternatives, and the best practices of loyalty programs.