Extracting Value from Loyalty Card Customers

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INTRODUCTION

Loyalty programs have caught on in a big way for consumers. But if you have a loyalty program, or are in the process of developing one, chances are you’re not getting as much out of it as you could be.

These programs can yield information about your customers that is valuable not only to you but also to advertisers looking to understand consumer buying patterns in particular regions or times of the year (Figure 1). In other words, there are numerous revenue-generating opportunities for those grocers that find smart ways to use loyalty card data.

Grocery retailers have missed these opportunities because, until now, doing so would have required a significant IT investment. But it’s not necessary to implement expensive ERP systems to glean the business intelligence they offer. Rather, it’s possible to work within the existing platform and fill in any gaps with just a few data warehouse tweaks and better reporting. The key to unlocking this potential is to find the most efficient way to extract and analyze the data without breaking the bank.
 

THE CHALLENGE

Most grocers established loyalty programs over the last decade in response to a trend that nobody imagined would take off, let alone become the industry standard. Because these were test programs, grocers did not establish the proper systems and infrastructure to put the consumer data to good use. They simply stored it and perhaps ran summary information through the POS systems. Today, most grocers are using inefficient processes to cobble together summary information that does not go deep enough to capture their own benefit, let alone the benefit of CPG manufactures and other partners. The cost and time of mining the data through upgraded systems may seem insurmountable, particularly in these economic times.
 

Most grocery chains with loyalty card programs established data warehouses with reporting solutions at the time of inception. But those warehouses were not structured to empower users to conduct analytics and produce dynamic reporting about consumers. As a result, many companies’ financial analysts and IT departments scramble, on an ad hoc basis, to cobble together solutions and reports to demonstrate loyalty card effectiveness. These efforts often involve navigating billions of records within POS data to extract loyalty card information. This type of ad-hoc reporting often raises more questions than answers, and inevitably gets discarded as inaccurate.
 

THE VALUE PROPOSITION

Each day, billions of transactions flow through store POS systems. Each row of data contains a wealth of valuable information, including links to customers who own loyalty cards. Grocers simply don’t know what to do with these mountains of POS data. While they routinely conduct basic analysis around flash sales, category management, store comps and advertising sales by category, they still are not connecting the dots with loyalty card data. However, by deploying some basic business intelligence solutions that don’t heavily involve the IT department with a lengthy development timeline, it’s possible to understand the customers more than the customers understand themselves. It is possible to have a solid business intelligence solution that gives the company’s decision makers accurate, timely information and at the same time has the query flexibility to produce any type of ad hoc analysis that might be required.
 

By integrating consumer data (who they are) with purchase behavior data (what they buy), grocers can develop a comprehensive view of the customer and develop a segmentation strategy that aligns merchandising and marketing strategies with a loyalty program to increase sales and profits. It is not uncommon to see loyal customers purchase 20-30 times the amount purchased by the occasional shopper.
 

NEXT: IDENTIFY THE RIGHT SOLUTION AND NO MORE

Companies shy away from software propositions that require years and millions of dollars to implement. Grocers in particular tune out anything that involves a major software implementation because they simply aren’t ready to make large IT commitments for $20 million ERP systems. But there is a middle ground that uses a combination of existing corporate and borrowed technology and analytics that will lead to the same excellent results that you get from a large ERP system.

To determine whether that middle ground works for you, consider whether you’d answer “yes” to some or all of the following questions:

• Do we need item-level transactional data or can I live with Category/Sub Category summary information?
• Do I need daily sales or is weekly sufficient?
• Can my existing data warehouse be enhanced or do I need to consider a new database platform and solution?
• Do my existing reporting tools provide the right “wow” factor now required or should I look at investing in a more robust business intelligence reporting package?

If you’ve answered yes to some or all of these questions, you are well positioned to extract more value from the loyalty program data you already have–without additional substantial investment of time or money.