The Loyalty Lift

Once upon a time, there were Green Stamps. Arguably the first retail loyalty program, Green Stamps rewarded consumers with postage-stamp-like stickers that were placed in a book and redeemed for prizes. As a way to reward and retain customers, the program was effective. But for the retailer, it didn't offer much beyond customer loyalty. And for the brands that sold within those stores, it offered even less.Then came loyalty cards, which offered discounts and special deals to consumers who registered certain information (name, age, address) with the store and offered retailers an effective way to reward and retain customers, as well as track their shopping habits. But still, the retailers didn't use the cards for much more than that. Most of the information that could be gleaned from these cards -- customer tracking, receipt information, product mix by customer -- was left at the register. "It started as a basic [customer retention] strategy," says Neal Heffernan, senior vice president and general manager at PDI, part of data company Knowledge Networks, Cincinnati. "It's been around for some time, but it hasn't been used aggressively by marketers and retailers."Until recently, anyway. Within the past five years, marketers and manufacturers are showing more interest in reviewing data from loyalty card programs to shape, hone and evaluate programs. In an April consumer tracking study of more than 2,100 consumers, marketing consultancy Colloquy found that nearly 60% of Americans participate in a retailer loyalty program, with most participating in more than one across several retail channels. And it's likely participation is growing. With the recession, nearly one-third of the population said retailer loyalty programs were "more important" than in the past, according to the study. "Everyone has woken up to what a gold mine this data is," says Katie Casavant, managing director of sales and marketing consultant Cannondale Associates in Wilton, Conn. "We see a tremendous movement to leverage this data for a whole variety of shopper communications."MicrotargetingMuch of the power of loyalty card data is through "microtargeting" -- developing programs targeted directly at a specific consumer, offering promotions or coupons that marketers know with some degree of certainty will be of interest to them. For instance, a baby food marketer could track one shopper's purchases of baby formula and, through projections of how long she has been buying it, target her just as she and her child are transitioning to solid foods, says Danielle Bottari, director of shopper marketing at MediaVest USA, New York, whose clients include Coca-Cola, Kraft and P&G. Similarly, a dairy marketer could use the same information to target that woman as her purchases transition from formula to milk. "The manufacturers like it because it increases trial and helps them plan around consumer behavior," she says. "We use it to look historically at [consumer behavior] to project the future."Concept Shopping, a targeted direct mail company in Lisle, Ill., uses loyalty data to build direct mailings and "personal circulars" based on a customer's purchase history. A customer who buys a lot of cereal, for instance, will receive a circular with the cereal promotions on the front page, says William Young, vice president of sales and marketing."[Loyalty data is] the information that can tell you whether you reached the shopper you wanted to reach," says Matt Nitzberg, vice president, global manufacturer practice leader for dunnhumby LTD, Cincinnati. "Now I can connect virtually any stimulus to a consumer behavior."Nitzberg should know. In June 2003, The Kroger Co. enlisted dunnhumby, which had been operating in London, to help the retailer mine its loyalty card data for actionable insights into shopper behavior, the first retail chain to do so in the U.S. In announcing Kroger's first quarter 2009 earnings in June, the company's CEO David Dillon cited Kroger's ability "to pay close attention to the changing needs of today's shopper" for the chain's continued earnings success. And, the loyalty card data they retrieve is also available to the marketers and manufacturers whose products sell at Kroger stores. "We use it both to diagnose consumer behavior and to create and evaluate programs," says Leslie Liss, vice president of consumer insights and strategy for Purchase, N.Y.-based Pepsi Co.'s Kroger team. "Every day brings another improvement, not only in terms of the data available but also in terms of our marketing programs."Nitzberg adds, "As the collection of data has begun to multiply, there's now been an explosion of different types of data that are suitable for different types of purposes," he says. "It's not just about what data you can get, but how [you] should be organized around this data. What do you want it to contribute to your business?"Loyalty AvailabilityDespite Kroger's success with dunnhumby, many brands and retailers are only in the beginning stages of mining this data. Some of that is born out of resistance from retailers to share shopper information, whether for proprietary or privacy reasons. But there has been some loosening up. Representatives for companies such as Procter & Gamble, Kraft, Sara Lee, Nestlé Purina, Colgate-Palmolive and Johnson & Johnson acknowledged they were using retailer loyalty card data for their marketing programs, though they all declined to comment further. Retailers are using the data from their loyalty card programs in different ways. At a basic level, card data can be used much more effectively than register receipts to help chains determine what products should be carried in which stores. "On the assortment side, it's about being able to get away from the generic planogram and stock what's of best use for your neighborhood," Heffernan says. And it can help them maximize the receipts of their most loyal customers through more targeted direct mail promotions (such as offering one customer a steeper discount on a product than their neighbor, who may not buy it with the same frequency). "A lot of the best shoppers for Jewel are also the best shoppers for [Safeway-owned competitor] Dominick's," says Concept Shopping's Young. "With [loyalty card] data, they can start looking at shoppers and tiering them."Through loyalty card tracking, retailers and manufacturers know who is buying what products (see the baby formula/baby food example), breaking it down by store, household income, and in many different ways. And they can do so quickly, sometimes within weeks or months. "Shopper data has enormous benefits in terms of sample size," Nitzberg says. "It supports granularity, by SKU, by week, by time. I can do much more frequent tests and learn much more with shopper card data, and I can segment it and align it in infinite ways." Competitive Measurement TacticsThough many companies and retailers still figure register data, in-store observation and interviews can help determine the effectiveness of a marketing promotion, loyalty card data can be helpful in truly understanding if a given promotion reached the consumers for whom it was intended, and how well. "You can know if you made more money or sold more product," says Pepsi's Liss. "But if you didn't trigger the right [evaluation] levers, you'll never know how you did it.""All of our brands are utilizing sales information, and we're able to overlay loyalty card information to provide that extra bit of insight," says MediaVest's Bottari. "We're able to use those insights not just to guide our in-store [marketing programs], but to guide all of our strategy."Despite its granularity and speed, there are several things loyalty card data can't do. For instance, it can't tell where a shopper picked up an item within a given store (i.e. off the shelf or from a promotional display), and it can't say what items shoppers are buying from other retailers, or how frequently. "It stays within the walls of the store," Liss says. "I can know everything about how a shopper shops within Kroger. Once they leave Kroger, I lose them."This is precisely the argument companies such as Information Resources Inc. and The Nielsen Co. make about their panel data, which relies on consumers self-entering the products they've purchased into a database. Though there are some holes -- relying on consumers to self-regulate, and an inability to know precisely where an item came from -- executives from Nielsen say their data helps show the forest, where loyalty card data may only show the tree. "You can't use it to understand where shoppers might be spending outside of their stores," says Todd Hale, senior vice president of consumer and shopper insights for Nielsen, New York. "If you really want to build loyalty, you need to know what's going on outside of that store."Emil Martinez, senior vice president of consumer and shopper insights at IRI, Chicago, says the future will consist of a combination of the two data streams. "They're somewhat symbiotic," he says, "which is why the movement to combine these data sources is so critical. It gives you that inside-the-store and outside-the-store view."Even dunnhumby's Nitzberg agrees that loyalty card data can only go so far. In fact, he encourages companies to be "data-source agnostic," to decide what sort of information they're looking for and then mine all kinds of data to get the best answers, whether they be broad-based or very specific."One way to think about panel data is like an optical microscope: It has a relatively broad field of vision, but relatively shallow depth," he says. "Shopper data is like an electron microscope; it can get you a very close-up view of one thing. It depends on what you need."And because different retailers use different models, equipment and systems to collect this data, aligning the information across retail chains (or even stores in some cases) will take time. "The threat [to Nielsen and IRI] is credible," says Ken Madden, executive vice president of strategy and analytics for Ogilvy Action, the brand activation arm of Ogilvy & Mather. "But the reality is that it's going to be fragmented and take a while to sort it out." Still, Hale says Nielsen does have some agreements that leverage the company's HomeScan panels, supplemented by loyalty card data (though he declined to get into specifics about those programs). "It is -- without question -- the richest source of data you can find in drilling down for a specific retailer," Hale says. "I think we're going to see it grow in use, and retailers are going to continue to use that data to segment and market to customers."(IRI is not conducting similar tests, Martinez says. The two data streams can coexist peacefully. "They're ingredients in the same recipe.")And that's still where most people see the advantage of loyalty card data, for both retailers and manufacturers. "The days of marketing to all consumers are gone," says Hale. "Getting very granular in your data is necessary."And though the industry has only begun along the continuum of implementing and integrating all of this data, many can see -- once obstacles such as technology, privacy and proprietary concerns are addressed -- that it will be an important part of retailing's future."The real goal is to understand how different stimuli influence consumer behavior differently," says Cannondale's Casavant. "This will increasingly be the cornerstone for highly customized shopping programs for retailers, even outside of the four walls of that store."

The Loyalty Lift

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