Proper data usage crucial for loyalty programs

The writer is editor of SelfService.org.

Wal-Mart's U.K.-based subsidiary, Asda, fell behind plan last year. Bad news announcements are a rare thing from Wal-Mart, and The Wall Street Journal identified the culprit: competitors' loyalty cards. The paper reported that Tesco PLC, one of the first retailers to adopt a loyalty card program, now holds a 31 percent market share in Britain — nearly twice that of Asda.

But cards alone are not the answer. Many companies invest heavily to gather customer data and still fail to gain an advantage. It's what goes on behind the scenes, the data gathering and mining that brings customers back.

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MobileLime CEO Bob Wesley, whose company markets a cell-phone-based loyalty network, knows the value of correctly interpreting customers' information. The first step, he said, is to make sure the data is gathered correctly.

"The quality of your list is very important," Wesley said. "The offer will help the response rate, but getting really good data about people is really hard. People change their addresses. I'm changing my address right now. I could go into Stop and Shop and apply for a new loyalty card and my phone number would change. And I might put down Bob Wesley instead of Robert Wesley and I'd go into the database as a completely different person."

According to Boston University's College of Communication, 86 percent of American shoppers are listed in a loyalty database and a majority of respondents said receiving the card was worth giving up some measure of privacy.

After their information is gathered and customers' spending habits are tracked, the data must be examined to find an in with the customer. That's where Tesco realizes much of its success. In one example, according to The Wall Street Journal, Tesco identified young adult males who bought diapers. With a child to baby sit at home, the company knew these men wouldn't frequent pubs as much, so it sent them coupons for beer.

Wesley said such comparative measures are the best practice for reaching customers with a loyalty program.

"This one particular grocer wanted to sell more prepared foods to their evening traffic," Wesley said. "So they analyzed and said ‘A lot of my evening traffic is coming in and not going to the salad bar or the hot food bar. What can I do to get them to change their behavior?' So they said, ‘I'm going to get them to change their behavior by offering them something so they'll start to buy it and, over time, they'll change their behavior.'"

For its part, Wal-Mart has been a respected leader in the quest for customer data of a different kind. According to The Joplin Globe, Wal-Mart's 125,000 square foot data mining facility can house twice the data that the Internet holds: 460 terabytes of data. Author John Dicker wrote that Wal-Mart's data processing abilities are at the hub of its logistical controls, which he notes are so advanced they can deliver hurricane supplies for sale in Florida stores as soon as a storm is on the radar.

When asked about the stiff competition from Tesco, company spokeswoman Amy Wyatt dismissed the value of loyalty programs.

"Schemes and special promotions are not something that we do," Wyatt said. "We believe in offering every-day low price. Special deals, ‘only for a limited time,' are not something we do. We prefer to offer low prices over the long term, rather than short-term special offers."

But for the Wal-Mart company as a whole, loyalty programs do show results. Sam's Club's member-based loyalty card program, for example, accounts for 13 percent of Wal-Mart's sales, according to Hoovers.com. And Wesley said their branded credit cards are another source of data — not just about what customers buy in their stores, but in their competition's stores.

The last crucial portion to the loyalty card puzzle, Wesley said, is communicating the reward to the customers. He said many programs fail because customers don't realize what they receive in exchange for using the card. Wesley said most customers he asks don't know the balance of their rewards programs, or the benefit they get from using a card in a store.

"Some leading companies will spend lots of resources to very succinctly print out on a receipt, the value of the card," Wesley said. "The real issue is how to make a loyalty program work harder for you."