News

Customer loyalty, profitability and razor-thin margins

April 9, 2006

This article appeared in the Retail Self-Service Executive Summary, Spring 2006.

New technologies are always working for retailers: improving razor-thin margins, cutting overhead, differentiating stores from the competition, changing the way people shop, improving product range and availability, and increasing shopper spend and frequency. But we know that new technologies grow old quickly, and competitors usually catch up with the leader soon enough.

But to grow truly loyal customers who don't switch to competitors that suddenly offer better discounts or novelty services, what's needed is the "Mom & Pop Store" factor: Knowing customers well enough to anticipate their needs; to stock what they want, when they want it; to serve them well, and consistently, and in a friendly way; to delight and surprise them from time to time.

While the independent grocer of the 1950s was able to know his customers intimately, in person, that's just not possible in the same way today. But it can be done with a database, some analysts and a loyalty program. Actually "loyalty program" is a misnomer: it's actually a data collection program. It's the data you gather (demographic, geographic, sociographic and transactional) that provides the insight (the business intelligence) to serve customers the way mom and pop did in the 1950s. And it's that service that engenders the kind of loyalty that retailers like Tesco (U.K.) and Nordstrom (U.S.) have earned.

So how exactly does data turn into loyalty? Well-analyzed data highlights the strengths and weaknesses of the business, and it becomes clear how to improve the core offering. There's a chain: from data, to analysis, to action, to customer loyalty. Companies - such as Superquinn, Coutts Bank, Lexus and Harley Havidson - have fiercely loyal customers not because of a plastic loyalty card, but because of the way they serve and satisfy their customers' needs. They use detailed knowledge of their customers to improve their service and products. And that simple message is what so many don't fully understand.

There are dozens of ways that the collection of even relatively simple data can directly benefit a retailer, none of which are possible without a rewards/data collection program. Just a few of those insights might include: customer segmentation and lifetime value analysis; customer lifestyle and behaviour profiling; product preferences and repertoires; cross-selling and up-selling; product recommendations; advocacy ratings; customer tiering; price differentiation strategies; targeted acquisition, retention and win-back campaigns; wallet-share; and market-share estimation. There are dozens more, each providing a focused route to greater loyalty, revenue, market share and bottom line profit.

TheWiseMarketer.com provides free loyalty marketing news and research facilities, and is the publisher of The Loyalty Guide, a 950-page report detailing customer loyalty practice, theory, technology, and programs worldwide.