Following my blog last week on the volume of narrative data now available to marketers, I’ve been thinking a lot about the relative value of retailers’ loyalty card data and whether it can help manufacturers. I got the chance to chat with two friends, Nik Laming (formerly at Aimia and now working with an airline to build their loyalty program) and Mike Hawkins (a Dunnhumby and Kantar World Panel veteran) to get their points of view and see if they resonated with mine. Here are some of the key questions we debated and my conclusions:
Why do retailers invest in loyalty cards?
For more than a decade, retailers have been developing loyalty propositions to greater or lesser effect. Many have watched Tesco’s success with the Clubcard in the UK with envy and sought to emulate this globally. It’s fair to say that few have been hugely successful in this, so why do they continue to invest?
The core response to this question is that engendering greater shopper loyalty is central to successfully leveraging the financial model that underpins retail. Unlike other businesses, the retail model is heavily focused on return on capital employed. The proof of this is the ongoing growth of mega-retailers despite the delivery of wafer-thin margins. Retailers drive ROCE by constantly seeking to drive topline growth and gross margin whilst minimizing inventory and leveraging available cash.
Ensuring that footfall constantly increases underpins growth, as does increasing basket sizes: The offer of tasty rewards in exchange for a shopper’s custom supports this and the potential to target those rewards on a more personal level makes the offers more enticing (or so the theory goes). Equally the promise of deep insights, increasingly targeted promotions and ‘partnership’ is enticing to vendors too. As such those retailers with a compelling loyalty offer can often secure higher margins through negotiating fees for data exchange, analytics and targeted discounts.
Is retailers loyalty card data useful to manufacturers?
The potential to understand the shoppers who frequent your largest retail customers better and to target them with specific activities is extremely compelling for many brands. Not only that but the ability to get feedback on what is working or not in-store could enable many marketers to plan investments more effectively. Indeed the really effectively applied loyalty systems can enhance the whole value chain, keeping ranges focused, driving more accurate forecasts and ultimately reducing working capital for both parties.
And yet despite this potential few retailers are actively using their data to the full extent. Beyond a few isolated success stories, many retailers continue to focus on competition on price over more elegant and targeted approaches and fall back to using their card data as a lever to drive margin rather than sales. Consequently, manufacturers often complain to me that they feel they gain little from the data they are purchasing. This is compounded by a general data overload in many businesses which often constrains the team’s ability to analyze data with sufficient pace and quality.
Should we buy a retailers loyalty card data?
Since the decision to buy or not to buy comes with a relatively high price tag on the one hand and the thinly veiled threat of reduced support on the other, it’s worth considering a few key questions:
- Do you know enough about the drivers of your brand growth? Loyalty card data is narrative data. It can only tell who has done what, when. With sufficient insight into which consumers and shoppers you are targeting you can define whether or not the retail customer you are negotiating with is valuable to you. With clear objectives for target shopper behavior, and a good understanding of the roles that each retail channel play you may decide that the retailer is either key to your strategy or not. Without this you may be purchasing a white elephant – measuring the behavior of and marketing to entirely the wrong shoppers.
- Does the retailer offer sufficient scale? Big retailers got big because lots of people shop in their stores. It stands to reason therefore that the larger the retailer, the greater the number of shoppers you can access in their stores. In these circumstances, even if you don’t have all the answers to the questions posed above, there is still a chance that you could derive value from large volumes of shoppers.
- Will the retailer work with you? Embracing and using loyalty card data is going to be cost intensive and labor intensive. Since many cite compliance as a key barrier to working effectively with retailers, you need to know that the retailer in question will act with you to implement initiatives. If not frankly you will only be increasing their margins at a greater cost to you.
- Can you handle it? Much loyalty card data is sold as offering huge insight. Sometimes this is true, but often it’s not. What a retailers’ loyalty card data can tell you is who has bought into the brand, at what frequency and in what quantity. Further it can offer benchmarks which might enable you to identify potential areas in which you can grow. BUT what it can’t tell is why this has happened – in order to know this you potentially face another research bill to help you realize the opportunity.
I’m always delighted to hear of case studies where things have gone well in this field so if you have successes you’d like to share, please do so. On the other hand, if you are grappling with what to do with data you’ve acquired, or just want some advice, I’m always happy to provide coaching on this. Feel free to contact me if you need help.
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