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How Much is Customer Loyalty Worth?

It's a question that most brand teams will have asked themselves: how much is customer loyalty worth? It's a question that switched-on resellers of their products and services will be asking themselves, too.

Justin King, CEO of Sainsbury, underlined the importance of loyalty data back in January, as both Sainsbury and its rival, Tesco, moved forwards on trading, largely due to customised, loyalty-card driven promotions. King described a future retail divide between the loyalty data 'haves and have nots'.

But loyalty cards have been around for many years, and so far, no real divide seems to have emerged.

Is King misguided? Has Sainsbury's loyalty card partner, LMG (the owners of Nectar), sold it some pie-in-the-sky vision? Let's see:

The key to the value of loyalty data is in what you do with it. So, what can you do with it?

Step 1:
Mine the data to identify and understand customer groups. This tells you which demographics are really worth chasing, and what really motivates them. It will tell you things that you already know, maybe that young mums are a very important market for you, but will also tell you things you didn't know, like how single mums shop in radically different ways to those with stable partners. Interesting? Yes. Valuable? Maybe. Game-changing? Probably not.

Step 2:
Run the database against a broad range of potential offers. This helps you target activities such as direct mail. Maybe sending groups of similar customers vouchers for all of their favourites, with a few compatible extras added in, all adding up to 25 per cent more than their average spend. Valuable again, but not game-changing. This is where loyalty seems to have plateaued over recent years, but things are now moving again.

Step 3:
Mine the promotional sales to understand which customers are most easily influenced, and to what degree customers are loyal to individual brands and products. When I first saw this kind of insight, I was surprised how weak the loyalty often was on 'leading' brands. Not only does this information help target the most responsive customers for behaviour-changing deals, it can radically shift the balance of power between consumer brands, and the well informed retail channels (King's 'loyalty data haves'), generating some major leverage in negotiations.

Step 4:
Link individual customer data to in-store and online systems and generate bespoke offers that will prompt specific, measurable behaviour changes at an individual level. You can stimulate high volume, low-cost trials, as well as measuring the residual behaviour and establishing the true long-term switching value of different types of activity against different customer and product profiles. How much is that worth for a consumer brand team?

Step 5:
Draw together mobile, online and electronic displays, link them with phone-enabled GPS, and deliver high-powered bespoke deals tailored to customers to drive traffic, improve navigation, and create a truly customised shopping experience. Picture a mobile app or an in-store virtual assistant that walks you to your ideal product, offering relevant add-ons and alternatives that will interest you along the way, giving you information, comparisons and deals on anything you show to the camera, all driven by a detailed understanding of your needs, preferences, brand loyalty and price sensitivity. Could it happen? Yes. Would customers want it? Who knows.

But one thing we do know, is that it's all based on a deep understanding of the customer as an individual. It requires an account, or a loyalty card, to build up that picture. So maybe King's statement does have some legs. Maybe there is the potential for a divide to grow between the loyalty haves and have nots.

(Photo: gwire, CC2.0)