* 10 million shoppers in Britain are active members of Tesco Clubcard, the world's most successful retail loyalty scheme
In Scoring Points, marketing experts Clive Humby and Terry Hunt, as well as journalist Tim Phillips, describe how Tesco went from being just one of three grocery chains in Great Britain, fighting for its share of customers and their wallets, to the undisputed leader. You will see the action behind the scenes as Tesco begins to learn exactly why customers shop at Tesco and what they want from the retailer. By creating the world's leading customer relationship management program, Tesco has learned a lot about what it takes to retain those customers and induce them to spend more. Through its innovative Clubcard, Tesco has learned that rewarding good customers is great for business. What Tesco has learned from its program can serve as inspiration for others just now launching loyalty programs or trying to leverage the information theirs provides into sales.
Loyalty, in day-to-day life, implies monogamy: one choice above all others. Retail loyalty isn't like that. There isn't a customer alive who will consider using one shop for every need. When retailers look at winning and keeping loyal customers, the best they can hope for is a little extra goodwill, a slight margin of preference, and an incremental shift in buying behavior. Together, however, these benefits can add up to a massive contribution to a business' financial success.
Types of Loyalty
There are four types of loyalty on which retailers have come to rely. The first is "purge" loyalty in which the retailer slashes prices to make itself the preferred place to shop. The second is "pure" loyalty, which is dependent on a two-way dialogue between the retailer and customer. Next, "pull" loyalty depends on attracting customers by giving a related special offer with a purchase, such as a buy-one-get-one-free deal. It's an inducement to create sales by encouraging customers to buy new items. Finally, "push" loyalty means creating a program to encourage customers to use a way of shopping they haven't used before, such as offering a combined credit card and loyalty card or making prices cheaper on a Web site. Push loyalty is what loyalty programs are all about.
Loyalty programs produce positive results in six ways:
- Customers make purchases more often, having made a conscious choice to commit to your brand in exchange for a reward when they sign up.
- Loyalty programs give you the ability to mass-customize marketing communications. Using customer transaction data, you can individually target marketing.
- Loyalty program information is very valuable if it is analyzed. The data is exact and becomes a high-value asset itself.
- Loyalty programs let you track trends, giving you early warning of significant changes in how customers are shopping, what they are choosing and what they aren't doing.
- Loyalty programs minimize waste by targeting offers to those who are most likely to want them.
- Loyalty programs promote trust and open the way to an expanded relationship when it's time to add services and products to the marketing mix.
Making Loyalty Pay
Loyalty programs aren't cheap - they require a substantial investment in cash. For a large retailer, startup costs can run $30 million in the first year, and annual costs will run between $5 million and $10 million.
Loyalty programs also require a huge investment in time and IT resources. For example, Tesco employs nearly 100 people whose main job is to manage its Clubcard process.
And before you start, consider the cost of stopping. If you don't get it right and have to end the program, customers may perceive your actions as breaking the bargain. Once customers embrace a program, they are likely to be very reluctant to have it taken away. Copyright © 2004 Soundview Executive Book Summaries
- Kogan Page, Ltd.
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Meet the Author
Clive Humby is the chief information architect behind Tesco Customer Management and its segmentation program and co-founder of leading marketing analysts dunnhumby. He is Visiting Professor, Integrated Marketing, at Northwestern University, Chicago and Industrial Fellow at Kingston University and co-author of Scoring Points, also published by Kogan Page.
Terry Hunt is chairman of EHS Brann, one of the largest direct marketing agencies in the world. His clients include Tesco, British Gas, The Economist, Cadbury's, National Savings, and Barclays.
Tim Phillips has been a journalist for 20 years. He has written for publications such as The Wall Street Journal Europe and The Sunday Times. He writes the popular blog "Talk Normal" in an effort to combat the poor communication and corporate jargon in the workplace. He is the author of Knockoff and Fit to Bust and co-author of Scoring Points, all published by Kogan Page.
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