Customer-First Strategy

By  Robert Garf — July 27, 2006

Most retailers dont use the information they capture from their loyalty programs. This was proven by the fact that only 25 percent of respondents to a recent AMR Research survey even see this as a benefit to their retail organization. The topic was discussed at the recent RIS News Spring 2006 Retail Executive Summit, where I led a session that previewed results from the study regarding the state of loyalty programs. I also moderated a panel discussion consisting of Stop & Shop, Borders, and Best Buy loyalty program directors. One resounding takeaway was that these companies use loyalty data to make cross-functional planning decisions.

In most companies, the marketing department usually manages customer loyalty programs and merchandising has limited involvement. Marketing is solely responsible for enhancing brand awareness and guiding customers to purchase products. The lack of cross-functional collaboration and alignment is a problem because marketing isnt using information that lives with merchandising. At the same time, merchandising is accountable for the margin, turn and sales of products that it is not actively involved in promoting.

On the flip side, the retail panelists talked about how their companies are bucking this trend:

Stop & Shop The grocery chains 10-year-old loyalty program, which has member transactions accounting for 68 percent of sales, is owned by the executive vice president of marketing and merchandising. The data is used to segment customers, create programs, improve merchandise assortment and optimize stock allocation. What started out as a way to save circular costs and eliminate coupon clipping has evolved into a program that lets merchandising analyze data to make decisions. Marketing also uses product and customer information to fuel its effective online and Shopping Buddy initiatives.

Borders The book, audio, and movie retailer piloted a program last year and rolled it out nationally in February. It aims to win back market share from Barnes & Noble by providing perks such as holiday savings, personal shopping days and special prices and rewards. While still early in the program, the company has created a cross-functional Discount Management Committeeincluding finance that reviews all reward/discount options to understand the impact on the customer, profit and brand image.

Best Buy Started in 2002, Best Buys Rewards Zone boasts one of the largest customer databases, with seven million members representing approximately 30 percent of company revenue. While the program is owned by marketing, the data is shared with various departments in the organization, and is attributed to the success of its segmentation-based Customer Centricity program. Using insights from loyalty data, Best Buys marketing and merchandising departments work closely to determine optimal prices, promotions and product mixes by specific stores. Customer information is powerful if used correctly throughout the organization, including marketing, merchandising, finance and store.

Understanding Consumers

Retailers like Stop & Shop, Borders, and Best Buy increase the quality and usefulness of its customer intelligence to create the following:
Marketing insights For relevant communica- tion, meaningful interactions, and personalized promotions, influencing the buying behavior and ultimately improving retailer image.

Merchandising insights To forecast the effect on merchandise sales and margins by better understanding customer affinities, preferences, and shopping habits.

Business insights To analyze profitability, and plan everything from new store locations and private label development to store associate training and labor forecasting. Store insights To ensure the home office is properly training store associates, and for monitoring store execution effectiveness and performance.

While not at the RIS News event, Krogers chairman and CEO David Dillon shares a similar view regarding the importance of loyalty data.

In a conference call with analysts in September 2005, he said Krogers customer intelligence strategy has helped me reset my understanding of what the customer is after, and it helps replace intuition with actual data and actual facts. And its those facts that are driving our decision-making. He went on to say our commitment is to make sure that every decision we make positively influences the way our customers feel about Kroger. This emphasis on placing the customer first generated increased customer traffic and higher average transaction size.

Set Yourself Apart with Loyalty Programs

While Wal-Mart has historically focused on lowering product cost through advanced forecasting, replenishment and logistics, recent moves by its CMO indicates customer intelligence is increasingly coming into play. He plans to grow his marketing team by 30 percent and create three new departments: brand management, a category marketing group and an insight and customer strategy group.

Retailers should use this as a wake-up call.

Use customer intelligence to lead marketing, merchandising and business strategies to set yourself apart and build market share early.

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