February 2008

New customer strategies aim to change
the face of Canadian retailing
Customer data analytics tools help retailers
remain relevant, combat difficult economic times.

There is no question that there are tough times ahead for retailers. Shoppers are facing budgetary challenges that will ultimately lead to changes in their behaviour. Navigating through this economic cycle and coming out stronger will require a deeper understanding of customers and their shopping habits. Marketers need to engage and remain relevant to their customer base who may otherwise switch brands, reduce their purchase frequency/volume, or worse, stop buying a category altogether. But there are considerable challenges in achieving that deep understanding as consumers continue to evolve and increasingly become moving targets.

“Today’s marketers are affected by a multitude of consumer trends which can impact how and what their customers buy,” notes Brian Jones, director of Groupe Aeroplan’s LMG Insight & Communication (LMG I&C) Canada. Examples include lifestyle changes, a greater awareness of health and wellness, demands for greater convenience, changing attitudes, ageing populations, diversity/ethnicity, consumer choice, and technological developments such as Web 2.0. This convergence, or pattern of trends, results in the need to recognize customer segmentations as being dynamic, and not static. “Using last year’s customer segmentation for campaign targeting this year, may not be relevant and deliver a lower than normal campaign performance – that’s simply not acceptable in today’s environment,” he adds. Therefore, there will be an increasing need for marketers, including both retailers and their suppliers, to access highly granular point of sale (POS) data that’s linked to their customers. This linkage creates an opportunity to define customer segments and monitor trends within each segmentation as they occur, not after they happen, ensuring the relevance of their message and offers.

Retailer and supplier collaboration
Customer linked POS transactional data delivers considerable benefits to both the retailer and its suppliers. Some of the world’s leading grocery retailers (Sainsbury’s in the United Kingdom and Kroger in the United States) have realized this and are now reaping the benefits of collaborating with their supplier partners who are actively engaged in the analysis of the retailer’s data for many reasons, including using it for direct marketing purposes. The collaboration stems from each party using a common database from which to make decisions. The benefits of the approach are simply in the fact that both retailer and supplier share the same customers. This enables the retailer and supplier to collaborate on best customer strategies that will enable both organizations to achieve their objectives. The approach also benefits the customer who, in turn, is being marketed to in a highly relevant way.

Importance of customer loyalty programs
In order to define the customer strategy, there’s a critical piece required - the loyalty program. Loyalty programs, and the rich member information they collect, enable the linkage of the customer to the transaction which enables the collaborative relationship. With a loyalty program in place, the customer linkage is established. Now, all that’s required is the infrastructure to maximize this data and make it meaningful and actionable.

Delivering this value proposition requires service providers who can manage massive SKU level data, deliver and report analytical insights, facilitate the relationship between the supplier and the retailer, monetize the information, and, target/create/execute/measure direct marketing campaigns. The required infrastructure does not typically reside within the retailers themselves, (which is why retailers struggle to make loyalty data an actionable business asset). Nor would it necessarily make sense for a retailer to build it. Outsourcing, therefore, becomes the most viable option. For example, Sainsbury’s works with LMG I&C UK, which provides highly detailed analysis and guidance in the areas of customer, promotion, new product, assortment and distribution optimization.
In fact, LMG I&C built its business on the Sainsbury’s customer loyalty program. Historically, loyalty programs were seen primarily as a marketing scheme, but now, the data component is at least 50 per cent of a program’s value proposition. Recognizing the value that loyalty data can bring, Groupe Aeroplan, the largest operator of coalition loyalty programs in the world, has increased its focus on loyalty data. Following the successful launch of LMG I&C in the United Kingdom in 2007, the business was launched both in Canada and the United States in 2008.

Unique tools for today’s marketers
LMG I&C’s Self Serve tool enables direct marketers to specifically define (as well as manage and monitor) their targeted customer segments based on behavioural analysis and/or customer profiles. It also enables a customer segment for a direct marketing campaign to be easily selected. Customer segments can be selected in various ways, with campaigns that benefit both the retailer and its supplier.

Examples of mutually beneficial targeting selection for direct campaigns could include:

• Cross category opportunities - an example would be to target those buying a specific brand of shampoo that do not buy the same brand’s conditioner (but do buy a conditioner). Alternatively, to target shampoo buyers who don’t buy conditioner at all. This not only expands the retailer’s overall category sales, but also expands the consumer franchise of the supplier;
• The development and targeting of promotions based on the highly indexed relationship between brands and unrelated categories;
• Repeat purchasers of a new product in a frequently purchased category – targeting with offers, would help to build consumer loyalty amongst the new product, which helps ensure better retail performance and listing assurances;
• Testing extended product usage concepts amongst heavy category buyers, helping to raise the awareness and volume of the brand and the category overall;
• Shifting shopping patterns – those showing signs of attrition could be targeted to keep them engaged with both the category and brand;
• Key customer metrics and profiles that could include age, gender, etc.

Identified (on the left side of the screen shot above) are the numbers of customers shopping over a six month period that are sole category buyers. Also identified are those who are cross shopping various mens’ toiletries categories. On the right side of the chart, the life stage of the retailer’s deodorant buyer is identified. The life stage identifies the considerable deodorant volume being sold to middle-aged and young couples. When the shower gels for men is highlighted (not shown here, but simply done through moving your cursor while in Self Serve), the life stage of shower gels is identified as being identical to deodorants. However, similar customer profiles between category segments don’t necessarily make common customers, but are a predictor. In this case, the analysis shows only 13% of the 1.5 million male deodorant buyers buy shower gel as well. Interestingly over the same time period one year ago, it was also only 13%. Therefore, despite similar customer segments, shower gels are not increasing their penetration amongst male deodorant buyers. In fact, when compared to one year ago, the retailer is experiencing declining volumes of shower gel sales amongst the categories’ key customer segments. These are the critical trends and they may suggest a considerable cross-marketing opportunity for those brands with products in both categories. Self Serve also enables the analysis at brand and SKU level. Through the use of Self Serve technology, marketers can create lists immediately based on their selections. In this example, all of those buying a specific brand of deodorant, but not the same brand of shower gel, can be immediately identified and a direct mail campaign created. LMG I&C delivers against this entire value proposition.

Collaborative efforts pay off

• LMG I&C’s experience of working on collaborative direct mail campaigns has generated the following results:
• Money off coupon redemption rates average between 8-12% for one-off campaigns
  
• Highest redemption rate across a campaign with money off coupon: 33 %
• Highest redemption rate of a money off coupon within a mailing: 56%
• Repeat campaigns tend to average redemption rates between 20-25%
• Free product coupons average: 40%
• On average, around 40% of customers repeat purchase 2+ times
  within the post campaign period.

Targeting shopper segmentations in an effort to change and manage their behaviour can have a considerable impact across a retailer and its suppliers’ business. “It becomes increasingly powerful when both the suppliers and retailers agree on the best strategies for developing core customer segments and execute collaboratively – which delivers brilliant results,” says Jones. This collaboration ensures marketers remain relevant and engage their customers for mutual benefit. This is a winning strategy, and one which more leading retailers around the world will adopt, to navigate through highly competitive markets in the most difficult economic times.