Commentary

There's No Such Thing As A Loyal Customer

Loyalty programs are nothing new in the retail industry. After all, S&H Green Stamps were part of a popular, universal rewards program for grocery stores and gas stations before most of us were born. These days, major retailers are spending a significant amount of time and resources on data-driven loyalty programs aimed at increasing the share of wallet and lifetime value of their customers.

Yet, despite the ongoing and increased insights into in-store customer behavior, consumer loyalty is far more fragmented than most believe. In fact, we see little difference in loyalty among the most valuable and least valuable customers. Retailers' best customers are likely to be their direct competitors. It is category spend that drives customer value -- much more so than loyalty.

As an example, before an individual has children, they might eat out often and only spend $50 per week on food shopping -- mostly at the same grocer. Later down the line, that same individual -- now with two children and a wife -- increases expenditures at that store dramatically, but they also give quite a bit of share to a club store, another grocery store, an organic supermarket and a superstore. The original grocery store sees this shopper as a much more loyal customer when, in fact, he has become significantly less loyal.

Through analysis of actual transaction data through partnerships with major banks, loyalty of consumers nationwide across a wide variety of retail categories was closely reviewed. The analysis of purchases captured by bank card transactions shows that even a retailer’s most valuable customers spend with them at their fair share within the category. For example, if a retailer has a 25% share within their category and geography, they tend to have a 25% share with their most and least valuable customers.

For example, a top restaurant chain’s most valuable 20% of customers -- accounting for 55% of all restaurant visits and 61% of all revenues -- actually spent less than 40% of their category dollars with that chain. For a major fast food chain, lack of loyalty among its best customers was even more pronounced. While the chain’s top 20% of customers made an average of 26 trips to their stores during a 12-month period, they made 133 trips to other fast-food restaurants.

This phenomenon is not unique to restaurant and fast food businesses. The top 20% of one leading drug chain’s customers make 11 trips a year to the competition. Almost once a month, their best customers are going to their competition.

Studies of anonymous bank-card transactions reveal similar consumer behavior among a retail chain’s best customers in most categories, from groceries to home improvement.

A New Way to Look at Loyalty

The prevalence of loyalty programs has created a zero sum game for retailers. Loyalty programs are expected and retailers struggle to differentiate the experience. While these programs provide valuable consumer insight within the store, they do not enable retailers to understand behavior outside the store. As a result, these programs are left with half the picture. The other half is category spend.

The good news is that in an economy where increasing same-store sales has become more difficult, increasing trips or share from your current customers is a highly cost-effective strategy. The opportunity already exists in your store.

Thanks to a new form of targeted retail rewards called transaction-driven marketing, retailers are now able to target, within the safe, private and secure environment of the bank, customers and non-customers based on overall category spend, loyalty levels and other relevant factors. Through the bank partnership, they are able to deliver targeted offers and rewards to exactly the right consumers to grow their loyalty and value to their business. The impact of these programs can be measured against a control group to ensure incremental and positive ROI. The bank's transaction-level data remains on the bank’s premises, behind their firewall under the control of bank personnel.

The ability to segment and reach consumers based on actual retail category purchasing behavior is a major advancement in the effectiveness of a retailer’s marketing. Transaction-driven marketing that leverages bank card transactional data delivers that precision for the first time.

By nature, very few consumers will ever be completely loyal to any single retailer -- but through transaction-driven marketing, advertisers can attain greater share of their customers' spend and ultimately increase same-store sales.

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2 comments about "There's No Such Thing As A Loyal Customer".
  1. Rebecca Ford from CompareRewards.com , April 30, 2012 at 9:13 a.m.
    My bank partners with Cardlytics to provide transaction-based marketing, with offers interspersed between entries in my transaction history as I check my account online. Despite having this option available to me for over a year, I haven't changed my shopping patterns at all as a result of these offers, although I go in and click to activate all of them. Maybe I'll inadvertantly wander into a participating store and get a reward for it, but none of these offers have motivated me to take action. (No offense intended, Mr. Ginsberg, and of course this is just MY experience.) There IS such a thing as a loyal customer -- ask Disney and Amazon. These guys have some seriously rabid fans. Ask a Disney parks fan if they stop by Universal Studio when they're in Orlando. Prepare for the look of disdain that follows. Disney earned that following for providing a superior customer experience. Universal's a helluva lot cheaper, but they don't treat you like a princess (or prince!) as soon as you walk through the gates. Amazon's loyalty stems from their mind-boggling product selection at great prices (especially factoring in no sales tax, which I know people are supposed to report on their state taxes, but no one really does), and that free super-saver shipping on $25+. So they have low prices, great selection, and free shipping going for them. Why don't drug stores and department stores have this same kind of loyalty? I think it's because they're the ANTI-Disney and Amazon. They don't provide a superior customer experience. Their floor staff is not knowledgeable about what they sell and are often apathetic (if you can find someone at all). Their prices are not good every day (though JCPenney has made a move to address that). They lack a comprehensive selection of products (Walmart has cut way back, offering more of their brand and less selection of national brands). Make the customer feel valued when they walk in the door, and provide a one-stop-shop for everything they need, at low prices every day, and you WILL gain the customers' loyalty... or at least mine.
  2. Kevin Horne from Lairig Marketing , April 30, 2012 at 5:42 p.m.
    "The bank's transaction-level data remains on the bank’s premises, behind their firewall under the control of bank personnel." I take it that statement is intended to put our minds at ease? ;)