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Monday, January 6, 2014

Why loyalty schemes can make or break a supermarket business

By Claire Broadley

At this time of year, supermarkets almost always engage in a fuel price war. It’s the same story every festive season. Drivers form orderly queues outside the petrol station advertising the cheapest prices; some will drive several miles to get a ‘bargain’. 2013 was no different. That’s despite the fact that the average driver saves less than £1 on a full tank that costs around £60.

Why is that?

Supermarkets generally know that fuel prices remain a controversial issue, and something that resonates with practically every family in Britain. Whatever your feeling on transport, driving and fuel consumption, you probably have an opinion on the cost of petrol or diesel. That’s why supermarkets use it as a marketing tool. But for the supermarkets, there’s more to this than just selling more fuel over the holiday season.

The loyalty struggle

Customer lifetime value is a benefit of loyalty schemes
Strong branding helps maintain competitive positioning
Good quality data is the foundation of every successful marketing campaign. Marketers spend a lot of time cultivating mailing lists full of shoppers’ names, addresses and their buying preferences. Normally, these companies will invest in expensive loyalty schemes, giving away plastic cards and setting up complex voucher systems for online and offline shopping.

By targeting specific interests and buying behavior, marketers know that they can convert customers more effectively with vouchers and promotions. This quality data also helps supermarkets decide precisely where to place products on shelves in their stores. In return, customers shop in the stores more frequently, bring in more profits and generate more good quality data for the supermarket.

So, loyalty is valuable. And Christmas and the New Year present a fantastic opportunity: supermarkets can shake up the loyalty game by tempting customers into their stores. One of the best ways to switch someone’s loyalty is to push their emotional buttons. After spending a fortune on Christmas food, who wouldn’t want to save a few pennies at the pump?

Loyalty schemes develop brand loyalty

Why data quality matters in loyalty schemes

A supermarket’s loyalty campaign is only ever as good as the quality of data in its database. Big companies spend millions on data deduplication, merging, matching and cleansing to ensure their marketing department isn’t acting on skewed information.

When neglected, databases quickly decay. Customers might sign up for multiple accounts, accidentally or knowingly, and the presence of this additional data can dilute the program’s effectiveness. Customers also move house, get married, have kids and pass away. Supermarkets need to know.

Not only does good quality data reduce waste, it also allows the supermarket to develop an intimate relationship with its key demographic as their families grow, mature and change. Data is valuable. There are companies dedicated to the cleansing of data; it's a concern that has sparked an industry all of its own.

The cost of unclean data

Poor data quality is a genuine threat to profits. In an article in Information Age, Ben Rossi says poor data could be costing the world’s supermarkets as much as $42 billion each year. Whether it’s from missing or duplicated product data, or out of date loyalty details, supermarkets need to continually invest in refining the information collected at the till. That means taking all of that extra Christmas custom from the fuel promotion and ploughing it back into next year’s marketing strategy.

Fuel pricing is a major weapon in the fight to retain customers; year on year, we see the same tactic rolled out to entice customers back into stores. In an age of declining loyalty, good quality data is one of the most important assets supermarkets have in the continuing battle for revenue.

About the author: Claire Broadley is a technical writer for Red Robot Media. She is interested in data, cloud computing and gadgets. Claire also blogs for the Huffington Post.

Images: 1. Grahams Child,  GFDL;  2. Infografis, CC BY-SA 3.0;   3. Author owned and licensed