In the 1990s, a manager at Wal-Mart, the massive US discount retailer, noticed a correlation between the purchase of nappies and beer: on Friday afternoons, men aged between 25-35 bought both products. The manager decided to put beer next to nappies, and sure enough, beer sales increased spectacularly.
Although this may only be an urban legend, it does illustrate how insightful marketing, which acts on consumers’ shopping behaviour, can increase sales and profitability. A loyalty program helps companies with insightful marketing, but on a much larger scale than the Wal-Mart example. Scanned data shows what items are bought, when and how, as well as which items are purchased together. Loyalty program data, however, gives much deeper insights, showing who buys what and their behavioural shopping patterns, and then links this data to customer demographic and psychographic information. This is known as data mining, and begins with the information you give the store when you apply for the loyalty program.
Advanced analysis of this data, coupled with your shopping history and behavioural tracking, allows different groups of consumers to be profiled. “Customers can be segmented on any number of attributes using loyalty card data,” says Carla Ferraro, Research Fellow at the Australian Centre for Retail Studies at Monash University. “For example, functional shoppers visit when they need to and typically only buy what is on their shopping list; social shoppers visit more often as part of their broader leisure activity and buy more impulse items; and value-conscious shoppers visit and typically purchase when products are on sale or are attached to a sales promotion.”
Stores can now design targeted marketing material according to consumers’ specific spending habits, which you’re more likely to read and act upon by coming into the store.
Myer published in 2009 numbers to prove that customers with loyalty cards – and especially those who receive marketing emails – spend more. While this could be because customers who are high spenders are more likely to sign up for loyalty programs, it’s interesting to note what difference it makes if they receive email marketing material: Myer customers spend an annual average of $795 in store, while loyalty card customers spend $822. Loyalty card customers who’ve registered their email address top the list, with an annual spending average of $971 per year.
Supermarkets are gearing up for similar results. Their goal is to encourage consumers to buy specific products, get you into the shop more often to spend larger amounts and ultimately reinforce their relationship with you (and discourage you from shopping at their competitors). And the evidence suggests supermarket loyalty programs are getting there. “The total basket size has jumped up for customers who have linked their Everyday Rewards card to the Qantas Frequent Flyer scheme,” says Richard Umbers, Woolworths’ General Manager of Customer Engagement in 2009.