Shopping loyalty cards

Supermarket loyalty programs offer very little value but are used to collect enormous amounts of your personal data.
 
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02.Sophisticated databases

Shopping

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.

 

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Behind the scenes: Myer One loyalty program

Myer’s prospectus for its public offering in 2009 gave interesting insights into its loyalty program.

  •  “The Myer One database is a comprehensive and valuable source of customer information and enables Myer to more effectively target its offering to changing customer needs and drive sales through enhanced marketing initiatives.
  • “Myer One offers have been found to be an effective way to draw customers into the store and generate additional sales in quieter trading periods – for example, offering ‘double points’ can increase a day’s sales by up to 20%.
  • “The Myer One program is primarily designed to encourage high-value Myer customers to consolidate their department store spending with Myer and to attract new high-value customers.”

Cashmere sweaters at the supermarket

UK retailer, Tesco, launched its Clubcard loyalty program in 1995 (which now covers about half of all UK households) and makes sophisticated use of collected data through this program. When analysis showed its higher-spending customers were not purchasing wines, cheese or fruit at Tesco, the store used that information to develop a high-quality brand line that includes paté and cashmere sweaters. When US retail giant Wal-Mart entered the UK market via its takeover of discount chain ASDA in 1999, Tesco identified 300 items that its price-sensitive shoppers, who normally bought the cheapest item in a product category, typically purchased. Tesco then lowered the price of these items (such as its value-brand margarine) to stop customers defecting to ASDA. Coles and Woolworths are adopting a similar approach to price-match some Aldi items – see Check Out Your Groceries, CHOICE December 2009/January 2010. Tesco has further generated revenue from its loyalty program by offering access to information in an aggregated form to its suppliers, who use it to better understand the purchasing decision of potential customers. 

Discount discrimination?

CHOICE members Ian and Marg, from Queensland, each own unconnected Woolworths Everyday Rewards cards. In 2009, Marg received a marketing email advising that if she purchased a minimum $6 of certain MasterFoods sauces, she would be eligible for a 10c/L fuel discount. Marg purchased the sauces and got the discount at the Woolworths fuel outlet. Believing this offer would be available to all Woolworths Everyday Rewards customers, Ian also purchased the nominated products; however, when he went to the fuel outlet, no discount was available.

This illustrates how targeted marketing works. Woolworths only sent this offer to some customers – possibly those they believe are likely to be interested in buying these sauces; Marg usually does the family shopping and had purchased similar products. As Ian was not one of the selected customers, he didn’t receive the offer and it wasn’t available to him.

Woolworths told CHOICE they have received some complaints from customers, but would usually make the offer available to any customer who complained. However, this didn’t happen in Ian’s case; when he called Woolworths he was told they had complete discretion as to which customers they made any offers.


 


 

 

 
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