Loyalty beyond loyalty cards

Moscow, 3rd of February 2011

Igor Maroša

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Consumer loyalty

Consumer dynamics are driving retailers to focus to loyalty as one of the key growth drivers

Retailers recognize the importance of loyalty, the best of them are way beyond loyalty cards

Although even loyalty cards programmes are not yet used to its full extent

Loyalty can be expanded to various dimensions

Social media is not a mere trend – companies have to position themselves rapidly

Today, Fortune 100 companies are already using social media to a large extent

Social Media may be used along the entire Marketing & Sales funnel

Better understanding of consumer is the first step to start building on loyalty

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Retail Industry

Consumer GoodsIndustry

Consumer

Growing conflict potential and increasing necessity for cooperation

• Price competition

• Vertical

integration• Private label

growth

• Concentration

(horizontal

integration)

• Cost pressure

• Direct sales

• Sustainability

• Internationalization

• Increasing price

consciousness

• Declining

brand loyalty

• Stagnation of consu-

mer spendings (in

mature markets)

• Hybrid consumer behavior

• Communization

• Sustainability

• Internationalization

1

2

3

Consumer dynamics are driving retailers to focus to loyalty as one of the key growth drivers

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• Discount cards with

immediate discounts

or points collection

• Open membership

• Equal treatment, no

differentiation between

customers

• No targeted

communication

• No information base on

customer

• No customer segments

developed

Traditional

• Discount/reward based on

cumulative purchases

based on spend

• Basic consumer

information exists and is

mainly used for re-active

analysis

• No targeted

communication yet

developed

Emerging

• Customers divided into

segments

• Targeted communication

and offers for segment and

or individuals

• Add-on services like

banking services, travel &

tourism, mobile telephony

etc. Developed

• Add-on services offered

beyond loyalty card

holders, yet they have

special bonuses

Leading

• Consumers are invited to

co-create the offerings by

two way communication

via social networks

• Variety of clubs based on

focused customer

segmentation are

developed, joint events

and happenings are

organized

World class

Discount cards Loyalty schemes Add-on servicesTwo way

communication

Continuous improvement

Retailers recognize the importance of loyalty, the best of them are way beyond loyalty cards…

TechnologyBreakthrough

AnalyticsBreakthrough

CommunicationBreakthrough

Loyalty stages of excellence:

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… although even loyalty cards programmes are not yet used to its full extent

(1) % Participants answering “very important”(2) Among retailers with a Customer Loyalty ProgramSource: A.T. Kearney 2009 AERO Study

Importance of customer metrics1)

36%

57%

63%

74%

86%

88%

93%

Average amount of time customers spend in store

Average time between repeat customer visits

% of customers involved in loyalty programs

Number of units perchased

Number of store visits

Average in-store transaction size

Number of in-store transactions per store

Customer transaction metrics

Customer behavior metrics

Customer metric usage

% of retailers with customer loyalty

programs

Frequency of data mining2)

63%

No Customer

LoyaltyProgram

Customer Loyalty

Program

37%

Continious

or

Monthly

Quarterly or

Semiannually

Every

1 - 3 years

Less

than 3 years

or never

51%

10%

10%

29%

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Loyalty concept

“Currency“ Tier structure Redemption Ease of use Comments

Tesco Clubcard

1£ spend earns

1 Clubcard

point

• Points are stored and built up. Four times a year the holder receives a statement along withoffers & vouchers to the value of points they have saved, linked to the purchasing history

• Clubcard points can also be used to obtain discounted day trips and magazines

• Customers can also get double points on special offers and receive one point for every carrier bag they reuse (UK only) as part of Tesco's green initiative

• Easy:Vouchers can be spent in store on shopping or used on Clubcard deals where they are worth four times the value

• Lately Tesco has invested £150 mil. in the Clubcard

• The program is a great success factor due to its formidable use of data

• Cooperations with external partner companies like Eon

Tesco‘s Clubcard system is perceived as one of the leading loyalty card systems in the world…

Tesco Clubcard

Source: A.T. Kearney, Tesco

Back-Up

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…and consumer insight deriving from Clubcard represents an excellent base for expansion of services and geographies

Usage of consumer insights as a primary capability for expansion:

Example

Source: A.T. Kearney research

Consumer insights

Expansion into new consumer needs

• Insurance: Fortis, Tesco Bank• Telecoms mobile: Tesco/O2 with over 2m UK

subscribers• Telecoms Internet service provider: Tesco/

Cable & Wireless

1

Development of a leading online channel

• 1994: Tesco enters online retail• 2000: Tesco.com formally launched, largest online retailer in the UK (in 2008/9,

1.9bn£ in sales i.e. around 5% of UK sales, 5% EBIT)• 2010: m-commerce site, used by 4% of online orders by year-end 2010

2

US market entry with new format, Fresh & Easy

• Leverage of consumer insights expertise and fresh/cool-distribution/logistics operations knowledge

• 550m$ in revenue achieved in 3 years, more than 100 stores, gap to break-even remains due to heavy promotions to stimulate growth, lack of scale

3

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Additional services

• Travel, combined with segment clubs

• Financial services, mobile telephony

Channels serving particular segments

• Grocery internet

• Premium stores on premium locations formed in clubs

Assortment

• Premium private label brands with tradition

• Regular loyalty offers with points collection for attractive pieces of assortment, card holders have additional advantages

Customer segments

• Demographic (children, seniors…)

• Lifestyle (healthy living…) Loyalty card increases reward but

not a prerequisite

Loyalty can be expanded to various dimensions

Client exampleOverall loyalty scheme:

Constant communication, one and two-way supports the overall scheme

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Social media is not a mere trend – companies have to position themselves rapidly!

Social media today

Source: Deloitte "2009 Tribalization of Business Study", A.T. Kearney

Introduction to Social Media

In Jan 2010 more than 25 mnFacebook user have visited the site via a mobile device

More than 3 mn images are uploaded daily on

Flickr

Source: Flowtown; Seitwert; A.T. Kearney Analysis

Facebook gains 700 thsd. more members

each day

6000 Tweeds per minute on Twitter

In Germany, 2.4 mnpeople are using Micro

Blogging Services

14 mn Germans already have a

Profile on a Social Network

Worldwide 588 mnare using Social Networks/Tools

…and a lot more – in Germany~175 social networks

Social media "Stats" Global social media landscape

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Today, Fortune 100 companies are already using social media to a large extent

Source: The Global Social Media Check-up (January 2010); A.T. Kearney

Usage of social media among Fortune 100 companies(usage of Twitter, Facebook, Youtube and Blogs)

33

5054

65

BlogYoutubeFacebookTwitter

…at least one of them(in %)

Usage of social media(in %)

…all of them(in %)

28

Global 20

Asia 25

Europe 15

US

50

88

86

79

Ø number of accounts per company

1.64.2 2.1 4.2

…usually companies have more than one account per social network

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Social Media may be used along the entire Marketing & Sales funnel

Awareness InterestConside-

rationSelection

Satis-faction

Loyalty Advocacy

Source: SocialRep, A.T. Kearney

Forms of social media usage along the funnel

Targeting Viral marketingSocial video advertising

News Feeds

Social bookmarksPresence page

Widgets Social network fanpageIn-game

advertisingEngagement

advertising

Social search

Sponsored stories

Blogging Branded community

Cause-driven communities

SeedingMicro-blogging

Embedded storefront

Augmented reality

Embedded online store features

Video hyperlink ads

Social shopping Referral campaign

Evangelist communities

Blogging User community

Crowd sourcing/ voting

Self-service

communities Tweet-ups

Social media monitoring

Social network analysis

CRMSalesBrand management

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Blogging: Otto’s Two For Fashion

Source: Two for Fashion; A.T. Kearney

Commenting on

blogs and news

Two fashion

addicts reporting

about fashion in

New York, Berlin

and Hamburg

Topics around

trends, people and

events, including

videos

Managing the Brand in Social Media

Example

By blogging about fashion news, Otto improves its image as fashion expert

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Better understanding of consumer is the first step to start building on loyalty

Understand your consumer

• Set the infrastructure for data collection and mining

• Invest in analytics capabilities

• Understand spending habits

• Perform tailor made consumer segmentation

Strengthen your core business

• Optimize your existing offerings

• Prepare target offerings

• Introduce/strengthen 2-way communication

• Increase traffic and basket size

Increase loyalty and expand

• Detect spending patterns

• Based on detected spending patterns investigate expanding opportunities

• Expand the offering and services

• Attract consumer base to expanded offerings and services

Thank you!

Way forward in loyalty: