vLoyalty™

vLoyalty™

An alternative approach to achieving and maintaining customer loyalty. Achieve 80% of the benefits of traditional schemes at 20% of the cost

Background

“Tell me what you eat, and I will tell you who you are”
Jean Anthelme Brillat-Savarin; 1 April 1755 to 2 February 1826; French lawyer, politician & gastronome.

In the 1960s retailing was a predominantly local business. The corner store grocer knew his customers well: he knew their names, their shopping habits, what they liked to buy and when. Knowing his regular customers improved customer experience, satisfaction and loyalty. At the same time his knowledge of his customers’ habits enabled him to recommend new products they were likely to buy again. The better he knew his customers, the better the grocer was able to market to each person in order to boost sale.

Since about 1970, many customers people have traded the personalised service of the local corner grocery shop for the large ‘multiple’ national retailers and supermarkets. Economies of scale allow the multiples to offer lower prices than the small shopkeeper as buying allowed them to trade at higher volumes. At the same time the multiples gained too many customers to know them all personally and so lost the opportunity to individually customise marketing, and therefore missed out on the potential boost in sales promised by well-targeted and well-timed promotions. The ‘pile-it-high and sell-it-cheap’ technique lingered as low prices and sheer size of in-store displays were the principal promotional tools available to the early supermarkets to boost sales.

Customer Loyalty 1.0

In an effort to replicate the knowledge that a local grocer has of his regular clientele, national retailers began to introduce the industry’s first loyalty programs; Sainsbury’s Spend & Save scheme for its DIY brand Homebase being among the first to launch in the UK in 1982. After collecting data such as address, phone number and some basic demographic information, the store would issue a plastic card to the customer with a unique identification number on the back. This was scanned at checkout in order to allow the company to recognise their regular, loyal, customers and provide a suitable reward as well as, most importantly to the retailer, track that customer’s purchasing habits.

In order to encourage usage, companies offered additional benefits of being a member such as special pricing, promotions and events. Each time the membership card was swiped the retailer gathered valuable information about the customer’s buying habits, over time amassing huge amounts of data. With increasingly detailed information about their best customers, retailers were able to prioritise these valued customers and design specific offers for those groups, usually informing them using direct mail.

Although the scale and reach of card-based loyalty schemes is unsurpassed with an estimated of 80% of UK households participating in at least one, the operation of such schemes remains basically the same as it was thirty years ago – although expertise in managing the schemes and the technology used to support them has improved immeasurably.

Disadvantages of ‘traditional’ Loyalty Programs

Plastic cards and direct mail communications come at a high cost. The cards have to be produced and distributed and placed into stores along with paper signup forms. Employees must be trained to encourage use of loyalty cards and to help people sign up. Data entry staff need to be hired to receive all of those signup forms and manually enter the data into a database. Call centres need to be established to answer customers’ questions and mail out replacement cards when customers lose their cards.

Even with internet signup processes many customers use their cards without registering them, building up a points-balance and creating a financial liability for the issuer which cannot be easily liquidated as the identity of the customer is unknown. By way of example, excessive promotion of US airline loyalty schemes means the value of the currency generated by such schemes now exceeds the value of all US notes and coins currently in circulation. The financial risks of unregistered cards cannot be overstated.

Establishing plastic-card/direct mail loyalty schemes is an eight-figure sum, with the cost of running and maintaining these programs being between 10% and 20% of this figure.

Traditional loyalty schemes are slow by nature. Special incentives tend to be delivered as paper coupons periodically sent by post, typically three of four times per year. Alternatively, they may also be printed on receipts which the customer must remember to retain and bring back to the store the next time they visit. Companies will also sometimes email coupons to their users, but those coupons must be printed out at home and brought into the store – both of which negatively affects redemption rates.

Customer Loyalty 2.0: Mobile Loyalty Programs ‘vLoyalty’

Although most customer loyalty programs in place today are centred around plastic cards, these cards are not entirely necessary. The principal purpose of the cards is simply to assign each customer a unique identifying number yet today, most customers already have a unique ID number that tends to stay stable across years or decades – in the form their mobile phone number.

Using a mobile phone, the customer does not need to fill out a form and receive a plastic card, the customer just sends a keyword to a shortcode and immediately receives a virtual loyalty card bearing a unique number and barcode. If the customer loses it, they can simply request another by repeating the process. The retailer can identify both virtual cards as belonging to the same customer as both can be traced back to the same mobile phone number.

At checkout, the customer presents their phone to the cashier who scans the barcode, linking the basket of goods purchased to that customer.

Loyalty rewards can then be delivered as secure digital vouchers to the mobile, rendering costly postal communications an anchrochism. The nature of these vouchers is that they can be given individual expiry dates and checked in real-time so expired reward vouchers do not present the same mounting liability of their paper equivalents. Usage of vouchers can then also be tracked, adding to the picture of that customer’s behaviour and allowing further tuning of the offers sent to them.

Advantages of Virtual Loyalty Programs

  • Reduced Costs: A mobile, virtual loyalty program is much less costly to implement than a traditional card-based program with low fixed costs and a single, simple one-time integration into a retailer’s EPoS system enabling both a record of a customer visits and a means of redeeming loyalty rewards.
  • Improved Customer Satisfaction: High levels of membership in most markets indicate customers appreciate the benefits of loyalty programs but there is only so much room in a customer’s wallet for plastic cards. With a virtual program they only need their mobile phone, which the overwhelming majority of all consumers already carry everywhere. In addition, with immediate access to customers wherever they are, using the mobile phone enables companies to deliver well-targeted offers.
  • Streamlined Checkout Process: At checkout, the customer shows the loyalty barcode on their phone to the cashier for scanning. This may have two functions; firstly linking a particular customer to the purchase and secondly potentially identifying vouchers issued to the customer valid for this transaction that are then automatically deducted from the total.
  • Improved Responsiveness: Identifying a customer’s purchase behaviour is exponentially faster using secure digital vouchers delivered to mobile phones. Retailers can track not only exactly which customer used a voucher but also when it was received, whether it was used, and how quickly that coupon translated into a sale. This provides insight into promotional effectiveness on a real-time basis that can be used to improve the efficiency of future marketing programs.
  • Environmentally-Friendly: By eliminating plastic cards and paper forms and coupons, mobile loyalty programs are friendlier to the environment and avoid unnecessary landfill waste.

The Challenge of Data Analysis

One factor virtual loyalty programs have in common with traditional schemes is they both generate huge volumes of data. While more data potentially means more useful information, this is only the case if it can be made sense of by the marketing professionals who need to base business decisions on the insight this data yields.

The concept of the virtual loyalty scheme is based on taking periodic extracts from a retailer’s transaction database of all transactions that feature a digital proof of purchase, or a redeemed voucher. As both can be traced back to the mobile phone number to which they were issued, over time a record of that customer’s behaviour is created and with it a picture of what they buy, where and when, giving vital clues to the identity of that individual without actually knowing who they are hence “Tell me what you eat, and I will tell you who you are.”

Data of the volume generated by such a scheme can quickly overwhelm legacy database systems which tend not to be designed for the growing workload presented by modern ‘Big Data’: the term applied to data sets whose size is beyond the ability of commonly used software tools to manage the data within a tolerable amount of time. ”We know accurately only when we know little” claimed Johann Wolfgang von Goethe, German politician & philosopher “with knowledge doubt increases”. Without a systematic and robust method to collect and analyse consumer date contradictory or confusing conclusions can be arrived at that may do more harm than good.

Single one-off change to EPoS

The virtual loyalty approach as described relies on the ability of a retailer’s EPoS system to validate loyalty and voucher numbers, for the purpose of recording customer visits and validating a value-bearing vouchers issued to the customer as rewards or promotional incentives.

The i-movo system supports both these models and requires a single, one-off change to a retailer’s system. Impact is minimised as the i-movo system is based on a patented implementation of card payment industry messages, specific to the purposes outlined in this document. Such message formats are in common usage through the entire retail industry so this approach typically means underlying infrastructure is unaffected and technical obstacles removed.

Case Study #1 – JW Filshill ‘Keystores’

JW Filshill is a well-established wholesaler supplying convenience stores in Scotland and the Border counties. 170 of the stores they supply trade under the ‘Keystore’ brand, a symbol-group developed by Filshill to represent high-quality local retailing and so differentiate these stores from the local competition.

In March 2014, Filshill and i-movo launched the ‘Digital Marketing Laboratory’, an extended program of mobile voucher promotions supported by over 30 of Filshill’s household brand name suppliers. The aim of the program was to measure and enhance customer loyalty by publicising a range of offers using three digital channels: Facebook, Vouchercloud (a location-based marketing platform) and text messages sent to opted-in customers, and to measure the relative effectiveness of each in terms of driving customers to stores to use the vouchers offered.

i-movo vouchers underpin the operation of the scheme as they can be traced from the point of issue through to where and when they are used. The vouchers are checked in-store either by using the bill-payment terminal already installed (all Keystores have an epay, PayPoint or Payzone terminal which are all pre-integrated to the i-movo service), or by using the ‘Rescan’ EPoS system available in one-third of the estate.

Vouchers processed through ‘Rescan’ provide a link to the shopper’s basket allowing sponsoring brands to gain critical insights into shopper behaviour in terms of associated purchase frequency and overall basket spend.

Early results have been encouraging and enlightening, some campaigns yielding redemption rates of up to 79% meaning significant additional footfall for participating retailers. Using i-movo, the risks that would be associated with running the scheme using traditional paper vouchers are removed, thanks to perfect visibility of the activity at all times and close monitoring of the redemption rate i.e. ensuring that the value of vouchers issued never exceed the brand’s budget.

Case Study #2 – Faleminderit: Albanian for ‘Loyalty’

Despite its turbulent past, Albania has a youthful, well-educated population and recently discovered new oil and gas reserves. Now freed of dictatorship, this once impoverished country is now growing strongly.

Faleminderit is a coalition loyalty scheme supported by the majority of Albania’s major retailers, including supermarkets and mobile phone operators together with fashion and electrical retailers, all of whom are clients of Raiffeisen Bank, who also supply their card payment terminals. The aim of the program is similar to other coalition schemes, in that points can be amassed across a range of retail categories. This makes rewards easier to earn for customers, and encourages loyalty to the participating retailers.

Plastic cards are still a novelty in Albania and something of a status symbol where ‘space in wallet’ has yet to become an issue so it was decided to issue cards in-store to customers who then linked their mobile phone number to the card by sending an SMS. Each card features a generic barcode on the front and the customer’s unique loyalty number (an i-movo number) embossed on the front of the card, and encoded on the magnetic strip on the rear.

The solution works by scanning the barcode as part of the checkout process, which adds a zero-value product in the basket, identifying it as a transaction that qualifies for loyalty points. The basket is then linked to the customer by swiping the card through the Raiffeisen Bank payment terminal, generating a record of the customer’s visit. The time and date of both EPoS and card terminal transactions are then matched to establish the number of loyalty points to credit to each customer’s account.

Once a point threshold has been reached, the customer is automatically sent an SMS with a new i-movo voucher number, representing a cash discount to the customer’s next purchase, which can be used at any store participating in the Falemenderit scheme.

With over 50,000 cards issued and over 40,000 in regular use, the scheme has been an unqualified success, so much so that the volume of transactions in stores has grown to the point that the major retailers (notably Vodafone) have now integrated their EPoS systems directly to i-movo, to streamline the process further.

The scheme is mentioned frequently in the national press and on television where the consensus is that Falemenderit is a boon to both retailers and consumers alike, the open nature of the scheme allowing points to be both earned and spent at all participating retailers.

Case Study #3 – Spar ‘Shop & Win’

In August 2014, SPAR, the UK’s leading symbol store group, launched its first ever major mobile marketing and shopper loyalty drive.

The ‘Shop & Win’ campaign, run in conjunction with shopper activation agency Blue Chip Marketing and i-movo, the market leader in secure digital vouchers, is the highest-value multi-brand mobile voucher campaign ever launched by a convenience retailer.

‘Shop & Win’ targeted younger audiences by offering a daily prize of an iPad Air™, along with hundreds of instant prizes offered by brands including Cadbury’s, McVities, Coca Cola, Mars and Walkers, issued as mobile vouchers and redeemable immediately in SPAR stores.

The campaign was promoted through TV & radio advertising, social media activity, extensive point of sale and a dedicated website. The targeting of 18-44 year olds follows research conducted on behalf of SPAR which revealed that although SPAR has high recognition and loyalty from older shoppers, there is scope for significant growth in other areas.

The promotion ran across 1,985 of SPAR’s UK stores, attracting new customers as well as increasing visit frequency of existing SPAR shoppers. To enter the daily draw and for the chance to win free product vouchers or money-off coupons, shoppers in Great Britain texted SPAR plus the last four digits of their till receipt number, while those in Northern Ireland text SHOP plus the last four digits of their till receipt number. Alternatively, shoppers could enter online free-of-charge.

Winners of product coupons received them the instant they entered, thanks to the i-movo Secure Digital Voucher system. Offers ran across dozens of products including Cadbury’s Fingers, Alberto Balsam shampoo, Oreo cone ice-cream, Malibu and Tropicana juice. Winner of the daily iPad Air™ top prize were drawn every day for the six-week duration of the campaign.

At launch, Andy Burt commented: “This is an exciting time for SPAR and it is important that we engage with a younger audience. The deployment of mobile vouchers enables us to ensure we have a secure method of rewarding our customers. Real-time reporting allows us to manage the performance during the campaign and provides us with the ability to react quickly to changing market conditions,” he added, ”We are particularly pleased to have worked with Blue Chip and i-movo on this, our first major national mobile marketing campaign. We are confident that the drive will increase footfall in our stores over the coming weeks.”

Myrtle Doyle, who heads up Blue Chip’s London office said: “The very nature of this initiative – delivering rewards over mobile – will encourage re-appraisal of SPAR amongst younger shoppers, who are yet to see major supermarkets use mobile couponing in a meaningful way. The campaign, developed using our expertise with convenience shoppers, will change shopper behaviour and is perhaps a glimpse into the future – showing what can be achieved when mobile coupon redemption systems exists at the till.”