Let’s assume you are (as a customer) looking for a restaurant to order a pizza. What kind of information do you need to choose a restaurant for the first time? In most cases your choice will be based on a price, quality, ads, and your friends recommendations.
Let’s assume that one of your favorite local restaurants started to give you bonus points for each order, which you can redeem for a free pizza, coke or something else. Does it change your choice for the next order? In most cases the answer is yes.
So, let’s assume that other restaurants in your neighborhood already understand that a loyalty program is a necessary tool which they definitely need, and all of them started to give bonus points to all of their customers. The question is, what kind of information do you need in order to choose a restaurant for your next order? The same like for the first order, right?
At the same time all of these restaurant’s lost their margin, and now they don’t have a large advantage between each other.
Could some of them not use a Loyalty Strategy for their customers? Looks like the correct answer is no, because in this way their competitors will have a extremely important advantage.
So, this is what a competition is. The good point is that it’s not the end of the story. This path has been taken by most retailers like Walgreens, Walmart, etc.
All of them have realized that a Loyalty Program is not only a tool to clue clients to their brands, but also a huge source for insights and new approaches for growth with their businesses. Why? In another point of view a Loyalty Program is a mechanism how brands can pay for information on their customers.
Let’s view a real example on how brand can use it. In SailPlay we gather all the information on one platform. Based on this information marketers could segment their customers in a few groups based on different approaches. Let’s assume it’s standard RFM (Recency, Frequency, Monetary) metrics. Usually a result will look like this.
This picture contains different segments of clients. For example group #2 are really important clients who spend around $35000 (their LTV), make 50 purchases, and on average the last purchase of customers in this group was only 50 days ago.
In opposite to the 2nd group, group #3 contains customers who made their last purchase (on average) 250 days ago. People from this group usually make only 2 purchases on average, and their total amount is about $4000.
If we see all of the customers in these 2 groups, then the pictures will begin to look like this. As you can see the client’s’ behavior is absolutely different.
So, why is it so important that brands should pay for this information? Let’s return to our case. In a real world share of clients the 2nd group is from 6% to 20% among all clients. At the same time these clients usually generate from 12% to 80% of the total revenue.
That means that these “core clients” are 2-10 times more important for business than others. Let’s assume that a share of clients from the 2nd segment is only 6%, but they also generate 25% of your total revenue. Then if you can increase a penetration by 1.5x for these clients, or acquire only 3 basis points more from them then your revenue will be increased by 12.5%.
This is the reason why in SailPlay we collect all information about clients. For example, we know from what channel that they were acquired. Based on this information marketers could reallocate their budgets into the right channels to acquire more people from core segments. It not only increases the total revenue, but can also save their marketing budgets.
We can also predict (based on customer’s behaviour) who will be in a 2nd segment and who will be in a 3rd segment just after the first user purchase. So marketers could change their communications with clients, and provide more bonuses and benefits to really important clients. And as a result they’ll increase these client’s penetration.
This technology was previously only available for big retailers. Right now it’s available even for small grocery stores, and it help makes them equal in their abilities.