FMCG/RETAIL: Using Loyalty Schemes to Beat the Inflation Trap

As customers shop around more, due to rising inflationary pressures on their disposable income, retailers, brand marketers and foodservice players have to mobilise their loyal customer bases to protect and grow their businesses.
 
April 15, 2011 - PRLog -- A new ResearchFarm report, “How to create on and offline loyalty 2011” finds that retailers and FMCG players alike can leverage one specific tool to combat flagging conversion rates from their footfall. As customers shop around more, due to rising inflationary pressures on their disposable income and in many markets a sluggish macroeconomic outlook, retailers, brand marketers and foodservice players can and indeed often have to mobilise their loyal customer bases to protect and grow their businesses. The report lays out different strategies how to achieve this, by taking inspiration from a number of best practice case examples from retail, FMCG and foodservice in the EU and the US, with recommendations going beyond reward cards to fostering online communities, ecosystems, private label strategy and personalisation.

Importance of the loyal shopper segment
For all of the companies profiled in the report variations of the 80/20 rule applied, with a figure of between 15 and 40% of loyal customers accounting for between 60-80% of a company’s sales and profits. This fact alone clarifies why loyal shoppers make up the most important customer segment for many companies. In tough economic times it is all about keeping customers in store and stopping them to defect to the competition, or from a FMCG perspective keeping them shopping the brand rather than a private label alternative. It is very hard to make shoppers return to the status quo ante once they have become disloyal.

Loyalty beyond the card schemes
The authors of the report argue that loyalty schemes need not necessarily be based on the ubiquitous cards. Whilst these are supreme tools for companies who are committed to base their entire strategy around a customer-centric approach, the cards have a number of drawbacks also. First, the card based schemes are usually very expensive to run, second they need buy in from the whole organisation, third insights gleaned from the loyal segments are only as good as the interpretation of the underlying data and fourth perhaps crucially the card based schemes only make sense at a certain stage of the business development, i.e. when a company has gained the necessary scale and traction already. Loyalty cards are basically a defensive tool and not best suited for customer acquisition in a start up phase or for rapid expansion.

That said, there are other equally effective loyalty measures that retailers and brand marketers can employ to ensure repeat business from their most loyal shoppers. A hotbed of innovation is online retailing and Amazon is just one of the companies leading the sector in radically new departures - such as prime, making customers pay a fee for unlimited deliveries and thereby stopping them from using the online competition - in how to convert and retain online shoppers for example. Other examples include the fusion of on and offline worlds in establishing ecosystems (such as Nespresso) and 360 degree environments as well as fostering and utilising online communities and turning brand acolytes into brand messengers and even sellers through new social media.

New ideas
The state of play at the cutting edge of loyalty programmes is also examined in depth. Recent initiatives include increasingly more non competing retailers working together to gain a fuller understanding of their shoppers' behaviour outside their own stores and to offer more meaningful rewards. Partnerships already cut across industries, with financial service providers and retailers combining with airlines and leisure operators. Other hot loyalty topics revolve around reward and product personalisation, focus on utilising NSM footprints and location based loyalty schemes are starting to take off in the US.

ResearchFarm encourages companies to think outside the box in terms of their loyalty schemes and really stand out from the competition by surprising loyal customers for example. The authors also make more profound suggestions such as considering tiering loyalty schemes - with perhaps some rewards only open to customers who are prepared to pay for the privilege and splitting loyalty from simple frequency and discount rewards.

The future of loyalty schemes
The report concludes with the prediction that going forward loyalty will move onto the smartphones, as technological change enables today’s store cards to be stored on and read from phones but also as location based services such as shopkick and foursquare become more sophisticated and gain a mass following with increasing smartphone penetration levels.

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ResearchFarm is a start up boutique focused on strategic insight and innovative topics and trends in the FMCG/retail space. A key word for us is innovation. We try to unearth what works and what doesn’t and tell our audience about it. For us the client comes first, as such we are focused on the story to tell, sharing insight and analysis.
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