Loyalty cards, strategic marketing tool

By M H Ahssan

Companies are realising numerous benefits that come with the use of loyalty schemes as data mining tools, technically known as analytical intelligence.

“To stay competitive and keep abreast of industry dynamics, enterprises are using technology to generate, store and analyse mass-produced data not only for operational purposes but also to enable strategic decision making,” says Ms Catherine Ngahu, the managing director of SBO Research Ltd , a strategic planning, marketing and management company.

With banking transactions moving to online platforms that capture transactional data at the point-of-sale, banks are amassing huge volumes of data that have immense business value and provide insights into the banking habits of customers of varying profiles.

“These days customer relationship management (CRM) has become a rage in all service industries, and encompasses the data mining activities that a service provider undertakes to understand its customers,” Ms Ngahu says. The process is capable of identifying products that are often purchased together, which can help build product bundles that are more likely to be successful.

For retailers, data mining can be used to provide information on product sales trends, customer buying habits and preferences, supplier lead times and delivery performance, seasonal variations, customer peak traffic periods, and similar predictive data for making proactive decisions.

“Market basket analysis” is widely used by big retailers to determine optimal locations to promote products. Nakumatt Supermarket has a loyalty card known as Cybercash.

It gives a point worth Sh2 for every Sh100 spent. Mr Sailesh Savani, CEO for Smart Card and IT director at Nakumatt, says the loyalty programme has become a valuable data mining and marketing tool. “This has enabled us get terabytes of data on customer behaviour and buying patterns,” he says.

As at February 10, the retail chain had registered 600,000 smart cards and from the information collected, 65 per cent use over $75 for shopping while 25 per cent parts with $50-75 and those who shop for below $50 account for 10 per cent. The Average Basket Value of loyal customers is $37 from which Nakumatt Westgate takes the giant share of $71 while the burnt Nakumatt Downtown contributed $5.69.

“Over 67 per cent of total revenue comes from loyal customers,” says Mr Savani. Ms Ngahu says major retail and supermarket chains use loyalty cards as a vital tool to improve profitability. “I was surprised when I went to shop for greens at a grocery in Yaya Centre to find that they use smart cards from which customers accumulate points,” she said.

Ukwala Supermarkethas the Zawadi Card. Managing Director Anil Dhingra says the retail chain has registered over 200,000 cardholders over the last two and a half years and the number is growing. He says the card provides vital information that informs key decisions.

“We get the profile of the customers,” he adds, “like age group, gender, location, income levels, preferences and how often they shop.”

With such information, Mr Dhingra says, the supermarket can effectively design promotions, such as back-to-school offers and other targeted products. “Still, it’s all about as a supermarket being loyal to our customers. Showing that we care. It gives a special feeling of belonging to the customer who feels invited.” Like Nakumatt, shoppers earn a point from Sh100 spent at Ukwala and can redeem at any branch across the country, he said.

On the application form, shoppers are asked employment status, number of children and other personal details that shape shopping patterns. With such information, businesses target customers for their products and use it to minimise purchasing costs, score suppliers by rating the quality of their goods and services and identify the most effective promotions.

“We use the information for our supermarket business and don’t share it with a third-party,” said Mr Dhingra. “In fact, customers have the choice on whether they would want to get promotions through their phone or e-mail addresses.”

While it costs a fortune to run the loyalty card systems — one card costs $2-3 — supermarkets say it is paying off. “It’s helps us to have some kind of emotional bonding with customers and grow sales at the same time,” said Mr Dhingra.

Cross-selling, in which a service provider makes it attractive for a customer to buy additional products or services with the same business, is a key marketing area where data mining can be extensively used. This can also derive the credit behaviour of individual borrowers with instalment, mortgage and credit card loans, using characteristics such as credit history, length of employment and length of residency.

Knowing where to locate products and promote them effectively can increase store sales and rewarding loyal customers encourages them to do even more of their shopping at that store.

Ms Ngahu, who is also a consumer behaviour lecturer at the University of Nairobi says: “Companies can segment their clients in terms of purchases, preferences, and the number of people who shop and the kind of products mostly bought and this can have future implications on the decisions to be made. The information can be used to plan for stocks.”

She says retailers can use the information to design products targeting specific clients. In this way a digital marketing format such as using SMS and e-mail can be used to pass information to targeted clients only. Tuskys has Magicpay rewards scheme in which consumers redeem points for shopping. Just like the others for every Sh100 used, one gets a point redeemed for Sh2. Uchumi has the U-Club card that operates on similar principles.