Growth from existing customers
In the first of a series of articles, Clive Humby, co-founder of dunnhumby, talks about developing growth from existing customers.
Rewarding customers with a thank you
When Tesco launched its Clubcard loyalty programme it initially considered calling it the ’Thank you Card’. That was a pretty radical move because in the world of marketing saying ’thank you’ is not regarded as the easiest message to convey. Conventional marketing thinking would probably have led to Tesco launching the ’Hello Card’ to welcome new customers through its doors.
It is fair to say this rewarding of existing customers rather than chasing new ones is a sea change in marketing. The decision came about when dunnhumby first began working with Tesco in 1994. We were amazed to find that the most loyal shoppers - representing 20% of Tesco’s total customer base - accounted for a massive 50% to 60% of its profits.
Pay attention to loyal customers
We have applied this customer understanding not only to Tesco but also to our other major clients including France-based Casino, US supermarket Kroger and The Home Depot. They have each then gone off and convinced their own suppliers, manufacturers like Coca-Cola and Procter & Gamble, to create tailored money-off coupons for their loyal customers rather than for new ones.
But persuading them to use such a controversial strategy was pretty tough. We soon won them over though as the analysis of the data showed exactly the opposite was actually true and if Kroger could persuade its existing customers to spend their full share of wallet in its stores then sales could triple.
Loyal customers don’t all act the same
Turning data into actionable customer insight is hard work as customers are all very different. Amazingly at Casino we found a mere 342 of the 3.5 million regular shoppers at its stores bought all 10 of the retailer’s top 10 best-selling products.
Digging further into the data from the four million-plus Casino loyalty cardholders, which we segmented into 15 categories, revealed other interesting insights. We found only 17% of its customers are mainly sensitive to price, while 30% are sensitive to quality, and 53% are averagely sensitive to price.
When this insight was married with listening to what customers actually want rather than giving them what they don’t want, Casino went on to launch a new premium gourmet range called Casino Délices.
Reinforce a culture that values loyalty
The ability to take customer understanding and translate it into action signalled a major change in the way Casino does business. Fundamental to this is the rewarding of its most loyal customers. And such is the new recognition of their value in the business that its employees are now incentivised and rewarded with bonuses when they increase loyal customer numbers.
Ignore loyal customer segments at your peril
There is no question that failing to recognise the value of loyal customers and rewarding them accordingly can be seriously detrimental to a business. When we analysed the customer data at The Home Depot in the US we found 3% of the DIY retailer’s best customers represented over 25% of their sales and half of these were professionals - builders, plumbers and carpenters - while the other half owned small businesses.
What was worrying for The Home Depot was that it was in danger of alienating these most valuable customers as it had shifted its focus onto the ’softer’ elements of DIY, such as furnishings and decorations.
We helped it to understand just how valuable its professional customers were and that it needed to start appreciating them a little more by rewarding them and targeting its marketing and services around their needs.
Being loyal to customers is repaid in better customer loyalty
The Home Depot now rewards its customers with general vouchers and personalised money-off coupons from customers’ favourite products, which are attached to their loyalty card statements. Be in no doubt that the relevance of these rewards is absolutely vital. Casino found that the retention rate of its loyal customers is 20% higher if they have reaped the rewards of the programme and redeemed their points.
Giving more money back to the most loyal customers is absolutely fundamental to the Tesco Clubcard and we believe it is a key reason our model for loyalty programmes has been adopted by other large retailers around the world.
The benefits are not just of the quick-hit variety either. Proof of the ongoing gains from adopting such a customer-centric approach is that over the last 10 years Tesco has enjoyed more growth from existing customers spending more money than it has from new customers.
We reckon this more than validates this revolutionary approach to marketing, which has been proven to consistently work to the advantage of customers, brand manufacturers and retailers.
And it all begins with saying Thank You.