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How to get the most from loyalty schemes during a recession

How to get the most from loyalty schemes during a recession

By Andy Wood, managing director of GI Insight

The recession is in full swing and cutbacks are being made. Marketing spend has been reduced, although the latest Bellwether report from the IPA revealed that the rate of decline of marketing spend slowed in the first quarter.
However, this followed the biggest fall in marketing budgets for nine years in Q4. But in an economic downturn it is even more important to spend and use marketing budgets wisely. In the current climate it is easy to think the worst but marketing departments will still have money to spend.
With consumers tightening their purse strings and seeking cheaper alternatives, one of the best ways for marketers to spend their reduced budgets is on customer retention and development; by focusing on the key customers - the 10% giving you 50% of your turnover.
The discount end of the high street is where this strategy will certainly pay off. With more and more people turning to value retailers, marketers will need to think about how they will encourage shoppers to stay with them when the economy is looking up. These new customers might very well return to their usual shops, so the key action for value retailers is to develop customer relationships in order to keep customers when the economy picks up.
In order to do so, a mechanism needs to be put in place to help them understand who their new recruits are and encourage similar prospects to walk in the door. If there is a loyalty scheme in operation new customers should be incentivised to sign up with the aim of identifying new customer profiles. Once identified, they are available for immediate analysis with two areas key to successful customer development and retention:
1. If some new customers are already walking in the door the retailer can look at who they are, what they are like and where they are from. This will allow them to select ‘lookalikes’ for prospect campaigns to encourage even more people to make the transition from premium retailer to value retailer.
2. They can understand the new customer better in order to develop strategies for retention once the downturn is over. This might be as simple as adding new product lines to the offering or creating incentive barriers to keep them attracted to the retailer.
At the other end of the scale, premium retailers are suffering from customer defection and unless they fundamentally change their pricing structure customers will keep defecting. Evidence of this move to try and prevent loyal customers seeking out cheaper alternatives has started to emerge.

Last year Tesco introduced a range of discount brands aimed at discouraging shoppers from going to value alternatives such as Lidl and Aldi; in the run-up to Christmas M&S held two one-day sales slashing prices in store by 20%; and Waitrose has recently started a direct mail drive to promote its latest in-store promotions.
But premium retailers should also be looking to identify, through transactional analysis, just who isn’t spending less. This can be used to drive campaigns to recruit similar kinds of shoppers in a bid to replace lost custom.
Finally, stores should keep in touch with lapsed customers in a bid to draw them back again when consumer confidence returns. This is particularly importance since the value retailers will fight to keep them once the economy has recovered.

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