How do Loyalty programmes work?
Did you ever wondered how loyalty cards work? What are the benefits for the customer and the supermarket?
Loyalty cards are a great way for supermarkets to get to know their customers. They can offer you rewards and incentives based on your personal shopping patterns to try to retain your loyalty and stop you going to their competitors.
As a customer, you get free money for sharing an amount of your personal and purchase data in the form of points or incentives and if you shop savvy, you can accumulate points quickly and achieve meaningful value at the same time
Three main ways to earn reward:
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You can collect and spend points with your weekly shop. You can use them as a savings tool to accumulate points and spend them at seasonal times like Christmas. From the supermarket point of view, that is not great, because at the time when they need to achieve their highest cash sales, a large amount of the expected cash is not forthcoming as customers redeem their points for free goods
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You can collect and spend points with partners in the scheme. These entice you to earn points by shopping in the supermarket, but spend them elsewhere, where you may be rewarded with double the face value of the reward points. This suits the supermarkets best as it generates a spend that is redeemed elsewhere.
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You can collect extra points when paying on a supermarket credit card. Just make sure the credit balance is paid down on time each month
Data Privacy and profiling
Handing over personal data is rightly something to be worried about, so you should always read the terms and conditions and privacy policies. Of key importance is who has access to the data, who the data is shared with and where the data is stored.
Supermarkets will retain data within their business and will encrypt and depersonalise data for analysis. However whilst data will usually be held on servers within the UK or EU, there may be times when it may go outside the EU area. It should always be protected under GDPR , such as being able to request access to what information is held on you and the right to request not to be profiled.
Check this link for the Sainsbury's privacy policy which is typical and transparent and highlights when data might go beyond the EU.
The Basics
If you think about how supermarkets take money at the till, for any cash transaction there is no digital footprint. The supermarket knows nothing about you.
For a card payment, data will be captured by the banks, but they will not have a complete pattern of your life, only what you buy using their cards.
A loyalty card allows supermarkets to capture item level data which they can link to you personally and aggregate and analyse across a large portion of their customers.
Where patterns are observed amongst loyalty card holders, that may be inferable across non loyalty customers too. A classic example being that male customers using a loyalty card make floral purchases late on Valentines day. It can be reasonably safely assumed that similar behaviour exists in the non loyalty card purchases too
When you sign up for a loyalty card you give over some of your personal data. This data will go into a secure communication and identity database and you will be given a unique user ID.
This base data and your unique user ID can be linked to your basket data, so titles like Mr/Mrs will be translated to "Gender", Date of Birth will be translated into an "Age Band" for analysis and profiling and only the unique encrypted ID will link your transaction data back to your personal data so you can be sent personalised offers.
Thereafter, each time you shop using your reward card or app, the supermarket will capture your purchase data linking the reward card unique ID to that particular basket of goods, capturing all the items on your receipt.
Over time this builds a pattern of how you shop allowing analysts to create personalised incentives for you or for a target group of similar people.
Supplier benefit
However there is a bigger benefit for the supermarkets in that anonymized and aggregated supplier performance data is sold onto suppliers for many millions of pounds
Suppliers obviously know how much product they produce and where they’ve shipped it to across the country, but they don’t know exactly who is buying it. Young people, old people, affluent people, health conscious people, families or couples.
Loyalty card data aggregated up by products and supplier can fill in many of gaps. They will buy their own detailed data and category level data of competitors so they can assess market share.
Segmentations
Over time data can be cut and diced into many forms. These groupings are known as segmentations and can include basic data like
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Age band: It helps to know your customers life stage and when they change
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Sex/Gender: Campaigns can target a specific sex or gender
Supermarkets will also use till receipt data looking at the specific categories and products purchased to extrapolate and insinuate derived segmentations such as
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Affluence: A measure of frequency of spend and spend value per visit
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Household: Single homes, couples, young families, working families, empty nesters, retired couples are all assessed by the regular purchases, so items like nappies indicate young children present, pet food, cat or dog owner
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Food attitudes: Ranging from time poor families buying more prepared food, crisps and snacks through to foodies who buy fresh ingredients that need to be cooked from scratch
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Pet owner: Cat or Dog food purchases can be used to upsell pet insurance
Just taking Affluence as an example this can be measured by the number of times you shop and the amount you spend per shop. There are four basic types of affluence
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high spend high frequency
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high spend low frequency
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low spend high frequency
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low spend low frequency.
Until you join a scheme, supermarkets know nothing about you. The latest Sainsbury's Nectar Prices and Tesco Clubcard changes are in part designed to drive more join ups. Once you start to use the scheme you are low spend low frequency. The supermarket doesn't know much about you until you build up a sales history, so the supermarket will incentivise you to visit more or spend more
As you do spend more, you move up into one of the next categories of low spend high frequency or high spend low frequency. This allows the supermarket to try to increase the number of times you shop or the amount you spend by targeting you on what you are buying or indeed not buying when you do come in.
If you are a high spend, high frequency shopper, you are amongst the most loyal customers and become a VIP customer, so you might get better rewards, especially at Christmas, as a thank you
Another thing supermarkets look for is Lapsing or Gone Away customers, where there has been little purchase activity or card usage over the recent past. These people will be targeted to entice them back into the store. For example a money off petrol coupon may entice them to spend to obtain one
Third party data
On top of the loyalty card data global agencies like Nielsen and CACI and Visa hold massive amounts of generalised data that can be bought in to mix and match with in house loyalty data. Businesses can see how much of the market a category has and how that breaks down by competitor allowing them to see what opportunities from their data they can flex to build a marketing campaign. E.G. attract more younger people by advertising through social media
The future
The onset of AI, artificial intelligence will significantly change this landscape and introduced new radical options because loyalty systems amass a large amount of data. AI will allow the speedy identification of patterns and trends and provide suggestions in real time while the customer is still in the store.