Unformatted text preview: op on-line retail sites in terms of sales growth.
Gain superior loyalty-program returns Finally, many retailers have invested significantly in loyalty programs with
benefits such as rebates for purchases, advance notice of sales, and service
extras, sometimes including personal shoppers. Success for many retailers
with loyalty programs can be elusive, given the high costs of providing
meaningful benefits for consumers and the challenges inherent in getting
customers to spend more, not just collect benefits. Still, leading players 14 ©McKinsey & Company 2000 MCKI29 - Ret. Smart Des.7 8/9/00 11:08 AM Page 15 Exhibit 5 Segment Tailoring Improves Loyalty Program Performance
Distinct differences in top customer shopping patterns at mass merchandiser
Percent; dollars Customer segment A B 65 59 Annual
shopping trips 35 41 1,400 800 15 73 2 D 20 400 80 7 1,500 48 Maintain/
20% to 25% Increase
frequency 43 27
C 4 Behavioral
of spend on
greater grossshopping Product
Categories 1-3 Product
Categories 4-6 are crafting successful loyalty programs with multiple goals, including
gathering data, sharpening in-store interactions, creating an ongoing
dialogue, and making better segmentation decisions. Consider how one
U.S. mass merchant heightened the impact of its loyalty program for top
customers. Historically, the program had recognized higher spenders, but
had achieved little impact on their behavior – neither increasing their
spending nor decreasing attrition rates. The retailer wanted better results,
so it looked closely at the behavior patterns and needs of top customers.
These insights led to a shift from "one size fits all" benefits and
communications to an approach tailored to the needs and behaviors of
different top customer segments. The response was swift, with the new
approach achieving a 20 to 25 percent increase in top-customer spending
across segments (Exhibit 5). Smart data, smart decisions, smart profits 15 MCKI29 - Ret. Smart Des.7 8/9/00 11:08 AM Page 16 Making Smarter Business Decisions Customer information also can help retailers to make smarter decisions
in areas beyond customer relationships. Retailers can use customer
insights to influence how to improve category productivity, enhance
marketing spend impact, and deepen local-market penetration.
Improve category productivity Every week, retail category teams must make hundreds of decisions:
which products to stock, what prices to charge, which promotions to
carry, and how much space to give different categories and products.
By using customer-level data, these teams have a much richer base for
making choices on how to manage categories and overall margin
investment both within and across categories. In one example, a
European retailer introduced customer segment-level spending,
penetration, and promotional behavior into its cate...
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