Not very long ago, senior finance and marketing executives at specialty retailers across the U.S. promoted stronger customer loyalty and increased purchases by offering proprietary or co-branded credit cards. The idea, enthusiastically touted by credit-card issuers, was that a proprietary card could not only be a source of revenue to the retailer, but also a major source of customer data.
And then came the recession with its negative impact on credit cards, debt and interest, leading to the question, “Is your private label card really as powerful a tool for cultivating customer loyalty as it once was?” Many leading retail marketers are saying “no,” and here are two major reasons why.
First, a large base of card-holders does not equate to a high rate of active card use, and diminished card use means diminished customer insight opportunity. We all know why customers sign up for private label cards. It’s a response to the opportunity to get a 10 percent or 15 percent discount on everything purchased that day. The tactic definitely works for stimulating applications. But what matters much more is the percentage of card holders who continue to use the card. Few retailers claim that more than 40 percent to 50 percent of their cards are actively used. What that means is that if “loyalty” is tied solely to a branded credit card, all those inactive card holders are essentially invisible to analysis, development of insight into their shopping behavior and, consequently, your ability to communicate with them in a targeted and cost effective manner.
Secondly, some percentage of the customer base—even best customers for a given brand—have never accepted the card and will not ever do so. They have other cards they use—airline mileage cards, rebate cards, etc.,—or they have decided instead to use debit cards or simply pay with cash. So the question becomes even broader: What percentage of the total customer base—and their associated shopping activity—is generally invisible? In cases where most loyalty cultivation efforts are associated with a retailer’s credit card, the answer simply cannot be known. Without insight, what is there to do but extend one discount offer after another to the world in hopes of increasing store traffic?
Changing the Customer Conversation
If in the past, you’ve only relied on your branded credit card to provide customer data insights for marketing purposes, now is the time to develop a customer data base that is not dependent upon the use of any particular credit card. Assuming your POS system can link a customer identity number (e-mail address, loyalty program number or even phone number) to a specific transaction, you may begin the process of gaining insight into all the important aspects of your customer’s purchasing behavior. You can track shopping frequency, ltransaction value, items purchased, and based on intense analysis of customer preferences, what other products might be appropriately suggested for trial. The goal is a stronger, more personalized relationship, and it’s the best hope for success in this difficult retail environment.
Don’t have the resources “in house” to make the most of the data you are able to gather? Then find an outside provider that can offer expertise in data management, segmentation and overall fact-based strategy development. The right partner will contribute to your ongoing success by helping you improve your communications ROI, increasing incremental sales per customer and optimizing your investment in direct marketing.
Jeffrey Harris, is president, CEO and founder of SHC Direct. He has more than 20 years of marketing, sales, sales management and client services/operations experience in the incentive marketing and loyalty marketing fields. Prior to founding SHC Direct, he held the position of Executive Vice President of Marketing and Client Services for S&H Citadel, Inc., in Chicago. Prior to that, he was Executive Vice President of Sales and Marketing for S&H Citadel where he was responsible for all marketing and sales functions. Jeffrey has been an active member of TEC (The Executive Committee) since 1998.