Mass marketing is no longer a viable option but few retailers are ready to embrace individual customer marketing, according to analytics firm, FICO. Martin Beasley, principal consultant in FICO’s retail practice, EMEA, explains why some retailers are ready but most are not
Today’s retailers face two fundamental challenges: the increasing likelihood of a double-dip recession, and a market flooded by vendors and products. Market competition is stiffening, inflation is rising, credit is diminishing and budgets are tightening. Furthermore, the internet has brought consumer choice and price discrimination to an all-time high. Even the biggest retailers are constantly threatened by the idea of becoming an increasingly small fish in a growing pond for particular categories.
The time leading up to and immediately after Christmas is the single most important time of year for retailers. It is therefore of growing importance retailers select their marketing strategies with precision and care, they encourage customer loyalty, and their offers are of genuine value to customers. Mass marketing is no longer a viable option.
The key to continued success and profitability within the retail sector is personalised marketing – giving individual customers what they want, when they want it, at a competitive price. Retailers must be able to accurately judge the best time to present an offer based on its optimum impact and return. Fortunately this can be facilitated using predictive analytics, which create bespoke offers to match these conditions.
The traditional ‘pay and spray’ approach to marketing simply does not yield a high enough return on investment. Retailers such as Amazon and Tesco are attempting to woo consumers through product association offerings, examples of which include the Tesco Finest and Tesco Value ranges. However, segmentation is not truly individualised and typically segmentation analysis only receives a response rate of around 5-6%.
Increasingly, predictive analytics are being used by retailers to analyse vast amounts of customer data and create tailored, one-to-one offers based upon an individual’s purchasing history. Loyalty card schemes allow retailers to collect data which distinguishes customers buying patterns. By applying predictive analytics to this data, retailers can generate as many as 21m unique sets of email offers within one week.
Personalised marketing in practice
In the US, Sam’s Club – Wal-Mart’s membership-only warehouse chain – has implemented one-to-one marketing via its eValues loyalty programme, automatically loading deals onto customers’ loyalty cards. In a business where member loyalty is of paramount importance, Sam’s Club is innovating in order to improve the relevancy and strength of its member relationships.
The eValues programme offers are only available to ‘Plus’ customers, and as such helps to stimulate customer loyalty and generate demand. The response rate for traditional marketing techniques such as coupons typically sits at approximately 1-2% — a return many retailers accept as standard — while the response rate for eValues offers on the other hand can be anywhere between 20-30%.
Sam’s Club has achieved higher than expected results since implementing a marketing platform that combines optimised technology, rules and predictive analytics to develop a ‘purchase propensity model’ around each customer. The more a customer shops, the more accurate the rules that govern offers can become, so the effect is cumulative. At the same time, it also allows the retailer to retain total control over what is on offer and who is eligible.
eValues encourages customers to make use of the deals that they are offered. Customers are more likely to take advantage of eValues deals because they know the deals the programme offers them are specifically tailored to their personal interests and requirements. The programme also eliminates the physical burden of collecting, keeping and presenting coupons at the point of sale – hurdles which traditionally make customers less likely to make use of a particular deal.
The future of retail marketing
The transformation of retail marketing – being driven by a combination of changing market conditions and improving analytical technology – means the holy grail of truly personalised customer relationships is now within reach. The tools are now available to enable retailers to predict which customers are likely to react to a particular offer and when specifically an offer has the best chance of success. Sam’s Club’s use of predictive analytics, and the results it has achieved, demonstrates how a retailer can use these tools to remain profitable, even when faced with today’s unpredictable market conditions. Smart investment in effective marketing technology is therefore the key to driving sales, and the level of such investment is likely to increase as more retailers recognise the potential benefits it can bring.