Boots to generate value from customer relationships

It seems coalition is the buzzword of the moment, and I'm not just talking about politics.

Nectar and Airmiles have already seen recent competition from Barclaycard Freedom for the multi-merchant loyalty model, but now high street loyalty behemoth Boots has announced their intention to open up their Advantage card to other partners.

Although most Boots Advantage card holders are also members of another large loyalty scheme like Tesco Clubcard or Nectar, with 16m members they can hit the ground running with regard to engaging other partners - not least using their aquisition of Dollond & Aitchison which they have just pulled out of Nectar.

It's also not surprising that this is happening given the ownership of Boots by private equity firm KKR.  They will be looking to maximise their investment of over £11bn when they first purchased Alliance Boots and a 16m customer database is certainly one asset that could provide profitable returns.

Looking at coalitions though, what's clear from the current government is that brand identity can become diluted.  With most news reports referring to the government as the "coalition government", "Liberal Conservatives" or "LibCons" it's evident that sharing the platform with someone else can force individual brands to be pushed to the back a little more.  For any partners looking to join the Boots Advantage programme, it may be difficult for their brand to shine as brightly as Boots.

So what's the attraction for any potential suitor to join a programme like Advantage?

Quite simply it's acquisition.  The benefits of tapping into a large shared membership base can bring great benefits to a new brand joining, with a loyal base of members keen to maximise their earning and willing to change their behaviour to do so.

When Tesco for example joined Airmiles back in 2002 they say searches for the nearest Tesco store jump 450% and they issued 1m new Clubcards.

The other side of this though is tied into the reduction of brand identity, with customers becoming more loyal to the programme than the participating brands.  When Tesco's for example saw an influx of Airmiles customers, it was reported in Scoring Points: How Tesco Continues to Win Customer Loyalty that Sainsbury's saw a corresponding loss of 1% of sales volume - equal to losing 60,000 of it's most valuable customers.

Another potential advantage though of a coalition programme is the shared earn & burn model.  With many brands not seeing enough frequency to remain front of mind or enough value to make the loyalty currency attractive in it's own rights, then a model which contributes to a wider and more open currency seems like the natural choice.  In fact, if you ask customers what they want these come out as key aspects.

For example, the Home Retail Group which recently launched Nectar points at Homebase to replace the previous Spend & Save programme said:-

In-depth consumer research that showed Nectar points were more attractive to customers as they are more flexible and can be earned and redeemed at a much wider range of outlets.

When part of a coalition, it's sometimes better to see it as a marriage of convenience - just like the Lib Dem and Conservative coalition.  Neither political party would have chosen the situation, but the benefits of working together and representing a majority of the electorate outweigh the alternative.

For coalition loyalty the situation is similar.  No company would ideally look to encourage focus on another brand, but sometimes the benefits outweigh the risks.  Increasingly however partners are looking to protect their brand at the same time as benefiting from coalition loyalty.

Tesco for example has managed to navigate a route with Airmiles which allows them to be part of the coalition programme, without in any way devaluing their own brand or their own loyalty programme - really having the best of both worlds.  Shell is another example - offering a variety of rewards within their Drivers Club programme including Airmiles and now being part of Barclaycard Freedom.

However, with an increasing number of UK coalition programmes to choose from, each offering different benefits and potentially different audiences, brands now have more choice - including creating or keeping their own proprietary programme.

What is increasingly not a choice is whether to have a loyalty programme at all.

As Justin King, Chief Executive of Sainsbury's recently said in The Times about retail loyalty:-

"There will be a big difference between the haves and have-nots"

So whether the choice is joining a coalition, creating a coalition or setting up a propriety loyalty programme - it's clear that loyalty marketing has evolved into the business tool to generate value from customer relationships - a value that Boots are obviously keen to increase.

What can politics learn from marketing?

Am I the only one surprised that the pre-election polls were actually accurate for once?  They predicted a hung parliament and now here we are with no single party having a majority.

It's still early days, but it looks like the LibDems may actually hold the keys to number 10, even if they themselves don't reside in it - and the price for that will probably be a vote at least on proportional representation.

I'm not going to comment on the rights and wrongs of this (phew! I hear you say), but what is interesting is that we have a political system which is based on at best the needs and desires of around a third of the voters.  For example, back in 2005 the Conservatives had a 32% total share of the votes, won the largest share of the vote in England and yet had less seats than the majority Labour government.

Worse still, policy is largely dictated by those who shout the loudest and unfortunately the majority of people are so busy living their own lives that the minority who care passionately about a minority cause tend to get a listening ear through effective lobbying.  The House of Commons Public Administration Selection Committee says:-

"The practice of lobbying in order to influence political decisions is a legitimate and necessary part of the democratic process. Individuals and organisations reasonably want to influence decisions that may affect them, those around them, and their environment. Government in turn needs access to the knowledge and views that lobbying can bring"

Lobbying may be necessary and the first past the post system may be the best of a bad bunch when it comes to ways of measuring the popular vote - but if government was a business, and voters were customers, it would have gone bust a long time ago.

Henry Ford famously said in his biography that

"Any customer can have a car painted any colour that he wants so long as it is black".

Essentially a one size fits all approach.  That may have worked back then - and was actually used because it was the fastest drying paint so kept prices low by speeding up production -  but time and competition have moved on.

Look at Ford now and their popular model, the Focus has 100's of different configuration options including 8 upholstery types, 12 body colours (with or without ST stripes), 13 wheel types, spoilers and body kits.  No longer is the customer "free to choose as long as it's what you're given" - customers actually have a choice.  Better still, if you don't like the Focus there are 14 other models to choose from!

If a retailer like Tesco worked like our government then they wouldn't worry about what customers actually wanted, they wouldn't provide choice. The products on offer would be just the Tesco Value range - essentially a selection of the cheapest, least attractive options that serve the masses - just.  In addition there would be a large selection of organic, vegan and soya based foods, because those customers shouted loud enough.

Want some Gruyère cheese - it's not going to happen.  Why would you want more than one choice of cheese - it's all the same.

Government is not normally subject to competitive pressures.  Other than once every 4-5 years, they don't have to worry too much about whether their customers are frustrated - they don't have a choice.  Until now.

With a hung parliament, there is no single mandate - no one size fits all.

Admittedly hung parliments don't have a great track record of success and there is no guarantee that the Tories and Liberals will be able to get an agreement. But with representation of almost 60% of the population, it will be interesting if they actually manage to form a government of the people, by the people which for once can represent the wants, needs and desires of the majority of the people.

If marketing shows us one thing, there is no success with one size fits all - it requires choice, flexibility and relevance.  Now there's manifesto i'd actually vote for.

 

Photo credit -Cuban Store - http://www.flickr.com/photos/martin_hartland/

Tesco says "Good day number Six" (or 7, 8, 9...)

So Tesco is moving into housebuilding - looking to develop four mini-villages in the South East, having already constructed flats next to stores in Clapham and Kensington.

Discussed in a recent news article in the Grocer, it talked of how Tesco is looking to diversify beyond retail. However I'm gonna go out on a limb here and suggest that these developments might just include one or two shops and I'm betting they have a Tesco brand above the door.

This does seem like a reversal of how things used to be.

In times gone by, companies like Cadburys would build villages to support their workers - with the beautiful village of Bournville being one such example. This allowed the company to ensure it's workforce was well looked after but also close by.

Fast forward 100 years and now it seems Tesco is building towns around it's stores to support it's customers. A ready supply of customers for their whole value chain, from the bricks and mortar houses, to the mortgage to pay for them, the Tesco Direct table and chairs to go in it and the food and drink to eat at it. When you throw in the clothes that they wear, the fuel in their cars and the life insurance in case the worst happens you've pretty much got cradle to grave coverage.

It's not just Tesco though looking for a greater slice of us.

Facebook is another brand that just seems to get closer and closer to it's end users. Its new Social Plugins functionality including the "Like" button takes Facebook (and all your friends) directly into a retailers e-commerce site. Allowing you to "like" products which your friends can see as well as seeing products that they like.

As this expands, Facebook will be building a wealth of information not only on the brands you like but the individual products, allowing advertising to be increasingly targeted and covering an ever growing slice of our online activities. As Mike Murphy, Vice President of Global Sales at Facebook says:-

If I’m Coca-Cola and if I have a Like button on my landing page, my site, and on Facebook, I’m looking to collect as many Likes as possible because it gives me the ability to publish into the news feeds. It also gives me the ability to use that influence on friends of friends on Facebook and makes them more likely to engage with my ads.

You only need to look at Yahoo Consumer Direct - which in the US joined offline purchase behaviour with online advertising - to see what an additional data overlay like that can bring to advertising effectiveness. On the Yahoo website it describes how well it worked saying:-

In an analysis of Yahoo! Consumer Direct versus non-Yahoo! Consumer Direct campaigns, Nielsen reported the average Yahoo! Consumer Direct campaign generated 50% greater short-term sales per impression than the average non-Yahoo! campaign measured by Nielsen. For a 60 million impression campaign, that translates to an incremental $300,000 in short term sales.

Not all brands or sectors are being quite so successful at getting closer to their customers though- with some almost seemingly in reverse.

The balance of power within insurance for example has shifted more to the comparison sites and away from the individual brands who actually serve the customer.

This is not through a lack of data though - this sector knows very well who their customers are, they have simply failed to build and develop direct relationships with them, focusing instead on acquisition and in the process losing the right to have an ongoing conversation.

This is also becoming increasingly difficult for online retailers, with a rise in affiliate marketing of 38.2% in 2009 meaning that the initial purchase decision is increasingly being pulled away from the retailer - and with it the customer relationship.

Relationships are key to long term, profitable success and if you don't know who your customers are and/or simply let someone else build up a stronger relationship with them then you end up losing the balance of power.

This doesn't mean taking the Tesco approach and looking to service literally all their needs, but it does mean adding value to the product or service you sell. Recognising and interacting with the customer before, during and after purchase so you remain front of mind and squeeze out the middle man.

Failing that, build your dedicated customer community quite literally as Tesco seem to be doing and cut out the middle man. However I suspect it will be quicker and easier to simply build better relationships rather than build new housing estates.