Loyalty Performance Index

Loyalty
Performance
Index
Ireland’s Retail
Loyalty Winners
Loyalty Performance Index - Ireland’s Retail Loyalty Winners
Contents
Loyalty Performance Index Introduction
Measuring Loyalty
The Framework
A Nation of Belongers
Only Connect
Earning Loyalty
Redeeming Rewards
Communicating Loyalty
Loyalty ROI
Loyalty Performance Index
So who are the Retail Loyalty Winners?
About the Authors
Next Steps
03
04
05
06
07
08
09
10
11
12
13
14
15
page 02
Loyalty Performance Index - Ireland’s Retail Loyalty Winners
page 03
Loyalty Performance Index Introduction
We are all in the ‘repeat business’ business.
Loyalty plays a key part in ensuring we get
repeat business from our customers. In a
slow market, holding on to your customers
is Job No.1 for marketers and their agencies.
However, customer loyalty is now being
shaped by a range of forces, from digital
trends to competing offers to investment in
CRM systems and more – making it more
difficult to find the loyalty strategy that works.
It is vital therefore to measure the impact of
loyalty-driven marketing in order to make sure
that current practices are working and that
opportunities for further improvement are not being missed.
Amárach Research has teamed up with Chilli Pepper to create a
new and better benchmark for evaluating loyalty programmes.
This report sets out our findings and recommendations for
retail operators of loyalty programmes seeking to engage Irish
consumers.
Gerard O’Neill
Chairman
Amarach Research
We are absolutely delighted to present the
inaugural Loyalty Performance Index (LPI)
report, focussed specifically on the top 10
Retail Loyalty Programmes in Ireland.
The LPI is the first ever independent report
for retailers using the latest metrics to identify
the impact of loyalty programmes in the retail
environment.
Its objective is to help retailers benchmark
themselves against other retail loyalty
programmes in the market and more
specifically in their category in order to
achieve better success for their programmes
through higher levels of customer participation – the key to loyalty
success!
We hope that you find this report to be a valuable tool and that
it helps you spot the opportunities within the market and your
programme to increase its impact on your customers and your
commercials.
Leanne Papaioannou
Managing Director
Chilli Pepper
Loyalty Performance Index - Ireland’s Retail Loyalty Winners
Measuring Loyalty
The biggest change witnessed in the mind of marketers in
recent years has been the awareness that loyalty cannot
be taken for granted, particularly in light of the collapse of
trust in so many institutions and businesses in Ireland and
elsewhere.
As economic recovery gets under way and consumers’
spending power improves, Brands are shifting their focus
to looking for ways to generate deeper levels of loyalty
from customers. For many Brands, this is done through
the development of a loyalty programme or refreshing an
existing one.
This can be seen by the changes in Ireland’s loyalty
landscape over the last 10 years with a significant number
of Brands investing in loyalty programmes across every
sector, all with the purpose of trying to find out who their
customers are, how they can get closer to them and what
they can do to retain their custom and share of wallet.
The inaugural Loyalty Performance Index (LPI) report,
which is the first ever independent report on loyalty
programmes in Ireland uses a unique research model
which has been developed to identify loyalty winners and
provide useful benchmarking data for any Brands currently
running or planning to embark on a loyalty programme.
This document focusses on the top 10 retail programmes
in Ireland and therefore sets out the findings and
recommendations for retailer seeking to engage Irish
consumers.
page 04
About the Survey
Our survey was conducted in quarter 1 of 2014.
We polled a nationally representative sample of
adults throughout Ireland, using computer-aided
web interviewing.
The questionnaire was designed by Amárach
Research & Chilli Pepper to examine a cross-section
of retailer loyalty programme from the consumer
perspective.
The survey captured information on the use of
different programmes, the spending with different
retailers and most importantly, the participation in
loyalty programmes.
Loyalty Performance Index - Ireland’s Retail Loyalty Winners
page 05
The Framework
The Loyalty Programmes Investigated
The Loyalty Performance Index (LPI) looks at the following five key
parameters that are used to measure loyalty programme success
and to identify Ireland’s Retail Loyalty Winners.
1
Registration
5
2
ROI
Penetration
Loyalty
Performance
Index
4
3
Communication
Participation
Brand
Programme
Name
Year
Launched
Category Focus for
Loyalty Programme
TESCO
Club Card
1997
Food Retail
DUNNES
Value Club
1997
Food Retail
BOOTSAdvantage
Card
2004
Beauty Retail
BROWNLoyalty Card
2009
THOMAS
Fashion & Homeware Retail
DEBENHAMSReward Card
2009
Fashion &
Homeware Retail
SUPERVALUReal Rewards
2010
Food Retail
ARNOTTSRewards
2010
Beauty Retail
APPLEGREENRewards
2012
Fuel Retail
EASONSThank you
2012
Book Retail
TOPAZPlay or Park
2013
Fuel Retail
Loyalty Performance Index - Ireland’s Retail Loyalty Winners
page 06
A Nation of Belongers
We’re not shy about joining loyalty programmes in
Ireland. Although they got off to a slow start in the
1990s, by 2014 Irish consumers have turned out to
be enthusiastic belongers – on average, each adult
carries 4 loyalty cards in their wallet1.
Retailers lead the way when it comes to engaging
loyalty programmes – with both Tesco and Dunnes
reaching out to more than half the adult population
in the Loyalty Performance Index report.
Another finding from our survey supports the
economic case for loyalty. Just 12% of Irish adults
have dropped out of or stopped collecting points for
any loyalty programme in the past year – higher for
men (15%) and over 55s (also 15%).
Still, the vast majority haven’t dropped out, which
suggests that once you get customers into a loyalty
programme they will likely remain members,
contributing a sizeable economic surplus to the
programme operator.
Source: An Post report on Loyalty in Ireland
http://url.ie/mubg
1
Loyalists
% of Irish adults in Retail Loyalty Programmes
Tesco
1997
74%
Dunnes
1997
56%
Boots
2004
40%
Supervalu
2010
32%
Debenhams
2009
15%
Easons
2012
15%
Applegreen
2012
14%
Topaz
2013
Brown Thomas
2009
Arnotts
2010
12%
6%
1%
Source: Amárach Research/Chilli Pepper - Ireland’s Loyalty Winners survey
Note: Year Loyalty Programme Started.
Loyalty Performance Index - Ireland’s Retail Loyalty Winners
page 07
Only Connect
Registration
% of Customers Registered for Loyalty Programmes
However, a more appropriate comparison is to look
at the relative ‘engagement’ and ‘registration’ of
each programme among each retailer’s customers.
We see in the next chart, for example, that the
rankings change somewhat when we just focus on
the % of customers who have registered for each
programme. There appears to be a ‘premier league’
of retailers who have signed up half or more of
their customers to their programmes – reducing
thereafter.
Generally we find that older customers are more
likely to be members of their shop’s programme
than younger customers – though it is by no means
uniform: Boots has a higher level of engagement
among younger customers than older.
Tesco
1997
83%
Dunnes
1997
70%
Boots
2004
68%
Applegreen
2012
56%
Supervalu
2010
51%
Topaz
2013
48%
Brown Thomas
2009
46%
Debenhams
2009
45%
Easons
2012
Arnotts
2010
33%
8%
Source: Amárach Research/Chilli Pepper - Ireland’s Loyalty Winners survey
Note: Year Loyalty Programme Started.
Loyalty Performance Index - Ireland’s Retail Loyalty Winners
page 08
Earning Loyalty
Our research shows a remarkable consistency across
retailers when it comes to the propensity of loyalty
programme members to earn points in the stores
they shop in. This consistency even applies across
shopper demographics, once a consumer joins a
loyalty programme then they are as likely to use their
card whether they are younger or older members,
male or female, higher income or lower income (with
some exceptions).
However, a more important measure is that loyalty
programme penetration, i.e.: the % of transactions
that are associated with collecting points. This is
a function of the % collecting points by the %
of shoppers who are members - as is clear in the
same chart, there are vast differences in terms of
penetration.
This inevitably means that some customer segments
account for a far higher share of loyalty-related
transactions relative to their share of the overall
customer base – while others, of course, represent a
relatively smaller share.
Programme Penetration
Loyalty transactions as a % of total transactions
90%
Tesco
1997
75%
89%
Dunnes
1997
62%
Boots
2004
61%
90%
85%
Applegreen
2012
48%
87%
Supervalu
2010
44%
Brown Thomas
2009
42%
91%
82%
Topaz
2013
39%
84%
Debenhams
2009
38%
85%
Easons
2012
Arnotts
2010
28%
91%
8%
Source: Amárach Research/Chilli Pepper Ireland’s Loyalty Winners survey
Note: Year Loyalty Programme Started.
% collectors
% of loyalty transactions
Loyalty Performance Index - Ireland’s Retail Loyalty Winners
page 09
Redeeming Rewards
So far we have looked at the registration and
penetration of loyalty programmes across retailers.
However, one of the most important drivers of a
successful loyalty programme is not just how many
people are collecting points, but also how many are
redeeming the rewards on offer to members - we
call this Programme Participation. This is the most
important metric that programmes can use when
trying to measure the actual impact and success of
their programme. Here we find greater inconsistency
across the different programmes compared to
the collection of points. As the chart shows, the
programme with the highest level of participation
operates at nearly twice that with the lowest level.
In our experience the participation rate is
fundamentally more important than the registration
rate in terms of generating both loyalty and even
in terms of increasing spending. For some of the
retailers in our survey, it would be more economically
advantageous for them to encourage members to use
their points to redeem their rewards than to encourage
more people to join their loyalty programmes.
Moreover, there tend to be more significant differences
between male and female members of loyalty
programmes when it comes to redeeming points –
even though men are as inclined to collect points
(when they join a programme) as women.
Participation
% redeeming loyalty rewards
Tesco
1997
73%
Dunnes
1997
72%
Topaz
2013
64%
Boots
2004
60%
Debenhams
2009
59%
Supervalu
2010
55%
Easons
2012
54%
Brown Thomas
2009
53%
Applegreen
2012
45%
Source: Amárach Research/Chilli Pepper - Ireland’s Loyalty Winners survey
Note: Year Loyalty Programme Started.
Loyalty Performance Index - Ireland’s Retail Loyalty Winners
Communicating Loyalty
Many loyalty programme operators make
considerable investments in communicating with their
members – both in terms of CRM systems as well as
external communications. Our research shows that
loyalty programme members are generally willing to
engage with operators, with sometimes a majority
stating that they always read communications they
receive about membership.
page 10
Communications
% always read communications about their
loyalty programme
Tesco
1997
56%
Dunnes
1997
Of course, the implication is that some are not
that engaged with loyalty communications – in
some instances customers rarely or never read any
communication about the individual programmes
they belong to.
In a separate study1 recently conducted 48% of
customers felt that direct mail was the best way to
make them feel valued as loyal customers, followed
by email at 29%. This impact of this can be seen
in the two bands of loyalty communication where
Brands that tend to invest in Direct Mail see a
higher percentage readership versus those who only
sometimes use Direct Mail in their loyalty mix. The
exception to this is SuperValu.
It is therefore vital that brands use the data and
insights gleaned from their loyalty programmes to
drive tailored, relevant communication that customers
want to receive.
52%
Boots
2004
51%
Brown Thomas
2009
51%
Debenhams
2009
48%
Supervalu
2010
47%
Easons
2012
46%
Applegreen
2012
45%
Topaz
2013
44%
Source: Amárach Research/Chilli Pepper - Ireland’s Loyalty Winners survey
Note: Year Loyalty Programme Started.
Source: An Post report on Loyalty in Ireland
http://url.ie/mubg
1
Loyalty Performance Index - Ireland’s Retail Loyalty Winners
Loyalty ROI
So what about the bottom line? Does loyalty make
a difference? It’s the question most marketers want
to know. The good news is that we can show the
impact of loyalty on the top line (i.e.: revenue or
turnover) – the bottom line impact usually boils
down to internal costs and other variables.
page 11
The Commercial Effect
Impact on average spend of loyalty membership
by retailer
TESCOLoyalty members spend 80% more
One useful indicator is to compare the average
spend of customers who belong to a loyalty
programme with the average spend of customers
of the same retailer who don’t belong. This table
summarizes the differences for a cross-section of
retailers in our survey.
SUPERVALULoyalty members spend 62% more
Clearly, Tesco are generating the greatest economic
return on a top line basis, according to our research.
TOPAZLoyalty members spend 32% more
On the other hand, Debenhams faces a big challenge
– it would appear that their most valuable customers
are not members of their loyalty programme, hence
the negative top line contribution.
BOOTSLoyalty members spend 28% more
DUNNESLoyalty members spend 40% more
APPLEGREENLoyalty members spend 34% more
EASONSLoyalty members spend 8% more
DEBENHAMSLoyalty members spend -8% less
Source: Amárach Research/Chilli Pepper - Ireland’s Loyalty Winners survey
Loyalty Performance Index - Ireland’s Retail Loyalty Winners
page 12
Loyalty Performance Index
We have seen that there are very significant
differences across Irish loyalty programmes in terms
of registration, penetration and participation.
To bring all these variables together in order
to produce a summary ranking of the different
programmes, we have created the Loyalty
Performance Index (LPI). This is a composite
measure of Registration, Penetration, Participation,
Communication and ROI, and allows us to do a
like-with-like comparison (indexed out of 100) - as
illustrated in this chart.
The supermarkets account for the top 2 programmes
in our survey, as measured by the LPI. However, Topaz
comes in at number 4, even though it is a relatively
‘young programme’ proving that longevity is no
barrier to generating customer loyalty.
Loyalty Performance Index 2014
Tesco
1997
77
Dunnes
1997
68
Boots
2004
63
Topaz
2013
51
Supervalu
2010
50
Applegreen
2012
50
Brown Thomas
2009
49
Debenhams
2009
48
Easons
2012
Arnotts
2010
39
33
Source: Amárach Research/Chilli Pepper - Ireland’s Loyalty Winners survey
Note: Year Loyalty Programme Started.
Loyalty Performance Index - Ireland’s Retail Loyalty Winners
page 13
So who are the Retail Loyalty Winners?
For the first time, we can announce the retail loyalty
winners for 2014. Congratulations to all of the
winners and we look forward to revisiting Ireland’s
Retail Loyalty Winners in 2015.
Based on the LPI report, the following retailers are winning
with their loyalty programmes in their categories.
Food Retail
Loyalty Programmes
Fuel Retail
Loyalty Programmes
Tesco
Topaz
Fashion & Homeware
Retail Loyalty
Programmes
Beauty Retail
Loyalty Programmes
Brown
Thomas
Boots
Source: Amárach Research/Chilli Pepper - Ireland’s Loyalty Winners survey
Loyalty Performance Index - Ireland’s Retail Loyalty Winners
page 14
About the Authors
Amarách Research
Chilli Pepper
What makes us different? The name is a clue. We’ve been doing it since
1989 – and our team of young enthusiasts and seasoned professionals
has lots of practice unlocking the future for our clients. We embrace
change, innovation and opportunity like no other agency in Ireland. We
share our own ideas and insights through our blog, twitter, ezine and
slideshare resources – providing unparalleled insight into the mood and
intentions of consumers and businesses.
Chilli Pepper is Ireland’s only dedicated strategic customer loyalty
agency, taking a completely holistic view of all the facets of your
business that impinge on customer loyalty. We put all aspects of the
customer at the heart of our strategies, leading the drive to change
customer behaviours in a way that delivers genuine loyalty, and that are
commercially sound and true to your brand.
Through surveys, focus groups, econometrics, workshops and social
media analyses we discover the rights answers to our clients’ important
questions about their brands, customers... and their future potential.
But it doesn’t stop there. We have formed unique partnerships with
clients and agencies (including advertising, PR and social media
agencies) to turn research into a tool for connecting brands to
customers. We believe in proactive research, not reactive research.
Our clients are found across every sector and category – public and
private – throughout Ireland. From SMEs to PLCs. And there’s more: our
international research in retailing, telecoms, professional services and
more besides has seen us working in over 48 countries in 2013 alone.
Amárach… an domhain.
We create meaningful customer loyalty, experience and engagement
strategies that have an enduring impact on organisations and customers
alike. Founded in 2005, Chilli Pepper is based in Dublin, Ireland, and
services a range of forward thinking blue-chip clients.
We focus on customer Insights, Metrics and Commercials – helping
us to develop bespoke strategies that are rooted in genuine customer
understanding, are easily and readily measurable, and are designed to
deliver increased customer loyalty to contribute to the core financial
objectives of your business.
At Chilli Pepper, we have a simple philosophy when it comes to all of
the disciplines we offer – a minute of thinking is better than an hour
of doing. In other words, we adopt a forensically strategic approach to
defining what your real customer issues are and how these feed into
generating customer loyalty, before commencing strategy development
and implementation on your behalf.
And all of this is delivered by a team who live and breathe customer
loyalty, and who place the customer first in our own day-to-day client
interactions.
Loyalty Performance Index - Ireland’s Retail Loyalty Winners
page 15
Next Steps
Amárach Research and Chilli Pepper have begun a series of one-to-one
briefings with loyalty programme operators in Ireland, taking a more
detailed look at different programmes and customer segments, as well
as at the different drivers of loyalty economics (as measured by customer
spending and ROI) for different retailers.
It is our intention to update this research on an annual basis, as well as to
expand its coverage both within Ireland and to other European markets.
If you would like to arrange a confidential briefing on the Loyalty
Performance Index then contact either Gerard O’Neill in Amárach or
Leanne Papaioannou in Chilli Pepper.
We look forward to hearing from you.
For more details please contact:
Gerard O’Neill, Chairman
Amarach Research
11 Kingswood Business Centre
Citywest Business Campus
Dublin 24
Leanne Papaioannou, Managing Director
Chilli Pepper
14 Clyde Road
Ballsbridge
Dublin 4
T: 01 410 5200
E: [email protected]
W: www.amarach.com
Blog: amarach.com/blog/
Twitter: twitter.com/AmarachResearch
LinkedIn: linkedin.com/company/amarach-research
T: 01 531 1420
E: [email protected]
W: www.chillipeper.ie
The Loyalty Performance Index Notes:
Note that some of the sub-samples for specific retail customers, so caution should be used in interpreting their data.
It should also be noted that all expenditure information is self-reported, based on the recall of consumers in the survey.
We did not have access to receipts, loyalty card statements or other specific sources of information.