New Consumer Intelligence Tools for Tough Economic Times

Insights From MasterCard Advisors Merchant Solutions

In this tough economic environment, every retailer knows how critical maintaining customer loyalty is to being successful. As money has gotten tighter, consumers have become increasingly willing to shop around, breaking their traditional shopping patterns in the search for value. Digital media, social networking and the smartphone have also changed the face of retailing forever. When a shopper can find out about a new product, compare prices, or follow a blog about fashion trends – all in the time it takes for her to walk from the parking lot to the mall entrance – then nothing can be taken for granted about where she will shop once she enters the mall. The net outcome of these two trends is that customer loyalty has become a more and more precious commodity in the modern retail landscape.

To manage customer loyalty effectively, of course, you must first be able to measure it precisely and consistently over time. A robust loyalty metric needs to do more than simply monitor the value of your customers’ spending at your stores or website – it needs to help you to understand how much those same customers are also spending with your competitors. In short, you need to be able to measure your ‘share of wallet,’ as well as your share of the market. Driving strong differentiation is then the key to increasing that customer loyalty – and for this, you need truly deep and granular insights into not only the profile of your customer segments, but the behaviors of those segments as well.

The quest for such ‘customer centricity’ as a driver of loyalty has been a key pillar of strategy for many a retail CEO over the past few years – some executed more successfully than others. But with shopping behaviors changing so rapidly, the challenge is now not only around measuring loyalty and developing valuable behavioral insights, but also about keeping those insights fresh, relevant and actionable in this fast changing world. Given this, relying on periodic or survey-based insights can seem like a slow and cumbersome process, as well as being prone to the biases of any self-reported data, especially in such challenging economic times. Yet most retailers’ appetites for ‘real time’ behavioral data have only become stronger as a result of the explosion in web analytics, and the (sometimes overwhelming) quantity of data and insights that this can provide. Getting to a place where behavioral insights about the loyalty and spending patterns of your customer base can be gleaned, in as ‘real time’ a fashion as possible, and in a way that spans both store and online channels, is now the key focus for many retailers.

Monitoring performance is only part of the story. Customer insights also need to help us explain behavior – to reveal “the why behind the buy” through profiling key segments. Understanding your best customers’ behavior by examining only what they spend with you is – let’s be frank – taking a somewhat narrow view. And while appending socio- demographic and lifestyle variables to your house file can certainly help, the outputs are really only as good as the surveys from which the data has been extrapolated. And besides, particularly in this volatile environment, just how useful are geo-demographic attributes at explaining (much less predicting) actual consumer behavior? Understanding the behavioral profile of your different customer groups – segmented on the basis of their actual spending in your category and by their loyalty to you – can add a whole new dimension to your insights. What is it that makes your most loyal customers different from those who shop with you only occasionally? And by comparing the behavioral profiles of these segments with those of your competitors, you can really start to tease apart what exactly it is that makes your customer base different from people shopping elsewhere.

This kind of insight can start to really unlock the key dimensions of differentiation and thus open the route to winning increased loyalty.

The billions of transactions that MasterCard (MA) processes as a payments network creates a very rich and granular data set from which powerful aggregated insights into loyalty and shopping behaviors can be quickly and accurately derived. Over the past year we have been helping a growing list of retailers and travel/hospitality merchants stay ahead of fast-changing consumer behaviors by providing them with an ongoing flow of timely, detailed information and analytical insights. For some, the focus has been on understanding changes in the level of aggregate consumer spending in their sector – and the outlook for demand in the months ahead. For others, it has been about quantifying the impact a new store format has had on customers’ spending at competitive locations within that store’s trade area – or using real behavioral data at very loal geographic levels to optimize new site selection. Given volatile markets, many have seized the opportunity to monitor their market share more closely, as well as benchmark their performance on key metrics like average purchase frequency and average ticket against a cloaked competitive set – right down to individual metro areas. One major retailer cancelled a major promotion and saved millions of dollars when our share data revealed that, despite falling sales, they were actually outperforming the competition and gaining share in what was a shrinking market. Such is the value of timely, accurate insight in today’s retail business.

The new retail environment means that the battle for customer loyalty is one that has to be re-fought every day. Access to timely, granular data on actual spending behaviors can provide critical guidance in navigating this new landscape. Fortunately, there are some new information tools that can help merchants do just that.

Andrew Woodward is Senior Vice President for merchant solutions at MasterCard Advisors.