Page 42 - Retail Pharmacy Magazine October 2020

40 CPD ACTIVITY FROM PAGE 39 with the right customers. Customers can be high- or low-profitable and short-term or long-term oriented.” When putting customers into a matrix format, with two axes (one each for profitability and length of time), the following customer quadrants are identified: • Butterflies are profitable, but not loyal and have a high profit potential. • True friends are both profitable and loyal, and the firm should invest in a continuous relationship. • Barnacles are loyal, but unprofitable. If the return can’t be improved, the company shouldn’t pursue them. • Strangers are not loyal and unprofitable. Therefore, the company shouldn’t invest marketing and promotional spend in them. Any marketing strategy should support the idea of rewarding the right customers, influencing new customers into making shopping a habit with you and inducing customers who have had their pattern of shopping ‘disrupted’ to return to your store. Customers may be disrupted by factors within your control, such as service levels or by factors outside of your control, such as Covid-19 or having a health condition resolved. However, unless you encourage these customers to return to your store, you may not be able to redress the actionable disruption and return them to a loyalty position. A retail loyalty program can provide a solution for these initiatives, all of which begin with understanding the customer (particularly high-value customers) and ascertaining their level of loyalty and the pattern of their shopping behaviour. Once you understand a base line of behaviour, a program aimed at shifting customers up the loyalty ladder via tactical communications and incentives can be developed. The program is developed based on the information from the data available, including customer demographics, category and brand preferences, through to price and promotion sensitivity. Loyalty programs create a conduit for businesses to establish trust with customers and build relationships outside of the retail environment. Loyalty programs also allow a ‘customer specific’ approach in terms of marketing spend, whereby the top customers get a proportionately higher spend on marketing in recognition of their value to the business. Where possible, occasional, or ‘cherry-picker’ customers who only shop around on price should not be rewarded for shopping at the same rate as the most valuable customers. Certainly, the average shopper is being increasingly conditioned to shop on price, but these highly price sensitive customers most likely cost a typical store money if the only products they buy are heavily discounted. A loyalty program needs to be geared to achieve value maximisation from each customer to be effective and profitable. One established methodology of determining customer value is using a ‘Recency, frequency and monetary’ (RFM) report.5 RFM analysis is used to determine which customers are the most valuable by assessing how recently a customer has purchased (recency), how often they purchase (frequency), and how much the customer spends (monetary). Each aspect of behaviour is given a rating score and the scores combine to create a more complete picture of the value of the customer to the business. Loyalty program aims To expand on the steps outlined in the IRI Worldwide report on ‘The omnichannel journey’, your aim should be to create a loyalty program that: Retains existing customers. Providing a more targeted and customised recognition, making the customer more likely to remain a customer. Rewards the most valuable of the loyal customers. On reaching certain thresholds, customers are rewarded as VIPs for both increased frequency and increased spend. Attracts new customers. Acquiring new customers is essential to any business and should be a benefit of a loyalty program. The effectiveness of this depends on how exciting and how valuable the rewards seem to the target audience and how well it is communicated in store and executed by staff. Reactivates customers. Bringing back former customers can be more effective and less expensive than acquiring new customers. Increases customer lifetime value. It’s easy to underestimate a customer’s value when you’re viewing their transactions in isolation. Far more insightful is to determine what your best customers bring in through lifetime shopping with you. When your customers are valued not simply for one purchase here and there, but for their lifetime business, their value will increase. Develops relationships. Customers especially value their relationship with their pharmacist – a loyalty database can be a vehicle for building that relationship. Builds referrals. Referral is the strongest loyalty a customer can show, as they are personally endorsing your service in referring you to friends and family. Enables product and category management. Tracking what customers purchase is a powerful tool in working out pricing, range and category management strategies. Tracks ROI of your marketing spend. Direct mail, email and SMS gives you exact spend and performance tracking so you can clearly establish return on investment and other metrics. So how do you go about building a loyalty program that meets these objectives? There are distinct phases of building a loyalty program and, given there is a real expense to delivering a loyalty program to customers, these phases should be carefully considered and supported to RETAIL PHARMACY • OCT 2020