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Intelligence Briefings: Managing Retail Customers

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Case study: how Do It All did it all with Bonus card

In the late 1980s, do-it-yourself was one of the most buoyant UK retail markets, registering sales growth of 82% between 1985 and 1989 -- twice that of all retailing. The market was driven by the rapid increase in home ownership and the sale of council houses to tenants. The housing market was at its peak, with transactions having doubled in volume. Out-of-town shopping was also growing rapidly.

DIY multiples -- Ladbroke’s Texas, Kingfisher’s B&Q, Sainsbury’s Homebase, W H Smith’s Do-It-All and Boot’s Payless -- were expanding their share at the expense of traditional high street independents. Significantly, with the exception of Texas, all were subsidiaries of fast-moving goods retailers, whose customers were the same kind of people -- but who behaved differently when they bought DIY at weekends.

All the multiples were succeeding with the same offer -- big warehouse-style shops, easy parking and loading, reasonable prices and, most of all, a wide range allowing one-stop shopping. So all the protagonists simply continued to acquire space without paying much attention to differentiation, except for Homebase where the strong Sainsbury quality values were evident in comparison with the competition.

But in 1990, just as the DIY market became saturated, it was hit by recession, with a fall in consumer spending and a slump in the housing market. The latter created "negative equity", which, in turn, led householders to reconsider whether they should spend on home improvements.

In the DIY market, price wars started. Massive discounts were offered. But sales still fell and margins collapsed. Customers expected massive discounts. Quality and customer service took second place to price except at Homebase, which launched a paper-based version of Spend & Save.

It was at this time that Boot's and W H Smith merged their chains into the enlarged Do It All. This was followed by an aggressive programme of branch closures, refitting the remaining 140 stores, redefining product range and developing a professional customer service approach. Today, Do It All’s turnover is £400m, and after a tough period of losses, margins are re-established, helped by emergence of the UK economy and housing market from recession.

Do It All launched its Bonus Card in 1993 to help reduce discounting. It offered a £5 voucher for every £100 spent. It now has more than three million card-holders but that is less than half the Texas/Homebase combination. Do It All is now working with Dunn Humby Associates to analyse its card data.

Dunn Humby's experience of EPOS data and loyalty schemes is partly based on its work for the Tesco Clubcard. The raw EPOS data was loaded into a database on a massively parallel processing computer. The data analysed included every item scanned at the till, including discounts and offers, plus data on card holders, including card number, postcode, store code, Mosaic code and a psychographic score. The computer analysed more than three million Bonus Card transactions and more than nine million non-Bonus Card transactions, covering about £200m sales. The analysis showed:

  • Around one million customers accounted for the three million Bonus card transactions.
  • The top 5% of customers accounted for around 20% of Bonus Card spend.
  • Customers with higher visit frequency live in "more affluent town and city areas.
  • Customers with higher spend live in "affluent country areas".
  • Customers with lowest spend are most likely to be single, living in "council areas".
  • Higher spend values were more likely to be found in "conspicuous consumers" and low-value customers among "survivors".
  • The top 5% of customers buy across all departments, but focus in particular on project-based departments -- for example, kitchen improvements.
  • Shoppers who visit two or more departments visit the store regularly.
  • There is a clear group of incentive respondents, who have bought on one occasion in response to a promotional offer.

However, all this information did not necessarily help Do It All in the battle for market share. Research data showed that customers living in catchment areas shared with competitor stores visit and shop in all stores. So a loyalty card must influence the share of spend, but cost-effectively to avoid sacrificing margin.

The Bonus Card has helped Do It All develop a strategy for each customer segment -- for activation, stimulation, cross-selling and up-selling. In particular, it has developed a retention strategy aimed at keeping the best customers.

Apart from gardening produce, DIY splits into two major categories of purchase -- "distress" or "project". Customers make larger purchases when they are undertaking specific projects. Research shows that most customers shop around before starting a new DIY project. When a customer finds a key component which underpins the project, the chances are high he will purchase the remainder of his needs at the store.

Do It All's data analysis confirmed the existence of these "trigger products" which might be bought at the same time or on a later visit. Hence the importance of identifying the customer. Customer-based "product link analysis" of this kind helped identify many trigger products -- for example, preparation products triggering decoration products. This information supports the planning of:

  • Store layout (which products sit together).
  • Targeted communication (the key triggers for store visit).
  • Link-save products (for stimulating cross-selling).
  • Follow-on product promotions (as a package).

Identifying the lead product helps Do It All to:

  • Develop store layout to highlight these key products.
  • Promote lead products, encouraging customers to come in and buy "accessories".
  • Understand the time periods involved in making this sequence of purchases.

Other areas of pay-off include:

  • Customer acquisition strategy is now based on analysis of what good customers are like, what they buy and where they live.
  • The appeal of some departments was more upmarket or downmarket, reflecting how far Do It All had developed its product range and the store catchment area.

Analysis has shown, as expected, that Bonus Card customers visit more often and spend more than average customers. They are most likely to be loyal when undertaking specific projects. In 1996, the Do It All card was relaunched as a privileged membership club, reflecting the retailer’s strategy of being an active partner in DIY help and support.

The top 100,000 customers on the database received personalised cards -- instead of the self-completion cards distributed at point-of-sale -- and additional benefits. Other consumers on the database were encouraged to visit stores to pick up their new cards. Compared with the control group, there was a 43% increase in purchases by members during a four week promotional period.

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