John Chesak
Director, Retail Data Applications & Loyalty Marketing
Spectra

Loyalty data has typically been used within loyalty marketing departments only—including customer segmentation, trip/frequency analysis and direct mail. But at retail, a traditional recency, frequency, monetary (RFM) analysis of customers simply does not translate beyond the marketing department and certainly not to the category management department where most of the decisions about how to impact consumer behavior are made.

To date, loyalty marketing and category management departments have not shared a common “consumer language” because they do not share common goals. Loyalty marketers are charged with building customer loyalty and acquiring new customers. Category managers focus on having the right assortment levels and promoting the right items that meet customer demand in order to increase turns and reduce out-of-stocks. Having separate goals has required separate perspectives. However, what if these two functions could share a common way of speaking about their customers to drive both merchandising and marketing activities? Loyalty card data can provide that common language to drive both functions.

Currently, retail clients are using the Spectra segmentation framework, share of wallet metrics and linkage to contextual data through our software tools to understand their loyal customers and create strategies and tactics for reaching them—such as targeted direct mail, weekly advertising and new customer acquisition programs. Retail clients can identify new revenue opportunities and prioritize customer segments to get the most “bang for their marketing buck.”

Loyalty-card information in combination with Spectra’s household insights provides retailers with intimate knowledge about their shoppers—which customers spend the most and shop most frequently. What they don’t know, however, is how much these customers are spending outside their chain, and how many dollars they can hope to claim.

This past spring, Spectra, in collaboration with ACNielsen Homescan, introduced Spectra Category ShareCast, a new loyalty service that provides the missing context, telling retailers how much of their shoppers’ total spending they are capturing by category. This new metric will become an essential loyalty-building tool for retailers.

Spectra Category ShareCast leverages best-in-industry data and methods. Spectra’s consumer segmentation modeling combined with ACNielsen’s Homescan consumer panel data measures how much each shopper’s household spends on each product category within a particular retailer and in total. The resulting category-specific share-of-wallet metric enables retailers to understand where real revenue opportunities exist and to utilize targeted marketing and merchandising activities to increase their share of each customer’s spending.

This new category-level share-of-wallet metric is appended back onto a retailer’s cardholders within the loyalty marketing database where Spectra can help the retailer measure the importance of key categories for specific customer segments or gauge the loyalty level for categories by store or store clusters.

Making Loyalty Insights Useful for Category Managers
These loyalty insights can also drive value for the category management department through Spectra’s Consumer-Centric Category Review Process. This process builds upon traditional category management approaches and places the customer at the center of all key decision-making [See chart 1].

It is at step three, the customer segment and store cluster level, where loyalty marketing data can add new insight into a Consumer-Centric Category Review Process. Spectra Category ShareCast offers retailers an opportunity to connect insights from their loyalty marketing card
databases into their category management assessment, planning and evaluation.

The consumer-centric process relies on clustering stores based on actual sales potential using consumers’ actual buying preferences rather than historical information—such as the previous impact of ads, price zones, etc.—that is traditionally used to approximate sales potential (shown in step 3). The category share-of-wallet metric available through Spectra Category ShareCast helps provide a real assessment of the relative importance of the category to the customer by store cluster.

Just as not all loyalty marketing customer segments are alike, not all store clusters are created equal either. In the Assessment phase (step 4) the retailer must choose the best store clusters to use in all remaining steps of the process—right down to targeting and implementation over the long term. The insights from Spectra Category ShareCast add additional perspective here when the current share of wallet quantified by category and total household, along with the opportunity dollars available, are rolled up by cluster to indicate which cluster offers the greatest sales potential. Which cluster to target first is also based on demand gapping, which uses consumer demand and demographics to quantify opportunity gaps based on store size and sales potential. Finally, only the clusters with the greatest upside sales potential will need to have a unique marketing plan at the end of the category review.

Category ShareCast adds new insight into the Scorecard phase of the process, too (step 7). Changes in share of wallet become a benchmark for measuring if the tactics chosen have had the intended impact.

Loyalty marketing is complex, but with Spectra’s solutions, gaining perspective on household spending behavior and on your shopper’s category-level spending inside your chain and within the marketplace has never been easier.

Now that the loyalty marketing department has a deeper knowledge about their customer’s loyalty, including how much of their shoppers’ total spending they are capturing by category and the relative importance of specific customer segments and store clusters, the next step is relatively straightforward.

Retailers need to bridge the internal knowledge gaps within their business if they are to effectively focus on consumers. Spectra Category ShareCast powered by Homescan enables loyalty marketing professionals to engage their peers in category management in a conversation about the customer and share actionable insights for incorporation into sales planning and merchandising.

Reaching $1.7 Million in Hidden Sales—A Loyalty Case Study
The following case study illustrates how one client (whose name is masked) incorporated share of wallet metrics from Spectra Category ShareCast into the Consumer-Centric Category Review Process.

During a review of their frozen pizza category, Save-a-Ton expected to find that the category was over-developed in their stores and that there was not significant upside potential. During the assessment phase of the consumer-centric category review process, they used category-level share-of-wallet and Spectra demand gapping to uncover $1.7 million in hidden upside sales potential in two store clusters, totaling approximately 200 stores.

This upside was obtainable by reallocating space in two planograms—one cluster needed more “gourmet” pizza space, and the other needed more “value” pizza space. The switch was pretty simple: expand the “gourmet” space in the upscale cluster by taking space away from the “value” pizzas—and do just the reverse in the other cluster.

When making their promotional plans for the category, the retailer included loyalty promotions targeted at the households most likely to purchase the particular pizza products (rather than a broad scale price reduction or coupon drop) and developed tracking measures in their scorecards for category-level share-of-wallet information from Spectra Category ShareCast to evaluate the success of the changes and promotions over time and relative to their original levels.

If you have any questions on how Spectra can help you achieve your loyalty marketing objectives and improve your category management process, call John Chesak at 312-583-5139 or email john_chesak@spectramarketing.com.