The role of CRM within retail loyalty marketing - Springer Link

In narrower terms, CRM is oftendefined in terms of the technologyinvolved.

‘CRM is an information industry term formethodologies, software, and usually Internetcapabilities that help an enterprise managecustomer relationships in an organized way.For example, an enterprise might build adatabase about its customers that describedrelationships in sufficient detail so thatmanagement, salespeople, people providing a

INTRODUCTIONThere are many definitions of customerrelationship management (CRM). Inbroad terms, Galbreath proposes thatCRM refers to the:

‘activities an enterprise performs to identify,select, acquire, develop, and retainincreasingly loyal and profitable customers’.1

This implies that CRM may have animpact on all business activities.

290 Journal of Targeting, Measurement and Analysis for Marketing Vol. 12, 3, 290–304 � Henry Stewart Publications 1479-1862 (2004)

The role of CRM within retailloyalty marketingReceived (in revised form): 1st December, 2003

Richard Cuthbertsonis a senior research associate at Templeton College, University of Oxford, working on a variety of research projects relating tothe strategic modelling and analysis of retailer–consumer and retailer–supplier systems, operations and relationships. He has awide variety of professional experiences working both in industry and academia, in managerial, consulting, research andteaching positions.

Arttu Laineis the Chairman of Prisma supermarkets in Estonia, part of the SOK Group in Finland. He spent a year on secondment to theOxford Institute of Retail Management at Templeton College, University of Oxford, researching the successful use of individualcustomer information within major European retailers.

Abstract This paper aims to provide an understanding of how a retailer’s overallloyalty marketing strategy influences the importance of different customer relationshipmanagement (CRM) activities, and provides an insight into the role of CRM withinloyalty marketing. From the strategic perspective, CRM may potentially provide benefitsfor customers, retailers and suppliers, not only in commercial terms, but also in terms ofindividual and organisational learning and development. These benefits anddevelopments are not, however, universal. By classifying different loyalty marketingstrategies, it can be shown that CRM plays a different role within an organisationdepending on the marketing strategy adopted. This may have implications formanagerial decision making throughout the CRM development life cycle, in terms ofappropriate hardware and software platforms to the most relevant analyses andperformance measures to adopt. CRM activities may be very effective in enhancingcustomer loyalty for profit. This can only be achieved through understanding therelevance of such tools and techniques to the overall loyalty marketing strategy andapplying them accordingly. Different priorities should be given to different CRMactivities, depending upon the particular retail situation.

Richard CuthbertsonOxford Institute of RetailManagement, TempletonCollege, University ofOxford, Kennington Road,Oxford OX1 5NY, UK

Tel: +44 (0) 1865 422 590;e-mail: [email protected]

costs, especially those relating toinformation systems; measure the results;and learn.

More focused work tends toconcentrate on the performancemeasurement and the data analysis aspectsof CRM, such as Hirschowitz’s‘transforming customer insight intocustomer value’8 and Starkey andWoodcock’s ‘REAP’ (retention,efficiency, acquisition and penetration)measurement.9

This paper aims to link these twoareas, by providing an understanding ofhow a retailer’s overall loyalty marketingstrategy influences the importance ofdifferent CRM activities, and provides aninsight into the role of CRM withinloyalty marketing.

METHODOLOGYThis research is primarily based on 16interviews with leading Europeanretailers or their CRM advisers,supported by secondary information. Theinterviews were conducted over a periodof time up to March 2003, with seniormanagers in charge of loyaltyprogrammes. Averaging around 40minutes, the interviews ascertainedopinions on the retailer’s overallmarketing strategy and the major rolesthat CRM plays within the organisation.While this research method providesinsight into the strategies adopted bydifferent retailers, its major weakness liesin the subjective and confidentiallysensitive nature of the responses. Wherepossible, quantifiable figures and evidenceto back up the views disclosed wererequested. In order to comply withconfidentiality agreements, however,quotes given from the interviews havegenerally been made anonymous.

The retailer sample includes a varietyof sectors, though it is focused ongrocery. The different product categories

service, and perhaps the customer directlycould access information, match customerneeds with product plans and offerings,remind customers of service requirements,know what other products a customer hadpurchased, and so forth.’2

In either case, CRM aims to providethe necessary knowledge for theretailer’s proposition to reflect individualcustomer requirements. It should benoted, however, that the nature of theprocess of data capture and customercontact may be as, or more, importantthan the information captured. This isbecause customers act both rationallyand emotionally. Customer loyalty ismore likely to be gained when thecustomer is won over by both arational argument, such as lowest priceor highest quality, and an emotionalbond, such as feeling good shopping ata particular store. This is summarisedby Brian Woolf, who stated that ‘Manis an economic animal in search ofself-importance’.3

So, the way in which CRM isimplemented is crucial, especially givenCRM has the potential to be veryexpensive and it has been claimed that‘industry studies show that 60% of CRMsoftware installations fail’.4

There are many reasons given for suchfailures, often relating to CRM beingdriven by information technologistsrather than marketers, as Mitchell states,‘The real problem with CRM is that itis not a marketing-driven concept’.5

Indeed, there are many CRMpractitioners and researchers outlining thekey issues in CRM, such as Davids’‘How to avoid the 10 biggest mistakes inCRM’,6 and Barlow’s ‘Loyalty marketing:What is its role in a CRM world?’.7

Such articles are broad in scope and tendto offer similar generic advice: themarketer should make sure they knowwhy they are using CRM; manage the

� Henry Stewart Publications 1479-1862 (2004) Vol. 12, 3, 290-304 Journal of Targeting, Measurement and Analysis for Marketing 291

The role of CRM within retail loyalty marketing

THE VALUE OF A CRMAPPROACHBefore evaluating the application ofCRM in practice, it is worth noting theimportance of the data capturedcompared to other data sources. In theinterviews with retail practitioners, theimproved understanding provided by datacaptured using a loyalty programme ismade clear in the following quotes.

‘One of the first learning experiences wasthat what people said was different to whatthey actually did. They would say yes or noto something, but their behaviour wasdifferent.’

represented may be grouped as shown inFigure 1.

The retailer sample covers a numberof countries, though it is focused on theUK. The main countries represented areas shown in Figure 2.

Thus, a range of retailers is considered,though any results cannot be consideredstatistically significant. The aim, however,is to provide some useful insight into therole that CRM plays within suchorganisations, and hence proposes aframework relating to best practice,rather than developing prescriptivesolutions that are likely to be limited intheir application.


Cuthbertson and Laine

Figure 1 Retailer sample, main product sector

Figure 2 Retailer sample, main countries of operation

11

3

2

1

1

2 2

2

8

Department/variety store

Financial services provider

Grocery

Health and beauty

Petrol

Third party

UK and Ireland

Mainland Europe

Nordic countries

internal, learning and growth. In thisadaptation, the:

— customer perspective focuses ondemand issues, and in particular onthe goals of the key customers, whorepresent the retailer’s financialobjectives;

— internal perspective focuses onmanagement, systems andorganisational issues, and in particularon ensuring the constant supply andprovision of the customer proposition,that fulfils the key customers’ goalsand hence the retailer’s financialobjectives;

— learning and growth perspectivefocuses on future development, and inparticular on the learning required tocontinually develop a successfulcustomer proposition, that fulfils thekey customers’ goals, and hence theretailer’s financial objectives;

— financial perspective focuses on theshareholder view of the retail firmand, in particular, on the financialobjectives of a retailer’s vision andstrategy.

Customer perspective

From the customer perspective, theretailer–customer relationship may bedeveloped in a number of ways usingCRM. The various tactics may beclassified as offensive or defensive.

Offensive CRM tactics aim to increasecustomer expenditure, either on existingpurchases or through the introduction ofnew purchasing opportunities. Forexample, retailers may attempt todevelop customer spending on existingpurchases by relating the size of a rewardthreshold to a percentage increase inexisting spending patterns. Similarly, newpurchase opportunities may be based onfilling a perceived gap in existingpurchasing patterns.

‘[In our in-store surveys,] most customerswould claim that they visited weekly. Thereality was less than twice a month [asshown by our loyalty card data]. Customersfelt that they visited [the store] weeklybecause they walked past it [on the HighStreet] every week.’

‘Customers will always tell you somethingthat they think you want to know. Acustomer that is less affluent is not going toadmit that they go in and buy [the] cheapestpossible products, because they have apersonal image and they don’t wish to saythat. You have to interpret that data.Whereas [with] our data, we know exactlywhat they have bought, therefore it’s a lotmore accurate, a lot more valuable, there’s alot more in it.’

‘Measurement of promotions would becomemuch more difficult. We would not be ableto look at how we are affecting differenttypes of consumers; we would only be ableto see that these promotions produce anuplift in sales on an aggregate level. Wewouldn’t be able to see who was respondingto it, whether it was [a] change from otherproducts.’

Thus, a loyalty programme provides datathat are both trusted, as a true reflectionof customer’s actions, and in-depth,allowing for analysis that focuses on thecustomer, rather than the store orproduct.

THE STRATEGIC PERSPECTIVEThe use of CRM is both varied andextensive. The interviews with retailers,and associated third parties, provideexamples of CRM in practice. Tostructure the responses and to reflect thestrategic impact of employing CRM, anadaptation of Kaplan and Norton’sarchitecture for a balanced scorecardapproach to management strategy10 isemployed. This identifies the followingkey perspectives: financial, customer,



enhance, adapt or enforce the retailer’sproposition. The associated supply issuesin a retail environment can be dividedinto two major groups: product rangeand supplier relationships.

CRM can potentially provide apowerful information base from which tonegotiate and work more effectively withsuppliers, whether the information isfreely shared, traded or kept secret bythe retailer, as the following exampleshows.

‘In the cake market, our [supplier] has beenin a position to suggest we reduce the range.In narrowing the range, however, it isessential to ensure that the candidates forreduction include those products that havethe lowest customer loyalty or are mostfrequently substituted, and not simply thoseproducts with the lowest sales and lowestprofitability.’

At the product level, CRM potentiallyprovides retailers and suppliers withvaluable information for measuring andimproving the effectiveness of themarketing mix: product, place, price andpromotion, as the following exampleillustrates.

‘A supplier of yoghurt was able to identifysome areas of under-distribution based on ananalysis of repeat sales of similar products.We were able to make the change based ontheir understanding in [our] stores.’

It is worth noting that third-partyinformation may be additionallyemployed to understand fully externalreasons for any changes in demand.

Learning and growth perspective

One of the major advantages claimed byCRM solutions providers is that CRMmay provide a powerful platform fromwhich to understand customers betterand so improve the retail proposition

Defensive CRM techniques aim tomaintain current customer expenditurelevels. For example, the impact ofpricing changes by competitors may beanalysed to ensure that any resultingprice changes by the retailer concernedare optimised. Likewise, lost customerexpenditure may be targeted byautomatically triggering an incentivewhen there is a certain percentagedecline in an individual customer’spurchasing levels.

Furthermore, customer profileinformation, as well as customer salesinformation, may be used in developingsales. An example from a practitionerfollows.

‘X manufacturer wanted to promote productY . . . We then [identify] people who boughtchildren’s clothes (the size suggesting the ageof their children) that would like to look atY. We worked out this population whocould buy Y. We then promoted to themand we sold more Y than any other retailerin the country. We continue to enjoyenhanced sales. That was a very costeffective promotion.’

While such ‘success stories’ appear toillustrate that CRM can be veryeffective, retailers are more reticent todiscuss ‘failure stories’. Moreover, theytend not to include the overall cost ofrunning such schemes. It should also benoted that while CRM databasesrepresent a huge potential for analysingindividual customers, this may only be atechnical capability, rather than actualpractice. From the authors’ experience,customer analysis is usually carried out ata group level, while customercommunication may be tailored to theindividual.

Internal perspective

From the retailer’s perspective, there aremany areas where CRM can be used to



might be exploring the opportunity tosell toys to customers buying children’sclothes.

Financial perspective

The retailers interviewed were very waryof discussing the financial perspective ofCRM in detail. What emerges is thatwhile measures of financial performanceare mixed, it is agreed that a loyaltymarketing programme is a long-termcommitment and may require extendedfinancial investment.

Earlier research by Cuthbertson12

suggests that efficient store-based schemesappear to break-even when turnoverincreases by around 3 per cent to 4 percent. How quickly each scheme reachesthis point depends on several factors suchas: the set-up costs, the take-up of thecard, as well as the overall turnover andprofitability of the retailer.

Apart from the operational costs ofloyalty marketing, another cost occurswhere retailers offer rewards to theircustomers. This can be extremelyexpensive and may appear to dwarf othercosts, though it may include a largedegree of supplier funding. On the otherhand, loyalty marketing may providevaluable information that enables abusiness to reduce costs, such asinventory managers, merchandisers,buyers and suppliers. This positivecontribution may be significant.

Clearly, some retailers consider thecosts of CRM approaches to outweighthe benefits, as Safeway, UK, concededin 2000:

‘We have benefited from the loyalty card,but in the last 12 months we don’t think thebenefit has been anywhere near the £50million cost.’13

It is difficult, however, to calculateindependently the effect of running a

accordingly. In theory, retailers employingloyalty programmes can segment theircustomer base down to individualcustomers, and practise one-to-onemarketing, as advocated by Peppers andRogers.11 In practice, however, apartfrom personalisation for direct mailings,the number of segments used is generallylimited, typically between ten and 100,though for some detailed research it maybe much higher.

All retailers interviewed confirmed thattheir customers are all different, but oftencorrespond to Pareto models, as in thesetwo examples.

‘70% of the sales came from 30% of thecustomers, 80% of the profit came from 20%of the customers.’

‘The top 20% to 25% of customers willaccount for 50% of the profit. The top 40%of customers usually work out at 90% of theprofit.’

Understanding such differences helps tofocus the retail proposition on the keycurrent and future customers. Theinterviewed retailers aim to translateincreased understanding of currentcustomer behaviour into a more effectiveand efficient marketing strategy in thefuture. Moreover, CRM tools may beused to identify and exploit new growthopportunities, as illustrated by thefollowing comments.

‘We identified very early on, for a [largenumber] of shoppers there weren’t manyholes in the basket. So . . . what do I do?Answer: sell [them] something else . . . So weposed the question very early on of how doyou expand the range of services that youoffer.’

The key to exploiting fully theseopportunities for growth appears to bethe identification of current customercharacteristics that closely relate to a newproduct or service. An obvious example



CRM IN PRACTICEThere are many CRM tools available toretailers, from full-scale enterprise-widesolutions, such as Siebel, to subscriptionservices, such as Experian’s Truvue. Thisis a continually evolving field. Thepotential use of CRM is thereforeextensive, ranging from the moreobvious direct marketing initiatives tomuch broader issues, such as retailerpower within the supply chain. In reality,despite the huge capability of the toolsavailable, the use of CRM techniques isgenerally more limited, as shown inLaine’s14 summary of the use ofCRM-based individual customerinformation (ICI) by certain groceryretailers (Figure 3).

As might be expected, the generalprocess usually begins withexperimentation followed by mainstreamadoption.

In order to understand the importanceof any of these CRM activities for aparticular retailer, it is necessary to

CRM programme, though somecompanies, such as KPMG, do offer sucha service. For example, a scheme mayprovide the vehicle for a promotion, butthe scheme is just one part of the retailermarketing mix so it is difficult toseparate out the cost of implementingthe scheme.

In the final analysis, how much aretailer is willing to invest to achieveloyalty objectives and how long it canafford to wait for the results are clearlycrucial, as shown in this quote.

‘Our competitor’s advantage is that they aredoing so well, and they are getting verygood press. They can afford to try thingsand fail . . . what if we start launching allthese initiatives and they fail? Whatever wedo has to be a success.’

This illustrates the fact that CRM is verydependent upon the retailer’s ownbusiness situation and the customers thatthey are trying to reach.



Figure 3 Summary of the use of individual customer information

Selective examples of the use of ICI Mainstream Experimental

Understanding the customerMass/aggregate level analysisSegmentation based on 'what you eat'Single view of a customer across channels

Improving and running the schemeCommunication

Increase customer spendIncrease spend by spotting 'holes in the basket'Acquisition and reactivation of customers

Testing and making campaignsMeasuring campaigns

Location analysisRanging and merchandising

Ranging stores differentlySupport refurbishmentsEvaluate productsPrice elasticity

New growth opportunitiesDiversification ideasCross-selling across channels

Local marketing

transactions, regardless of whichindividual retailer benefits;

— purge loyalty strategies are primarilyaimed at the retailer purging allunnecessary costs and focus onproviding all customers with thelowest possible price.

An individual retailer may have elementsof more than one of these strategies,though there will usually be a focus onone or two. For example, Tesco in theUK, while clearly focused on price andproduct, can be considered to have acombined push and pull strategy as far asloyalty marketing is concerned. TheTesco Clubcard loyalty programmeincludes partner organisations, such asMarriott, Beefeater and Powergen, wherecustomer spending accrues points on theTesco Clubcard, thus pulling thecustomer towards Tesco, where some ofthe benefit accrued in the form ofmoney-off vouchers can be redeemed. Atthe same time, Clubcard members mayalso collect points towards third-partyoffers, such as the collaboration with AirMiles providing travel products. Theseoffers pull the relevant Air Milescollecting customers towards Tesco.

At this point, it is worth noting thatthe purchase loyalty strategy is notadopted by retailers per se, but ratherby coalition loyalty programme

understand their overall loyalty marketingstrategy.

LOYALTY MARKETINGSTRATEGIESThe purchaser-purveyor loyalty matrixdeveloped by Cuthbertson and Bell15

proposes five distinct loyalty marketingstrategies: pure, pull, push, purchase andpurge. The matrix axes consider thecustomer (purchaser) and retailer(purveyor) view of loyalty schemes, andcan be represented as shown in Figure 4.

Different loyalty strategies areappropriate for different retailers,depending upon their marketing mix andcompetitive position. In brief:

— pure loyalty strategies are primarilyaimed at existing customers and focuson the retailer’s product and serviceoffer;

— push loyalty strategies are primarilyaimed at pushing customers towardsthe retailer and focus on the retaillocation or channel;

— pull loyalty strategies are primarilyaimed at pulling customers towardsthe retailer or particular purchases andfocus on retailer promotion;

— purchase loyalty strategies areprimarily aimed at increasing thenumber and value of purchase



Figure 4 The purchaser-purveyor loyalty matrix

Purchaser: customer card usage

Single retail brands Many retail brands

Retailer offer only Pure Push

Ret

aile

r lo

yalty

off

er

Extended offer Pull Purchase

Price-led offer Purge

‘Let’s say that weekly you might typicallyspend £7, you [might] get an £8 coupon.So the coupon is aimed at a very reasonablelevel for you, but actually the coupon paysfor itself by the fact that you actually spendthe extra money to get the money off.’

Key measures tend to be focused onincreasing the expenditure andprofitability of existing customers.Successful pure loyalty strategies tend torely on excellent customer specificmarketing, based on loyalty (or store)card information.

From the discussions, a typicalexample of the relative importance of thedifferent roles of CRM may berepresented by Figure 5.

Pull loyalty strategies

Pull loyalty strategies are often adoptedby retailers where their core productrange is largely considered asinterchangeable with those ofcompetitors, and the promotion of theretail brand, often through associationwith other brands, is crucial to pullcustomers towards the retailer. Thus,communication and promotion areemployed as a means of differentiatingbetween otherwise similar retail offers.For example, petrol or grocery retailers,such as Shell (Clubmart) in Germany orAlbert Heijn (Bonuskaart) in theNetherlands, may follow a pull loyaltymarketing strategy (often in combinationwith a push loyalty strategy).

Any information captured by theretailer may be useful in such a strategy.CRM must be employed to ensure thatthe offer is differentiated. For example,CRM is particularly useful in developingpromotional activities as a means ofdifferentiation. The impact of differenttypes of campaigns for different customergroups can be accurately measured.There can be an audit trail to measure

providers, such as Nectar in the UKor Payback in Germany, or by financialservice providers, such as MasterCardor Visa. In either case, loyalty isfocused on the card, and the associatedtransactions, rather than any particularretailer.

From this research, it is possible toindicate the key measures andinformation issues, as well as the relativeimportance of different uses of CRMbased on the loyalty marketing strategyadopted by a retailer.

Pure loyalty strategies

Pure loyalty strategies are often adoptedby retailers where the physical exchangeof product and service with a particularretailer is crucial. The service providedby store staff plays a critical role in suchrelationships. For example, departmentstores, such as John Lewis (AccountCard) in the UK, often follow a pureloyalty marketing strategy.

Much of the communication andinformation shared within thisrelationship is qualitative, and includesthe way in which staff dress andapproach customers, as well as anyquantitative information exchanged.While this situation provides manyopportunities to strengthen the emotionalelement of the retailer–customerrelationship, it may make it difficult totrack the relationship over time. Thus,the development of a loyalty schemeshould be carefully considered. SomeCRM techniques can be employed toincrease customer spending based on anunderstanding of past customerexpenditure.

For example, using CRM techniques,retailers may attempt to increase previouscustomer spending levels by relating thesize of a future reward threshold to pastspending patterns, as shown in thisquote.



High redemption rates are mentioned asone of the valuable learnings, whichencourage retailers to do more analysiswith the customer data available and sodifferentiate further by offering highlyrelevant promotions.

Detailed customer informationidentifying which customers buy whichproducts may also be important tosuppliers, as it helps them to developdifferentiated products and promotionsrelevant to particular customer groups, asthe following quote illustrates.

‘What we intend to do is basically giveweekly web-based reports to manufacturerson their product performance. So rather thansend them the raw data, we’ll send themreports: this was the promotion, here are thedemographics of the people who have takenup the promotion. Here is what we thoughton who would take it and didn’t take it etc.Very valuable.’

Key measures tend to be focused onincreasing the expenditure and

the impact of a campaign, enabling theretailer to act appropriately, as thefollowing quote suggests.

‘We gather our data every night and thenext day we start populating our databases.We can see success within 24 hours for aparticular campaign . . . We can actuallyrecreate all those campaigns and calculatewhat the value was. You can measureexactly what you get.’

Customer incentives and rewards can bebased on the analysis of similar customersor promotions. Importantly, the impactof such incentives can be accuratelymeasured. Moreover, redemption ratesfor targeted customer groups are usuallyhigher than in broad non-targetedpromotions. For example,

‘As we get to know the customer better, thetargeting . . . gets more and more relevant . . .The redemption levels are so high and varyvery dramatically across areas. For example,redemption is about 70% [in one category].’



Figure 5 Example of relative importance of CRM practices — Pure loyalty strategy

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4

5

Understanding current customers

Understanding potential customers

Overview of all customer spend

Increasing existing customer spend

Filling gaps in the basket

Acquisition of new customers

Reactivation of customers

Tailored promotionsLocation analysis

Product merchandising

Product range decisions

Price elasticity

Comparative pricing

New product development

Cross-selling from other parties

Pure

1 = not important

5 = highly important

the retailer. In overall retailing terms,this usually means providing a largestore network across a range of formatsto meet different customer purchasingneeds. In terms of loyalty programmes,this often means that benefits accruedat one retailer may only be spent atthe target retailer. Customercommunication is critical in pushingthe customer in the right direction.For example, petrol or grocery retailers,such as Tesco (Clubcard) in the UK,may follow a push loyalty marketingstrategy (often in combination with apull loyalty strategy).

Any information captured by theretailer may be useful in such a strategy,especially location-related information.CRM must be employed to ensure thatthe retail offer is visible, accessible andrelevant to the local customer. CRM canplay a major role in tailoring theproposition for the relevant marketplace.For example, no product may be

profitability of existing customers, whilesimultaneously attracting new customers.To continue to increase the expenditureof existing customers, successful strategiesappear to rely on excellentcustomer-specific marketing based onCRM data. To attract new primarycustomers, good external marketresearch, or excellent marketing instincts,may also be required.

From the discussions, a typicalexample of the relative importance of thedifferent roles of CRM may look asshown in Figure 6.

Push loyalty strategies

Push loyalty strategies are often adoptedby retailers where their core productrange is largely considered asinterchangeable with those ofcompetitors, and the visibility andaccessibility of the retail brand iscrucial in pushing customers towards



Figure 6 Example of relative importance of CRM practices — Pull loyalty strategy

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4

5











Price elasticity

Comparative pricing



Pull

1 = not important


locations. Such strategies tend to rely ona combination of external marketresearch, as well as CRM-basedinformation.

From the discussions, a typicalexample of the relative importance of thedifferent roles of CRM may look asshown in Figure 7.

Purchase loyalty strategies

Purchase loyalty strategies are notadopted by retailers per se, but rather bycoalition loyalty programme providers,such as Nectar in the UK, or byfinancial service providers, such asMasterCard. In either case, loyalty isfocused on the card, and the associatedtransactions, rather than any particularretailer. The key is to provide thecustomer with a range of retailopportunities that closely fit thecustomer’s profile. Thus, CRM not onlyprovides the communication platform forcross-selling, but also for understanding

de-listed at a local store before analysingwho actually buys it.

‘We analysed who buys these [products] andit appeared it was just the top 20% [ofcustomers]. So . . . it was a very importantproduct. Our best customers wanted to buythat product. If they couldn’t buy that, theywould have gone somewhere else to buythat product. If it had been de-listed becausethe manufacturer had stopped making it, wewould then have said to those customers[that] we are very sorry, but themanufacturer has stopped producing thisparticular product, here is an alternativeproduct and here is a voucher for you to tryit. Because we don’t want to lose them.’

Furthermore, following such a strategymay not require changing the overallproposition, but rather emphasising theelements that appeal to a particularmarketplace.

Key measures tend to be focused onattracting potential customers andassessing the suitability of different



Figure 7 Example of relative importance of CRM practices — Push loyalty strategy

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Price elasticity

Comparative pricing



Push

1 = not important


new customers. Such strategies tend torely on the power and validity of theanalysis of the retailer-combinedCRM-database. From the discussions, atypical example of the relativeimportance of the different roles ofCRM may look as shown in Figure 8.

Purge loyalty strategy

Purge loyalty strategies are often adoptedby retailers where the focus is onproviding an Every Day Low Price(EDLP) strategy. This strategy is oftenheavily reliant on supply rather thandemand issues, particularly in terms ofbuying. Economies of scale are a distinctadvantage. For example, generalmerchandise retailers, such as Wal-Martin the USA, may follow a purge loyaltymarketing strategy.

With such an emphasis on price andtherefore cost, CRM tools are often seenas too costly in this approach. Large

customer needs, so recruiting (ordelisting) the necessary retailers toprovide those customer needs. In theory,this may benefit both customer andretailer.

‘Rob Gierkink, the chief executive ofLoyalty Management UK, which runsNectar, is adamant his approach is superiorbecause with the opportunity of earningpoints at nine different companies, customerscan clock up more points, more quickly. . . .Although the cons of a multiple-memberscheme mean that customers are loyal toNectar rather than the individual retailingbrand, Mr Gierkink says the pros includeaccess to vastly more data about shoppinghabits at a far cheaper cost . . . Using Nectar’sdirect mailings, which go to 12 million UKhouseholds, the likes of Sainsbury’s can targetpeople who currently buy their grocerieselsewhere.’16

Key measures tend to be focused onup-selling, cross-selling and attracting



Figure 8 Example of relative importance of CRM practices — Purchase loyalty strategy

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4

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Price elasticity

Comparative pricing



Purchase

1 = not important


marketing strategy adopted. This mayhave implications for managerial decisionmaking throughout the CRMdevelopment life cycle, in terms ofappropriate hardware and softwareplatforms to the most relevant analysesand performance measures to adopt.

CRM clearly has the potential to helpstrengthen loyalty and build profitability,though it can be very expensive toimplement. CRM techniques allow theretailer to focus on developing customerprofitability, rather than aggregateprofitability. This allows for a moretargeted use of marketing and operationalresources. Furthermore, loyal andprofitable customer activity can betracked to facilitate continually relevantretail development. Thus, CRMactivities can be very effective inenhancing customer loyalty for profit.They cannot, however, create it on theirown. This can only be achieved throughunderstanding the relevance of such toolsand techniques to the overall loyaltymarketing strategy and applying themaccordingly. Different priorities should begiven to different CRM activities,depending upon the particular retailsituation.

AcknowledgmentsThis paper is based on some of the work from theLoyalty 4 Profit research programme sponsored byKPMG International. Further information may be foundat www.loyalty4profit.com.

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4 Crosby, L. A. and Johnson, S. L. (2000) ‘What todo before going 1-to-1’, Marketing Management, Vol.9, No. 4, pp. 15–21.

5 Mitchell, A. (2003) ‘CRM failing as it yieldsone-sided relationships’, Precision Marketing, 31stOctober, p. 14.

6 Davids, M. (1999) ‘How to avoid the 10 biggest

amounts of data may still be collectedbut at store and product level, ratherthan at the customer level.

‘Wal-Mart has created what analysts believeis the largest and most complex commercialdatabase. The Arkansas-based companyrecently doubled the size of its central datawarehouse, which can store and analysemore than 200 terabytes of information. . . .Put another way, the Wal-Mart databasecould store all the books and records in theLibrary of Congress — twenty five timesover.

Such scale is one of the more dramaticaspects of the rapid accumulation bycompanies of information about sales andcustomers . . .

Companies such as Wal-Mart regard theability to analyse huge quantities ofinformation as a strategic asset. Its database isthe foundation of a sophisticated system thatenables the company to track and predictdemand for consumer products.’17

Key measures tend to be focused onincreasing the price competitiveness ofthe retailer’s product offer. This tends torequire excellent external market researchon competitors, rather than CRM-basedinformation. Thus, the relativeimportance of the different roles ofCRM are all marginalised.

CONCLUSIONThis paper provides an insight into therole of CRM within loyalty marketing.From the strategic perspective, CRMmay potentially provide benefits forcustomers, retailers and suppliers, notonly in commercial terms, but also interms of individual and organisationallearning and development. These benefitsand developments are not, however,universal. By classifying different loyaltymarketing strategies, it can also be shownthat CRM plays a different role withinan organisation depending on the



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12 Cuthbertson, R. (2000) ‘Loyalty cards: A researchreport on loyalty cards in European retailing’,KPMG, London.

13 Hollinger, P. (2000) ‘Safeway announces the emperorhas no clothes’, Financial Times, 5th May, p. 29.

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The role of CRM within retail loyalty marketing - Springer Link