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AFFINITY CARDS

The theory behind these cards is to augment the customer’s

’relationship’ with their credit card by giving them a card endorsed by

a company or organisation which reflects their interests. The US market

is more advanced with cards offered through alumni associations and golf

clubs, but the UK is catching up. Manchester United and the Royal

Society for the Protection of Birds now offer cards, but the most

successful example is probably the Goldfish card on offer from British

Gas and HFC Bank.

AFFINITY PARTNERSHIPS

An increasingly popular trend in relationship marketing is for two

well-known brands to combine to create an even more attractive

proposition. This combination of prospective customers, in theory,

benefits both parties. Successful examples include the private medical

insurance tie-up between PPP Healthcare and the AA which generates

significant revenue for both parties (we’re talking millions). Customers

get reduced rates and the companies benefit from the pooling of customer

databases.

CLUSTERS

Groups of individuals with shared characteristics, based on demographic

and socio-economic indicators. The most common cluster classification

systems in the UK are those offered by CACI (Acorn, Lifestyle Plus),

CDMS (Superprofiles) and CCN (Mosaic).

CUSTOMER CARE LINES

The rush into care lines over the past two years is based on the view

that a key contributing factor to attaining and retaining a customer is

accessibility, with the phone acting as the ultimate connection tool.

According to David Perkins, chief executive of Carlson’s loyalty

division, ’true customer care lines or customer service centres are

where the customer can reach into the organisation and get it to

respond’. He cites BA, where a detailed customer record can be accessed

by the phone operator.

CUSTOMER LIFETIME VALUE

This theory underpins the entire purpose of customer loyalty

schemes.

There is no finer example than the delivery of milk. Each daily delivery

is worth little, but expand the analysis over 40 years and the value of

that single customer to the delivery company can be as high as pounds

10,000.

Despite the obvious benefit of embracing this philosophy, it has taken

UK business a while to catch on.

CUSTOMER LOYALTY PROGRAMMES

’Loyalty programmes are data-driven schemes designed to attain and

retain new and existing customers through the use of personal preference

data.

The key is the offering of some form of reward in return for the

customer’s loyalty,’ says Mike Pearce, chairman of the customer loyalty

agency, TSM UK. The proliferation of schemes now on the market is,

however, in danger of achieving the opposite. Most consumers could fill

their wallet with the loyalty cards they have been offered, but the

simple fact remains that only a handful of schemes have been truly

successful. The view of the general public is that the rewards on offer

are not substantial enough.

CUSTOMER RELATIONSHIP

The term customer relationship has changed its meaning very rapidly over

the past few years with an increase in the number of companies dealing

directly with their customer base. In the past, the term quite often

referred to the way the consumer felt about a particular brand or

product. More recently, the term has come to mean the way a company

manages its communications with individual customers, from marketing to

sales to customer care. Colin Lloyd at the DMA says: ’This change in

emphasis has required companies to embrace sophisticated database

marketing techniques in order to provide a seamless transition between

marketing, sales and customer care. This process management has become a

fundamental part of most, if not all, progressive marketing

strategies.’

CUSTOMER RETENTION

’Customer retention should form the core of any marketing activities,’

explains Lloyd. ’The old truism that it is far more cost-effective to

retain a customer base than to recruit new customers has stood the test

of time. What is interesting today is the way that customer retention

systems are being used to cross-sell and for brand extensions. In fact,

brand extensions have become integral to many companies’ strategies for

retaining their existing customers, such as supermarkets providing

banking services.’

DATA CLEANSING

The main tasks are to de-duplicate and to ensure the accuracy of name

and address records. Previously a manual job, there are now numerous

software products designed to perform or help with this task, but they

are not infallible. Companies will never encourage a relationship with a

customer by consistently getting addresses wrong or opening their

communication with Dear Homeowner/Occupier.

DATA ENHANCEMENT

Getting the address details right is one thing, but the increased use of

databases over the past five years, the growth of the list rental market

and the strategic sharing of customer databases has had a dramatic

effect on the quality of customer data. Companies can refine and add to

their customer records/data with relative ease. There is a whole new

industry based around data matching, data mining, geodemographics,

lifestyle data and so on. All these techniques enhance the predictive

value of any data.

DATA MART

Data marts are subsets of information from the data warehouse (see

separate entry) relevant to a specific group of users. This data is

transferred to a separate server which eases traffic to the data

warehouse and allows users to analyse their own information.

DATA MINING

This is one of the few customer loyalty/database terms that makes

immediate sense. It is the process of identifying commercially useful

patterns or relationships in databases or other computer repositories

through the use of advanced statistical tools. Mark Roy of The REaD

group describes data mining as ’the search for the golden nugget. The

process of super-segmenting your client database to find an audience

that, when mailed, will always produce a profit.’

DATA PROTECTION

The Data Protection Registrar is duty-bound to protect the consumer

against the misuse of their personal information by database holders.

Companies using computer data for marketing purposes fall under the

governance of the DPR although ’business to business’ marketers are

exempt. David Allen, director of the database marketing company, Acxiom,

stresses the importance of data protection: ’Adherence to the Data

Protection Act ensures the integrity of the data industry and, most

importantly, that the industry has a future.’

DATA WAREHOUSE

The generic term for a system capable of storing, retrieving and

managing large amounts of corporate customer data. These databases,

frequently very large, are the dumping grounds and may contain several

databases and information from numerous sources in a variety of formats.

The most transparent example in this country is Sainsbury’s Reward Card

database, which holds a vast amount of information on not only its

customers’ buying habits but also on its overall sales, the results of

its promotional and marketing activity and geographic data.

DECISION SUPPORT TOOLS

Software tools designed to allow managers to make decisions by

reviewing, monitoring and manipulating the data. The only weakness with

decision support systems is that they are based on pre-selected data

relevant to the specific individual or department. Anthony Berry,

marketing director of Pilot Software, one of the leading companies in

the field, stresses that ’such tools are ever more important for modern,

forward-thinking businesses who are trying to generate greater levels of

loyalty and to better understand their customers’.

FIRST-CLASS CUSTOMER SERVICES

At times we want to be pampered and what better way to impress a

customer than providing them with the very best in service? Previously

the preserve of the very rich or very famous, first-class service can

now be enjoyed by the moderately rich. Spend pounds 3,000 or more on

your Selfridges store card and you will then be provided with your own

personal shopper to guide you through the store. Such schemes are likely

to form the new wave of customer loyalty inducement programmes.

GIS

Geographical Information Systems are used for handling maps of one kind

or another and they enable companies to view their customer data in a

visual, geographic context. The best example of the use of this is

within the supermarket sector. The combination of good, reliable

customer data and GIS allows the supermarkets to determine not only the

best situation for new premises but can enable analysis such as the

comparison of individual products and specific areas of cities, towns

and counties, thereby enabling more localised forms of product

marketing/loyalty building.

NEURAL NETWORKS

Due to the sheer volume of data now held on customers, more powerful and

intuitive analysis tools are a necessity. The type of artificial

intelligence offered by neural networks is the most advanced offering

available. Neural networks are intelligent systems designed to mimic the

thought processes of the human brain. They have a form of ’training’

rule whereby the weights of connections are adjusted on the basis of

patterns. In other words, neural networks ’learn’ from examples. Such

intelligent agents are the future of customer database analysis as they

throw up patterns and trends in data that humans are incapable of

recognising or identifying.

OBJECT-ORIENTATED DATABASES

The new generation of databases which are a step, if not a leap, ahead

of relational databases. These are much more flexible and support the

use of more abstract data types including sound, data, graphics and, at

their most advanced level, video files. This may sound extreme, but the

implications for customer loyalty are wide-ranging. In 18 months’ time,

companies could be in a position to record and store all phone calls

with their customers or to link all customer communications within one

database.

Expensive, yes, but effective? Definitely.

OVERLAYS

External data that can be merged with an existing database to create

better targeted marketing efforts. Although virtually any external data

can be used, typical data overlays include census information, which can

serve to create a clearer picture of the individuals on a database.

PARALLEL PROCESSING

The simultaneous use of more than one computer/computer processor to

analyse or mine information from a database. There are two main

benefits: speed and a significant increase in processing power.

POINTS SCHEMES

Points schemes started the ’loyalty’ revolution. They first came to

prominence on a national scale in 1990 with the introduction of the

Premier Points card by Mobil in partnership with Argos. They are still

very popular but, in this age of individual marketing, are regarded as a

little too simplistic for the modern consumer. The ratio of points for

pounds is still low and the public now expect a greater return on their

expenditure.

PROFILING

Analysis of customer data and records enables marketers to determine

characteristics of individual customers, thereby developing a customer

profile. This in turn allows companies to develop a general profile of

their customers. David Perkins at Carlson says that profiling for

customer loyalty schemes ’is about getting purchase behaviour from

loyalty programme data and linking it to geodemographic data, which

means that the profile is being constantly refined’.

RELATIONAL DATABASE

The most common database used by advertisers which shows customer data

in spread-sheet like tables. With one command, all the address records

with the same postcode or the same product history can be called up.

Data from other sources, such as competitor customers, can be added.

RELATIONSHIP MARKETING

A strategic approach to developing programmes intended primarily to

establish and maintain a lasting and profitable relationship between a

company and its customers. As Lester Wunderman famously said: ’Good

general advertising can shape a brand’s personality, but only direct

marketing can build ongoing, durable relationships ... and that’s where

the money is.’

SEGMENTATION

The process of assigning individual customers into profile

groupings.

This allows loyalty marketers to then develop targeted ’group’ marketing

activity. Mike Pearce of TSM points out that this is ’particularly

useful for companies hoping to improve their new product development and

overall targeting. Transactional data usually provides the base, but

when combined with geodemographics and lifestyle data, it is a very

valuable process.’

SMART CARDS

Smart cards are the customer loyalty equivalent of identity cards.

Usually made of plastic (although the Real Gold Card Company has just

announced an 18-carat gold-plated card for the UK market), they contain

a built-in microchip which gives the card a limited amount of

’intelligence’ and memory. The main application in the UK is for

point/reward-based loyalty schemes such as the Shell Smart Card, Air

Miles and Argos Premier Points.

’Smart cards can take two forms: the simple cheaper option such as a

payphone card and the more advanced cards with microprocessor chips

which are in fact miniature computers on a card,’ explains Emma Cooper

of the Active Branding Agency.

STAMPS, VOUCHERS AND COUPONS

Green-shield stamps may have made a comeback, but the leading retailers

have taken this to a new level. By analysing your buying habits through

your loyalty card, vouchers and coupons can be tailored to your

particular preferences. Boots claims that the success of its Advantage

Card led to an extra pounds 60 million in sales. No surprise then that

it has just ordered another one million cards through their card

supplier, GPT.

TERABYTE

This may sound like something out of Jurassic Park, but the birth of

this word is indicative of the growth in size of customer databases over

the past five years. A terabyte is about one trillion bytes, the byte

being the most commonly used measure of data storage capacity. You may

be familiar with the word ’gigabyte’, which refers to the storage

capacity of a PC . Well, a terabyte is one thousand times larger than

this. Tesco is believed to have a substantial data warehouse of well

over 20 terabytes.