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Beyond loyalty: Why retailers track your every purchase

Canadians have, on average, 8.2 loyalty cards, according to research by Kenneth Wong, a professor of marketing at the Queen’s University School of Business.

Fred Lum/The Globe and Mail

To get a sense of what might be the most underrated asset that Loblaw Cos. Ltd. is set to acquire in its bid for Shoppers Drug Mart Corp., consider this little-known relationship between diapers and beer.

Recently, a U.S. retail chain started noticing that some customers bought these products in conjunction. The realization led to a marketing opportunity that may have otherwise gone unnoticed – why not offer discounts on diapers to people who buy beer late at night?

"They were able to detect individuals who were male, shopping late at night," says Lori Bieda, executive lead for Customer Intelligence for the Americas division of SAS, a company that specializes in building tools that analyze large amounts of user data. "The baby was upset, they'd run out of diapers, and the man was sent out to get them and he thought, 'Well, hell, I don't want to be out getting diapers in the middle of the night, I'm going to buy a beer.'"

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The company discovered the diaper-beer connection by analyzing the massive store of data it collects from its customer loyalty "points" program. The relationship between the two products was far more than just an interesting quirk of human nature – it was a business opportunity to be exploited. For retail chains, such relationships are perhaps the single most significant advantage of loyalty and points programs.

Though few retailers in Canada sell diapers and beer, the principle stands. If Loblaw succeeds in purchasing Shoppers, the company will also acquire what is perhaps the best-run and most well-known points program of any brick-and-mortar store in Canada – a massive trove of data fed by the purchasing information of some 10 million active customers, close to one-third of the country's population. Within that data are countless insights about why customers buy what they buy, and what companies can do to exploit those purchasing habits.

"Shoppers does amazing things with their program," Ms. Bieda said. "It's not only about data. When you supplement data with the power of analytics, you start to see trends in the data, and you can use that to create more personalized marketing."

The Shoppers Optimum points program started in 2000. Retailers have been keeping tabs on their customers for as long as retailing has existed, but over the next 13 years, the rise of "big data analytics" – software tools that find trends and patterns within massive amounts of information – have changed how companies can exploit that information.

Using variants of the same tools that banks and insurance companies use to detect patterns of account fraud, retail chains in Canada and the U.S. mine their customers' shopping patterns looking for opportunities to personalize the shopping experience. For example, earlier this year, Shoppers began rolling out a personalized e-mail brochure to each of its loyalty card customers. The e-mails often contain offers not found in their general flyers, as well as limited-time discounts on the sorts of products that individual customers have purchased in the past.

"We've had the data for a while now and it has allowed us to make improvements within the store format, but now we're taking it to the next level," says Tammy Smitham, vice president of communications and corporate affairs at Shoppers. "We're giving them exactly what they're shopping for."

Shoppers isn't the only company deriving insights about its customers from big data.

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Aimia Inc., a Montreal-based loyalty management company that runs programs around the world (including Aeroplan) helps other retailers achieve the same result. Shauna Emerson-O'Neill, Amia's senior vice-president of strategy and innovation, points to an example of where loyalty data helped increase sales of a particular product. An Aimia client asked for detailed data on how its customers bought yogurt. Traditionally, the retailer arranged the product on its shelves according to size. But the data showed that yogurt consumers tended to buy the same type of the product, especially those buying Greek yogurt, even as the size of the yogurt tub varied. In response, the retailer began grouping the yogurt by type, rather than size, which made it easier for buyers to find the variety of their choice, and thus sales increased, Ms. Emerson-O'Neill said.

Ms. Bieda and Ms. Emerson-O'Neill couldn't identify the retailers they discussed because of client confidentiality.

In order to entice customers to give up their personal information, Shoppers, like many retailers, introduced a points system. Every time customers buy something from Shoppers, they collect points. Those points can, in turn, be redeemed at any time for discounts on just about anything in the store. Initially intended to build customer loyalty, the Shoppers points program has become a powerful tool in getting customers to spend more money. The company will often run promotions that offer points "multipliers," periods within which consumers can collect many times more points than they would outside of these periods.

"They oftentimes have these cut-offs you have to reach … to qualify for redemption, and so they set up a lot of marks for the customers to hit," says Andrew Ching, an associate professor of marketing at the Rotman School of Management. "So in a sense, they can turn this loyalty program into a game for the customers to play."

The way that customers collect and spend points has also become useful information. For example, Shoppers can now look at groups of customers such as "indulgers," who will horde their points until they have enough to buy something fancy for themselves. This prompts Shoppers to target those customers with bigger ticket items once their points total reaches a certain threshold.

Canadians have, on average, 8.2 loyalty cards, according to research by Kenneth Wong, a professor of marketing at the Queen's University School of Business.

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Indeed, Loblaw has one of its own, called PC Plus. Recently, the company has gone to great lengths to tailor the program to mobile devices such as smartphones.

"If my wife at home decides she needs milk she can enter it on our PC Plus application and it shows up on my BlackBerry so I can pick it up on my way home," says Mr. Wong.

A Loblaw spokeswoman declined to comment on this story because of the company's ongoing bid for Shoppers.

It is mobile devices that many loyalty program experts predict will mark the future of such services. Ms. Emerson-O'Neill of Aimia says more loyalty programs are likely to leverage real-time analysis – rather than spend weeks or months sifting through massive stores of data on the fly, companies will do so instantly, and use the results to send relevant coupons and offers to the customer's phone while the customer is still in the store or when they're still making up their mind about what to buy.

"A lot of the pondering that leads to purchases is made at home on the couch. It's done from an iPad or an iPhone or a laptop," she says.

"It's about being there pre-, during and post-purchase."

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