Profit From Direct Marketing

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Sainsbury’s is among the UK’s most successful retailers. In 2002 the company re-launched its loyalty card as part of the Nectar scheme; with 11 million members, Nectar is now the UK’s largest loyalty card program. The huge volumes of customer data it provides is a valuable resource – but only if the data can be analysed, understood and translated into marketing action.

“Sainsbury’s has transformed itself into a customer-centric retailer,” says Richard Zanetti, Customer Segmentation Manager. “This process included building a new infrastructure and using SAS to optimise individual campaigns, plan campaigns and build relationships. As part of the mix SAS has helped Sainsbury’s direct marketing activity bring in five times more sales than was achieved two years ago. Direct marketing as a result of all of this analysis now generates several hundred million Pounds Sterling in sales a year,” says Zanetti. “That’s a good percentage of our overall sales.”

Turning customer insight into profit Since 1999 Sainsbury’s has collected data on all loyalty card members. However, according to Zanetti, “Retrieving and manipulating data was so cumbersome that potentially sub-optimal decisions would be made without including specific customer insight.” In UK retailing the battle for market share is fierce. While some retailers focus on offering low cost products, others want to learn about customers and then tailor and optimise the offer. Another issue is the cash value of Nectar points: 100 million (140 million) a year. The company has to make that back in incremental sales to justify the scheme. “Personalising is about effectiveness – some promotions will be more profitable than others,” says Zanetti. “If you can target the profitable people, you can make more money and more campaigns become feasible.”

Sainsbury’s now uses SAS analytics to support these activities, working against transactional data on seven million active customers that is stored in an NCR Teradata data warehouse. “This is the raw data – the richness is in what we do with it,” says Zanetti. The data is generated from loyalty card applications, demographics including age, gender, number of children, lifestyle data, mailing history, and product Ids and more.

“The loyalty card data gives us lots of the transaction data such as what people buy, when they buy it and how frequently they come into the store,” says Zanetti. Also whether the product was on promotion, how customers paid, any vouchers issued and redeemed, and so on – based on two years’ sales history including 15 billion items sold, one billion baskets and 1.1 billion payment lines tendered for 22 million Sainsbury’s accounts. “This is a huge amount of data,” says Zanetti. “In fact if you printed all that data out on a single checkout receipt it would go one and half times around the equator.

“We use that data for two key work streams: one which we call ‘broadcast’ is about the key variables in the store: pricing, promotions, where we stock products in the store, the quality of the product — the shopping experience, and the other is ‘personalised,’ where we communicate with individuals differently depending on their behaviour.” This means using the data to help people make better decisions: to understand different segments, put together tailored offers and deliver personalised communications, to see what elements of the marketing mix will pay off, and feeding into campaign management. “We report weekly to the board because the numbers involved are big,” says Zanetti.

“You might run a ‘spend-stretch’ campaign to increase basket size and frequency. We use the intelligence provided by SAS analytics to look at transactional behaviour, basket size, how much they spend and how often they shop with us. We segment customers into groups, do a trial mailing to maybe 30,000 people and perform post-campaign analysis – looking at the profitability of the offer and how it varies by segment. We use SAS(r) Enterprise Miner(tm) to run models to see the maximum sales possible and the maximum profit. We can determine the offer to focus on and what level will be most efficient.” Another benefit of SAS is that it integrates seamlessly with both the data warehouse and its associated campaign management tool.

Making marketing work better

To optimise individual campaigns, SAS calculates the return on investment for customers or groups, taking into account such factors as mailing costs, profit margins and any supplier funding. In post-campaign analysis, SAS models scrutinise the results, quantify the size of the ‘prize’ and show how both profitability and incremental sales may vary with the size of the mailing. “This forms a management decision tool,” says Zanetti. “Analysts can improve targeting, there’s an informed debate with campaign managers, and we can reduce effort and costs.”

In campaign planning and relationship building, Sainsbury’s can measure all programs and compare results, determine gaps and clashes, and personalise communications. “We collect data on who was mailed what and when,” says Zanetti. “We then build business rules that can include the payback period for a campaign, the profitability of response for groups or individuals, the time of year and so on. We use these as constraints to optimise the dataset. For a given budget you can calculate the direct marketing value in terms of sales and profit, run ‘what if?’ scenarios and generate a mailing program.” The result is tailored communications based on demonstrated behaviours, with all responses captured and used to drive future activities. Once a campaign is closed, SAS profiles respondents and provides predictive models for later campaigns.

Zanetti concludes, “SAS helps us achieve faster turnaround times in our campaigns. It’s an integral part of what we do. If we didn’t have SAS we would struggle to do our direct marketing campaigns at their current levels – and we wouldn’t have seen a five-fold increase in sales. It’s also easy to recruit staff able to use SAS, which means lower training costs. SAS is a universal tool.”

About Sainsbury’s Supermarkets Established in 1869 and part of J Sainsbury’s plc, Sainsbury’s Supermarkets Ltd is the UK’s second largest food retail chain, with 535 stores and annual sales of over 12 billion. J Sainsbury’s plc is a leading UK and US food retailer group with interests in financial services and property. Comprising Sainsbury’s Supermarkets and Sainsbury’s Bank in the UK and Shaw’s Supermarkets in the US, the group employs over 170,000 people.

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