TheAdvisor - Actionable Intelligence from MasterCard Advisors

ISSUE 1 • 2007 Case Study

Merchants Team Up to Boost
Customer Loyalty and Sales

What do home improvement, home furnishings, video rental, and restaurants have in common? More than meets the eye. Although merchants that offer these services are in distinctly different businesses, they share a signifi cant number of customers who are surprisingly alike: people who are fixer-uppers, shop for home furnishings, rent movies, enjoy dining out, and are considered fairly well-off.

Understanding populations that share similar demographics, preferences, and behavior—which MasterCard® refers to as Purchase Clusters™—can help merchants increase loyalty and sales.

That was the goal of an unusual collaboration among four merchants and four card-issuing banks that took place in early 2006. The idea was to combine the deep consumer insights that come from analyzing account behavior with a unique marketing strategy to help the merchants increase sales and capture more of the targeted consumers’ spending. Because the merchants serve the same customer segment, but offer different products or services, the collaboration is a win-win for everyone. And, by spreading the costs of the campaigns, it’s a cost-effective way to derive more value from customer relationships.

The MasterCard Global Product Group was able to create this collaborative, direct marketing strategy, called a Commerce Coalition, by leveraging the data-mining capabilities of MasterCard Advisors’ Commerce Intelligence team. (To learn more about Commerce Intelligence, see the Q&A with MasterCard Advisors president Keith Stock in this issue of The Advisor.)

The Commerce Intelligence team applies analytical modeling to a huge database of cardholder purchases to identify Purchase Clusters that offer the greatest potential revenue to a given merchant. For example, MasterCard Advisors can identify and analyze transactions at The Home Depot, one of the participating merchants, not simply the broader home improvement category. It then pinpoints cardholder accounts with high spending in that category, but not with The Home Depot. By analyzing spending patterns, MasterCard Advisors is able to develop targeted direct marketing campaigns that increase spending and market share for particular merchants.

Strength in Numbers

Using Commerce Intelligence, MasterCard Advisors has helped issuers and merchants create targeted campaigns that reward loyal customers, increase transaction size, and build new customer relationships. The benefi t of a network or “coalition” of merchants is that marketers can raise the yield curve of those campaigns even higher.

The New Year’s Values Campaign, as the inaugural program was called, kicked off in late December of 2005 with a promotional mailing to 1.9 million selected cardholders. But the work started months before.

In August 2005, data analysts at MasterCard Advisors reviewed transaction data to identify accounts that shared a similar profi le. In this case, they were looking for mass affl uent cardholder segments that shopped the home improvement and home furnishings categories, rented movies, and dined at restaurant chains—including the four merchants participating in the coalition. One cluster that met the criteria is what the Commerce Intelligence team refers to as “The Good Life” cluster, described below.

MasterCard Advisors also teamed up with four card issuers, which provided the account numbers, though no personal data, about their customers. For the issuers, the goal of the campaign was to build loyalty and increase spend among bank customers.

Defining the Opportunity

The accounts were grouped based on credit card activity in the four categories (home improvement, etc.) and their loyalty to each of the merchants. For each category and merchant, the accounts were assigned a ranking of high loyalty, medium loyalty, or no loyalty, as well as active or inactive status, based on transaction activity in the category and with the merchant in the previous 12 months.

MasterCard then helped the merchants design a series of promotions, in the form of special offer coupons. At the end of December, the mailings were ready to go. MasterCard Advisors handled the direct mailing operation. Each mailing was branded with the logo of the cardholder’s bank. The promotions hit mailboxes in early January and were in market for a period of six weeks.

Raising the Yield Curve

The results validated the benefi ts of the coalition approach. Participating merchants generated a total of $6 million in incremental sales, increased transaction size, and attracted new customers. Response rates were estimated to be 3%. MasterCard attributes this strong performance to precision targeting and highly relevant offers.

As a result of the program, The Home Depot experienced increased business from key customer segments. “We were very pleased with the incremental business that was generated by extending compelling offers to targeted customers,” says Jai Dorsey, Director of Marketing, Credit Services, The Home Depot.

Deriving More Value from Customer Relationships

A new Commerce Coalition campaign aimed at “premium” customer clusters, launched this summer with fi ve merchants participating, provided 14 targeted offers. On a card-issuer basis, that translates into 20 to 25 versions of the campaign mailing per bank (all handled by MasterCard Advisors).

One of the participating merchants was impressed by the ability of MasterCard’s Commerce Coalition to reach a specifi c target audience and to test several different approaches, including a gift card offer. The merchant notes, “We were able attract a significant number of new customers and to boost spending on our gift cards. Insights into cardholder behavior enabled us to develop offers that were right for us and right for our customers.”

That begins to hint at the power of Commerce Intelligence. Going forward, techniques including customer cluster analysis, merchant spending analysis, and selective insertion (which allows mailings to be targeted to individual cardholders), will present merchants and issuers with profound new ways of understanding and deepening their relationships with customers.

To learn more about MasterCard Commerce Coalitions, please contact Sheryl Sleeva, Group Head, Product Development, MasterCard Consumer Credit, at sheryl_sleeva@mastercard.com, or Brad Furman, Global Solutions Leader, Merchant Programs, Commerce Intelligence, MasterCard Advisors, at brad_furman@mastercard.com.