M&S lunchtogo - Customer Insight Case Study
Marks & Spencer had no problem finding hungry customers for its food delivery service, but it took some clever Customer Insight and data work to hang on to them. By Jason Elkins
lunchtogo: the key to reducing churn was for M&S to better understand its customer base
In 1996, Marks & Spencer (M&S) launched lunchtogo - an online corporate catering service allowing companies to order M&S food products for delivery to workplace meetings and events. The service offers a varied online menu of goods that can be ordered as late as 4pm for delivery in tight time slots the next working day.
EWA manages the lunchtogo order and enquiry contact centre, supported by a fully integrated database system encompassing customer prospecting, registration, order-processing and finance control routines. The dedicated contact centre comprises a mix of skills from marketing and post-sales support to finance administration. In addition, the outsourced unit manages the all important processes and connectivity relating to the other service providers, e.g. food picking units and logistics suppliers.
One of the initial problems with the service was high customer churn. Companies, especially in the high-density business locations favoured by M&S, often changed personnel and policies, making it difficult to build long-term relationships with lunchtogo users.
“The people who order from lunchtogo tend to have positions like office manager,” said M&S new selling channels manager Darren Williams. “It’s a fairly transient customer base. We get a fair amount of new customers, but we also lose customers at a reasonable rate. We didn’t want to do expensive marketing to promote the service just to have customers fall out of the bottom of the bucket.”
The key to solving the problem was to get to know the customer base better. “It was a challenge for us,” says Graham Burgess, senior account director at EWA. “A lot of the people we deal with are secretaries and PAs and they move around quite a lot. Customer which you can’t pigeonhole into segments easily. One might be in the marketing department with several client meetings every week; another might be in accounts, with just a few around audit time.”
The chosen approach was to derive a model for communication based around an individual’s order value and frequency, leading to the development by EWA’s Customer Insight team of a targeted communication programme called Critical Lag.
The development of the Critical Lag programme was based on analysis of ordering behaviour, looking at the frequency and time lapse or “lag” between each lunchtogo customer’s purchases.
By analysing customers’ order lag, it became apparent that each customer had their own unique pattern of ordering: some followed a definable pattern whilst others were extremely sporadic. This made it difficult to judge which customers were at risk of lapsing their relationship with the lunchtogo service and therefore when it would be best to communicate with them.
Through sound statistical reasoning, the Customer Insight team developed the Critical Lag formula. This formula identified lunchtogo customers whose current lag since they placed their last order, fell outside of their statistically expected behaviour and, therefore, heightened their risk of lapsing.
Based on this analysis and business rules agreed with M&S, the system was designed to generate communications to be sent to those customers whose order lag exceeded the maximum allowed for by the calculation.
Judging when to communicate was one half of the task. The other was judging what that communication should be and who it should be sent to. This is where a segmentation exercise proved helpful, and EWA’s Customer Insight team divided the database into four segments based on four different marketing criteria. The first was top customers where the relationship was already established. The second was high-value customers which needed to increase their order frequency. “This is difficult to do,” Burgess points out. “You can’t ring up and ask a client to have more client lunches.” The third segment was high-frequency customers that needed to increase their order value. The last segment was customers that needed to increase both frequency and value.
The final piece of the jigsaw was how to send the message. The key was to create an accurate model of customer value linked to communications designed to deliver specific messages, encouraging customers to return or to promote certain products based on their segment. Depending upon their value and segment, the customers would then receive either a phone call or an email.
“The top five per cent of customers get a phone call,” says Burgess. “The rest get an e-mail with a follow-up if they don’t respond.”
The Critical Lag programme was fully integrated into the lunchtogo database by EWA’s database development team. The programme was configured to run every night and take into account any new orders received that day, adjusting the Critical Lag values as necessary. Any customer’s current lag that exceeded their Critical Lag value automatically triggered the marketing communications.
What made the programme truly special is that the timing and content of communication was unique to each and every customer, a big step in reaching the marketer’s utopia of true one-to-one marketing.
The resultant programme implemented by EWA for M&S as part of their lunchtogo programme has, over a two year period, had a significant impact on customer retention, reduced churn rates, maximised up sell opportunities and generated approximately £500,000 of additional orders.
In over eleven years of operation lunchtogo has nearly trebled its order turnover. A once heavily manual order process, relying on fax transmissions, is now a fully automated, web-based, facility. Transition has taken place from store-based fulfilment to depot picking. Credit management and control is now processed through a direct electronic payment and debt handling system. Even the project costing regime, involving shared risk, has undergone substantial revision to help maximise margins.
What has this led to? Today lunchtogo is a tightly controlled operation that has pioneered workplace shopping on behalf of M&S. Customer insight and data mining has helped to formulate successful strategies for commercial viability, marketing, customer retention and debt control. Through all this, the incontrovertible key to success and profitability in a low margin business is virtual error free service. In its ninth year of management, EWA delivers a 99.97% order accuracy rate and is proud of its contribution.