THOUGHT LEADERSHIP REPORT Optimizing the Power of Lasting Customer Value

Transcription

1 REPORT Loyalty and Promotions: Optimizing the Power of Lasting Customer Value Replacing the punishing economics of perpetual churn with a strategically optimized approach where promotions drive loyalty and loyalty drives promotions Retailers who equate a loyalty database with a list of their best customers and attempt to cultivate customer loyalty with generic programs and promotions are missing out on undiscovered opportunities for growth and greater customer relevance. More significantly and destructively they risk turning a valuable resource into a margin-killing device that simply rewards customers for actions they would have taken anyway Challenges and Opportunities Top Loyalty and Promotion Strategies Conclusions and Recommendations This report will show how loyalty databases are Rosetta Stones of invaluable information. Skillfully interpreted and used to craft highly personalized, targeted initiatives, they can drive promotions and business performance to new levels of success and move beyond the punishing economics of perpetual churn. PRODUCED BY SPONSORED BY

2 RIS REPORT Loyalty and Promotions PG.2 Over the past few years, the power in customer-retailer relationships has shifted, with consumers now fully in the driver s seat when it comes to deciding not just what they will purchase and from which stores, but when, where, how and how often they will engage with their favorite brands. Customer loyalty which is defined in terms of recency (the reasons behind a visit to a store), frequency (the number of store visits monthly) and wallet share (amount of spend devoted to a store) is no longer given. Rather, it is earned. Some retailers equate promotions sent to opt-in membership lists with an optimized loyalty program, but this is a too narrow view. Promotions are a critical component of a loyalty program, especially if the promotions are tailored to specific customers and locations. They are even more effective when they go beyond the expected and into the realm of customer surprise and delight, and also use engagement methods that include such non-transactional activities as sharing with a friend, posting a review, sending a Tweet through the website, or scanning a barcode or QR tag. Retailers can leverage customer databases to encourage shoppers to share preferences with friends and family, write recommendations of products, contribute to worthy causes, and forge a closer connection between shoppers and store brands. Adding elements like these to promotions, which can be structured as a formal campaign with a dedicated budget, timeline and measurable metrics for success, will foster loyalty and ongoing engagement with the brand. In a strategically optimized approach, promotions drive loyalty and loyalty drives promotions. CHART 1: Status of BI/Analytics Technology and Capabilities Market basket analysis 28% 19% 13% 6% Customers segmented by demographics, transaction history 26% 23% 14% 13% Centralized customer data and intelligence 26% 22% 10% 14% Frequent shopper or loyalty program metrics 24% 24% 9% 15% Conversion metrics using store traffic counting 22% 12%10% 12% Customer data segmented by channel 21% 15% 12% 9% Campaign analysis metrics 21% 14% 19% 12% Consistent customer data recognition across channels 21% 17% 12% 17% Predictive analytics 19% 14% 16% 18% Psychographic metrics using social network data 8% 10% 21% 6% Up-to-date tech in place Will start major tech upgrade in next 12 months Started but not finished major tech upgrade Will start major tech upgrade in next months Retailer deployments for the next two years are ramping up in customer data and loyalty categories, according to the 2012 RIS/Gartner Retail Tech Trends Study. Source: 2012 RIS/Gartner Retail Tech Trends Study

3 RIS REPORT Loyalty and Promotions PG.3 Today, it is a comprehensive approach to loyalty and promotions that counts with consumers, and the key to success is extending and optimizing efforts through all sales channels, databases and social networks. In a comprehensive, optimized campaign customer analytics insights and smart segmentation are the cornerstones of successful initiatives at the national, regional, store and personal level. They are far more relevant and engaging than traditional broad-based or mass-market campaigns, especially to frequent and high-value shoppers. In a strategically optimized approach, promotions drive loyalty and loyalty drives promotions. Challenges and Opportunities Retailers face many challenges along the road to promotion and loyalty optimization. Increasingly demanding, technology-savvy, omni-channel shoppers use multiple sales channels to make purchases. This complicates matters for retailers because there is no single point no mass-market channel that can achieve all or most goals. Proliferating sales and communication channels not only create fragmentation, they also force retailers to take extra steps to get permission to send promotional messages to shoppers via text, , social media or other vehicles. Another complicating factor is that responsibilities for promotions and loyalty programs are often distributed among several organizational departments, which can hamper true optimization efforts. Along with the day-to-day disruption caused by channel proliferation, retailers are also in some organizational disarray with merchandising groups owning promotions, marketing owning traditional advertising channels, and the e-commerce train creating new digital channel opportunities every day, point out Nikki Baird and Paula Rosenblum in the December 2011 RSR Report, Customer-Centricity 2.0: The Rise of the Chief Marketing Officer. Retailers that have implemented a centralized, cross-channel customer loyalty platform have reported a 20% increase in customer retention rates, compared to 8% for all others. Moving beyond these roadblocks and seizing opportunities can best be accomplished by centralizing loyalty and promotional tools across channels and across departments. This restructuring and removal of silos should not be carried out as a replacement effort, where the dominance of one sales channel takes over for another. Instead, the goal is to deliver a multiplier effect using the proven strengths of each channel. The use of emerging channels (mobile, social) should be balanced by tried and true loyalty technology components (analytics, rewards), ideally in an integrated, omni-channel loyalty platform, writes Chris Cunnane in the Aberdeen Group report Customer Loyalty. A centralized platform eliminates risks by combining consumer insights, offer creation, offer redemption, and performance metrics reporting. Cunnane notes that retailers that have implemented a centralized, cross-channel customer loyalty platform have reported a 20% increase in customer retention rates, compared to 8% for all others.

4 RIS REPORT Loyalty and Promotions PG.4 Top Loyalty and Promotion Strategies Retailers who have succeeded at tightly coupling loyalty databases and promotions will search for highly targeted customer segments to promote equally targeted products. One example is the grocer who tracks loyalty program members to discover which ones are currently purchasing diapers. The grocer then creates a promotion for diapers and ultimately other products that the parent will need as the child grows older. The Safeway and Kroger supermarket chains are cultivating customer loyalty and encouraging increased spending by personalizing discounts, pricing and other offers. This kind of personalized promotional activity is a major trend identified in the recently published RIS/IDC Retail Insights 2012 Supermarket Benchmark Study where it was found that more than half (63.3%) of grocery chains have the technology required to offer personalized discounts, and another 16.7% will add it in the next year. 79% of retailers use traditional data capture methods (POS and kiosks, for example) while 47% also use social networks and 21% use mobile devices. However, this is just the tip of the iceberg. Retailers are increasingly taking new sources of data and marrying them to loyalty databases where the aggregate is a rich combination of purchase histories across sales channels, demographic information, personal preferences gained through interactive data capture, social media data, third-party data and more. CHART 2: Performance of Loyalty Mailings Transaction Rate Revenue per 0.09% 0.07% $0.17% $0.18% Loyalty Non-loyalty promotional mailings Loyalty promotion s generate 29% higher transaction rates than non-promotional mailings, according to findings from an April 2012 report by Experian. Open rates and click rates are 40% and 20% higher. Despite this 80% of marketers still send the same content to all subscribers. Source: Experian Digital Marketer

5 RIS REPORT Loyalty and Promotions PG.5 This type of data mash-up provides a more comprehensive snapshot of a shopper that includes which store the customer generally shops, her overall market-basket value to the retailer, the dates of recent purchases, frequency of return, and how much she spent during each visit. With a snapshot like this at the ready, retailers can tailor their promotional messages and/or campaigns to a particular individual or group of individuals who share key attributes and preferences. Savvy retailers are not only melding and augmenting loyalty-related data with other sources of information, they are also making efforts to collect customer data from many sources. But make no mistake, traditional sources like POS and in-store kiosks are still used by 79% of retailers, according to the RSR Customer Centricity 2.0 report. The report also notes that 47% of retailers also use social networks as a data-gathering mechanism and 21% use mobile devices for shopper data capture. Establishing a single, centralized view of customers across all channels and conveying it to store associates and contact centers are key pieces of the loyalty and promotions puzzle. The more detailed the customer data is and the larger the number of entries, the greater the potential to achieve relevancy and engagement. Members of the loyalty program implemented by Petco, for example, receive newsletters, but each one has content including offers for promotions, coupons and rewards that differs according to the species of pet(s) the member owns and their pets specific needs. This segmentation is done using a combination of loyalty program preferences and purchase data. Accordingly, when a customer s purchase history indicates that her dog requires a grain-free diet, the shopper will receive promotions offering discounts or rewards for buying grain-free food and treats. Loyalty club members that buy corn or rice products will receive a different newsletter. CHART 3: Best Way for Companies to Build Customer Loyalty Providing exceptional 24/7 customer service 33% Rewarding me for purchases, feedback, referrals 20% Sending me exclusive and/or relevant offers and specials Providing personalized products, service Other Knowing me when I visit or call in 13% 12% 11% 10% no single loyalty strategy works for a majority of shoppers. it takes a variety of methods with each one highly targeted for specific segments. Source: ClickFox

6 RIS REPORT Loyalty and Promotions PG.6 Rite Aid has boosted relevance and engagement with its customers by enhancing its wellness+ program, which offers rewards to its most valuable customers. Members, who are defined as having earned 500 points and attained Silver Tier wellness+ status, get a 10% discount on qualified front-end purchases for one year. They can also select from a menu of health-related rewards options, including a health screening, membership in a fitness center, a subscription to one of several general interest consumer and lifestyle magazines or a one-year GNC Gold Card membership. The Rite Aid Load2Card coupon tool permits program members to download coupons directly to their wellness+ cards, and have the amount automatically deducted when they use the card to purchase the corresponding items in the store. Rite Aid s commitment to keeping wellness+ fresh and relevant to its best customers through this approach is paying off: At the end of this past fiscal year, the drug chain had 25 million active wellness+ members, a 16% increase in active members over the same period the previous fiscal year. Social media and mobile sales channels, too, can bring campaigns closer to the customer base. IKEA and Walgreens are using both. This past winter, IKEA held a day-long Bring Your Own Friends (BYOF) Day event that included free meals, special discounts and gift card giveaways for customers who RSVP d via Facebook. In addition, for every friend a customer invited through Facebook, IKEA donated $1 to Save the Children. When signing up for the event, users were asked to submit their first name, last name and address, allowing IKEA to gain customer information it can use to convey invitations to future events and information about targeted promotions. Friends who were invited also had the option to RSVP, therefore submitting key information and building the retailer s customer database. IKEA Family, IKEA s loyalty program, features members-only pricing on furniture and other exclusive deals and offers, including a monthly sweepstakes with a prize of $100. Once customers have signed up for the program, ongoing communications are strictly digital and include mobile CHART 4: U.S. Loyalty Club Memberships by the Numbers Specialty Apparel million Grocery million Mass Merchant million Department Store million Drug Store 98.1 million loyalty programs are at record levels but the inability of many retailers to achieve true relevance has many shoppers tuning out. Source: Colloquy 2011

7 RIS REPORT Loyalty and Promotions PG.7 alerts as a complement to a members-only website and s. Shoppers who want to receive a discount on purchases made in-store, but have forgotten their membership cards, can send a short message to the cashier, who can then retrieve their membership number and grant the discount. Response rates to programs like these are high, more than doubling the rate of traditional retail digital communications. Another Walgreens promotion that combines with a loyalty program centers around the geolocation social network Foursquare. Customers who check in at any Walgreens store nationwide through Foursquare on an iphone, Android or BlackBerry instantly receive a unique scannable coupon via their smartphone that is redeemable in the store. There is no texting, reply or other step required. Other effective promotion and loyalty optimization tactics involve executing location-based offers where points are based on purchases and relevant offers awarded as a surprise to customers at checkout. Customers who sign up for Modell s Sporting Goods MVP program, for example, instantly receive on their smartphones offers that are good at specific Modell s stores. To redeem the offers, customers flash the smartphone promo to associates at the point of purchase. Establishing a single, centralized view of customers across all channels and conveying it to store associates and contact centers comprises another key piece of the puzzle, a piece retailers are beginning to understand and embrace. According to Embracing Change, the 22nd Annual RIS/Gartner Retail Technology Study, 26% of retailers have up-to-date tools in place for maintaining centralized customer data and intelligence, another 22% are in the midst of upgrading this technology now, and another 10% will begin installation within the next 12 months. This means a majority of retailers will have a centralized view of customers across channels by the end of Best-in-class performance is achieved through a personalized, multi-channel approach that harnesses new sources of data and localization tactics to foster relevancy and customer engagement. Conclusions and Recommendations A supportive framework is required to leverage a comprehensive promotion and loyalty strategy to its maximum potential. This starts with setting smart overall program goals, such as lifetime value of customers, wallet share, frequency, recency and true loyalty. It continues with a detailed analysis of the integrity, consistency and level of detail found in the customer databases currently used and planned for acquisition. Developing detailed methods for testing and measuring is also critical. The impact of each promotional campaign and the effectiveness of each medium used during the campaign must be clearly understood to create a learning process that improves over time. Measurement tools should not only focus on sales of targeted items, but also be flexible enough to discover unexpected consequences such as incremental sales of other products, sales through other channels, and negative consequences as well, such as cannibalization of other products or channels.

8 RIS REPORT Loyalty and Promotions PG.8 Experimentation is also a necessary ingredient of success. Testing new channels such as Groupon, Gilt, Living Social, My Habit, Foursquare, Coupons.com and others enables the campaign to reach new customers and discover untapped opportunities at the earliest possible moment to gain competitive advantage. Recent research indicates that retailers recognize the growing importance that advanced analytics plays in tracking the effectiveness of promotions and loyalty programs. In the 2012 RIS/ Gartner Tech Trends Study, 24% have up-to-date technology in place for tracking frequent shopper or loyalty program metrics while another 24% have started but not finished an upgrade. Nine percent will start a major technology upgrade in the next 12 months and 15% will do so in the next 12 to 24 months. The report also states that up-to-date technology for tracking campaign metrics has already been deployed by 21% of retailers, with another 14% having commenced but not completed an upgrade. These figures show the strongest area of investment in the report, which means that retailers can no longer expect their competitors to go to market with one-size-fits-all promotion and loyalty programs. Rather, best-in-class performance is achieved only through a highly personalized, multi-channel approach that harnesses new sources of data, smart customer segmentation analysis, and personalization and localization tactics to achieve relevancy and customer engagement. l About RedPrairie For more than 35 years, RedPrairie s best-of-breed supply chain, workforce, and all-channel retail solutions have put commerce in motion for the world s leading companies. Installed in over 60,000 customer sites across more than 50 countries, RedPrairie solutions adapt to help ensure visibility and collaboration between manufacturers, distributors, retailers, and consumers. RedPrairie is prepared to meet its customers current and future demands with multiple delivery options, flexible architecture, and 24/7 technical and customer support. For a world in motion, RedPrairie is commerce in motion. To learn more about how RedPrairie solutions can optimize your inventory, improve employee productivity, or increase sales, visit RedPrairie.com or info@redprairie.com. PRODUCED BY SPONSORED BY