GUEST COMMENT Trends in retail loyalty management

by Vijay Chadha

In retailing it is imperative to delight customers by making the shopping experience enjoyable with customer benefits and communications targeted such that customers feel compelled to return. Customer loyalty management has emerged as a winning strategy to achieve this objective. In a customer focused retail environment, customer loyalty management is also pivotal in analyzing and influencing customer behavior. This thought paper discusses marketing challenges faced by today’s retail industry and how they are revamping their loyalty program models to match current challenges. This thought paper leverages knowledge from the study of some very successful loyalty programmes at various global retailers to elaborate objectives, pains, prejudices and benefits associated with the new age marketing strategy called ‘customer loyalty management’. New age customers bring a different psyche to retail marketing. They are more open with sharing their needs and information, and demand better use of this information.

Key business drivers of a retail customer loyalty programme

Retail marketers worldwide have realized that to achieve sustainable business growth it is imperative to delight customers by making the shopping experience enjoyable, with customer benefits and communications targeted so that customers like to return. Loyalty programmes are designed to maximise a customer’s lifetime value by developing their loyalty using targeted marketing communications and selling products that customer wants. A loyalty program enables retailers to be in touch with their customers’ changing tastes for faster response that is so vital in extremely competitive and dynamic business environment that prevails.

The following key drivers form the basis of most retail customer loyalty programmes worldwide.

Deeper customer understanding

The best way of understanding how your customers behave is through rigorous analysis of the transactional data they generate when they shop. The most important aspect of customer loyalty in a retail market is that it converts a faceless footfall into an identifiable customer whose demographics and psychographics are known, whose buying and browsing behavior can be studied, who is reachable through multiple channels for companies marketing activities and who has a life time value.

Increased customer spend and lifetime value

Loyalty programmes are designed to maximize a customer’s lifetime value. Typically customers enrolled to loyalty programs have higher average spend than those who are not.

Brand value and differentiation

Today loyalty programmes are run by companies as a strategic tool to assist in achieving market leadership and brand differentiation. A successful loyalty program helps to build ‘top of mind’ recall of a retail brand through:

* Increased visibility of brand identity on loyalty cards, key fobs, and other physical manifestations (digital and non-digital) of loyalty program membership

* Access to multi-channel (kiosks, web, smartphones) marketing opportunities, not only helping in product sales but also enhancing brand reach and breadth

Increased sales

Sales growth remains a key objective of most loyalty programmes. Customer loyalty programs help to create happy customers returning to redeem loyalty benefits and shop more. Loyalty programs also result in better customer service through improved customer understanding. This in turn results in sales growth.

Multichannel sales

Increasingly retailers want to engage customer through new-age sales channels like web and mobile. Opening the customer loyalty processes and benefits to these channels ensure that customers use these channels more often. Some retailers offer exclusive benefits to customers for shopping through low-cost channels like web and mobile, where the barriers to market entry are lower.

International expansion

For organisations it is a borderless world and there is seemingly no end to expansion opportunities. Sales can be increased by going global, especially when the home market is saturated or where a new untapped market materialises. That’s why international expansion is on every major retailer’s mind, but the cost of international expansion is not to be underestimated.

Loyalty programmes help companies to develop brand recognition and to attract new customers in new markets and retain them. It helps in gathering customer data and offering better localized products and services. These programs give an insight of consumer behaviour based on which the retailer modifies the products to become more relevant according to the location.

Features of a winning retail customer loyalty programme

Like every marketing initiative, retailers should keep the customer at the heart of defining a successful loyalty programme. This needs to be coupled to a deep understanding of industry and economy. There are several ingredients of a good loyalty program and retailers should keep at least the following key features in mind while envisaging a winning customer loyalty program for their organisations.

Smarter customer acquisition

A successful retail loyalty programme should have:

* Consistent customer acquisition through multiple channels such as paper, web, IVR, call center, kiosks and handheld.

* Scalability to quickly add newer channels as they emerge.

* Simpler, smarter and quicker customer joining process.

Improved customer journey

The customer journey within a company’s loyalty program needs to be rewarding enough for the customer to stay with it. The following features are important contributors towards a successful customer journey:

Real-time and centralised loyalty points management

Capability to capture and centralise loyalty points from sales through multiple channels like stores, web channel, mobile and third party.

Capability to capture and centralise externally calculated points such as points earned through partner retailers.

Excellent customer service backed by real-time and complete customer loyalty data.

Targeted rewards based on customer demographics and psychographics

Provision of generating targeted offers based on demographics. Examples: special healthcare offers for people aged above 60; different discount offers for teenagers and adult customers

Provision of generating separate targeted offers for working women and homemakers. Example: special offers on eating out during office hours.

Targeted communication based on individual customer information

Provision of generating targeted communication based on real-time centralized customer information. Example: requesting only those customers for furnishing email id or date of birth whose data is not already present in central database. Requesting a customer who has already furnished this information can create an unhappy customer

Provision of generating targeted communication for reduced activity. Example: seeking feedback from a customer with significantly reduced shopping over a period

Rewards based on customer engagement levels

Provision of configuring additional rewards for the customers sharing their email address within month of September

Provision of configuring special rewards based on the special information shared by customer. Example: discount on baby products to expecting women.

Rewards based on customer spend levels

Provision of configuring additional rewards based on the customer’s spending in a given period. Example: spend $50 in June and get 100 extra loyalty points

Multichannel experience for customers

Old shop¬ping patterns and customer segments are fading away, replaced with rapidly shifting and evolving customer shopping trends. It is very important for retailers to know their customers’ shopping trends. How do they like to shop? What channels do they use and what do they prefer to purchase in each channel? A single customer might use different channels for different purchases. Example: preferring to browse the store for a new perfume as it requires trial and shop the web for repeat purchase of a used perfume.

Hence, a winning loyalty program should:

. Enable key customer loyalty management solution components (customer acquisition, customer rewards, sales and customer service) across various channels used by customers to interact with retailer like store, web, mobile, kiosk and paper.

. Differentiate, classify and reward customer interactions based on channels.

Assessment of key result areas

Last but not the least, a winning loyalty program must have focus on the analysis and assessment of the Key Result Areas (KRAs) associated with it. It should have analytical models to highlight achievements in the following business drivers of a loyalty program:

. Increase in loyal customer base.

. Increase in customer behavior understanding.

. Increase in customer spend.

. Increase in brand value.

. Increase in sales through different channels.

Vijay Chadha is principal consultant, consulting and systems integration, at Infosys