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Introduction
The UK retail market remains a tough one in which to operate. The economy is still flat, consumer confidence is low, house prices are depressed and a slow recovery is forecast . High levels of unemployment, stagnant and declining wages, and the fear of large-scale public sector job losses have all combined to undermine both disposable income and consumer confidence. Inflation, in the form of rising commodity prices, has pushed up the cost of everyday items such that the UK has witnessed the highest rise in spending on groceries and food as a proportion of GDP since the Second World War. These factors combined with the dreaded credit crunch mean that spending power has dropped enormously since 2008 some commentators argue by levels last seen in the early 1980s. Yet the effect upon retailers is not homogenous: some are faltering, others are maintaining their market share and a few are prospering. Whats clear is that in the current climate is that managing customer loyalty is a vital business strategy, since retaining customers is far cheaper than recruiting new ones. For many years retailers have successfully employed customer insight and loyalty programmes to maintain wallet share and build customer loyalty, but a variety of factors are now challenging traditional approaches. On the one hand, customers are evaluating their choices more than ever before, aided by easier price comparison, recommendation and review sites, and the ability to check these choices in realtime via mobile devices. On the other hand, a wider range of competitors (including online-only retailers), the flattening of world markets (meaning customers can now easily purchase goods from outside the UK), and far more complex purchasing behaviour that often involves several discrete channels, mean that UK retailers are finding it harder to maintain their wallet share. However, those who are able to innovate in terms of their loyalty strategies, and can gain and use meaningful and timely customer insight, are showing they can translate this into increased market share, profitability and customer loyalty. In this paper we look at the changing face of loyalty and what this means now and in the future, how retailers can gain advantage from more adept use of technology and data, and the importance of effective customer insight to stay attuned to fast-changing customer behaviour and sentiments. We also provide benchmarks, and a loyalty and insight maturity model, which is based on information, gleaned from research amongst a representative selection of UK retailers of all types in mid-2011. The maturity model and benchmarks reveals different aspects of loyalty and insight that retailers can use to judge their own performance, as well as gain ideas about what other retailers are doing.
1 For example, the Independent Treasury Economic Model (ITEM Club), an economic forecasting group based in the UK and sponsored by Ernst & Young, has forecast that consumer spending will rise by an average of 2% at most each year in the 10 years up to 2020. It says spending is being weighed down by debt repayments, restricted lending and high inflation, with the prospect of interest rate rises yet to come. The Item Club expects the effect to be harshest outside London. In the short term the group forecasts a rise of consumer spending of just 0.6% in 2011, and 1.3% in 2012.
A different kind of reward for loyalty Loyalty does not just depend on the discountreward model of customer loyalty. Asda and other discount grocers such as Aldi have stated they will compete on price rather than introduce loyalty schemes. They have worked to increase operational efficiency so they can offer the lowest possible prices. At the other end of the scale, Waitrose has preferred to create loyalty based on lifestyle, choice and shared values. It creates an experience centred around quality, British grown food, fair-trade, and a partnership based business model that its customers identify with and find appealing. Both the discounters and Waitroses quality approach have worked, with Aldi posting results 20% up in the quarter to July 2011 and Waitroses results up 9%. Waitrose has increased market share by 0.2% to 4.3% over the last twelve months. Key to the success of both types of business is having clear insight into what their customers value and what they want.
prices and, in many cases, leaving the credit card at home, buying in bulk packs splitting them with friends or freezing." In the face of such changing and challenging customer behaviour how do retailers engage customers, drive up loyalty and maintain wallet share? The answer is they need to understand their customers even better, as well as what theyre doing, using the wide range of data they have available to them. Understanding the history of customer behaviour and trends is useful and enables for example better merchandising or product design; but understanding the current customer context (where the customer is and what theyre doing) enables the retailer to influence the customer at the point of sale or even before this. For example, utilising a mobile strategy, may see retailers enabling customers to look up more information about products while they are instore scanning a barcode to get pricing, recipes or reviews of the product. If the customer is pricing up beans then the retailer has the opportunity to push offers related to beans at that point. This might be suggesting the shops own brand or economy beans rather than a premium branded version; it could mean suggesting a brand that the retailer wishes to clear off the shelves, along with an appropriate discount; or the retailer might show satisfaction ratings or reviews of different brands; or it could involve personalised discounts or offers based on customer status or spend; or it might mean suggesting related ingredients or linked purchases along with a recipe. Whatever the retailers strategy, to maximise the opportunity they need to combine knowledge of what the customer is currently doing (contextual data), their historical preferences and purchases (customer-set preferences, transaction and loyalty card data), as well as information they can provide to influence purchasing behaviour (recommendations, reviews, ratings and other content). All this needs to be done in near-realtime within seconds or the opportunity will be lost. A customer is much less likely to be influenced if they are standing in the checkout queue with their purchases, or even if they have simply moved to another part of the store. Thus the ability to react in realtime and detect proximity and willingness to be influenced are very important. Retailers that can adeptly combine data and content in this way can, however, create a novel, differentiating and even entertaining customer experience enabling a more interactive and sticky relationship with their customers.
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Capabilities checklist for loyalty programmes Is your programme cost-e ective and pro table? Is the programme really di erentiating your brand from your rivals? Is it valued by customers su ciently to in uence buying behaviour? Does the programme support personalization? Eg can you understand and act upon individual customers needs, behaviour, preferences and likes/dislikes? Can the programme in uence purchasing? Eg in uencing the buying of one brand of product rather than another. What is the engagement level and how do you engage and understand customers who are not enrolled in the loyalty programme? Is your loyalty programme multi-channel? Can you use loyalty data for upstream product design, branding and merchandizing?
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In uence at point of purchase (eg till) At the point of decision (eg aisle) Build positive ongoing relationship with customer
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Build brand Loyalty Incrase wallet share Maintain wallet share Innovate Di erentitate
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72% of our sales come from customers enrolled in the loyalty scheme Currently online channels are still seen as the ones delivering most value to UK retailers, with 43% saying they intend to invest to improve their online offering. However, many were also looking to add support for mobile commerce (38%) and mobile apps (24%)
UK retailers are experimenting with mobile and social channels In a study of UK retailers conducted in mid 2011 only 14% reported having a mature mobile strategy that was delivering results today. Most (64%) were either planning their strategy or in the very early stages of deployment. Only 18% reported not having a mobile strategy, and a further 4% reported not yet seeing any positive benefits from their mobile strategy. UK retailers were using mobile technology for a number of things including to increase footfall, to improve conversion, to enhance the customer experience, for m-commerce and to increase customer interactions. With regards to social media, around 29% of retailers said they were using social media strategies to enhance loyalty, 43% were using it for customer acquisition, and 24% were using it to increase sales.
Insight is vital, but just as important is getting this insight in a timely fashion in order that the retailer can quickly respond to changing customer needs and wants outperforming rivals who take longer to react. And while gaining valuable insight provides commercial advantages, being able to take action or decisions as a result of this insight is also critical. This requires two things to happen. Firstly the right staff need to have access to such insight at the time they need it, and secondly automated systems and processes need to be in place that can react to customer behaviour in realtime combining knowledge of the customer, business rules, and contextual information to create the right reaction to what the customer is doing. Customer insight is going to rapidly become far more sophisticated, enabling some compelling use cases for both retailers and consumers, and delivering even
greater business value. Retailers can choose whether to dive in and invest now to become leaders in using sophisticated, next-generation customer insight; or they can improve their customer insight incrementally by making better use of the technology and data already available to them, while progressively investing to support more advanced scenarios. Whats clear is that despite the recession retailers are not standing still. Rather the recession has put additional pressure on retailers to improve their customer insight in order to improve their performance in a tough market. Cutting-edge retailers are already experimenting with how mobile technology can be utilised effectively instore, or in the vicinity of the store to attract, influence and retain customers; while the most advanced retailers are also now experimenting with social media and exploring the opportunities this offers.
Capabilities checklist for customer insight Can you quickly detect changing customer behaviour, likes/dislikes and act upon this insight? Do you understand why potential customers are not buying from you? Can you use insight to improve product design, buying and merchandising? Do you have 360 degree view of the customer? Including across all retail channels? Can you see the behaviour of individual customers or small groups, or just general trends? Do you have a mobile or social strategy? Can you support actionable, timely, contextual insight?
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Do you e ectively use insight to drive up loyalty and maintain wallet share?
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Do you have a joined up view internally that links products & services to customers?
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WiFi access, facilitating customer research via the mobile internet, or their wish to give or seek recommendations for a particular product are all emerging strategies. Retailers could allow customers to scan a barcode using their mobile, and be rewarded with a discount for providing instant feedback on a product they wish to buy, or be offered a future discount on a repeat purchase in exchange for a review. The mobile device has the advantage of identifying the customer and supports location-based approaches to loyalty. Some mobile services such as SMS, for example, are well established, cheap, universally available and easy to develop upon providing ideal bearers for innovative loyalty programmes. In addition, the emergence of mobile payment technology and the increasing computing power of smartphones, promises a lot of potential for future loyalty programme innovation. Social media and mobile technology are rapidly changing the face of loyalty in the UK, and retailers need to understand how their customers and potential customers use different channels in order to engage them, discover what they want, need and are willing to pay for, and influence them at the point of decision. As shown in Figure 1, our research revealed that many UK retailers now see seamless multichannel retailing and insight as critical to their success, but these two are closely followed in importance by mobile technologies, with social media channels also becoming ever-more important to UK retailing.
one. Likewise, customers may offer ideas and suggestions regarding products or other ways in which the retailer can improve their performance. Considerable insight and business value can be gleaned from monitoring and engaging in social media, but the challenge is having dealt with the initial enquiry, suggestion or complaint being able to identify the data that does have business value and ensuring that this is made accessible to the appropriate systems and personnel that can take decisions or actions as a result. Social media offers new opportunities to drive loyalty via collaborations with social media sites, and when combined with mobile provides the potential for highly targeted but effective advertising. Foursquare, for example, sends out information to smartphones wherever people shop. Foursquare for Businesses3 provides retailers with an opportunity to highlight special offers to Foursquare users who check-in nearby and in addition they also get data from these location-based campaigns. It has been shown that not only do individual retailers benefit from this type of approach, but other businesses in the same vicinity benefit too. Many users see this as entertainment or as a game, rather than perceiving it as advertising which increases the effectiveness. Simply by joining the social media conversation and being accessible as a brand to customers, retailers are able to demonstrate theyre listening to their customers, and are able to resolve any miscommunications or misunderstandings rapidly. However, social media cannot become another siloed channel. To be effective it needs to be integrated into a multichannel approach, and data and insight needs to be shared with other core systems.
See http://mashable.com/2011/08/03/foursquare-business-page/
72% of our sales come from customers enrolled in the loyalty scheme Currently online channels are still seen as the ones delivering most value to UK retailers, with 43% saying they intend to invest to improve their online offering. However, many were also looking to add support for mobile commerce (38%) and mobile apps (24%)
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This is why building an understanding of an individual customer is critical to building loyalty. And this is one area where retailers can easily build value through better data integration and analytics. The most savvy retailers are already analysing who their customers are, where they are (which channels they prefer), what they like and how they like to buy. This enables them to design a deliberate, appropriate and consistent retail experience in line with their brand values in other words, they can tailor the way they operate (including products, prices, offers, channels, interactions, payment methods and so on) to the needs of their target customers but in line with their commercial goals, brand values and customer loyalty strategies. Beyond their existing customer base, retailers can use emerging channels like social media to understand and attract potential customers, using the power of social networks to promote offers and recommend products. Better understanding of customer behaviour and the immediacy of the personalised mobile device can be combined with realtime technology to influence customers at the point of purchase, as well as to create cross-selling and upselling opportunities. Done well, customer insight helps retailers understand which customers are likely to be the most profitable, and what these customers value and are willing to pay for. By being able to employ real-time contextual analytics, for example, retailers can move from understanding historic trends to reacting in real-time to opportunities, and then proactively being able to prompt customers and even make real-time recommendations to their mobile. Once identified the mobile device can be used to connect with the customer beyond the point of sale to offer discounts for repeat sales, or information related to the product. However, if customers are to accept and value proactive and personalised interactions, prompts recommendations and offers, these will have to be highly accurate and pitched well and appropriately
or they will be seen as spam and ignored. Worse still they could be seen as an irritation. Its no good, for example, prompting the customer to buy a particular brand of coffee, if the offer or recommendation is only delivered after the customer has left the shop, or despite the fact the customer never buys coffee because they dislike it. This will drive up dissatisfaction with the retailer rather than increasing loyalty. In Figure 2 we look at how loyalty and insight can be evolved based on real feedback from the UK retailers who took part in our primary research programme. This model shows what the mainstream of UK retailers are able to offer today with regards to loyalty and insight, as well as the additional elements that the most advanced companies are able to offer or are currently exploring in order to gain competitive advantage. For example, the model shows that many retailers can now tailor offers to customer types and can refresh offers. However the most advanced retailers are now able to deliver personalized offers which derive from their ability to match the customer context (eg location) with preference data, historic transaction data, the value of the customer, and insight into typical customer purchasing behaviour around that product. This enables the retailer to make a personalised offer to the customer, which is more likely to be accepted if it more accurately meets their needs. And while the mainstream of retailers may now be able to track a customer and gain a single view of that customer within each channel of operation, the most advanced can track customers across all the channels in which they operate. If the customer complains, then customer service staff are able to see an integrated view of all the dealings the retailer has had with the customer across all channels, thereby ensuring any issues are resolved promptly. This model helps retailers benchmark their progress, provides insight into what rivals are doing or aim to do, and helps them analyse their weak areas and what they need to focus on in order to deliver customer insight and loyalty programmes that will help their business survive and prosper in these turbulent times.
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Figure2
Element Not important yet 1 Type of reward 4% Somewhat Trailers important 2 Very important Mainstream 3 Critical 4 Leaders Greater customer choice of reward, create rewards based on customer insight/suggestions Personalized offers, with realtime contextual matching of offers to customer
Exclusive experiences 32% and services (eg complimentary 64% tickets or advance tickets)
Nature of offer 0%
Standard, fairly static offers Wider range of offers; offers 5% 36% matched more precisely 59% to customer (initially to lifestyle, age, lifestyle, past purchasing), offers change more frequently All customers 32% 27% Additional tiering 41%
Offers according to profitability of customer Product created in response to customer suggestions via our social media site. Loyalty card data has been used to monitor customer uptake from successful regional trial Wider partner eco-system,with partners matched to brand and likes of target customers Any of a mix of traditional, online, mobile, social (according to needs of business)
Our buyers are very competent Apply purchasing trendsetc to 13% 23% product design/sourcing 41%
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Yes: data is mined from website and combined with loyalty data to understand customers better; loyalty rewards can be gained/spent in any channel Transactions + feedback 64% Analyse PoS data, copy rivals initiatives
Yes: data from all channels is combinedand used for upstream purposes including product design, buying and merchandising, offers & sales etc Much broader range of behaviour, including advocacy Use a broad range of data and analyse daily
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To some extent staff will report changes, we can use sales figures to detect Dont understand why customers buy from us Loyalty scheme only
Focus on maintaining existing customer loyalty Single view of customer in each channel eg in stores, online etc
Use insight to profile potential customers and target them Single integrated view of customer across all channels we operate in
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Summary
So whats the best way to approach loyalty and where should UK retailers start? The good news is that whether they can afford entirely new cutting-edge IT infrastructure, or can only afford to enhance certain aspects of their existing infrastructure, there are ways of improving customer loyalty and insight to fit all budgets. Whats certain is that, when implemented and used correctly, the technology we now have available can be extremely effective at strengthening customer relationships and creating new revenue-generating opportunities. Its even possible depending on the legacy position to replace legacy infrastructure with more modern infrastructure and not only improve performance but also reduce the cost of running loyalty programmes (through lower cost of ownerships and better targeting of offers). Whichever approach retailers take the customer must remain at the heart of loyalty programmes, and their needs should be prime. A loyalty-driven approach to doing business does not derive from an IT infrastructure, but is enabled by it. That said, capturing the right information about the customer and being able to react to this information in a timely fashion ensures the retailer can tailor the retail experience to the needs of the customer and thereby increases the likelihood of their success. In the current retail environment this insight is not just a nice-to-have but a lifeline to survival and success.
Groupe Casino precision marketing in the mobilised world Groupe Casino is a large French retailer that was founded in 1898. It currently has revenues of EUR25.8 billion and 11,000 stores across 19 countries. It launched its first loyalty scheme in 1902 and is currently trialling a new precision retailing offering, which delivers realtime offers to customers in stores, on the website and via the mobile device, based on the customers lifestyle. Groupe Casinos precision retailing offer is based on an indepth knowledge of its customers, the ability to support customised, dynamic prices and offers, and multi cross-channel marketing, all supported by a flexible supply chain. When a Groupe Casino customer logs on to their smartphone application, they first decide whether to log on anonymously or as a loyal shopper (ie link their session to their customer profile and loyalty data). When they do the latter, the central system recognises them, their store location is identified and the session is linked back to the loyalty account. Immediately a number of relevant offers are presented to the customer. Before doing this, the offers engine has taken into account customer preferences, likes and dislikes, the store thats being shopped in (and whether stock is available) and the time of day. Offers include discounts, bonus points and discounted linked purchases. As the customer shops, the company is able to prompt with relevant alternatives (according to preferences set in the customer profile) or alert to a better deal being available. Prompts can be sent to the customer to remind them about linked purchases, and rewards awarded according to purchases made are added to the customers account in realtime. The customer can see their current status and how many rewards they need to acquire until to be given the next customer bonus. Groupe Casino staff can also see how well the promotion is working in realtime, which allows them to change the promotion if it is not performing well enough. Group Casino is now able to offer targeted, one-to-one marketing, cross-channel shopping lists, cross-sell and upsell opportunities at the time of purchase, and indepth customer knowledge which supports a personalised experience, enhanced loyalty and a positive view of the company.
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