Information Systems Management

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Data mining for small shops: Empowering brick-

and-mortar stores through BI functionalities of a
1
loyalty program

Michael Reiner Kamm, Jan-Peter Kucklick, Johannes Schneider & Jan vom
Brocke

To cite this article: Michael Reiner Kamm, Jan-Peter Kucklick, Johannes Schneider & Jan vom
Brocke (2021) Data mining for small shops: Empowering brick-and-mortar stores through BI
1
functionalities of a loyalty program , Information Systems Management, 38:4, 270-286, DOI:
10.1080/10580530.2020.1855486

To link to this article: https://doi.org/10.1080/10580530.2020.1855486

Published online: 14 Dec 2020.

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INFORMATION SYSTEMS MANAGEMENT
2021, VOL. 38, NO. 4, 270–286
https://doi.org/10.1080/10580530.2020.1855486

Data mining for small shops: Empowering brick-and-mortar stores through BI

functionalities of a loyalty program1
Michael Reiner Kamma, Jan-Peter Kucklickb, Johannes Schneidera and Jan vom Brockea
a
Institute of Information Systems, University of Liechtenstein, Vaduz, Liechtenstein; bFaculty of Business Administration and Economics,
Paderborn University, Paderborn, Germany

ABSTRACT KEYWORDS
While the analysis and usage of data are increasing in importance, the application of sophisticated Customer loyalty; case study;
BI solutions in small stores is limited by available technical capabilities and financial resources. This brick-and-mortar stores;
study investigates how brick-and-mortar stores can benefit from an expansion of service function­ business intelligence; loyalty
programs
alities of a cross-industry loyalty card provider. Digitalizing the loyalty program created new
opportunities, while the analysis of shopping data of 13 years, 19,000 customers, and 55 shops
empowered data-based decision support.

Introduction general are researched extensively (Ngai et al., 2009;

Rygielski et al., 2002), there have been little publications
The analysis of large amounts of data offers organiza­
on real-world case studies, combining such loyalty pro­
tions new opportunities to increase their efficiency and
grams with additional Business Intelligence (BI) function­
can contribute to a sustainable development (Donnelly
alities for cross-industry brick-and-mortar shops.
et al., 2015; Günther et al., 2017). It enables to study
The general idea of our research study is to offer
trends, understand success drivers, improve decision-
additional BI services of a loyalty program to small stores.
making and thus can contribute to an efficient use of
This leads us to the research question, how small brick-
resources (Seddon et al., 2017). In the retailing sector,
and-mortar stores can benefit from the expansion of the
data analysis is mainly used to understand the needs and
service of customer loyalty programs. Especially single
preferences of customers and to improve the customer
bakeries, farmer-, flower-, butcher-, and souvenir shops
loyalty (Donnelly et al., 2015; Filipe et al., 2017; Mägi,
face limited resources. They cannot invest extensively in
2003). Furthermore, such information helps to adapt the
own BI tools, as set-up and operation costs are very high.
variety and quantity of products and services (Capizzi &
Furthermore, they lack the necessary time and capabilities
Ferguson, 2005; Cedrola & Memmo, 2010). While big
to host and deploy sophisticated BI tools (Olszak &
enterprises leverage various data analysis tools and tech­
Ziemba, 2012). For these small brick-and-mortar stores,
niques to improve their business performance and cus­
an overarching planning system embedded in the custo­
tomer loyalty, small companies struggle to implement
mer loyalty program can be a valuable alternative to
complex data analytics solutions. Many small shops
address these concerns. For example, new possibilities
cannot afford high investments in data analytics, nor in
by a closer collaboration between loyalty programs and
sophisticated BI systems (Donnelly et al., 2015; Olszak &
shops can be established, driven by data analytics.
Ziemba, 2012). Therefore, decisions are often based on
Moreover, with the implemented BI functionalities, the
experience, and customer loyalty is often maintained
shops have the possibility to improve their workforce and
through personal contact to the customer.
sales planning strategies, as well as to better understand
Current research on customer loyalty focuses mainly on
customer behavior and habits.
customer shopping behavior, behavioral change and
This research paper presents a case study in which an
manipulation, reward strategies, and the design of loyalty
existing card-based loyalty program was transformed to
programs (Bowen & Chen McCain, 2015; Cedrola &
a mobile app for the customer and a web application for
Memmo, 2010; Meyer-Waarden, 2015). While the business
the shop owners. Additionally, strategies of how to cre­
impact of loyalty programs and data mining techniques in
ate value from existing customer data are discussed.

CONTACT Michael Reiner Kamm michael.kamm@uni.li Institute of Information Systems, University of Liechtenstein, Vaduz, Liechtenstein.
1
An earlier version of this paper was presented and discussed at the 53nd Hawaii International Conference on System Science and published in the proceedings
as: Kucklick, J.-P., Kamm, M., Schneider, J., & Vom Brocke, J., Extending Loyalty Programs with BI Functionalities, HICSS-53 Proceedings, January 2020
© 2020 Taylor & Francis

Therefore, the data from about 13 years, 19,000 custo­
mers, and 55 shops has been analyzed and illustrated.
While many phenomena could be studied in the digita­
lization process of the loyalty program and the involved
shops, we focus in this paper on the strategic informa­
tion systems aspects as well as on the data analysis,
excluding business model changes.
The paper is organized accordingly. The next chapter
provides an overview of existing research. The third
chapter introduces the use case, including the main char­
acteristics of the loyalty program. Then, the results of the
data analysis are presented, along with the introduction of
the expanded functionalities of the transformed loyalty
program. Afterward, ideas about strengthening the colla­
boration between stores in a cross-industrial setting are
discussed. Based on this, ideas for cooperation are illu­
strated with the aim to reinforce sales and strengthen the
shopping location. Furthermore, the dependency between
currency rate and shopping behavior is identified. At the
end, the main findings are summarized and discussed.
Related work
Customer loyalty and loyalty programs
Customer loyalty can be defined as an ongoing business
relationship with a repeated buying behavior of the custo­
mer (Mägi, 2003; Meyer-Waarden, 2015; Uncles et al.,
2003). Often customer loyalty is extended with the concept
of emotional attitude toward a brand or product (Uncles
et al., 2003), where trust in a brand or product leads to the
purchase decision (Filipe et al., 2017). Additionally, the
purchase characteristics can influence the customer’s loy­
alty. Customer satisfaction impacts the emotional attitude
influenced by the posterior emotions created by the pur­
chase (Filipe et al., 2017). If the customer’s needs are not
fulfilled, feelings of regret are generated, influencing pro­
spective purchase decisions. By combining the repeated
buying behavior frequency and the emotional attitude,
different types of loyalty are defined, namely true loyalty,
latent loyalty, spurious loyalty, and low loyalty (Bowen &
Chen McCain, 2015).
Managing and encouraging these different types of cus­
tomer loyalty is essential for every selling or trading institu­
tion (Bilgihan, 2016; Cedrola & Memmo, 2010; Filipe et al.,
2017; Ngai et al., 2009). It becomes especially important
when customers are not bound to a contract or face insig­
nificant switching costs (Shapiro & Varian, 1999). Multi-
channel sales, online versus offline retailing, and a high
rivalry between products and services are just a few topics
all companies face. To avoid customers switching to
another vendor, loyalty programs aim at building a close
relationship by analyzing customers’ needs and preferences
INFORMATION SYSTEMS MANAGEMENT 271
(Bolton et al., 2000; Bowen & Chen McCain, 2015).
According to Cedrola and Memmo (2010), 90% of the
people in North America and Europe are members in at
least one loyalty program. The rewards and incentives
offered by the loyalty program strongly influence custo­
mers’ behavior toward using the program (Mägi, 2003;
Meyer-Waarden, 2015). Not only the quantity of
a reward but also other factors, such as timing, customiza­
tion, and perceived value of the reward, are essential to
maintain or increase loyalty (Meyer-Waarden, 2015).
Furthermore, loyalty programs face not only challenges
regarding the reward strategy but also changing external
variables like customer’s age, strong rivalry between pro­
grams, and technological requirements. Currently, the cus­
tomer’s generation is changing from X to Y, including
a change of values and culture, resulting in customers
preferring direct rewards and individual treatment
(Bilgihan, 2016). These customers are strongly influenced
by online reviews of their peer group (Bilgihan, 2016;
Bowen & Chen McCain, 2015). Moreover, Cedrola and
Memmo (2010) claim that customers are more loyal when
they own a single loyalty card from one provider. Several
loyalty programs in the same industry decrease the relation­
ship to the customer (Cedrola & Memmo, 2010). Besides
the success factors in modern loyalty programs, digitaliza­
tion offers new opportunities to enhance the customer
experience, as well as the cooperation between shops and
industries. This can lead to an increased perceived value of
the loyalty program (Capizzi & Ferguson, 2005; Donnelly
et al., 2015; Meyer-Waarden, 2015). Consequently, loyalty
programs face several internal and external challenges,
which impact the long-term success. For measuring the
customer relationship management, several indicators are
calculated including the customer lifetime value (CLV).
The CLV measures the economic value of a customer for
the company over time (Berger & Nasr, 1998; Khajvand
et al., 2011). The Recency, Frequency, and Monetary Value
(RFM) measurement is used to estimate the CLV. The RFM
measures the frequency and money spend per customer
and the time elapsed since the last purchase. The aim is to
estimate the value of this customer for the company
(Aggelis & Christodoulakis, 2005; Khajvand et al., 2011;
Neslin et al., 2006). The analysis techniques used in this
paper will use the RFM metrics to derive insights by the
data analysis of the use case.
Data mining and value creation process of data
analytics
Business Intelligence
For creating loyalty, not only rewards offered in the
program but also marketing and strategic decisions are
important (Bilgihan, 2016; Cedrola & Memmo, 2010).
272 M. R. KAMM ET AL.
BI Systems aim at supporting decision-making within an
organization. Through the integration of internal and
external data, insights into market potential and sales
position can be generated as well as predictions can be
made (Gluchowski & Chamoni, 2016). There are differ­
ent maturity levels of BI systems reaching from spread­
sheet solutions up to knowledge management
applications, including active process management
with data mining and real-time analysis (Gluchowski &
Chamoni, 2016). In order to adapt to business changes,
BI systems need to be designed in a flexible manner and
need to allow the expansion of services (Olszak &
Ziemba, 2007). The functions range from reports and
information represented graphically in dashboards, up
to sophisticated data mining techniques to uncover pre­
viously unknown knowledge. With these systems, man­
agers and decision-makers can rationalize their
decision-making based on numerical information
about their company and industry (Donnelly et al.,
2015). Hence, compared to gut feeling, more data-
driven and precise decisions can be made.
Big data and the need for BI in small enterprises
“For small firms, loyalty cards as a source of big data
present significant challenges” (Donnelly et al., 2015,
p. 423). The exponential growth of digitally created data
and the complexity of handling large amounts of data
makes it particularly difficult to store, process, and analyze
these data in an efficient manner (Donnelly et al., 2015;
Gupta & George, 2016). Data can be collected from a wide
range of sources, such as data from purchase transactions,
but also alternative sources such as social media platforms.
This data empowers marketers to narrow segmentation of
customers, uncover trends, and advances the possibilities
to tailor products and services (Donnelly et al., 2015).
These newly created insights enable the company to
study the customers and their buying behavior, but also
to analyze their own business performance. While the
usefulness of BI systems for large enterprises has been
confirmed by a large number of studies, small and med­
ium-sized enterprises struggle to adopt and implement BI
systems (Olszak & Ziemba, 2012). Nevertheless, Olszak
and Ziemba (2012) claim that BI tools are substantial for
small and medium enterprises and that such systems lead
to a competitive advantage.
Challenges implementing BI systems for small
enterprises
In their research study, Donnelly et al. (2015) describe
the difficulties of small-retailers with large amounts of
data from loyalty programs. They claim that small enter­
prises make decisions in an unstructured way, as reac­
tion to current market situations. Furthermore, they
argue that small enterprises neither have advanced in-
house information and communication technology
expertise nor the financial resources to invest in exten­
sive data processing and utilization (Donnelly et al.,
2015). In many cases, the usage of the data and the
implementation of BI tools confront small enterprises
with a variety of challenges. As a main barrier for the
implementation of BI solutions, the lack of capabilities
to analyze large amounts of data can be identified. To
analyze further major determinants and barriers of BI
implementations, Olszak and Ziemba (2012) studied 20
small and medium-sized companies that have imple­
mented or were in the implementing phase of BI sys­
tems. The three most significant determinants are the
price of the BI systems and their implementation, inte­
gration into the existing systems as well as well-defined
business processes. These findings support the claim of
small enterprises struggling with BI implementation due
to a lack of financial resources and the need for a fitting,
business-oriented, and flexible BI system. Among the
identified crucial barriers are the lack of knowledge
about BI systems and their capabilities, the lack of man­
agerial support, and BI implementation budget (Olszak
& Ziemba, 2012). Their results are grouped into critical
success factors for BI implementations under the terms
organization perspective, process perspective, and tech­
nology perspective.
To sum up, some of the main challenges for small
enterprises with data analytics are issues to handle large
amounts of data, implementing and hosting sophisti­
cated IT tools and techniques, lack of time, missing in-
house IT expertise, and lack of financial resources to
invest in data processing and utilization (Donnelly
et al., 2015; Olszak & Ziemba, 2012).
Value creation of data analytics
While the previous chapter discussed the challenges of
implementing advanced data analysis and BI systems, it is
worthwhile to also analyze the value creation process of
these systems (Seddon et al., 2017). Seddon et al. (2017)
present two models: the process and the variance model.
The first model focuses on the analysis process and
the second focuses on drivers of success. Accordingly,
derived insights from data analytics can impact the business
of the company in two ways: on the one hand, existing
resources can be used more efficiently; on the other hand,
new resources for the company can be generated through
strategic change. In the variance model, important success
factors include analytical leadership, the functional fit of
analytics tools, availability of data, and well-chosen targets.
Furthermore, the organizational learning ability, as well as
a data-driven culture, are criteria that significantly influence
the success of data analytics projects (Gupta & George,

2016). The authors base their research on the resource-
based view of the firm where valuable, rare, imperfect
imitable, and non-substitutional (VRIN) resources are
seen as a competitive advantage. This is similar to the
process model introduced by Seddon et al. (2017).
Günther et al. (2017) agree that a more efficient or effective
usage of the company’s resources in combination with
constantly adapting the business model creates competitive
advantages. Consequently, the effective usage of valuable
and unique resources, enabled by data analytics insights
creates long-lasting economic success and can support
sustainable development (Donnelly et al., 2015; Günther
et al., 2017; Seddon et al., 2017). In the following section,
some of the applied analytical methods are shortly
described.
Data mining techniques
The data mining field covers various methods and tech­
niques for advanced data analytics. In this section, we
briefly describe the most important data analysis tech­
niques, used in this research study. For deriving insights
into associated items, shopping basket analysis was
applied, while singular value decomposition reveals
details about latent shop clusters.
Shopping basket analysis
One well-known analysis technique of customer data
analytics is association rule mining introduced by
Agrawal et al. (1993). The goal is to extract knowledge
from database transactions, more specifically out of item-
sets (items purchased together) (Agrawal et al., 1993;
Agrawal & Srikant, 1994). Generated rules describe rela­
tions between items, where an item-set X is an antece­
dent, and an item-set Y is a consequence. With the
association rule mining, it becomes possible to derive
knowledge from products that are purchased together.
Knowing the consequence of an antecedent product bun­
dle is helping to establish cross- or up-selling. Different
measures are calculated, namely support, lift, and con­
fidence (Agrawal et al., 1993; Agrawal & Srikant, 1994).
Singular value decomposition
While association rule mining is a method to analyze
shopping baskets, the singular value decomposition
(SVD) is a technique used for dimensionality reduction
X butcheries, bakeries, flowers, paper, and souvenir
M¼U� �VT
Formula 1: singular value decomposition
Previous unknown latent concepts are derived by split­
ting an input matrix M. M has the shape of m*n. The
INFORMATION SYSTEMS MANAGEMENT 273
input matrix M is then decomposed into the matrixes U,
Σ, V, where U has the dimensions m*m, Σ has m*n, and
V has n*n (Shlens, 2014). The SVD of matrices is used in
recommender engines to reduce the complexity of the
recommendation problem (Amatriain & Pujol, 2015;
Nilashi et al., 2018). Also, it is applied in the topic
modeling algorithm latent semantic analysis, where
a text-word matrix from a bag-of-words model is
decomposed into U, a text-to-concepts, and V,
a concept-to-word matrix (Deerwester et al., 1990).
Therefore, SVD is applicable to different applications,
such as text mining or product recommendation tasks.
Use case
This research study examines the potential and the
resulting opportunities by extending a loyalty program
with BI functionalities for participating brick-and-
mortar shops. Therefore, data has been collected in
various forms in over two years of project involvement.
The project included the development of a new business
model for the loyalty program, the installation of a new
hardware and software solution, the extension of BI
functionalities to support local shops, extensive data
analysis, and interviews with shop owners, customers,
project partners, and the respective ministry of finance.
Main characteristics of the loyalty program
The loyalty program is available in one of the smallest
countries in Europe and operates in a multi-border
location. In this country, products and services are
more expensive than in neighboring locations. As
a result, residents shop often abroad, which is
a problem for local brick-and-mortar shops. Therefore,
the government supports a customer loyalty program to
keep people shopping within the country. This loyalty
program is free of charge for the customers, shops pay
a yearly fee in order to participate, and 1.2% of the
transaction amount per customer is transferred to the
loyalty program. From the 1.2%, the customer receives
a reward of 1% on the invoice total in points. These
points can be collected and used as a discount on the
next purchase in one of the participating shops. 0.2% is
used by the loyalty program for marketing, special pro­
motions, maintenance, and labor costs. In total, 55 shops
across various industry sectors participate, such as
shops. Most of these shops employ between 2 and 20
employees. The brick-and-mortar stores are planning
their business based on experience. BI software or
advanced BI tools are not installed since the small
shops face a lack of IT knowledge, skilled IT persons,
274 M. R. KAMM ET AL.
IT infrastructure, financial limitations, and conse­
quently cannot host their own complex systems.
Over the years, the usage of the loyalty card decreased
dramatically. Both the number of participating shops
and customers using the card declined. During the pro­
ject work, two major issues were identified:
1) Inefficient processes and high administration effort
with the outdated system
2) Dissatisfaction with the functionalities and effi­
ciency of the outdated loyalty card program
The outdated card-based system was characterized by
a card reader installed in every store. The card readers
were old and not connected to a common database.
Instead, a manual readout was performed in fixed inter­
vals in all shops. Furthermore, the card readers were
fragile, and data were stored in the internal memory
until the next manual readout. Over the years, several
data losses occurred. Interviews conducted with the
shop owners indicated dissatisfaction with the loyalty
program in place due to a lack of functionalities and no
noticeable effect on sales and customer loyalty.
Available data
A large amount of data has been collected since the
loyalty program was established in 2004. In total,
1.6 million transactions have been recorded from 55
participating shops across diverse industry sectors.
Furthermore, shopping data from 19,000 customers
were available. Shop details, transactions, and informa­
tion about the customers were stored in separate tables.
To enrich the dataset, shops were categorized into
industry branches and the weekday was derived from
the timestamp (Figure 1).
As the transaction table is stored in the long format,
the RFM can be calculated for different time periods and
on different granularities levels (daily, weekly, monthly).
Additionally, the dataset can be filtered for industries,
shops, or customer groups. For the following explorative
data analysis, the association rule mining, SVD, and the
RFM are applied.
Figure 1. Available data and structure.
Unfortunately, over the last years, data about pur­
chased products were not stored in the loyalty program.
The reason is that many of the participating small brick-
and-mortar stores had no electronic data warehousing
or advanced electronic cash systems for capturing this
information. Furthermore, all individual customer
details were excluded from the analysis, due to data
privacy regulations.
Data analysis and expanded functionalities
Remark: Only customers making use of the customer
loyalty card are represented in the data, but there is
certain proportionality to the population. Due to the
signed non-disclosure agreement with the collaborating
loyalty card provider, it is not allowed to show the real
quantities. Therefore, the following visualizations are
missing quantifications on the y-axis. Nevertheless,
trends, effects, and issues are clearly visible.
Data analysis
Analyzing the existing data before the digital transfor­
mation revealed a negative trend in card usage and
participating shops (Figures 2 & 3).
The overall transactions booked with the loyalty card
show a strong negative trend since 2008. The same trend
can be observed with the participating shops. Both,
Figures 2 and 3 indicate that the loyalty card system
became less attractive over the years.
Besides these negative trends, the analysis of how
many customers regularly use the card shows more
stability. Figure 4 shows that the number of customers
using the card at least once per year is rather stable since
the introduction of the card in 2004. This indicates that
a certain customer group regularly uses the loyalty card.
Furthermore, it shows that the card is not completely
forgotten, unaccepted, or unused.
Further analysis revealed that the main users are
customers between 40 and 55 years old.

Figure 2. Number of customer transactions.
Figure 3. Number of participating shops in the loyalty program.
Expanded BI functionalities for stores
According to related work, one success driver of small
shops is the usage of different data analytics methods to
improve strategic decision-making and resource man­
agement (Donnelly et al., 2015; Olszak & Ziemba, 2012).
INFORMATION SYSTEMS MANAGEMENT 275
Graphical visualizations are one key aspect of BI solu­
tions (Dinter, 2012; Gluchowski & Chamoni, 2016).
With the outdated card-based solution, shop owners
had no possibility to analyze trends, as data was just
stored but not used. Through the newly implemented
276 M. R. KAMM ET AL.
Figure 4. Usage of the loyalty card.
web application, shop owners have access to dashboards
visualizing key performance indicators, such as trends,
number of customers, number of transactions, turnover
reactions, as well as visualizing seasonality effects. This
creates real value for small shops since many of them
rely only on experience and own calculations. Therefore,
the developed web application for shop owners provides
a set of visual dashboard reports. In the following
Figure 5. Number of transactions for shop 25 and 62.
paragraphs, data from shop 25 and 62 were chosen for
illustration purposes. Shop 25 and shop 62 were selected
randomly.
Figures 5 and 6 visualize the monthly number of
transactions and the generated loyalty points for the
shop owners. These dashboards can be adjusted to
a daily, monthly, or yearly visualization. While Figure 5
represents the number of transactions and therefore

Figure 6. Loyalty points generated by customers in shop 25 and 62.
enables insight in the amount of customer purchases,
Figure 6 illustrates the generated loyalty points by the
customers, indicating trends in sales in the year 2016.
Based on the information of the amount of sales and
number of transactions (Figures 5 & 6), shops can
improve their workforce and capacity planning.
Furthermore, seasonal trends can be visualized and
addressed. For shop 25, in December, a higher activity
is observed, compared to the rest of the year. In contrast
to shop 25, shop 62 has low performing months from
April to August, while many loyalty points are generated
from September to March. The same trend is also clearly
visible in the number of transactions (Figure 5). Possible
reasons for the sales increase in shop 25 and shop 62 in
the fourth quarter of the year are seasonal effects and
additional marketing campaigns before and during the
Christmas season. The dashboard of shop 25 indicates
strong sales in the period before Christmas, probably
because of the nature of its products: jewelry, acces­
sories, and other gift-related products.
Other examples for the usefulness of these dash­
boards are derived out of interviews conducted with
shop owners. One of the participating farmer stores
has flexible opening hours and can benefit from addi­
tional information on seasonality and rush hours.
Another shop owner owns several paper shops and
needs information about the number of transactions
(Figure 5) and sales data (Figure 7) to optimally plan
and share the workforce between the locations. Shop 34
spends money for advertisement on public transporta­
tion and newspapers. With the new visualization and
reporting capability, shop 34 can study the effect of the
INFORMATION SYSTEMS MANAGEMENT 277
marketing campaign on the number of customers and
the sales in the following months.
The number of transactions per weekday (Figure 7)
reveals trends within the week and can be used in addi­
tion to Figure 5 to optimize workforce planning. The
dashboards indicate many transactions for shop 25 on
Wednesdays and Fridays. In contrast to shop 25, shop 62
has on average the most customers on Fridays. To sum
up, a variety of information can be derived out of these
dashboards, which can be very useful to empower shops
to obtain a better overview of their current business.
Moreover, tailored advertising and marketing cam­
paigns can be launched, and their influence on the
number of transactions, number of customers, and
resulting sales can be studied. Furthermore, insights in
sales and turnover can be generated.
Expanded BI functionalities for the government
The analysis can be expanded to industry level, showing
the loyalty through the number of customers for differ­
ent industries over time. As an example, the number of
customers in flower shops is visualized in Figure 8.
The strong decline in the number of customers in
the year 2008 was due to the closedowns of several
flower shops. The created BI tool includes dashboards
on industry level that could be used by the local govern­
ment as a tool to analyze the economic health of industry
sectors, additionally to other tools. Consequently, eco­
nomic help can be offered for industries being in a tight
economic situation to maintain a sustainable and diverse
economy with different industries. The major advantage
278 M. R. KAMM ET AL.
Figure 7. Number of transactions per weekday for shop 25 and 62.
Figure 8. Analysis on industry level (example with all flower shops).
is that data is accessible in real-time and minimal effort
is needed to generate these additional dashboards.
An example for analyzing different industries is
made on shop 18, a local bakery. Figure 9 depicts the
mean sales per weekday in comparison to the mean of
the industry and excluding shop 18. It seems that cus­
tomers, on average, spend more in shop 18 than in
comparison to other food shops within the loyalty
program. This analysis can be used by the shop to get
a good overview of the purchasing power of customers
in the industry sector. Moreover, a good industry
understanding can be built up. In the case of shop 18,
it seems that it is very successful compared to the
industry mean.
 INFORMATION SYSTEMS MANAGEMENT 279

Figure 9. Mean loyalty points of shop 18 on weekdays per year.

Strengthening collaboration between shops performed on industries, as seen in the last rule. With
across various industries a high change of 71%, customers buying flowers in
a flower shop buy also print products in one of the
While the dashboards are mainly focusing on the inter­
paper shops.
nal situation of the shops, association rule mining and
For shops within the loyalty program, new possibili­
SVD shift the focal point of the analysis to cooperation
ties for cooperation arise. With the card-based system,
between shops.
each shop offered the same rewards in form of loyalty
points. With the new system, new rewards can be devel­
Association rule mining oped, for example, in form of vouchers, to strengthen
the collaboration between shops across industries. For
As discussed earlier, association rule mining can help to instance, customers making purchases in shops 25 and
understand the shopping basket and can be used for up- 98 get a tailored voucher with a discount on products
or cross-selling of products. In the existing case study, offered by shop 128. Motivated from the literature
no such fine granular data existed. However, transaction (Bowen & Chen McCain, 2015; Meyer-Waarden,
data on shop and industry level was collected, and the 2015), the effectiveness of a loyalty program can be
association rule mining was applied to this data. Some increased when the offered rewards match the customer
example rules are stated in Table 1. The first rules are needs. This result matches previous research of Capizzi
mined on shop level. Of all customers, 7.1% bought and Ferguson (2005), where cooperation in a loyalty
products in shops 25, 98, and 128. When a customer program has been identified as one success driver.
has bought products in shop 25 and 98, there is a 73%
chance that a purchase in shop 128 will follow in the
future (Table 1). The association rule mining can also be SVD applied
When increased cooperation in a loyalty program is
Table 1. Association rule mining. one success factor (Capizzi & Ferguson, 2005), deriv­
Antecedent Consequence Support Confidence Lift ing knowledge about existing and possible coopera­
25, 98 128 0.071 0.73 2.88 tion is fundamental. As the SVD is not only
18 62 0.125 0.59 3.43
26 62 0.086 0.63 3.68
a dimensionality reduction technique but also mines
1 25 0.311 0.368 1.13 latent concepts, it is suitable for also deriving latent
Flower Print & Paper 0.157 0.71 1.34 shop clusters. Instead of using word frequency or
280 M. R. KAMM ET AL.
word importance in text mining, shopping frequency,
or monetary involvements can be used as measures
used in marketing. The customer-shop matrix of the
RFM with the standardized visits per shop is used as
input data. Through the matrix decomposition, the
“concept-to-shop” matrix V is derived. Through
using a graph visualization tool, the top three con­
nections of shops within each concept are visualized.
The result is depicted in the following Figure 10.
Each concept has its own edge color. For instance,
one cluster of shops out of the analysis that have
something in common are shops 128, 97, 98.
Conducting further research, we found out that all
these shops are located near the city center.
Therefore, customers often visit all these shops dur­
ing their shopping day. As seen in Figure 10, all
kinds of clusters can be derived and further analyzed.
As described previously, the probability can be calcu­
lated, that customers who were, for example, visiting
shop 84 and shop 90 afterward visit shop 129.
Shops within one cluster share similar characteristics,
e.g., frequency patterns. Often this information was not
used in the past as it is latent. A strong similarity
between shops in the latent cluster can be used for
joint marketing campaigns, closer collaboration, special
offers, or customized rewards. In this way, shopping
behavior and the shopping route of customers can be
influenced. On the one hand, this can increase the
attractiveness of a loyalty program for shops to
Figure 10. Derived shop clusters through SVD – Shops with similar characteristics.
participate. On the other hand, customers benefit from
special offers and rewards.
Additional insights are included in the cluster of 26,
62, and 18. This cluster is related to food and includes
a local bakery, a farmer’s shop, and a milk & cheese
store. Identified from the shop clusters, this is
a combination of shops which have the same frequency
pattern in the RFM matrix. Filtering the association
rules for that shop combination, it can be seen that the
confidence of rules {18 → 62} and {26 → 62} is very high
with 59% and 63%. However, the support is relatively
low with 12.5% and 8.6%. When the minimum support
threshold is set to 5%, the combination of the three
shops is not in the frequent item-sets. The loyalty card
would bring the potential to increase the support of the
rules associated with the shops by creating a marketing
campaign together. Through the low support, it seems
that just a few people buy in these shops, however, if they
do so, with high confidence.
A third cluster that is worthwhile to inspect are shop
1, 126, 127, which are identified as fashion stores.
Customers again seem to have high confidence within
this cluster. The association rules, however, show that
shop 1, a shoe store, is also linked to store 25, a jewelry
store, yet with a low confidence but a strong support.
The low confidence is the reason why it is not displayed
in the top 3 associated shops in the shop clusters. For
shops 1 and 25, it would be beneficial to increase the
probability that people visiting the one store are also

Figure 11. Currency exchange rate of Euro in Swiss Francs
buying in the other store. Therefore, vouchers or special
offers in collaboration between shops would be
a possible solution to sell products in a bundle.
Abstracting from the derived rules which lead to in-
depth insights into the shopping behavior, some points
need to be noted. The depicted solutions represent
a form of decision support systems for the shop. As
these shops are often highly specialized, automating
shopping recommendations derived from the associa­
tion rule mining is not the goal. The explicit support for
strategic decisions like cooperation, marketing cam­
paigns is the focus. Relating to the business analytics
model of Seddon et al. (2017), this is in line with the
process model, where data analytics result in insights by
changing the business resources leading to business
value.
External factors
The loyalty program operates in a geographical area with
multiple city-centers from different countries close to each
other. Consequently, the different currencies from the
countries seem to have a strong influence on the perfor­
mance of the loyalty program and the shopping tourism.
Therefore, the currency exchange rate has been compared
to the trend of the loyalty points (Figures 11 & 12).
In Figures 11 & 12, an overlap in the trend between
the generated loyalty points and the currency exchange
rate can be recognized. The start of the financial crisis in
INFORMATION SYSTEMS MANAGEMENT 281
2008 did not just have a negative impact on the exchange
rate (Figure 11), but also on the shopping behavior and
the loyalty program (Figure 12). In 2010 and 2011, the
financial crisis impacted different European countries in
their repayment of debts (Copelovitch et al., 2016). The
difficult financial situation can also be seen in the trend
of the loyalty points generated, leading to a significant
downturn. In the year 2015, the fixed exchange rate
between the Swiss Franc and Euro was canceled
(Mirkov et al., 2019). In consequence, the Swiss Franc
increased its value against the Euro and the exchange
rate decreased (Mirkov et al., 2019). This decline is also
clearly visible in the trend of the loyalty points leading to
the second drastic downturn (Figure 12).
It can be concluded that the economic situation
impacts the business situation of small brick-and-
mortar stores significantly. Furthermore, the hypothesis
can be stated that there is a trend of shopping tourism as
the price level and the exchange rate make shopping in
the foreign currency economically more attractive.
Post implementation
While insights from the data analysis are discussed in the
previous chapter, this section focuses on the post-
implementation effects for the loyalty program and the
participating shops. Ten months after the initial imple­
mentation of the new digital loyalty program, the usage of
the loyalty program increased in the central aspects of the
282 M. R. KAMM ET AL.
Figure 12. Total generated loyalty points
number of participating shops and number of transac­
tions. The number of participating shops in the loyalty
program increased by 30%. New industry sectors joined
the program, including fitness centers, sports clubs, res­
taurants, car dealers, and all kinds of service providers.
Meanwhile, 40.000 transactions have been recorded and
the amount of active customers increased compared to
the old card-based system. The new solution for the
customer is the digital app, nevertheless, for customers
without a smartphone, an alternative solution with
a physical QR has been established which is valid during
the transition phase. In total, 75% of the customers are
using the app frequently, and 25% of the shoppers use the
alternative solution with the personal-printed QR code. It
is planned to increase the usage and functionalities of the
customer app.
The effects of a more engaging loyalty card and
increased customer interaction can be already seen in the
data. In the past, it was observed that many customers had
collected points for a long time and spent these points in
a large shopping in one of the bigger shops. With the new
digital solution, the customers’ redemption behavior chan­
ged from large transactions to smaller redemption, being
a first evidence for a livelier loyalty ecosystem. Through
a more balanced redemption behavior, also small shops
profit more from the redemption of the loyalty points.
Furthermore, there is a wide interest shown from
neighboring countries’ cities in the new digital solution.
It is currently examined under which circumstances the
regional loyalty program can be expanded to collaborate
with neighboring cities.
Current status of data analytics and BI solution
The new web application for shop owners supports their
decision-making with various dashboards and analysis,
with the examples shown in the previous sections.
A basic package, including descriptive analytics, is offered
to all shop owners without additional costs. In general,
the focus of the data analysis currently lies on the number
of active users, the number of active shops, the amount of
transactions in different time intervals, collected loyalty
points, points redeemed, and various analysis on shop
levels, for example, rush hours, seasonality effects, and
many more. Advanced analytics, adaptions and indivi­
dual solutions are currently requested by a few members
and will be provided in the future. For the future, possible
extensions of the app for the customer with gamification
are planned, in order to increase the attractiveness of the
loyalty program and improving the sales and turnover of
the small brick-and-mortar stores.
Lessons learned
During the implementation phase, two major success
factors were identified. First of all, a high demand for
IT support was noticed in the first few months after
implementation. While this goes along with most IT

implementation projects, it is an important step to
increase the IT skills in the shops through scheduled
training. The target was that small issues can now be
handled by the shops on their own, reducing the support
demands for the loyalty program. Additionally, the con­
fidence of the shop owners in the technology increased,
leading to a stronger promotion by the shops of the new
app and an increased usage of the BI solutions in the web
application.
Another success factor of the project is related to the
modularity of the software. The core software, the custo­
mer app, and the BI functionalities in the web application
were rolled out by designing small modules. Thereby, the
software can be easily adjusted and extended if necessary.
Moreover, due to the incremental development, resources
like developing capacity and financial resources were used
very effectively and were not exceeded.
Further possibilities for participating shops
By making effective usage of the modularity and advan­
tages of the digitalized solutions, various further devel­
opments for the shops’ business programs are possible.
The loyalty program, being the first step into digitaliza­
tion for most shops, is not only working as an inter­
mediary but also as a platform provider, enabling
additional services like software tools for e-commerce.
For the shops, this creates the possibility to expand into
the new sectors by providing online shops or at-home
delivery. Consequently, the digitalization of the loyalty
program increases the efficiency of processes, enables
dynamic BI solutions, and can be seen as the first step
for further digitalized services.
Findings derived from the implementation and
data analysis
During the project work, development, analysis, and
implementation phases of the new loyalty program
with extended BI functionalities, the following key find­
ings were derived:
(1) Deriving knowledge about company perfor­
mance is essential in order to adapt to external
factors and changes. Therefore, a BI system for
small shops becomes essential. A loyalty program
could offer additional services to analyze and
strengthen the position of small brick-and-
mortar stores.
(2) Association rule mining can be applied to differ­
ent granularity levels. With mining knowledge
about associated shops, new reward types can
emerge from the cooperation between shops
INFORMATION SYSTEMS MANAGEMENT 283
across different industries. This can increase the
value of the loyalty program.
(3) SVD generates additional insights into the latent
connection of shops. Therefore, valuable and
meaningful collaboration possibilities can be
derived. Based on this, joint marketing and pro­
motions across various collaborating shops can
be established.
(4) External factors have a vigorous influence on the
performance of the loyalty program. The
exchange rate and foreign politics seem to influ­
ence the customers’ shopping behavior and need
to be considered in all actions from the loyalty
program and its shop partners.
(5) Modularity helps to adjust the software flexibility
to the shop’s needs, offering the possibility for
future extensions, while making effective usage
of time, working hours, and financial resources.
The data analysis revealed that extended data analy­
tics techniques can be integrated into loyalty programs.
Such advanced loyalty programs provide many benefits
for small brick-and-mortar stores, that cannot afford
their own complex BI systems. BI functionalities such
as visualization of trends allow shop owners to gain
additional insights and offer the possibility to make
enhanced strategic decisions. Cooperation between
shops across industries can be used to strengthen the
economic power of a region (Capizzi & Ferguson, 2005).
Additionally, this cooperation can facilitate the resis­
tance to external challenges, such as currency exchange
rates and price index fluctuations. However, loyalty pro­
grams need to expand their services. As the loyalty
program is the connection between the shops, industry,
and local government, it is a powerful foundation for
developing a strong and stable economic region.
Transforming the core business model of a loyalty pro­
gram from a card-based system to a multi-service and
platform provider is necessary to reach that goal.
Moreover, the loyalty program can improve its attrac­
tiveness and creates revenue from selling these services
to members in the loyalty program.
Discussion
We agree with Donnelly et al. (2015) that small enter­
prises struggle with the mass of data of loyalty programs
and can hardly overcome the issues, due to limited
financial resources and lack of knowledge. In our
research, it is demonstrated how an overarching system
can support small shops in data analytics by providing
a BI solution as a service provider. Especially, BI-related
dashboards and reports are of importance in our case
284 M. R. KAMM ET AL.
study. Success factors for implementing BI systems in
the case study match with those derived from the related
work of Olszak and Ziemba (2012). Key drivers for the
success of the implementation are a user-friendly soft­
ware design, functionalities tailored to the users` needs,
and an efficient resource utilization. Despite the new BI
features supporting the shop owners in their business
decisions, the attractiveness of the loyalty program
increased for the customers. Our results are very similar
to these of Capizzi and Ferguson (2005). Through digi­
talization, the customer experience of the program can
be positively influenced, while the value of the loyalty
program depends on the shop partners and their will­
ingness to support the program. Before the digitalization
of the loyalty program, the number of transactions and
participating shops was decreasing, while the number of
active users was stagnating. The first trend after the
implementation indicates an increasing number of
shops participating and an increasing number of custo­
mers. While the reward strategy has not been changed
yet, advanced data analytics like latent shop clustering
and association rules, empower a stronger cooperation
between the participating shops. The implementation of
sophisticated data analytics and BI solutions is often not
possible for small shops due to the lack of IT skills and
resources. Sharing the development by an overarching
platform can create these opportunities using network
effects. A loyalty program seems, therefore, one possible
option, as it already collects data and offers services to its
participants. Creating a software solution based on mod­
ularity creates flexibility to fit the shop’s needs as well as
numerous possible extensions for the future. The soft­
ware is not only customized to the needs of brick-and-
mortar stores but also the developmental costs are
shared via the loyalty program by all partners. Using
financial resources effectively is one major success driver
in this implementation which corresponds to Olszak
and Ziemba (2012). The loyalty program changes there­
fore from a service to a platform provider, creating new
opportunities for the provider and its customers. For
most of the small shops, the digitalization started by
joining the loyalty program. It seems that shops with
a strong managerial support of data analytics, a high
ability of organizational learning, and a clear defined
target for the analysis seem to benefit more from the
analysis tools, according to the research of Seddon et al.
(2017). Moreover, the business models of the shops can
be expanded to the digitalized economy in the future. It
is worthwhile to note, that not the analytics capabilities
or digitalization per se create the business value for the
shops, but the usage of these tools. This is in line with
research from multiple studies about the value creation
process of analytics (Günther et al., 2017; Seddon et al.,
2017). In the end, the efficient usage of existing resources
or the creation of new opportunities to develop VRIN
resources can enable sustainable business development
and better decision-making.
Implications
In the case study, a successful digitalization of a loyalty
program is presented. Through the transformation, not
only the attractiveness for the customers by using an app
but also the value for shops was increased by offering BI
and data analytics services. Small shops often do not
have the resources to develop, implement, and operate
their own BI system; thus, they lack in decision support.
The loyalty program in the case study switches from
a service to a platform provider, offering BI solutions
for the participating shops, including dashboards about
the number of customers, peak hours, and redemption
behavior. This helps the shops in improving their mar­
keting campaigns or in optimizing their workforce plan­
ning. The loyalty program benefits from the
transformation by changing a downturn in the usage
of the outdated system, into an upward trend with the
digital solution. The digitalization of the loyalty program
is the first step into new opportunities for the small
brick-and-mortar shops. The loyalty program can
further expand the functionalities based on this devel­
opment, offer further services, and advanced customized
analysis.
Moreover, it is necessary that brick-and-mortar
shops, being part of a common ecosystem, need to
cooperate more closely to develop customized and
attractive rewards for different customer types in the
future. By making use of latent shop cluster analysis
and association rule mining, the cooperation could be
supported. Moreover, new reward types can be devel­
oped based on these analyses, increasing the perceived
value of the loyalty program for the customer further,
which leads to attractive loyalty programs. Supporting
local brick-and-mortar shops can contribute to
a sustainable economy.
Limitations and future work
This study examines new possibilities to provide BI
services for small shops by extending the functionalities
of a loyalty program. The single case design, which leads
to specific results for this unique case setting reduces the
generalizability. Moreover, the limited available features
in the dataset restricted the analysis to deeper insights
about the shopping behavior of the customers.
Additionally, neither does this work measure causal
business effects of the digitalization nor does it further

analyze the success criteria of organizational learning
and change management.
However, future work should focus on quantifying
the business value generated by the BI solutions for the
shops in the different industries. The potential to use not
only the shop-to-concept but also the user-to-concept
matrix should be examined to derive a deeper under­
standing of the customer. Moreover, measuring the
effects of new reward strategies based on advanced vou­
chers and improved collaboration could be interesting.
In general, creating more use cases by implementing
a similar concept in other regional loyalty programs
could be beneficial to examine further success factors
and the potential of such BI solutions.
Conclusion
Small brick-and-mortar stores are under constant chal­
lenges due to an increase in competition through online
shopping as well as a tendency to build large shopping
malls. Furthermore, such shops often cannot benefit
from digitalization in the same way as larger companies,
due to limited material and immaterial resources. This
research study shows how to resolve this issue by
extending cross-industry loyalty programs with data
analytics and BI functionalities. The additional decision
support and access to various data analytics methods can
strengthen the position of small brick-and-mortar
stores, by making effective use of existing data. Hence,
a loyalty program was transformed from a card-based
system to a web application for shops and a mobile
application for customers. The digitalization of the plat­
form helps to increase the attractiveness of the loyalty
program for the customer, and also to increase the value
for the shops. The modularity of the software design
allows for possible expansions like gamification of the
shopping process or e-commerce applications.
Consequently, the loyalty program ecosystem including
customers, shops, and governments can benefit from
a strong cooperation. It, thereby, strengthens local econ­
omy and keeps city centers from becoming ghost towns,
while at the same time it improves services for customers
through enhanced analytics.
Notes on contributors
Michael Reiner Kamm (michael.kamm@uni.li) is a PhD can­
didate and research assistant at the Hilti Chair of Business
Process Management at the University of Liechtenstein. He
received his BSc in Mechanical Engineering from the
University of Applied Science Esslingen and his MSc in
Information Systems from the University of Liechtenstein. In
his dissertation he examines how new Internet of Things (IoT)
technologies contribute to the development of innovative
INFORMATION SYSTEMS MANAGEMENT 285
data-driven processes. Therefore, he is involved in various
digitalization, smart factory, and smart city research projects.
Jan-Peter Kucklick (jan.kucklick@upb.de) holds a BSc in
Business Administration with specialization in Information
Management and IT and a MSc in Information Systems with
specialization in Data Science from the University of
Liechtenstein. He is a research assistant at Paderborn
University and currently pursuing a doctoral degree. His
research interests include the value generation of business
intelligence, different applications of data mining, artificial
intelligence, and computer vision for product evaluation.
Johannes Schneider (johannes.schneider@uni.li) obtained his
PhD at ETH Zurich in Computer Science. He worked at
research labs at IBM and ABB. Now, he holds a tenure-track
position as Assistant Professor in Data Science at the Institute
of Information Systems at the University of Liechtenstein.
Jan vom Brocke (jan.vom.brocke@uni.li) is Professor of
Information Systems, the Hilti Chair of Business Process
Management and Director of the Institute of Information
Systems at the University of Liechtenstein. His research
focuses on business process management and related aspects
of digital innovation and transformation. He has published,
among others, in Management Science, MIS Quarterly,
Journal of Management Information Systems, Journal of
Information Technology, European Journal of Information
Systems, Information Systems Journal, Communications of
the ACM, and MIT Sloan Management Review. He has held
various editorial roles and leadership positions in Information
Systems research and education.
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