Thvdlty - The Changing Face of Customer Insight and Loyalty

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    THE FUTUREOF LOYALTYTHE CHANGING FACE OF CUSTOMER INSIGHT AND LOYALTY

    The Best-Run Businesses Run SAP

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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 oflarge-scale public sector job losses have all combined to undermine both disposableincome 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 highestrise in spending on groceries and food as a proportion of GDP since the SecondWorld War. These factors combined with the dreaded credit crunch mean thatspending power has dropped enormously since 2008 some commentators argue bylevels last seen in the early 1980s.

    Yet the effect upon retailers is not homogenous: some are faltering, others aremaintaining their market share and a few are prospering. Whats clear is that in thecurrent climate is that managing customer loyalty is a vital business strategy, sinceretaining customers is far cheaper than recruiting new ones. For many years retailershave successfully employed customer insight and loyalty programmes to maintainwallet share and build customer loyalty, but a variety of factors are now challengingtraditional approaches.

    On the one hand, customers are evaluating their choices more than ever before, aidedby easier price comparison, recommendation and review sites, and the ability to checkthese choices in realtime via mobile devices. On the other hand, a wider range ofcompetitors (including online-only retailers), the flattening of world markets(meaning customers can now easily purchase goods from outside the UK), and farmore 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 intoincreased market share, profitability and customer loyalty.

    In this paper we look at the changing face of loyalty and what this means now and inthe future, how retailers can gain advantage from more adept use of technology anddata, and the importance of effective customer insight to stay attuned tofast-changing customer behaviour and sentiments. We also provide benchmarks, anda loyalty and insight maturity model, which is based on information, gleaned fromresearch amongst a representative selection of UK retailers of all types in mid-2011.The maturity model and benchmarks reveals different aspects of loyalty and insightthat retailers can use to judge their own performance, as well as gain ideas about whatother retailers are doing.

    1 For example, the Independent Treasury Economic Model (ITEM Club), an economic forecasting group basedin the UK and sponsored by Ernst & Young, has forecast that consumer spending will rise by an average of 2% atmost 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 expectsthe effect to be harshest outside London. In the short term the group forecasts a rise of consumer spending ofjust 0.6% in 2011, and 1.3% in 2012.

    22SAP Market Report - The Future of Loyalty

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    Maintaining loyalty means addressinglong-standing challenges

    Customer loyalty is something we all think weunderstand, and about which much has been written.

    Delivering customer satisfaction translates into loyalcustomers, and loyal customers mean repeat businessand even customer advocacy so the logic goes. In aretail context, creating customer loyalty is substantiallyabout ensuring repeat sales, optimisation of walletshare and positive feelings about the brand. Thequestion is: how do retailers create and maintain loyaltytoday? And how do they maintain loyalty in the face ofchallenging economic conditions, uncertain consumerconfidence, technological change, and rapidly evolvingcustomer behaviour?

    Traditionally, retailers have taken a multi-pronged

    approach to encouraging customer loyalty, which hasincluded developing loyalty programmes and trying tounderstand and utilise information about customers (inother words, gaining insight). However, loyaltyprogrammes vary in their effectiveness, can be costly tosupport and still may not be perceived as valuable ordifferentiating by customers. Justifying spending onloyalty is now more important than ever, with every costbeing scrutinised, and requires a more commercial andeffective approach to loyalty that can demonstrate ROI.

    Challenging retailing conditions mean that retailersurgently need to adapt and evolve their approach to

    loyalty. Those whove delayed investing in this arearisk falling behind rivals more adept at usingintegrated, timely and good quality data to buildloyalty and gain business insight. In the currentmarket, even a relatively modest improvement inperformance can mean the difference betweenbusiness success and failure, thus being able tobuild and maintain loyalty is an ever-more vitalcompetitive weapon.

    Taking loyalty forward, however, requires retailersto revisit and progress long-standing challengesthat have for some time impeded their ability to

    innovate, such as having a single view of theircustomers across all channels and interactions, andbeing able to effectively utilise all the data they haveabout customers in order to gain greater insight andbusiness benefit from it. New types of data andcontent will now have to be managed, new types ofinteraction accommodated, and action and insightwill need to be gained faster than ever before. Howwe approach both loyalty and insight is set tochange substantially.

    3

    A different kind of reward for loyalty

    Loyalty does not just depend on the discount-reward model of customer loyalty. Asda and otherdiscount grocers such as Aldi have stated they willcompete on price rather than introduce loyaltyschemes. They have worked to increase opera-tional efficiency so they can offer the lowestpossible prices. At the other end of the scale,Waitrose has preferred to create loyalty based onlifestyle, choice and shared values. It creates anexperience centred around quality, British grownfood, fair-trade, and a partnership based businessmodel that its customers identify with and findappealing. Both the discounters and Waitrosesquality approach have worked, with Aldi postingresults 20% up in the quarter to July 2011 andWaitroses results up 9%. Waitrose has increasedmarket share by 0.2% to 4.3% over the last twelvemonths. Key to the success of both types ofbusiness is having clear insight into what theircustomers value and what they want.

    SAP Market Report - The Future of Loyalty

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    Why just having a loyalty programmeisnt enough

    Since the 90s more and more retailers have employedloyalty schemes as a method of maintaining their

    wallet share. However, UK retailers have taken abroadly similar approach, and theres been relativelylittle evolution over the last twenty years, which meansthese first generation schemes do not necessarilydifferentiate the retailer any longer. In addition, manyretailers have a fairly limited ability to judge whethertheir scheme is delivering positive business benefits,and beyond a few successful headline schemes, itoften isnt certain that many of these initiativesactually deliver greater loyalty. This is becauserewards and discounts are fairly untargeted and aregiven to customers purely based on spend rather thanon profitability or whether there is any risk of them

    spending with another retailer.

    Most schemes are also largely focused on sales, ratherthan on rewarding other types of useful customerbehaviour such as advocacy or recommendations. TheUK market is therefore ripe for the next step in loyalty.

    Future loyalty programmes will remain a key part ofthe mix, but they will be more effective, differentiating,personalised and in keeping with the reality of modernmulti-channel retailing. Future approaches to loyaltywill reward both purchases and other behaviour (such

    as advocacy), and will also be far more targeted andrelevant (personalised and contextual) than they aretoday. Rather than taking a one-size-fits-allapproach to loyalty, rewards and offers will be moretailored to the interests and needs of individualcustomers. Likewise the emphasis will shift fromanalysing just historic point-of-sale and loyalty carddata and instead encompass a much wider range ofdata types and channels. The aim will be not just tostay in tune with the customer and their needs, butalso to proactively engage them, create an interactiverelationship and influence them at the point of decision

    to increase wallet share.

    For example, an emerging trend within the UK is thatcustomers like to share hints and tips with theirfriends, relatives and other shoppers far more thanmay have been true in the past. This type of shopperhas been termed the super shopper orprofessional shopper. They research purchases,spend longer in stores checking out prices and offers,compare prices widely (across physical stores andonline retailers) and are prepared to visit multiplestores to ensure they are getting the best deal.Commenting on changing consumer behaviour in the

    UK, Dalton Philips, CEO of Morrisons, recentlycommented: "Theres a growing professionalism inpeople's approach to shopping. Were seeing it acrossthe country: this phenomenon of checking all the

    prices and, in many cases, leaving the credit card athome, buying in bulk packs splitting them with

    friends or freezing."

    In the face of such changing and challengingcustomer behaviour how do retailers engagecustomers, drive up loyalty and maintain walletshare? The answer is they need to understand theircustomers even better, as well as what theyre doing,using the wide range of data they have available tothem. Understanding the history of customerbehaviour and trends is useful and enables forexample 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 thepoint of sale or even before this.

    For example, utilising a mobile strategy, may seeretailers enabling customers to look up moreinformation about products while they are instore scanning a barcode to get pricing, recipes or reviewsof the product. If the customer is pricing up beansthen the retailer has the opportunity to push offersrelated to beans at that point. This might besuggesting the shops own brand or economy beansrather than a premium branded version; it could

    mean suggesting a brand that the retailer wishes toclear off the shelves, along with an appropriatediscount; or the retailer might show satisfactionratings or reviews of different brands; or it couldinvolve personalised discounts or offers based oncustomer status or spend; or it might meansuggesting related ingredients or linked purchasesalong with a recipe. Whatever the retailers strategy,to maximise the opportunity they need to combineknowledge of what the customer is currently doing(contextual data), their historical preferences andpurchases (customer-set preferences, transaction

    and loyalty card data), as well as information theycan provide to influence purchasing behaviour(recommendations, reviews, ratings and othercontent).

    All this needs to be done in near-realtime withinseconds or the opportunity will be lost. A customeris much less likely to be influenced if they arestanding in the checkout queue with their purchases,or even if they have simply moved to another part ofthe store. Thus the ability to react in realtime anddetect proximity and willingness to be influenced arevery important. Retailers that can adeptly combine

    data and content in this way can, however, create anovel, differentiating and even entertaining customerexperience enabling a more interactive andsticky relationship with their customers.

    4SAP Market Report - The Future of Loyalty

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    5

    Which are you trying to inuence the most?

    Inuence at point of purchase (eg till) 24%

    24%

    64%

    At the point of decision (eg aisle)

    Build positive ongoing relationship

    with customer

    Which slaes and marketing strategy is important to you?

    Build brand 43%

    48%

    57%

    Loyalty

    Incrase wallet share

    Maintain wallet share 19%

    24%

    19%

    Innovate

    Dierentitate

    0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

    How does your organisation view CRM?

    Technology to manage customer interactions 14%

    33%

    24%

    way of doing business that puts the customer at theheart of what were trying to achieve

    A method to increase customer lifetime value

    All of these 43%

    72% of our sales come from customers enrolledin the loyalty scheme

    Currently online channels are still seen as theones delivering most value to UK retailers, with43% saying they intend to invest to improve theironline offering. However, many were also lookingto add support for mobile commerce (38%) andmobile apps (24%)

    Capabilities checklist for loyalty programmes

    Is your programme cost-eective and protable?

    Is the programme really dierentiating your brand from your rivals? Is it valued by customers suciently to inuence buyingbehaviour?

    Does the programme support personalization? Eg can you understand and act upon individual customers needs, behaviour,

    preferences and likes/dislikes?

    Can the programme inuence purchasing? Eg inuencing 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 loyaltyprogramme?

    Is your loyalty programme multi-channel?

    Can you use loyalty data for upstream product design, branding and merchandizing?

    SAP Market Report - The Future of Loyalty

    0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

    0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

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    Along with other traditional sources of customer andtransactional data, customer loyalty programmes have

    been a key resource for retailers to gain insight intotheir customers behaviour for many years. However,far richer data can potentially be gleaned from onlinesales than through traditional loyalty programmessince, as valuable as historic point of sale and customerloyalty data is, understanding products customers areresearching or enquiring about reveals not justtransactions but behaviour leading to transactions andpotential sales that were not made.

    This provides a much richer understanding of thecustomer, but also allows insight and analysis aroundlost sales (helping improve future performance), or

    sales that customers are considering (enabling theretailer to target specific offers at those customers inorder to influence or encourage the sale).

    By combining multiple sources of data and alsodelivering a single customer view, retailers can gain fargreater insight into their customers needs and wants.This means they will be able to detect typical behaviourthat leads to a sale, and therefore influence customersat the point of decision. It also means they will gaingreater understanding of individual customers likes,wants and preferences and thereby tailor offers and

    product information to their needs.

    This valuable data can also be combined withnon-traditional, unstructured data gleaned from socialnetworks, for example, which provides additionalinsight as well as opportunities to influence customersand engage with them. As we know, a well-handledcomplaint can actually increase loyalty while a poorlyhandled one usually results in lost custom. Retailersneed to be able to handle dissatisfaction adeptly acrossall channels they operate in; the risk being thatcomplaints received on social channels such as Twitter

    or Facebook are potentially highly damaging to brandvalues if handled badly because they are so public.

    In order to decide how to competently deal with acomplaint, enquiry and so on, retail staff also need tohave the information about the product, order orcustomer readily available to them no matter whichchannel the customer decides to interact with them in.Whether handling a complaint on Twitter or a stockenquiry instore, being able to resolve the issue to thecustomers satisfaction and in a timely manner is highlydependent on access to the right data.

    Insight involves more than justunderstanding in-store sales

    7

    UK retailers are experimenting with

    mobile and social channels

    In a study of UK retailers conducted in mid2011 only 14% reported having a maturemobile strategy that was delivering resultstoday. Most (64%) were either planning

    their strategy or in the very early stages ofdeployment. Only 18% reported nothaving a mobile strategy, and a further 4%reported not yet seeing any positivebenefits from their mobile strategy.

    UK retailers were using mobile technologyfor a number of things including toincrease footfall, to improve conversion,to enhance the customer experience, form-commerce and to increase customerinteractions. With regards to socialmedia, around 29% of retailers said theywere using social media strategies toenhance loyalty, 43% were using it forcustomer acquisition, and 24% were

    using it to increase sales.

    SAP Market Report - The Future of Loyalty

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    Insight is vital, but just as important is getting thisinsight in a timely fashion in order that the retailer can

    quickly respond to changing customer needs andwants outperforming rivals who take longer to react.And while gaining valuable insight providescommercial advantages, being able to take action ordecisions as a result of this insight is also critical.

    This requires two things to happen. Firstly the rightstaff need to have access to such insight at the timethey need it, and secondly automated systems andprocesses need to be in place that can react tocustomer behaviour in realtime combining knowledgeof the customer, business rules, and contextualinformation to create the right reaction to what the

    customer is doing.

    Customer insight is going to rapidly become far moresophisticated, enabling some compelling use cases forboth retailers and consumers, and delivering even

    greater business value. Retailers can choose whetherto dive in and invest now to become leaders in using

    sophisticated, next-generation customer insight; orthey can improve their customer insightincrementally by making better use of the technologyand data already available to them, whileprogressively investing to support more advancedscenarios.

    Whats clear is that despite the recession retailers arenot standing still. Rather the recession has putadditional pressure on retailers to improve theircustomer insight in order to improve theirperformance in a tough market. Cutting-edgeretailers are already experimenting with how mobile

    technology can be utilised effectively instore, or in thevicinity of the store to attract, influence and retaincustomers; while the most advanced retailers are alsonow experimenting with social media and exploringthe opportunities this offers.

    8

    Single view of customers across all channels?

    Yes 27%

    41%

    32%

    Partly

    No

    Do you eectively use insight to drive up loyalty and maintain wallet share?

    Yes 32%

    54%

    14%

    Somewhat but we could do better

    No

    Do you have a joined up view internally that links products & services to customers?

    Yes 50%

    45%

    5%

    Partly

    No

    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?

    SAP Market Report - The Future of Loyalty

    0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

    0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

    0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

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    Multichannel loyalty and insight is required;mobile channel is increasingly important

    UK customers buying behaviour is becomingincreasingly multichannel and may now involve

    research, recommendations, comparisons, reviewsand so on across stores, websites, mobile internet andso on. The challenge is for retailers to understand whatcustomers are doing and how and where theyre beinginfluenced in order to engage them and maximisewallet share across their channels of operation. In facta close understanding of target customers can eveninform channel strategy, as not all channels arepopular with every type of customer. Understandingwhich channels customers prefer to use thereforehelps retailers prioritise support for the channels thatare most valued by their target customers.

    An emerging example of multichannel buyingbehaviour is the use of smartphones in the UK tocompare prices online while instore, check reviews andrecommendations, or to ask friends and contacts whatthey think of the product. The increasing value ofmobile as a channel in the UK was underlined by recentOfcom research (released August 2011) which saidthat 27% of adults now own a smartphone plus awhopping 47% of teens. Of these 59% got asmartphone in the past year and the vast majority ofsmartphone users (81%) have their mobile switchedon all of the time2.

    Since it is a personal device and most customers leaveit switched on at all times, meeting customers needsas they become more mobile is thereforeincreasingly important and has the potential ofdelivering business advantage. So what does a mobileloyalty strategy look like? In the first stages providing

    WiFi access, facilitating customer research via themobile internet, or their wish to give or seek

    recommendations for a particular product are allemerging strategies. Retailers could allowcustomers to scan a barcode using their mobile, andbe rewarded with a discount for providing instantfeedback on a product they wish to buy, or beoffered a future discount on a repeat purchase inexchange for a review.

    The mobile device has the advantage of identifyingthe customer and supports location-basedapproaches to loyalty. Some mobile services suchas SMS, for example, are well established, cheap,universally available and easy to develop upon

    providing ideal bearers for innovative loyaltyprogrammes. In addition, the emergence of mobilepayment technology and the increasing computingpower of smartphones, promises a lot of potentialfor future loyalty programme innovation.

    Social media and mobile technology are rapidlychanging the face of loyalty in the UK, and retailersneed to understand how their customers andpotential customers use different channels in orderto engage them, discover what they want, need andare willing to pay for, and influence them at the point

    of decision. As shown in Figure 1, our researchrevealed that many UK retailers now see seamlessmultichannel retailing and insight as critical to theirsuccess, but these two are closely followed inimportance by mobile technologies, with socialmedia channels also becoming ever-moreimportant to UK retailing.

    Mobile channel seen as critical by increasing numbers of retailers (Figure 1)

    Somewhat important

    2

    Very important

    3

    Critical

    4

    Not important yet

    1

    Seamlessmultichannel

    retailing

    Weighted average

    64%32%4% 0% 3.55

    Insight 59%36%0% 5% 3.55

    Mobile 41%27%0% 32% 3.09

    Social 41%23%23% 13% 2.81

    Somewhat important

    2

    Very important

    3

    Critical

    4

    Not important yet

    1Weighted average

    64%32%4% 0% 3.55

    59%36%0% 5% 3.55

    41%27%0% 32% 3.09

    41%23%23% 13% 2.81

    2 For example, see http://www.stockmarketwire.com/article/4197156/UK-addicted-to-smartphones-Ofcom-research-shows.html

    9SAP Market Report - The Future of Loyalty

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    Social media use by UK retailers is stillexperimental, but is game changing

    Many loyalty schemes or approaches to loyalty arenon-realtime, untargeted or reactive rather than

    proactive. Points are rewarded to save for rewards,customers are given offers for products theyre notinterested in, and rewards are given as a result oftransaction. In contrast, social media changes the wayretailers engage with their customers helping themcommunicate more effectively, understand whatcustomers think and feel, and build loyalty basedon experience rather than simply price, offers andtransactions.

    Social media is potentially highly interactive, intimateand can be used to create a sticky customerrelationship. With clever use it helps build a

    relationship with customers to ensure repeat sales andto maintain wallet share, and it can harness requestsfor information, advice and recommendations to helpcreate sales opportunities but also to build loyalty. Thenetwork effect of social media means that satisfiedcustomers can be transformed into advocates whocreate positive PR, enhance brand values and evencreate new business for the retailer.

    Advocacy and recommendation should be rewarded,but the reward does not have to be financial and caninclude from special offers, discounts and previews.

    Some retailers simply reward customer advocateswith attention and recognition. Whatever the strategy,this engagement with the customer is a powerfulloyalty-building tool.

    When managed well, social media can also turnnegative experiences into positive loyalty-generatingones. Poor performance of staff or products can beanalysed and acted upon quickly, and well-handledcomplaints can turn an unhappy customer into a loyal

    one. Likewise, customers may offer ideas andsuggestions regarding products or other ways in

    which the retailer can improve their performance.Considerable insight and business value can begleaned from monitoring and engaging in socialmedia, but the challenge is having dealt with the initialenquiry, suggestion or complaint being able toidentify the data that does have business value andensuring that this is made accessible to theappropriate systems and personnel that can takedecisions or actions as a result.

    Social media offers new opportunities to drive loyaltyvia collaborations with social media sites, and whencombined with mobile provides the potential for

    highly targeted but effective advertising. Foursquare,for example, sends out information to smartphoneswherever people shop. Foursquare for Businesses3

    provides retailers with an opportunity to highlightspecial offers to Foursquare users who check-innearby and in addition they also get data from theselocation-based campaigns. It has been shown that notonly do individual retailers benefit from this type ofapproach, but other businesses in the same vicinitybenefit too. Many users see thisas entertainment or as a game, rather than perceivingit as advertising which increases the effectiveness.

    Simply by joining the social media conversation andbeing accessible as a brand to customers, retailersare able to demonstrate theyre listening to theircustomers, and are able to resolve anymiscommunications or misunderstandings rapidly.However, social media cannot become another siloedchannel. To be effective it needs to be integrated intoa multichannel approach, and data and insight needsto be shared with other core systems.

    3See http://mashable.com/2011/08/03/foursquare-business-page/

    11

    72% of our sales come from customers enrolled in the loyaltyscheme

    Currently online channels are still seen as the ones deliveringmost value to UK retailers, with 43% saying they intend toinvest to improve their online offering. However, many werealso looking to add support for mobile commerce (38%) and

    mobile apps (24%)

    SAP Market Report - The Future of Loyalty

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    Improving next-generationloyalty and insight

    Loyalty is not created just by implementing a loyaltyscheme, but is a result of all the experiences a

    customer has with the retailer. This means that insightinto customer behaviour and their experiences is vitalto manage the relationship with the customer,maximise opportunities and improve futureperformance.

    As we know, traditional approaches to loyalty havebeen based on deriving insight from sales transactionsvia loyalty schemes which are largely driven bydiscounts and rewards. Such schemes can beexpensive to administer and their shotgun approachmeans they dont appeal to all customers and potentialcustomers, and their benefits are diluted by uptake

    from unprofitable customers.

    In future a loyalty approach is required that ismultichannel, that can provide a single view ofindividual customers (plus their habits, needs, wantsand preferences), can encompass and rewarddifferent types of customer behaviour beyond justtransactions (including recommendations, reviews,feedback, suggestions and advocacy), and can targetappropriate offers in a business-centric manner tomaximise the ROI to the retailer and theappropriateness to the customer.

    Rising expectations in the UK market mean thatretailers now need to meet the needs of smartphoneusers and understand their role in complex researchand purchasing behaviour thereby maximising theopportunity presented by the mobile channel.Retailers approach to loyalty also needs to be morepersonalised which minimises the cost and maximisesthe benefit to both retailer and customer. Tightbudgets and limits on discretionary spending meansUK customers are shopping in a more professionalmanner, and retailers need to understand their

    customers better than ever before in order to ensuretheir share of the money that is available. Likewisecustomers are becoming less responsive to, and lesstolerant of, untargeted and irrelevant offers - seeingthese as spam. Retailers that continue to spam theircustomers with irrelevant offers risk communicatingthe message that they are not really interested incustomers as individuals, but only as a quick salesopportunity undermining their carefully craftedrelationship with the customer. Worse still, untargetedoffers combined with anonymity mean a retailer hasonly a very weak connection with the customer, andweak connections risk loss of the customers business

    to rivals.

    12

    Lego VIP Project drive up loyalty and improve

    customer experience

    Lego is a Danish multinational retailer of childrensconstruction toys. Founded in 1932 andheadquartered in Billund, Denmark, the companycurrently has revenues of DKK7,823 million ($3.07billion). Lego identified the requirement to drive uployalty amongst its customers, understand thembetter and deliver a total customer experience.One of the ways it has done this is by creating aLego VIP consumer loyalty programme. Thisprogramme is now available across all Legosstores in 24 countries, as well as online.

    The VIP programme is used to manage loyalty

    rewards and points redemption. It involvesscanning the VIP card at the PoS. The PoS thenconnects to the CRM system and the membersloyalty data is transferred back to the PoS. Thetransaction is processed, and the loyalty-relevantdata is sent back to the CRM system for pointcalculation. The programme encourages customersto earn more rewards, in more ways, delivering ahigh value, medium-rich experience.

    Our aim is to develop it going forward, so itbecomes an engagement program as well as aloyalty program, explains Conny Kalcher, LegosUK-based VP of Consumer Experiences. Themore consumers engage with us, the more we offerthem things that are meaningful to them.

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    This is why building an understanding of anindividual customer is critical to building loyalty.And this is one area where retailers can easily buildvalue through better data integration andanalytics.The most savvy retailers are already analysing whotheir customers are, where they are (which

    channels they prefer), what they like and how theylike to buy. This enables them to design adeliberate, appropriate and consistent retailexperience in line with their brand values inother words, they can tailor the way they operate(including products, prices, offers, channels,interactions, payment methods and so on) to theneeds of their target customers but in line withtheir commercial goals, brand values andcustomer loyalty strategies.

    Beyond their existing customer base, retailers canuse emerging channels like social media to

    understand and attract potential customers, usingthe power of social networks to promote offers andrecommend products. Better understanding ofcustomer behaviour and the immediacy of thepersonalised mobile device can be combined withrealtime technology to influence customers at thepoint of purchase, as well as to create cross-sellingand upselling opportunities.

    Done well, customer insight helps retailersunderstand which customers are likely to be themost profitable, and what these customers value

    and are willing to pay for. By being able to employreal-time contextual analytics, for example,retailers can move from understanding historictrends to reacting in real-time to opportunities,and then proactively being able to promptcustomers and even make real-timerecommendations to their mobile. Once identifiedthe mobile device can be used to connect with thecustomer beyond the point of sale to offerdiscounts for repeat sales, or information relatedto the product.

    However, if customers are to accept and valueproactive and personalised interactions, promptsrecommendations and offers, these will have to behighly accurate and pitched well and appropriately

    or they will be seen as spam and ignored. Worse stillthey could be seen as an irritation. Its no good, forexample, prompting the customer to buy aparticular brand of coffee, if the offer orrecommendation is only delivered after thecustomer has left the shop, or despite the fact thecustomer 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 beevolved based on real feedback from the UKretailers who took part in our primary researchprogramme. This model shows what themainstream of UK retailers are able to offer todaywith regards to loyalty and insight, as well as theadditional elements that the most advancedcompanies are able to offer or are currentlyexploring in order to gain competitive advantage.

    For example, the model shows that many retailers

    can now tailor offers to customer types and canrefresh offers. However the most advancedretailers are now able to deliver personalized offerswhich derive from their ability to match thecustomer context (eg location) with preferencedata, historic transaction data, the value of thecustomer, and insight into typical customerpurchasing behaviour around that product. Thisenables the retailer to make a personalised offer tothe customer, which is more likely to be accepted ifit more accurately meets their needs. And while themainstream of retailers may now be able to track a

    customer and gain a single view of that customerwithin each channel of operation, the mostadvanced can track customers across all thechannels in which they operate. If the customercomplains, then customer service staff are able tosee an integrated view of all the dealings the retailerhas had with the customer across all channels,thereby ensuring any issues are resolved promptly.

    This model helps retailers benchmark theirprogress, provides insight into what rivals are doingor aim to do, and helps them analyse their weak

    areas and what they need to focus on in order todeliver customer insight and loyalty programmesthat will help their business survive and prosper inthese turbulent times.

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    14

    Somewhat important

    2

    Very important

    3

    Critical

    4

    Not important yet

    1

    64%32%4% 0%

    59%36%0% 5%

    41%27%0% 32%

    41%23%23% 13%

    Trailers Mainstream LeadersElement

    Greater customer choice ofreward, create rewards based on

    customer insight/suggestions

    Exclusive experiencesand services (eg complimentary

    tickets or advance tickets)

    Type of reward Discounts, points towarddiscounted/free products

    Personalized offers, with realtimecontextual matching of offers

    to customer

    Wider range of offers; offersmatched more precisely to

    customer (initially to lifestyle, age,

    lifestyle, past purchasing), offers

    change more frequently

    Nature of offer Standard, fairly static offers

    Offers according to profitabilityof customer

    Additional tieringTargetting of offer All customers

    Product created in response tocustomer suggestions via our

    social media site. Loyalty card

    data has been used to monitorcustomer uptake from successful

    regional trial

    Apply purchasing trendsetc toproduct design/sourcing

    Product design Our buyers are very competent

    Figure2

    Breadth of offer

    Channels of operation

    Channels togain/spend rewards

    Multi-channel retailing?

    Behaviour rewarded for

    Detecting changing

    customer behaviour

    Targettingnon-customers

    Customer view

    64%32%0%

    59%36%5%

    Wider partner eco-system,withpartners matched to brand and

    likes of target customers

    Broader range ofproducts/partners

    Single retailer

    Any of a mix of traditional, online,

    mobile, social (according toneeds of business)

    Traditional + onlineTraditional eg stores

    All channels of operationStores and onlineStores

    Yes: data from all channels is

    combinedand used for upstreampurposes including product

    design, buying and

    merchandising, offers & sales etc

    Yes: data is mined from website

    and combined with loyalty data tounderstand customers better;

    loyalty rewards can be

    gained/spent in any channel

    No: competition/different offers

    in each channel; fragmentedloyalty scheme

    64%32%0%Much broader range of behaviour,

    including advocacy

    Transactions + feedbackTransactions

    Use a broad range of data and

    analyse daily

    Analyse PoS data, copy

    rivals initiatives

    To some extent staff will report

    changes, we can use salesfigures to detect

    Use insight to profile potential

    customers and target them

    Focus on maintaining existing

    customer loyalty

    Dont understand why

    customers buy from us

    Single integrated view of

    customer across all channels weoperate in

    Single view of customer in each

    channel eg in stores, online etc

    Loyalty scheme only

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    So whats the best way to approach loyalty and where should UK retailers start? Thegood 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 areways of improving customer loyalty and insight to fit all budgets. Whats certain isthat, when implemented and used correctly, the technology we now have available canbe extremely effective at strengthening customer relationships and creating newrevenue-generating opportunities. Its even possible depending on the legacy posi-tion to replace legacy infrastructure with more modern infrastructure and not onlyimprove 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 loyaltyprogrammes, and their needs should be prime. A loyalty-driven approach to doingbusiness 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 thisinformation in a timely fashion ensures the retailer can tailor the retail experience tothe needs of the customer and thereby increases the likelihood of their success. In thecurrent retail environment this insight is not just a nice-to-have but a lifeline to survivaland success.

    Summary

    Groupe Casino precision marketing in the mobilised world

    Groupe Casino is a large French retailer that was founded in 1898. It currentlyhas revenues of EUR25.8 billion and 11,000 stores across 19 countries. Itlaunched its first loyalty scheme in 1902 and is currently trialling a newprecision retailing offering, which delivers realtime offers to customers instores, on the website and via the mobile device, based on the customers

    lifestyle.

    Groupe Casinos precision retailing offer is based on an indepth knowledge ofits 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 linktheir session to their customer profile and loyalty data). When they do thelatter, the central system recognises them, their store location is identified andthe session is linked back to the loyalty account. Immediately a number ofrelevant offers are presented to the customer. Before doing this, the offersengine has taken into account customer preferences, likes and dislikes, thestore thats being shopped in (and whether stock is available) and the time ofday. Offers include discounts, bonus points and discounted linked purchases.

    As the customer shops, the company is able to prompt with relevantalternatives (according to preferences set in the customer profile) or alert to abetter deal being available. Prompts can be sent to the customer to remindthem about linked purchases, and rewards awarded according to purchasesmade are added to the customers account in realtime. The customer can seetheir current status and how many rewards they need to acquire until to begiven the next customer bonus.

    Groupe Casino staff can also see how well the promotion is working inrealtime, which allows them to change the promotion if it is not performing wellenough.Group Casino is now able to offer targeted, one-to-one marketing,cross-channel shopping lists, cross-sell and upsell opportunities at the time ofpurchase, and indepth customer knowledge which supports a personalised

    experience, enhanced loyalty and a positive view of the company.

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