Kobie Marketing Quarterly Review: Retail Edition, June 2013

1. KOBIEQUARTERLYREVIEWJUNE 20137 SpotlightCreating OptimizedCustomer ExperiencesBy Bram Hechtkopf15 Retail ReviewJ.C. Penney and theBillion-Dollar Question17 Restaurant SpotlightGenuine CustomerExperience is Back forSecondsBy Marc GlazerRETAIL EDITIONTHINGS YOURRETAILCUSTOMERSEXPECT THISYEARBY MICHAEL HEMSEYPAGE 9@Kobie_Marketingon.fb.me/17n5zxVlinkedin.com/company/kobie-marketing www.kobie.com

2. CONTENTS10% Of real-time data isactually being utilizedmissed opportunities$$The New Customer ConnectionThe New Customer Connbig databig dataOMNICHANNEL LOYALTYOMNICHANNEL LOYALOMNICHANNEL LOYALTYp.o.s. tweets likes surveysemailwebsites blogsforums purchasesToo often marketers fail to incorporate loyalty early enoughinto the omnichannel “big picture.” It isn’t about offering adiscount, it’s about offering someone the right offer at theright time.Big Data refers to the constant incoming information solarge it surpasses what typical storage tools can handle. Arecent IBM study showed that only about 10% of real-timedata being collected is being used effectively by businesses!$$ $$$$ $$$$$$$$$$$$$$Omnichannel loyalty (OCL) is an enterprise-level initiative to drive, track, measure and rewardincremental behavior throughout the enterprise and customer experience.With omnichannel loyalty, traditional loyalty attrition is reduced, as brand advocates playan enhanced role across the customer lifecycle. Consumers become empowered througha mix of compelling and coordinated cross-channel engagements, as well as trulypersonalized messaging that delivers more meaningful and relevant brand interactions, and theright reward for the “right” behaviors along the way. The result when executed with precision is atrue impact on customer lifetime value (LTV) – the ultimate loyalty metric.$$$$$$$$$$$$Of businesses createdan experience-based42%Of businesses deﬁnedcustomer engagement37%Of customers expect asimilar experience42%Of businesses surveyedindicated little to no58%90%Of Big Data becomesmissed opportunities$$ $$$$4CREATING OPTIMIZED CUSTOMER EXPERIENCESAsk marketers or loyalty marketing service providers (L-MSPs) what the common2013 theme is and they’ll tell you “convergence” – just like 2012. But what type ofconvergence do I mean? By Bram Hechtkopf7FIVE THINGS YOUR RETAILCUSTOMERS EXPECT THIS YEARWhile Toys “R” Us’ recent miss stems fromheightened discount competition, some ofthe company’s shortcomings might beinternal too – hyper-reliance on excessivediscounts. By Michael Hemsey5 WHEN IT COMES TO LOYALTY, EXPERIENCE IS EVERYTHINGSumming up loyalty comes down to experiences: positive experiences engenderingdecades of loyalty and negative ones that take longer to subside. By Michael Hemsey9MOVING FROM TRANSACTIONALTO EMOTIONAL LOYALTYConsumers increasingly expect an enhancedbrand experience, one that takes loyaltybeyond the points-for-rewards stereotype,delivering on emotional experiences as muchas any tangible reward. By Bram Hechtkopfwww.kobie.com

3. FOUR THINGS YOUR RESTAURANT LOYALTY PROGRAMSHOULD BE DOING TO EMPOWER CUSTOMER ENGAGEMENTFaced with these uncertainties, restaurant loyalty programs are more valuable than everin attracting, engaging and retaining patrons. By Marc Glazer12GENUINE CUSTOMEREXPERIENCE IS BACK FORSECONDSAsk the technology skeptics whetherthey think technology has helped orhindered interpersonal communication,and invariably they’ll offer mutedgrumblings like “talk much, say little,connect less.” By Marc GlazerSOLVING THE RIDDLE OF BIG DATAFor all the talk of Big Data and its global impact, more than a quarter of North Americanretailers in 2012 — 27% — remain unaware of Big Data or are aware of its existence,but uncertain of its retail potential. By David AndreadakisJCP AND THE BILLION-DOLLAR QUESTIONCoupon king Myron Ullman is back in the spotlight trying to save J.C. Penney fromitself. But can he succeed? That’s the $1 billion question being asked by media andretail industry experts. By Bram HechtkopfSTARBUCKS AIMS TOCREATE LOYALTY FROM ITSDISLOYAL CUSTOMERS. HUH?It’s rare when a company voluntarilyadmits it could do something better –especially when that company isStarbucks. With a record $1 billionplaced on its Starbucks Cards in the firstquarter of 2013, the king of coffee haslittle to worry about. By Pamela Sullins25THE KEY TO PERSONALIZING EACH CUSTOMER’S LOYALTYEXPERIENCE? ACTING ON BUSINESS INTELLIGENCEIndividualized pricing, however, is just the beginning. A growing number of brands across diﬀerent ver=cals (most no=ceably in ﬁnancial services and retail) are upping their loyalty game by trumpe=ng the value of individualized experiences over just discounts and deals. By Michael Hemsey151720ARE LAST YEAR’S BIGGEST TRENDS IN THE LOYALTY INDUSTRYCHANGING, OR ARE THEY GROWING?Big Data, social media and the continued expansion of mobile market saturation were alltopics of wide discussion and analysis throughout the loyalty industry. By Bram Hechtkopf22www.kobie.com2

4. Customer loyalty is dynamic, compelling and changing all the =me. Awareness of a loyalty program’s importance was once relegated solely to a handful of sponsors of a program at a company, or those of us toiling in our industry to support the program. Today, loyalty programs are an enterprise ini=a=ve — reflec=ve of the customer experience of brands, managed by customer service, finance, marke=ng, opera=ons and IT, driven by segmented media and consumer campaigns, and expected to drive ROI, fostering lifelong connec=ons and crea=ng life=me brand value. The loyalty and customer experience landscape has been posi=vely impacted by several exci=ng trends:• The analyses of Big Data which derive meaningful consumer behavioral insights. We challenge ourselves and our clients to use it to create genuine experiences versus the more simplis=c points-‐for-‐rewards stereotypes • The need for devices and channels (think smartphones, tablets, digital signage, kiosks, radio, TV, print, etc.) to create a consistent customer experience. We need to build omnichannel loyalty programs, and then mine the data sets they create• The importance of having programs that appeal to both the ra=onal and emo=onal sides of the brain — emo=onal connec=ons can include elements of gamifica=on and social media, while ra=onal are the tangible rewards e.g. discounts or couponsThese trends – and other insights – form the backbone of the Kobie Knowledge Quarterly Review. Our goal is to bring to you loyalty landscape commentary and analyses of where the loyalty industry is heading. We welcome conversa=ons about loyalty through our observa=ons, commentaries, insights and, in some cases, cri=cisms of the developments taking place.We hope the Kobie Knowledge Quarterly Review leaves you with a greater apprecia=on that customer loyalty isn’t just about the program itself. Or even solely for driving ROI and heightening customer engagement. Loyalty, the bond an individual makes with another, is central to the human condi=on. It’s about reciprocity, faith, trust and at its greatest intensity, a type of moral obliga=on, akin to the connec=ons we forge with family and friends. Brands and businesses, the best ones, are no different.Michael Hemsey, PresidentKobie Marke=ng, Inc.FROM OUR PRESIDENTwww.kobie.com3

5. 10% Of real-time data isactually being utilized$$The New Customer ConnectionThe New Customer Connbig databig dataOMNICHANNEL LOYALTYOMNICHANNEL LOYALOMNICHANNEL LOYALTYp.o.s. tweets likes surveysemailwebsites blogsforums purchasesBig Data refers to the constant incoming information solarge it surpasses what typical storage tools can handle. Arecent IBM study showed that only about 10% of real-timedata being collected is being used effectively by businesses!$$ $$$$ $$$$$$$$$$$$$$Omnichannel loyalty (OCL) is an enterprise-level initiative to drive, track, measure and rewardincremental behavior throughout the enterprise and customer experience.With omnichannel loyalty, traditional loyalty attrition is reduced, as brand advocates playan enhanced role across the customer lifecycle. Consumers become empowered througha mix of compelling and coordinated cross-channel engagements, as well as trulypersonalized messaging that delivers more meaningful and relevant brand interactions, and theright reward for the “right” behaviors along the way. The result when executed with precision is atrue impact on customer lifetime value (LTV) – the ultimate loyalty metric.$$$$$$$$$$$$90%Of Big Data becomesmissed opportunities4Lines are becoming blurred between marke=ng channels and media in a way that has a huge impact on how customers’ want to experience your brand. Omnichannel Loyalty is the key to bringing this all together. With Omnichannel Loyalty, you can reach your loyal customers across all plaYorms, mediums, and channels in a more eﬃcient and aligned manner allowing you to track data be[er than ever and ensure the most meaningful customer experience and engagement. One size ﬁts all is over. SCAN ME!FOR THE FULLINFOGRAPHICOMNICHANNEL LOYALTY FRAMED

6. Summing up loyalty comes down to experiences: posi=ve experiences engendering decades of loyalty and nega=ve ones that take longer to subside. But let’s focus on the posi=ve with two anecdotes. On Valen=ne’s Day, my wife’s friend received a handwri[en note from a sales associate at Neiman Marcus, thanking her for a Tom Ford perfume purchase while sugges=ng two new fragrances from the same line, samples included.“Dear XXX, I know that the Italian Cypress must s8ll be exci8ng your senses,” the card began. “Based on what we discussed last 8me you were here I put together a couple of samples of what I thought you might like.”In an age of impersonal emails and untargeted offers, personal messaging made my wife’s friend feel valued. It’s great to see handwri[en notes and unexpected samples have not been forgo[en. Clearly, the Neiman Marcus salesman recorded customer preferences into a CRM program and turned data into ac=on.Then theres my own experience with Uber, a two-‐year-‐old app. Uber pinpoints your loca=on, or you enter a pickup address, and it allows you to select private taxis, limos or SUVs without the hassle of finding a cab or doing the “New York wave.” The app links your credit card to each payment and eliminates card swipes and clones while accruing points on various loyalty programs. Chase Sapphire Preferred awards 2.14 points per dollar spent and car services count as travel expenses. Here, too, the experience concluded with a Thank You email."Hi Michael, we hope you enjoyed your first ride with Uber!” it read. “Below is your custom Uber invite link. Each friend that signs up with your link will receive $10 off their first Uber ride. And, for each of your friends that takes a ride, well drop $10 Uber credits on your account."“Summing up loyalty comesdown to experiences: positiveexperiences engenderingdecades of loyalty and negativeones that take longer tosubside”WHEN IT COMES TO LOYALTY,EXPERIENCE IS EVERYTHINGBy Michael Hemsey5

7. The Science Behind LoyaltyThese examples work because, as Forrester Research pointed out in a 2012 study, consumers reward brands that “make them feel special” and will pay more for that service. American Express, for instance, scored 37% higher than MasterCard on delivering special experiences and enjoyed 18% higher pricing power as a result. Part of that experience means: brands empowering frequent users to promote products via social media and tradi=onal outlets, good corporate ci=zenship and becoming an “invaluable resource” – or a brand that consumers feel they can’t do without.None of these findings directly link to specific loyalty programs. It’s the li[le things — the subtle corporate signals that inform customers that their experience, managed across all channels, is tops. For brands, mee=ng consumer experience expecta=ons has a prac=cal marke=ng purpose, and is only the beginning.Delivering quality experiences:• Is how brands dis=nguish themselves in compe==ve markets. For instance, global ad spending was up 4.3% in the third quarter of 2012, to $139 billion. Samsung, Microsop and Apple shelled out $3 billion, $1.9 billion and $933 million, respec=vely, in adver=sing in 2011, as each wrestled for dominance. With this kind of rivalry common, experiences set brands apart. • Equals emo=onal connec=ons that drive product loyalty — a vital omnichannel component as marketers promote brands across mul=ple channels. The 17th Annual Brand Keys Customer Loyalty Engagement Index found that emo=onal engagement trumps promo=ons and discoun=ng in consumer importance. So when Hyundai =es for the number one spot in the automo=ve subcategory of the loyalty index, something is right.• Ensures the rise of brand ambassadors. Emo=onal connec=ons inspire people to discuss their posi=ve experiences. And despite brand-‐fickle and loyalty-‐suspect consumers, commi[ed fans drive further brand buzz, resul=ng in higher profits and ROI.Loyalty Management Goes A Long Way TooWhen discussing customer experience importance, back-‐end loyalty legwork is also key — the convergence of management styles uni=ng tradi=onal loyalty program metrics and customer rela=onship management (CRM) under one roof. For Neiman Marcus, imagine customer insights volume if in-‐store experiences (and the informa=on used craping the note) were augmented with loyalty program data. I suspect far more customer-‐specific notes could be wri[en. Merging CRM and loyalty helps realize experience-‐driven outcomes, increases brand efficiency and corrects downstream errors.Experience is everything. Yet what experiences inspire loyalty remains fluid. Keeping these observa=ons in mind will not guarantee brand success, but it will improve loyalty odds. And combining tradi=onal outreach with CRM might be the best loyalty solu=on yet.“When discussing customerexperience importance, back-end loyalty legwork is also key— the convergence ofmanagement styles unitingtraditional loyalty programmetrics and customerrelationship management(CRM) under one roof.”6GET AMPED!A revolutionary new loyalty marketing platform is coming.Find out more info@kobie.com

8. Ask marketers or loyalty marke=ng service providers (L-‐MSPs) what the common 2013 theme is and they’ll tell you “convergence” – just like 2012. But what type of convergence do I mean? There are two types, one unfolding in response to the other. Last year, marketers anxiously sought the implica=ons of channel convergence capitalizing on many touch points: smartphones, tablets, TV, email and social media. The upside to convergence and channel prolifera=on was copious customer data. Everything from shopping habits and loca=on to loyalty-‐program status can be tracked across mul=ple channels. One challenge for marketers and L-‐MSPs comes down to managing the data deluge: how to turn data into ac=onable insight that drives ROI. Tradi=onally some of this data were organized through CRM sopware. But thanks to informa=on inunda=on, corporate structures developed siloed management styles, making internal communica=ons diﬃcult. Now, experien=al metrics gathered from loyalty programs plus CRM sopware are yielding new types of customer experience management, or CEM. It’s a vital convergence helping prove loyalty’s worth.Even so, Temkin Group’s 2012 report ﬁnds that while 59% of respondents plan to help their companies become CEM leaders in the next three years, only 7% of North American companies have a strong grasp of CEM.CREATING OPTIMIZED CUSTOMEREXPERIENCESBy Bram Hechtkopf“Experiential metrics gatheredfrom loyalty programs plus CRMsoftware are yielding new typesof customer experiencemanagement, or CEM. It’s a vitalconvergence helping proveloyalty’s worth.”- Bram Hechtkopf7

9. Clearly, there’s more to do. Loyalty and CRM Converge Crea<ng Customer Experience ManagementLike omnichannel loyalty, a loyalty program’s integra=on with CRM and CEM must start at the highest levels. C-‐Level execu=ves must be on board and so must subordinates. Only then can CRM – what Forrester Research calls “the right metrics to track success and prompt correc=ve ac=on” – be used to give more of what customers seek at the right =me. As with channel convergence, CRM and loyalty convergence are about the coming together of data, people, process and technology – real-‐=me responses, tracking and rewarding customers for their ac=ons in-‐store or online. Of course, arbitrarily rewarding members for ac=ons they would have already taken via social media is foolish. It’s even worse if the social channel in ques=on isn’t directly driving purchasing behavior. Yet technology that manages CRM, CEM and loyalty ensures repeat business, improved ROI and upselling opportuni=es.This is what Bob Thompson, CEO of CustomerThink Corp., calls “lep brain” and “right brain” teamwork. CRM, he argues, concerns a customer’s value to a given enterprise. It’s about systems and transac=ons and “func=onal value,” or lep brain. CEM is about the enterprise’s value to customers and concerns people and interac=ons. Here, customer “emo=onal value” – right-‐brain thinking – is priority one. But, as with our brains, there is constant sharing of data, maximizing problem solving.Loyalty marketers have access to a host of data points (travel preferences, frequently visited des=na=ons, average purchase prices, types of purchases, purchase loca=on, customer gender, etc.,) that provide valuable insight. The convergence with CRM allows marketers to improve CEM through that insight.Ul=mately, consumers will demand such coordina=on in order to seamlessly enjoy the mul=ple channels they already use.Rediscovering the ‘R’ in CRM While the ‘E’ in CEM EvolvesThe above subhead is a nod to the =tle of a recent Forbes ar=cle that drives home the essence of CRM and CEM convergence and what Forrester calls the “age of agile commerce.” Whether it’s CEM or CRM and loyalty management programs, converging management approaches come down to brands driving quality rela=onships with customers and mee=ng customer expecta=ons through smart, =mely campaigns and op=mized opera=ons. It’s about taking the wealth of metrics now accumulated, turning that informa=on into genuine experiences that people enjoy and managing that data under one roof.Think of management convergence in terms of the ﬁve Es: enterprise (C-‐level buy-‐in), economics (your converged CRM/ Loyalty management system yielding tangible economic beneﬁts), experience (do your sales and IT teams have the tools and training needed to manage, measure and track an omnichannel and CRM-‐CEM-‐loyalty framework?), engagement (is your data aligned with your messaging and branding? What is your level of data accuracy or “hygiene?”), and execu=on, or actually geung the job done, demonstra=ng a genuine customer connec=on through improved ROI, repeat business and posi=ve feedback.Just as CRM and loyalty convergence discussions begin with real people in real boardrooms, real salespeople– “customer advocates” – remain vital to the downstream process, humanizing brand interac=on.Customers are a business’s most valuable asset and loyalty ini=a=ves are the best way to drive brand allegiance. Only with a CRM and loyalty management system working together seamlessly will the best customer experience emerge. “As with channelconvergence, CRMand loyaltyconvergence areabout the comingtogether of data,people, process andtechnology –real-time responses,tracking andrewarding customersfor their actions in-store or online.”- Bram Hechtkopf8

10. MOVING FROMTRANSACTIONALTO EMOTIONALLOYALTYBy Bram HechtkopfA Forrester Report and CMS Wire cri=que earlier this year reiterated a point which Kobie has endorsed for quite some =me in our efforts to educate clients and the loyalty industry. There is compelling evidence sugges=ng that consumers increasingly expect an enhanced brand experience, one that takes loyalty beyond the points-‐for-‐rewards stereotype, delivering on emo=onal experiences as much as any tangible reward. Despite this, brands con=nue to play catch up.They’re stuck in what we and Forrester call “loyalty 1.0.”While generally an objec=ve review of the data at hand and Forrester’s handling of it, the ar=cle raises two important ques=ons – ques=ons that require serious thought. Con8nued on page 11FIVE THINGSYOURRETAILCUSTOMERSEXPECTTHIS YEARBy Michael HemseyFor Toys “R” Us, this year has been a troubled one. The global retailer’s CEO, Gerald Storch, stepped down aper the company failed to hit revenue targets and had lackluster same store and overall store sales during the 2012 holiday season. While Toys “R” Us’ recent miss stems from heightened discount compe==on, some of the company’s shortcomings might be internal too – hyper-‐reliance on excessive discounts.Discounts, as we have seen, can do a lot of damage.But at least there’s a lesson to be learned by other retailers. Despite Storch being credited for heralding an omnichannel strategy at Toys “R” Us, relying heavily on in-‐store and merchandising across mul=ple channels, increasingly consumers are striving for quality brand experiences as much as they seek quality prices.And with experiences being central to customer engagement and loyalty, here are five things that retail customers can expect more:#1. The con<nued rise of corporate philanthropy and brand social awareness: Panera Bread is a good example. While the brand is spending some $70 million on its “Live Consciously” campaign through mul=ple channels, its Panera Bread Founda=on established Panera Cares Cafés. These are places offering variable pricing based on customers’ ability to pay, if at all. Instances like this support recent eMarketer data which finds 56% of US Internet users have purchased a product based on a brand’s cause allegiances.Con8nued on next page“56% of US Internetusers havepurchased a productbased on a brand’scause allegiances”- eMarketer“Consumers increasingly expect anenhanced brand experience, one that takesloyalty beyond the points-for-rewardsstereotype, delivering on emotionalexperiences as much as any tangiblereward.” - Bram Hechtkopf9

11. Con8nued from previous page top...#2. An increase in loyalty program transparency, where fewer hoops means happier customers: It should be obvious – shoppers want the most bang for their loyalty buck. Consider gas sta=ons. Most gas sta=on loyalty programs link their rewards to convenience store purchases. But Bri=sh Petroleum is changing that with its BP Driver Rewards program. Star=ng in April 2013, BP will launch a new loyalty program where consumers earn 5 cents off every gallon of gas they pump, aper the first 20 gallons. Consumers will see direct savings for buying something they already need: fuel. Similarly, Winn Dixie’s Fuelperks program earns users 5 cents off per gallon pumped at Shell sta=ons for every $50 they spend on groceries. Simple, honest and direct loyalty programs mean business and retailers are eager to jump on board.#3. Customer engagement that uses 21st century Big Data metrics to drive tradi<onal outreach: Or as Claud Cecil Gurney, founder of design firm de Gournay, describes a consumer purchase: “[Feeling] like something they’ve created for themselves rather than something that’s been bought off a shelf and stuck in their house.” Accomplishing that genuineness requires constant engagement across all channels. It also requires ac=ng on gathered data which is a central tenet of the omnichannel loyalty experience.#4. The improved organiza<on and de-‐siloing of Big Data: This one’s a no-‐brainer but it bears repea=ng. A Forbes ar=cle discusses how brands should opt for a single “golden version” of customer data and maximize engagement by taking a holis=c view of the customer. To me, this sounds a lot like convergence and the need to bring loyalty data and tradi=onal CRM data under one de-‐siloed roof. Forbes refers to it as “master data management.” Whatever you call it, convergence is key. The good news is that, according to a 2012 Retail Horizons report, nearly 67% of retailers surveyed ranked customer sa=sfac=on as their top strategic ini=a=ve for 2012. Another 82% said customer service strategies would be top priority, up from 75% the year before. If that was the sen=ment in 2012, you can be sure 2013 will be just as intense.#5. Growth of alterna<ve forms of payment: We’ve wri[en about the increasing popularity of mobile wallets and the brand possibili=es that come with Apple’s Passbook app. But here’s another take. Walmart is expanding use of its iPhone “Scan & Go” app to 40 Denver, Co. stores. The app allows customers to scan products while they’re shopping. When they’re done, the app organizes purchases under a single QR code that can be read by QR-‐equipped readers at checkout. Think of Apple stores, where salespeople are on hand to scan products throughout the store. There’s no checkout line. Walmart’s experiment is proving similarly effec=ve in streamlining the in-‐store shopping and checkout process.And if Walmart’s doing it, others will follow.But as Toys “R” Us con=nues its search for a CEO, it would be wise for it – and other retailers – to keep these five customer expecta=ons in mind. An omnichannel approach is great and compe==ve prices are too. But that’s just the first step toward enhancing loyalty and driving ROI. Enhanced social good, loyalty program transparency, Big Data and the use of its metrics in a de-‐siloed data environment, and one that relies on innova=ve payment methods are increasingly vital components to include in the loyalty mix.“Accomplishing thatgenuineness requiresconstant engagement acrossall channels. It also requiresacting on gathered datawhich is a central tenet ofthe omnichannel loyaltyexperience.”10

12. Con8nued from page 9 boUom1. Why isn’t a customer who uses a discount coupon engaged with the brand, since the purchase experience might result in a product or service so terrific that the customer is sold for life?2. How is emo=onal loyalty to a brand different from becoming a brand advocate — and, if it’s the same, why single out loyalty programs for that challenge when other marke=ng efforts might be needed, such as proac=ve customer service?“Dis” loyalty Cards Versus the Need for ExperienceThe fact that the first ques=on needs to be raised underscores in part why companies remain at loyalty 1.0. Consumers want to know whether or not they’re being offered “just another discount” (hence, the rewards stereotype) or if they are being provided relevant offers. Relevant and =mely offers are the beginning of an emo=onal brand connec=on. That’s because there’s recogni=on on the part of the consumer that craping that relevant offer required detailed customer knowledge – not something gleaned from email spam.In other words, the challenge for marketers is answering the following ques=ons:• How well do we know our customers?• Do we know what offers, customer experience and engagement techniques will drive customer life=me value and incremental behaviors?• What strategy and loyalty tac=cs make the most sense and, just as important as, how long will it take our brand to reach next-‐level loyalty engagement?• Finally, do we have the metrics in place to measure these outcomes?Emo<onal Loyalty Yielding Brand AdvocacyAs for the second ques=on above, there are obvious connec=ons between emo=onal loyalty and becoming a brand advocate. I would argue it’s best to describe one folding into the next. Emo=onal loyalty is about the brand connec=ng with the consumer, making the customer feel good about their purchase and experience, crea=ng opportuni=es for the customer to return and experience “more and be[er” over =me. Customer service is important too, as is social media. In today’s tech-‐centric world, consumers appreciate genuine engagement via conversa=on. For instance, sop-‐selling loyalty could be a hotel manager discovering that one of their frequent guest couples a[ends annual local wine fes=vals. Rather than bombarding this couple with two-‐dimensional email message, the hotel instead sends SMS messages, push no=fica=ons or Facebook posts related to the fes=val (and not the rewards) to inspire a stay.In another concrete example, Burberry’s new London store features a 22p digital screen, 500 speakers and RFID chips in certain clothes that, when worn in front of the screen, show wearers a virtual catwalk. While less conversa=on-‐specific, technology-‐driven loyalty is also at the heart of the new engagement.Only aper these connec=ons have been established can marketers expect true brand ambassador engagement – consumers willing to promote a given brand as much out of rewards expecta=on as they are mo=vated to support a brand they believe genuinely connects with them.Regardless, achieving both kinds of loyalty, experience and rewards-‐driven (because loyalty 1.0 is s=ll very important), requires engagement throughout the customer lifecycle and through all touch points – the central tenet of an omnichannel loyalty focus. Defined as an enterprise-‐level ini=a=ve to drive, track, measure and reward incremental behavior throughout the enterprise and customer experience. The result is personalized messaging that delivers more meaningful and relevant brand interac=ons and the right rewards for the “right” behaviors along the way. This results in a true impact on customer life=me value (LTV) – the ul=mate loyalty metric.As has been rightly pointed out, emo=onally-‐driven loyalty 2.0 remains a struggle. But perhaps answering the above ques=ons will help illuminate steps brands can take to get the job done faster.What addi=onal steps can brands take to turn transac=onal loyalty into emo=onal loyalty and where else are they falling short? To add your comments, visit the Kobie blog at www.blog.kobie.com. 11

13. Just when it seems that an economic spring has arrived – stocks are up and unemployment con=nues to fall – we’re treated to a blizzard of hard-‐to-‐stomach restaurant industry sta=s=cs. According to a recent Knapp-‐Track Index of monthly restaurant sales, casual restaurant sales fell 5.4% in February, .6% in January and 1.6% in December. This was the first consecu=ve three-‐month drop in nearly three years. While some of those declines might reflect winter doldrums, when more people stay home, it might also signal =ght consumer spending and the specter of renewed economic troubles.Faced with these uncertain=es, restaurant loyalty programs are more valuable than ever in a[rac=ng, engaging and retaining patrons. It’s not so much that diners require coaxing via points-‐for-‐rewards gimmicks. Rather, as much as diners crave a great meal and great service, they seek loyalty programs that are accessible on their preferred channels, offer meaningful rewards and enhance their overall experience with the restaurant.To that end, I’ve listed four sugges=ons that can help restaurants nourish their loyalty programs and be[er feed restaurant goers’ desires to enjoy fun rewards.Number 1: Rewards need to be… well…rewarding – That’s a line borrowed from Cynthia Boris’ Marke=ng Pilgrim blog. With data showing that 58% of loyalty program members prefer to dine at eateries with a rewards program, there are strong indica=ons that if restaurants improved their offerings, more members would join. That’s true even if the same study reveals only 36% of respondents are members of a given program. “58% of loyalty programmembers prefer to dine ateateries with a rewardsprogram; there are strongindications that if restaurantsimproved their offerings, moremembers would join.”FOUR THINGS YOUR RESTAURANTLOYALTY PROGRAM SHOULD BEDOING TO EMPOWER CUSTOMERENGAGEMENTBy Marc Glazer12

14. Too many restaurants make their loyalty program members jump through too many hoops to earn a reward or don’t offer rewards commensurate to customers’ outlays: no one’s going to eat at a restaurant full price 10 =mes just to earn a free T-‐shirt. But consider BJ’s Restaurant and Brewhouse’s Premier Rewards loyalty program, which offers rewards including a 5-‐course dinner valued at $30 per person. They also offer the chance to purchase items via points at auc=on. The latest offer: a Guinness-‐sponsored mountain bike.Number 2: Get Your Game on – Ea=ng out, even if it’s just for dessert, is supposed to be fun. And it isn’t only children, tweens, teens and 20-‐somethings playing video games (the average gamer is more like 30+). So why not add gamifica=on to your program and link virtual points to real-‐world rewards as an added endorphin rush? Take Rita’s Italian Ice, the Italian ices chain. Recently the brand created a new loyalty program, Rita’s Rewards. Timed to coincide with the first day of spring, the Rita’s Rewards app lets users share their Rita’s experiences via Facebook, write reviews and earn points toward free Italian ices. In May the app will expand to include a Rita’s Italian Ice Factory game. While details are unknown, the game’s working =tle suggests users will be able to create their own virtual flavors and dream up their own concoc=ons, earning addi=onal points along the way. With chain restaurants like the Cheesecake Factory specializing in dessert offerings, similar sweet tooth incen=ves could apply here too.Number 3: Serving up SoLoMo Hot or Cold – Central to gaming’s popularity are its communal and social applica=ons. SoLoMo refers to the connec=on of social media and local or proximity-‐based adver=sing through smart mobile devices. Smartphone and tablet adop=on rates hover near 55% and 30%, respec=vely, and digital signage costs con=nue to fall. For restaurants, this means the =me for new levels of patron engagement is now. Third-‐party “social apps” are helping restaurants be[er achieve this goal by allowing customers to share their dining experiences with their networks. Open Table, a San Francisco-‐based company, connects diners via Facebook and allows users to make mobile reserva=ons. Beginning in February, the Places I’ve Eaten Facebook app will let users view their friends’ restaurant preferences – where they ate, what they ordered and descrip=ons of their general experience. While it’s not strictly a loyalty program, restaurants could easily add a =ered loyalty structure to an in-‐house Open Table-‐like app, incen=vizing visits. Number 4: Don’t Get Aggravated, Aggregate – Not only do rewards need to be rewarding, the earning process needs to be seamless and efficient. One way to achieve this is through points aggrega=on. While the average American household is a member of 18 loyalty programs — the restaurant industry alone claims 9.7 million members – a third of all loyalty dollar value, $16 billion, goes unredeemed yearly. Part of that disconnect stems from the clu[ered nature of exis=ng loyalty currencies. However, Chicago startup Belly is working to change that. The loyalty currency aggregator allows members to use and share the same points across small businesses that include restaurants, while benefi=ng from social media and the metrics gathered from the experience. In February, Belly announced that it boasted over 1 million loyalty members, had 4,500 businesses signed up and planned to hire 150 more employees this year. Plink, another burgeoning loyalty aggregator that includes retail, restaurants and the American Red Cross, recently announced that it had surpassed 50,000 offline loca=ons to earn rewards. The restaurant industry may have a bit further to go in realizing its own economic spring. But adop=ng these four guidelines will help encourage new levels of patron engagement, increased revenue and a chance for your eatery to help break this recent three-‐month sales slump.13

15. WOULD YOU ASK A MECHANIC TOPERFORM OPEN HEART SURGERY?PUT YOUR PROGRAM BACK IN THEHANDS OF THE LOYALTY EXPERTSKobie is the secret. Reach your customers atevery touchpoint with omnichannel loyalty.Scan the QR code or go to kobie.com/GRMA.

16. Coupon king Myron Ullman is back in the spotlight trying to save J.C. Penney from itself. But can he succeed?That’s the $1 billion ques=on being asked by media and retail industry experts. It’s also how much J.C. Penney lost last year when so many of its customers took their loyalty elsewhere aper the retailer phased out the coupons shoppers had come to love and, more importantly, expect. As part of its turnaround, pundits argue, JCP needs to return to basics: no more costly store redesigns, fewer in-‐store bou=ques and a complete restora=on of the retailer’s daily discounts. Judging from its latest ad, JCP recognizes its errors, admits its mistakes and says: “we learned a very simple thing, to listen to you.”I think what the retailer is also trying to say is: “we’re sorry.”At Kobie, we’d recommend not geung stuck in that kind of discount dilemma to begin with. Stereotypical points-‐for-‐rewards programs and coupon-‐condi=oning aren’t what inspires true brand loyalty. They simply inspire behavioral condi=oning based on cost, not brand a[ributes – and it’s very difficult to build a sustainable loyalty program based on offering the lowest price alone. And at the 2013 GRMA Leadership Forum, a high-‐level gathering of retail execu=ves and industry influencers which took place in Kobie’s home city of St. Petersburg, many shared that sen=ment. JCP AND THE BILLION-DOLLARQUESTIONBy Bram Hechtkopf“Stereotypical points-for-rewardsprograms and coupon-conditioning aren’t what inspirestrue brand loyalty. They simplyinspire behavioral conditioningbased on cost, not brandattributes – and it’s very difficultto build a sustainable loyaltyprogram based on offering thelowest price alone.”- Bram Hechtkopf15

17. The Response to Coupon Condi<oningLet’s say you are a retailer who offers daily deals or coupons as part of your corporate culture. What do you do then? Does that contradict our typical customer reward program recommenda=ons? In light of a recent 2013 Coupon Trend Report which showed a 14% drop in the US coupon redemp=on rate for 2012, can J.C. really win back its formerly loyal customers this way, one penny at a =me?Yes. I think it can – by embracing both old and new tac=cs. That means returning to brand experience basics, including a store filled with discounts and deals. But it also means the use of omnichannel marke=ng and loyalty tac=cs – an approach which growing numbers of US retailers are adop=ng. Omnichannel loyalty, an enterprise-‐level ini=a=ve to drive, track, measure and reward incremental behavior throughout the enterprise and customer experience, is channel-‐agnos=c and delivers true customer engagement.So, if I were in Myron Ullman’s shoes, I would be:• Launching aggressive campaign outreach across mul=ple channels, asking members of JCP’s Rewards program which discounts they would like restored first – beyond what’s already been put back.• Making in-‐store product research and price comparisons easy and transparent.• Puung myself in the shoes of your customers. Don’t just listen to my customers. Understand what it means to “be” them.• Considering QR codes or at least using image-‐recogni=on technologies like Google Goggles, a standard feature on the mobile search engine.• Improving the brand’s mobile interface and online buying experience.• Becoming Amazon-‐aware and bea=ng compe=tors at their own game, improving rewards technology.Almost a year ago, I wrote a blog called The Drug of Discounts: Couponing Addic=on and What to Do About It, tepidly endorsing the now defunct “Fair and Square” pricing ini=a=ve and praising the brand’s a[empt to break its couponing addic=on. Rather than going cold turkey though, perhaps JCP should have explored some form of “coupon replacement” therapy instead.Retail analyst Robin Lewis calls the current JCP crisis a “saga” and “perhaps the most colossal, drama=c, tragic, transparent, rapid and microscopically-‐tracked meltdown in the history of retailing.”Let’s see if Ullman’s approach to the brand and to rebuilding customer loyalty can prove him wrong. Retail analyst Robin Lewis calls thecurrent JCP crisis a “saga” and“perhaps the most colossal,dramatic, tragic, transparent, rapidand microscopically-trackedmeltdown in the history of retailing.”Bram Hechtkopf16

18. STARBUCKS AIMSTO CREATELOYALTY FROMITS DISLOYALCUSTOMERS.HUH?By Pamela SullinsIt’s rare when a company voluntarily admits it could do something be[er – especially when that company is Starbucks. With a record $1 billion placed on its Starbucks Cards in the first quarter of 2013, the king of coffee has li[le to worry about.Which is why Joe LaCugna, Starbucks’ director of analy=cs and business intelligence, may have surprised a few people when he revealed what Starbucks is doing now: catering to its disloyal customers. Con8nued on page 19...GENUINECUSTOMEREXPERIENCEIS BACK FORSECONDSBy Marc GlazerAsk the technology skep=cs whether they think technology has helped or hindered interpersonal communica=on, and invariably they’ll offer muted grumblings like “talk much, say li[le, connect less.”In their minds, services like tex=ng, Facebook and Twi[er have done plenty to help people broadcast what’s on their minds from the highest mountain, but done li[le to actually facilitate meaningful communica=on. In other words, the more we become digitally linked, synced and wired, the less we establish genuine rela=onships.They do have a point. It could be easy to agree with the skep=cs that something has been lost—that something has been lep off the modern menu of restaurant-‐diner rela=ons.“Love Can’t Be Automa<c”Dining remains one of the most in=mate and important human experiences—a celebra=on of good food, service, style, atmosphere and, of course, good company. When you think about it driving a genuine personal experience in the casual-‐dining and quick-‐service restaurant space shouldn’t be that difficult. The experience of warmth and connectedness is as memorable when the waiter brings you your meal as it is when the friendly drive-‐through a[endant asks you the “light” to “sweet” balance in your coffee rather than taking the order on faith. That’s the way to drive true restaurant loyalty and enhanced revenue: through engagement.Today, technology (in the form of smartphones, tablets, and on-‐the-‐go social media as well as the omnichannel loyalty and CRM programs they augment) is bringing back a bit of that dining nostalgia—and finding new and crea=ve ways to mone=ze it. The reality is that people have changed far less than our technology. The craving for a genuine, personal dining experience remains as true now as when McDonalds first opened its doors in 1955, or when its first class of 15 Hamburger University students graduated in 1961. Con8nued on next page...“The reality is thatpeople have changedfar less than ourtechnology. Thecraving for a genuine,personal diningexperience remainsas true now as ever.”- Marc Glazer17

19. Con8nued from previous page top ...The disconnect between truly “human” customer service and “just geung it done” customer service began some years ago, and it con=nues to accelerate with the help of technology. Yet some people out there truly “get it,” and are saying, “Stop!” Speaking “at” people isnt enough.Case in point, a guy who gets it: Ramon De Leon, a former Domino’s Pizza delivery guy-turned-social media marke=ng director for a six-‐store Dominos franchise in Chicago. “Love can’t be automa=c,” he says. Its one of the most memorable sentences Ive heard in years. He said it passionately at the RAMP Advanced Commerce & Mobile Retail Services Summit in Chicago last year. It was possibly my biggest takeaway from three days spent at RAMP. His point was simple and elegant: automa=c tweets and Facebook bots that try to a[ract, retain, and engage customers can only get a restaurant so far—if anywhere at all.This isn’t a new concept for Ramon; this is a guy who back in 1998 began using his cell phone to call people if they were not at their door when the delivery arrived. By building that level of personal interest, customers soon began calling him directly for a pizza delivery. Social Media Gets RealWhat’s needed is a return to a genuine one-‐on-‐one personal connec=on. Learning names. Coaxing people into a smile. Fostering real rela=onships. Ramon De Leon buys the idea—he likes to impress this “truth” on his employees, encouraging them to develop similar rela=onships. He calls it “the nonstop online conversa=on.”How does Dominos start this conversa=on? Simple. Employees are encouraged to interact with their customers via Facebook, Twi[er and other social media outlets. Rather than hard-‐selling the pizza, the interac=on is about geung to know the customer—offering deals and discounts that are relevant and =mely.Even back in 2010, speaking to an audience at WordofMouth.org’s SuperGenius Conference in New York, De Leon explained that 90 percent of his Twi[er posts had nothing to do with pizza per se, but instead were genuine reac=ons and comments on other people’s conversa=ons.It’s important that social media be more like a genuine conversa=on between good friends. There is a need for brutal honesty and unparalleled transparency. Ex=nguishing social media “fires” (nega=ve reviews) with social media “water” (apologe=c videos admiung mistakes) is as important as addressing a “real-‐world” problem like a mixed-‐up order.Serving and Servicing One Customer at a TimeBefore the pizza dough rises, other restaurants are re-‐engineering their social media efforts too, driving newfound loyalty and engagement in the process. Recently, I stumbled upon a story about the Blue Heron, a small “farm-‐to-‐table” restaurant nestled in the Connec=cut River Valley in Sunderland, Mass., co-‐owned by Deborah Snow, 61, and her partner. Snow knew it would be hard to convince her mostly 40-‐ and 50-‐something diners of the value of social media. Yet she has found Twi[er to be an excellent way to keep in touch with regular patrons while gaining new converts. Rather than twee=ng about deals, discounts, and the latest dishes, she tweets food recipes and even food poetry. She calls Twi[er her “crea=ve outlet.”When it comes to restaurant customer engagement and loyalty, it’s important to remember that yes, promo=onal offers are important. S=ll, in an age when it’s so easy for customers to become reduced to faceless en==es, personal connec=ons—connec=ons that evoke an earlier, less tech-‐centric =me—are cri=cal in breaking through to the quick-‐service and casual-‐dining crowd. To stay ahead of “the wave of the now” is to become an omnichannel marketer who delivers omnichannel loyalty and customer experiences, no doubt. In light of Ramon De Leons speech at RAMP, however, its important we remember the real people at the other end of each channel. There must be an ongoing dialog, a conversa=on that advances a true rela=onship.So is genuine customer experience back? You be[er believe it!“It’s important thatsocial media be morelike a genuineconversation betweengood friends. There is aneed for brutal honestyand unparalleledtransparency.Extinguishing socialmedia “fires” with socialmedia “water” is asimportant as addressinga “real-world” problemlike a mixed-up order.”- Marc Glazer18

20. Con8nued from page 17 boUom...Starbucks will use its metrics gathering to discover which members use their rewards card least frequently, sending text messages to mobile phones offering free cups of Joe and other =mely and relevant rewards. So far the company has analyzed about half of its 6 million loyalty program memberships. The ques=on is: what’s the harm – if any – in promo=onal adver=sing when it costs Starbucks pennies per cup?With its new approach to the disloyal, my advice to Starbucks would be to think about the ‘Five Es,’ – that is, Enterprise, Experience, Economics, Enablement and Execu=on. Enterprise speaks to the business at hand, experience relates to the brand rela=onship customers seek, economics concerns the cost of genera=ng such loyalty, enablement relates to the mechanics of making loyalty happen and execu8on refers to its real-‐=me deployment.Brands that try appealing to every consumer segment all the =me risk dilu=ng what they stand for, undermining the enterprise at large and weakening the customer experience for truly loyal customers. They also risk raising short-‐term costs, making execu=on sluggish. In contrast:• Commi[ed long-‐term customers usually possess a strong sense of brand pride and devo=on for which, historically, loyalty programs reward them.• Doing so promotes posi=ve brand engagement and the opportunity for genuine experiences that, ideally, loyalty program members are eager to tell their friends and family about through every channel they use, including mobile, social media, online and of course, word-‐of-‐mouth.Starbucks’ brand message is clear: it caters to the upscale customer, who doesn’t think twice about ordering a $7 cup of coffee. Is it wise, then, to spend such effort seeking to a[ract, engage and retain a rela=vely disloyal subset?Widening the loyalty net a li[le further isn’t a bad thing by any measure. It’s just that the intensity of its rollout needs to be measured. So if you’re a brand intrigued by Starbucks’ novel loyalty approach, by all means gather the data and start hun=ng for your most disloyal customers. But take the economics (read: cost) of the Five Es seriously, otherwise your enterprise could suffer. Consider a six-‐month trial period to see if the expense of catering to disloyal customers yields higher spends and increased brand interac=ons. Otherwise, efforts to a[ract, engage and retain the disloyal might be to your company’s disservice.19

21. Ask Siri, the genderless iPhone personal assistant, what the weather is and it can tell you. If you ask it a ques=on like “are you married?” you’ll get an almost human response (it coyly dodges the ques=on). But ask Siri what you’re likely to buy from your favorite retailer — a deduc=on based in part on purchasing history and other behavior-‐based metrics — and Siri will falter.Siri fails for the same reason that many retailers fail when it comes to a[rac=ng, retaining and engaging customers. For all the talk of Big Data and its global impact, more than a quarter of North American retailers in 2012 — 27% — remain unaware of Big Data or are aware of its existence, but uncertain of its retail poten=al. The rest report par=al awareness and knowledge.For the more than 1 in 4 retailers that have yet to embrace the poten=al of Big Data, here’s a refresher. For them, the engagement riddle is that retailers have always been data-‐driven, but on paper and in siloed formats. It’s surprising, then, that so many have failed to grasp Big Data’s customer engagement and loyalty implica=ons. Big Data concerns the accumula=on and analysis of — as well as ac=on on — the 2.5 quin=llion bytes of data created every day, much of it freely available online or on mobile. In fact, 90% of all data that exists today was created in the last two years.Big Data and the customer rela=onship management sopware (CRM) managing today’s omnichannel environment — POS, smartphones, tablets, kiosks, digital signage, etc. — do one thing well and another increasingly well:The recording of consumer habits: That includes items purchased, purchase loca=on, purchase frequency, amount spent and, some=mes, purchaser gender.“For all the talk of Big Data andits global impact, more than aquarter of North Americanretailers in 2012— 27% — remain unaware ofBig Data or are aware of itsexistence, but uncertain of itsretail potential.”SOLVING THE RIDDLE OF BIG DATABy David Andreadakis20

22. The accumula<on of psychographic metrics: Retailers can be[er predict customer feelings in real-‐=me and use that informa=on to tailor product offerings and loyalty rewards that address their immediate emo=ons.Reverse engineering what’s already being done, this new approach to behavioral Big Data analysis helps retailers predict customer wants — possibly even before those customers are even aware of wan=ng something.Loyal to a more social data-‐driven experienceRetailers are gaining this more subtle but vital informa=on through gamified loyalty programs and social media. Take Raleys Family of Fine Stores, a California-‐based grocery chain. The brand recently enhanced its Something Extra loyalty program with Try-‐It, an online loyalty feature only available to Something Extra members. Try-‐It members are invited to share their product experiences via blogs, social networks, site tools or offline communica=on. Consumers’ omnichannel interac=ons are scored by the brand based on their number of “likes,” comments and re-‐tweets, earning higher scores the greater their interac=on. Higher scores also mean access to be[er deals and campaigns down the road.Another example comes from David’s Bridal, a U.S. wedding gown and formal wear chain. In an effort to a[ract and retain customers by using social media to gather even more real-‐=me customer informa=on, Davids launched the "My Event" sec=on of its Web site. Brides-‐to-‐be use the site to organize and discuss the en=rety of their wedding experience with select Facebook friends. The goal is for brides to help generate conversa=on beyond the dress. Party planning, shopping lists, tasks, even a wedding-‐related newsfeed are all encouraged. Perhaps the most interes=ng feature is the “mood board” where members describe how they envision their big day. While the above helps the bride and her family stay organized, the big win for David’s comes in the form of accumulated psychographic metrics and the possibility that more people — the bride’s social network -‐-‐ will consider David’s when it’s their turn to say “I do.”Conversa=onal-‐based data crea=ng a more accurate customer behavioral picture is at the forefront of where Big Data is going. Considering the speed at which new informa=on is generated and consumers’ increasing desire for =mely and relevant offers, the more than 1 in 4 retailers who have yet to embrace Big Data are running out of =me. This “retail riddle” shouldn’t be hard to crack.If retail chains both large and small — like David’s and Raley’s — have figured it out, shouldn’t your brand as well? 21AMP

23. Walk into a Kroger supermarket and you might be surprised by what you see: adver=sements promo=ng individualized pricing linked to loyalty program membership.It’s a business intelligence strategy that’s been gaining trac=on for several months since the grocery chain’s pilot pricing program launch last summer and I expect its popularity (and rising acceptance by skep=cal consumers) will con=nue. According to a recent Loyalty Report, Kroger Rewards was the grocery sector’s most popular loyalty program, with an 83% overall sa=sfac=on ra=ng.Why the success? Because individualized pricing isn’t just about strict discounts and offers. It’s about enhancing the customer experience and elici=ng life=me customer value. Kroger bases its individualized pricing on past purchases and what customers have typically spent. The result is a sense of brand loyalty that far exceeds what you could achieve with something as simple as weekly cutout coupons sent in the mail – or similarly generic offers via email or other channels. In other words, Kroger is taking loyalty to the next experience-‐driven level, demonstra=ng to its customers through clear and transparent ac=ons that “this company has taken the 8me and effort to get to know me.”Individualized pricing, however, is just the beginning. A growing number of brands across different ver=cals (most no=ceably in financial services and retail) are upping their loyalty game by trumpe=ng the value of individualized experiences over just discounts and deals. This is known as transac8onal loyalty. While remaining a bulwark of loyalty program engagement, transac=onal loyalty is open a simpler consumer behavior modifica=on model that’s costlier to implement. “Individualized pricing isn’t justabout strict discounts andoffers. It’s about enhancing thecustomer experience andeliciting lifetime customervalue.”PERSONALIZING YOUR CUSTOMER’SLOYALTY EXPERIENCE THROUGHBUSINESS INTELLIGENCEBy Michael Hemsey22