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Kobie Quarterly: Retail Services Edition January 2015

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In a world where the best deal is only a Google search away, retailers are struggling to keep customers coming back. This is especially true for brick-and-mortars that have taken a hit from the rise of ecommerce and practices like showrooming. And yet Amazon opened a physical store last year, along with several other successful ecommerce brands like Warby Parker and Birchbox. Would anyone be able to predict this just a few years ago when ecommerce was hailed as the end of brick-and-mortars?

Online retailers moving toward offline stores tells us not only that the in-store experience still matters, but more importantly retailers are ditching the one-channel mindset for an omnichannel approach. Retailers now recognize the need to connect with customers at all touchpoints in relevant, meaningful ways.

We’re seeing brands experiment with how to deliver more contextual, highly personalized customer experiences by using emerging technology like beacons and augmented reality. Thanks to Apple Pay’s launch last fall, mobile wallets may finally make a real impact on retail. In this issue we explore how these technologies can be integrated with loyalty.

We also look at defining and measuring loyalty ROI in retail, which is key for getting buy in from your organization. We’ve included a Retail Loyalty Readiness Worksheet to guide you through costing out the initial capital investment and ongoing costs of launching a loyalty program.

We hope the Kobie Quarterly: Retail Edition helps inspire and inform your loyalty strategy for 2015 and beyond. No matter where the retail industry is headed, our primary focus should remain the same: rewarding customers in ways specific to their wants and needs. That will always be in style.

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Kobie Quarterly: Retail Services Edition January 2015

  1. 1. january 2015 • kobie.com QUARTERLY REVIEW
  2. 2. contents GO FOR LAUNCH Don’t Make These 3 Mistakes When Launching a Retail Loyalty Program 02 TRENDING Retail Trends & Insights: Q&A with Erica Thompson Moran 06 INVESTMENT Retail Loyalty Readiness Worksheet 14 SALES Measuring Loyalty ROI in Retail 10 ENGAGEMENT iBeacon’s Potential to Merge Online and Offline Experience with Contextual Marketing 22 MOBILE Will Apple Pay Finally Make Mobile Payments a Reality for Retail? 26 WELCOME From the President, Michael Hemsey 01 BON APPÉTIT Key Ingredients of a Successful Restaurant Loyalty Program 20 TECH Augmented Reality for Loyalty Programs: Real Potential or Passing Fad? 24 02 24 14 QUARTERLY REVIEW JANUARY 2015
  3. 3. KOBIE QUARTERLY REVIEW 3 I n a world where the best deal is only a Google search away, retailers are struggling to keep customers coming back. This is especially true for brick-and-mortars that have taken a hit from the rise of ecommerce and practices like showrooming. And yet Amazon opened a physical store last year, along with several other successful ecommerce brands like Warby Parker and Birchbox. Would anyone be able to predict this just a few years ago when ecommerce was hailed as the end of brick-and-mortars? Online retailers moving toward offline stores tells us not only that the in-store experience still matters, but more importantly retailers are ditching the one-channel mindset for an omnichannel approach. Retailers now recognize the need to connect with customers at all touchpoints in relevant, meaningful ways. We’re seeing brands experiment with how to deliver more contex- tual, highly personalized customer experiences by using emerging technology like beacons and augmented reality. Thanks to Apple Pay’s launch last fall, mobile wallets may finally make a real impact on retail. In this issue we explore how these technologies can be integrated with loyalty. We also look at defining and measuring loyalty ROI in retail, which is key for getting buy in from your organization. We’ve included a Retail Loyalty Readiness Worksheet to guide you through costing out the initial capital investment and ongoing costs of launching a loyalty program. We hope the Kobie Quarterly: Retail Edition helps inspire and inform your loyalty strategy for 2015 and beyond. No matter where the retail industry is headed, our primary focus should remain the same: rewarding customers in ways specific to their wants and needs. That will always be in style. fromthepresident MICHAEL HEMSEY President 1 QUARTERLY REVIEW JANUARY 2015
  4. 4. KOBIE QUARTERLY REVIEW 5 S adly, we are now many years into retail loyalty marketing programs and as a consumer, I still don’t see much that’s new, engaging or innovative. However, as a retail loyalty marketing professional I can imagine the board room conversations that lead to these uninspired programs. From challenges in demonstrating clear ROI to lack of alignment with goals, there’s a reason the retail industry has so many lackluster loyalty programs. DON’T MAKE THESE 3 MISTAKES WHEN LAUNCHING A RETAIL LOYALTY PROGRAM 3 QUARTERLY REVIEW JANUARY 2015
  5. 5. I t doesn’t have to be this way. By creating strategies to avoid common pitfalls either pre-launch or as the program is phased to the next level, retail brands can make loyalty programs far more compelling to consumers as well as more profitable for the company. The most common mistakes I see retail marketing organizations make as they enter into loyalty programs fall into three buckets. 1 Treating loyalty as a marketing or IT initiative rather than an enterprise wide effort. This approach limits the scope of where customer data can be leveraged and does not ensure true buy in with key partners like store ops, IT, finance and merchandising. Because loyalty and CRM can require a significant investment of energy and resources, company-wide buy in is critical to success. Successful programs are a core company priority, not a side project competing for attention. 2 Not having clearly defined and agreed upon success metrics. Don’t assume having customer data and a tool will automatically lead to success. Before investing company resources into a loyalty initiative, you need to agree on a clear ROI that takes into account time, money and opportunity costs. 3 Viewing loyalty as a project that can be completed in a short period of time. Any good loyalty program will constantly evolve and require organizational patience. By its very nature, customer data is iterative. The more a company learns, the more they tend to want to know. Early stage loyalty/CRM programs can often feel like drinking from a data fire hose. The organization needs to think of loyalty as a journey, not a destination. SO HOW CAN BRANDS AVOID THESE PITFALLS? 1 Partner with key teams during the beginning stages of the program. The launch of a loyalty program has an impact on every facet of your brand. Store associates will have to be genuinely engaged and trained. POS and internal systems will need significant modifications. The IT department, which likely already has too many projects, will be stretched into new capabilities. Merchants will have to think differently about everything from pricing to promotions. The finance team will need to help with a P&L, KPIs, and constantly proving the ROI of the program. Once you consider how the program depends on and affects other teams, it’s obvious why their input cannot happen at the end of the cycle. Collaborating with these departments from the beginning lets them develop clear ownership and accountability for the program’s success. 2 Make the finance team a co-owner on loyalty profitability. As much as you believe in halo effects, customer engagement and brand loyalty, your finance team wants to hear about the bottom line. Show that you care about it, will commit to it, and will help track against it by establishing easily proved ways to predict and measure profitability. Examples of this include increases in incremental sales from direct marketing using newly acquired customer data, average basket size increase, and year over year customer counts. The key is to keep it simple and measurable. 3 Never stop communicating and re-communicating what the roadmap is and where you are on it. The Loyalty Leader in marketing has to also be the Customer Loyalty Evangelist charged with educating the organization on both new programs and ones that have been around for a while. Keep other teams in the loop by attending departmental staff meetings, presenting on outcomes at company- wide meetings, and creating quarterly updates for senior management. As trust and engagement are built around the loyalty program over time, it will be far easier to continue evolving the program and developing more engaging consumer benefits. 4 QUARTERLY REVIEW JANUARY 2015
  6. 6. KOBIE QUARTERLY REVIEW 7 NEVER STOP AND WHERE YOU ARE ON IT COMMUNICATING AND RE-COMMUNICATING WHAT THE ROADMAP IS ” “ 5 QUARTERLY REVIEW JANUARY 2015
  7. 7. KOBIE QUARTERLY REVIEW 9 As a retail industry expert, what is your take on the current state of the marketplace? Retail is definitely struggling right now as an industry. According to ShopperTrak, retail foot traffic is significantly declining and most retailers are contracting their store footprints. The 80s and 90s brought an oversaturation of big box retail square footage and the consumer demand simply isn’t there for that much space. While there is plenty of talk about an economic recovery, it’s not clear that consumers are back to their pre- recession spending ways. Retailers find themselves in an increasingly competitive and promotional environment to get close to positive comp sales which adds significant margin pressure. Lastly, consumers are shifting their shopping behaviors from traditional department stores and malls to the Internet, discounters, and dollar stores. It will likely be a challenging holiday season for mall-based retailers. What trends are you seeing in the retail industry from a customer loyalty, customer experience, and customer engagement perspective? After years of more talk than action, I feel that we are finally seeing brick & mortar retailers embracing the omnichannel experience. Traditional retailers like Macy’s and Walmart have significantly invested in integrating their store, mobile, and online experiences. Walmart’s Savings Catcher is a really interesting new take on loyalty. It’s basically a price matching tool that compares prices in local markets and returns savings to consumers. Of course, the consumer has to share their information to get the savings, allowing Walmart to potentially create an enormous database of customer information. It remains to be seen what they will do with all of that shopper data, but it could be interesting. We’re seeing more retailers looking for tender neutral loyalty programs versus just credit card driven ones to be more inclusive and track more customer behavior. Express and Bloomingdale’s launched tender neutral programs in 2012 and Kohl’s introduced its Yes2You program toward the end of 2014. The recent high publicity retail data breaches pose a challenge for loyalty programs going forward. Retailers are going to have to offer up much more compelling benefits to get consumers to share their personal information. And they will likely need to invest significantly more in keeping that information safe. Mobile wallets have been around for a while but have yet to achieve widespread consumer acceptance. Two new products may change that. Apple Pay launched in October and has the support of major retailers and banks. MCX is preparing to launch CurrentC, a competing mobile wallet which has the backing of major retailers like CVS and Best Buy. 2015 should be an interesting year for beacon technology as well, which enables real-time targeting to mobile devices. While Apple launched this technology in 2013, it was too late to impact holiday shopping. It is estimated that half of the top 100 retailers in the U.S. tested beacons in 2014. Retailers will need to be careful with this technology, however, as it can seem “creepy” or invasive to consumers. What are the biggest or most persistent challenges you see for retailers? Consumers are becoming increasingly fickle and are often just looking for the best deal or promotion. They have unlimited access to Q&A WITH ERICA THOMPSON MORAN Erica recently joined Kobie Marketing as a Retail Advisory Consultant. We sat down with her to discuss her view of the current insights and trends in the retail loyalty space. QUARTERLY REVIEW JANUARY 2015 7
  8. 8. information wherever they are from their mobile devices which is eroding brand loyalty. This is particularly true with Millennials who tend to be less brand loyal and who are increasingly switching to outlets, the web, and dollar stores. Brick and mortar retailers need to find ways to differentiate their shopping experience outside of promotions. Retailers like PetSmart can do this with engaging in-store activities like pet training, grooming or doggie daycare. Bloomingdale’s Loyallist Program engages top customers with exclusive in-store events with designers. All of these need to be consistently tied to the online and mobile experience. What are their biggest needs? Brick and mortar retailers are challenged to keep up with the technology of the Amazons of the world, but with low margins and pressure to keep up with comparable store sales and margins. Often, they are dealing with antiquated POS and store systems that cannot integrate with the online, mobile or loyalty experience. These retailers need better tools to prove the ROI of technology investments. How would you characterize the evolution of technology in the marketplace and retailers using it correctly to drive engagement? Mobile is becoming increasingly more important for retail. The number of tablets in use in the U.S. is expected to reach 280 million by 2017. Today, 60% of the time consumers spend on their phone is spent on mobile apps. Retailers need to develop compelling and integrated mobile experiences that are channel agnostic. The customer increasingly wants to make a purchase wherever and whenever is convenient for her. Retailers should be investing in mobile apps, wallets and beacons. What would be your advice to retailers who are trying to be customer-centric, but just haven’t been able to put all the correct pieces together internally and form a corporate culture standpoint? Customer centricity needs to be an enterprise wide endeavor. I always cringe when I see titles like SVP of Customer Experience. It’s a nice gesture, but it implies that one person owns the customer experience. Every facet of the organization needs to own the customer experience and feel responsible for it. Measurements like net promoter scores need to be put in place and every department should be measured against them. The most important three feet in retail will always be the three feet between your associates and your customer. The organization only exists to empower that relationship. “BRICK& MORTAR RETAILERS NEED TO FIND WAYS TO DIFFERENTIATE THEIR SHOPPING EXPERIENCE OUTSIDE OF PROMOTIONS.” QUARTERLY REVIEW JANUARY 2015
  9. 9. KOBIE QUARTERLY REVIEW 11 With real-time and predictive analytics, we can help you understand how members are behaving, anticipate how they will behave and inspire more loyal behaviors. We’ll help you make smarter decisions about complex business problems faster than your competition. Simple. Call 800-821-7892 or visit www.kobie.com to learn more. Solve complex problems before they happen.
  10. 10. LOYALTY ROI MEASURING IN RETAIL I nvesting in retail loyalty is a major decision for any company, no matter the size. Loyalty impacts every facet of the organization and requires a potentially massive investment of time and resources. It is not a one-time project, but an ongoing commitment that requires constant nurturing and care. Sales Incremental 10
  11. 11. KOBIE QUARTERLY REVIEW 13QUARTERLY REVIEW JANUARY 2015 11
  12. 12. M ore importantly, a loyalty program is not something that an organization can come in and out of. Once the commitment is made to a loyalty program, it will be difficult and costly to walk away from it. As a result, the decision to launch and focus on a loyalty program should not be made lightly. Making a decision like this requires significant due diligence, research, and an organizational belief in a positive ROI over time. Forecasting and measuring that ROI is increasingly falling to the marketing department, but it also must be created and managed in partnership with the finance team. The ROI model needs to be simple, clear, and measurable. There are three basic, key components involved in creating a retail loyalty ROI model: 1. INCREMENTAL SALES DRIVEN BY THE PROGRAM 2. INCREMENTAL BENEFIT FROM MORE TARGETED ACTIVITY (COST REDUCTIONS) 3. ONGOING COSTS OF DELIVERING THE PROGRAM We’ll examine incremental sales for the first part of this series and address the two other components in the Retail Loyalty Readiness Worksheet. Incremental customer behaviors driven by loyalty programs include increased trips, bigger basket size, increased cross-channel shopping, etc. All of these behaviors drive towards one key metric – incremental sales per customer in the program versus those not in the program. Forecasting and measuring incremental sales from retail loyalty programs is perhaps the most challenging and debated component of calculating a loyalty program’s ROI. Marketing folks tend to inherently believe that loyalty programs drive long term “customer engagement,” “brand halo effects,” and “inherent value,” but the finance team cringes at every one of those expressions. Further, they are acutely aware of any real costs in terms of outlays of cash today and liability in the future. They want to see a clear, measurable way to calculate the direct incremental sales driven from the investment in loyalty. Simply being able to demonstrate a break even can be effective for getting everyone’s buy in. The rest can be proved over time. Methods of Pre-Launch Testing In the ideal scenario, incremental customer behaviors are carefully tested and measured before a full chain-wide launch. There are several ways to do this, with pros and cons to each. First, the program can be direct marketed only to a sub-section of customers and incremental sales can be measured versus non-loyalty customers who have similar profiles over a period of time. This is somewhat limiting as you are not able to easily measure the potential incremental impact of mass and store marketing. However, if you can prove a break even without it – all the easier to sell internally. A second way to test incremental sales pre-launch is by isolating a market and only launching the program in that market. Over a period of time, ideally at least 6 months, you can measure incremental sales against a “like” market. The challenge here is in identifying the like markets and truly isolating the variable of the impact of the loyalty Incremental driven by loyalty programs include increased cross-channel shopping, etc. CUSTOMER BEHAVIORS BIGGER basket size, INCREASED TRIPS,“ ” QUARTERLY REVIEW JANUARY 2015 12
  13. 13. KOBIE QUARTERLY REVIEW 15 program. But again, if you can prove enough incremental sales to at least drive a break even, you stand a chance of getting a full launch approved. Both scenarios carry an inherent risk of frustrating customers not included in the test, but that can be managed. Methods of Post-Launch Testing What if you are trying to measure the impact of a program that has already launched without an agreed upon ROI? Or what if senior management does not have the time or patience for a lengthy test to prove it out? It gets a bit messier but there are a few ways to approach this scenario. The easiest way is to simply take the number of new contactable customers attributable to the loyalty program and add up their incremental sales directly measured from direct marketing programs like email and direct mail. This works well for retailers that already had a solid CRM program in place before loyalty. For example, imagine a retailer was sending 5 million direct mail pieces and 50 million emails per year before loyalty. Let’s say they were measuring incremental sales per customer contacted of $1 per direct mail campaign and $0.20 per email campaign (measured by test versus control). The retailer then launched a loyalty program and added 2 million contactable direct mail households and 20 million emails. Assuming the new names performed the same (and they should, perhaps even better since they self-selected), you can expect $2 million more in incremental sales from direct mail and $400,000 more from email campaigns per year. Again, you know there are significantly more financial benefits to loyalty than this, but this is a simple, quick way to convince the finance team that you can at least break even. If CRM is not an already well- developed function at the retailer, another way to measure incremental sales from loyalty is to “force” a control group. Basically, you look back in time for “like” customers before launching loyalty. “Like” will be defined by whatever you have in the database – trips, sales, categories, basket, or even demographics. You can then measure pre versus post behavior of those who joined the loyalty program and those who did not, taking credit for any incremental sales. It’s not ideal as it doesn’t totally isolate loyalty – customers who sign up for the program might have been about to become more loyal anyway – but again, it provides directional incremental sales. This methodology requires the retailer to have a customer database pre-loyalty launch, but these days most do. Keep in mind that all methodologies for measuring incremental sales are attempting to truly only attribute revenue driven by the loyalty program and therefore need some way to isolate for that versus all other factors that may drive sales. None of the above approaches are perfect, but they can provide a starting point to get to a common ground for defining how to measure incremental sales and getting your finance team on board. Lastly, forecasting incremental sales is only the first step. Once the forecast has been set, develop KPIs against it and share results broadly and regularly. Once the loyalty program is up and running, many other incremental behaviors can be reported on that will increase support for the program (such as engagement, net promoter scores, cross-channel behaviors, etc.). However, these metrics should never take away from reporting on the core incremental sales model that proved out the investment in the first place. “The easiest way is to simply take the number of new contactable customers attributable to the loyalty program and add up their incremental sales directly measured from direct marketing programs like email and direct mail.” QUARTERLY REVIEW JANUARY 2015 13
  14. 14. RETAIL WORKSHEET Loyalty Readiness CAPITAL INVESTMENT Ongoing Expenses QUARTERLY REVIEW JANUARY 2015 14
  15. 15. KOBIE QUARTERLY REVIEW 17 In the previous article, we discussed how to establish and measure KPIs for loyalty incremental sales. The next step is calculating how much you can spend to set up and maintain the program in order to break even or achieve an agreed upon profitability goal. This worksheet can help guide you through costing out everything from the initial investment to the ongoing expenses. QUARTERLY REVIEW JANUARY 2015 15
  16. 16. The upfront capital investment in loyalty can be significant, especially from an IT perspective, depending on the state of existing systems. The depreciation cost of this investment can be expensed against the program for a number of years. KEY CONSIDERATIONS: 1. Is there an existing customer database that integrates all channels into a 360 degree customer view that could easily accommodate a loyalty feed? If not, creating this will likely be the costliest component of launching loyalty. 2. Is there an existing CRM program in place? If so, spend will be lower since you can leverage existing campaign management and reporting tools. 3. Are significant POS changes required to accept loyalty at checkout and close the loop back into reporting? If so, this will likely require IT capital and resources. 4. Are major changes in the website’s online checkout necessary to accept and track loyalty? If the website is outsourced to a good vendor, this may not be a big deal, but if hosted internally it will require IT capital and resources. 5. Will you need online account management? Will it be within an existing site or a new site? Online account management is a great feature for consumers, but it can be costly and complex to sync with existing customer data. 6. Are you planning to outsource the development of the program or do you have the capacity to take it on in house? While outsourcing may initially look expensive, it actually can save money in the long run if you can leverage existing loyalty experience and infrastructure. Upfront Capital Investment QUARTERLY REVIEW JANUARY 2015 16
  17. 17. KOBIE QUARTERLY REVIEW 19 Expenses will start hitting the loyalty program the day you start working on it. Some costs will occur one time upfront while others will be annual. CONSIDERATIONS OF UPFRONT EXPENSE CALCULATIONS: 1. Do you need to hire industry experts to assist in program development? If there is limited loyalty experience in-house, this is highly recommended since it will actually save costs by creating efficiencies in the long run. 2. Do you need to hire contractors for incremental IT work and project management? Budgeting for contractors can ensure you’ll have dedicated resources instead of making this someone’s part time job internally. 3. How much research needs to be done either on loyalty programs in general or competitor programs? Do you have the resources for research or do you need to outsource? This needs to be included in your budget. 4. Do you need customer research to test program concepts and benefits? This is highly recommended as it will help create incremental revenue assumptions. 5. Are you going to test the loyalty program in a pilot program or go straight to full roll-out in all stores and online? It is always ideal to test and pilot to validate assumptions and get any technical bugs out but is not always feasible in the fast-paced world of retail. 6. How will we market the launch? What materials are needed? Will there be a physical card (this can get expensive)? If so, how many do we need at launch? Again, testing will help with these decisions. 7. What is the plan for training store associates and call center reps on the program? Is the training incremental or hooked into an existing training program? While it can be very expensive, dedicated training on loyalty with materials and role play activities helps ensure a successful launch. 8. How are we planning to take loyalty data? Will there be a need for data entry from printed forms? Ideally, enrollment would happen at POS, but if that’s not possible (and it isn’t at a lot of retailers), paper forms may have to be used. A data entry system and ongoing resources will need to be included in the budget. Upfront & Ongoing Expenses QUARTERLY REVIEW JANUARY 2015 17
  18. 18. Ongoing Annual Espense Considerations 9. How quickly can we ramp up any needed dedicated internal resources? Will there be a loyalty team or can it be absorbed into existing resources? Having dedicated resources will better ensure program success, but they don’t all need to start pre-launch. All of the business and IT decisions that have been made to the point of launching the loyalty program will impact ongoing expenses. KEY CONSIDERATIONS: 1. How much of the ongoing management of the program is outsourced versus managed in-house? Either option can be costly depending on the complexity of the program. 2. Are loyalty marketing campaigns totally separate or is loyalty baked into existing marketing plans? Ideally, it should be done both ways as that creates dedicated marketing but also leverages existing campaigns. 3. How are we marketing loyalty for acquisition and retention? Targeted? Mass? In-store? What’s your annual communication plan? This should be clearly laid out and accounted for up-front, but there should also be room for constant testing and learning. 4. How many incremental new FTEs are required in marketing and IT to run the ongoing program? Some retailers treat loyalty like a one-time project and don’t properly nurture the program post-launch. Successful loyalty programs plan the necessary resources to take care of the program in the future. 5. How often will we add new benefits and make changes to the program? How will those changes be communicated to the customer and associates? It’s important to have built-in costs to ensure keeping the program fresh over time. 6. Who is managing the customer reporting for the loyalty program? Existing headcount or new? Marketing or finance? Build a plan into the program to potentially increase headcount over time – the more loyalty customer data that is shared, the more requests for information from the organization will come in. 7. What enhancements are we planning to add to the program that might require IT work? When? Build future capital requests into depreciation expense. 8. Will the program issue points? How a program accrues for point liability can vary widely from company to company depending on accounting methodologies. Public companies have much stricter rules and the liability can cause the program a lot of expense on the books that can’t be spent on hard marketing dollars. This is another reason why testing is important so that points breakage can be estimated upfront and liability can be limited. QUARTERLY REVIEW JANUARY 2015 18
  19. 19. KOBIE QUARTERLY REVIEW 21 And Finally, Measuring ROI Once incremental sales and all upfront and ongoing costs have been assessed, an ROI model should be developed. This will depend on culture and existing financial practices, how many years the model should go out, and what the hurdle rate is to develop a project NPV and IRR. Ideally, it is easiest to sell loyalty if the program can at least get to break even NPV by end of year three. It’s critical that post approval, the ROI model is a living and breathing document with regular reporting on results against what was forecasted. All of the business and IT decisions that have been made to the point of launching the loyalty program will impact ongoing expenses.” “ QUARTERLY REVIEW JANUARY 2015 19
  20. 20. key ingredientsOF A SUCCESSFUL RESTAURANT LOYALTY PROGRAM A restaurants identify and engage loyalty patrons, drive purchase behavior such as INCREASED TICKET SIZE strengthen the relationship with their existing customer & base. programs help WELL DESIGNED loyalty program is a source of competitive differentiation and profit to the restraurant brand. L O YALTY 20
  21. 21. KOBIE QUARTERLY REVIEW 23 By evaluating transactional data from the loyalty program, restaurants can segment users for offers and promotions tailored to a customer’s preferences, thus encouraging more profitable behaviors. What sets apart the very best restaurant loyalty programs? Simplified, personalized customer experiences that deliver convenience. Loyalty programs should also positively impact customer lifetime value. For example, in one client program we found: Members spent an average of 10% more than non-members, with a 1% increase upward per year. Projected customer lifetime value as a result of loyalty revenue was $500 million over a three-year span. We were able to calculate this using our lifetime value methodologies and other proprietary algorithms. LOYALTY PROGRAM BENEFITS FOR RESTAURANT PATRONS Guests benefit from the enhanced or customized experience that a loyalty program enables before, during and after the visit and across channels and devices. For example, one of our clients leverages their members’ profile and preference data to enhance the overall customer experience, starting with the moment they walk up to the hostess stand. Some restaurants award currency (such as points or badges) for social interactions. Mobile apps or location proximity devices are being leveraged in fun ways that enhance the customer experience. A loyalty program is also a great source of ongoing engagement between the restaurant and members. As a reward member you may receive additional perks like members-only offers and coupons, recipes via social media interactions, a special invite to a chef demonstration, or advance access to new menu items or seasonal items before they are available to the public. RESTAURANT LOYALTY INNOVATIONS: WHAT’S WORKING Effective loyalty programs provide lots of ongoing engagement with members and create an omnichannel experience by serving a consistent message across multiple channels. Some of the most effective innovations we’ve seen in restaurant loyalty in the last several years include: 1. Integrating the program across multiple touch points, such as tablets, mobile phones and kiosks. This type of integration enhances the experience and engages members while lifting revenue. 2. Encouraging social behavior, such as checking-in via Facebook, writing a Yelp review or posting an Instagram photo. Some brands do this by rewarding certain social behaviors with award currency, like badges or points. 3. Using mobile integration at the POS to speed up the payment process, collect feedback, deliver coupons, etc. 4. Leveraging digital channels to tell the brand story, encourage repeat visits, and test out new menu items. THE FUTURE OF RESTAURANT LOYALTY In the future we’ll see restaurant brands become even more hyper- focused on enhancing the customer experience. New and existing technology will enable more personalized experiences even before the member walks through the front door. RESTAURANTS WILL ENGENDER LOYALTY AND ENCOURAGE REPEAT BUSINESS BY: Allowing new patrons to get a sense of the ambience before entering the establishment Reducing wait times before and after the meal (pre-order or post-meal checkout via mobile phone) Offering customized ordering or options Helping members discover new menu items Catering to a member’s dining or seating preferences Offering branded activities tailored to families Providing more information about the food: whether it was sourced locally and sustainably, how it was prepared, and the nutritional content Placing orders through tablet-enabled service Delivering even more relevant offers Engaging the member in discussion or in creating menu items The experience and consistency with which the program is delivered coupled with all the ways a brand can engage with members is the best way to incentivize members and keep them coming back for years to come. 21 QUARTERLY REVIEW JANUARY 2015
  22. 22. IMMEDIATE NEAR FAR iBeacon’s Potentialto Merge Online andOffline Experience with Welcome! CONTEXTUALMARKETING Open Close 22
  23. 23. KOBIE QUARTERLY REVIEW 25 Loyal customers share a great deal more with you. Because of this, loyalty enables insights into customer wants and needs that the average customer database does not offer. Yet a disconnect still exists between the online and offline customer experience. Despite having so much customer data available, loyal customers are hard to identify in the physical world. Mobile combined with iBeacon technology could help bridge this gap. iBeacon uses a low frequency Bluetooth signal to communicate with mobile devices. It registers devices based on a certain distance or proximity in the physical world. As long as location services are turned on, iBeacons can communicate with mobile apps even if they aren’t open. While this sounds similar to other location-based technologies, what’s unique about iBeacon is its ability to determine a device’s distance within a matter of feet. Why is iBeacon really worth getting excited about? It can facilitate truly contextual communication. If you had the preferences of loyal consumers on hand every time they were near or in your business, you could speak to them in terms of where they are, who they are, and what they want. iBeacon technology also holds a lot of promise for helping fill in a missing piece of the marketing puzzle – how online communication drives real-world behavior. Using iBeacons, brands could better track if online marketing, like a coupon sent via email, lead someone to visit a brick-and-mortar store. Below is a look at how iBeacons can be leveraged to create geo-based, highly relevant customer experiences at the right time. MORE PERSONALIZED IN-STORE EXPERIENCES By placing iBeacons at strategic points, retailers can track when someone has entered the store and even track movement through the store. This presents endless ways to engage with customers in real time, both through their mobile devices and during interactions with store personnel. There are many obvious ways to use iBeacon in retail environments, but the possibilities aren’t limited to sending a push notification for a discount on TVs when a customer walks by that section of the store. Retailers could pair someone’s location in the store with their customer data to take it a step further. For example: • In an electronics store, a customer near the TVs has a purchase history of buying a lot of CDs. That customer could be notified that a few aisles over a new CD from an artist they like is on sale. • A high-end clothing boutique’s store associate is alerted that a high- value customer is in the store. The associate can quickly get a sense for the customer’s taste by looking at preferences she’s shared on her mobile app profile. From there she can suggest clothing items that align with this customer’s fashion sense. MORE EXPERIENTIAL REWARDS IN THE TRAVEL INDUSTRY iBeacons could enable travel brands to reduce across-the-board rewards, like discounts, and increase more personalized experiential rewards – which could also mean significant cost reductions. With iBeacons, travelers could be followed and engaged throughout the travel experience: as they move through the airport, when they land in another city, when they retrieve their bags, and when they arrive at their hotel. Frontline employees would no longer need to rely on a check-in to know that someone is on site. Furthermore, iBeacons could arm employees with information about loyal customers that’s already in the online database. Coordinating “wow” experiences on the fly would be easier since staff would have a wealth of customer information on hand and more lead time for preparation. A few examples of how this could work: • Airline employees could be alerted when a VIP customer is approaching the gate. They could greet the customer and offer expedited boarding or an upgrade to their preferred seating area. Additionally, they could have access to more personalized information, like knowing it’s the passenger’s birthday or that on this flight they’re hitting a milestone such as a million miles traveled with the airline. • When someone walks in the front door of a hotel, the front desk staff could immediately know who this person is and their preferences as a loyal customer before they even reach the desk. Room service could be alerted to send a customer’s favorite drink up to their room within 10 minutes of their arrival. The cost of sending a drink to someone’s hotel room is much less than offering a discount on their stay, but most people would be more “wowed” by the former since it’s both personalized and unique. Experiences like these can transform a behavioral loyalty-driven customer into an emotional loyalty-driven customer, while costing very little to implement or execute from an operational perspective. Experiential rewards create the type of unbreakable bond that ensures a customer repeatedly chooses one brand over the rest. QUARTERLY REVIEW JANUARY 2015 23
  24. 24. With any emerging technology, it takes a while to move beyond the fad phase and show enough user adoption and traction to drive development. Augmented reality is an example of this. Although augmented reality is still “proving its worth” -- much like mobile marketing had to do over the last 5 years -- brands are now experimenting with how it can be leveraged beyond the “wow” factor to influence purchasing behavior. In general, augmented reality promotions could be an effective part of loyalty as they allow consumers to interact with a product in a unique and personal way. Research proves there is potential for augmented reality’s success in terms of brand revenue generation: • IN 2013, THE TOTAL GENERATION OF REVENUE FROM AUGMENTED REALITY WAS AROUND $300 MILLION. • NEARLY 30% OF MOBILE SUBSCRIBERS USED AUGMENTED REALITY AT LEAST ONE TIME PER WEEK IN 2014. • IN 2014, AUGMENTED REALITY TECHNOLOGY WAS ENABLED IN OVER 864 MILLION SMARTPHONES. • AUGMENTED REALITY REVENUE IS EXPECTED TO BE MORE THAN $600 BILLION IN THE NEXT TWO YEARS. Time will tell how well augmented reality can impact loyalty, but plenty of brands are already banking on its potential. The following are three recent examples of augmented reality’s application specific to loyalty programs: AUGMENTED REALITY FOR LOYALTY PROGRAMS Real Potential or Passing Fad? 1. Walgreens: Since June 2014, Walgreens has been testing an augmented reality program using Google’s indoor mapping technology, Project Tango. Using the Walgreens mobile app, customers receive help navigating the store layout with relevant promotions popping out along the way, including offers tied to rewards points. 2. Century 21: The New York-based retailer launched a pilot program that leverages mobile technology and augmented reality to increase memberships. Customers use their smartphones to scan shopping bags and spin a virtual wheel full of offers. The push toward a more immersive in- store experience is part of Century 21’s goal to increase loyalty program sign ups by up to 34%. 3. Kraft: This past summer, Kraft launched an augmented reality campaign encouraging Walmart shoppers to use their mobile devices to scan campaign signage and logos that link to digital assets connected to a larger campaign and sweepstakes. One example is “Paisley Points,” which offers shoppers points redeemable for autographed Brad Paisley merchandise when they upload images of Walmart receipts with proof of a Kraft purchase. QUARTERLY REVIEW JANUARY 2015 24
  25. 25. KOBIE QUARTERLY REVIEW 27 We’re likely to see a lot of brick- and-mortar retailers follow Walgreens’ lead this year. Most will share common goals such as increasing frequency, spend and engagement. What’s Next for Augmented Reality and Loyalty Wearable technology has sparked renewed buzz around augmented reality, with lots of potential around Google Glass and the soon-to- launch Apple Watch. This may open up a completely new category for augmented reality compared to what we’re used to with respect to simple smartphone interaction. Wearable technology can tie consumers into the real-time data stream where they can reveal more about their preferences and behaviors. From there, marketers can gain more insight into what to market to them, how to communicate with them about the things that get them excited, and filter out unwanted or irrelevant content – all of which could lead to greater personalization and contextual relevance. Augmented reality stands to become an increasing component to the loyalty marketing mix as brands aim to create more memorable, personalized experiences. Expect to see augmented reality tied into more loyalty strategies if marketers can prove how it can engage consumers, draw them into physical locations, encourage frequency, and build brand advocacy. 864MILLION SMART PHONES In 2014, AR technology was enabled in over $300 MILLION In 2013, the total from AR was around generation of revenue QUARTERLY REVIEW JANUARY 2015 25
  26. 26. Finally Make Mobile Payments a Reality for Retail? Will QUARTERLY REVIEW JANUARY 2015 26
  27. 27. KOBIE QUARTERLY REVIEW 29QUARTERLY REVIEW JANUARY 2015 27
  28. 28. U nless you’ve been living under a rock, you’ve probably heard that Apple’s new mobile wallet, Apple Pay, launched in October. Apple Pay is an online and mobile wallet that will allow consumers to upload up to eight credit cards and make payments at both online and brick and mortar retailers. W hile Apple Pay will likely have a long term impact and gain consumer acceptance over time, the race for mobile wallet domination is not over and there are several reasons why it will take a while to gain widespread acceptance. First, widespread adoption will be limited since Apple Pay isn’t available on older iPhone models and Android phones. Apple Pay will only be available on the iPhone 6 at the time of its launch and then on the Apple Watch in 2015 (the only Apple products that use NFC technology). Plus, it will likely take time for iPhone 6 and Apple Watch users to adapt to Apple Pay. Second, while many retailers are planning to accept Apple Pay, some notable brands are holding out for a different solution. Top-tier retailers like Walmart, Best Buy, and 7-Eleven are putting their faith in a solution by MCX which will launch this year and work with debit cards. Lastly, local mom and pop stores probably can’t afford to install the Apple Pay software and won’t adopt it anytime soon. M obile wallets like Square and Google Wallet have been around for years but have never gained widespread consumer acceptance. So why is there so much hype around the launch of Apple Pay? 1. Apple Pay has solved some security concerns that many consumers have around mobile payments by using NFC technology and a one-time use encrypted number. 2. Since Apple Pay is an open network that can be accepted at any retailer that installs the software, consumers can avoid signing up with multiple wallet providers. Many of the successful mobile payment solutions, such as the Starbucks app, only work in a specific brand’s retail locations. 3. Transitioning to Apple Pay will likely be easy due to the existing level of consumer trust in Apple. iTunes already stores more than 800 million credit cards, which proves that consumers are comfortable sharing their payment information with Apple. 4. Major retailers have already signed commitments to install the technology to accept Apple Pay. Nike, McDonald’s, Target, Whole Foods, Subway, Walgreens, and Macy’s are among the retailers who have agreed to install the software and start accepting Apple Pay starting this fall. 5. Apple Pay is being supported by the big three credit issuers and major banks. Visa, MasterCard and American Express have all signed on as have Bank of America, Capital One, Citi, Chase, US Bank, and Wells Fargo. 6. Apple Pay can close the loop in terms of reporting to retailers with iBeacon software. Most mobile wallets rely solely on Bluetooth, which means that it needs to be turned on and it is difficult to track which offer prompted what action. Apple Pay will be the only wallet to combine Bluetooth, NFC and iBeacon technology. iBeacon is a signal- emitting technology that allows retailers to push real-time, geo-centric offers to consumers in physical stores. Retailers will be able to send geo-targeted offers via iPhones and Apple Watches and then track transactions through Apple Pay. WHY WIDESPREAD ADOPTION WILL TAKE TIME APPLY PAY IS POSITIONED TO SUCCEED WHERE OTHERS HAVE FAILED QUARTERLY REVIEW JANUARY 2015 28
  29. 29. KOBIE QUARTERLY REVIEW 31 D espite these obstacles, it is clear that Apple has the marketing muscle to make an impact and that in some way, shape or form, mobile wallets are coming. So what might this mean for retail loyalty programs? There are some potential positives: 1. Mobile wallets may enable better tracking of purchases for loyalty programs. Assuming loyalty numbers can be loaded into the mobile wallet, potentially all transactions could be linked to loyalty. 2. Mobile wallets may allow for better integration between retail credit loyalty programs and tender neutral programs by integrating them with one number in the wallet. 3. Mobile wallets may make consumers more comfortable with sharing their customer data, knowing it is stored with a trusted third party versus the retailer. At this point there is uncertainty around mobile wallets that could potentially be harmful to retail loyalty programs. A few unanswered questions: 1. What will the business model look like? The banks will be sharing the interchange fee with Apple, but will mobile wallets like Apple Pay charge retailers for loyalty integration? The answer is likely “yes,” but time will tell when and how much. 2. How will Apple treat the customer data? 3. If a retailer refuses to pay certain fees, will Apple push the customer to a competitor? 4. Will Apple choose to launch its own coalition loyalty program and disenfranchise retailers from their customers all together? Despite all of the unknowns surrounding Apple Pay, there’s a good sign Apple may be zeroing in on loyalty -- a recent job posting at Apple is seeking a program manager for loyalty tasked with “shaping the future of loyalty programs.” I’m sure we’ll all be keeping a close eye on this in the coming months and years. APPLE PAY’S POTENTIAL IMPACT ON RETAIL LOYALTY QUARTERLY REVIEW JANUARY 2015 29
  30. 30. Kobie Marketing is a global leader in loyalty marketing and an industry pioneer, delivering end-to-end strategy, technology and program management solutions. Kobie drives results and ROI through Kobie Alchemy®, a best-in-class loyalty marketing technology platform. W E A R E K O B I E FIND OUT MORE AT INFO@KOBIE.COM Kobie Marketing, Inc. @Kobie_Marketing Kobie Marketing info@kobie.com

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