Aberdeen Retail Customer Loyalty Analysis - July 2012


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A concise analysis of leading retailer's performance on: omni-channel customer loyalty, tracking, alignment of offers, multi-tier rewards, social media, analytics, mobile loyalty, location based messaging

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Aberdeen Retail Customer Loyalty Analysis - July 2012

  1. 1. July 2012 Customer Loyalty 2012: Enabling Technologies for Customer Engagement, Conversion, and RetentionIn order for a retailers customer loyalty program or initiative to attract, Analyst Insightconvert, and retain customers, a mix of process, knowledge management,performance, and organizational capabilities must be in place. These Aberdeen’s Insights provide thecapabilities allow organizations to execute on their loyalty strategy. analysts perspective on the research as drawn from anHowever, these capabilities are only the beginning of loyalty success; aggregated view of researchretailers also need enabling technologies to execute on the strategy. These surveys, interviews, andenablers must combine traditional loyalty technology and emerging data analysistechnologies for loyalty offer creation, delivery, and redemption. Accordingto the March 2011 Next Generation Customer Loyalty report, 24% of retailrespondents currently use a centralized, cross-channel customer loyaltyplatform, and an additional 62% plan to implement this technology in thenext 12-18 months.This Analyst Insight will examine the key technology components of acustomer loyalty program, as well as the importance of integrating loyaltyelements into a centralized loyalty platform. The report will show howleading organizations put technology at the forefront of their loyaltyinitiatives, and the impact of these technologies on customer satisfaction,retention, and re-activation.Omni-Channel Customer LoyaltyLoyalty technology is a key component in the omni-channel customer Omni-Channel Leadersexperience. According to the January 2012 Omni-Channel Retail Experience Definitionreport, 66% of Leaders (see sidebar for definition) believe attractive Aberdeen used three keycustomer loyalty offers are a top component of their omni-channel strategy. performance criteria toConsumers also expect loyalty offers to be consistent across all channels of distinguish Leaders (top 30% ofoperation, from an offer creation, delivery, and redemption standpoint. performers) from Followers inAccording to 42% of survey respondents, a top omni-channel pressure is the January 2012 Omni-Channelthe consumer expectation of a similar experience regardless of channel. report:Inconsistent branding or disjointed offers can lead to consumer confusion  Current Customer(about the brand or offer), disenchantment, and eventually, desertion. Satisfaction (CSAT): 95%Leaders have made the concerted effort to align loyalty and marketing offersacross channels to provide a seamless and fluid customer experience. The  Current on-time order delivery: 98%next sections will detail how leading organizations offer a consistentexperience for improved customer retention, frequency, and re-activation.  Year-over-year increase in revenue: 19%Customer Loyalty CapabilitiesTo execute an effective customer loyalty program, retailers must develop afoundation of business process, organizational, knowledge, and performanceThis document is the result of primary research performed by Aberdeen Group. Aberdeen Groups methodologies provide for objective fact-based research andrepresent the best analysis available at the time of publication. Unless otherwise noted, the entire contents of this publication are copyrighted by Aberdeen Group, Inc.and may not be reproduced, distributed, archived, or transmitted in any form or by any means without prior written consent by Aberdeen Group, Inc.
  2. 2. Customer Loyalty 2012Page 2management capabilities. As Figure 1 below indicates, Leaders are Digital Marketing Leadersoutperforming their peers across a number of key strategic capabilities (see Definitionsidebar for maturity class definition). Leaders are nearly twice as likely totrack loyalty program redemption rates. Redemption rate monitoring lets Aberdeen used three key performance criteria toretailers perform a thorough analysis of loyalty campaign successes and distinguish Leaders (top 30% offailures. Loyalty program features with low redemption rates can be performers) from Followers inmodified or eliminated based on data rather than gut feel. Redemption rate the May 2012 Digital Marketingmonitoring also lets the retailer modify successful programs and compare report:variations across different customer segments. This analysis depends on theimplementation of the appropriate analytics application as well as efficient  Return on Marketingreporting tools. Investment (ROMI): 61%  Year-over-year increase inFigure 1: Key Loyalty Capabilities customer retention: 21%  Year-over-year increase in customer frequency: 18% “We have a very large customer base, yet we have lost contact with many of these customers. We want to create a loyalty program that re- Source: Aberdeen Group, April 2012 engages the customers with our organization. With theThirty-five percent (35%) of Leaders, compared to 17% of Followers, are additional data we hope toaligning loyalty offers with seasonal merchandise, pricing, and promotions better serve our existing baseplans. This capability ensures collaboration between all relevant and turn them into brandstakeholders, including marketing, merchandising, and IT teams, when ambassadors.”deploying a loyalty program. This cross-functional collaboration can use ~ Director of Marketing, Largeinteractive collaborative portals as well as weekly or monthly team Consumer Products Company,meetings. The end purpose of this capability is to ensure loyalty offers are in North Americaline with current merchandise availability.The final capability that differentiates Leaders is their ability to develop amulti-tier rewards plan. A multi-tier loyalty program is designed to reward aretail organizations most profitable customers. These programs encouragegreater use and frequency from customers as they aspire to increase theirloyalty benefits in a tiered loyalty structure. Retailers can offer incentivesbased on customer purchase patterns, at either a frequency or a dollarthreshold. Exclusive offers, discounts, and early access to products orservices is key to creating a deeper customer relationship, and helps makethe shopping experience more personal. Customer analytics, and the© 2012 Aberdeen Group. Telephone: 617 854 5200www.aberdeen.com Fax: 617 723 7897
  3. 3. Customer Loyalty 2012Page 3appropriate offer delivery channels, vital to making a multi-tier rewards plana reality, and not just a goal.Key Customer Loyalty Technology ComponentsAccording to the May 2012 Digital Marketing in Retail report, the top “By offering loyalty rewardsstrategic action identified by 75% of Leaders is expanding their use of digital through specific channels wechannels to deliver targeted and personalized offers to their customers. The can manage/direct thetwo main channels identified by Leaders are mobile and social. Based on customer to a desired channel of service. By offering rewardstheir overall marketing mix, Leaders are focusing more resources on these to self-serving customers wechannels of interaction; for 2012, Leaders are devoting a full quarter (25%) can ensure this channel growsof their marketing budget to mobile and social initiatives, compared to only thus reducing inbound calls.15% of the marketing budget of Followers. However, the use of emerging Providing the right loyaltychannels should be balanced by tried and true loyalty technology. As Figure program also creates customer2 indicates, Leaders are using a mix of new (mobile, social) and old stickiness by customers feeling(analytics, rewards) technology components to achieve success. recognized and valued for doing business with us”Figure 2: Leading Loyalty Technology Components ~ Marketing Manager, Tier 2 Telecom Retailer, APAC Source: Aberdeen Group, April 2012Social MediaSocial media marketing tools are a top loyalty marketing technologycomponent adopted by Leaders (55%) (Figure 2). These tools include socialnetworks, blogs, product recommendations, user generated content, andmicroblogging. From a loyalty perspective, social media is incrediblyimportant, as the voice of the customer is louder than ever before.Consumers are turning to their peers, friends, and colleagues for advice onbrands, products, and services, and these interactions play a significant rolein the buying cycle.The real-time connectivity between brand and consumer is one of the topsources of ROI from social media marketing / loyalty. Retailers are taking to© 2012 Aberdeen Group. Telephone: 617 854 5200www.aberdeen.com Fax: 617 723 7897
  4. 4. Customer Loyalty 2012Page 4the social sphere to deliver loyalty offers and promotions; the rationalebehind this move is to allow loyalty members to share offers with theirfriends and colleagues. As loyalty members share offers and rewards, theretailer can track the social influence and patterns of their customers. Intoday’s expanding digital environment, many consumers are looking forinstant gratification. This is evident based on the amount of on-demandcontent available, and the hyper-connectivity of consumers via mobiledevices.Social loyalty marketing allows the retailer to take advantage of theircustomers desire for immediate gratification. However, retailers must beconscious of the realities of social marketing – every move is under intensescrutiny. A great offer or campaign can generate buzz and lead to additionalrevenue and customers. However, a bad campaign or experience can resultin social backlash. Leaders have shown that the reward is worth the risk—connecting with customers through social media can have a lasting impacton customer loyalty.Customer AnalyticsA customer analytics application is a second key enabler for loyalty success.Customer analytics let the retailer collect and analyze customer behavior, “Customer loyalty drives richerpurchasing information, and data across all channels of commerce. This is customer data, analytics andespecially important for loyalty customers, as these customers have opted- therefore better understandingin to have their information collected for the purpose of receiving additional of customer.”offers. Additionally, loyalty customers generally share more information, as ~ Principal E-Commercethey know it can impact their loyalty standing. This data can be used for a Architect, Tier 1 Retailer,predictive modeling forecast, which will help the retailer create segmented Europeloyalty offers based on customer behavior and prior spending limits.Data for customer analytics may be derived from stores and digital channels,including online stores, call centers, and social media monitoring, amongother data collection techniques. These data streams must be consolidatedinto a single view of the customer for a cohesive, consistent message. Thisinformation is used to create personalized campaigns and offers. Accordingto the May 2011 Digital Marketing and Loyalty data set, the use ofpersonalized offers has driven year-over-year growth in customer retention(16%), response (15%), and frequency (12%) rates.Mobile Loyalty PlatformA common complaint about loyalty programs has been the reliance on in-store enrollment and redemption. The adoption of digital channels and themove towards a seamless experience across channels has brought mobilityinto the loyalty space. Thirty-six percent (36%) of Leaders, compared to 9%of Followers, have a mobile loyalty platform of some form. Leaders areenabling customers to access mobile wallet and app-based loyalty programs,receive offers, check rewards balances, and redeem points all on theirmobile device. Consumer mobility is tied to empowerment, as today’sconsumer is seeking more control over their brand experiences. Thistechnology literally puts the loyalty program in the hands of the customer,© 2012 Aberdeen Group. Telephone: 617 854 5200www.aberdeen.com Fax: 617 723 7897
  5. 5. Customer Loyalty 2012Page 5 Demographicsand pays dividends of improved customer satisfaction, customer retention,and customer frequency. Demographics of the 70 responding retail organizationsReal-Time Rewards include:According to the March 2011 Next Generation Customer Loyalty report, the  Job title: Senior Managementtop loyalty component for both 2010 and 2011 in use by retailers were (27%); EVP / SVP / VP (10%);rewards. Rewards can take the form of dollars or point perks, and are Director (15%); Manageraccumulated based on customer recency, frequency, and monetary (RFM) (19%); Consultant (17%); Other (13%)thresholds. The instant gratification mentality of today’s consumer has madean impact on retailers, as they are now addressing the issue of real-time  Department / function: Salesrewards. Currently, 25% of Leaders, compared to 16% of Followers, offer and Marketing (60%); ITreal-time rewards to their loyalty members. This type of rewards program (12%); Business Managementlets the retailer instantly recognize their customers and offer incentives (10%); Operations (8%);based on purchases; incorporating these rewards into the mobile loyalty Other (10%)platform allows retailers to generate a two-way dialog with their customers  Segment: Apparel (8%);via the mobile device when sending an offer. The real-time connectivity with Specialty (14%); Grocerycustomers through virtual (online and social) or mobile loyalty programs (13%); Hospitality (10%);lets retailers offer a real-time reward, with the anticipation that offers will Consumer Electronics (10%);be shared socially. Real-time rewards also allow retailers to track the General Merchandise (8%);success of a campaign instantly, and use that data to drive campaigns in the Leisure / Entertainmentfuture. (12%); Consumer Products (17%); Other (8%)Location-Based Messaging  Geography: North AmericaAs consumers move toward a mobile experience, location-based messaging (57%); APAC region (24%) and EMEA (19%)grows in prominence. Currently, 20% of Leaders are using this technology,compared to 9% of Followers. Location-based messaging lets marketers  Company size: Largedeliver offers directly to the consumers mobile device when they are near a enterprises (annual revenuesspecific store, department, or item. These offers can take the form of digital above US $1 billion)- 31%;coupons with barcodes scannable at the point-of-sale, or through click-to- midsize enterprises (annualredeem online offers. Smartphone applications have helped retailers and revenues between $50 million and $1 billion)- 24%;consumer markets organizations greatly improve their communication with and small businesses (annualcustomers using location services. Retailers use social networks such as revenues of $50 million orfoursquare to deliver offers to customers who have “checked in” at one of less)- 45%their locations. The integration of mobile and social technology have made amajor impact on customer loyalty, from word-of-mouth referrals andrecommendations to location-based offers and the ability to share theseoffers within a customer’s circle of friends. “We are using digital coupons and location based messagingThe Whole is Greater than the Sum of its Parts to reach people wherever they are. Our customers want aThe technology components outlined above are critical to customer loyalty mobile experience, and weprograms. However, these components must work together as a whole. have to offer that to them. TheMany companies keep these technology elements separate, and must engage key is to put an enticing offer inin intensive integration of technologies and disparate data streams. By their hand.”centralizing all components into one loyalty platform, retailers can integrate ~ Director of Marketing,loyalty attributes with promotions, pricing, merchandising, point-of-sale Sporting Goods Retailer and(POS), and enterprise resource planning (ERP). This eliminates several layers Wholesaler, North America© 2012 Aberdeen Group. Telephone: 617 854 5200www.aberdeen.com Fax: 617 723 7897
  6. 6. Customer Loyalty 2012Page 6of integration and lets the retailer maintain consistency across channelswithout a need for multiple outsourced components.The March 2011 Next Generation Customer Loyalty report recommendedretailers adopt a centralized cross-channel customer loyalty platform.Retailers have taken this advice to heart. In 2012, retailers are transitioningtowards an integrated approach. Twenty-four percent (24%) of retailerscurrently use a centralized cross-channel customer loyalty platform, andnearly a third (62%) of retailers indicated they plan to adopt this technology.A centralized loyalty platform enables the retailer to control the entireloyalty experience, and eliminates the need to integrate disparate datastreams into a single consolidated system of record.The centralized loyalty platform encompasses consumer insights, offercreation, offer redemption, and performance metrics reporting. Such a toolallows the retailer to aggregate loyalty information across all channels ofoperation, with a single view of the customer and their purchase andinteraction behavior. This information can then be used to create tailoredloyalty offers depending on the type of customer the retailer is targeting:lapsed, high spending threshold, high discount percent, etc. Retailrespondents that currently use a centralized cross-channel loyalty platformreport significant benefits, including a 20% increase in customer retentionrates (compared to 8% for all others), and a 15% increase in customer re-activations rates (compared to 4% for all others). “By constantly focusing on theKey Takeaways customer, more effectiveThe impact of technology is often overlooked when evaluating customer marketing programs can beloyalty programs. As a result, many retailers have not implemented an devised, thereby increasingintegrated loyalty platform, instead opting to outsource the different loyalty, larger customercomponents. This strategy introduces complications of integrating data purchases and higher margins.”streams and technology; a centralized loyalty platform eliminates these risks ~ Marketing Manager, Tier 2by combining consumer insights, offer creation, offer redemption, and Media Company, Northperformance metrics reporting. AmericaFor retailers that are re-thinking, re-launching, or just entering the cross-channel loyalty space, the following are Aberdeens recommendations:  Implement a centralized cross-channel customer loyalty platform for easy access to all loyalty related data.  Ensure uniform data collection guidelines across channels for developing targeted loyalty offers based on customer information and affinities.  Use customer analytics for micro-segmentation of loyalty members for multi-tiered loyalty campaigns.  Incorporate mobile technology into loyalty programs to reach consumers on the go with targeted, personalized offers.  Use social media to engage customers in a two-way dialogue, and allow sharing of loyalty offers.© 2012 Aberdeen Group. Telephone: 617 854 5200www.aberdeen.com Fax: 617 723 7897
  7. 7. Customer Loyalty 2012Page 7For more information on this or other research topics, please visitwww.aberdeen.com. Related Research Digital Marketing in Retail 2012: State of Multi-Channel Retail Marketing: Integrating the Voice of the Customer A Paradigm Shift for Reaching New across Channels; May 2012 Customers; June 2011 Hyper-Connected Online Retail Next Generation Customer Loyalty: The Personalization: Driving Results with a Evolution of the Digital Customer; Customized Experience; March 2012 February 2011 Author: Chris Cunnane, Research Analyst, Retail and Consumer Markets (chris.cunnane@aberdeen.com)For more than two decades, Aberdeens research has been helping corporations worldwide become Best-in-Class.Having benchmarked the performance of more than 644,000 companies, Aberdeen is uniquely positioned to provideorganizations with the facts that matter — the facts that enable companies to get ahead and drive results. Thats whyour research is relied on by more than 2.5 million readers in over 40 countries, 90% of the Fortune 1,000, and 93% ofthe Technology 500.As a Harte-Hanks Company, Aberdeen’s research provides insight and analysis to the Harte-Hanks community oflocal, regional, national and international marketing executives. Combined, we help our customers leverage the powerof insight to deliver innovative multichannel marketing programs that drive business-changing results. For additionalinformation, visit Aberdeen http://www.aberdeen.com or call (617) 854-5200, or to learn more about Harte-Hanks, call(800) 456-9748 or go to http://www.harte-hanks.com.This document is the result of primary research performed by Aberdeen Group. Aberdeen Groups methodologiesprovide for objective fact-based research and represent the best analysis available at the time of publication. Unlessotherwise noted, the entire contents of this publication are copyrighted by Aberdeen Group, Inc. and may not bereproduced, distributed, archived, or transmitted in any form or by any means without prior written consent byAberdeen Group, Inc. (2012a)© 2012 Aberdeen Group. Telephone: 617 854 5200www.aberdeen.com Fax: 617 723 7897