The retail industry -- once the cheap seats of the customer strategy arena -- is showing signs of polishing up its act.
Growing sophistication in loyalty programs is evident in new research gleaned from the category. Along with recent results from some key players, it could mean that customer strategy is moving from a resented expense for retailers to a welcome investment.
Some of the most compelling evidence to support this sophistication comes from a new report from The Aberdeen Group. Released in June, Responsive Customer Loyalty found that 81 percent of all respondents currently operate a loyalty program. According to Aberdeen retail analyst Sahir Anand, multichannel customer management and a commitment to advanced customer metrics such as customer lifetime value (CLTV) came up surprisingly strong for this category.
On the multichannel management front the report found that 45 percent of retailers register customers for loyalty programs via sales associate in the store, 41 percent at the point of sale, and 41 percent online. Twenty-one percent currently use “cross channel loyalty tools that align with cross-channel customer demand” and 34 percent said they plan to implement this capability within the next year.
The top two objectives driving retail loyalty program objectives were lifetime customer value (57 percent) and competitive advantage (39 percent). CLTV had long been considered the province of consultants and cutting edge CFOs, but using loyalty data as a window to this metric was “positively surprising” to Anand.
Real-time customer data is also starting to gain traction. Fourteen percent of the respondents track customer purchases and behavior as part of their loyalty initiative metrics within one or two hours of purchase. Another 23 percent plan to implement real-time capabilities within the next year. The two most effective strategies for using customer loyalty data were “elements that suit specific customer affinity and preference” (53 percent) and “personalized promotions across channels” (52 percent).
The sophisticated approach is driving success. Aberdeen found that best-in-class retailers reported an average year-on-year same-store sales increase of 7.4 percent and reported repeat sales had improved by an average of 21.8 percent. Retailers without a loyalty program in place tended to report poorer sales and customer retention results.
Virgin, Starbucks see loyalty program gains
Recent retail loyalty reports support the Aberdeen findings. Virgin Entertainment Group reported on August 12 that its two-year-old loyalty program was starting to pay significant dividends. In a market that has seen the decimation of packaged goods entertainment such as CDs and DVDs, Dee Mc Laughlin, vice president of marketing for Virgin Entertainment Group, North America said the “Virgin Important Person” program, which gives members points for all kinds of purchases and for attending in-store events, has built “an insightful database that measures the real impact of all of their marketing activities.”
Virgin reports that the average dollar spend by VIP members is up 60 percent higher than non-members in 2008. The VIP program has grown to 300,000 members.
Starbucks, according to The Denver Post, is counting on loyalty programs to help bring customers back to its stores. It has unveiled a pilot program in Denver and Vancouver, British Columbia called Starbucks Gold Card, in which customers who have registered their Starbucks cards are invited to sign up to get perks such as a free birthday drink and friends-and-family discounts. The Gold Card's introduction in July came on the heels of a nationwide push that offered customers incentives to register their prepaid Starbucks cards.
Retail loyalty strategy
Aberdeen's Sahir points to three best practices for retailers that want to increase their loyalty program effectiveness. Two of them stress more aggressive use of data. First, he says, retailers need to develop customer reactivation campaigns (within three to 12 months of departure) to reduce attrition and improve lifetime customer value. Second, retailers should increase frequency of multichannel loyalty campaigns from an average of one to two campaigns per quarter to four campaigns to increase share of wallet. Third, at the executive level, single point of ‘ownership of the customer’ should be established for more cohesive relationship marketing decisions.
Despite the improvements, Anand is concerned about a continuing disregard for basic data among some retailers. For example, year-over year same store performance was unknown by 35 percent of respondents. Yet, similar numbers were tracked for market basket size, customer retention, and customer churn, which are key data points for any loyalty program. “Very concerning” says Anand. “Not enough retailers equate loyalty with data. It’s an extremely fragmented industry in that regard. Retailers must understand the importance of managing their knowledge development. Only after you manage knowledge can you manage performance.”