Next-Generation Customer Loyalty Eludes Retailers


The economy has hit the retail sector hard. Retail sales in the U.S. dropped 1.1 percent in March as consumers continue to tighten their purse strings. Retailers with strong loyalty strategies already in place are seeing some successes, but there are still many opportunities to improve retail loyalty strategy, and this is especially important in this downturn.

A new Aberdeen report, Cutting Edge Customer Loyalty: Retail Best Practices for Acquiring, Retaining, and Re-engaging Customers, surveyed 165 retail companies about their loyalty efforts. According to the research, 90 percent of the Best-in-Class retailers indicate at least "some level of success to very successful results" from their loyalty programs, compared to less than a third of Average and Laggard retailers. The disparity exists because the Best-in-Class firms create better, more customized and personalized promotions, through the use of customer data mining and analytics, than do Average and Laggard firms, the report states.

Best-in-Class retailers are currently 1.8 times more likely than Laggards to implement a strategy to improve personalized promotions by using customer wallet share and customer purchase behavior analysis from purchase frequency or total customer spend data. "A combination of these loyalty marketing and analytical tactics drive improved frequency of purchase, retention, and improved basket size during seasonal and non-seasonal selling periods," says Sahir Anand, research director of Aberdeen's Retail practice and author of the report. He says that while the report shows some success among a small group of retailers, opportunity exists in three key areas to step up loyalty efforts.

First, Anand says, there is still a large technology gap when it comes to implementing loyalty programs. Sixty-five percent of retailers have the ability to capture customer data at the point of sale, but only one third have the ability to execute loyalty programs in the store. "The point of sale is the true beacon of customer service, so you would think there wouldn't be such a large gap," he says. Upwards of 85 percent of a typical retail company's business still comes from the brick-and-mortar channel, so when a company doesn't manage to please the customer with a personalized offer or face-to-face recognition it's a lost opportunity. "It undermines the notion of lifetime customer value and long-term customer relationships," he says. "There are high levels of missed opportunities."

Second, companies can do more with analytics to enhance their loyalty programs. "You can't create a good loyalty program without data," he says. "Traditionally companies look at recency and frequency of purchases as key data points," he says. "We suggest looking at value by measuring customer retention and attrition rates" to get to the what, why, and how much of customer loyalty. He also says that even though companies implement loyalty programs, they often just don't measure ROI. "There is complacency among Average and Laggard companies especially," he says. Fifty percent are not measuring loyalty campaign analytics.

He adds that deeper analytics can help companies create multitier loyalty programs that treat differently valued customers differently. "It's so important to create different levels of service based on customer value," he says. It can have an aspirational effect on the lower tiers. "Don't ignore your most valuable customers, but service different groups appropriately. Other customer value groups could be very loyal in the long run, so it's important to create a dialogue with them as well."

Third, cross-channel loyalty strategy as a concept needs to come of age, Anand says. Right now, only one third of retailers execute true cross-channel loyalty programs. "Companies need to take responsibility and ask themselves if they are really leveraging the 360-degree view of the customer," he says. He recommends an integrated approach that shares data across customer touchpoints to create customized offers than can be offered through all channels.

Unfortunately, Anand says, many retailers still have a long way to go to achieve one, let alone all three of these loyalty program improvements. "Next-generation loyalty will only work when retailers understand the customer's mindset."