RESEARCH & INSIGHTS
How next-generation capabilities are delivering winning results in the world of personalization
Today’s customers are dissatisfied with the relevance of communications, while retailers are still struggling to show demonstrably improved campaign performance. Is Big Data to blame? Sure, the increased information flow can improve marketing ROI, but it also presents the rather significant challenge of how to build the capabilities to make sense of all that data.
Fortunately, with the power of emerging technologies, neither customers nor marketers have to feel helplessly resigned to the current situation. Today, better analytical approaches and improved technologies are easing the strategic journey toward true one-to-one personalization, helping marketers move past obstacles and seize opportunities for generating sustainable growth and earning customer loyalty.
Download this whitepaper to learn more about an approach that’s more profitable than traditional campaign-based marketing.
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Role models are tricky things. Pick the right one, and you have a way to benchmark progress and set goals. Pick the wrong one, and you set yourself up for disappointment and failure.
In the world of loyalty, we often look to the travel industry as the gold standard for program design because that’s where loyalty programs originated, and the programs are so ingrained into the workings of their respective companies. But retailers, in particular, are setting themselves up for failure by looking in this direction for inspiration. There are just too many differences between industries.
Travel and retail face different market forces. There has been increasing consolidation within the travel industry, with many small players being acquired. In contrast, the retail environment is becoming increasingly competitive as local retailers combat online shopping and an environment in which consumers can easily price compare and essentially buy anything from anywhere at any time. With differing market forces in play, the approach to how the industries treat their customers shouldn’t be the same, nor will consumer expectations be the same.
Travel value propositions are decreasing, while retailers’ are strengthening. In the travel industry, for instance, Marriott rearranged its reward portfolio and moved 36% of its hotels into a higher point category while making only 1% less expensive. Program changes to the Hilton HHonors program mean that it will take nearly twice as many points to earn a free night at some of the chain’s top-tier hotels. Both Delta Airlines and United Airlines are now rewarding for how much customers spend rather than how far they fly, and both programs have new higher mileage requirements for premium reward travel. In the retail industry, on the other hand, Nordstrom has reduced the number of points needed to be promoted to the next tier by half, while Sephora re-launched its Beauty Insider program and added a reward level for customers who spend $1,000 a year, offering free shipping, early access to new products, and VIP event invites. This difference between making rewards harder to get in travel and easier to access in retail are being driven by extremely different overall trends.
Aspirational customers have different motivations. Travel industry customers who are looking to move up to a higher tier tend to be more motivated by soft benefits than those in other industries. The 2014 COLLOQUY Research Study on Consumer Attitudes Toward Membership Status in Loyalty Programs found that upgrades to products and services (77%), higher level of service (72%) and sharing perks with friends (65%) were the most important soft rewards in the travel industry. Retail customers looking to advance a tier were less hungry for those benefits (each registered about 10% lower), and instead were more heavily drawn to monetary or cash rewards (84%).
In sum, retailers need to consider what their customers find motivating rather than following the lead of another industry. Looking outside of an immediate competitor set for inspiration can help keep a program fresh and differentiated, but retailers have to make sure that their customers really will be motivated by what’s being offered. The best way to understand that is data — from your customers, not an entirely different industry.
More on motivators that change customer behavior can be found here.
Personalization sounds good in theory, but it takes an investment of time and money – how do you know you will earn a good return? As I was helping prepare for a recent presentation at FMI Connect, the insights from our internal research made me realize that success in growing retail sales via personalization depends on a three-part strategy: Identify current customer value, project potential customer value, and then successfully move from value to action.
1. Current Value: Know Your Most Valuable Players
Data sharing, often through a well-designed loyalty program, supplies a wealth of information about who individual customers are. Combined with purchase data, this information provides a snapshot of a customer’s behavior.
For example, some shoppers are big spenders who frequent their favorite stores almost daily. Others are frugal — they come in rarely and strictly shop for items on sale.
Paying attention to the story that the data tells about these customer groups — and measuring their impact on the business — is what helps retailers understand the current value of the shopper community.
2. Potential Value: What Else Do Customers Want?
When combined with life stage and socio-demographic status, the data starts to offer clues about what else customers could buy. Consider the grocery shopper who regularly purchases imported canned tomatoes, jarred anchovies, fresh vegetables, and sausages. This person spends about $50 weekly on this shopping basket. The basket tells a story about an affinity for high-end Italian cuisine and a love for cooking pasta dishes.
What’s missing from the basket? The pasta itself. Customer data might identify that shopper as affluent and able to spend additional $10 on premium pasta. It’s a purchase the shopper is likely making elsewhere.
This is potential, or unrealized value. Just within the pasta category, the potential value lift for this customer is 20%.
When retailers start using customer data to understand the potential value of their shoppers, customer-centricity emerges as more than just a concept. Data becomes the tool to inform the retail organization, from marketing to merchandising to operations, about both its most important customers and its future most important customers.
3. Moving From Value to Action
Once retailers realize the value their customers bring to the stores, it becomes easier to focus on customer satisfaction and make decisions that directly impact the top line.
For our Italian cuisine shopper, the retailer may add a pasta brand to their assortment, promote existing brands more aggressively in-store, send personal offers to select shoppers like this one, or lower the price of pasta. The exact decision would depend on how the customer base is distributed across the value matrix.
Shoppers with high potential value may warrant new investments in CRM technology or mobile app development. Analytics provide a way to calculate the risk and return on that kind of investment.
Infrequent bargain hunters, on the other end of the spectrum, might best be served with existing print promotions. In fact, those promos could even be scaled down, with the savings reallocated toward growing the higher value customer relationships.
Today’s retailers need to listen to the stories their customers are telling them via data sharing. Listening and creating a story in response is what customer-centricity is all about. It’s a dialogue — where conversations happen with tens of millions of customers.
For more insights on this and from the FMI Connect Presentation, view our Slideshare: Are Retailers Leaving Money on the Table?
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THE LOYALTY LEAP
In his bestselling book, LoyaltyOne President Bryan Pearson draws on more than 20 years of first-hand experience. His expertise in building emotional loyalty in the information age is demonstrated through insightful stories from the trenches of the data-gathering and marketing communications fields.