RESEARCH & INSIGHTS
Four key trends are converging to reshape the loyalty marketing world in 2014. Today’s consumers are demanding a variety of choices via fast and seamless global, online and in-store experiences. The rise of the peer-to-peer economy threatens to bypass traditional businesses. Shoppers increasingly recognize that sharing their data should earn them something valuable in return, but loyalty marketers are still fixated on discounts. The resulting commoditization of the value exchange demands an increased emphasis on surprise and delight for program differentiation.
These four trends are driving rapid change, and the loyalty programs that will win big in 2014 are those who mobilize now. Those that don’t respond will fall far behind.
Download this whitepaper to discover the converging trends that could potentially threaten your business this year and beyond.
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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?
When a person’s actions decide the fate of future existence, we call it Karma. When the sum of a company’s data is used to improve the future existence of both its customers and itself, we can call it Kimpton.
The boutique hotel chain, long known for delivering personalized experiences, has reincarnated its loyalty program, InTouch, to one that better reflects the kinds of relationships it strives for with its guests. The program, introduced July 16, is called Karma.
Hotel stays still count, but the greater focus now is on interactions and experiences with the hotel – events that actually reinforce an emotional bond. These activities range from what Kimpton calls “good deeds,” such as conversing with the hotel via social media, to activities it calls “random acts of Kimpton” – dining at a Kimpton restaurant or renting a Kimpton bicycle. Specifically, it is Kimpton Karma Rewards, and it is an apt example of the mutual benefits that can be derived from using data smartly and responsibly. After surveying its loyalty members two years ago, Kimpton found they put a higher value on experiences, such as its morning coffees, its daily hosted wine hours when guests gather to try new wines, and the ability to travel with pets, than on the points or miles they earned through hotel stays. So Kimpton changed its earnings model.
The more guests participate with the hotel, the higher they progress through its tier system, earning access to a wider spectrum of perks.
“We have to give first in order to get back. We have to be loyal to our guests before we can expect loyalty,” Maggie Lang, senior director of guest marketing at Kimpton, told COLLOQUY.
That said, Lang pointed out there is a payoff to such generosity: “There is definitely a strong revenue strategy behind what we are doing.”
Her example to COLLOQUY involved an ongoing perk called “Raid the Bar,” through which members receive $10 vouchers for use at the mini bar or hotel bar. Members who redeem these vouchers at the hotel bar typically generate $100 in additional spending, 40% north of the average bar bill.
The cherry in that experiential cocktail is the good karma associated with the friends and memories made at the bar. Even better, that good karma actually generates more Karma, because that is the name of the program’s earning currency. And so the cycle continues. Pretty clever.
Key to the program working well is that Kimpton gives each hotel and its employees the freedom to delight members as they see fit. Hotel computer screens reveal, along with guest history, whether a prize is recommended for a past good deed. The employee can use his or her discretion to provide that prize, maybe a room upgrade, based on availability and other factors.
This is a spot-on example of mobilizing data in ways that empower every participant to achieve benefits. In turn, the data itself should improve as a result. Based on what it is doing today, I am encouraged to see what Karma becomes in a few years.
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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.