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THE FUTURE OF LOYALTY

THE CHANGING FACE OF CUSTOMER INSIGHT AND LOYALTY

Introduction
The UK retail market remains a tough one in which to operate. The economy is still flat, consumer confidence is low, house prices are depressed and a slow recovery is forecast . High levels of unemployment, stagnant and declining wages, and the fear of large-scale public sector job losses have all combined to undermine both disposable income and consumer confidence. Inflation, in the form of rising commodity prices, has pushed up the cost of everyday items such that the UK has witnessed the highest rise in spending on groceries and food as a proportion of GDP since the Second World War. These factors combined with the dreaded credit crunch mean that spending power has dropped enormously since 2008 some commentators argue by levels last seen in the early 1980s. Yet the effect upon retailers is not homogenous: some are faltering, others are maintaining their market share and a few are prospering. Whats clear is that in the current climate is that managing customer loyalty is a vital business strategy, since retaining customers is far cheaper than recruiting new ones. For many years retailers have successfully employed customer insight and loyalty programmes to maintain wallet share and build customer loyalty, but a variety of factors are now challenging traditional approaches. On the one hand, customers are evaluating their choices more than ever before, aided by easier price comparison, recommendation and review sites, and the ability to check these choices in realtime via mobile devices. On the other hand, a wider range of competitors (including online-only retailers), the flattening of world markets (meaning customers can now easily purchase goods from outside the UK), and far more complex purchasing behaviour that often involves several discrete channels, mean that UK retailers are finding it harder to maintain their wallet share. However, those who are able to innovate in terms of their loyalty strategies, and can gain and use meaningful and timely customer insight, are showing they can translate this into increased market share, profitability and customer loyalty. In this paper we look at the changing face of loyalty and what this means now and in the future, how retailers can gain advantage from more adept use of technology and data, and the importance of effective customer insight to stay attuned to fast-changing customer behaviour and sentiments. We also provide benchmarks, and a loyalty and insight maturity model, which is based on information, gleaned from research amongst a representative selection of UK retailers of all types in mid-2011. The maturity model and benchmarks reveals different aspects of loyalty and insight that retailers can use to judge their own performance, as well as gain ideas about what other retailers are doing.
1 For example, the Independent Treasury Economic Model (ITEM Club), an economic forecasting group based in the UK and sponsored by Ernst & Young, has forecast that consumer spending will rise by an average of 2% at most each year in the 10 years up to 2020. It says spending is being weighed down by debt repayments, restricted lending and high inflation, with the prospect of interest rate rises yet to come. The Item Club expects the effect to be harshest outside London. In the short term the group forecasts a rise of consumer spending of just 0.6% in 2011, and 1.3% in 2012.

SAP Market Report - The Future of Loyalty

Maintaining loyalty means addressing long-standing challenges

Customer loyalty is something we all think we understand, and about which much has been written. Delivering customer satisfaction translates into loyal customers, and loyal customers mean repeat business and even customer advocacy so the logic goes. In a retail context, creating customer loyalty is substantially about ensuring repeat sales, optimisation of wallet share and positive feelings about the brand. The question is: how do retailers create and maintain loyalty today? And how do they maintain loyalty in the face of challenging economic conditions, uncertain consumer confidence, technological change, and rapidly evolving customer behaviour? Traditionally, retailers have taken a multi-pronged approach to encouraging customer loyalty, which has included developing loyalty programmes and trying to understand and utilise information about customers (in other words, gaining insight). However, loyalty programmes vary in their effectiveness, can be costly to support and still may not be perceived as valuable or differentiating by customers. Justifying spending on loyalty is now more important than ever, with every cost being scrutinised, and requires a more commercial and effective approach to loyalty that can demonstrate ROI. Challenging retailing conditions mean that retailers urgently need to adapt and evolve their approach to loyalty. Those whove delayed investing in this area risk falling behind rivals more adept at using integrated, timely and good quality data to build loyalty and gain business insight. In the current market, even a relatively modest improvement in performance can mean the difference between business success and failure, thus being able to build and maintain loyalty is an ever-more vital competitive weapon. Taking loyalty forward, however, requires retailers to revisit and progress long-standing challenges that have for some time impeded their ability to innovate, such as having a single view of their customers across all channels and interactions, and being able to effectively utilise all the data they have about customers in order to gain greater insight and business benefit from it. New types of data and content will now have to be managed, new types of interaction accommodated, and action and insight will need to be gained faster than ever before. How we approach both loyalty and insight is set to change substantially.

A different kind of reward for loyalty Loyalty does not just depend on the discountreward model of customer loyalty. Asda and other discount grocers such as Aldi have stated they will compete on price rather than introduce loyalty schemes. They have worked to increase operational efficiency so they can offer the lowest possible prices. At the other end of the scale, Waitrose has preferred to create loyalty based on lifestyle, choice and shared values. It creates an experience centred around quality, British grown food, fair-trade, and a partnership based business model that its customers identify with and find appealing. Both the discounters and Waitroses quality approach have worked, with Aldi posting results 20% up in the quarter to July 2011 and Waitroses results up 9%. Waitrose has increased market share by 0.2% to 4.3% over the last twelve months. Key to the success of both types of business is having clear insight into what their customers value and what they want.

SAP Market Report - The Future of Loyalty

Why just having a loyalty programme isnt enough

Since the 90s more and more retailers have employed loyalty schemes as a method of maintaining their wallet share. However, UK retailers have taken a broadly similar approach, and theres been relatively little evolution over the last twenty years, which means these first generation schemes do not necessarily differentiate the retailer any longer. In addition, many retailers have a fairly limited ability to judge whether their scheme is delivering positive business benefits, and beyond a few successful headline schemes, it often isnt certain that many of these initiatives actually deliver greater loyalty. This is because rewards and discounts are fairly untargeted and are given to customers purely based on spend rather than on profitability or whether there is any risk of them spending with another retailer. Most schemes are also largely focused on sales, rather than on rewarding other types of useful customer behaviour such as advocacy or recommendations. The UK market is therefore ripe for the next step in loyalty. Future loyalty programmes will remain a key part of the mix, but they will be more effective, differentiating, personalised and in keeping with the reality of modern multi-channel retailing. Future approaches to loyalty will reward both purchases and other behaviour (such as advocacy), and will also be far more targeted and relevant (personalised and contextual) than they are today. Rather than taking a one-size-fits-all approach to loyalty, rewards and offers will be more tailored to the interests and needs of individual customers. Likewise the emphasis will shift from analysing just historic point-of-sale and loyalty card data and instead encompass a much wider range of data types and channels. The aim will be not just to stay in tune with the customer and their needs, but also to proactively engage them, create an interactive relationship and influence them at the point of decision to increase wallet share. For example, an emerging trend within the UK is that customers like to share hints and tips with their friends, relatives and other shoppers far more than may have been true in the past. This type of shopper has been termed the super shopper or professional shopper. They research purchases, spend longer in stores checking out prices and offers, compare prices widely (across physical stores and online retailers) and are prepared to visit multiple stores to ensure they are getting the best deal. Commenting on changing consumer behaviour in the UK, Dalton Philips, CEO of Morrisons, recently commented: "Theres a growing professionalism in people's approach to shopping. Were seeing it across the country: this phenomenon of checking all the
SAP Market Report - The Future of Loyalty

prices and, in many cases, leaving the credit card at home, buying in bulk packs splitting them with friends or freezing." In the face of such changing and challenging customer behaviour how do retailers engage customers, drive up loyalty and maintain wallet share? The answer is they need to understand their customers even better, as well as what theyre doing, using the wide range of data they have available to them. Understanding the history of customer behaviour and trends is useful and enables for example better merchandising or product design; but understanding the current customer context (where the customer is and what theyre doing) enables the retailer to influence the customer at the point of sale or even before this. For example, utilising a mobile strategy, may see retailers enabling customers to look up more information about products while they are instore scanning a barcode to get pricing, recipes or reviews of the product. If the customer is pricing up beans then the retailer has the opportunity to push offers related to beans at that point. This might be suggesting the shops own brand or economy beans rather than a premium branded version; it could mean suggesting a brand that the retailer wishes to clear off the shelves, along with an appropriate discount; or the retailer might show satisfaction ratings or reviews of different brands; or it could involve personalised discounts or offers based on customer status or spend; or it might mean suggesting related ingredients or linked purchases along with a recipe. Whatever the retailers strategy, to maximise the opportunity they need to combine knowledge of what the customer is currently doing (contextual data), their historical preferences and purchases (customer-set preferences, transaction and loyalty card data), as well as information they can provide to influence purchasing behaviour (recommendations, reviews, ratings and other content). All this needs to be done in near-realtime within seconds or the opportunity will be lost. A customer is much less likely to be influenced if they are standing in the checkout queue with their purchases, or even if they have simply moved to another part of the store. Thus the ability to react in realtime and detect proximity and willingness to be influenced are very important. Retailers that can adeptly combine data and content in this way can, however, create a novel, differentiating and even entertaining customer experience enabling a more interactive and sticky relationship with their customers.
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Capabilities checklist for loyalty programmes Is your programme cost-e ective and pro table? Is the programme really di erentiating your brand from your rivals? Is it valued by customers su ciently to in uence buying behaviour? Does the programme support personalization? Eg can you understand and act upon individual customers needs, behaviour, preferences and likes/dislikes? Can the programme in uence purchasing? Eg in uencing the buying of one brand of product rather than another. What is the engagement level and how do you engage and understand customers who are not enrolled in the loyalty programme? Is your loyalty programme multi-channel? Can you use loyalty data for upstream product design, branding and merchandizing?

Which are you trying to in uence the most?

0% 10%
24% 24% 64%

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In uence at point of purchase (eg till) At the point of decision (eg aisle) Build positive ongoing relationship with customer

Which slaes and marketing strategy is important to you?

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43% 48% 57% 19% 24% 19%

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Build brand Loyalty Incrase wallet share Maintain wallet share Innovate Di erentitate

How does your organisation view CRM?

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Technology to manage customer interactions A way of doing business that puts the customer at the heart of what were trying to achieve A method to increase customer lifetime value All of these 24% 43%

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33%

72% of our sales come from customers enrolled in the loyalty scheme Currently online channels are still seen as the ones delivering most value to UK retailers, with 43% saying they intend to invest to improve their online offering. However, many were also looking to add support for mobile commerce (38%) and mobile apps (24%)

SAP Market Report - The Future of Loyalty

Insight involves more than just understanding in-store sales

Along with other traditional sources of customer and transactional data, customer loyalty programmes have been a key resource for retailers to gain insight into their customers behaviour for many years. However, far richer data can potentially be gleaned from online sales than through traditional loyalty programmes since, as valuable as historic point of sale and customer loyalty data is, understanding products customers are researching or enquiring about reveals not just transactions but behaviour leading to transactions and potential sales that were not made. This provides a much richer understanding of the customer, but also allows insight and analysis around lost sales (helping improve future performance), or sales that customers are considering (enabling the retailer to target specific offers at those customers in order to influence or encourage the sale). By combining multiple sources of data and also delivering a single customer view, retailers can gain far greater insight into their customers needs and wants. This means they will be able to detect typical behaviour that leads to a sale, and therefore influence customers at the point of decision. It also means they will gain greater understanding of individual customers likes, wants and preferences and thereby tailor offers and product information to their needs. This valuable data can also be combined with non-traditional, unstructured data gleaned from social networks, for example, which provides additional insight as well as opportunities to influence customers and engage with them. As we know, a well-handled complaint can actually increase loyalty while a poorly handled one usually results in lost custom. Retailers need to be able to handle dissatisfaction adeptly across all channels they operate in; the risk being that complaints received on social channels such as Twitter or Facebook are potentially highly damaging to brand values if handled badly because they are so public. In order to decide how to competently deal with a complaint, enquiry and so on, retail staff also need to have the information about the product, order or customer readily available to them no matter which channel the customer decides to interact with them in. Whether handling a complaint on Twitter or a stock enquiry instore, being able to resolve the issue to the customers satisfaction and in a timely manner is highly dependent on access to the right data.

UK retailers are experimenting with mobile and social channels In a study of UK retailers conducted in mid 2011 only 14% reported having a mature mobile strategy that was delivering results today. Most (64%) were either planning their strategy or in the very early stages of deployment. Only 18% reported not having a mobile strategy, and a further 4% reported not yet seeing any positive benefits from their mobile strategy. UK retailers were using mobile technology for a number of things including to increase footfall, to improve conversion, to enhance the customer experience, for m-commerce and to increase customer interactions. With regards to social media, around 29% of retailers said they were using social media strategies to enhance loyalty, 43% were using it for customer acquisition, and 24% were using it to increase sales.

SAP Market Report - The Future of Loyalty

Insight is vital, but just as important is getting this insight in a timely fashion in order that the retailer can quickly respond to changing customer needs and wants outperforming rivals who take longer to react. And while gaining valuable insight provides commercial advantages, being able to take action or decisions as a result of this insight is also critical. This requires two things to happen. Firstly the right staff need to have access to such insight at the time they need it, and secondly automated systems and processes need to be in place that can react to customer behaviour in realtime combining knowledge of the customer, business rules, and contextual information to create the right reaction to what the customer is doing. Customer insight is going to rapidly become far more sophisticated, enabling some compelling use cases for both retailers and consumers, and delivering even

greater business value. Retailers can choose whether to dive in and invest now to become leaders in using sophisticated, next-generation customer insight; or they can improve their customer insight incrementally by making better use of the technology and data already available to them, while progressively investing to support more advanced scenarios. Whats clear is that despite the recession retailers are not standing still. Rather the recession has put additional pressure on retailers to improve their customer insight in order to improve their performance in a tough market. Cutting-edge retailers are already experimenting with how mobile technology can be utilised effectively instore, or in the vicinity of the store to attract, influence and retain customers; while the most advanced retailers are also now experimenting with social media and exploring the opportunities this offers.

Capabilities checklist for customer insight Can you quickly detect changing customer behaviour, likes/dislikes and act upon this insight? Do you understand why potential customers are not buying from you? Can you use insight to improve product design, buying and merchandising? Do you have 360 degree view of the customer? Including across all retail channels? Can you see the behaviour of individual customers or small groups, or just general trends? Do you have a mobile or social strategy? Can you support actionable, timely, contextual insight?

Single view of customers across all channels?

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27% 41% 32%

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Yes Partly No

Do you e ectively use insight to drive up loyalty and maintain wallet share?
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32% 54% 14%

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Yes Somewhat but we could do better No

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Do you have a joined up view internally that links products & services to customers?
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Yes Partly No

SAP Market Report - The Future of Loyalty

Multichannel loyalty and insight is required; mobile channel is increasingly important

UK customers buying behaviour is becoming increasingly multichannel and may now involve research, recommendations, comparisons, reviews and so on across stores, websites, mobile internet and so on. The challenge is for retailers to understand what customers are doing and how and where theyre being influenced in order to engage them and maximise wallet share across their channels of operation. In fact a close understanding of target customers can even inform channel strategy, as not all channels are popular with every type of customer. Understanding which channels customers prefer to use therefore helps retailers prioritise support for the channels that are most valued by their target customers. An emerging example of multichannel buying behaviour is the use of smartphones in the UK to compare prices online while instore, check reviews and recommendations, or to ask friends and contacts what they think of the product. The increasing value of mobile as a channel in the UK was underlined by recent Ofcom research (released August 2011) which said that 27% of adults now own a smartphone plus a whopping 47% of teens. Of these 59% got a smartphone in the past year and the vast majority of smartphone users (81%) have their mobile switched on all of the time2. Since it is a personal device and most customers leave it switched on at all times, meeting customers needs as they become more mobile is therefore increasingly important and has the potential of delivering business advantage. So what does a mobile loyalty strategy look like? In the first stages providing
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WiFi access, facilitating customer research via the mobile internet, or their wish to give or seek recommendations for a particular product are all emerging strategies. Retailers could allow customers to scan a barcode using their mobile, and be rewarded with a discount for providing instant feedback on a product they wish to buy, or be offered a future discount on a repeat purchase in exchange for a review. The mobile device has the advantage of identifying the customer and supports location-based approaches to loyalty. Some mobile services such as SMS, for example, are well established, cheap, universally available and easy to develop upon providing ideal bearers for innovative loyalty programmes. In addition, the emergence of mobile payment technology and the increasing computing power of smartphones, promises a lot of potential for future loyalty programme innovation. Social media and mobile technology are rapidly changing the face of loyalty in the UK, and retailers need to understand how their customers and potential customers use different channels in order to engage them, discover what they want, need and are willing to pay for, and influence them at the point of decision. As shown in Figure 1, our research revealed that many UK retailers now see seamless multichannel retailing and insight as critical to their success, but these two are closely followed in importance by mobile technologies, with social media channels also becoming ever-more important to UK retailing.

For example, see http://www.stockmarketwire.com/article/4197156/UK-addicted-to-smartphones-Ofcom-research-shows.html

Mobile channel seen as critical by increasing numbers of retailers (Figure 1)

Not important yet 1 Seamless multichannel retailing Insight Mobile Social 4% 0% 0% 23% Somewhat important 2 0% 5% 32% 13% Very important 3 32% 36% 27% 23% Critical 4 64% 59% 41% 41% Weighted average

3.55 3.55 3.09 2.81

SAP Market Report - The Future of Loyalty

Social media use by UK retailers is still experimental, but is game changing

Many loyalty schemes or approaches to loyalty are non-realtime, untargeted or reactive rather than proactive. Points are rewarded to save for rewards, customers are given offers for products theyre not interested in, and rewards are given as a result of transaction. In contrast, social media changes the way retailers engage with their customers helping them communicate more effectively, understand what customers think and feel, and build loyalty based on experience rather than simply price, offers and transactions. Social media is potentially highly interactive, intimate and can be used to create a sticky customer relationship. With clever use it helps build a relationship with customers to ensure repeat sales and to maintain wallet share, and it can harness requests for information, advice and recommendations to help create sales opportunities but also to build loyalty. The network effect of social media means that satisfied customers can be transformed into advocates who create positive PR, enhance brand values and even create new business for the retailer. Advocacy and recommendation should be rewarded, but the reward does not have to be financial and can include from special offers, discounts and previews. Some retailers simply reward customer advocates with attention and recognition. Whatever the strategy, this engagement with the customer is a powerful loyalty-building tool. When managed well, social media can also turn negative experiences into positive loyalty-generating ones. Poor performance of staff or products can be analysed and acted upon quickly, and well-handled complaints can turn an unhappy customer into a loyal
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one. Likewise, customers may offer ideas and suggestions regarding products or other ways in which the retailer can improve their performance. Considerable insight and business value can be gleaned from monitoring and engaging in social media, but the challenge is having dealt with the initial enquiry, suggestion or complaint being able to identify the data that does have business value and ensuring that this is made accessible to the appropriate systems and personnel that can take decisions or actions as a result. Social media offers new opportunities to drive loyalty via collaborations with social media sites, and when combined with mobile provides the potential for highly targeted but effective advertising. Foursquare, for example, sends out information to smartphones wherever people shop. Foursquare for Businesses3 provides retailers with an opportunity to highlight special offers to Foursquare users who check-in nearby and in addition they also get data from these location-based campaigns. It has been shown that not only do individual retailers benefit from this type of approach, but other businesses in the same vicinity benefit too. Many users see this as entertainment or as a game, rather than perceiving it as advertising which increases the effectiveness. Simply by joining the social media conversation and being accessible as a brand to customers, retailers are able to demonstrate theyre listening to their customers, and are able to resolve any miscommunications or misunderstandings rapidly. However, social media cannot become another siloed channel. To be effective it needs to be integrated into a multichannel approach, and data and insight needs to be shared with other core systems.

See http://mashable.com/2011/08/03/foursquare-business-page/

72% of our sales come from customers enrolled in the loyalty scheme Currently online channels are still seen as the ones delivering most value to UK retailers, with 43% saying they intend to invest to improve their online offering. However, many were also looking to add support for mobile commerce (38%) and mobile apps (24%)

SAP Market Report - The Future of Loyalty

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Improving next-generation loyalty and insight

Loyalty is not created just by implementing a loyalty scheme, but is a result of all the experiences a customer has with the retailer. This means that insight into customer behaviour and their experiences is vital to manage the relationship with the customer, maximise opportunities and improve future performance. As we know, traditional approaches to loyalty have been based on deriving insight from sales transactions via loyalty schemes which are largely driven by discounts and rewards. Such schemes can be expensive to administer and their shotgun approach means they dont appeal to all customers and potential customers, and their benefits are diluted by uptake from unprofitable customers. In future a loyalty approach is required that is multichannel, that can provide a single view of individual customers (plus their habits, needs, wants and preferences), can encompass and reward different types of customer behaviour beyond just transactions (including recommendations, reviews, feedback, suggestions and advocacy), and can target appropriate offers in a business-centric manner to maximise the ROI to the retailer and the appropriateness to the customer. Rising expectations in the UK market mean that retailers now need to meet the needs of smartphone users and understand their role in complex research and purchasing behaviour thereby maximising the opportunity presented by the mobile channel. Retailers approach to loyalty also needs to be more personalised which minimises the cost and maximises the benefit to both retailer and customer. Tight budgets and limits on discretionary spending means UK customers are shopping in a more professional manner, and retailers need to understand their customers better than ever before in order to ensure their share of the money that is available. Likewise customers are becoming less responsive to, and less tolerant of, untargeted and irrelevant offers - seeing these as spam. Retailers that continue to spam their customers with irrelevant offers risk communicating the message that they are not really interested in customers as individuals, but only as a quick sales opportunity undermining their carefully crafted relationship with the customer. Worse still, untargeted offers combined with anonymity mean a retailer has only a very weak connection with the customer, and weak connections risk loss of the customers business to rivals.
Lego VIP Project drive up loyalty and improve customer experience Lego is a Danish multinational retailer of childrens construction toys. Founded in 1932 and headquartered in Billund, Denmark, the company currently has revenues of DKK7,823 million ($3.07 billion). Lego identified the requirement to drive up loyalty amongst its customers, understand them better and deliver a total customer experience. One of the ways it has done this is by creating a Lego VIP consumer loyalty programme. This programme is now available across all Legos stores in 24 countries, as well as online. The VIP programme is used to manage loyalty rewards and points redemption. It involves scanning the VIP card at the PoS. The PoS then connects to the CRM system and the members loyalty data is transferred back to the PoS. The transaction is processed, and the loyalty-relevant data is sent back to the CRM system for point calculation. The programme encourages customers to earn more rewards, in more ways, delivering a high value, medium-rich experience. Our aim is to develop it going forward, so it becomes an engagement program as well as a loyalty program, explains Conny Kalcher, Legos UK-based VP of Consumer Experiences. The more consumers engage with us, the more we offer them things that are meaningful to them.

SAP Market Report - The Future of Loyalty

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This is why building an understanding of an individual customer is critical to building loyalty. And this is one area where retailers can easily build value through better data integration and analytics. The most savvy retailers are already analysing who their customers are, where they are (which channels they prefer), what they like and how they like to buy. This enables them to design a deliberate, appropriate and consistent retail experience in line with their brand values in other words, they can tailor the way they operate (including products, prices, offers, channels, interactions, payment methods and so on) to the needs of their target customers but in line with their commercial goals, brand values and customer loyalty strategies. Beyond their existing customer base, retailers can use emerging channels like social media to understand and attract potential customers, using the power of social networks to promote offers and recommend products. Better understanding of customer behaviour and the immediacy of the personalised mobile device can be combined with realtime technology to influence customers at the point of purchase, as well as to create cross-selling and upselling opportunities. Done well, customer insight helps retailers understand which customers are likely to be the most profitable, and what these customers value and are willing to pay for. By being able to employ real-time contextual analytics, for example, retailers can move from understanding historic trends to reacting in real-time to opportunities, and then proactively being able to prompt customers and even make real-time recommendations to their mobile. Once identified the mobile device can be used to connect with the customer beyond the point of sale to offer discounts for repeat sales, or information related to the product. However, if customers are to accept and value proactive and personalised interactions, prompts recommendations and offers, these will have to be highly accurate and pitched well and appropriately

or they will be seen as spam and ignored. Worse still they could be seen as an irritation. Its no good, for example, prompting the customer to buy a particular brand of coffee, if the offer or recommendation is only delivered after the customer has left the shop, or despite the fact the customer never buys coffee because they dislike it. This will drive up dissatisfaction with the retailer rather than increasing loyalty. In Figure 2 we look at how loyalty and insight can be evolved based on real feedback from the UK retailers who took part in our primary research programme. This model shows what the mainstream of UK retailers are able to offer today with regards to loyalty and insight, as well as the additional elements that the most advanced companies are able to offer or are currently exploring in order to gain competitive advantage. For example, the model shows that many retailers can now tailor offers to customer types and can refresh offers. However the most advanced retailers are now able to deliver personalized offers which derive from their ability to match the customer context (eg location) with preference data, historic transaction data, the value of the customer, and insight into typical customer purchasing behaviour around that product. This enables the retailer to make a personalised offer to the customer, which is more likely to be accepted if it more accurately meets their needs. And while the mainstream of retailers may now be able to track a customer and gain a single view of that customer within each channel of operation, the most advanced can track customers across all the channels in which they operate. If the customer complains, then customer service staff are able to see an integrated view of all the dealings the retailer has had with the customer across all channels, thereby ensuring any issues are resolved promptly. This model helps retailers benchmark their progress, provides insight into what rivals are doing or aim to do, and helps them analyse their weak areas and what they need to focus on in order to deliver customer insight and loyalty programmes that will help their business survive and prosper in these turbulent times.

SAP Market Report - The Future of Loyalty

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Figure2
Element Not important yet 1 Type of reward 4% Somewhat Trailers important 2 Very important Mainstream 3 Critical 4 Leaders Greater customer choice of reward, create rewards based on customer insight/suggestions Personalized offers, with realtime contextual matching of offers to customer

Discounts, points toward 0% discounted/free products

Exclusive experiences 32% and services (eg complimentary 64% tickets or advance tickets)

Nature of offer 0%

Standard, fairly static offers Wider range of offers; offers 5% 36% matched more precisely 59% to customer (initially to lifestyle, age, lifestyle, past purchasing), offers change more frequently All customers 32% 27% Additional tiering 41%

Targetting of offer 0% Product design 23%

Offers according to profitability of customer Product created in response to customer suggestions via our social media site. Loyalty card data has been used to monitor customer uptake from successful regional trial Wider partner eco-system,with partners matched to brand and likes of target customers Any of a mix of traditional, online, mobile, social (according to needs of business)

Our buyers are very competent Apply purchasing trendsetc to 13% 23% product design/sourcing 41%

Breadth of offer

Single retailer 0%

Broader range of 32% products/partners

64%

Channels of operation

Traditional eg stores 5%

36%

Traditional + online

59%

Channels to gain/spend rewards Multi-channel retailing?

Stores

Stores and online

All channels of operation

No: competition/different offers in each channel; fragmented loyalty scheme

Yes: data is mined from website and combined with loyalty data to understand customers better; loyalty rewards can be gained/spent in any channel Transactions + feedback 64% Analyse PoS data, copy rivals initiatives

Yes: data from all channels is combinedand used for upstream purposes including product design, buying and merchandising, offers & sales etc Much broader range of behaviour, including advocacy Use a broad range of data and analyse daily

Behaviour rewarded for Detecting changing customer behaviour

Transactions 0%

32%

To some extent staff will report changes, we can use sales figures to detect Dont understand why customers buy from us Loyalty scheme only

Targetting non-customers Customer view

Focus on maintaining existing customer loyalty Single view of customer in each channel eg in stores, online etc

Use insight to profile potential customers and target them Single integrated view of customer across all channels we operate in

SAP Market Report - The Future of Loyalty

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Summary
So whats the best way to approach loyalty and where should UK retailers start? The good news is that whether they can afford entirely new cutting-edge IT infrastructure, or can only afford to enhance certain aspects of their existing infrastructure, there are ways of improving customer loyalty and insight to fit all budgets. Whats certain is that, when implemented and used correctly, the technology we now have available can be extremely effective at strengthening customer relationships and creating new revenue-generating opportunities. Its even possible depending on the legacy position to replace legacy infrastructure with more modern infrastructure and not only improve performance but also reduce the cost of running loyalty programmes (through lower cost of ownerships and better targeting of offers). Whichever approach retailers take the customer must remain at the heart of loyalty programmes, and their needs should be prime. A loyalty-driven approach to doing business does not derive from an IT infrastructure, but is enabled by it. That said, capturing the right information about the customer and being able to react to this information in a timely fashion ensures the retailer can tailor the retail experience to the needs of the customer and thereby increases the likelihood of their success. In the current retail environment this insight is not just a nice-to-have but a lifeline to survival and success.

Groupe Casino precision marketing in the mobilised world Groupe Casino is a large French retailer that was founded in 1898. It currently has revenues of EUR25.8 billion and 11,000 stores across 19 countries. It launched its first loyalty scheme in 1902 and is currently trialling a new precision retailing offering, which delivers realtime offers to customers in stores, on the website and via the mobile device, based on the customers lifestyle. Groupe Casinos precision retailing offer is based on an indepth knowledge of its customers, the ability to support customised, dynamic prices and offers, and multi cross-channel marketing, all supported by a flexible supply chain. When a Groupe Casino customer logs on to their smartphone application, they first decide whether to log on anonymously or as a loyal shopper (ie link their session to their customer profile and loyalty data). When they do the latter, the central system recognises them, their store location is identified and the session is linked back to the loyalty account. Immediately a number of relevant offers are presented to the customer. Before doing this, the offers engine has taken into account customer preferences, likes and dislikes, the store thats being shopped in (and whether stock is available) and the time of day. Offers include discounts, bonus points and discounted linked purchases. As the customer shops, the company is able to prompt with relevant alternatives (according to preferences set in the customer profile) or alert to a better deal being available. Prompts can be sent to the customer to remind them about linked purchases, and rewards awarded according to purchases made are added to the customers account in realtime. The customer can see their current status and how many rewards they need to acquire until to be given the next customer bonus. Groupe Casino staff can also see how well the promotion is working in realtime, which allows them to change the promotion if it is not performing well enough. Group Casino is now able to offer targeted, one-to-one marketing, cross-channel shopping lists, cross-sell and upsell opportunities at the time of purchase, and indepth customer knowledge which supports a personalised experience, enhanced loyalty and a positive view of the company.

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SAP Market Report - The Future of Loyalty

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