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Effective loyalty management needs to shift from being an underutilized
resource to becoming a force for driving engagement and growth
THE POWER OF EMOTIONAL CONNECTIONS
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RI S NEWS. COM MAY 2013
2
Loyalty is a complex, emotional connection that occurs be-
tween a shopper and a brand. It is built over time through a
combination of drivers. These drivers include marketing, mer-
chandising, pricing, product mix, product satisfaction, shop-
ping experiences online and in stores, problem solving when
necessary, and positive interactions with associates. No single
strategy or execution plan produces the number of loyal shop-
pers required to support a retail business. Instead, an aggrega-
tion of efforts is needed to build loyalty, and this makes it a
challenge for retailers to manage and optimize.
Interestingly, not all retailers view loyalty as an essential
discipline within the enterprise. Apple and Walmart, for ex-
ample, do not have loyalty programs. But as the popularity of
loyalty programs increases the average American household
is enrolled in 18 loyalty programs most retailers now view
the tools used to manage a customer loyalty program to be a
valuable resource.
However, there is a disconnect between customer and re-
tailer perceptions of loyalty programs. At a basic level, a loyalty
program creates unique customer proles that enable track-
ing of purchases. In many cases, purchases are converted into
points and awards (although not all membership programs of-
fer rewards based on points).
In all cases, however, the information collected in loyal-
ty databases is intended to be a resource for marketing and
promotional campaigns. But the operative word here is In-
tended.
The truth is that retailers frequently underutilize their loy-
By J oe Skorupa
Effective loyalty management needs to shift from being an underutilized resource to
becoming a force for driving engagement and growth
THE POWER OF EMOTIONAL CONNECTIONS
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What are your current analytics capabilities?
How well do you know the purchase history of your loyal customers?
F I GURE 2
F I GURE 1
RI S NEWS. COM MAY 2013
3
sophisticated group is split into two distinc-
tive categories 31.3% who say their capa-
bilities are good because they allow some
management of customer data and 25% who
say their capabilities are advanced enough
to enable delivery of personalized communi-
cations and offers.
The remainder of the respondent pool ei-
ther has limited customer analytical capabili-
ties or none at all, which parallels the laggard
group we saw in the previous question.
A theme is emerging in the study so far
that indicates the ability to aggregate data
across all channels, update it frequently, and
then break it into key segments is a pathway
to success pursued by retail leaders. This ad-
version rates for marketing campaigns.
But before moving up to this advanced lev-
el, retailers need to aggregate data across all
channels, frequently update it, and then break
it into key customer segments. About half of
retailers do not effectively do this today.
This insight raises a fundamental ques-
tion about what retailers can actually do with
data they collect. When we asked respondents
to self-assess their customer analytics capa-
bilities we nd that more than half say they
have good or advanced abilities. (See gure
2.) This is roughly the same number who said
they have the prerequisites in place and are
therefore ready to add more sophistication.
When we dig a little deeper, we nd this
alty program capabilities and databases. One
reason is the absence of an effective loyalty
management and communication tool. Oth-
er reasons include dispersed databases that
make it difcult to synch up customer proles
and purchase histories, often due to a scatter-
ing of responsibilities across multiple depart-
ments using multiple IT systems.
Without effective tools and strategies to
foster engagement, loyalty program members
are no more loyal to retailers than other cus-
tomers. The following datapoints from this
months custom research study paint a clear
picture of how savvy retailers are transitioning
to a new level of customer engagement and a
more protable connection to shoppers.
Loyalty Glass Is Half Full
A little over half of retailers (56.3%) either up-
date loyalty data frequently and break it into
segments and proles or they collect aggregat-
ed customer data across all channels (53.1%).
These are the prerequisites for making effec-
tive use of a loyalty program. The takeaway is
that nearly half of retailers cannot effectively
grow and foster their loyal customer base.
(See Figure 1.)
This is a surprising nding considering
the potential for growth retailers can tap by
engaging protable customers. In the loyalty
laggard group are the 25% who say they do
not collect individual customer data. Mem-
bers in this group either do not believe their
niche is well suited to loyalty marketing or in-
stead believe their efforts are better focused
on other strategies, such as everyday low pric-
es, for example.
Interestingly, we see evidence of an emerg-
ing sophistication among loyalty program
leaders in this chart 25% say their loyalty
purchase histories are augmented with opt-in
personal information and another 15.6% say
their customer purchase histories are aug-
mented with social graph information.
Adding personal details and preferences
like these to customer proles increases the
ability of loyalty marketers to deliver more
relevant communication to customers and
sharpen personalized offers to improve con-
Data is frequently updated and broken into segments/profiles
Collect aggregated customer data across all channels
Individual customer purchase data not collected
Customer purchase history is augmented with opt-in personal information
Customer purchase history is augmented with social graph information
56.3%
53.1%
25%
25%
15.6%
Decent, generating
basic reports
Good, allowing management
of customer data and
customer segments
Advanced, enabling
delivery of personalized
communications and offers
None, currently
researching options
31.3%
15.6% 28.1%
25%
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RI S NEWS. COM MAY 2013
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What are you doing with your customer and loyalty data?
What type of solution(s) does your company use to manage
loyalty marketing functions and services?
F I GURE 4
F I GURE 3
which is currently being used by 32.3% of re-
spondents. If a retailer already knows what an
individual customer or group has purchased,
the next step is to send a relevant offer. It
could take the form of a discount for purchase
of cell phone accessories sent to recent pur-
chasers of cell phones. Or it could be a cou-
pon for lawn furniture sent to recent purchas-
ers of lawn mowers. Targeted offers like these
resonate with shoppers and are not viewed
as clutter or spam, thereby often achieving a
higher conversion rate than mass campaigns.
Other options found on this chart follow
a pattern seen previously in the study the
more advanced the technique is the fewer
retailers we nd deploying it. Since loyal
What Do You Do with the Data?
Regardless of the type of technology retailers
have we wanted to nd out what loyalty mar-
keting techniques they most frequently use
to drive sales. Not surprisingly, the top tech-
nique is delivering targeted offers and com-
munications to specic customer segments
(48.4%). This is closely followed by tracking/
managing points and rewards for historical
analysis (41.9%). These are table stakes in
loyalty marketing, which means they are nec-
essary rst steps on the maturity ladder. (See
Figure 4.)
A more advanced technique is analyzing
purchases to drive cross-selling opportunities,
vantage is leveraged by smart executives who
use marketing tools to design and execute
highly relevant promotion campaigns.
Loyalty Program Tools
Even retailers that do not have purpose-built
loyalty software possess some type of technol-
ogy that enables them to help shape a strategy
to encourage frequent shopping by their best
customers. At least most do. (See Figure 3.)
The largest segment of these retailers
uses custom software that is built in-house
(46.9%). The second largest segment uses a
packaged CRM solution (28.1%) and the next
largest group uses third-party outsourced ser-
vices.
Interestingly, only 9.4% of retailers use a
packaged loyalty solution, which is one of the
major ndings in the study because it speaks
volumes about the retail industrys assess-
ment of currently available software. Clearly,
if packaged loyalty software had evolved into
proven solutions many retailers would use
them. Instead, nine out of 10 retailers say
they do not.
Anecdotal evidence indicates that some re-
tailers base their negative perception on loy-
alty software from past experience with CRM
solutions, which were not purpose-built for
the retail business model. Instead they were
typically broad-based business analytics tools
built for application across multiple indus-
tries. Many experienced retail technologists
refer to applications of this type as little more
than tool kits requiring assembly. Attempts to
adapt broad-based CRM tools like these to
the requirements of retail have a history of
producing questionable results at high cost.
Since retailers prefer to sell products to
shoppers rather than write software code,
there is a signicant opportunity awaiting
software vendors to demonstrate clear value,
measurable performance gains, higher sales,
greater purchase frequency, bigger wallet
share, better conversions and other improve-
ments in key performance indicators. Nine
out of 10 retailers would likely open their
doors to vendors like these.
Custom software built in-house
Packaged CRM solution
Third-party outsourced services
None
Packaged loyalty solution
Data sharing with suppliers for customer analysis
46.9%
28.1%
9.4%
18.8%
25%
3.1%
Delivering targeted offers and communications to specific segments
Tracking for historical analysis and points/rewards program management
Analyzing purchases to drive cross-selling opportunities
Setting sales targets and forecasts
Nothing, do not strategically use customer or loyalty data
Creating tests in micro segments
Performing predictive analysis to improve forecasting accuracy
41.9%
32.3%
29%
19.4%
16.1%
16.1%
48.4%
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What obstacles need to be overcome in your organization
to effectively use loyalty data and a loyalty solution?
Where are you planning to invest within loyalty marketing?
F I GURE 6
F I GURE 5
program refers to building a strategy and then
developing an execution plan for a rewards/
points program or for a non-points program
that offers instant discounts or surprises at
checkout (like Panera Bread). Regardless of
the format chosen, the end result of the pro-
gram is to gather data from frequent purchas-
ers and, of course, to deliver ROI without re-
ducing margins.
Actually doing something with the data
refers to effective tracking and analysis that
nds actionable insights in this data-rich re-
source. Users of this data include members
of the sales, marketing and merchandising
teams.
Another effective user group is the loyalty
with vast potential to engage shoppers. And
cell phones, by virtue of being carried every-
where by shoppers, are the most intimate
channel of all. So its not surprising to see half
of retailers making investments in the social
and mobile channels.
Overcoming Obstacles
The number one obstacle retailers say they
need to overcome is dening and creating ef-
fective loyalty programs, which was chosen by
53.1%. Coming in a close second is actually
doing something with data already in hand
(50%). These may sound like similar issues
but they are not. (See Figure 6.)
Dening and creating an effective loyalty
customers comprise a large portion of every
successful retailers customer base it seems
logical that retailers would analyze purchas-
es by this segment and use the insight to set
sales targets and forecasts. We nd this is true
for 29% of respondents.
This means the remaining seven out of
10 retailers do not effectively use this type of
information. The most likely reasons are that
they do not trust their loyalty data or do not
make the data easily available to the sales,
marketing and merchandising departments to
improve the accuracy of sales, inventory and
budget forecasts.
Even fewer retailers use loyalty data for
predictive analysis or use it to create tests
in micro customer segments. Both of these
functions are currently being carried out by
16.1% of respondents, a small portion.
As retailers gradually embed analytics
throughout their enterprises such sophisti-
cated test-and-learn programs like these will
move higher on the priority list.
Future Plans
So far we have benchmarked the loyalty mar-
keting capabilities in use today, but what
are retailers planning to invest in tomor-
row? Topping the list are two of the biggest
trends spreading throughout the marketplace
multi-channel data integration and the in-
creasing use of analytics to understand cus-
tomer behavior, both of which were selected
by 56.3%. (See Figure 5.)
As retail becomes an omnichannel indus-
try it is imperative that two things happen:
data integration occurs across all channels
and analysis identies the lifetime value of
single-channel and multi-channel customers.
A multi-sales-channel view of the customer is
therefore the new reality in retail. The next
step is to mine this rich database to nd
growth opportunities that no other competi-
tor has access to.
Not much farther down the investment
priority list in this chart is social and mobile
channel engagement, which was selected by
50% of respondents. Social networks are key
enablers of highly personal communication
Multi-channel data integration
Analytics to understand customer behavior
Pricing and communications personalization
Marketing program, communication frequency
Social and mobile channel engagement
Loyalty/rewards program rollout
Customer usage and attitudes data acquistion
Loyalty systems upgrade, enhanced loyalty rewards
53.1%
50%
50%
46.9%
37.5%
25%
56.3%
56.3%
Defining and creating effective loyalty programs
Actually doing something with data already in hand
Lack of system that allows easy access to customer data
Overcoming past practices that were ineffective
Getting customers to provide data
Lack of a single repository to house data
Lack of data science skills and staff in organization
46.9%
37.5%
34.4%
28.1%
25%
53.1%
50%
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From the shoppers perspective, what are the drivers
of customer loyalty?
What is the status of measurements/KPIs that track loyalty
efforts now, by end of year and within 18 months?
F I GURE 8
F I GURE 9
F I GURE 7
dia and direct mailings.
Finally, we asked respondents to tell us
which retailers they thought were leaders in
leveraging customer data to create relevancy
with their customers. The top vote getters are
Amazon, Nordstrom and tied for third place
are Macys and Tesco. (See Figure 9.)
Amazon pioneered many of the frequent
shopper technologies currently deployed
throughout the e-commerce world today. Nor-
ers and a level of maturity in the evolution
of loyalty programs. Whether it is true or not
from a shoppers perspective is open to de-
bate, because shoppers love giveaways. But
this is beside the point. Retailers do not make
money by giving away awards and discounts.
However, they clearly have the potential to
create loyalty and engagement by serving
up personalized offers and communications
through e-mail, mobile messages, social me-
department itself. The data can be analyzed to
discover why churn or drop outs occur. Then
steps can be taken to re-engage once-loyal
shoppers. Many retailers have discovered that
re-engaging formerly loyal shoppers results
in a sharp increase in frequency and market
basket size.
KPI Priorities and Plans
In addition to designing an effective loyalty
program from the front-end (customer-facing)
and balancing back-end concerns (ROI, mar-
gin preservation and driving sales), retailers
need to create hierarchical database models
that have carefully selected attributes so that
it is easy to aggregate and distribute key per-
formance indicators (KPIs). (See Figure 7.)
We asked retailers about the current KPIs
they track and what is on their to-do list to
add by years end and in 18 months. Today,
we nd the majority of retailers are track-
ing the following: sales by customer segment
(75.9%), customer conversion rate (67.9%),
offer redemption rates (64%), customer re-
tention rates (60%), recency, frequency, mon-
etary (56.5%), and member versus non-mem-
ber spending (55.6%).
Over the next 18 months the top two areas
retailers will begin tracking are customer life-
time value (40.9% will add by years end and
27.3% will add in 18 months) and customer
acquisition cost (38.1% will add this year and
33.3% will add in 18 months.)
Loyalty Program Perspectives
To wrap up the loyalty program report we
asked two questions about respondent per-
ceptions. The rst is the kind of question not
normally asked of retailers but one that is es-
sential to know: What do shoppers want and
think is important to them?
Retailers said they believe the top driver
of customer loyalty from the shoppers per-
spective is relevant and personalized offers
and communication, chosen by 83.9%, which
comes in ahead of awards and discounts,
which was chosen by 74.2%. (See Figure 8.)
This is an important nding because it
shows a growing sophistication among retail-
Sales by customer segment
Customer conversion rate
Offer redemption rates
Customer retention rates
Requency, frequency, monetary (RFM)
Member vs. non-member spend
Customer lifetime value (CLV)
Customer acquisition cost
Have Now Will Add by Years End Will Add in 18 Months
75.9%
67.9% 21.4%
28%
28%
34.8%
33.3%
40.9%
38.1%
64%
60%
56.5%
55.6%
31.8%
28.6%
17.2% 6.9%
10.7%
8%
12%
8.7%
11.1%
27.3%
33.3%
Relevant personalized offers and communications
Awards and discounts
Active participation in the community (via social media, etc.)
Special services based on membership
83.9%
74.2%
41.9%
32.3%
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TOP RETAILERS THAT LEVERAGE CUSTOMER DATA TO CREATE
RELEVANCY WITH THEIR CUSTOMERS
Amazon
Nordstrom
Macys, Tesco (Tied)
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RI S NEWS. COM MAY 2013
7
opportunities for growth that no other com-
petitor has access to. The customer has the
power to control the shopping experience to-
day, but the retailer has the power to control
the data. RIS
dstrom famously developed an unparalleled
store-level frequent shopper program and has
spent the last ve-plus years converting it into
an omnichannel success.
Tesco pioneered the application of data-
base sciences to the retail model, especially in
the area of customer segmentation, and has
used this intelligence to fuel international ex-
pansion. And Macys has used elements from
all of the above to transform a collection of
local department store chains into a thriving
national brand.
Each of these four highly successful retail-
ers continues to grow through good times and
bad largely because of the ability to under-
stand their customers wants and needs at a
detailed database level.
Methodology
This study was conducted during the month
of April and only senior executives from na-
tional or large regional retailers were invited
to participate. The results do not include any
store-level, eld-level or regional employees.
Only headquarters-level staff responses were
included.
Conclusion
As the popularity of loyalty programs increases
most retailers today view them as valuable
tools for power users in sales, marketing and
merchandising. And yet many retailers still un-
derutilize loyalty programs and databases due
to a scattering of responsibilities across mul-
tiple departments and multiple IT systems. As
a result, loyalty program members are often no
more loyal to retailers than other customers.
However, this is changing as savvy retailers
such as Amazon, Nordstrom, Tesco and Ma-
cys lead the way to a new and protable level
of customer engagement and loyalty.
A major theme that emerges in the study
indicates that the ability to aggregate purchase
data across all channels, update it frequently,
and then break it into key segments is a path-
way to success.
Another interesting nding is that nine
out of 10 retailers do not use packaged loyalty
solutions. There is a signicant opportunity
awaiting vendors to demonstrate clear value
in their loyalty solutions. However, retailers
wont wait and will create their own solutions
in a vacuum.
As retail becomes an omnichannel indus-
try and the pace of innovation accelerates it
is imperative that retailers have the tools to
analyze a 360-degree view of their best cus-
tomers. But this is not enough. The ultimate
step is to mine a rich loyalty database to nd
What was your organizations sales performance in the most
recent 12-month period?
What is the status of your marketing technology budget for 2013
compared to 2012?
F I GURE 11
F I GURE 12
What is your organizations annual revenue?
F I GURE 10
$100 million to $500 million
$500 million to $1 billion
$1 billion to $5 billion
$5 billion or higher
28.1%
28.1%
15.6%
12.5%
15.6%
Less than $100 million
Decreased
Increased more than 5%
Increased up to 5%
54.8%
25.8%
19.4%
Remained flat
Decreased
Increased by more than 10%
Increased by 5% to 10%
Increased by up to 5%
12.9%
16.1%
3.2%
38.7%
29%
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