Launch an Innovative Customer Loyalty Program: What You Should Know

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1 Launch an Innovative Customer Loyalty Program: What You Should Know WHITEPAPER MARCH 2014

2 Launch an Innovative Customer Loyalty Program: What You Should Know 1 Retail Customer Loyalty Programs 86% customers regularly use a loyalty card Launching a customer loyalty solution - YouGov SixthSense The world is an ever changing place. The world of retail is different in that it is altering faster than the world it is in. For instance, the rampant consumerization of Information Technology is creating a power shift from your sales associates to your customer. Increasingly, consumers on your shop floor know more than the sales associates about the store s products and price points and competing offers. Forward looking retailers are responding with clever innovations such as customer loyalty programs that are mobile, online, and/or card-based. Customer loyalty as a concept has been around for ages. To be precise, the concept of having loyal customers has been as old as the retail industry itself. But this, as a science, has evolved in the last 30 years and more aggressively in the last decade or so. There was a time when running loyalty programs was only the privilege of a few big retailers. Today with the advent of loyalty cards (This term includes all loyalty programs that could be implemented through mobile phones, online or paper/cards) it has become possible for even small retailers to run successful loyalty programs. These retailers big or small are reaping the benefits of well-managed loyalty systems that drive incremental revenue, build closer relationships with customers, and optimise marketing spend. At the very basic level, loyalty systems should deliver easy to achieve savings for customers that create barriers to switching. A MERE 5% INCREASE IN CUSTOMER RETENTION INCREASES AN ORGANIZATION S PROFITABILITY BY 25 PERCENT. ACQUIRING A NEW CUSTOMER CAN COST AS MUCH AS 5 TIMES OF KEEPING AN EXISTING ONE! Retaining customers is a lot easier than acquiring new ones. If we were to pick the most important facets for customer retention it would read know your customer and target your customers with offers that are relevant, compelling and creative. Typically, retailers have been allocating their marketing budget on all types of customers and have not based it on the proportion that customers spend with them. In other words, both loyal and not so loyal customers are being treated in the same fashion. The reason most retailers attribute this disproportionate spend to is: 1. Retailers don t know their customer. 2. If they knew, they don t really know how to retain them. If they know how to retain them, they don t know how to get them to buy more from them (increase wallet share) and incent them give their store positive word-of-mouth referrals.

3 Launch an Innovative Customer Loyalty Program: What You Should Know 2 PUMA This international sports-lifestyle brand with a strong global presence, wanted to understand its customer at a detailed level, to increase in-store footfalls and frequency of visits from repeat customers. For a successful customer loyalty strategy, the brand first needed to deploy a loyalty initiative with high customer data capture rate. The program Puma had in mind would combine and analyze a large volume of data around customers tastes, behaviours and preferences with personalised interactions and communications to identify and reward its most loyal customers. Capillary assisted and guided Puma in launching its first ever loyalty program the I like Puma club. The 15 second form-free signup process allowed Puma s customers to earn and redeem points at every purchase using just their mobile numbers or quick card swipes. With the newly captured customer data and Capillary s real-time analytics Puma is now able to frame relevant rewards, deliver instant in-store vouchers and target CRM campaigns for each customer segment, driving higher store traffic and conversions. FORWARD-LOOKING RETAILERS ARE RESPONDING WITH CLEVER INNOVATIONS SUCH AS A MOBILE LOYALTY PROGRAM WITH A 15-SECOND SIGN-UP PROCESS. In a Harvard Business Review study, Frederick Reichheld and W. Earl Sasser identified many benefits of customer retention. They found - loyal customers purchase in higher amounts, are willing to pay higher prices, are easier to manage, and they help expand the customer base by giving positive referrals. The authors also established, in their study, that a mere 5 percent increase in customer retention increases an organization s profitability by 25 percent. In other words, acquiring a new customer can cost as much as 5 times as keeping an existing one! Little wonder Retailers around the world are now more than ever re-thinking their ability to appeal, offer and retain their precious customer base. Customers, on the other hand, are now looking for a unique and personalised experience from retailers, more than just periodic tangible rewards and third-party gifts. Are you planning on producing and supplying your own electricity? Then why do the same with your loyalty program? Retailers buy services and products from specialist suppliers, so that they can concentrate on running their core business retailing. Outsourcing their loyalty program will almost certainly bring better results for the same cost, and eliminates a major operational headache. But before retailers make a decision there are a few things they must consider. ARE YOU PLANNING ON PRODUCING AND SUPPLYING YOUR OWN ELECTRICITY? THEN WHY DO THE SAME WITH YOUR LOYALTY PROGRAM?

4 Launch an Innovative Customer Loyalty Program: What You Should Know 3 The key elements for a successful loyalty solution 1. The loyalty solution must reward repeat purchases, capture the data and help make business decisions based on the data captured. Also, it must have the ability to quickly react to changes in customer demand so the program stays relevant and continues to appeal to customers. 2. Create a store without boundaries. Take the store to the shopper, regardless of the shopper s location or the channel they prefer to frequent. That is, all shoppers, be it in the checkout lane, aisle number four, sitting at home or on a mobile device - receive customized shopping recommendations based on their past behavior, integrated with their online accounts and delivered to their mobile devices, for example. In short, your loyalty solution provides every shopper access to time, loyalty, or location-based offers, whether they are in the store or walking in the park. WHO OWNS YOUR CUSTOMERS DATA: YOU OR YOUR LOYALTY SOLUTION PROVIDER? 3. Provide real-time offers. Can your loyalty solution provide real-time, instant analytics on every purchase made within seconds from the transaction and allow you to grant the customer in real-time at the POS with gifts, reward and discounts which they can use instantly? 4. Provides ownership of the data. Many loyalty programs promise that they are easy to implement and run but it often means that the retailer doesn t own their customer data. This valuable data cannot be combined with the existing customer profile and transaction date to gain insights on a retailer s most valuable customer segment to run tailored marketing campaigns, personalize an interaction etc. Make sure you maintain ownership of your loyalty program data not your solution provider. 5. Easy to deploy and maintain. The solution should be secure, reliable and easy to implement. A cloud-based software solution, for example, will ensure a retailer doesn t need a large IT or project team to install and run the program. Look for an out of the box loyalty solution that is delivered as a service on the cloud for maximum flexibility, costs and ease of implementation. 6. Offer member enrolment and redemption through all customer touch points including online, phone, and store. The solution should also be able to offer customers instant earn and use, statement generation, etc. A SUCCESSFUL LOYALTY PROGRAM SHOULD HAVE THE FOLLOWING DEFINED AT THE BEGINNING: STRATEGY CUSTOMER EXPECTATIONS LIMITATIONS OFFER 7. Operates on all leading POS systems such as Fujitsu, IBM, Epicor, NCR, Retalix, SAP, Oracle, Retail Pro, etc. and also works with a retailer s home grown or custom POS applications. Ideally, if a retailer wants to change their POS system in the future, they can still continue with their existing loyalty solution without having to start all over.

5 Launch an Innovative Customer Loyalty Program: What You Should Know 4 8. Guaranteed Return On Investment (ROI) in a short span of time that should ideally be within three months. Additionally, the loyalty solution provider should be confident enough to not request payment until after a retailer starts to see program benefits such as increased sales. This not only shows the confidence of the solution provider but also confirms that it will work for them. In summary, the question that retailers would have to answer before selecting a partner to implement and run their loyalty solution is can their partner provide them with flexibility and choice to run the loyalty program effectively and not just provide a great shopping experience for their customers. If the answer is yes; they are well on their way to launching and running a successful loyalty program. United Colors Of Benetton The Benetton Group is one of the best known fashion companies in the world. Present in 120 countries with a network of over 6,500 stores the company wanted to reinvent its existing customer loyalty program to increase customer engagement effectiveness, boosting customer purchase frequency, retention trends, and tier acceleration. The brand also wanted an Intelligent Customer Engagement Management process with high data capture rates that could help them build personalized target campaigns for different customer types by utilizing insights based on purchase behavior, past transaction history and preferential choices. Capillary assisted Benetton in revamping their outdated legacy loyalty program, by integrating and cleaning the existing demographic data and available purchase history. Capillary also seamlessly managed the transfer of reward points from the old to the new program. With Capillary s cloud-based mobile CEM platform installed in all its stores, Benetton enrolled its customers with mobile access, and built detailed customer profiles upon successive visits to any store. With the newly captured customer data and Capillary s real-time analytics, Benetton was able to design and execute personalized engagement programs enabling the company to reach the right customers at the right time with relevant communication.

6 Launch an Innovative Customer Loyalty Program: What You Should Know 5 Conclusion To ensure a successful start, retailers must have clear goals and objectives identified prior to engaging with a loyalty program solution provider. Of course, the solution provider can assist with the program design but its best to have thought through the following for increased success: SUCCESSFUL LOYALTY PROGRAM STRATEGY CUSTOMER EXPECTATIONS LIMITATIONS OFFER Five Pillars of a Successful Loyalty Program Strategy Retailers need to identify what they hope to achieve with a loyalty program and the relative priority of each goal. For example, is the goal to improve customer relationships? Raise sales revenue? Attract new customers? Collect additional information about their customers? Optimize marketing spend? Or something else? Customer What customer types will be eligible for this program? Is the program available for all customers regardless of their location? Can you support them in all countries? What is the criteria to select the eligible customers? How often will it be reviewed and adjusted, if necessary? Program Expectations What are the realistic expectations of the program in terms of program enrolment, redemption and what is the time period that will be assessed to gauge program success? Program Limitations Through which channels will the loyalty program be offered? Is it mobile, card, paper, online? Can the customers access their loyalty program account information through the phone, in store or online or mobile app? Will the points expire? When? Are they transferable? To whom?

7 Launch an Innovative Customer Loyalty Program: What You Should Know 6 Offer Components - Will the program offer discounts, points or rewards such a product, service or experience? How many program tiers/levels will it have? What is required to reach each tier/level? Loyalty programs have become one of the most powerful weapons in retailers arsenal. For most retailers, this was the lifeboat during the harsh trading conditions of the credit crunch and its aftermath in 2008 and on. Today, the retail world is increasingly being divided into the I have a loyalty program and I do not have a loyalty program. While the industry experts agree on the fact that loyalty programs are primarily a means to an end and will not on their own make a retailer successful (unless the core offering is compelling), they also are unequivocal on the fact that loyalty programs (in one form or the other) are here to stay. Capillary Technologies is a leading provider of cloud-based software solutions that help retailers of all sizes to engage intelligently with customers through in-store, mobile, social and channels. Our platform powers end-to-end customer engagement, clienteling, loyalty and social CRM for more than 150 major brands in 10,000 retail locations. We help bring instant shopper gratification to 75+ million consumers in the US, UK, Middle East, South Africa and the Asia-Pacific region. Our customers include industry leaders Nicole Miller, Nike, Puma, Pizza Hut, Benetton and Marks & Spencer. We were named Marketing Magazine s CRM & Loyalty Agency of the Year 2013, a Gartner 2013 Cool Vendor, and one of Mint/WSJ Bloomberg Businessweek s Hottest Technology Businesses We re backed by Sequoia Capital, Norwest Venture Partners and Qualcomm Ventures. Learn more about Capillary Technologies. Visit Or mail us at conversations@capillarytech.com