THROWING OFF SPARKS REIGNITING RETAIL LOYALTY PROGRAMS. Stephanie Swain, Vice President, Retail

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1 THROWING OFF SPARKS REIGNITING RETAIL LOYALTY PROGRAMS Retail BRIEF Stephanie Swain, Vice President, Retail

2 1 / Throwing Off Sparks INTRODUCTION As anyone in a long-term relationship can attest, sometimes you have to work hard to keep that special spark burning. Relationships are never static. A personal relationship improves in quality until it begins to decline, at which point one must extend effort to get the relationship back on track. That s why we see relationship gurus the Dr. Phils, the Deepak Chopras, and the Oprah Winfreys of the world offer tips designed to enhance the quality of our personal relationships. We can boil down the advice to a single word: Effort. The most important step toward improving a personal relationship is to recognize that improving it requires work. Once you ve accepted that reality, then successful steps toward betterment depend on the nature of the relationship, the willpower of the constituents, and the mutual commitment to improvement. Retailers attract loyal customers based on the quality of their products, a positive customer experience, and competitive prices. Loyal customers respond by buying more, buying more often, and telling their friends. Relationships between retailers and brands are no different than people. Retailers attract loyal customers based on the quality of their products, a positive customer experience, and competitive prices. Loyal customers respond by buying more, buying more often, and telling their friends. Like any new romance, such a relationship is exciting and fresh for both parties, but without being properly nurtured can soon become stale. Familiarity breeds, if not contempt, indifference and it often isn t long before retailers begin to take those customer relationships for granted, while promiscuous customers soon turn their gazes longingly to competing retailers whose offers seem somehow fresh and vital. Throw in consumers added sensitivity to price and promotion brought on by ecommerce, mobile price comparisons, and daily deals marketing, and it s easy to see why retail relationships seem like they end just as they re getting started. That s why retailers have long turned to loyalty programs to help strengthen their customer relationships. Loyalty programs build relationships by facilitating an exchange of value for information. The retailer puts something extra on the table reward points, cash back, discounts or special perks and privileges and the customer responds by joining the program and giving permission for retailer to track transactional data, survey data, and perhaps online or mobile behaviour, in exchange for that extra value. The onus then falls to the retailer to close the loyalty loop by delivering that information back to the customer in the form of increased value and more relevant offers. The resulting positive feedback results in strong, sustainable, and mutually beneficial relationships. Loyalty programs have become so entrenched in retail that Millennials, those Generation Y consumers who form the largest cohort since the Baby Boomers, enter retail relationships with a deep understanding of the value of such programs. Aimia research shows that 78 percent of US Millennials are more likely to choose a brand that offers a loyalty program over a brand that does not. Forty-four percent of Millennials are willing to promote products or brands through social media in exchange for rewards. That is, potentially, a highly powerful and influential membership base. But complacency is an ever-present danger. Rewards soon become entitlements. Program costs increase. Retailers take the relationships for granted and begin to chip away at the program s value proposition. Perhaps that s why a recent Harvard Business Review study revealed that less than 50 percent of retail loyalty program members are considered active. To reach your relationship potential with your best customers, you ll need more than a session with Dr. Phil. You must reignite your customer strategy and fan the flames continuously through data driven marketing, a robust value proposition, and dynamic customer segmentation. It s the best way to keep the sparks flying.

3 Throwing Off Sparks / 2 More than half of US consumers follow at least one brand on social media. Shop.org Retailers who harness big data well can increase operating margins by 60 percent. McKinsey Global Institute percent of US Millennials are more likely to choose a brand that offers a loyalty program. Aimia 2011 Millennial Study 73 percent of retail consumers have used their mobile device while shopping. Interactive Advertising Bureau

4 3 / Throwing Off Sparks THROWING OFF SPARKS Rules for Reigniting Your Retail Loyalty Program The good news for retailers is that, while changes in technology, consumer behaviour, and market forces will continue to offer challenges to their business models, the fundamental drivers of customer loyalty remain unchanged. This means that loyalty programs will continue to fuel profitable customer relationships. To rekindle the value of your retail loyalty program, we offer these five rules as fuel for the fire. > Rule #1: Focus your data efforts. The rise of big data large data sets collected from an exploding number of digital, social, and mobile channels offers the potential for big rewards. A May 2011 study by the McKinsey Global Institute estimates that retailers who harness these types of data well can increase operating margins by 60 percent. But the sheer volume of data, and the challenge of connecting it to develop a complete view of the customer, can overwhelm marketers. One of the most valuable benefits a retail program offers is its ability to gather core transactional data, particularly that of customers with high current or potential value. If you need to focus your data efforts, start here: Transactional data provides useful boundaries for dynamic customer segmentation efforts that result in more precisely targeted and relevant offers. Loyalty analytics can improve operational decision making on everything from price to inventory, as well as define rewards and recognition that increase customer engagement. > Rule #2: Develop loyalty personas. For years, marketers have built customer personas characters that represent different customer segments to drive life stage and lifestyle segmentation efforts. Insight from loyalty program data can improve and add clarity to these efforts. Are your best customers single? Are they new moms? Are they foodies? Are they price sensitive? Basic transactional data such as recency, frequency, basket size, and even SKU-level detail can focus your persona efforts far more effectively than survey, social, or other data sets not based on actual shopping behaviour. Personas help put a face to best customer segments in ways that make sense and can be applied by the entire organization: The C-suite can incorporate insights to inform strategic planning decisions, while front-line associates can capture service interactions that flesh out personas even further. > Rule #3: Connect the data dots across channels. Retail marketers understand that no single channel drives loyalty. Customers conduct product research online before visiting your store; like your Facebook page before heading to your website; or visit your store to research a hot product before finding a lower price online. In this environment, a silo-driven channel mindset no longer works. By combining insights from transactional analysis with data points from the entire purchase cycle, you can infuse customer relationships with a seamless, cross-channel experience. The license plate of a program membership ID helps connect these data dots. How many members visit your store after doing research online? What types of members tend to compare prices? How often do exclusive experience offers result in a sale? Connect these data dots to drive increased engagement and loyalty. > Rule #4: Battle short-term discounting with loyalty data. Discounting through daily deal sites, mass couponing, and Everyday Low Price models is still the lingua franca for most retailers. Price wars will never go away, because customers love finding good deals. But loyalty marketers understand how to deploy discounts surgically, rather than offering the same discounts to everyone. Marketers can leverage behavioural insights about their best customers when deploying discounting strategies. Effective tactics include using dynamic customer segmentation, low base rewards funding rates enriched by targeted bonuses, and coupons customized based on customer value and propensity to buy. > Rule #5: Re-imagine recognition and rewards. Moribund loyalty programs rely on trinkets and trash old-school toaster type rewards that are about as exciting as a tax audit. Today, mobile platforms, social media, and techniques such as gamification provide many new ways to recognize and reward loyal customers. A recent study by Shop.org reveals that more than half of US consumers follow at least one brand on social media, while the Interactive Advertising Bureau claims that 73 percent of retail consumers have used their mobile devices while shopping. So try everything you can. Mention new loyalty program members on your Twitter feed. Offer a unique location-based mobile offer to members only. Create a game for members based on Foursquare check-ins. By testing new combinations of rewards and recognitions against your transactional database, you ll learn to focus on what works. Whatever you do, don t simply design a basic loyalty program and add new members to the rolls without a clear idea of how to further the relationship with them once you have them. Getting that first date is easy it s much harder to turn that date into a real relationship. The bigger challenge, and the greater reward, lies in leveraging loyalty data beyond the transaction to build relationships before, during, and after the purchase. How can you keep the relationship throwing off sparks? Harness the power of loyalty program data. Leverage that data across channels. Tie every new platform or device back to the program database. Through relentless focus on using data to build relationships, retailers can keep the romance alive.

5 Throwing Off Sparks / 4 ITEMS Five Actions You Can Take to Reignite Your Retail Loyalty Program #1 Determine the transactional data set that will identify the most promising opportunities with your best customers. Drill down on those points to create relevant offers that drive a measurable shift in behaviour. #2 Analyze transactional data of your most valuable customers. Develop a set of personas that reflect their shared behaviours and interactions. Design and test offers geared to appeal to each group. #3 Connect data dots from individual digital channels to your core transactional data. Linking these creates insights that improve the customer experience across all channels. #4 Design a discount offer for a core group of your best customers based on their purchase history. Compare the redemption rate and lift in revenue or margin to a generic offer given to everyone else in your customer file. Which offer performs better? #5 Test a new reward or recognition element through a social media platform. Use program ID numbers to track response at the individual customer level.

6 5 / Throwing Off Sparks ABOUT THE AUTHOR Stephanie Swain, Vice President, Retail Stephanie Swain is Vice President, Retail for Aimia. She is responsible for retail client and solution strategy, customer experience, and retail channel capabilities development. Stephanie is an accomplished marketing and financial services professional with 25 years of experience in the retail, CRM and database management, loyalty strategy development and marketing, retail credit, mobile payments, and client management areas. Prior to joining Aimia, Stephanie held various roles within financial services at Best Buy, where she was responsible for managing credit card portfolio business growth, developing and implementing alternative financing strategies, and building new finance and payment technologies for all Best Buy customer segments. She has also served as Vice President of New Product, Loyalty and Value Propositions for GE Capital s US Retail Consumer Finance business and the Director of Client Service for Alliance Data s retail CRM and database marketing teams. She earned her BBA in Marketing from James Madison University. About Aimia Aimia Inc. ( Aimia or the Corporation ) is a global leader in loyalty management. Employing more than 4,000 people in over 20 countries worldwide, Aimia offers clients, partners and members proven expertise in launching and managing coalition loyalty programs, delivering proprietary loyalty services, creating value through loyalty analytics and driving innovation in the emerging digital, mobile and social communications spaces. Aimia owns and operates Aeroplan, Canada s premier coalition loyalty program, Nectar, the United Kingdom s largest coalition loyalty program, Nectar Italia and Smart Button a leading provider of SaaS loyalty solutions. In addition, Aimia owns stakes in Air Miles Middle East, Mexico s leading coalition loyalty program Club Premier, Brazil s Prismah Fidelidade, China Rewards the first coalition loyalty program in China that enables members to earn and redeem a common currency, and i2c, a joint venture with Sainsbury s offering insight and data analytics services in the UK to retailers and suppliers. Aimia also holds a minority position in Cardlytics, a US-based private company operating in card-linked marketing for electronic banking. Aimia is listed on the Toronto Stock Exchange (TSX: AIM). For more information, visit us at

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8 SHOW DON T FIGHT SHOWROOMING. EMBRACE IT. ROOM Aimia research shows that far from being disloyal, retail showroomers are potentially your most loyal customers. Customer insight is your best option for identifying, understanding, and influencing these tech-savvy consumers. Ask us how we can help. To download Through The Looking Glass: Building Relationships With Retail Showroomers, please visit our Knowledge Center at Aimia.com.