New Report Spotlights Strategies To Reach The Web 2.0 Consumer

By Amanda Ferrante, Assistant Editor

Socializing with peers and specially targeted events are two ways marketers are reaching the new generation of consumers: Gen Y – the 14- to 24-year-olds who are desensitized to traditional advertising and expect marketing messages to be personalized just for them.

Working with retailers such as Victoria’s Secret, Dunkin’ Donuts, and Adidas, Mr. Youth, a six-year-old advertising solutions company, creates customized events to introduce new products to the Gen Y segment. The company recently released a white paper titled “Consumer 2.0: Five Rules to Engaging a New Breed of Consumer,” to spotlight the nuances of reaching Gen Y and shed some light on the different characteristics and behaviors that are influencing the way marketing messaging is created and perceived.

Personalization offers Pizzazz
Niche is The New Norm, according to the researchers at Mr. Youth. “Because of social networks, young people [also known as the Web 2.0 consumers] are desensitized to traditional advertising media,” says Matt Britton, Managing Partner of Mr. Youth. “These consumers have come to expect a level of personalization in everything.”

The Mr. Youth white paper explains how today’s young shopping generation defines “fitting in.” “Social networks allow people to seek out others with the exact same interest — it’s really micro-segmented,” Britton says.

The expectation of personalization is translating directly to purchasing behavior. Even though a mass market retailer may be selling thousands of the same t-shirt, that retailer may be the second choice for the Gen Y consumers, who may choose a specialty retailer offering nichy designed shirts that they perceive represent them individually.

Nike has created the ultimate example of personalization, notes Britton, with NikeiD, which allows consumers to design their own shoes using several templates and colors. “Every shoe is unique,” Britton says.

Other ways to reach the Web 2.0 consumer include targeted offers based on previous purchasing habits, like Amazon.com’s recommendations. “It’s hard to reach all consumers,” notes Britton. “But you can speak to consumers, and targeted offers are a great way of doing that. Retailers really need to have a better focus on relating to their customers — and knowing who they are.”

Build the Buzz
Since word-of-mouth has always been a reliable source of both negative and positive buzz, the Web 2.0 consumer is that much more of a chatterbox, with social networks, once again, stepping in as a useful platform. “Retailers need to use their consumers to reach others,” Britton says. “Evangelists” of a store will spread the word when a retail store accomplishes the aforementioned factors — like personalization and relationship building. This method is cost-effective for retailers, and is marketable. “Give information that’s relevant to the customer and the tools they need to spread the word,” Britton says.

The Web 2.0 consumer is the future, and it’s imperative for retailers to cater to this segment. “Companies that aren’t able to offer these services are ultimately going to fail with this new generation of shoppers,” Britton says.

To read the full report, click here.

Creating The Ultimate Customer Experience The New Competitive Differentiator For Retail

By Amanda Ferrante, Assistant Editor

With the playing field leveling in terms of product differentiation in many categories, insiders suggest that the only real point of difference for retailers will be in creating the ultimate customer experience for customers.

“Retailers are finally realizing the person who pays their bills and keeps the lights on is the customer. Today, everywhere you look, everywhere you go—you can find perfectly acceptable substitutes for any product of any kind 24/7,” says Pam Danziger, the founder of Unity Marketing and author of the new book, “Shopping: Why We Love It and How Retailers Can Create the Ultimate Customer Experience.” “Finally, retailers are catching on that opening their doors and putting product on the shelf isn’t enough anymore.”

One of the keynote speakers at next week’s Global Shop 2008 event, Danziger suggests retailers will need to give customers the optimal shopping experience through in-store organization and by creating a community feeling among customers. “The focus for retailing success in the future is not so much what you sell, but how you sell it.”

Based on the belief that shopping decisions are influenced by several factors, Danziger has developed her own formula that she suggests retailers apply to their strategy. To demonstrate, she uses the following model:

The Quantum Theory of Shopping
P= (N+F+A) x E Squared
Need
Features
Affordability
Emotion-Squared

As an example, she cites a female shopping for red velvet shoes. There’s virtually no real need. The features: she has red shoes; has velvet shoes, but no red velvet shoes. There is no price limitation, so in this case, the emotion is the deal-maker. Danziger points out that retailers cannot create need—only desire. “Need tends to drive choices about where to shop. The higher the real need, the less the other factors play. In many cases, nobody needs anything you sell,” says Danziger.

Enhancing Customers’ Desire

Product features stimulate desire; luxury is the opposite of a need. Danziger says, “[90% agree that] when you buy a luxury item, you expect it to be a cut above the average.” Those consumers who shop for luxury items expect superior quality, and shoppers are increasingly aware about discerning product quality, which justifies spending more.

“Shopping is an experience,” says Danziger. Luxury consumers are willing and able to spend. The key is to add new awareness of value. “Nordstrom doesn’t sell the cheapest stuff—what they sell is with style.”

When you’re pricing items, remember that pricing is not about the money, but the meaning to the customer who will be purchasing the item. “By adding value that has meaning to the customer, you create more incentive and reasoning to buy,” Danziger says.

To play off of the emotion squared factor, she adds that marketers and retailers must control all of the tangibles like place, price, product, and promotion. In addition, the intangibles, like perception, performance, peripheral, people.

While more retailers are expanding their loyalty programs to help acquire and retain customers, Danziger stresses that these offerings need to provide real rewards for customers. “You should never charge anybody for loyalty programs,” Danziger says. “They need to be designed for the convenience of the customer, not the store. Too many loyalty programs are clearly trying to simply get people to spend more money, and not provide the real benefit.”

Danziger’s Keys to a “Shop That Pops”:

· Create high levels of customer involvement and interaction. “The people principle is absolutely the most mission critical when it comes to making the shop pop. You can’t program excitement and energy into a shop.”

· Evoke shopper curiosity- this draws customers into the store and around the aisles to browse, and ultimately, buy. Changing and rearranging merchandise evokes curiosity. Creating a paradox compels curiosity;

· Have a contagious, electric quality- a happening, exciting atmosphere with a nice ambience and organic electricity. "Apple stores aren’t electric until people are in there relating to each other and the products."

· Values-driven concept- vision gives the store soul and feeling, which translates to the importance of the customer. “Damsels in This Dress is more than just a store for apparel, it’s a destination where people discover their inner diva and own style.”
· Price/Value model that favors the shopper- sometimes discounting is the story behind the store. Most often, discounting is downplayed in retail. Rather than marketing down price, it’s all about enhancing the value of the product. It’s also important to run with the values of your target customers and existing customers.

· Accessible, non exclusive, and free from pretensions- stores that are welcoming make the customer feel special. It can’t be faked. There’s a different between saying and doing the right things. “Saks 5th Avenue’s myth as a luxury emporium gives inspiration.”
· Maximize customer involvement- give the community feel. “Cabela’s has something for everyone. It’s a destination for a true shopping experience with a store, natural history museum, and café.”

Unlocking the Value in Return Transactions

Insights from LakeWest Group

Return transactions are a dark part of the retail environment- accepted out of necessity and/or customer service pressures, yet often left unexamined. But returns can hold significant promise, and LakeWest Group believes that the concept of Return Optimization may be a key to unlocking their value.

A new perspective on returns
Traditionally, retailers have utilized policies and procedures to manage returns and try to curb fraudulent return transactions. In the past few years, Returns Management applications, focused on receipt validation and return authorization, have been introduced to help contain the losses from returns; yet fraudulent returns continue to increase.

Return Optimization is a process that tracks purchase and return histories, and combines them with statistical models to discourage fraudulent and abusive return behavior by issuing warnings and denials, while at the same time encouraging good customers to continue their shopping experience by issuing incentives.

Opportunity to generate incremental revenue
There is no better time to reward a good customer for their patronage than when they are standing inside the store. Use the Return Optimization solution to identify the customer, and point them back into the store, with not just a generic discount to be redeemed anytime, but instead with a specific promotion tailored to the customer’s and store’s needs. Offering an intelligent discount to be applied immediately will raise customer satisfaction and create that “Wow” factor which retailers and customers continuously seek.

Opportunity to reduce fraud, abuse and costs
Retailers traditionally have fallen back to simple receipt verification to manage fraudulent returns, provided that their point-of-sale system will validate that the item was actually purchased at the store. These host-based databases can verify if the receipt and the original purchase are valid, but, unfortunately they cannot intelligently advise the store as to whether or not it should accept the return.

Instead, what is needed is a statistical modeling approach that helps more accurately determine true return fraud, eliminating abusive returns while allowing legitimate returns. Using the same type of statistical algorithms that have transformed Price Management, Return Optimization is now available to identify which customers to reward for their patronage during the return process and which customers are abusing services and/or defrauding the business.

Returns opportunities
“Retailers should have systems that not only discourage poor customer return habits, but also provide the key performance indicators that identify and reward good customers. Creating a new ‘Returns KPI’ centered on surprising and delighting the customer and converting those returns into purchases is a must”, remarks Ken Morris, President of LakeWest Group. “This will help turn a bad customer into a good customer, while creating good customer moments and keeping the sale.”

Retailers have a real opportunity to both put more on the bottom line AND increase customer satisfaction. Instead of just trying to manage returns, there is a better way to minimize fraudulent returns and associate and customer frustration, while maximizing return transactions untapped value – Return Optimization.
For more information about the Return Optimization solution, please click here .

Established in 1990, LakeWest Group, LLC is the premier independent management consulting firm dedicated exclusively to serving the retail and consumer products industries. With deep business knowledge and cross-functional skills, the firm delivers superior design and implementation of strategy, technology, and process solutions to help our clients achieve their full business potential. Headquartered in Cleveland with offices in New York City and Boston, LakeWest Group serves all retail segments and channels. For more information, please visit www.lakewest.com.

Retailers Tying Gift Card Growth Into CRM Strategy

By Amanda Ferrante, Assistant Editor

It has been nearly impossible to miss the news articles regarding the growth of gift cards after the recent holiday season. Some of the most telling stats included:
• Gift card sales were anticipated to count for $26.3 billion during the last holiday season, up from $24.8 billion in 2006, according to the National Retail Federation;
• According to a study from market research firm Packaged Facts titled “The U.S. Market for Prepaid Cards with a Focus on Gift Cards,” nearly 35% of consumers who purchased gift cards in the last 12 months anticipate spending more on gift cards during the next 12 months, with 9.1% expecting to spend “significantly more.”
• 53% of gift card redeemers reported that they often or always spend more than the card value, and most likely over two store visits rather than one, according to the same Packaged Facts study;

Needless to say, there is a huge opportunity for retailers to make the gift card more of a strategic asset. That being said, retailers are thinking way outside the box to make their gift card offerings stand out on the crowded end-cap. In addition, since retailers cannot recognize the revenue from gift card sales until the cards are redeemed, retailers are working harder to get consumers in the store to activate their currency.

BUILDING CUSTOMER LOYALTY
While most retailers keep the gift card an anonymous transaction, some are branching out and offering “reloadable” cards, with which the holder can acquire points that can later be used in exchange of items.

Subway Restaurants, a proponent of the point system, is “speaking” to their customers in a new way with their personalized gift card. Cardholders can load the card with a dollar value up to $100—and the card is reloadable, so it can be used as a debit card when making purchases at all U.S. and Canadian restaurants.

Subway’s gift card provider, Portland, OR-based Chockstone Inc., maintains a database of transactions and tracks user spending detail by cardholder name or other personal information, but by a unique string of numbers assigned to each card. “Although the cards are largely anonymous, we can communicate effectively to the customer’s receipt,” says Edward Daley, Marketing Specialist at Subway.

“We consider this a critical part in the evolution of our Subway Card program as it allows us yet another opportunity to extend the brand and make us more accessible to our customers,” says Daley. “It all adds up to our ability to offer customers promotions and incentives that they are most likely to find appealing. Giving customers what they really want is what it is all about!”

Starbucks is also an early adopter of the CRM capability of the gift card. Customers can purchase a gift card only and then, if desired, allow the company to identify them through proprietary software. The company ties the gift card to a name and credit card, allowing it to be automatically reloaded through Chase banking services. The Starbucks gift card can also be personalized with the recipients name and favorite drink order.

While retailers don’t count the gift card purchase as revenue until its redemption, there’s more value than just the potential revenue. “Retailers believe that every gift card represents a potential increase in what a consumer spends (lift) of about 20%,” says Tina Henson, CEO of PlasticJungle.com, a site that sells and trades gift cards. “They also represent traffic. Some surveys indicate that a single gift card can mean 3-5 visits from a consumer. Therefore, retailers want these cards redeemed.”

INNOVATIVE MARKETING
In an industry that’s evolving so rapidly, innovation is key. Chris Nicolaides, Vice President of Business Development at IdeaEdge, a gift card provider, says the emotional connection an audience feels to a brand can greatly impact the gift card industry. The company behind the American Idol Gift Card paid attention to the growing phenomenon of the number one television show in the world.

“With 44 million viewers engrossed in the show, you can’t help but realize that there’s no other brand that invokes that kind of emotion [like] the American Idol brand,” he says. The concept in leveraging the hundreds of millions of dollars in merchandising behind the show will “invoke a high hype consumer purchase [of gift cards] launching entertainment brands that have high emotional connection… Innovation is important.”

What’ So Funny About Peace, Love, and Customer Acquisition?

By John Gaffney, Contributing Editor


I’ve been talking to a lot of smart people lately about the obsessive focus many businesses have with customer retention and loyalty these days, and the current wisdom says this picture is a bit out of focus- especially among retailers.

I don’t know when customer acquisition fell out of fashion. Maybe it was that McKinsey report that got a lot of play a few years ago that said it was 10 times more expensive to acquire a customer than it was to retain one. Maybe it is the relative “plug and play” ease that so many loyalty programs have morphed into. Maybe it’s just a simple view retailers developed that drive them to highly value the customers they were tracking and ignore the customers that hadn’t entered their database.

“Too much work centers around customer retention,” says K. Sudhir, Professor of Marketing at Yale School of Management. “The opportunity is in customer acquisition. Customer strategy should be integrated. It should be a blend of acquisition, retention, loyalty, experience and influence. It’s easier to count customers than to predict their behavior, so most companies count. I think business is about the customer you don’t have.”

Whatever it is, retailers need to take a look at customer acquisition as a strategy. On a very basic level, new customers are still the lifeblood of any retail operation. It’s true that it will come with a cost, but I would argue that Internet marketing has driven down the cost of customer acquisition substantially. It’s nowhere near the 10x figure attributed to McKinsey. There’s no easy formula to measure acquisition vs. retention costs, but I’ve heard some sound arguments that say any measurement in this area is flawed.

“They are incalculable,” says Ron Shevlin, VP of Marketing at Epsilon. “Let me put it this way: No one has any idea how much it really costs to retain customers. Do you include all the costs associated with providing customer service to customers in your retention calculations? After all, if you don’t service them, you will have less chance of retaining them. Do you allocate all IT application maintenance and enhancements to your retention calculations? If you don’t continually improve your transaction and interaction service capabilities, your ability to retain customers diminishes.”

So what’s your retention cost? What your acquisition cost? Even if you can answer these questions accurately, the bottom line is that a static customer base will only shrink. A growing customer base may include customers that are not loyal and are not high-value, but there’s also enough marketing wisdom to show retailers how to get close to the customers that look like your currently valuable and loyal ones.

By the time retailers have to take inventory on this holiday season, the data will show who bought what and how frequently. It will also show who bought this year that didn’t buy in 2006, but it won’t show who didn’t buy at all. Therein lies the opportunity.

The Dunnhumby Way: Insights Into How Relevance Marketing Shapes Strategy For Tesco

Many marketers are familiar with the success Tesco has had with its Clubcard loyalty program. With more than 13 million active card holders and 85% of its sales captured on a card, the retail giant is often cited as the gold standard other companies look to emulate as they build loyalty programs. However, most marketers are less familiar with dunnhumby, the company that has been working behind the scenes with Tesco since 1994 to help Tesco achieve its goal of earning the lifetime loyalty of its customers. Founded in the UK in 1989 by Clive Humby and Edwina Dunn, dunnhumby has grown substantially over the past few years through a joint venture with Kroger and more recently via a similar partnership with French grocery giant Groupe Casino.

The company recently marked the fourth anniversary of dunnhumbyUSA division which is based in Cincinnati and also has offices in Atlanta. Growing at a rate of 40% a year, the US division is projected to reach $150 million this year and is planning to add more than 70 new staffers next year.

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Study: Amazon, Best Buy Lead CE
Category In Customer Experience

A new study conducted by Keynote Competitive Research ranks the top online consumer electronics merchants in terms of their customer experience and customer service. According to the report, Amazon.com and BestBuy.com were tops in customer experience while CircuitCity.com and Staples.com lead the list in service.

Keynote Competitive Research, which measures and rates the online and mobile experience of customers, studied 12 leading online CE retailers including Amazon.com, BestBuy.com, CircuitCity.com, Costco.com, Dell.com, OfficeDepot.com, Sears.com, Staples.com, Target.com, and WalMart.com, in order to measure 300 metrics.

According to the study, Amazon.com was the top ranked site in terms of search satisfaction, and was one of the top ranked sites in six of nine key categories such as price satisfaction, product research, and overall site navigation and organization.

Similarly, BestBuy.com was the top ranked site in terms of pure customer satisfaction along with being ranked top in seven of the nine categories in reference to online customer experience, including the ease of the purchasing process and customer support. Additionally, BestBuy.com was selected as the site that showed the most gains in online customer experience throughout the past year.

In addition to the gains made by BestBuy.com, Dell’s website also saw an increase in customer experience and satisfaction throughout the past year. The strong gains were in reference to product interest and visual appeal to the website.

While BestBuy.com and Amazon.com were at the top of customer experience, CircuitCity.com and Staples.com were at the top of service. According to the study, CircuitCity.com had the best reliability whereas Staples.com had the best site responsiveness, the fastest home page downloading in about 45 seconds for dial-up users, and the fastest search results download time at 1.1 seconds for broadband and 12 seconds for dial-up.