No-Cost Incentive Program Helps Retailers Reach New Customers With “Prewards”

Written by Debbie Hauss
With zero up-front costs to advertisers, the edo Interactive Marketing Platform allows businesses to target specific consumer groups with incentives called “Prewards” that are loaded on to a facecard prepaid MasterCard. The advertisers pay only when the incentive is redeemed, so the return on investment is a built-in guarantee.

“Implementing the edo Marketing Platform was a no-brainer because there is no up-front cost,” says Jeff Wogoman, director of marketing for Cloudveil, the Jackson, Wyoming based outdoor apparel retailer and wholesaler. “That is the ultimate ROI to me.”

Cloudveil initially tested the program with a selected group of 5,000 consumers, who received a varied incentive of $5, $10 or $15. Wogoman decided that the test would be successful if 40% accepted the incentive and 10% responded. “We are well above the 10% goal at the four-week point,” he notes. Edo reports that many initial advertisers have seen double-digit redemption rates.

“I think this is a good concept because it allows us to reach an audience that we don’t typically get in front of,” says Wogoman. Cloudveil chose to market the program to college students, so Wogoman selected specific universities in targeted demographic areas. “We used internal information to determine that we have pretty good penetration in those areas and our brand is well known,” Wogoman notes. “In the future we may want to target areas such as the Southeast that we want to break in to, where sales may be weak.”

The program for Cloudveil was implemented quickly once the retailers gave it the green light, says Wogoman. “We selected the target areas, provided creative assets, decided on the chosen incentives, and then it was literally done in a week to 10 days.”

Five levels of marketing service
edo Interactive facilitates and services the marketing program via five specific steps:

1. Identify target consumers. edo identifies the target audience, in conjunction with the marketing partner.
2. Promote the incentive. edo promotes the incentive via email, test message or RSS feed to the target group. Consumers then have the option to “accept” or “decline” the incentive.
3. Deposit the incentive. edo deposits the “accepted” incentive onto the reloadable pre-paid MasterCard.
4. Process the incentive. After consumers redeem the incentive, edo processes the transaction behind-the-scenes by identifying the incentive, redeeming the incentive from the card member account, and deducting any remaining purchase balance.
5. Track the metrics. edo offers advertisers real-time information on metrics such as the number of redemptions, redemption locations and average sale size by relevant demographics.

The edo Marketing Platform was initiated as a beta test in June 2008 and will be launched formally in January 2009. During the beta phase, all interested advertisers were welcome to participate in the basic program that offered percentage-off savings. Beginning in January 2009, the platform will expand to offer Prewards in the form of dollar amounts, percentage-off savings and savings based on the amount of purchase. In addition, edo will offer “edoCash” that will allow advertisers to reward customer loyalty with financial or merchandise incentives.

Wogoman is looking forward to offering varied incentives, such as $30 off a $200 purchase, for example. “We also have talked about doing a promotion that we could run on our Cloudveil Facebook fan page that would give a $30 incentive to members who sign up 5 new members.”

Initially the Prewards are being offered to existing MasterCard card holders, but beginning in 2009, the platform will operate using additional types of cards.

Recovery ‘09: Retail Rebound To Take Shape Around Customer Segmentation

Sometime shortly after December 25 when the whirlwind of 2008 is in the books, retailers will need to face the reality of recovery. They will need new strategies for the aftermath of promotions, profit shortfalls and sheer change that the past year has wrought. Many experts are pointing toward customer segmentation as the best way forward.

It may seem obvious at first because most retailers already have some kind of customer segmentation program in place. But retailers can take advantage of changes in the way customer segmentation data is collected and then executed. New segments bring new sales opportunities; changing customer segments demand new cross-channel marketing approaches.

“One of the great things about customer segmentation is the built-in flexibility it provides to retailers,” says Josh Martin senior analyst for The Yankee Group and author of several segmentation research papers. “They show the pain points and the pleasure points for different customers. They are not necessarily a snapshot of today’s customer. They are an indicator of the latent behaviors customers will exhibit in the future.”

Martin sees a key trend emerging in the customer research and execution of segments. Demographic information is still important, but taking its place on the priority list is psychographic behavior, and in turn, psychographic segments. Martin calls psychographic segmentation a “totally different approach” and one that is more easily acted on by an entire retail organization. For example, a sales person at a consumer electronics chain can be relevant to a customer if he knows their technology behavior and aspirations. Knowing simple information such as income and age may not lead to a strong relationship.

For example, Martin’s September report on mass market consumer technology adoption focused on five customer segments, but none of them were demographically-based. High-income groups were not as actionable as a segment called “technophytes.” These are consumers with the desire to be cutting-edge, but who feel no urgency to do so. This group makes up 22% of the consumer population. They drive volume as prices drop and early adopters move on to new technology. "Outlet Jockeys” are defined as the road warriors who make up 15% of the consumer population. They are willing to experiment with new mobile services and devices to achieve total connectivity.

Similar customer were profiles were identified as part of a new Retail Consumer Dynamics Study, an analysis of consumer shopping behavior and attitudes in today’s difficult economic times, released by interactive marketing services provider Acxiom Corporation and conducted by BIGresearch. With the reality that many consumers will be deferring spending, the Consumer Dynamics Study looked at how behavior may change outside of pure demographic circles. The study identified that “Savvy Spenders,” defined as mostly married, affluent and living in out suburbs, are more likely to spend sooner than other segments. The “It’s My Life” segment, defined as young consumers living in urban areas without children, is not likely to let economic conditions change their shopping behavior.

“This challenging economy creates an exceptional opportunity for retailers and consumer product manufacturers to target direct messages to specific consumer segments in order to sustain and maximize a return on marketing investment,” said Jim Harold, industry executive for retail and consumer markets at Acxiom

Cross-Channel Segmentation
Customer segmentation is also affected by cross-channel strategies. Just as consumers will reveal their behaviors and aspirations via surveys and product purchases, they will also generate data through click-stream traffic analysis and customer engagement behaviors. Take for example, the home improvement customer that clicked on an ad for a lawn mower, but didn’t buy. He may have moved on to a lower-priced model, bought from a competitor or postponed the purchase. Online and offline advertising, and then collecting the engagement data, can provide behavioral clues. They can also increase conversion rates.

“When we first started to sell online advertising, retailers were just buying space,” says Vikram Sharma, CEO of ShopLocal.com. “Now they’re not interested in space, they’re interested in people. It’s not that consumers hate ads, they just hate the wrong ads.”

Sharma’s company has created several products that put local advertising products online. For example, SmartCircular, allows FSIs to do double duty as a print insert and then as an internet-based ad for local searches. The online ads feed in-store visits. They also provide key data for potential segmentation.

“Retailers need to think cross-channel,” he says. “Let the customers have a holistic experience. It is much more important to define customer segments within all channels, not just within a single channel such as e-commerce. Internet ads will become a more important part of the mix once retailers realize that online activity can feed offline activity. Consumers spend 20% of their time on the internet, but companies only put 8% of their dollars there.”

myShape.com Improves Conversion Rates Via Personalized Assortments

By Debbie Hauss
Bringing personal shopping to ecommerce, women’s apparel retailer myShape.com is reporting an average of 6-8% conversion rates (and as high as 16% in some cases), according to Mercedes de Luca, global customer experience officer and CIO for the two-year-old company. Typically, industry average ecommerce conversion rates are 1-3%.

With patented Personal Shop technology, myShape provides female apparel shoppers with customized assortments that cover three attributes: body measurements, body shapes and personal preferences. “Because the items they purchase from us fit better we tend to see a reduction in returns,” says de Luca.

Once the customer provides information on her measurements, body shape and personal preferences (such as snug fit versus loose fit and sleeveless versus long sleeves), myShape returns a customized assortment of in-stock items that can be purchased immediately. The assortments are updated in real-time.

To date, myShape has more than 400,000 member shoppers. A demographically diverse group of women have signed up for myShape, says de Luca. “We have been amazed by the range and age of women on our site. It’s really a more psychographic group of women – such as those who are too busy to shop or don’t like to shop.”

Shaping Up The Customer Experience
myShape is working to improve the customer experience in a number of ways. The retailer is taking advantage of third-party technologies such as Baynote Recommendations, which is context-driven software that shows shoppers products that other shoppers are browsing and buying. The myShape team took the SaaS Baynote product one step further and personalized it by adding the suggested companion pieces to the customer’s personal shop page.

The company also is looking at technologies “around improving the customer experience during shopping and at checkout,” notes de Luca. “Because the personal shops are built in real-time and are unique, we want them to build quickly and contain as many items as possible.”

To make the use of third-party providers work smoothly, de Luca is planning to enlist the services of INETCO, which provides real-time transaction monitoring, including:

• Consistent visibility into the entire, end-to-end customer purchase process, both on-line and in-store
• Real-time alerting of transaction slowdowns, failures, fraud patterns and reversals that are impacting revenue and customer experience
• Quick isolation of network and application performance issues affecting business critical processes such as the purchase cycle

“You are depending on your service providers to help deliver the best customer experience and that’s where INETCO comes in,” says de Luca. “INETCO gives the drill-down to the technology folks so they can uncover any problems, such as bottlenecks in transactions, which could be the result of a third-party provider.”

Right Offering at the Right Time
Although it is two years young, myShape is proving to be an idea whose time has come. “As the web explodes with more offerings this becomes even more relevant,” notes de Luca. “We are giving women control over what they see and how they see it. In essence, the shopper becomes her own merchandiser.”

The myShape site will continue to evolve with new services and offerings, including a social networking component,” says de Luca. “We also have several other partnerships we’re working on that should be launching in the next 30 to 40 days.”

Oracles Tests Sales Assistant For iPhone With The Body Shop, Free App Available Next Week

Tapping into the growing use of the Apple iPhone, Oracle created new applications that enable sales associates to access enhanced CRM tasks and information. The Oracle Mobile Sales Assistant and Oracle Mobile Sales Forecast for iPhone will be available as free downloads from the Apple App store in November 2008. To introduce the new applications, Oracle worked with The Body Shop to create the first prototype. “The prototype we have built with the Body Shop highlights the power of Oracle CRM and the Apple iPhone," said Anthony Lye, SVP of Oracle CRM. "We see the iPhone as a new and significant channel for companies to extend and enhance the relationships they have with their customers. Complete CRM is a combination of transactions, analytics and conversations.” The Body Shop prototype allowed consumers to use their iPhone in place of their loyalty card and also added social networking applications so that consumers could share wish lists and new product information with their contacts. The networking features of the Mobile Sales Assistant are part of Oracle’s strategy around “Social CRM,” whichenables users to become more effective and productive in their jobs through collaborative applications that become 'smarter' by leveraging the collective intelligence of social networks and work both within and outside the barriers of companies. The Oracle Mobile Sales Assistant embraces Social CRM by providing immediate access to critical information - virtually anytime, anywhere - removing barriers to productivity and collaboration, and ultimately resulting in better customer insight that helps improve customer satisfaction, reduce costs, and increase sales. The Oracle Mobile Sales Assistant uses Web services to exchange information with Oracle CRM On Demand, as well as traditional on-premises versions of Oracle’s Siebel CRM applications, including Siebel CRM Marketing, Siebel Loyalty, Siebel E-Commerce, Social CRM and Real-Time Decisions. “Enabling ‘anywhere’ access to corporate business applications is a top IT strategy for enterprises as smart phone adoption and mobile corporate email use increase,” says Sheryl Kingstone, Director of Enterprise Research, Yankee Group, in a recent press statement. “With 45% of companies stating mobile access through wireless technologies is the most strategic decision impacting their business application decisions for the future, Oracle Mobile Sales Assistant and Oracle Mobile Forecast for the iPhone are meeting crucial needs of sales people and businesses.” To address security and privacy issues, Oracle built in access to the system using secure user names and passwords. Once accessed, the Sales Assistant connects the user to the enterprise CRM applications, Microsoft Outlook contacts and calendars, and social networking sites on the Internet. Oracle leverages iPhone with BI tools Oracle initiated its relationship with the Apple iPhone via the Oracle Business Indicators, which allow users to view and interact with Oracle Business Intelligence (BI) Applications. These apps include financial, human resources, supply chain, and customer relationship management analytics, as well as analytical alerts generated by Oracle Delivers, an integrated component of Oracle Business Intelligence Enterprise Edition Plus (OBIEE). Taking full advantage of the Apple iPhone mobile platform, Oracle Business Indicators is built as a native application to offer highly intuitive and flexible features including browse, search, and favorites for a superior overall end user experience, according to Oracle. By expanding the ways mobile workers can view and act on performance data, Oracle Business Indicators can help bring business intelligence to a broader range of users, adds Lenley Hensarling, Oracle Group VP for Applications Development, in a press statement. "Oracle Business Indicators offers a way for managers to perform tasks specific to their daily jobs without requiring them to navigate through a full function application ported to a smartphone," he explains.

New Study Points to Sales Opportunities Within Emerging Demographic Groups

By Debbie Hauss

In tough economic times, everyone wants a good deal, particularly in the U.S. In a recent survey, GfK Custom Research found that 76% of Americans strongly/somewhat agree that “I feel really satisfied with myself, even excited, when I get a really good deal.” That number is 10 points higher than the total number globally for other countries. The GfK August 2008 report includes input from more than 1,000 U.S. shoppers over age 18 and more than 500 Hispanic consumers to determine the best ways to reach specific populations.

A number of factors contribute to Americans’ desire for discounts and deals. In 2008, first and foremost is the state of the economy, and recent events on Wall Street are driving consumer confidence even lower. Couple that with the fact that consumer incomes are not keeping pace with inflation. GfK reports that incomes increased 0.1% in June compared to a 0.8% rise in inflation.

Directly related to the economy are gas prices, which reached a peak in July and are inching up again following the recent hurricanes. In April 2008, 82% of consumers said that gas prices were hurting their households a lot or somewhat. In August that number dropped slightly to 78%. Prices dropped slightly during that time, and “Over time people do adapt,” notes Diane Crispell, Executive Editor at GfK Roper Consulting.

As people adapt to their economic situation, they adjust their spending and shopping habits. The study reports that 81% of adults agree strongly or somewhat that they now “think more about what I buy compared to a year ago.”

Reach out to consumers where they live and shop
To be successful retailers must offer the right deal to the right customers at the right venue. In total, over-18 shoppers are drifting towards discount stores like Target and Wal-mart and away from upscale department stores like Nordstrom and Macy’s, GfK reports. As many as 27% of shoppers are spending more at discount stores versus 4% at upscale department stores.

Convenience also is key. GfK reports that 17% of consumers are spending more shopping dollars at locally owned, independent stores and 16% are frequenting warehouse stores more often.

Breaking down the survey results into specific populations, GfK reports the following:
Middle-Aged and Older Consumers are seeking the convenience of neighborhood stores. 81% of consumers over the age of 35 are shopping close to home and 84% of indicate they like to support businesses in the community.

Younger Adults are the biggest group of online shoppers. Within the 18- to 34-year-old age group, 87% agree strongly or somewhat that they shop online for ease of price comparison and low-pressure sales; and 96% say they find a better variety of products online. These results are 6-7% higher than the total population. Younger consumers also are looking for creative ways to save. Among the 18- to 34-year-olds, 61% bought a used item instead of brand-new (versus 51% for the total population); and 57% have rented an item rather than buy it (versus 43% for the total population).

Affluent shoppers are also strong online consumers. Adults with household incomes of more than $100,000 shop online to compare prices (92% versus 84% for total population) and save money (66% versus 59% for total population). In addition, affluent consumers may be contributing to increasing coupon redemption. Into 2007, coupon redemption had been declining for 16 continuous years. But in 2007 Americans reversed that trend and redeemed 2.6 billion manufacturers’ coupons. Among affluent adults, 33% printed an online or e-mailed coupon versus 25% for the total population; and 21% used online coupons for Internet purchases versus 17 % for the total population.

Hispanic consumers look for a positive social experience. A higher percentage of Hispanic adults consider shopping a social, family endeavor, versus the total population. 87% strongly/somewhat agree that “It’s fun to browse in stores to see what is new and different.” In addition, 84% consider shopping a good family get-together; and 76% go to stores as a good opportunity to “get out of the house.” Also, Hispanics are the least likely group to look for different ways to save on purchases.

Additional findings
While “Made in the USA” is still a draw for 80% of shoppers, it is not as powerful as it used to be, and it means the least to Hispanics and young shoppers. Among Hispanics, 68% say “I don’t really care where a product comes from as long as it serves my needs” and 70% of consumers aged 18-24 share this sentiment. These two groups are the only consumers that have a higher percentage of shoppers that don’t care where it’s made versus those who say they would pay more for products produced in the USA.

Word of Mouth is an increasingly powerful way to market products. GfK reports that 79% of consumers ask a friend of family member for product recommendations, up from 70 % in 2006; and 51 % go online to read product reviews, up from 46 % in 2006.

Conclusions
Discount stores, online shopping and convenience local establishments are the bright spots in the retail marketplace right now, as consumers struggle with challenging economic times.

Retailers who focus on catering to their specific shopper base will be the winners, even if that means “that you will not necessarily lose as much ground as you might have otherwise,” notes Crispell.

In addition, much of U.S. spending continues to be discretionary, says Crispell, “not truly needs based” so retailers can grab those spending dollars with great deals and attractive and convenient shopping experiences.

Revolution or solution? InfoSys Bows Shopping 360 For In-store Usage

By John Gaffney, Senior Editor

It might be the long sought solution for click tracking in stores. Or it might be another customer tracking technology that takes a long time for retailers to understand and adopt. Whatever it turns out to be there are certainly some dramatic possibilities in InfoSys new Shopping 360 technology. As positioned by InfoSys executives, Shopping 360 is a combination of auto-ID technologies that allow retailers to track shoppers as they travel through a store and even as they browse shelves and make purchases. This tracking is enabled by an in-store network of wireless sensor-based applications. “It enables real-time collaboration between people (shoppers), places (retailers) and products (CPG companies) at the point of purchase,” says InfoSys.

The product is patent-protected and secretive at this time. However, it is being pitched by the company as a technology that is affordable and a generator of information that will lead to more customer loyalty and even more total spend. The jury is still out on whether Shopping 360 will displace RFID technology. The company says it monitors shelf activity without “expensive RFID tags.” The cost is expected to be low. In fact it is “without capital investment” according to the company’s collateral material.

It also has a mobile phone component. “A software application gets downloaded onto a shopper’s cellular phone when they opt-in to use the Shopper Concierge service (the application in Shopping 360 that serves shopping lists and targeted offers). The software application communicates with the ShoppingTrip360 platform over the wireless Internet,” says an InfoSys spokesperson. “This permission-based opt-in network ensures that the shopper controls his own privacy and ability to interact with the store network. It also ensures that CPG companies for the first time in history have the ability to interact with the shopper at the moment-of-truth in a location-aware and context-aware environment. The shopper can download recipes, shopping lists, and receive advertisements, coupons, relevant messaging. The shopper can finally actively engage with this network just like she does today when she logs onto the internet.”

The technology has been in beta testing and the company isn’t saying what retailers or CPG firms have been involved. But if it’s a wireless technology that enables the amount of in-store tracking and information collection that it promises, many retail analysts are hyped.

“Our firm often talks about the notion of an in-store "cookie" and what it may one day be,” says Laura Davis Taylor, CEO of Retail Media Consulting. “Many times, we've talked about enabling the cell phone to serve this role, as it seems logical that a shopper might one day be able to "identify" their presence with their phone for opt-in shopper tracking--if they are motivated to do so. Reviewing the Infosys technology was very exciting for us because it appears to embrace all of the above. It links shopper data, shopper behavior, inventory, store operations and more to provide an "ecosystem" of sorts that can generate some of the powerful insights e-commerce websites do--and isn't that the model we should be going for in-store? Most importantly, it's permission-based, ensuring that it will be accepted while allowing the retailers to learn how to better serve their shopper. Kudos to them.”

Among the technologies promised in the Shopping 360 network are “store heat maps” which track cart paths; “smart shelves,” which track inventory and shelf browsing activities; and “smart visual merchandising” which enables couponing, more information on products and recommendations on new products.

What will it do for retailers and CPG firms? Retailers can monitor the total number of shoppers and their shopping trip paths, allowing them to gauge in-store energy demand based on occupancy, or open new checkout counters when lines start forming. CPG companies get granular visibility on the efficiency of their promotional spending, through an analysis of shoppers who interact with promotional displays, or through monitoring shopper traffic to a particular area as well as subsequent purchases.

Limiting Problem Shopping Experiences Especially Key In Current Retail Environment

By John Gaffney, Senior Analyst

Retailers that understand the importance of negative shopping experiences and limit their occurrence have a better chance to optimize the holiday selling season. That’s the key takeaway from Measuring & Improving Customer Experience, a session at the Customer Engagement Conference, which took place earlier this week.

“Retailers need to get their value equation right this holidays season, that’s for sure,” said Stephen Hoch, Director of The Baker Retail Initiative at The Wharton School of Business, and a presenter during the session. “Pricing, discounting, and product value are all important but we cannot lose sight of the fact that customers need to feel welcome in the store and they need to be serviced. In the long-term that service will be just as important as anything else.”

Paula Courtney, President of The Verde Group, joined Hoch in presenting the results of research they conducted on the impact of customer dissatisfaction. According to that research problem shopping experiences are frequent and can have a huge impact on customers. More than half of all shoppers experience at least one problem in any given shopping visit. And when problems occur they come in bunches. A shopper who encounters a problem while shopping will, on average, experience 3.8 problems in that shopping trip. Six percent of the survey respondents said they encountered more than 10 problems in a shopping trip.

The issue is more than an inconvenience. In fact Hoch and Courtney believe it can hit retailer’s right in the pocketbook during the fourth quarter. The biggest impact is in loyalty. 82 percent of the problem customers said they “definitely will not” purchase from the retailer again, and 79 percent would not recommend the retailer to others. The social networking effect from “problem” experiences is potentially huge. Dissatisfied customers told 1.7 people on the average about their experience. But the amount of people they tell via social networks and product review sites is not calculated in the report.

The heart of the problem, and the solution, is the sales associate. Of the top ten most bothersome problems for shoppers, nine are sales associate issues, according to the research. “They annoy the most shoppers, lose the most business and drive the most negative word-of-mouth,” says Courtney. “Loyalty risk is greatest when shoppers need but cannot find a Sales Associate. Inattentiveness to long check-out lines and being ignored by a Sales Associate also account for significant loyalty loss. Being ignored by employees is the single largest driver of negative word-of-mouth.”

The customer value loss and market reputation damage from problem shopping experiences can be overcome, however. Courtney calls the antidote a “wow” experience in which the customer is effectively engaged by an informed, authentic sales associate. At least 50% of shoppers have experienced a “WOW” shopping experience at some point in their shopping history, according to the research. “WOW” shopping experiences are rare, and generate over 4 times more word-of-mouth than problem experiences.

“These are key experiences for a retailer to provide but they can be simple experiences,” she said. “Sometimes it’s just mitigating problems before they occur. Sometimes its resolving a problem to complete satisfaction of the customer.”

The Measuring & Improving Customer Experience session, as well as all web seminars from the Customer Engagement Conference, will be available online for to all registrants for 90 days.

Analysts Suggest Subtle Shifts In Customer Segmentation Strategies To Provide Shelter From The Economic Storm

by John Gaffney, Senior Editor

Retailers that have identified and analyzed their customer base over the past year may find a new use for that work now that the economy is more unsettled. The knowledge gained by putting customers into actionable segments may provide a hedge against overreactive decisions.

“There are many various levels of customer segmentation, and sometimes it mystifies me as to how companies decide on them,” says Ron Shevlin, senior analyst at the Aite Group. “But at this point it’s not the time to abandon that strategy if it’s in place. Smart companies will use that knowledge to continue to serve the customers that are most likely to respond to them.”

Updating customer value, and continuing to hone in on the needs and values that will motivate customer segments has always been a foundation of retail CRM. As the economy continues to show lower growth rates, a strong argument could be made that some customer segments are changing. Are the most frequent customers maintaining an income level that allows them to be frequent? Are the “luxury” shoppers still in first class? Knowing the answers is essential. Customer strategy experts suggest the following rules for re-evaluating and acting on customer segments.

1. Clearly define the rules of engagement. Each customer segment should have a protocol for frequency and relevancy of communication. For example, if a fashion retailer defined one of its segments as “frequent discount shoppers” it probably alerted that segment via email and direct mail as to sales and events. Just because that retailer needs to make up some ground in the fourth quarter doesn’t mean that it should drop prices more frequently and then bombard the discount segment with emails. The same practice holds true for every other customer segment regardless of whether it is defined by attitude, behavior, revenue, or demographics. “There is a temptation for segment-oriented marketers to return to the practice of carpet bombing,” says Nick Godfrey partner at Customer Portfolios. “It’s not needed. You must decide before the fourth quarter gets very busy exactly how far you’re willing to go to change pricing, marketing messaging, and tactics. To go beyond those agreed rules of engagement compromises your brand and customer relationships.”

2. Protect the Brand: The brand, as Godfrey points out, is simply an aggregation of customers. Customer value is best increased by acting with the knowledge of sound segment valuation and analysis. The highest value customer segment (i.e. the customers who spend the most, shop the most frequently and recommend your company) must be shown the best practices a retailer has to offer. The best customer will still be the best customer after the holiday season is over, says Godfrey. Although the economy may have taken some segment metrics down (such as purchase frequency) they have not taken them out. “The brand does not evaporate on December 24th,” he says. “The brand is made up of customers. Their motivations may change but they are still in a lifecycle with your company that should be followed.”

3. Understand segment changes: It is quite possible, and even probable, that the monetary value of key customer segments have changed. First, the credit, housing, and oil crises have very simply taken retail spending down. Second, inflation has hit many retail verticals, so the amount of money key segments will spend will be affected by the value exchange. Example: The “convenience oriented housewife” may still spend 90 percent of her grocery budget at your store. But what she can actually purchase for the same amount of revenue has dropped.

Shevlin maintains that retailers do not execute against their segment work effectively. Therefore, when segment value changes they tend to overreact. They tend to reinvent campaigns based on segment value changes, and even reinvent their entire segment profile. In most cases it is not necessary.

“You don’t have to move from student body right to student body left just because of the latest and greatest customer survey,” he says. “The smart market researcher knows that customer research needs to be analyzed. Do changes mean that actual spending plans are changing? Are they simple reflections of changing attitudes or are they hard and fast economic changes?”

Real-time customer data updates can be critical. It’s hard to find the percentage of retailers that currently implement real time reports. A recent Aberdeen report put the number at 20 percent, but that was based on retailers currently implementing loyalty programs. Retailers that understand the importance of customer analysis will most likely plan for better real-time customer data, and update their segment strategy accordingly.

“The last place I want to panic is where I can be seen by my most valuable customers,” says Godfrey. “The evidence of a downturn is still debatable. You can make it as bad as you want to. Don’t risk panic on your valuable customer segments.”

New Study Shows Retail Loyalty Programs Lag In Customer Metrics; Progress In Multichannel Approach

By John Gaffney, Senior Editor

Retail loyalty programs are quickly separating into the haves and the have-nots.

That’s the upshot from a recent report from Retail TouchPoints and The Aberdeen Group, titled “Responsive Customer Loyalty: Creating Customer Commitment in Retail.” Among the many positive revelations gleaned from the June survey of retailers is the sophistication and diverse multichannel approach best-in-class companies are bringing to loyalty programs. At the same time, the report makes it all too obvious that many retailers are still checking “don’t know” and “don’t measure” when it comes to key metrics like churn, retention, and customer satisfaction.

Among the signs of multichannel loyalty management is the spread of data in operationalizing member acquisition. Retailers submitted all applicable information to the questions asked in the report and it found that 45% of retailers register customers via sales associate in the store, 41% at the point of sale, and 41% online. 21% currently use “cross channel loyalty tools that align with cross-channel customer demand” with 34% saying they plan to implement this capability within the next year.

“Retailers are using multi-channel tools for loyalty programs and that’s good news,” says Sahir Anand, Senior Research Analyst, Retail and CPG Practice for Aberdeen Group. “In order for loyalty to work it has to be drawn to multichannel tools. It must be utilized in store and online. It’s the only way for the customer that gets a special offer at the POS to redeem it online or vice-versa. Multi-channel operations are the only way to operationalize loyalty.”

Still, as Anand says, “there are gaps.” Some key metrics in the report go unmeasured by retailers. For example, year-over year same store performance was unknown by 35% of respondents. Similar numbers were tracked for market basket size, customer retention, customer churn, which are key data points for any loyalty program. Other unknowns are more dramatic. When asked “what percentage of your current customer base are promoters of your brand” only 9% of the respondents said more than half of their customer base promoted their brand. 46% of respondents did not measure promotion among their customer base at all.

“Very concerning” says Anand. “Not enough retailers equate loyalty with data. It’s an extremely fragmented industry in that regard. Retailers must understand the importance of managing their knowledge development. Only after you manage knowledge can you manage performance.”

Back to the positive side of the survey, many retailers take a detailed, long-term view of their loyalty programs. Some of the high-profile points:

• The two most effective strategies for using customer loyalty data were “elements that suit specific customer affinity and preference” (53%) and “personalized promotions across channels” (52%.)

• The top two objectives driving retailers toward loyalty program objectives were lifetime customer value (57%) and competitive advantage (39%). LTV had long been considered the province of consultants and cutting edge CFOs, but using loyalty to data as a window to this metric was positively surprising to Anand.

• Real time customer data is in use now and will be a priority over the next year. 14% of the respondents track operational metrics within one or two hours of time of purchase. 23% plan to implement real time capabilities within the next year.

The numbers for timely data reporting are more impressive when retailers were asked if they access customer data in “near time,” which is 2-6 hours from time of purchase. 30 percent of retailers currently use near or real time customer data generated by their loyalty initiative. 26 percent of all respondents plan to implement real time POS data tracking within the next year and 22 percent will implement web traffic monitoring in real time.

A link to the full report is available at: http://www.aberdeen.com/summary/report/benchmark/4890-RA-customer-loyalty-retail.asp

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.”