Monday, July 14, 2008

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

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