Retail TouchPoints: Retail Loyalty Programs Lag in Customer Metrics

Discussion
Jul 14, 2008

By John Gaffney, senior analyst

Through a special arrangement, what follows is an excerpt of a current article from the Retail TouchPoints website, presented here for discussion.

A new survey of retailers showcases the sophistication and diverse multi-channel 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 around loyalty programs like churn, retention, and customer satisfaction.

The results came from a new study from Retail TouchPoints and The Aberdeen Group titled: Responsive Customer Loyalty: Creating Customer Commitment in Retail.

Among the signs of multi-channel 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 percent of retailers register customers via sales associate in the store, 41 percent at the point of sale, and 41 percent online. Twenty-one percent currently use “cross channel loyalty tools that align with cross-channel customer demand,” with 34 percent 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,” said Sahir Anand, senior research analyst, Retail and CPG Practice for Aberdeen Group. “In order for loyalty to work it has to be drawn to multi-channel 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 Mr. Anand said, “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 percent of respondents. Similar numbers were tracked for market basket size, customer retention and customer churn, all 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 nine percent of the respondents said more than half of their customer base promoted their brand. Forty-six percent of respondents did not measure promotion among their customer base at all.

“Very concerning,” said Mr. 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.”

Discussion Questions: How essential is a multi-channel approach in driving loyalty programs? Which metric do you think is most revealing in evaluating the success of loyalty programs? Is the retail industry doing enough to understand the key metrics driving loyalty programs?

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15 Comments on "Retail TouchPoints: Retail Loyalty Programs Lag in Customer Metrics"


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Ryan Mathews
Guest
13 years 10 months ago

In a perfect world, it would be mission critical but this is far from a perfect world. Using data to get at the customer rather than the transaction still seems a kind of Holy Grail at this point.

Dick Seesel
Guest
13 years 10 months ago

To the first question, I’d say that a multi-channel approach to driving customer loyalty is essential, even if your retail business isn’t conducting e-commerce sales. It’s surprising how many retailers don’t have this in their toolbox, based on the statistics reported, even though it’s hardly a new concept.

As far as the most important metric driving loyalty, there are several measurements of effective customer relationship management, not just one. RFM analysis allows retailers to study the “recency, frequency and monetary value” of their best customers’ behavior. In other words: How long has it been since your most loyal customer has been in your store (or on your site), how often does she shop there and what’s her spending pattern?

Bottom line: Technology is vitally important not only to drive loyalty but to understand the nature of your best customers’ shopping behavior.

Max Goldberg
Guest
13 years 10 months ago

Loyalty is built by treating each consumer with respect, delivering on the company’s brand promise and by rewarding intended consumer behavior. In order to gauge the success of any loyalty program, a retailer needs data. There is tremendous power in a retailer having educated knowledge about its consumers.

For years, the US has lagged in this area. First Loblaws, then Tesco have been leaders in this area. The loyalty consumers feel towards these retailers is reflective of the understanding they have about consumers.

I wonder when US retailers will grasp this concept.

Camille P. Schuster, Ph.D.
Guest
13 years 10 months ago

Measuring acquisition has nothing to do with loyalty. Many consumers sign up because the store employee is there at the entrance catching people as they come in the store. It may be easier to sign up than to say “no” to the salespeople.

However, loyalty is having consumers come back to your store time after time because that is where they want to buy products. If the purpose of the cards is to generate loyalty, then measures need to capture sales over time.

Gene Hoffman
Guest
Gene Hoffman
13 years 10 months ago

Histories are more full of examples of the loyalty of dogs than of highly sophisticated multi-channel programs. Thus, perhaps, we should add consultations with Fido on developing fidelity to our multi-channel approach to driving loyalty programs. Maybe that would help too…but the timing may be premature.

Paula Rosenblum
Guest
13 years 10 months ago

“Market basket size per member” is an odd way of putting it. It’s probably simpler to just call it average transaction value, and in fact, our own research shows that is the key metric retail winners (what we call those retailers who outperform their peers) use to gauge the effectiveness of their loyalty programs.

Comp store sales per member is also sort of a proxy for overall sales, but at the end of the day we have 2 metrics–how often does she come in and how much does she buy when she shows up?

Let’s take the notion that too many don’t have any metric in place a little further. In truth, simply having a loyalty program has no impact on overall sales performance. That’s fairly easy to quantify. So whether there’s a metric in place or not, if overall sales aren’t helped by your loyalty program, why have it at all?

Laura Davis-Taylor
Guest
Laura Davis-Taylor
13 years 10 months ago

It’s hard to make this a black and white response, as some retailers are clear leaders regarding loyalty and others are dragging woefully behind. That said, in the midst of this complex and challenging economy, retailers are being tasked to do more with less and attach ROI to everything humanly possible. Loyalty efforts are key to this. So, my gut is that for those that have not yet embraced loyalty efforts, it won’t be long before they’re forced to.

As far as the metric, the submission above speak clearly to the question. However, I’d also submit that retailers must also spend the time to gauge the voice of their customers in less analytic measures as well. What are the chat rooms and blogs saying? What is ethnography revealing as drivers (or depleters) of their brand’s loyalty? As Robyn Waters (Target’s former trend leader) once said in a piece “Statistics are like bikinis…what they reveal is important but what they hide is vital.”

Ian Straus
Guest
Ian Straus
13 years 10 months ago

“Which metric do you think is most revealing in evaluating the success of loyalty programs?”

Same CUSTOMER sales per month or year. Considering that people move every eight years on average, and that most companies with loyalty programs have more than one store, it’s irrelevant to the loyalty program which stores the sales are at.

John Crossman
Guest
John Crossman
13 years 10 months ago

How essential are multi-channel programs? They are crucial! Consumers today are broad and they way they perceive service varies greatly. Retailers must have multiple ways to reach them.

Juli Zoota
Guest
Juli Zoota
13 years 10 months ago

Retailers should strive for multi-channel continuity in all touchpoints to their customers, especially in the loyalty tracking area. Customers expect the same quality products and services regardless whether purchased in a store or online. Often customers perceive that they are interacting with the same company in several different contexts when they multi-channel shop–it’s the retailers who view the multiple channels as different businesses.

Currently, retailers may find it a challenge to merge loyalty data from multiple channels into a single relationship management system tracking customer loyalty. Still, they must rise to the challenge and realize that multi-channel shoppers are often the most valuable shoppers to their business. The most loyal customers are also the most likely to advocate your brand to others–the most important key metric in determining the difference between “customer satisfaction” and “customer devotion.” Those shoppers will appreciate a coherent loyalty program which crosses all the channels in which they shop.

David Zahn
Guest
13 years 10 months ago

Tenser’s Marketing Dictionary may not be widely available at brick and mortar outlets, but it is worth getting a hold of one if you come across it. Jamie is right about this–if you feel compelled to measure loyalty (in whatever way it is ultimately defined), the one to be measured is the retailer and not the shopper.

Cathy Hotka
Guest
13 years 10 months ago

We’re nowhere near where we should be on guaging customers’ loyalty. For starters, it might be a good idea to ask customers what they think. The Shopper Experience Summit, coming up in August, will examine various ways that retailers can enhance sales by thinking the way the customer does. With luck, that idea will gain some traction.

James Tenser
Guest
13 years 10 months ago
I looked up “oxymoron” in Tenser’s Marketing Dictionary and the example given was “shopper loyalty.” Loyalty is an emotion, not a program. Shopper behavior that appears loyal may be a reflection of affective loyalty (true feeling) or spurious loyalty (repeat behavior spurred by other stimuli, such as avoidance of inconvenience). Of course retailer frequent shopper programs lack loyalty metrics. With few exceptions, they are not designed to be measured. RFM or basket analyses show which shoppers are currently most lucrative for the store, not which shoppers harbor loyal feelings with long-term relationship value. So-called “net promoter” scores, which ask shoppers to rate their likelihood to recommend a product, service or retailer come closer to reflecting the relationship value. But analysis of frequent shopper card data on its own cannot reveal this insight. A better metric to track, in my humble opinion, is how demonstrably loyal is the store to its shoppers? Consistent service quality, dependable and fair pricing, and appropriately personalized offers are the foundation of this discipline. Then ask shoppers to tell you how… Read more »
Mark Lilien
Guest
13 years 10 months ago

Most retailers have only 2 metrics, with almost no subtleties or refinement allowed: sales and costs. The “loyalty program” is often just a discount card, established to (1) meet competition and (2) get $ from suppliers. If the “vision” stops there, why bother to examine the data carefully?

A major chain who will remain unidentified only does market research when comp sales decline by double digits. Another major chain will millions of loyalty card holders never sends any of them any communication by snail mail or email.

Abercrombie & Fitch and Stew Leonard’s don’t have loyalty cards. Their customers love them. The Body Shop charges $10 for their loyalty card. Costco charges everyone for a warehouse club membership. And those two retailers’ customers love them, too.

So it might pay to label most of the “loyalty” programs differently. Most are just “discount cards.” A few are “frequency reward cards.” Almost none are “loyalty programs.”

Kai Clarke
Guest
13 years 10 months ago

Data interpretation in place of POS marketing is a bit of a stretch. The absolute truth here is that customer data is privileged, secure and private. Most importantly, the vast majority of retailers are unaware of how to manage, data mine, or execute upon the information that they have already. A multi channel approach to driving a loyalty program should first start with eliminating the basic keys to failure (OOSs and pricing) and then maximizing the retail shopping environment.

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