Aberdeen Retail Customer Loyalty Analysis - July 2012

July 2012
Customer Loyalty 2012: Enabling
Technologies for Customer Engagement,
Conversion, and Retention
In order for a retailer's customer loyalty program or initiative to attract, Analyst Insight
convert, and retain customers, a mix of process, knowledge management,
performance, and organizational capabilities must be in place. These Aberdeen’s Insights provide the
capabilities allow organizations to execute on their loyalty strategy. analyst's perspective on the
research as drawn from an
However, these capabilities are only the beginning of loyalty success;
aggregated view of research
retailers also need enabling technologies to execute on the strategy. These surveys, interviews, and
enablers must combine traditional loyalty technology and emerging data analysis
technologies for loyalty offer creation, delivery, and redemption. According
to the March 2011 Next Generation Customer Loyalty report, 24% of retail
respondents currently use a centralized, cross-channel customer loyalty
platform, and an additional 62% plan to implement this technology in the
next 12-18 months.
This Analyst Insight will examine the key technology components of a
customer loyalty program, as well as the importance of integrating loyalty
elements into a centralized loyalty platform. The report will show how
leading organizations put technology at the forefront of their loyalty
initiatives, and the impact of these technologies on customer satisfaction,
retention, and re-activation.

Omni-Channel Customer Loyalty
Loyalty technology is a key component in the omni-channel customer Omni-Channel Leaders
experience. According to the January 2012 Omni-Channel Retail Experience Definition
report, 66% of Leaders (see sidebar for definition) believe attractive Aberdeen used three key
customer loyalty offers are a top component of their omni-channel strategy. performance criteria to
Consumers also expect loyalty offers to be consistent across all channels of distinguish Leaders (top 30% of
operation, from an offer creation, delivery, and redemption standpoint. performers) from Followers in
According to 42% of survey respondents, a top omni-channel pressure is the January 2012 Omni-Channel
the consumer expectation of a similar experience regardless of channel. report:
Inconsistent branding or disjointed offers can lead to consumer confusion  Current Customer
(about the brand or offer), disenchantment, and eventually, desertion. Satisfaction (CSAT): 95%
Leaders have made the concerted effort to align loyalty and marketing offers
across channels to provide a seamless and fluid customer experience. The  Current on-time order
delivery: 98%
next sections will detail how leading organizations offer a consistent
experience for improved customer retention, frequency, and re-activation.  Year-over-year increase in
revenue: 19%
Customer Loyalty Capabilities
To execute an effective customer loyalty program, retailers must develop a
foundation of business process, organizational, knowledge, and performance
This document is the result of primary research performed by Aberdeen Group. Aberdeen Group's methodologies provide for objective fact-based research and
represent the best analysis available at the time of publication. Unless otherwise noted, the entire contents of this publication are copyrighted by Aberdeen Group, Inc.
and may not be reproduced, distributed, archived, or transmitted in any form or by any means without prior written consent by Aberdeen Group, Inc.

Customer Loyalty 2012
Page 2

management capabilities. As Figure 1 below indicates, Leaders are Digital Marketing Leaders
outperforming their peers across a number of key strategic capabilities (see Definition
sidebar for maturity class definition). Leaders are nearly twice as likely to
track loyalty program redemption rates. Redemption rate monitoring lets Aberdeen used three key
performance criteria to
retailers perform a thorough analysis of loyalty campaign successes and
distinguish Leaders (top 30% of
failures. Loyalty program features with low redemption rates can be performers) from Followers in
modified or eliminated based on data rather than gut feel. Redemption rate the May 2012 Digital Marketing
monitoring also lets the retailer modify successful programs and compare report:
variations across different customer segments. This analysis depends on the
implementation of the appropriate analytics application as well as efficient  Return on Marketing
reporting tools. Investment (ROMI): 61%
 Year-over-year increase in
Figure 1: Key Loyalty Capabilities customer retention: 21%
 Year-over-year increase in
customer frequency: 18%

“We have a very large
customer base, yet we have
lost contact with many of these
customers. We want to create
a loyalty program that re-
Source: Aberdeen Group, April 2012 engages the customers with
our organization. With the
Thirty-five percent (35%) of Leaders, compared to 17% of Followers, are additional data we hope to
aligning loyalty offers with seasonal merchandise, pricing, and promotions better serve our existing base
plans. This capability ensures collaboration between all relevant and turn them into brand
stakeholders, including marketing, merchandising, and IT teams, when ambassadors.”
deploying a loyalty program. This cross-functional collaboration can use ~ Director of Marketing, Large
interactive collaborative portals as well as weekly or monthly team Consumer Products Company,
meetings. The end purpose of this capability is to ensure loyalty offers are in North America
line with current merchandise availability.
The final capability that differentiates Leaders is their ability to develop a
multi-tier rewards plan. A multi-tier loyalty program is designed to reward a
retail organization's most profitable customers. These programs encourage
greater use and frequency from customers as they aspire to increase their
loyalty benefits in a tiered loyalty structure. Retailers can offer incentives
based on customer purchase patterns, at either a frequency or a dollar
threshold. Exclusive offers, discounts, and early access to products or
services is key to creating a deeper customer relationship, and helps make
the shopping experience more personal. Customer analytics, and the
© 2012 Aberdeen Group. Telephone: 617 854 5200
www.aberdeen.com Fax: 617 723 7897

Page 3

appropriate offer delivery channels, vital to making a multi-tier rewards plan
a reality, and not just a goal.

Key Customer Loyalty Technology Components
According to the May 2012 Digital Marketing in Retail report, the top “By offering loyalty rewards
strategic action identified by 75% of Leaders is expanding their use of digital through specific channels we
channels to deliver targeted and personalized offers to their customers. The can manage/direct the
two main channels identified by Leaders are mobile and social. Based on customer to a desired channel
of service. By offering rewards
their overall marketing mix, Leaders are focusing more resources on these
to self-serving customers we
channels of interaction; for 2012, Leaders are devoting a full quarter (25%)
can ensure this channel grows
of their marketing budget to mobile and social initiatives, compared to only thus reducing inbound calls.
15% of the marketing budget of Followers. However, the use of emerging Providing the right loyalty
channels should be balanced by tried and true loyalty technology. As Figure program also creates customer
2 indicates, Leaders are using a mix of new (mobile, social) and old stickiness by customers feeling
(analytics, rewards) technology components to achieve success. recognized and valued for doing
business with us”
Figure 2: Leading Loyalty Technology Components
~ Marketing Manager, Tier 2
Telecom Retailer, APAC

Source: Aberdeen Group, April 2012

Social Media
Social media marketing tools are a top loyalty marketing technology
component adopted by Leaders (55%) (Figure 2). These tools include social
networks, blogs, product recommendations, user generated content, and
microblogging. From a loyalty perspective, social media is incredibly
important, as the voice of the customer is louder than ever before.
Consumers are turning to their peers, friends, and colleagues for advice on
brands, products, and services, and these interactions play a significant role
in the buying cycle.

The real-time connectivity between brand and consumer is one of the top
sources of ROI from social media marketing / loyalty. Retailers are taking to


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the social sphere to deliver loyalty offers and promotions; the rationale
behind this move is to allow loyalty members to share offers with their
friends and colleagues. As loyalty members share offers and rewards, the
retailer can track the social influence and patterns of their customers. In
today’s expanding digital environment, many consumers are looking for
instant gratification. This is evident based on the amount of on-demand
content available, and the hyper-connectivity of consumers via mobile
devices.
Social loyalty marketing allows the retailer to take advantage of their
customers' desire for immediate gratification. However, retailers must be
conscious of the realities of social marketing – every move is under intense
scrutiny. A great offer or campaign can generate buzz and lead to additional
revenue and customers. However, a bad campaign or experience can result
in social backlash. Leaders have shown that the reward is worth the risk—
connecting with customers through social media can have a lasting impact
on customer loyalty.

Customer Analytics
A customer analytics application is a second key enabler for loyalty success.
Customer analytics let the retailer collect and analyze customer behavior, “Customer loyalty drives richer
purchasing information, and data across all channels of commerce. This is customer data, analytics and
especially important for loyalty customers, as these customers have opted- therefore better understanding
in to have their information collected for the purpose of receiving additional of customer.”
offers. Additionally, loyalty customers generally share more information, as ~ Principal E-Commerce
they know it can impact their loyalty standing. This data can be used for a Architect, Tier 1 Retailer,
predictive modeling forecast, which will help the retailer create segmented Europe
loyalty offers based on customer behavior and prior spending limits.
Data for customer analytics may be derived from stores and digital channels,
including online stores, call centers, and social media monitoring, among
other data collection techniques. These data streams must be consolidated
into a single view of the customer for a cohesive, consistent message. This
information is used to create personalized campaigns and offers. According
to the May 2011 Digital Marketing and Loyalty data set, the use of
personalized offers has driven year-over-year growth in customer retention
(16%), response (15%), and frequency (12%) rates.

Mobile Loyalty Platform
A common complaint about loyalty programs has been the reliance on in-
store enrollment and redemption. The adoption of digital channels and the
move towards a seamless experience across channels has brought mobility
into the loyalty space. Thirty-six percent (36%) of Leaders, compared to 9%
of Followers, have a mobile loyalty platform of some form. Leaders are
enabling customers to access mobile wallet and app-based loyalty programs,
receive offers, check rewards balances, and redeem points all on their
mobile device. Consumer mobility is tied to empowerment, as today’s
consumer is seeking more control over their brand experiences. This
technology literally puts the loyalty program in the hands of the customer,

Page 5

Demographics
and pays dividends of improved customer satisfaction, customer retention,
and customer frequency. Demographics of the 70
responding retail organizations
Real-Time Rewards include:

According to the March 2011 Next Generation Customer Loyalty report, the  Job title: Senior Management
top loyalty component for both 2010 and 2011 in use by retailers were (27%); EVP / SVP / VP (10%);
rewards. Rewards can take the form of dollars or point perks, and are Director (15%); Manager
accumulated based on customer recency, frequency, and monetary (RFM) (19%); Consultant (17%);
Other (13%)
thresholds. The instant gratification mentality of today’s consumer has made
an impact on retailers, as they are now addressing the issue of real-time  Department / function: Sales
rewards. Currently, 25% of Leaders, compared to 16% of Followers, offer and Marketing (60%); IT
real-time rewards to their loyalty members. This type of rewards program (12%); Business Management
lets the retailer instantly recognize their customers and offer incentives (10%); Operations (8%);
based on purchases; incorporating these rewards into the mobile loyalty Other (10%)
platform allows retailers to generate a two-way dialog with their customers  Segment: Apparel (8%);
via the mobile device when sending an offer. The real-time connectivity with Specialty (14%); Grocery
customers through virtual (online and social) or mobile loyalty programs (13%); Hospitality (10%);
lets retailers offer a real-time reward, with the anticipation that offers will Consumer Electronics (10%);
be shared socially. Real-time rewards also allow retailers to track the General Merchandise (8%);
success of a campaign instantly, and use that data to drive campaigns in the Leisure / Entertainment
future. (12%); Consumer Products
(17%); Other (8%)
Location-Based Messaging  Geography: North America
As consumers move toward a mobile experience, location-based messaging (57%); APAC region (24%)
and EMEA (19%)
grows in prominence. Currently, 20% of Leaders are using this technology,
compared to 9% of Followers. Location-based messaging lets marketers  Company size: Large
deliver offers directly to the consumer's mobile device when they are near a enterprises (annual revenues
specific store, department, or item. These offers can take the form of digital above US $1 billion)- 31%;
coupons with barcodes scannable at the point-of-sale, or through click-to- midsize enterprises (annual
redeem online offers. Smartphone applications have helped retailers and revenues between $50
million and $1 billion)- 24%;
consumer markets organizations greatly improve their communication with
and small businesses (annual
customers using location services. Retailers use social networks such as revenues of $50 million or
foursquare to deliver offers to customers who have “checked in” at one of less)- 45%
their locations. The integration of mobile and social technology have made a
major impact on customer loyalty, from word-of-mouth referrals and
recommendations to location-based offers and the ability to share these
offers within a customer’s circle of friends. “We are using digital coupons
and location based messaging
The Whole is Greater than the Sum of its Parts to reach people wherever they
are. Our customers want a
The technology components outlined above are critical to customer loyalty mobile experience, and we
programs. However, these components must work together as a whole. have to offer that to them. The
Many companies keep these technology elements separate, and must engage key is to put an enticing offer in
in intensive integration of technologies and disparate data streams. By their hand.”
centralizing all components into one loyalty platform, retailers can integrate
~ Director of Marketing,
loyalty attributes with promotions, pricing, merchandising, point-of-sale
Sporting Goods Retailer and
(POS), and enterprise resource planning (ERP). This eliminates several layers Wholesaler, North America


Page 6

of integration and lets the retailer maintain consistency across channels
without a need for multiple outsourced components.
The March 2011 Next Generation Customer Loyalty report recommended
retailers adopt a centralized cross-channel customer loyalty platform.
Retailers have taken this advice to heart. In 2012, retailers are transitioning
towards an integrated approach. Twenty-four percent (24%) of retailers
currently use a centralized cross-channel customer loyalty platform, and
nearly a third (62%) of retailers indicated they plan to adopt this technology.
A centralized loyalty platform enables the retailer to control the entire
loyalty experience, and eliminates the need to integrate disparate data
streams into a single consolidated system of record.
The centralized loyalty platform encompasses consumer insights, offer
creation, offer redemption, and performance metrics reporting. Such a tool
allows the retailer to aggregate loyalty information across all channels of
operation, with a single view of the customer and their purchase and
interaction behavior. This information can then be used to create tailored
loyalty offers depending on the type of customer the retailer is targeting:
lapsed, high spending threshold, high discount percent, etc. Retail
respondents that currently use a centralized cross-channel loyalty platform
report significant benefits, including a 20% increase in customer retention
rates (compared to 8% for all others), and a 15% increase in customer re-
activations rates (compared to 4% for all others).

“By constantly focusing on the
Key Takeaways
customer, more effective
The impact of technology is often overlooked when evaluating customer marketing programs can be
loyalty programs. As a result, many retailers have not implemented an devised, thereby increasing
integrated loyalty platform, instead opting to outsource the different loyalty, larger customer
components. This strategy introduces complications of integrating data purchases and higher margins.”
streams and technology; a centralized loyalty platform eliminates these risks ~ Marketing Manager, Tier 2
by combining consumer insights, offer creation, offer redemption, and Media Company, North
performance metrics reporting. America
For retailers that are re-thinking, re-launching, or just entering the cross-
channel loyalty space, the following are Aberdeen's recommendations:
 Implement a centralized cross-channel customer loyalty platform for
easy access to all loyalty related data.
 Ensure uniform data collection guidelines across channels for
developing targeted loyalty offers based on customer information
and affinities.
 Use customer analytics for micro-segmentation of loyalty members
for multi-tiered loyalty campaigns.
 Incorporate mobile technology into loyalty programs to reach
consumers on the go with targeted, personalized offers.
 Use social media to engage customers in a two-way dialogue, and
allow sharing of loyalty offers.

Page 7

For more information on this or other research topics, please visit
www.aberdeen.com.

Related Research
Digital Marketing in Retail 2012: State of Multi-Channel Retail Marketing:
Integrating the Voice of the Customer A Paradigm Shift for Reaching New
across Channels; May 2012 Customers; June 2011
Hyper-Connected Online Retail Next Generation Customer Loyalty: The
Personalization: Driving Results with a Evolution of the Digital Customer;
Customized Experience; March 2012 February 2011
Author: Chris Cunnane, Research Analyst, Retail and Consumer Markets
(chris.cunnane@aberdeen.com)
For more than two decades, Aberdeen's research has been helping corporations worldwide become Best-in-Class.
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information, visit Aberdeen http://www.aberdeen.com or call (617) 854-5200, or to learn more about Harte-Hanks, call
(800) 456-9748 or go to http://www.harte-hanks.com.
This document is the result of primary research performed by Aberdeen Group. Aberdeen Group's methodologies
provide for objective fact-based research and represent the best analysis available at the time of publication. Unless
otherwise noted, the entire contents of this publication are copyrighted by Aberdeen Group, Inc. and may not be
reproduced, distributed, archived, or transmitted in any form or by any means without prior written consent by
Aberdeen Group, Inc. (2012a)


Aberdeen Retail Customer Loyalty Analysis - July 2012

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Aberdeen Retail Customer Loyalty Analysis - July 2012