Staying together: Predicting the future of customer loyalty

This article is brought to you by Retail Technology Review: Staying together: Predicting the future of customer loyalty.

As retailing has progressed, businesses have become increasingly aware of the importance of the relationship between their brand and their customers. Stores can no longer simply lay out stock and wait for shoppers to arrive. Instead, todays retailers have to consider transactions from the customers point of view and actively drive footfall if they are to remain competitive and profitable.

Loyalty schemes offer an effective way for retailers to improve the recency, frequency and monetary value of customer purchases. By encouraging shoppers to visit a store, and providing incentives for them to purchase more products, through promotional discounts, for example, loyalty schemes can help retailers drive profits and increase their market share.

This is especially important in the current retail climate. Consumer spending is falling as shopping budgets are reined in, profits are being threatened by reduced margins and shopping habits are shifting as consumers look to discounters and online stores for cheaper goods. It is crucial therefore that retailers work to maintain their competitiveness, using modern promotional systems to engage customers with accurate, targeted offers, in the most effective way possible.

The rise of multi-channel retailing makes it even more important for retailers to have an effective loyalty strategy. With a high proportion of customers shifting between brands and often purchasing across channels, stores that offer a compelling promotions scheme at all their different touch points stand the best chance of retaining customers.

Retailers need to assess whether their current loyalty and promotional systems are up to the challenge of todays trading conditions. With internet-equipped shoppers now able to browse for goods wherever they are in the world, traditional coupon-based systems may not be able to offer the convenience or responsiveness customers now expect. Shoppers can find coupons difficult to keep track of, and the expensive, time-consuming process of mass-mailing a large quantity of vouchers can seem anachronistic in comparison to modern communication systems. Also, customers are not able to take advantage of these offers until they arrive in the post, leading to lost sales, and for retailers, coupons can present a challenge to process, track and measure.

With todays technology, stores can implement a loyalty system that is responsive to customers requirements and able to deliver them offers conveniently and in a timely manner.

In order to implement the most effective loyalty scheme possible, stores should aim to integrate their promotions system with data collected from previous transactions. By building up a picture of a customers shopping habits, stores can then use this information to accurately predict their future requirements. This allows them to create individualised offers of maximum appeal to that customer, avoiding the disappointment shoppers experience when they receive offers irrelevant to their needs. By targeting deals more accurately, retailers can increase the uptake of promotions, driving visits to their store and boosting sales.

Once the right promotions have been created, retailers need to ensure that they are delivered to the customer in the most effective manner possible. Modern communication methods present a low-cost, effective means of achieving this. Instead of the wasteful process of printing and mailing thousands of vouchers and flyers, customers can be informed of offers via more convenient, modern methods such as email and text message, that can then be redeemed at whichever touch point they prefer. As well as making the promotions system more dynamic and responsive, allowing retailers to react to changes in demand and trading conditions more quickly, paperless communications offer a more reliable, effective way of reaching customers. The figures support this, with trials showing promotions offered by text message enjoying take up rates of up to 150% higher than traditional paper-based systems.

Whilst it is more convenient for a customer to bring a text message stored on their phone into a store to take advantage of an offer, retailers can further streamline this process by integrating their loyalty system with in-store POS technology. Technology exists that allows stores to eschew the traditional voucher or code-based promotions. Instead, once a customer has been identified through their loyalty card, offers can be automatically applied at the point of service, with the POS system determining and applying the specific promotions that have been offered to that customer. As well as streamlining transactions, avoiding the frustration of shoppers having to wait whilst their offers are redeemed, this integrated simplicity can help improve the brand image of a store.

Looking to the future, one of the ways forward for loyalty schemes is a closer, more seamless integration with modern shoppers lifestyles. Loyalty cards can potentially incorporate RFID chips, allowing retailers to detect when a customer enters a store. They can then send a text or Bluetooth message, reminding the customer of the offers that are available to them, as well as details of new product ranges that may appeal based on the items that they have previously bought. For example, a customer who has recently purchased an iPod can be informed of the new docking stations that are now available in-store.

A further advantage of an integrated approach to loyalty is the ease with which information about the success of offers and customers buying habits can be gathered. Unlike the blind method offered by general advertising and mail shots, the uptake of individualised promotions and their consequent impact on sales can be directly measured, allowing retailers to quickly assess the return on investment gained.

The accuracy and detail provided by this data can be used by stores to develop more accurate, targeted promotions in the future. Additionally, the insights provided into shopper behaviour can be fed back into the product development system, improving the appeal of product ranges and driving sales.

Loyalty schemes not only enable retailers to manage the relationship they have with their customers, it can also influence their shopping behaviour. With the right incentives in place, customers can be encouraged to upgrade to premium brands, bring friends along to a store or visit stores at less busy times, for example.

In todays competitive trading conditions, retailers that offer an integrated, dynamic loyalty system can reach and retain their customers with effective, targeted offers. This can help stores increase market share, raise profits and lay down the foundations for long-term future growth.

 By Doug Hargrove, Chief Marketing Officer, Torex