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THE FUTURE

OF LOYALTY
THE CHANGING FACE OF CUSTOMER INSIGHT AND LOYALTY
The Best-Run Businesses Run SAP

Introduction
The UK retail market remains a tough one in which to operate. The economy is still flat,
consumer confidence is low, house prices are depressed and a slow recovery is
forecast . High levels of unemployment, stagnant and declining wages, and the fear of
large-scale public sector job losses have all combined to undermine both disposable
income and consumer confidence. Inflation, in the form of rising commodity prices,
has pushed up the cost of everyday items such that the UK has witnessed the highest
rise in spending on groceries and food as a proportion of GDP since the Second
World War. These factors combined with the dreaded credit crunch mean that
spending power has dropped enormously since 2008 some commentators argue by
levels last seen in the early 1980s.
Yet the effect upon retailers is not homogenous: some are faltering, others are
maintaining their market share and a few are prospering. Whats clear is that in the
current climate is that managing customer loyalty is a vital business strategy, since
retaining customers is far cheaper than recruiting new ones. For many years retailers
have successfully employed customer insight and loyalty programmes to maintain
wallet share and build customer loyalty, but a variety of factors are now challenging
traditional approaches.
On the one hand, customers are evaluating their choices more than ever before, aided
by easier price comparison, recommendation and review sites, and the ability to check
these choices in realtime via mobile devices. On the other hand, a wider range of
competitors (including online-only retailers), the flattening of world markets
(meaning customers can now easily purchase goods from outside the UK), and far
more complex purchasing behaviour that often involves several discrete channels,
mean that UK retailers are finding it harder to maintain their wallet share. However,
those who are able to innovate in terms of their loyalty strategies, and can gain and
use meaningful and timely customer insight, are showing they can translate this into
increased market share, profitability and customer loyalty.
In this paper we look at the changing face of loyalty and what this means now and in
the future, how retailers can gain advantage from more adept use of technology and
data, and the importance of effective customer insight to stay attuned to
fast-changing customer behaviour and sentiments. We also provide benchmarks, and
a loyalty and insight maturity model, which is based on information, gleaned from
research amongst a representative selection of UK retailers of all types in mid-2011.
The maturity model and benchmarks reveals different aspects of loyalty and insight
that retailers can use to judge their own performance, as well as gain ideas about what
other retailers are doing.
1
For example, the Independent Treasury Economic Model (ITEM Club), an economic forecasting group based
in the UK and sponsored by Ernst & Young, has forecast that consumer spending will rise by an average of 2% at
most each year in the 10 years up to 2020. It says spending is being weighed down by debt repayments,
restricted lending and high inflation, with the prospect of interest rate rises yet to come. The Item Club expects
the effect to be harshest outside London. In the short term the group forecasts a rise of consumer spending of
just 0.6% in 2011, and 1.3% in 2012.
22 SAP Market Report - The Future of Loyalty
Maintaining loyalty means addressing
long-standing challenges
Customer loyalty is something we all think we
understand, and about which much has been written.
Delivering customer satisfaction translates into loyal
customers, and loyal customers mean repeat business
and even customer advocacy so the logic goes. In a
retail context, creating customer loyalty is substantially
about ensuring repeat sales, optimisation of wallet
share and positive feelings about the brand. The
question is: how do retailers create and maintain loyalty
today? And how do they maintain loyalty in the face of
challenging economic conditions, uncertain consumer
confidence, technological change, and rapidly evolving
customer behaviour?
Traditionally, retailers have taken a multi-pronged
approach to encouraging customer loyalty, which has
included developing loyalty programmes and trying to
understand and utilise information about customers (in
other words, gaining insight). However, loyalty
programmes vary in their effectiveness, can be costly to
support and still may not be perceived as valuable or
differentiating by customers. Justifying spending on
loyalty is now more important than ever, with every cost
being scrutinised, and requires a more commercial and
effective approach to loyalty that can demonstrate ROI.
Challenging retailing conditions mean that retailers
urgently need to adapt and evolve their approach to
loyalty. Those whove delayed investing in this area
risk falling behind rivals more adept at using
integrated, timely and good quality data to build
loyalty and gain business insight. In the current
market, even a relatively modest improvement in
performance can mean the difference between
business success and failure, thus being able to
build and maintain loyalty is an ever-more vital
competitive weapon.
Taking loyalty forward, however, requires retailers
to revisit and progress long-standing challenges
that have for some time impeded their ability to
innovate, such as having a single view of their
customers across all channels and interactions, and
being able to effectively utilise all the data they have
about customers in order to gain greater insight and
business benefit from it. New types of data and
content will now have to be managed, new types of
interaction accommodated, and action and insight
will need to be gained faster than ever before. How
we approach both loyalty and insight is set to
change substantially.
3
A different kind of reward for IoyaIty
Loyalty does not just depend on the discount-
reward model of customer loyalty. Asda and other
discount grocers such as Aldi have stated they will
compete on price rather than introduce loyalty
schemes. They have worked to increase opera-
tional efficiency so they can offer the lowest
possible prices. At the other end of the scale,
Waitrose has preferred to create loyalty based on
lifestyle, choice and shared values. t creates an
"experience centred around quality, British grown
food, fair-trade, and a 'partnership' based business
model that its customers identify with and find
appealing. Both the discounters' and Waitrose's
quality approach have worked, with Aldi posting
results 20% up in the quarter to July 2011 and
Waitrose's results up 9%. Waitrose has increased
market share by 0.2% to 4.3% over the last twelve
months. Key to the success of both types of
business is having clear insight into what their
customers value and what they want.
SAP Market Report - The Future of Loyalty
Why just having a loyalty programme
isnt enough
Since the 90s more and more retailers have employed
loyalty schemes as a method of maintaining their
wallet share. However, UK retailers have taken a
broadly similar approach, and theres been relatively
little evolution over the last twenty years, which means
these first generation schemes do not necessarily
differentiate the retailer any longer. In addition, many
retailers have a fairly limited ability to judge whether
their scheme is delivering positive business benefits,
and beyond a few successful headline schemes, it
often isnt certain that many of these initiatives
actually deliver greater loyalty. This is because
rewards and discounts are fairly untargeted and are
given to customers purely based on spend rather than
on profitability or whether there is any risk of them
spending with another retailer.
Most schemes are also largely focused on sales, rather
than on rewarding other types of useful customer
behaviour such as advocacy or recommendations. The
UK market is therefore ripe for the next step in loyalty.
Future loyalty programmes will remain a key part of
the mix, but they will be more effective, differentiating,
personalised and in keeping with the reality of modern
multi-channel retailing. Future approaches to loyalty
will reward both purchases and other behaviour (such
as advocacy), and will also be far more targeted and
relevant (personalised and contextual) than they are
today. Rather than taking a one-size-fits-all
approach to loyalty, rewards and offers will be more
tailored to the interests and needs of individual
customers. Likewise the emphasis will shift from
analysing just historic point-of-sale and loyalty card
data and instead encompass a much wider range of
data types and channels. The aim will be not just to
stay in tune with the customer and their needs, but
also to proactively engage them, create an interactive
relationship and influence them at the point of decision
to increase wallet share.
For example, an emerging trend within the UK is that
customers like to share hints and tips with their
friends, relatives and other shoppers far more than
may have been true in the past. This type of shopper
has been termed the super shopper or
professional shopper. They research purchases,
spend longer in stores checking out prices and offers,
compare prices widely (across physical stores and
online retailers) and are prepared to visit multiple
stores to ensure they are getting the best deal.
Commenting on changing consumer behaviour in the
UK, Dalton Philips, CEO of Morrisons, recently
commented: "Theres a growing professionalism in
people's approach to shopping. Were seeing it across
the country: this phenomenon of checking all the
prices and, in many cases, leaving the credit card at
home, buying in bulk packs splitting them with
friends or freezing."
In the face of such changing and challenging
customer behaviour how do retailers engage
customers, drive up loyalty and maintain wallet
share? The answer is they need to understand their
customers even better, as well as what theyre doing,
using the wide range of data they have available to
them. Understanding the history of customer
behaviour and trends is useful and enables for
example better merchandising or product design;
but understanding the current customer context
(where the customer is and what theyre doing)
enables the retailer to influence the customer at the
point of sale or even before this.
For example, utilising a mobile strategy, may see
retailers enabling customers to look up more
information about products while they are instore
scanning a barcode to get pricing, recipes or reviews
of the product. If the customer is pricing up beans
then the retailer has the opportunity to push offers
related to beans at that point. This might be
suggesting the shops own brand or economy beans
rather than a premium branded version; it could
mean suggesting a brand that the retailer wishes to
clear off the shelves, along with an appropriate
discount; or the retailer might show satisfaction
ratings or reviews of different brands; or it could
involve personalised discounts or offers based on
customer status or spend; or it might mean
suggesting related ingredients or linked purchases
along with a recipe. Whatever the retailers strategy,
to maximise the opportunity they need to combine
knowledge of what the customer is currently doing
(contextual data), their historical preferences and
purchases (customer-set preferences, transaction
and loyalty card data), as well as information they
can provide to influence purchasing behaviour
(recommendations, reviews, ratings and other
content).
All this needs to be done in near-realtime within
seconds or the opportunity will be lost. A customer
is much less likely to be influenced if they are
standing in the checkout queue with their purchases,
or even if they have simply moved to another part of
the store. Thus the ability to react in realtime and
detect proximity and willingness to be influenced are
very important. Retailers that can adeptly combine
data and content in this way can, however, create a
novel, differentiating and even entertaining customer
experience enabling a more interactive and
sticky relationship with their customers.
4 SAP Market Report - The Future of Loyalty
5
Which are you trying to inuence the most?
Inuence at point of purchase (eg till) 24%
24%
64%
At the point of decision (eg aisle)
Build positive ongoing relationship
with customer
Which slaes and marketing strategy is important to you?
Build brand 43%
48%
57%
Loyalty
Incrase wallet share
Maintain wallet share 19%
24%
19%
Innovate
Dierentitate
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
How does your organisation view CRM?
Technology to manage customer interactions
14%
33%
24%
A way of doing business that puts the customer at the
heart of what were trying to achieve
A method to increase customer lifetime value
All of these 43%
"72% of our sales come from customers enrolled
in the loyalty scheme
Currently online channels are still seen as the
ones delivering most value to UK retailers, with
43% saying they intend to invest to improve their
online offering. However, many were also looking
to add support for mobile commerce (38%) and
mobile apps (24%)
Capabilities checklist for loyalty programmes
Is your programme cost-eective and protable?
Is the programme really dierentiating your brand from your rivals? Is it valued by customers suciently to inuence buying
behaviour?
Does the programme support personalization? Eg can you understand and act upon individual customers needs, behaviour,
preferences and likes/dislikes?
Can the programme inuence purchasing? Eg inuencing the buying of one brand of product rather than another.
What is the engagement level and how do you engage and understand customers who are not enrolled in the loyalty
programme?
Is your loyalty programme multi-channel?
Can you use loyalty data for upstream product design, branding and merchandizing?
SAP Market Report - The Future of Loyalty
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Along with other traditional sources of customer and
transactional data, customer loyalty programmes have
been a key resource for retailers to gain insight into
their customers behaviour for many years. However,
far richer data can potentially be gleaned from online
sales than through traditional loyalty programmes
since, as valuable as historic point of sale and customer
loyalty data is, understanding products customers are
researching or enquiring about reveals not just
transactions but behaviour leading to transactions and
potential sales that were not made.
This provides a much richer understanding of the
customer, but also allows insight and analysis around
lost sales (helping improve future performance), or
sales that customers are considering (enabling the
retailer to target specific offers at those customers in
order to influence or encourage the sale).
By combining multiple sources of data and also
delivering a single customer view, retailers can gain far
greater insight into their customers needs and wants.
This means they will be able to detect typical behaviour
that leads to a sale, and therefore influence customers
at the point of decision. It also means they will gain
greater understanding of individual customers likes,
wants and preferences and thereby tailor offers and
product information to their needs.
This valuable data can also be combined with
non-traditional, unstructured data gleaned from social
networks, for example, which provides additional
insight as well as opportunities to influence customers
and engage with them. As we know, a well-handled
complaint can actually increase loyalty while a poorly
handled one usually results in lost custom. Retailers
need to be able to handle dissatisfaction adeptly across
all channels they operate in; the risk being that
complaints received on social channels such as Twitter
or Facebook are potentially highly damaging to brand
values if handled badly because they are so public.
In order to decide how to competently deal with a
complaint, enquiry and so on, retail staff also need to
have the information about the product, order or
customer readily available to them no matter which
channel the customer decides to interact with them in.
Whether handling a complaint on Twitter or a stock
enquiry instore, being able to resolve the issue to the
customers satisfaction and in a timely manner is highly
dependent on access to the right data.
Insight involves more than just
understanding in-store sales
7
UK retaiIers are experimenting with
mobiIe and sociaI channeIs
n a study of UK retailers conducted in mid
2011 only 14% reported having a mature
mobile strategy that was delivering results
today. Most (64%) were either planning
their strategy or in the very early stages of
deployment. Only 18% reported not
having a mobile strategy, and a further 4%
reported not yet seeing any positive
benefits from their mobile strategy.
UK retailers were using mobile technology
for a number of things including to
increase footfall, to improve conversion,
to enhance the customer experience, for
m-commerce and to increase customer
interactions. With regards to social
media, around 29% of retailers said they
were using social media strategies to
enhance loyalty, 43% were using it for
customer acquisition, and 24% were
using it to increase sales.
SAP Market Report - The Future of Loyalty
Insight is vital, but just as important is getting this
insight in a timely fashion in order that the retailer can
quickly respond to changing customer needs and
wants outperforming rivals who take longer to react.
And while gaining valuable insight provides
commercial advantages, being able to take action or
decisions as a result of this insight is also critical.
This requires two things to happen. Firstly the right
staff need to have access to such insight at the time
they need it, and secondly automated systems and
processes need to be in place that can react to
customer behaviour in realtime combining knowledge
of the customer, business rules, and contextual
information to create the right reaction to what the
customer is doing.
Customer insight is going to rapidly become far more
sophisticated, enabling some compelling use cases for
both retailers and consumers, and delivering even
greater business value. Retailers can choose whether
to dive in and invest now to become leaders in using
sophisticated, next-generation customer insight; or
they can improve their customer insight
incrementally by making better use of the technology
and data already available to them, while
progressively investing to support more advanced
scenarios.
Whats clear is that despite the recession retailers are
not standing still. Rather the recession has put
additional pressure on retailers to improve their
customer insight in order to improve their
performance in a tough market. Cutting-edge
retailers are already experimenting with how mobile
technology can be utilised effectively instore, or in the
vicinity of the store to attract, influence and retain
customers; while the most advanced retailers are also
now experimenting with social media and exploring
the opportunities this offers.
8
Single view of customers across all channels?

Yes 27%
41%
32%
Partly
No
Do you eectively use insight to drive up loyalty and maintain wallet share?
Yes
32%
54%
14%
Somewhat but we could do better
No
Do you have a joined up view internally that links products & services to customers?
Yes 50%
45%
5%
Partly
No
Capabilities checklist for customer insight
Can you quickly detect changing customer behaviour, likes/dislikes and act upon this insight?
Do you understand why potential customers are not buying from you?
Can you use insight to improve product design, buying and merchandising?
Do you have 360 degree view of the customer? Including across all retail channels?
Can you see the behaviour of individual customers or small groups, or just general trends?
Do you have a mobile or social strategy?
Can you support actionable, timely, contextual insight?

SAP Market Report - The Future of Loyalty
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Multichannel loyalty and insight is required;
mobile channel is increasingly important
UK customers buying behaviour is becoming
increasingly multichannel and may now involve
research, recommendations, comparisons, reviews
and so on across stores, websites, mobile internet and
so on. The challenge is for retailers to understand what
customers are doing and how and where theyre being
influenced in order to engage them and maximise
wallet share across their channels of operation. In fact
a close understanding of target customers can even
inform channel strategy, as not all channels are
popular with every type of customer. Understanding
which channels customers prefer to use therefore
helps retailers prioritise support for the channels that
are most valued by their target customers.
An emerging example of multichannel buying
behaviour is the use of smartphones in the UK to
compare prices online while instore, check reviews and
recommendations, or to ask friends and contacts what
they think of the product. The increasing value of
mobile as a channel in the UK was underlined by recent
Ofcom research (released August 2011) which said
that 27% of adults now own a smartphone plus a
whopping 47% of teens. Of these 59% got a
smartphone in the past year and the vast majority of
smartphone users (81%) have their mobile switched
on all of the time
2
.
Since it is a personal device and most customers leave
it switched on at all times, meeting customers needs
as they become more mobile is therefore
increasingly important and has the potential of
delivering business advantage. So what does a mobile
loyalty strategy look like? In the first stages providing
WiFi access, facilitating customer research via the
mobile internet, or their wish to give or seek
recommendations for a particular product are all
emerging strategies. Retailers could allow
customers to scan a barcode using their mobile, and
be rewarded with a discount for providing instant
feedback on a product they wish to buy, or be
offered a future discount on a repeat purchase in
exchange for a review.
The mobile device has the advantage of identifying
the customer and supports location-based
approaches to loyalty. Some mobile services such
as SMS, for example, are well established, cheap,
universally available and easy to develop upon
providing ideal bearers for innovative loyalty
programmes. In addition, the emergence of mobile
payment technology and the increasing computing
power of smartphones, promises a lot of potential
for future loyalty programme innovation.
Social media and mobile technology are rapidly
changing the face of loyalty in the UK, and retailers
need to understand how their customers and
potential customers use different channels in order
to engage them, discover what they want, need and
are willing to pay for, and influence them at the point
of decision. As shown in Figure 1, our research
revealed that many UK retailers now see seamless
multichannel retailing and insight as critical to their
success, but these two are closely followed in
importance by mobile technologies, with social
media channels also becoming ever-more
important to UK retailing.
Mobile channel seen as critical by increasing numbers of retailers (Figure 1)
Somewhat important
2
Very important
3
CriticaI
4
Not important yet
1
SeamIess
muItichanneI
retaiIing
Weighted average
64% 32% 4% 0% 3.55
Insight 59% 36% 0% 5% 3.55
MobiIe
41% 27% 0% 32% 3.09
SociaI
41% 23% 23% 13% 2.81
Somewhat important
2
Very important
3
CriticaI
4
Not important yet
1
Weighted average
64% 32% 4% 0% 3.55
59% 36% 0% 5% 3.55
41% 27% 0% 32% 3.09
41% 23% 23% 13% 2.81
2
For example, see http://www.stockmarketwire.com/article/4197156/UK-addicted-to-smartphones-Ofcom-research-shows.html
9 SAP Market Report - The Future of Loyalty
Social media use by UK retailers is still
experimental, but is game changing
Many loyalty schemes or approaches to loyalty are
non-realtime, untargeted or reactive rather than
proactive. Points are rewarded to save for rewards,
customers are given offers for products theyre not
interested in, and rewards are given as a result of
transaction. In contrast, social media changes the way
retailers engage with their customers helping them
communicate more effectively, understand what
customers think and feel, and build loyalty based
on experience rather than simply price, offers and
transactions.
Social media is potentially highly interactive, intimate
and can be used to create a sticky customer
relationship. With clever use it helps build a
relationship with customers to ensure repeat sales and
to maintain wallet share, and it can harness requests
for information, advice and recommendations to help
create sales opportunities but also to build loyalty. The
network effect of social media means that satisfied
customers can be transformed into advocates who
create positive PR, enhance brand values and even
create new business for the retailer.
Advocacy and recommendation should be rewarded,
but the reward does not have to be financial and can
include from special offers, discounts and previews.
Some retailers simply reward customer advocates
with attention and recognition. Whatever the strategy,
this engagement with the customer is a powerful
loyalty-building tool.
When managed well, social media can also turn
negative experiences into positive loyalty-generating
ones. Poor performance of staff or products can be
analysed and acted upon quickly, and well-handled
complaints can turn an unhappy customer into a loyal
one. Likewise, customers may offer ideas and
suggestions regarding products or other ways in
which the retailer can improve their performance.
Considerable insight and business value can be
gleaned from monitoring and engaging in social
media, but the challenge is having dealt with the initial
enquiry, suggestion or complaint being able to
identify the data that does have business value and
ensuring that this is made accessible to the
appropriate systems and personnel that can take
decisions or actions as a result.
Social media offers new opportunities to drive loyalty
via collaborations with social media sites, and when
combined with mobile provides the potential for
highly targeted but effective advertising. Foursquare,
for example, sends out information to smartphones
wherever people shop. Foursquare for Businesses
3

provides retailers with an opportunity to highlight
special offers to Foursquare users who check-in
nearby and in addition they also get data from these
location-based campaigns. It has been shown that not
only do individual retailers benefit from this type of
approach, but other businesses in the same vicinity
benefit too. Many users see this
as entertainment or as a game, rather than perceiving
it as advertising which increases the effectiveness.
Simply by joining the social media conversation and
being accessible as a brand to customers, retailers
are able to demonstrate theyre listening to their
customers, and are able to resolve any
miscommunications or misunderstandings rapidly.
However, social media cannot become another siloed
channel. To be effective it needs to be integrated into
a multichannel approach, and data and insight needs
to be shared with other core systems.

3
See http://mashable.com/2011/08/03/foursquare-business-page/
11
"72% of our sales come from customers enrolled in the loyalty
scheme
Currently online channels are still seen as the ones delivering
most value to UK retailers, with 43% saying they intend to
invest to improve their online offering. However, many were
also looking to add support for mobile commerce (38%) and
mobile apps (24%)
SAP Market Report - The Future of Loyalty
Improving next-generation
loyalty and insight
Loyalty is not created just by implementing a loyalty
scheme, but is a result of all the experiences a
customer has with the retailer. This means that insight
into customer behaviour and their experiences is vital
to manage the relationship with the customer,
maximise opportunities and improve future
performance.
As we know, traditional approaches to loyalty have
been based on deriving insight from sales transactions
via loyalty schemes which are largely driven by
discounts and rewards. Such schemes can be
expensive to administer and their shotgun approach
means they dont appeal to all customers and potential
customers, and their benefits are diluted by uptake
from unprofitable customers.
In future a loyalty approach is required that is
multichannel, that can provide a single view of
individual customers (plus their habits, needs, wants
and preferences), can encompass and reward
different types of customer behaviour beyond just
transactions (including recommendations, reviews,
feedback, suggestions and advocacy), and can target
appropriate offers in a business-centric manner to
maximise the ROI to the retailer and the
appropriateness to the customer.
Rising expectations in the UK market mean that
retailers now need to meet the needs of smartphone
users and understand their role in complex research
and purchasing behaviour thereby maximising the
opportunity presented by the mobile channel.
Retailers approach to loyalty also needs to be more
personalised which minimises the cost and maximises
the benefit to both retailer and customer. Tight
budgets and limits on discretionary spending means
UK customers are shopping in a more professional
manner, and retailers need to understand their
customers better than ever before in order to ensure
their share of the money that is available. Likewise
customers are becoming less responsive to, and less
tolerant of, untargeted and irrelevant offers - seeing
these as spam. Retailers that continue to spam their
customers with irrelevant offers risk communicating
the message that they are not really interested in
customers as individuals, but only as a quick sales
opportunity undermining their carefully crafted
relationship with the customer. Worse still, untargeted
offers combined with anonymity mean a retailer has
only a very weak connection with the customer, and
weak connections risk loss of the customers business
to rivals.
12
Lego VIP Project - drive up IoyaIty and improve
customer experience
Lego is a Danish multinational retailer of children's
construction toys. Founded in 1932 and
headquartered in Billund, Denmark, the company
currently has revenues of DKK7,823 million ($3.07
billion). Lego identified the requirement to drive up
loyalty amongst its customers, understand them
better and deliver a "total customer experience.
One of the ways it has done this is by creating a
Lego VP consumer loyalty programme. This
programme is now available across all Lego's
stores in 24 countries, as well as online.
The VP programme is used to manage loyalty
rewards and points redemption. t involves
scanning the VP card at the PoS. The PoS then
connects to the CRM system and the member's
loyalty data is transferred back to the PoS. The
transaction is processed, and the loyalty-relevant
data is sent back to the CRM system for point
calculation. The programme encourages customers
to "earn more rewards, in more ways, delivering a
high value, medium-rich experience.
"Our aim is to develop it going forward, so it
becomes an engagement program as well as a
loyalty program, explains Conny Kalcher, Lego's
UK-based VP of Consumer Experiences. "The
more consumers engage with us, the more we offer
them things that are meaningful to them.
SAP Market Report - The Future of Loyalty
This is why building an understanding of an
individual customer is critical to building loyalty.
And this is one area where retailers can easily build
value through better data integration and
analytics.

The most savvy retailers are already analysing who
their customers are, where they are (which
channels they prefer), what they like and how they
like to buy. This enables them to design a
deliberate, appropriate and consistent retail
experience in line with their brand values in
other words, they can tailor the way they operate
(including products, prices, offers, channels,
interactions, payment methods and so on) to the
needs of their target customers but in line with
their commercial goals, brand values and
customer loyalty strategies.
Beyond their existing customer base, retailers can
use emerging channels like social media to
understand and attract potential customers, using
the power of social networks to promote offers and
recommend products. Better understanding of
customer behaviour and the immediacy of the
personalised mobile device can be combined with
realtime technology to influence customers at the
point of purchase, as well as to create cross-selling
and upselling opportunities.
Done well, customer insight helps retailers
understand which customers are likely to be the
most profitable, and what these customers value
and are willing to pay for. By being able to employ
real-time contextual analytics, for example,
retailers can move from understanding historic
trends to reacting in real-time to opportunities,
and then proactively being able to prompt
customers and even make real-time
recommendations to their mobile. Once identified
the mobile device can be used to connect with the
customer beyond the point of sale to offer
discounts for repeat sales, or information related
to the product.

However, if customers are to accept and value
proactive and personalised interactions, prompts
recommendations and offers, these will have to be
highly accurate and pitched well and appropriately
or they will be seen as spam and ignored. Worse still
they could be seen as an irritation. Its no good, for
example, prompting the customer to buy a
particular brand of coffee, if the offer or
recommendation is only delivered after the
customer has left the shop, or despite the fact the
customer never buys coffee because they dislike it.
This will drive up dissatisfaction with the retailer
rather than increasing loyalty.
In Figure 2 we look at how loyalty and insight can be
evolved based on real feedback from the UK
retailers who took part in our primary research
programme. This model shows what the
mainstream of UK retailers are able to offer today
with regards to loyalty and insight, as well as the
additional elements that the most advanced
companies are able to offer or are currently
exploring in order to gain competitive advantage.
For example, the model shows that many retailers
can now tailor offers to customer types and can
refresh offers. However the most advanced
retailers are now able to deliver personalized offers
which derive from their ability to match the
customer context (eg location) with preference
data, historic transaction data, the value of the
customer, and insight into typical customer
purchasing behaviour around that product. This
enables the retailer to make a personalised offer to
the customer, which is more likely to be accepted if
it more accurately meets their needs. And while the
mainstream of retailers may now be able to track a
customer and gain a single view of that customer
within each channel of operation, the most
advanced can track customers across all the
channels in which they operate. If the customer
complains, then customer service staff are able to
see an integrated view of all the dealings the retailer
has had with the customer across all channels,
thereby ensuring any issues are resolved promptly.
This model helps retailers benchmark their
progress, provides insight into what rivals are doing
or aim to do, and helps them analyse their weak
areas and what they need to focus on in order to
deliver customer insight and loyalty programmes
that will help their business survive and prosper in
these turbulent times.
13 SAP Market Report - The Future of Loyalty
14
Somewhat important
2
Very important
3
CriticaI
4
Not important yet
1
64% 32% 4% 0%
59% 36% 0% 5%
41% 27% 0% 32%
41% 23% 23% 13%
TraiIers Mainstream Leaders EIement
Greater customer choice of
reward, create rewards based on
customer insight/suggestions
Exclusive experiences
and services (eg complimentary
tickets or advance tickets)
Type of reward Discounts, points toward
discounted/free products
Personalized offers, with realtime
contextual matching of offers
to customer
Wider range of offers; offers
matched more precisely to
customer (initially to lifestyle, age,
lifestyle, past purchasing), offers
change more frequently
Nature of offer Standard, fairly static offers
Offers according to profitability
of customer
Additional tiering Targetting of offer All customers
Product created in response to
customer suggestions via our
social media site. Loyalty card
data has been used to monitor
customer uptake from successful
regional trial
Apply purchasing trendsetc to
product design/sourcing
Product design Our buyers are very competent
Figure2
Breadth of offer
Channels of operation
Channels to
gain/spend rewards
Multi-channel retailing?
Behaviour rewarded for
Detecting changing
customer behaviour
Targetting
non-customers
Customer view
64% 32% 0%
59% 36% 5%
Wider partner eco-system,with
partners matched to brand and
'likes' of target customers
Broader range of
products/partners
Single retailer
Any of a mix of traditional, online,
mobile, social (according to
needs of business)
Traditional + online Traditional eg stores
All channels of operation Stores and online Stores
Yes: data from all channels is
combinedand used for upstream
purposes including product
design, buying and
merchandising, offers & sales etc
Yes: data is mined from website
and combined with loyalty data to
understand customers better;
loyalty rewards can be
gained/spent in any channel
No: competition/different offers
in each channel; fragmented
loyalty scheme
64% 32% 0%
Much broader range of behaviour,
including advocacy
Transactions + feedback Transactions
Use a broad range of data and
analyse daily
Analyse PoS data, copy
rivals' initiatives
To some extent staff will report
changes, we can use sales
figures to detect
Use insight to profile potential
customers and target them
Focus on maintaining existing
customer loyalty
Don't understand why
customers buy from us
Single integrated view of
customer across all channels we
operate in
Single view of customer in each
channel eg in stores, online etc
Loyalty scheme only
SAP Market Report - The Future of Loyalty
15
So whats the best way to approach loyalty and where should UK retailers start? The
good news is that whether they can afford entirely new cutting-edge IT infrastructure,
or can only afford to enhance certain aspects of their existing infrastructure, there are
ways of improving customer loyalty and insight to fit all budgets. Whats certain is
that, when implemented and used correctly, the technology we now have available can
be extremely effective at strengthening customer relationships and creating new
revenue-generating opportunities. Its even possible depending on the legacy posi-
tion to replace legacy infrastructure with more modern infrastructure and not only
improve performance but also reduce the cost of running loyalty programmes
(through lower cost of ownerships and better targeting of offers).
Whichever approach retailers take the customer must remain at the heart of loyalty
programmes, and their needs should be prime. A loyalty-driven approach to doing
business does not derive from an IT infrastructure, but is enabled by it. That said,
capturing the right information about the customer and being able to react to this
information in a timely fashion ensures the retailer can tailor the retail experience to
the needs of the customer and thereby increases the likelihood of their success. In the
current retail environment this insight is not just a nice-to-have but a lifeline to survival
and success.
Summary
Groupe Casino - precision marketing in the mobiIised worId
Groupe Casino is a large French retailer that was founded in 1898. t currently
has revenues of EUR25.8 billion and 11,000 stores across 19 countries. t
launched its first loyalty scheme in 1902 and is currently trialling a new
precision retailing offering, which delivers realtime offers to customers in
stores, on the website and via the mobile device, based on the customer's
lifestyle.
Groupe Casino's precision retailing offer is based on an indepth knowledge of
its customers, the ability to support customised, dynamic prices and offers,
and multi cross-channel marketing, all supported by a flexible supply chain.
When a Groupe Casino customer logs on to their smartphone application,
they first decide whether to log on anonymously or as a loyal shopper (ie link
their session to their customer profile and loyalty data). When they do the
latter, the central system recognises them, their store location is identified and
the session is linked back to the loyalty account. mmediately a number of
relevant offers are presented to the customer. Before doing this, the offers
engine has taken into account customer preferences, likes and dislikes, the
store that's being shopped in (and whether stock is available) and the time of
day. Offers include discounts, bonus points and discounted linked purchases.
As the customer shops, the company is able to prompt with relevant
alternatives (according to preferences set in the customer profile) or alert to a
better deal being available. Prompts can be sent to the customer to remind
them about linked purchases, and rewards awarded according to purchases
made are added to the customer's account in realtime. The customer can see
their current status and how many rewards they need to acquire until to be
given the next customer bonus.
Groupe Casino staff can also see how well the promotion is working in
realtime, which allows them to change the promotion if it is not performing well
enough.

Group Casino is now able to offer targeted, one-to-one marketing,
cross-channel shopping lists, cross-sell and upsell opportunities at the time of
purchase, and indepth customer knowledge which supports a personalised
experience, enhanced loyalty and a positive view of the company.
SAP Market Report - The Future of Loyalty
SAP Market Report - The Future of Loyalty

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