Can reward programs remedy retailers’ economic ills?

Articles
April 24, 2009

Can reward programs remedy retailers’ economic ills?

For a while, the classic thinking that foods and beverages would be safe havens in a tough economy held true. While consumer spending crashed on autos, apparel, home furnishings and more, people still needed to feed their families and sales on edibles didn’t suffer much. But the enormous pressures on households in this persistent recession couldn’t be repelled over such a long term. In addition to their own personal savings strategies, consumers began to long for help from the retailers they patronize. ‘Best-in-class’ store operators with well-run loyalty reward programs can post better sales and retain more customers, finds a new study by Aberdeen Group, Cutting Edge Customer Loyalty: Retail Best Practices for Acquiring, Retaining, and Re-Engaging Customers. Certainly, food retailers have had their reasons to balk at investing in loyalty technology and the pricing/promotional strategies that these reward programs entail. To this day, 65% of retailers lack fully automated loyalty process tools at point of sale for customer sign-up, identity scan for program fulfillment, and redemption of loyalty rewards, according to Aberdeen data, which reflect a survey of 165 retail enterprises between February 2008 and March 2009.

For a while, the classic thinking that foods and beverages would be safe havens in a tough economy held true. While consumer spending crashed on autos, apparel, home furnishings and more, people still needed to feed their families and sales on edibles didn’t suffer much.

But the enormous pressures on households in this persistent recession couldn’t be repelled over such a long term.  In addition to their own personal savings strategies, consumers began to long for help from the retailers they patronize.

‘Best-in-class’ store operators with well-run loyalty reward programs can post better sales and retain more customers, finds a new study by Aberdeen Group, Cutting Edge Customer Loyalty:  Retail Best Practices for Acquiring, Retaining, and Re-Engaging Customers.

Certainly, food retailers have had their reasons to balk at investing in loyalty technology and the pricing/promotional strategies that these reward programs entail. To this day, 65% of retailers lack fully automated loyalty process tools at point of sale for customer sign-up, identity scan for program fulfillment, and redemption of loyalty rewards, according to Aberdeen data, which reflect a survey of 165 retail enterprises between February 2008 and March 2009.

However, their findings suggest that loyalty tools—in the hands of Best Practice operators—just might be powerful enough to help them emerge from tough economic periods like these even stronger, and be better equipped to sustain customer relationships in good times. For instance, 50% of ‘best-in-class’ retailers use automated loyalty processes at POS, and they help improve customer retention by 16%, the study shows.

Nine out of 10 ‘best-in-class’ operators indicate “some level of success to very successful results” from their programs, vs. less than one-third of ‘average’ or ‘laggard’ retailers. A loyalty program is not a magic ticket to success, however. It has to be run well. “Almost half (47%) of ‘laggard’ retailers and more than one-third (35%) of ‘average’ retailers indicate ‘no change in performance’ from their loyalty program. This indicates a null return on investment on…dollars spent toward loyalty process, technology management and professional services,” said Sahir Anand, research director-retail, and report co-author.

Why do they fail compared with Best Practice chains?
•    70% of ‘best-in-class’ retailers are 1.5 times likelier to capture the CRM data at POS that enables them to map transaction data with customer demographics, and design effective loyalty offers.
•     52% of ‘best-in-class’ retailers can develop personalized loyalty offers, vs. about one-third of ‘average’ or ‘laggard’ store operators.
•    Only 24% of ‘laggard’ retailers can do customer sign-up, customer reward redemption and information look-up at POS—which translates into lost sales and engagement opportunities.

“Retailers need to raise the bar when it comes to customer loyalty technology applications. They have the tools, but they do not know how to properly use them,” said Chris Cunnane, research associate-retail and report co-author. “Until retailers become more proactive, they will not see the return that is possible from their customer loyalty programs.”