Cutting Edge Customer Loyalty -...

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Cutting Edge Customer Loyalty: Retail Best Practices for Acquiring, Retaining, and Re-engaging Customers March 2009 Sahir Anand, Chris Cunnane

Transcript of Cutting Edge Customer Loyalty -...

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Cutting Edge Customer Loyalty: Retail Best Practices for Acquiring, Retaining, and Re-engaging Customers

March 2009

Sahir Anand, Chris Cunnane

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© 2009 Aberdeen Group. Telephone: 617 854 5200

Executive Summary Research Benchmark

Aberdeen’s Research Benchmarks provide an in-depth and comprehensive look into process, procedure, methodologies, and technologies with best practice identification and actionable recommendations

Between January and March, 2009, Aberdeen surveyed 165 retailers to present key customer loyalty attributes in the retail sector. This report will detail ways to align tools and business processes for creating customer relationships that enhance a retailer's capability of sustained differentiation, margin, and cost containment during recessionary economic times.

Best-in-Class Performance Aberdeen used three key performance criteria to distinguish Best-in-Class companies:

• Year-over-year increase in average basket size: 19%

• Year-over-year increase in customer retention rate: 16%

• Year-over-year decrease in customer attrition rate: 5%

Competitive Maturity Assessment “Our customer loyalty program is critical; we are trying to create an infrastructure where the consumer has expectations of what they will get from the shopping experience. As we have increased access to our sales associates, and added the ability to enroll customers in the loyalty program at the POS, we have seen incremental increases in revenue and margin. In 24 months alone, our program has scaled from eight million to 30 million members."

~ Matt Smith, VP Financial Services Marketing, Best Buy

Survey results show that the firms enjoying Best-in-Class performance shared several common characteristics:

• Ninety percent (90%) of the Best-in-Class indicate at least "some level of success to very successful results" from their programs, compared to, on average, less than a third of Industry Average and Laggard retailers

• Best-in-Class retailers are currently 1.8-times more likely than Laggards to develop customer behavior-based promotions that ultimately drive improved loyalty

• Best-in-Class companies are 70% more likely than their peers to develop multi-tier rewards plans for their most profitable customers

Required Actions In addition to the specific recommendations in Chapter Three of this report, to achieve Best-in-Class performance, companies must:

• Conduct customer wallet share and market basket analysis

• Measure the net profit margin impact of customer loyalty expenditure

• Apply rules-based and POS-integrated customer loyalty systems

• Upgrade loyalty infrastructure on an annual basis

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Table of Contents Executive Summary....................................................................................................... 2

Best-in-Class Performance..................................................................................... 2 Competitive Maturity Assessment....................................................................... 2 Required Actions...................................................................................................... 2

Chapter One: Benchmarking the Best-in-Class ..................................................... 4 Business Context ..................................................................................................... 4 The Maturity Class Framework............................................................................ 5 The Best-in-Class PACE Model ............................................................................ 6

Chapter Two: Benchmarking Requirements for Success ..................................11 Competitive Assessment......................................................................................12 Capabilities and Enablers ......................................................................................14

Chapter Three: Required Actions .........................................................................22 Laggard Steps to Success......................................................................................22 Industry Average Steps to Success ....................................................................23 Best-in-Class Steps to Success ............................................................................24

Appendix A: Research Methodology.....................................................................27 Appendix B: Related Aberdeen Research............................................................30

Figures Figure 1: Customer Acquisition and Branding at the Center of Loyalty-Related Pressures.......................................................................................................... 5 Figure 2: Deployment of Retail Customer Loyalty Solutions ............................. 7 Figure 3: The Role of Customer-Centric Promotions......................................... 8 Figure 4: Customer Loyalty Success by Maturity Class ....................................... 9 Figure 5: Key Process Capabilities ..........................................................................15 Figure 6: Knowledge Management Capabilities....................................................16 Figure 7: Key Enablers................................................................................................17 Figure 8: Loyalty Spend in 2009...............................................................................19 Figure 9: Loyalty Programs and Success ................................................................20 Figure 10: Technology Gap at POS.........................................................................21

Tables Table 1: Top Performers Earn Best-in-Class Status.............................................. 6 Table 2: The Best-in-Class PACE Framework ....................................................... 6 Table 3: The Competitive Framework...................................................................12 Table 4: The PACE Framework Key ......................................................................28 Table 5: The Competitive Framework Key ..........................................................28 Table 6: The Relationship Between PACE and the Competitive Framework.........................................................................................................................................28

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Chapter One: Benchmarking the Best-in-Class

Business Context Fast Facts

√ Ninety percent (90%) of the Best-in-Class indicate at least "some level of success to very successful results" from their programs, compared to on average less than a third of Industry Average and Laggard retailers

√ Sixty-five percent (65%) of retailers lack fully-automated loyalty process tools at the Point-of-Service (POS) leading to a large customer service process and technology gap

√ Best-in-Class retailers are currently 1.8-times more likely than Laggards to develop customer behavior-based promotions that ultimately drive improved loyalty

Results from the June, 2008 Responsive Customer Loyalty report shows that loyalty (refer to Table 7 in Appendix A for more information) is one of the most critical factors that impact the retailer's sales and customer retention performance. In order to ensure effective results, loyalty platforms and point solutions need to be combined with three primary loyalty-related process workflow functions of planning, implementation, evaluation, and analysis. This ensures a seamless process for a loyalty project from concept to implementation.

The focus of large retail companies has largely been around the upgrade of legacy loyalty systems that are older than five or even 10 years. These systems require constant updates towards new loyalty scenarios and business attributes. In the last three years, both ERP and best-of-breed companies have turned their focus towards providing loyalty solutions to small and mid-size retailers. These segments are likely to grow and adopt loyalty solutions within the next two years, while large retailers will continue to update, improve, and likely adopt point solutions that are function-specific. These function-specific applications include Customer Relationship Management (CRM) databases, business intelligence capabilities, personalized e-mail campaign management, and gift card, private label credit card, or rewards card processes, among others.

Between January and March, 2009, Aberdeen surveyed 165 retailers to present key customer loyalty attributes in the retail sector. This report details ways to align tools and business processes for creating customer relationships that enhance a retailer's capability of sustained differentiation, margin, and cost containment during recessionary economic times.

Business Pressures Driving Loyalty Programs The Responsive Customer Loyalty report indicated that the top pressure for 58% of the Best-in-Class was the need to develop Lifetime Customer Value (LCV), which is defined as the present value of future cash flows through long-term customer relationships. This year, the top pressure facing 61% of companies is the pressure of survival in global recessionary conditions that have changed the consumer spending landscape and made it more unpredictable than ever. Moreover, the second highest business pain point for more than a third (35%) of the Best-in-Class is the need to curtail customer acquisition costs in a recessionary market that is characterized by the high cost of goods sold.

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Figure 1: Customer Acquisition and Branding at the Center of Loyalty-Related Pressures

Best-in-Class Criteria

With respect to customer loyalty in retail, Aberdeen used three year-over-year key performance indicators for distinguishing between Best-in-Class, Average and Laggard companies:

√ Average basket size in dollar terms

√ Customer retention rate

√ Customer attrition rate

“To increase the frequency of shopping, we offer rebates towards a customer’s next purchase. We also follow up with thank-you notes, as we are looking to improve our level of customer service. To ensure loyalty and profitability, our best customers get more coupons and direct mailers. We are moving towards more functionality in CRM later this year when our new website is launched, and we are able to integrate our loyalty program with our multi-channel solution."

~ Patrick Meany, CEO, Boot Barn

Best-in-Class Pressures

61%

35%30%

22%

0%

10%

20%

30%40%

50%

60%

70%

Increasedcompetition in atough economy

Need to reducecustomer acquisition

costs

Need to reducecustomer retention

costs

Need to increasebrand aw areness

Source: Aberdeen Group, March 2009

Our results show that currently, grocery, department stores, luxury, and retail financial service institutions are particularly impacted by the need to reduce customer acquisition costs. In the entire customer loyalty lifecycle process, the acquisition of a customer is the most tedious and expensive process due to a fiercely competitive retail landscape. In a down economy, customer acquisition costs are even more daunting due to uncertain consumer spending, downward pressure on price, and margin.

Currently, with same store sales on the decline, retailers are using every possible price-based customer pull strategy to drive incremental sales through untapped customer segments that possess buying power. Such short-term customer acquisition tactics drive costs upwards as retailers sacrifice on net profit margin to increase sales volume. The other business pressures are the continued need to reduce customer retention costs and the need to improve brand awareness. The difference between 2008 and 2009 customer loyalty-related business pressures is primarily due to current market conditions, which have led retailers to adopt the desperate short-term customer pull tactics of retailers in order to survive the downturn rather than focus on long-term customer relationships.

The Maturity Class Framework Aberdeen used three key performance criteria to distinguish the Best-in-Class from Industry Average and Laggard organizations. Table 1 provides a framework with which companies can benchmark themselves and identify the category into which they fall. The three key performance indicators include: customer retention rate, customer attrition rate, and average basket size. These metrics are critical for any retailer to measure the short-term and long-term success of a customer loyalty program. The results from Table 1 indicate the demonstrably superior results attained by Best-in-Class companies.

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Table 1: Top Performers Earn Best-in-Class Status

Definition of Maturity Class Mean Class Performance

Best-in-Class: Top 20% of aggregate performance scorers

Year-over-year increase in average basket size: 19% Year-over-year increase in customer retention rate: 16% Year-over-year decrease in customer attrition rate: 5%

Industry Average: Middle 50% of aggregate performance scorers

Year-over-year increase in average basket size: 4% Year-over-year increase in customer retention rate: 4% Year-over-year decrease in customer attrition rate: 1%

Laggard: Bottom 30% of aggregate performance scorers

Year-over-year decrease in average basket size: 2% Year-over-year decrease in customer retention rate: 6% Year-over-year increase in customer attrition rate: 5%

Source: Aberdeen Group, March 2009

The Best-in-Class PACE Model Table 2 shows a roadmap to the key Pressures, Actions, Capabilities, and Enablers (PACE) prioritized by Best-in-Class companies for loyalty process, business attributes, and technology tools. This will help identify the key capabilities and enablers that are being considered as part of their multi-channel initiatives.

Table 2: The Best-in-Class PACE Framework

Pressures Actions Capabilities Enablers Increased competition in a tough economy

Improve customer-behavior-based promotions Increase customer touch-points

Ability to capture CRM data at point-of-service Ability to develop personalized promotions for all customers Ability to segment customers based on new acquisition Ability to analyze net profit margin impact of customer loyalty related expenditure Ability to segment customers based on re-activation

Enterprise-wide CRM application Loyalty database hosting application Loyalty card redemption application Loyalty card processing application Database marketing solutions Loyalty mailing application Online communities Loyalty metrics dashboard

Source: Aberdeen Group, March 2009

The key for success is finding the right balance between marketing expenditure dedicated to new customer acquisition and customer loyalty initiatives. For every seasonal or non-seasonal retail sales strategy, a loyal base and new customer acquisition are two of the biggest determinants that ensure assortment sell-through. Consider the example of back-to-school and holiday sales. Retailer's sales and margin success during a key selling

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season hinges on new customer and reward customer transactions. Therefore, customer acquisition and customer loyalty are intrinsically tied together. For example, in the case of Best Buy and Staples, every time a customer walks in to the store or places an order via a call center, they are asked if they are enrolled in the rewards program. This enables the start of the loyalty program lifecycle.

The Maturity of Retail Customer Loyalty Our survey results show that customer loyalty in retail is increasingly a Best-in-Class trend, even though Industry Average and Laggard retailers are gradually catching up. Aberdeen analyzed the nature of loyalty application adoption in the retail industry based on three distinct groups: those companies that have used loyalty campaigns for three or more years, less than three years, and those currently without a loyalty application. Data in Figure 1 shows that Best-in-Class companies lead in terms of their use and adoption of loyalty initiatives when compared to Industry Average and Laggard retailers. Best-in-Class retailers outclass Laggard retailers at a 2:1 ratio in the "less than three years category" and at a 1.5:1 ratio in the "three years or more category." Moreover, the adoption curve tilts in favor of the Best-in-Class when compared to Industry Average retailers by several hundred basis points in both categories. This Best-in-Class superiority indicates that leading retailers understand the significance of providing continued value and added benefits to their top spending customer segments.

Figure 2: Deployment of Retail Customer Loyalty Solutions

59%

28%

14%

51%

20%

29%

42%

14%

45%

0%

10%

20%

30%

40%

50%

60%

70%

3+ years 0-3 years no loyalty solution

Best-in-Class Average Laggard Source: Aberdeen Group, March 2009

These companies focus intensely on creating, delivering, and expanding their brand proposition to their most profitable customer segments. On the flip side, the data also shows that there are twice- and four-times as many Industry Average and Laggard companies compared to Best-in-Class that currently have no loyalty programs in place. This trend indicates a "loyalty

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divide" in the retail industry. Our results in the following sections of this report indicate that an improved adoption of customer analytics-driven personalized loyalty programs by Industry Average and Laggard companies has the potential to re-cast the lopsided incremental sales, real and perceived brand value, and customer satisfaction statistics that are currently in favor of the Best-in-Class.

Best-in-Class Customer Loyalty Strategies Best-in-Class retailers are currently 1.8-times more likely than Laggards to develop and implement a strategy to improve personalized promotions that are created by using customer wallet share and customer purchase behavior analysis (Figure 3). These dollar value or points-based promotions are directly tied to customer loyalty programs such as rewards, merchant-funded loyalty programs, and referral-based discounts. An example of such a promotion is a $3 off coupon for an ink cartridge and double reward points for a twin-pack purchase. The reward customers that make such a purchase likely receive similar offers at least three to five times per year depending on their overall spend at the retailer. Retailers tend to develop such programs based on customer data related to purchase frequency or total customer spend. A combination of these loyalty marketing and analytical tactics drive improved frequency of purchase, retention, and improved basket size during seasonal and non-seasonal selling periods.

Figure 3: The Role of Customer-Centric Promotions

Improve customer-behavior-based promotions

74%

61%

41%

0%

10%

20%

30%

40%

50%

60%

70%

80%

Best-in-Class Average Laggard Source: Aberdeen Group, March 2009

This strategy enables these companies to focus on assortment sell-through rates in stores and channels, thereby improving bottom-line attainment. By following such a strategy, Best-in-Class retailers can expect a better loyalty marketing ROI and deliver a consistent value proposition to different customer segments that are considered profitable. Companies use varied tools to track and predict buying behavior and affinity of customer groups that can be used to generate targeted promotions that support customer loyalty campaigns. The latter chapters will reveal the capabilities that

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support customer loyalty analytics (recency, frequency, retention, re-activation, and attrition data collection, analysis, and delivery).

Aberdeen Insights - The Verdict on Retail Customer Loyalty Programs

When asked about the level of success attained against applied loyalty performance benchmarks such as retention, reduced attrition, recency, and frequency of customer purchase, Best-in-Class companies appear comfortably ahead of Industry Average and Laggard companies (Figure 4).

Figure 4: Customer Loyalty Success by Maturity Class

45% 45%

5%

30%25%

35%

28%25%

47%

0%5%

10%15%20%25%30%35%40%45%50%

Very successful Somew hat successful Neither a success nor afailure

Best-in-Class Average Laggard Source: Aberdeen Group, March 2009

Ninety percent (90%) of the Best-in-Class indicate at least "some level of success to very successful results" from their programs, compared to on average of less than a third of Average and Laggard retailers. What's worse is that almost half (47%) of Laggard retailers and more than a third (35%) of Industry Average retailers indicate "no change in performance" from their loyalty program. This indicates a null return on investment on customer loyalty program dollars spent towards loyalty process, IT tools, and service. The primary reasons for the lack of success of Industry Average and Laggard companies are:

• CRM data capture. Currently, 70% of Best-in-Class retailers capture the required CRM data at the point-of-service, which is 1.5-times more than all others. The required CRM data fields enables companies to map transaction data with customer demographic attributes.

continued

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Aberdeen Insights - The Verdict on Retail Customer Loyalty Programs

• Customer analytics-based offers. On average, about a third of Industry Average and Laggard retailers can develop personalized product or service loyalty offers based on customer purchase analytics for their specific customer groups, compared to 52% of Best-in-Class retailers. Therefore, loyalty offers and programs are more precisely configured in the case of Best-in-Class companies.

• Loyalty process execution. Less than half of Industry Average (40%) and less than a quarter of Laggard retailers (24%) possess effective automated loyalty process execution (customer sign-up, customer information look-up, and reward redemption) at the Point-of-Service (POS). This leads to a high level of missed opportunity in terms of loyalty program activation and redemption goals.

In the next chapter, we will see what the top performers are doing to achieve these gains.

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Chapter Two: Benchmarking Requirements for Success

The business case for improving a loyalty strategy involves factors such as the use of customer data analytics, adoption of multi-tier rewards plans, and improved customer service. The following case study is an example of a retailer that made the decision to reinvent their loyalty program by utilizing these skills.

Case Study — Best Buy's Fee-Based Loyalty Program

Six years ago, Best Buy launched its initial loyalty program, a fee-based service named the Rewards Zone. While the number of Rewards Zone customers grew at a substantial rate, Best Buy knew that there was a better system that would allow it to develop a better relationship with its most profitable customers. Twenty-four months ago, Best Buy re-launched its Rewards Zone as a no fee program.

The new program is launching a premier tier that will deliver a whole new value proposition for its members. As of now, members are eligible for free shipping on its web site (www.bestbuy.com), priority access to products with tight inventory, a more liberal return and exchange policy, and access to exclusive events. With a new co-branded credit card linked to the Rewards Zone, loyalty members can earn premier status by crossing a pre-set dollar amount threshold on the card. This new status will give them access to better offers and discounts, and the ability to tailor assortments. Vice President of Financial Services Marketing Matt Smith says, “It is very difficult to deliver a new customer loyalty program experience. But our premier tier can do just this. It will bring the customer closer to the brand and will fill a need that has yet to be addressed.”

Best Buy has used customer data analytics as the basis for its rewards program. “The foundation was in customer data and insights; we then fed that information back into base level operations. The premier program has the same customer insight approach, but creates an experience that is relevant to each individual customer. We created an infrastructure where the consumer has expectations of what they will get from their shopping experience,” says Smith.

continued

Fast Facts

√ Best-in-Class companies are 70% more likely than their peers to develop multi-tier rewards plan for their most profitable customers

√ Best-in-Class companies are 90% more likely than Industry Average companies to possess loyalty card redemption applications

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Case Study — Best Buy's Fee-Based Loyalty Program

Best Buy sees customer loyalty as a critical component of its future success. To ensure loyalty with its customers, this retailer has made great strides to improve interaction with the sales associates, which translates to better customer loyalty. Sales associates, who represent the values of Best Buy, are trained to actively engage the customers. To ensure seamless execution of its loyalty program, they have implemented sign-up at the point-of-sale. Every time a customer walks in to the store, they are asked if they are enrolled in the rewards program. Smith says, “The challenge will be creating an infrastructure that allows perfect performance for premier customers. Our growth will come from consumers who know us – loyalty is critical.”

While the premier program is still in its pilot phase, the initial results have shown that customers are engaged with the new program. Smith concluded, “Customer loyalty cannot be centered on what the customer can do for us. In fact, the only way to be successful is to understand that the relationship needs to reflect the investment made by the customer.” Since the launch of its new rewards program 24 months ago, its loyalty membership has scaled from eight million members to 30 million, a growth of nearly 400%.

Competitive Assessment Aberdeen Group analyzed the aggregated metrics of surveyed companies to determine whether their performance ranked as Best-in-Class, Industry Average, or Laggard. In addition to having common performance levels, each class also shared characteristics in five key categories: (1) process (the approaches they take to execute their daily operations); (2) organization (corporate focus and collaboration among stakeholders); (3) knowledge management (contextualizing data and exposing it to key stakeholders); (4) technology (the selection of appropriate tools and effective deployment of those tools); and (5) performance management (the ability of the organization to measure their results to improve their business). These characteristics (identified in Table 3) serve as a guideline for best practices, and correlate directly with Best-in-Class performance across the key metrics.

Table 3: The Competitive Framework

Best-in-Class Average Laggards

Ability to develop personalized promotions for all customers

52% 39% 30%

Ability to develop multi-tier rewards plan for your most profitable customers

Process

48% 30% 24%

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Best-in-Class Average Laggards Cross-functional team for executing loyalty programs (marketing, merchandise, finance, strategy, and store operations) Organization

58% 35% 27% Ability to segment customers based on new acquisition

52% 39% 32% Ability to conduct customer wallet share or market basket analysis

Knowledge

48% 34% 30% Applications or platforms that support current retail loyalty initiatives:

Technology

57% CRM data capture at point-of-service 57% Loyalty card redemption application 52% Loyalty mailing application 52% Loyalty card processing application 48% Loyalty database hosting application 48% Enterprise-wide CRM application 39% Web couponing 39% enterprise-wide loyalty metrics dashboard

52% CRM data capture at point-of-service 30% Loyalty card redemption application 43% Loyalty mailing application 36% Loyalty card processing application 34% Loyalty database hosting application 30% Enterprise-wide CRM application 30% Web couponing 19% enterprise-wide loyalty metrics dashboard

51% CRM data capture at point-of-service 24% Loyalty card redemption application 30% Loyalty mailing application 30% Loyalty card processing application 24% Loyalty database hosting application 32% Enterprise-wide CRM application 24% Web couponing 9% enterprise-wide loyalty metrics dashboard

Performance management parameters used:

Performance

52% Ability to incentivize the new customer loyalty registration for employees 43% Ability to incentivize the redemption of customer loyalty initiatives for employees

21% Ability to incentivize the new customer loyalty registration for employees 23% Ability to incentivize the redemption of customer loyalty initiatives for employees

24%vAbility to incentivize the new customer loyalty registration for employees 22% Ability to incentivize the redemption of customer loyalty initiatives for employees

Source: Aberdeen Group, March 2009

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Capabilities and Enablers “Customer loyalty is one of our top initiatives in these economic times. We are currently considering adopting a new ecommerce platform, as we need better integration between our customer loyalty initiatives and our multi-channel solution."

~ Vice President, E-commerce, Large Apparel Retailer

in North America

Based on the findings of the Competitive Framework and interviews with end users, Aberdeen’s analysis of the Best-in-Class demonstrates that these companies are finding ways to better connect with consumers to create customized and personalized promotions. These companies are achieving this through the use of customer data mining and analytics. For a large portion of retailers, the need to improve their loyalty programs is immediate, and a top-of-mind initiative for 2009. The Best-in-Class retailers show that they are ready to take loyalty initiatives to the next level, and Industry Average and Laggards need to follow their lead from a technology standpoint.

Process The ability to develop personalized promotions for all customers has emerged as the top process capability for Best-in-Class retailers (Figure 5). Our results show that Best-in-Class retailers are 33% more likely than Industry Average retailers and 73% more likely than Laggard retailers to possess this capability. In today's struggling economy, consumers are seeking a personal touch from retailers. The ability to use customer data and analytics to develop personal promotions cuts down on the marketing clutter a typical consumer has to decipher when considering a purchase, and can be used to up-sell similar items at the point-of-sale. An example of this capability in use is by Borders, as they are able to make recommendations based on previous customer purchases combined with products purchased by other customers with similar tastes. The customer will receive a list of products that they may also be interested in when making a purchase.

The second top process capability to emerge is the ability to develop multi-tier reward plans for the most profitable customers. Best-in-Class retailers are 60% more likely than Industry Average and twice as likely as Laggards to possess this capability. A multi-tier rewards plan, similar to the one mentioned in the case study, allows a retailer to offer incentives based on customer purchase patterns. By promoting exclusive offers, discounts, priority access to products with limited inventory, and pre-sales on select items to their most profitable customers, a retailer can ensure that each customer feels a high level of personalization in the purchasing experience. Our data has shown that this high level of personalization has a direct correlation to improved customer loyalty.

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Figure 5: Key Process Capabilities “We offer a multi-tiered loyalty program where a visitor buys an annual pass rather than individual tickets. The pass comes with a branded card which can be used at all the stores within the park and resort, with price promotions and discounts tied to the card. The level of discounts and incentives is directly tied to the type of annual pass. The branded card allows visibility into customer purchase behavior at the POS location when used for discounts, allowing us to analyze which discounts and promotions are driving traffic to each of our stores, and making adjustments accordingly."

~Director-Operations, North American Theme Park (Retail

Operations)

48%

52%

24%

30%

30%

39%

0% 20% 40% 60%

Ability to developmulti-tier rew ard

plans for your mostprofitable

customers

Ability to developpersonalized

promotions for allcustomers

% of Respondents

Best-in-ClassAverageLaggard

Source: Aberdeen Group, March 2009

Organization Best-in-Class companies are 2.2-times as likely as Laggard companies to possess a cross-functional team that leads to more focused planning, execution, and analysis of their loyalty programs. In addition to channel marketing, a cross-functional team includes personnel from store operations, finance, merchandising, and strategy. Our data shows that 81% of retailers ensure that marketing is the department that holds major responsibility in determining the cost, benefit, and return on investment of loyalty programs.

However, the other departments act as support to ensure successful prioritization, justification, and validation of relationship marketing programs launched in the field or sales channels. Despite the cross-functional nature of loyalty decision making, significant barriers remain as senior executive decisions are still tied to other departments. Marketing executives are often entangled in eliciting executive support for justifying investments in new innovative loyalty tools and techniques such as coalition marketing, rewards, or private label cards. It is important to note that even the leading retailers are not immune to such decision-related complexities in retail and associated industries such as hospitality or food service.

Knowledge Management Our results show that Best-in-Class retailers are 33% more likely than Industry Average retailers and 62% more likely than Laggard retailers to possess the ability to segment customers based on new acquisition (Figure 6). An integral part of any business is the acquisition of new customers. By segmenting customers based on new acquisition, retailers are able to develop specific loyalty programs geared towards these new customers. Rewards programs that are geared towards new customer acquisitions will be inherently different than those geared towards customer retention or re-activation. Many retailers have developed couponing programs for first time

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buyers with the intention of getting them to become repeat customers, whether in the store, online, or catalog environment. The consumer will generally receive a coupon upon checkout to be redeemed with their next purchase. These programs immediately put the retailer as a top of mind source for future purchase intentions, and will go a long way in the future towards improving customer retention.

Figure 6: Knowledge Management Capabilities

48%

52%

30%

32%

34%

39%

0% 20% 40% 60%

Ability toconduct

customer w alletshare or marketbasket analysis

Ability tosegment

customersbased on new

acquisition

% of Respondents

Best-in-ClassAverageLaggard

Source: Aberdeen Group, March 2009

Best-in-Class retailers are also 50% more likely than their peers to have the ability to conduct customer wallet share or market basket analysis. Retailers perform market basket or affinity analysis to determine the purchase mix of groups of customers and use it for developing promotions, selling strategies, and loyalty programs, among other strategies. Wallet share analysis is a similar customer data analysis methodology that is used to identify the extent of business from specific customers.

Market basket analysis identifies a customer's purchasing patterns and gives the ability to make recommendations or predictions of future purchases. Amazon.com was an early adopter and great example of the use of market basket analysis. When a customer signs in to their account, they see a list of items they may be interested in based on their purchase patterns and items purchased by other customers who have similar purchasing behaviors. Best-in-Class retailers are utilizing this capability at a much higher rate, and are seeing returns on their loyalty initiatives as a result.

An example of a retailer that uses affinity and wallet share analysis to develop long-term customer relationships is Staples. This office supplies company provides stores and channel with updated reports of top 100 reward customers and their aggregate purchase spend over a period of time. This not only provides visibility of profitable customers at the field level but also enables creation micro-tailored relationship marketing and sales programs, such as special after-hour sales or door buster events.

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Technology As Figure 7 shows, Best-in-Class retailers are leading Industry Average and Laggard retailers in terms of key technology enablers that drive a successful customer loyalty program. Best-in-Class retailers are 10% more likely than their peers to have the ability to capture CRM data at the point-of-service. This data capture allows for future analysis of customer purchase behavior, as well as demographic information, all while they are in the store environment. This data can be utilized to create custom promotions and offers for individual customers, as well as for a specific customer segment based on a target demographic or interest area. As retailers are better able to offer customized promotions, they are able to connect with customers on a more intimate level, keeping that retailer as a top-of-mind vendor of choice for the customer, leading to increased wallet share and revenue.

Figure 7: Key Enablers

24%

51%

30%

52%

39%

48%

48%

52%

52%

57%

57%

24%

24%

32%

30%

30%

30%

34%

30%

36%

43%

0% 20% 40% 60%

Web couponing

Loyalty database hostingapplication

Enterprise-w ide CRMapplication

Loyalty card processingapplication

Loyalty mailing application

Loyalty card redemptionapplication

CRM data capture at point-of-service

% of Respondents

Best-in-ClassAverageLaggard

Source: Aberdeen Group, March 2009

Best-in-Class retailers are 60% more likely than their peers to possess an enterprise-wide CRM application. Additionally, Best-in-Class retailers are 21% more likely than Industry Average retailers and 73% more likely than Laggards to possess a loyalty mailing application, and are 41% more likely than Industry Average and twice as likely as Laggards to possess a loyalty database hosting application. All of these technologies are connected through the CRM system that the retailer uses. An enterprise-wide CRM system allows associates and managers across the organization to gain visibility into the customer database. This visibility helps to promote loyalty campaigns at the store level by aggregating data from multiple sources. By hosting their own loyalty database, it removes the need for a third party

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vendor, and allows for more customization of the database. Changes to the database, in terms of features and functionality, are able to be controlled in house, and customized when needed. A loyalty mailing application, in conjunction with the CRM, allows the retailer to maximize their marketing spend by targeting specific promotions within the mailer. The parameters for the mailing can be demographic, location, or loyalty-tier specific. As retailers move forward with their loyalty programs, these technology enablers will be key drivers for increased revenue and profits.

One area of loyalty programs that is often under-utilized is the use of web couponing. While Best-in-Class retailers are 30% more likely than Industry Average and 63% more likely than Laggards to use web couponing, there is still a lot of room for growth. The use of web couponing is an extremely cost-efficient way for a loyalty program to reach its customers. Email, as compared to traditional direct mail campaigns, is significantly less expensive and offers the chance to track the coupons, from click through rates to actual redemption either in the store or on the web. One retailer that has used web couponing to their advantage is Barnes and Noble. Loyalty program members receive email coupons redeemable in the store; the discount rate is directly correlated to prior purchasing patterns. This allows the retailer to utilize different offers and incentives for customer retention and re-activation. When executed properly, web couponing can be a powerful loyalty tool.

There are two significant areas of concern surrounding loyalty applications and the technology enablers retailers utilize within their programs. The first one is a loyalty card processing application. The processing application consists of scanning the loyalty card, accepting the information into the loyalty program, capturing customer data, and accruing loyalty points or perks. Best-in-Class companies are 44% more likely than Industry Average retailers to possess this technology. The lack of a processing application makes it nearly impossible for a retailer to successfully implement or track a loyalty program. When a retailer cannot successfully implement a loyalty program, they are unable to identify their most profitable customers, and missing out on the opportunity to create customized offers for these customers. Losing out on these opportunities will not only decrease customer loyalty, but will have a significant impact on their bottom line.

The second area of concern is a loyalty card redemption application. Best-in-Class retailers are 90% more like than Industry Average and nearly 2.5-times more likely than Laggards to possess this technology. Loyalty card redemption is the true test of a loyalty program's success, as it measures which aspects of a loyalty program a customer is utilizing. A loyalty program has two key attributes that must be taken into consideration: the brand image and whether the program translates into a transaction. If a retailer is unable to perform loyalty card redemption, the brand image is in danger, and there is no way to track if the program has resulted in a transaction. It is not surprising that, as mentioned in Chapter One, 35% of Industry Average retailers and 47% of Laggards could not determine if their loyalty program is a success or a failure. Until retailers are able to process loyalty

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cards and redeem loyalty offers, they will not be able to reap the benefits of a true loyalty program.

As Figure 8 shows, the number one priority for IT spend in 2009 is on loyalty data analytics, followed by consulting services from a third party and a hosted platform for loyalty programs. As our data has shown, retailers are turning towards customer analytics to guide them in the development of personalized promotions for their customers. The fact that more than half of the retailers surveyed identified this as their top area for spending shows the importance of the analytics in a loyalty program. As a means to reduce in-house costs of loyalty programs, retailers are turning to third party consulting services and hosted loyalty platforms to fulfill their on-demand needs.

Figure 8: Loyalty Spend in 2009

Loyalty Spend 2009

22%

9%

24%24%28%29%

52%

0%

20%

40%

60%

Loyalty dataanalytics

Consultingservices froma third party

A hostedplatform for

loyalty program

Loyaltydatabasemarketingsoftw areapplication

On-premiseloyalty program

enablingsoftw are

Professionalservices for

loyaltyoperations

Loyaltydatabase

hosting service

Source: Aberdeen Group, March 2009

Performance Management Best-in-Class retailers are nearly two and half times as likely as their peers to possess the ability to incentivize new customer loyalty registration for employees, and twice as likely as their peers to possess the ability to incentivize the redemption of customer loyalty initiatives for employees. Incentivizing employees, whether through a bonus plan or rewards structure, puts an added effort into a company's loyalty plan. Employees are able to tie their individual success to the success of the company loyalty initiatives, giving each employee a greater stake in the overall success of the company. An initiative such as this leads to higher levels of employee initiated training on the loyalty program, improved customer service, and increased customer satisfaction with the loyalty program. It also gives retailers more confidence in their employee knowledge of the rewards program, which can help to justify their IT spend on loyalty initiatives and improve the return on their loyalty investment.

Best-in-Class retailers are 65% more likely than their peers to have the ability to analyze the net profit margin impact of customer loyalty related

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expenditure. This analysis is an integral part of deploying any technology in the retail environment. In today's difficult economic times, customer loyalty is a top-of-mind initiative for retailers of all maturity classes. As Best-in-Class companies are able to analyze how successful their loyalty initiatives have been, they are better equipped to make decisions on how to budget appropriate IT spend on their loyalty initiatives moving forward.

Customer loyalty initiatives are a major driver for retail success. As Figure 9 shows, those retailers that have a loyalty solution in place are performing at significantly higher levels across a number of important metrics. Retailers that have a loyalty initiative in place reported a 53% higher Compound Annual Growth Rate (CAGR), a measure of the year over year growth of a company from 2003 to 2008, than those without a loyalty initiative. Retailers with loyalty initiatives in place also reported a threefold increase in average basket size and retention rate versus those retailers without a loyalty initiative. These retailers also saw their customer attrition rates decreased 16-fold as compared to those retailers without a loyalty solution.

These metrics show that customer loyalty programs are a direct indicator of success. Loyalty programs help to acquire new customers, retain current customers, and re-activate dormant customers. The key to driving retail success is to get customers in the store, on the web, or with a catalog in hand. By properly utilizing a customer loyalty program, these objectives can be met, and will lead to increased sales and profits.

Figure 9: Loyalty Programs and Success

0.1%

6.0%

7.5%8.1%

1.6%2.1%

2.7%

5.3%

0.0%

5.0%

10.0%

CAGR Basket Size Retention Rate Attrition Rate

Exists Does no Exist

Source: Aberdeen Group, March 2009

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Aberdeen Insights — Technology Limitations

Customer loyalty is an integral part to the success of any retailer, especially in tough economic times. The use of technology to drive customer loyalty is on the rise, but there is more that needs to be done. Retailers are missing out on incredible opportunities to expand their customer loyalty programs and membership levels, thereby missing out on repeat customers and higher sales volumes.

According to Aberdeen data, 53% of retailers surveyed indicated that customers can join their loyalty program on the retail website. While ecommerce is steadily growing, the bulk of retailer's revenue and traffic comes from the store environment. Our data indicates that 52% of retailers surveyed indicated that they have the capability to capture CRM data at the point-of-service. However, only 37% of retailers reported that customers can join their loyalty program via retail POS, where the process is handled by the store associates. This gap between the capabilities the retailers possess and the processes they are actually implementing show that retailers are not taking advantage of the technology afforded to them.

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. Until retailers become more proactive, they will not see the return that is possible from their customer loyalty programs.

Figure 10: Technology Gap at POS

53%57%

52% 52%

37%

50%

40%

24%

20%

25%

30%

35%

40%

45%

50%

55%

60%

Overall Best-in-Class Average Laggard

CRM data capture at POS Loyalty activation at POS

Source: Aberdeen Group, March 2009

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Chapter Three: Required Actions

Fast Facts

√ Fifty percent (50%) of the Best-in-Class automated enrollment at POS – a lack of automated means impedes the retailers ability enroll all possible customers, leaving lost opportunities for providing promotional and cross-selling offers

√ According to our results, 24% of Industry Average retailers possess the capability to segment their loyalty offers based on different spending or point accrual threshold, compared to 48% of the Best-in-Class which improve focus on an expanding base of lifetime customer value

√ Currently, 30% of Laggard retailers execute market basket and wallet share analysis compared to 48% of the Best-in-Class - both market basket and wallet share analysis helps retailers to execute personalized customer loyalty initiatives for specific customer groups

Whether a company is trying to move its performance in retail customer loyalty solutions from Laggard to Industry Average, or Industry Average to Best-in-Class, the following actions will help spur the necessary performance improvements:

Laggard Steps to Success • Create a customer loyalty program roadmap. For the

success of any loyalty program, establishing a planned three-year roadmap for customer loyalty campaigns is vital for short-term and long-term brand value creation. Such a roadmap must consist of monthly and weekly program objectives, the selection of loyalty elements and target audience, pre and post-loyalty program goals, a loyalty system and POS integration plan, and timely program evaluation to institute checks and balances. Program goals are extremely critical for performance management and justification of loyalty marketing spend. Such goals are based on the number of enrollments, accruals, and redemption that ultimately impact financial, operational, or customer metrics (such as customer retention, net profit margin, or reduced attrition rate). Currently, Laggard retailers under-perform on all three metrics when compared to Industry Average retailers as they launch "under-prepared or me-too" programs as a response to competition. The lack of preparation or the under-commitment of IT tools and related processes involved in loyalty program execution is a certain recipe for failure.

• Conduct customer wallet share and market basket analysis. Currently, 30% of Laggard retailers execute market basket and wallet share analysis compared to 48% of the Best-in-Class. Both market basket and wallet share analysis help retailers to forecast and plan personalized customer loyalty initiatives, promotions, and selling programs for specific customer groups (such as top 20% customer groups by transaction dollar amount and number of transactions). Affinity analysis ensures greater customer satisfaction, incremental sales through cross-selling, and improved lifetime customer value due to improved predictability of loyalty program performance. Laggards can utilize best-of-breed data analytics models that enable structured market basket and wallet share analysis. The steps include purchase data aggregation, assembly and cubing, analysis, and delivery in the form of reports or dashboards. The most important element for the accuracy of loyalty programs is the availability of clean data to determine appropriate customer groups, offers, and elements of delivery such as reward points or dollar threshold.

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• Apply rules-based and POS-integrated customer loyalty systems. Our results show that a mere 24% of Laggard retailers possess the capabilities to ensure that customers can enroll in an existing loyalty program via the point-of-sale system. This means that for a wide majority of Laggards, loyalty enrollment is a manual and labor-intensive process that is not cost efficient. It is also evident from the data that retailers with non-business rules based legacy loyalty systems lack full or even partial POS integration for loyalty processing and fulfillment. Laggard companies must consider a phased-migration from legacy customer loyalty systems that lack updated customer-facing and back-end data capture and integration rules. The use of next generation, POS process-integration, and business-rules based loyalty systems can ensure that at least from a technological efficiency standpoint, retailers can provide timely and efficient loyalty program enrollment, accrual, and program fulfillment for all customer groups. Attributes such as availability of product for promotions or determining the optimum sale price ensure seamless execution of programs that deliver the brand promise to the customer in terms of price discount, points, or perks. Before executing any campaign, the marketing team must take all business attributes into consideration.

Industry Average Steps to Success • Develop multi-tier loyalty programs for the most profitable

customers. Multi-tier reward plans provide variable levels of incentives for customer groups based on their loyalty benefit accruals. These incentives ensure that customers continue to spend and aspire for higher loyalty benefits. Multi-tier rewards enable retailers to continually add to the base of lifetime customer value as well as ensure long-term high-ticket incremental sales. For most retailers, financial retail services, and hospitality companies, multi-tier reward plans facilitate an ongoing value-based relationship with customers. According to our results, 24% of Industry Average retailers possess the capability to segment their loyalty offers based on different spending or point accrual threshold. Nearly half (48%) of the Best-in-Class offer multi-tier reward plans to their customer groups, thus extracting an improved focus on an expanding base of lifetime customer value.

• Measure the net profit margin impact of customer loyalty expenditure. Measurement of ROI on customer loyalty programs is a continuous action at retail headquarters. Loyalty-related expenditure of retailers includes cost of software or platform of applications used to plan and implement loyalty campaigns, cost of ongoing loyalty operations, and value provided to customers in terms of price discounts or accumulated value for the customer (perks or points) that can be leveraged for a product or service over a period of time. The benefits from loyalty programs include

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the prospect of improved revenue and long-term customer relationships leading to increased lifetime customer value. However, the most vital impact of customer loyalty is on financial metrics (such as high margin sales and basket size) that positively impact net profit margin of a store and the entire chain. Our results indicate that 26% of the Industry Average currently own knowledge management capabilities to measure the impact of specific customer loyalty programs on net profit margin. Best-in-Class companies are twice as likely to possess such advanced capabilities to measure the financial impact of specific customer loyalty campaigns for specific customer groups.

Best-in-Class Steps to Success • Upgrade the loyalty tool infrastructure on an annual basis.

On average, 45% of the Best-in-Class have not demonstrated complete adoption of four essential components of an effective loyalty platform: a loyalty CRM system, loyalty enrollment, loyalty analytics, and loyalty redemption functions. This means that Best-in-Class loyalty campaigns are operating in silos and not realizing the combined cross-selling efficiency of coordinated loyalty campaigns in the store, web, call-center, and direct-to-consumer. The Best-in-Class must review and improve their loyalty marketing tool set to best accommodate the end-to-end functionality required for further improving performance metrics such as average basket size, customer retention, and reduction in customer attrition. Implementing a couponing strategy for the web and mobile channels is a first step toward improving their current loyalty tool sets. At the very least, the Best-in-Class should consider annual improvements and quarterly releases to the end-to-end loyalty application as part of the standard license agreement. Loyalty data analytics and related knowledge, and performance management capabilities such as data gathering, reporting, and setting of performance benchmarks need immediate improvement for gaining better control on sales, margin, and branding objectives.

• Improve automated enrollment of customers at POS. Fifty percent (50%) of the Best-in-Class require some form of manual associate or store manager intervention as these companies do not provide automated enrollment at POS. This impedes the retailers ability to enroll all possible customers, leaving lost opportunities for providing promotional and cross-selling offers. A manual or even a partially manual enrollment process can be deemed as time-consuming and cumbersome by customers. In order to overcome such obstacles, integration between the loyalty system and POS is possible by two means:

o Upgrade existing POS software to accommodate a best-of-breed or enterprise-level loyalty and CRM module for customer look-up, and loyalty card processing, promotion

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acceptance, point accruals, customer account updates, and fulfillment functions such as automated mailing, among other feature and functions.

o Evaluate a common application provider that installs / upgrades both POS and customer loyalty system. In the case of a common solution provider for POS and loyalty, integration of data fields would be a less arduous and more cost effective process due to a common software programming language, source code make-up, user interface, and open architecture that promotes rapid integration.

Aberdeen Insights — Customer Loyalty Program Cost Containment

According to 60% of Best-in-Class companies, costs associated with upgrading to a new customer loyalty system and customization to the business attributes of the merchant are the foremost cost factors related to the use and adoption of customer loyalty programs in retail and other associated industry segments.

Aberdeen data indicates that 50% of all companies surveyed currently use legacy customer loyalty systems and tools that are between five to 10 years old. These systems primarily include non-rules based loyalty CRM software tools that are used by retailers, airlines, entertainment, and hospitality companies to amass disparate sources of customer information. These legacy tools help companies process and fulfill promotions, rewards, and other loyalty programs. Due to the legacy nature of such systems, loyalty programs are often challenged with manual intervention, inaccurate customer data, missing fields, and duplication. These legacy loyalty management system deployments compel companies to pursue timely upgrades or replacements to ensure a next generation loyalty system that is efficient and lowers costs of operations.

In such a scenario, companies can undertake a series of steps to reduce the loyalty cost burden at a time when cost of goods sold is sky rocketing due to uncertain demand, budget constraints, and low sell-through rates in the sales channels.

The following are some "common sense" measures that can contain costs associated with the use and adoption of a customer loyalty programs:

• Evaluate a managed or hosted services model. Consider hosting part of the customer loyalty application, fulfillment, or services for reduced technology cost of operations

continued

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Aberdeen Insights —Customer Loyalty Program Cost Containment

• Involve trading partners and suppliers to share the loyalty cost burden by incentivizing shelf-level sales performance and flexible payment terms

• Evaluate the deployment timeframe to test all cost factors as part of a pilot program involving a handful of stores

• Consider co-op loyalty marketing opportunities with companies that target similar customer demographics

• Improve measuring and tracking customer loyalty program usage data to ensure enrollment, accrual, and redemption are in line with ROI objectives

• Ensure usage of low-cost loyalty program execution material and collateral such as direct mailers or informational mailers - where applicable, use web-based loyalty tactics instead of paper coupons and enrollment applications

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Appendix A: Research Methodology

Between January and March 2009, Aberdeen examined the use, the experiences, and the intentions of more than 165 enterprises using loyalty solutions in a diverse set of retail enterprises.

Study Focus

Responding executives completed an online survey that included questions designed to determine the following:

√ The degree to which customer loyalty solutions are deployed within retail operations

√ The structure and effectiveness of existing customer loyalty implementations

√ Current and planned use of customer loyalty processes and technology tools

√ The benefits, if any, that have been derived from customer loyalty initiatives as part of the larger marketing strategy

The study aimed to identify emerging best practices for the use and adoption of retail customer loyalty applications, and to provide a framework by which readers could assess their own management capabilities.

Aberdeen supplemented this online survey effort with interviews with select survey respondents, gathering additional information on loyalty strategies, experiences, and results. For the purposes of this report, a customer loyalty program is defined as the use of customer purchase and product affinity-related data to create time-bound payment card and non-payment card campaigns that support long-term customer relationships and brand advocacy. Loyalty campaigns include but are not limited to point perk, dollar rewards, coalition marketing, frequent buyer offers, or private label credit cards.

Responding enterprises included the following:

• Job title / function: The research sample included respondents with the following job titles: senior management (25%); Director (18%); EVP/SVP/Vice President (13%).

• Industry: The research sample included respondents exclusively from retail industries: supermarket / grocery (10%), specialty (9%), hospitality / leisure (8%), apparel / footwear (7%), retail banking (14%), consumer products (9%), and department store / general merchandise (5%).

• Geography: The majority of respondents (61%) were from North America. Remaining respondents were from the Asia-Pacific region (20%), Europe (13%), South / Central America and the Caribbean (3%), and Middle East, Africa (3%).

• Company size: Thirty-three percent (33%) of respondents were from large enterprises (annual revenues above US $1 billion); 27% were from midsize enterprises (annual revenues between $50 million and $1 billion); and 40% of respondents were from small businesses (annual revenues of $50 million or less).

• Headcount: Thirty-six percent (36%) of respondents were from small enterprises (headcount between 1 and 99 employees); 22% were from midsize enterprises (headcount between 100 and 999 employees); and 42% of respondents were from small businesses (headcount greater than 1,000 employees).

Solution providers recognized as sponsors were solicited after the fact and had no substantive influence on the direction of this report. Their sponsorship has made it possible for Aberdeen Group to make these findings available to readers at no charge.

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Table 4: The PACE Framework Key

Overview Aberdeen applies a methodology to benchmark research that evaluates the business pressures, actions, capabilities, and enablers (PACE) that indicate corporate behavior in specific business processes. These terms are defined as follows: Pressures — external forces that impact an organization’s market position, competitiveness, or business operations (e.g., economic, political and regulatory, technology, changing customer preferences, competitive) Actions — the strategic approaches that an organization takes in response to industry pressures (e.g., align the corporate business model to leverage industry opportunities, such as product / service strategy, target markets, financial strategy, go-to-market, and sales strategy) Capabilities — the business process competencies required to execute corporate strategy (e.g., skilled people, brand, market positioning, viable products / services, ecosystem partners, financing) Enablers — the key functionality of technology solutions required to support the organization’s enabling business practices (e.g., development platform, applications, network connectivity, user interface, training and support, partner interfaces, data cleansing, and management)

Source: Aberdeen Group, March 2009

Table 5: The Competitive Framework Key

Overview The Aberdeen Competitive Framework defines enterprises as falling into one of the following three levels of practices and performance: Best-in-Class (20%) — Practices that are the best currently being employed and are significantly superior to the Industry Average, and result in the top industry performance. Industry Average (50%) — Practices that represent the average or norm, and result in average industry performance. Laggards (30%) — Practices that are significantly behind the average of the industry, and result in below average performance.

In the following categories: Process — What is the scope of process standardization? What is the efficiency and effectiveness of this process? Organization — How is your company currently organized to manage and optimize this particular process? Knowledge — What visibility do you have into key data and intelligence required to manage this process? Technology — What level of automation have you used to support this process? How is this automation integrated and aligned? Performance — What do you measure? How frequently? What’s your actual performance?

Source: Aberdeen Group, March 2009

Table 6: The Relationship Between PACE and the Competitive Framework

PACE and the Competitive Framework – How They Interact Aberdeen research indicates that companies that identify the most influential pressures and take the most transformational and effective actions are most likely to achieve superior performance. The level of competitive performance that a company achieves is strongly determined by the PACE choices that they make and how well they execute those decisions.

Source: Aberdeen Group, March 2009

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© 2009 Aberdeen Group. Telephone: 617 854 5200 www.aberdeen.com Fax: 617 723 7897

Table 7: The Loyalty Process

Planning Implementation Evaluation and Analysis Pre-loyalty customer data analysis Customer profile CRM database Loyalty scenario Redemption rules Program rules and regulations Cost of product Sale price Sales, customer, margin benefits Availability of product Application of mark-up Customer interaction scripting

Field marketing tools POS system testing and software updates for promotion or loyalty transaction processing Activate customer interaction scripts for channels Activate incentives and training for channels Program redemption processing Program order and fulfillment through hubs and DCs Populating information and updates on customer profile and CRM database on coupon transaction processing or points accumulated

Measurement and monitoring loyalty transaction data Sort, filter, batch processing, presentation for custom reports, and dashboards Mapping results against loyalty program goals Evaluate loyalty scenario process workflow Set corrective action for internal and external audience Post-loyalty customer data analysis for larger business decisions and improvements (new segments, new products)

Source: Aberdeen Group, March 2009

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© 2009 Aberdeen Group. Telephone: 617 854 5200 www.aberdeen.com Fax: 617 723 7897

Appendix B: Related Aberdeen Research

Related Aberdeen research that forms a companion or reference to this report includes:

• State of the Retail Market; December 2008

• Business Intelligence in Retail; November 2008

• Precision Merchandising; November 2008

• Mobile Payments in Retail; October 2008

• The Mantra for Driving Holiday Sales; August 2008

• Responsive Trade Promotion; July 2008

• Responsive Customer Loyalty; June 2008

• Technology Strategies for Multi-Channel Retailing; April 2008

• Customer-Centric Point-of-Service; February 2008

Information on these and any other Aberdeen publications can be found at www.aberdeen.com.

Authors: Sahir Anand, Research Director, Retail, [email protected] Cunnane, Research Associate, Retail, [email protected]

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