Shoppers are today faced with overwhelming choice in where to buy, making it harder than ever to earn a customer’s loyalty. Moreover, as retail faces the full force of the economic crisis, consumers are increasingly concerned about how much they are spending and, in turn, the way they are shopping is changing. It’s no longer enough, however, to offer the cheapest price on the High Street, as the internet will inevitably undercut this.

So how do you drive loyalty in the 21 century? The breakfast roundtable aimed to answer this question and also create discussion on the challenges facing retail organisations around customer loyalty and retention. It also looked to examine how the effective implementation of technology can help address these challenges. In attendance were: Arun Glendinning, financial services - product manager, B&Q; Sharon Peters, programme manager - retail systems, Marks & Spencer; Richard Jones, head of commercial systems, Waitrose; Mike Wilks; integration programme manager, Mosaic; Paula Paravecchio, managing director, distribution and services industry, Microsoft EMEA; Simon Jones, sales director, Retalix; Tanya Bowen, senior CRM consultant, BT Expedite; David Dobson, worldwide industry manager, store systems, Microsoft; Boaz Mishaan, vice president, international sales, Retalix.

The chairman, Dr Nicola Millard, customer experience futurologist, BT Expedite, which helps its customers to deliver integrated multi-channel solutions, kicked the roundtable off by casting an eye over the current state of the market. “One of the things that BT finds is some people are saying that loyalty is dead, which is an intriguing challenge for us. Is there such a thing as a loyal customer and what’s in it for them? Chuck in a credit crunch and you’ve got a very interesting market.”

Dr Millard cited recent research from Loudhouse Research and RightNow Technologies, which provides “some quite scary statistics.” In the UK market, they polled 1,000 adults and found that 48 per cent of them said they were going to reduce their spending and 88 per cent were likely or very likely to take their business elsewhere on the basis of a poor customer experience. Meanwhile, 82 per cent of consumers believe that during the current economic climate, organisations must listen and act on customer feedback in order to retain business, while 74 per cent are less likely to do business with an organisation if their feedback is ignored. “So, we have that challenge - our customers nowadays are very sensitive to value for money and price but they are still looking for fantastic levels of customer service,” said Dr Millard.

Where, then, does that leave loyalty/CRM programmes? A 2006 report from Retail Systems Research (RSR), entitled Loyalty and Personalisation: The Next Generation of Retail CRM*, found loyalty programmes at a crossroads. Many retailers were not getting value out of their programmes and had locked themselves into a ‘pay to play’ Catch 22 situation, where they were essentially offering discounts to consumers in exchange for collecting purchase history. A 2007 update, meanwhile, looked at more foundational capabilities for customer data collection, management, and use - which can be used with or without a loyalty programme. Whether it is to a loyalty card holder or just a high-frequency shopper, the tools are the same: retailers must be able to identify target segments, design offers, deliver offers and track performance. Had the industry evolved to a point where retailers could consistently live up to their customers’ expectations? RSR concluded no, but observed that there were signs of progress.

Jones of Retalix, which provides software solutions to retailers and distributors worldwide, noted that historically loyalty has had a very narrow and possibly bad reputation - “why don’t you just reduce prices? We think that there is a different angle of attack and one of the reasons for our involvement in this roundtable is that we’d like to share our thoughts.”

“I don’t think loyalty is alive, in the sense that there are only two schemes in the UK that we would deem successes - Tesco and Boots,” he continued. “Loyalty is perceived by a lot of retailers as a discount scheme. Part of the issue is that in grocery you accumulate points quickly as your spend is high, but in the non-food sector fast moving is one a week, not one a second. The question is: can we redefine the value proposition of loyalty to the customer in a different way that makes them either spend more or visit the store more often?”

A case perhaps of putting the concept of true loyalty ahead of loyalty cards? In pursuit of this goal, Marks & Spencer has done a lot of good work towards engaging its customers. A recent development, for instance, involves in-store signs asking for feedback via communication channels, allowing the retailer’s customers to express their comments, suggestions, questions and compliments about any aspect of their shopping experience. At the same time, however, it is well aware that it cannot afford to be complacent, that today’s consumer faces unprecedented choice when it comes to shopping, both in-store and online. “We do need to start talking to our customers on a more frequent basis.The feedback system has been great for us. We have a big loyal base but that base is potentially tempted to go elsewhere all of the time. Speaking as a shopper, loyalty programmes don’t work for me - they need to change quite a bit,” said Marks & Spencer’s Peters.

In many ways, it isn’t about the loyalty card but rather the data and what you do with it. Many retailers have been guilty of failing to have a good system in place that makes the most of the data. BT Expedite’s Bowen highlighted the operational and strategic aspects of the loyalty debate. “Operationally, as a retailer if you have a card you are looking to capture customer information more consistently. Strategically, the card is very important - one forgets to consistently measure the ROI of not just the marketing programmes but also any money that is going into the database for additional analysis. So to me loyalty is not dead - the problem is we’re not consistently focusing on ROI,” she said.

How can technology help address these challenges? For Retalix’s Mishaan, the technology barrier was passed a long time ago. It’s in the execution where retail often falls down. “A lot of companies have wonderful loyalty applications, but from what I see once you decide to go down that route you need to set up a structure and the processes around it in order to benefit from a loyalty programme,” he remarked. “You need people to manage the programme, you need marketing around it, you need to do the simple stuff - for instance, once you collect the data, you have to look at it and examine patterns of consumer behaviour. When you start a loyalty programme, you collect a lot of information but if you don’t do something that targets the data, you risk going the route of simply having a discount at the end of the purchase and then you’re at the stage where people have 15 cards in their wallets.”

Indeed, a major problem would seem to be that many retailers have tested the loyalty waters but failed to see their projects through. As Mosaic’s Wilks put it, CRM is not just for Christmas. “It needs to be an ongoing programme. Many retailers have tried it, spent money on a CRM or loyalty card solution, installed it and then walked away, expecting it to automatically produce returns,” he commented. “You need to drive it, manage it and keep working with the data and because your customer base shifts, your metrics need to shift and it requires continuous investment. Retail is not good at these things - it is good at fire and forget - let’s move on.”

There have, of course, been success stories, most notably the previously mentioned programmes run by Tesco and Boots. Retalix’s Mishaan commented: “There are examples of retailers who are running very successful programmes and I think we need to learn from them. From what I see, it’s usually around how the loyalty is being managed - if you have the right people and processes, and you’re doing good things with your data, then there’s no reason it shouldn’t be successful. Also, we can look at other industries, such as the airline business. Technology is very advanced and there are companies who are doing good work.”

And Paravecchio of Microsoft highlighted a US business (electronics retailer BestBuy) that has also done good work in this field, both in terms of strategy and ongoing support. “Six years ago, they invested in the idea of angel and demon customers and used Columbia University Professor, Larry Selden, to help them with their planning. They scored and really stratified all their customer types and then they went about architecting stores to keep it to the demographics. It has been very successful for them and everybody is trying to copy it, but when you look at it, the CRM technology is not the issue. What they did was a great job at programmes to link oneto- one, cross and up-sell.” But even BestBuy hasn’t got it all figured out. “The investment’s there, the strategy’s there, but what I find being a BestBuy customer is that the execution is not as flawless as it needs to be. Great approach and strategy but then how does it come alive? At the same time, however, they clearly have the top executives to drive this at a governance level,” said Paravecchio.

Credit crunch
In these challenging times, the retail sector is perhaps being forced to redefine the meaning of loyalty. The credit crunch means that a number of retailers are revisiting their budgets, either for new investment in CRM or continual investment, according to BT Expedite’s Bowen. “Whether they have a CRM or a loyalty solution, what we’re finding is that they’re getting aggressively territorial about their customers. For instance, when one retailer we know of closed down a store, they went into the database and pulled straightaway the customers from that store and tried to push them onto the web so they didn’t actually lose them. So we’re seeing some quite creative uses of the database in a way that hasn’t been done before.” But before redefining loyalty, how do we define it in the first place? It could be argued that it’s something of a nebulous concept. Waitrose, for instance, has a large segment of what it calls ‘secondary shoppers’ - these might be young families who are visiting Tesco and Asda and buying multi-pack toilet rolls etc, but there is something unique about Waitrose’s offering that draws them in for fresh goods. “How do you define that loyalty? Because you might say - they can’t be loyal as they shop somewhere else, but for us if that secondary shopper were to buy a few more items…well, you can guess the rest. So you’ve got to try and target them, but it isn’t necessarily just basket analysis - there are other areas where we can try to drive that loyalty, which is down to product quality as that is what’s bringing them in-store,” said Waitrose’s Jones. “We do have programmes of work which aren’t card programmes as such, but they underpin the protection of our product development and how we make sure that becomes the best that we can achieve relative to being a good value for money proposition.”

The conversation then moved to fashion, one of the toughest retail sectors when it comes to earning a customer’s loyalty. Mosaics’ Wilks explained that nobody in fashion believes the female customer will buy all her clothes in their stores. “To some degree we’re always dealing with a secondary shopper. For us, the aim is to increase the visits and increase the spend. We’re not expecting that the lady will never go anywhere else. It’s all about accepting that all you have is a share and the aim is to maximise and drive that share forward, rather than trying to become totally dominant, which I guess is the Tesco and Sainsbury’s approach.”

“In the run up to Christmas, everybody was focused on generating cash due to the hoo-hah around rent and a few other things. That certainly was the case in the fashion business. It was a dash for cash at the expense of margin, but part of that was because, in terms of loyalty schemes, we don’t have the necessary measurement tools, so holding sales was an easy lever to pull to generate business in order to make sure you were trading successfully into the New Year. I think everyone might be stepping back from that now and having a think about the way forward, but that was certainly the case three months ago,” he continued.

B&Q’s Glendinning backed up this point, adding that the mad dash for Christmas and the resultant sales blitz made it more important than ever to communicate with customers regarding promotions etc. “We are going to have to cut through a lot of the clutter - big flourescent signs saying 50 per cent off don’t really mean a lot now.”

Coupons/vouchers
In the past 12 months, the coupons and vouchers sector has started to gain some serious traction. Vouchers have been transformed from the old days of cardboard or paper money-off coupons for basic FMCG items. Today many leading retailers, from Marks & Spencer to Argos, have online offers that can wipe pounds off the cost of both luxury and staple goods. According to the website analyst Hitwise, during one week in November 2008, five times as many searches were conducted on ‘voucher’ compared with ‘Father Christmas’. And sites offering discounts and rewards feature strongly in Nielsen Online’s list of the fastest growing sites in the UK, from shopping comparison sites to those offering coupons and rewards. Marks & Spencer’s Peters noted: “I think we are turning towards coupons/vouchers. Last Christmas, the vouchers.com website was bubbling under - this time around they were in your face. It gives you something to hold and feel and touch, you feel like you’re getting more of a bargain.”

BT Expedite’s Bowen also highlighted this trend. “If I see 50 or 75 per cent off on the web or in-store, I’m not going to follow that up because I think it’s the end of the line. By the time it gets to 75 per cent, it’s like no one wants it,” she said. “The good thing about a voucher or coupon is that I don’t think about it in the same way. I perceive it as a different offer. It’s more targeted, a discount on something I want, not something that has 75 per cent off.”

There is a downside, however. “It’s very annoying when you get a voucher in the post and you lose it and know that it’s still valid. Why are retailers still doing that when they can text a coupon code to someone and they can use it in-store? It’s so simple and in technological terms it’s not expensive,” Bowen said.

Waitrose’s Jones noted: “We’ve got a lot of global coupons and promotional activity that doesn’t really know who the end customer is. That in a sense gets people over the door - the challenge for us is then to somehow attract that customer to share with us their identity. And then once they’ve done that, we’ve got the opportunity to build a relationship whereby we may be able to do targeted loyalty programmes, and I can see how Tesco and Boots have tried to take advantage of that. We have an account card and we’re trying to grow the base of that card, but relative to the number of transactions done on these cards we don’t really know enough about the people using them. It’s about trying to understand more about the person who comes in during the Christmas period and spends a lot but doesn’t return.”

There are, of course, security and spam issues, but these can be overcome by encouraging customers to sign up for offers, making it a case of marketing to your loyal customer base. Marks & Spencer has been working on some interesting propositions in this area and these have helped to change the landscape - the result being that companies see a major retailer doing it and so sit up and take note. “We have spend and save, so you get them issued over Christmas to then spend in the first few weeks of January. You get your credit card statement and also vouchers offering money off when you spend a certain amount,” said Peters.“But vouchers can be very frustrating, so it’s a case of how to overcome these problems - mobile is certainly an interesting option.”

With so many innovative applications floating around, where does it leave the technology vendors? Retalix’s Mishaan acknowledged that it has created a very challenging environment. “From a technical perspective, guys like Marks & Spencer are becoming more and more creative in the way they use coupons and discounts. It has been quite a challenge for us to cater for this. We have a loyalty application that has hundreds of menus in it but still we’re dazzled sometimes by the requests we get from our customers to put in different kinds of promotions.” he said. Whilst there is a lot of innovative technology out there, all roads must lead back to the customer. As Marks & Spencer’s Peters put it: “We get all the crazy marketing ideas, but the key thing that the marketing guys sometimes don’t think about is - what does it look like on the receipt and can the customer understand it? Over Christmas, our receipts were really long - you had all the detailed products and underneath the discount, then the VAT and so on. That’s a big part of it, because if you don’t understand what you’re getting, it can become a major problem.”

The multi-channel challenge
Where does the multi-channel revolution fit in to the loyalty landscape? Proactive retailers are continuing to invest in their multi-channel offerings, but 2008 proved that this remains an area of discovery for many. So how can companies employ strategies - in-store, catalogue, web and mobile - to improve the customer experience and, in turn, drive more loyal customers?

B&Q’s Glendinning commented: “The thing that has changed in the last ten years is the online shopping experience and the fact that you can capture a lot more information. I think the question is: how much of that can you leverage in your store’s business and how can you connect all the channels and understand your customer and the way they shop across those channels? People have seen how you can capture that information online and are looking at how you can use those tricks with other channels.”

Many retailers are enhancing their business models to engage customers with the right information at the right time through their channel of choice. Yet many others are falling short in this area. BT Expedite’s Bowen observed that her company has around 115 retailers who use its applications, but probably only about 18 per cent of them are pursuing the multichannel route. “They collect multi-channel data but they’re not proactively looking at things like profitability by channel. How many times with a retailer do you have to give your details on separate occasions across the channels? This can infuriate the customer.”

But whilst integrating channels and getting a clearer view of the customer is hugely important, it should be noted that customers don’t see channels, they see a brand, stressed Dr Millard. She highlighted research she had carried out, showing the importance of positive investment in multichannel. Internet and mobile customers are only a click away from abandoning a company if their expectations are not met. The most multi-channel prone customer, however, tends to be a more profitable consumer for retailers as they are more likely to engage in cross-selling and up-selling. Customers using two channels spend 114 per cent more than single channel shoppers. Those using three channels are 48 per cent more profitable than those using just two. Yet only around ten per cent of companies handle more than telephone calls in their contact centres. Many firms have been evangelical in trying to do all their customer contact on lower cost, ‘self-serve’ channels, such as automated calls and e-mail. This often frustrates customers and is not always the correct approach.

Microsoft’s Dobson said he had recently returned from the NRF show in New York where he saw a presentation by Laura Wade-Gery, CEO at Tesco.com and Direct. “She was discussing the competition within the channels and noted that, if you really want to have a seamless transactional experience with the customer, if you buy online and pick up in-store, the store manager is losing that stock and doesn’t get credit for it - he’s not going to be happy with that sale, so it’s creating conflict. You have to solve that internal conflict and the way they do it at Tesco is double account for the revenue so that the store manager and the dotcom business are both happy. There are lots of issues like that. No matter how much data you capture, if you don’t solve some of the fundamental internal issues, there will be a problem.”

Waitrose is also experiencing its own share of multi-channel-related issues. “People are nowadays much more prepared to share their details on the internet. Even in the last three years, people have moved a huge way forward from ‘I’ll never put my credit details on there’ to ‘I trust these sites and I’m prepared to do this on a regular basis’. I think what will happen is we will try to look at our Ocado customers who are maintained in a customer database that doesn’t touch the Waitrose one, which may or may not have some synergies. People often don’t understand that they’re separate businesses. We have internal challenges to make sense of that clutter, but if we achieve that, we’ve got a better chance to see where the opportunities exist.”

Marks & Spencer is another retailer striving to solve the multi-channel puzzle. “We have a website and an ordering system installed. And eventually we’ll have a click and collect application, but issues we have include contentions among directors in the business and contentions in-store (we pay people to sell chickens and blouses, we don’t pay them to flick around the internet and click on links and say, accept this product) as well as journey contentions,” said Peters. “But you’ve also got potentially an absolute money spinner. It can be a real bonus for stores but I don’t think we can actually see that yet. If in-store and the web merge, could everybody be happy or is it too much of a risk? That’s where we are at the moment.”

BT Expedite’s Bowen emphasised the potential of click and collect. “One of our click and collect customers has only had this application running for three months and their conversion rate is 80 per cent. When we did the ROI we didn’t put it anywhere near that.”

Ultimately, the multi-channel revolution has lead a lot of companies to be very creative in the solutions they provide. Retalix’s Mishaan said that, “we have a really cool feature that we call Queue Busting, so if you want to prevent customers from standing in line, you have a very simple handheld device, whereby someone from the store can go up to the customer and start scanning their products. From a loyalty perspective, it’s a great tool - all about saving people time.” But whilst technology such as this has huge potential, it was left to Marks & Spencer’s Peters to emphasise the human element. “You can have the best technology, but it doesn’t matter if you don’t have the people in place,” she argued.

Campaign management
As several panellists pointed out during the course of the roundtable, it can be difficult for retailers to plan, execute and track customer interactions. That’s where campaign management comes in and business is booming. Microsoft’s Paravecchio observed: “We’re seeing a lot going on in terms of digital advertising and marketing. The market is predicted to reach $117 billion by 2011. In the food space, you’re going to see a lot of the consumer goods companies wanting to go direct. From the content end and the backend, that’s where we’re seeing a lot of innovation - the dunnhumby’s of this world who want to integrate and have more of a digital way of communicating one-to-one with consumers.”

Waitrose’s Jones made the point that: “Ten years ago, one of the concerns we had was that people didn’t want us to know about them. But I think that’s shifted because now it’s a given fact that if you shop online, the retailer knows about you and this makes the consumer more open to being targeted in a campaign. Ten years ago, if you sent me a mailer saying you knew all this stuff about me, I’d be quite worried but nowadays I shop online or I’ve bought a mobile phone where I have to give a name and address.”

With that, the roundtable drew to a close, as Dr Nicola Millard concluded: “I like to think about loyalty in completely human terms. Why are you loyal to people? It’s a lot to do with trust, it’s a lot to do with permission, it’s a lot to do with not being a nag, which is one of the challenges we face - particularly with campaign management being perhaps a little bit too proactive sometimes.” A hugely interesting roundtable then, with several pertinent points made. How do you drive loyalty in the 21st century? It’s a tough one to call. Loyalty is a difficult thing to measure and there isn’t a ‘one size fits all’ solution floating around out there. At the same time, the innovative technology exists to help address the challenges around attracting and retaining customers. And Tesco, Boots and BestBuy are proof positive that those retailers who truly understand the purpose of their cards/ programmes (and who make the necessary long-term commitments) are well placed to grow and prosper in these challenging times .

* RSR’s report, Loyalty and Personalisation: The Next Generation of Retail CRM, can be downloaded at: www.retailsystemsresearch.com/_document/summary/645