LOYALTY MARKETING DONE RIGHT the Best Labor-To-Customer Ratio

VOLUME 2 | NUMBER 1 | SPRING 2007

A PUBLICATION OF FUJITSU TRANSACTION SOLUTIONS INC.

WHAT ABOUT THE CUSTOMER YOU NEVER SEE? Applying call center metrics to the brick-and-mortar retailer By Jonathan Amsler It’s no secret that call center customer management has become quite a science, as tools and analysis for queue management and abandonment rates are increasingly sophisticated. One thing is clear: call centers have an advantage over brick-and-mortar retailers because management can easily tie wait time to customer service, track lost customers and analyze labor dollars against the lost virtual customer. It makes one wonder … do brick-and-mortar retailers care about the customer in their stores the same way call centers do? Most retailers have a limited view of the customer that has walked through their door. Many rely on transaction data to determine the number of customers, how quickly they are served, and LOYALTY MARKETING DONE RIGHT the best labor-to-customer ratio. Unfortunately, By Peter Wolf this method does not capture the customer you Acquiring new customers is an expen- over their predecessors, with advanced tech- never see – the customer who didn’t buy. sive and difficult process; therefore, it nologies that enable greater understanding WHO IS THIS CUSTOMER? is imperative that retailers focus on retain- of their customers’ purchase behaviors and Of course it is impossible to answer that ing existing customers and rewarding cus- one-to-one targeted marketing. question specifically, but you can be sure that tomer loyalty. Unfortunately, many companies haven’t he or she probably entered your store with the Retailers have long recognized the value evolved their programs much beyond those intent to buy. It is likely that he or she even got of enhancing customer loyalty by offering available 60 years ago. Even companies that so far as to choose the item and moved to the them rewards based on their purchases. are considered industry leaders often issue Gold Bond Stamps, launched in 1938, was “loyalty” cards that simply offer the same “What About,” continued page 5 the first large-scale loyalty program, which discount structure to all members in the quickly became highly successful among program. Whether customers spend $10 a INSIDE THIS ISSUE grocers. It later expanded to other retail seg- month or $1,000 a month, they receive the ments including gas stations, dry cleaners same discounted price at checkout. What is EXCEEDING YOUR CUSTOMERS’ EXPECTATIONS and movie theaters. often positioned as a loyalty program is The basic premise of the Gold Bond merely a standard discount program that IT’S TIME: GROCERS NEED TO REVOLUTIONIZE WITH TECHNOLOGY Stamp program is still the foundation for reduces retailers’ gross margins.

PERVASIVE RETAILING TRENDS most loyalty marketing programs today – With advanced technology to track pur- keep customers loyal to a particular product chases by customer, retailers are often col- CREATING CUSTOMER INFLUENCE, NOT INTRUSION or merchant by offering an incentive that lecting mountains of data that could encourages them to keep coming back - and provide valuable insight into purchase spending more money. However, retailers in trends, customer segmentation and market the 21st century have a distinct advantage basket dynamics. However, research has “Loyalty,” continued page 5 EXCEEDING YOUR CUSTOMERS’ EXPECTATIONS By Sunita Gupta

In today’s dynamic world, customers are extremely knowledge- ware, or connectivity – or all three – are slow or inefficient, the entire able, which translates into more demanding shoppers. Retailers have shopping experience can end on a dissatisfying note for the customer. to work harder and smarter to offer expected levels of service, and As our POS Benchmarking Survey has indicated for the last few offering this is critical to a retailer’s success at creating that differenti- years, there is renewed interest in the upgrade or replacement of POS ated shopping experience. To understand how top retailers are differ- systems. Many retailers have realized that their older POS applications entiating themselves from the competition, especially at the have reached the maximum capacity of their hardware, plus high store-level, LakeWest Group recently conducted our 8th Annual POS maintenance costs and functionality constraints can lead to unsatis- Benchmarking Survey of the Hot 100 Retailers (detailed findings and fied customers. analysis available at www.lakewest.com). Because much of the software functionality that customers expect While multi-channel retailing is one of the key drivers many retail- cannot be run efficiently on old hardware, and retailers are finding ers are utilizing to thrive, it also serves to refocus on the store. The that some systems are becoming more expensive to maintain as they store is where customers can touch items they may have viewed in a get older, we see the trend for upgrading hardware to continue for the catalog, or where they pick up orders they placed online. Or, it TOP POS PRIORITIES can be where the customer first sees and touches the product and Increased customer speed through the checkout then goes home and orders it online. Capture additional customer and sales information

The store experience is a critical Improved information flow part of the customer’s overall satisfaction with the retailer, especially Improved management of store labor at the checkout. This is often the Hardware replacement last major touch point for the customer in the store and slow pro- More accurate store inventory management cessing or lack of functionality can Improved data security easily color the overall shopping experience. Thus, more than two- Seamless multi-channel integration thirds of this year’s survey respon- Implementation of a loyalty program dents indicate that increased customer speed through the check- Decreased total cost of ownership out is their top priority for the next Provide kiosk availability at store two years. It is interesting to note that pro- Implementation of an open system cessing customers through the 0% 10% 20% 30% 40% 50% 60% 70% checkout faster has remained the number one priority for retailers throughout the life of the POS Benchmarking Survey - nearly ten next few years. As customers continue to become more demanding, years. So what are retailers doing to increase customer speed through retailers must ensure that their POS system is not slowing down the the checkout? We found that the Hot 100 Retailers are focusing on the checkout process and allowing the competition to gain an advantage. enhancement and upgrade of software and hardware to offer more The next few years look interesting when reviewing new technolo- functionality to both sales associates and customers at the checkout. gies, especially those that expedite the checkout process for customers in the store. We expect to see big changes at the checkout with more TECHNOLOGY AS A TOOL than one-third of the retailers indicating they will be implementing Technology adds value to the checkout experience if it is used kiosks (employee-facing and customer-facing), mobile sales devices effectively and with the right mix of business processes and training for lane-busting, and signature capture devices in the next two years. to support it. As we look at POS systems, these are often the last major Editor’s Note: Sunita Gupta is executive vice president at touch points for the customer in the store and if the software, hard- LakeWest Group.

– 2 – PERVASIVE RETAILING IT’S TIME: GROCERS NEED TO TRENDS REVOLUTIONIZE WITH TECHNOLOGY U.S. CONSUMERS ARE READY FOR MOBILE To say that the competitive marketplace for gro- tion display” that allows the cashier to speed MARKETING cery retailers is challenging would be a bit of an through the checkout process while giving the cus- Although 79 percent of understatement. Pressure from global mega-marts tomer the chance to respond to promotions, tender consumers find the idea of and high-end boutique chains is squeezing grocer needs or advertising suggestions. These new POS mobile ads annoying, Forrester market share from both sides. The ability to com- software platforms can drive 10-15 seconds out of Research says early efforts at pete solely on low price has all but been taken each transaction (saving more than $1.5 million in away. While grocers continue to have a competitive labor costs for every $1 billion in sales), while mobile marketing have revealed edge when it comes to brand value, locations and increasing branding and loyalty marketing with a consumer willingness to consumer loyalty, these alone will not be enough to each and every customer through the check-stand. engage in campaigns that de- fight off the ever-increasing competitive threats. liver valuable content. Thirty- Merchants in other retail segments have seen DEMAND-DRIVEN LABOR five percent of U.S. households well-placed bets on advanced store technology in- MANAGEMENT that own a mobile phone cur- vestments that can have a material effect on com- The increased availability of store/SKU-level rently use text messaging and petitive differentiation and the overall shopping sales data has enabled much more detailed fore- 11 percent access the mobile experience. On the other hand, it’s no secret that casting and demand planning. This demand Internet, thus creating a viable grocers have been much slower than other retail insight can now be integrated with labor and task audience for mobile marketing. segments at investing in new systems. For example, management systems to help match store associate To combat preconditioned many grocery point-of-sale systems are more than staffing to the forecasted customer traffic. skepticism, marketers must 15 years old and limit the kinds of merchandise and Managing staffing levels to the variability pro- develop mobile marketing that consumer marketing programs that help drive big- duced by different promotions at different times of offers value, not interruptions. ger shopping baskets and improved profitability. the year can help improve customer service levels SOURCE: FORRESTER RESEARCH While many grocers have broadly deployed and sales. Properly implemented, this can create advanced technologies – self-checkout, for exam- the perfect scenario of improved customer satis- GARTNER: IDENTITY ple – the majority lack the depth and breadth of an faction due to staff availability, along with overall THEFT UP 50 PERCENT investment and deployment strategy that will lower labor costs because retailers can be more SINCE 2003 focus on delivering a differentiated consumer accurate in their staffing requirements. Approximately 15 million experience. The last three years have seen a pow- Americans were victimized by erful wave of new grocery-centric store technolo- STRATEGIC SELF-SERVICE some sort of identity-theft gies that can help drive these kinds of aggressive Grocers who have not invested in self-checkout related fraud in the 12 months strategies. They include: (SCO) technology are quickly realizing that this is ending in mid-2006, according no longer a “nice to have,” but a growing customer to a survey by Gartner Inc. GROCERY POS THAT BLENDS expectation as a checkout option. New form fac- These statistics represent more EFFICIENCY AND INTERACTION tors allow for more efficient installations, while than a 50 percent increase since During the original wave of scanner-based POS easier user interfaces improve customer adoption 2003, when the Federal Trade systems, grocers usually had one objective in mind and employee training. And the leverage of mobile Commission (FTC) reported – speed of checkout. This need is almost always handheld technology is giving more flexibility to 9.9 million American adult on the top of consumer priorities when selecting staff acting as SCO attendants. identity theft victims. The the grocery store where they shop. However, the Many of the same benefits from SCO systems at Gartner survey polled 5,000 traditional focus on “scan and bag” has now been the front-end can be seen with more distributed self- augmented with the need to better engage the cus- service kiosk technology throughout the store. U.S. adults in August 2006, tomer at checkout to help drive up not only their Applications for deli ordering, wine selecting, and and the average loss was satisfaction, but the size of their market basket. pharmacy information are helping improve store $3,257 in 2006, up from Advanced POS systems blend a flexible and operations and giving customers a choice of how $1,408 in 2005. intuitive cashier interface with a customer “interac- they wish to interact with and/or access information. SOURCE: GARTNER, INC.

“It’s Time,” continued page 4

– 3 – PERVASIVE RETAILING “It’s Time,” continued from page 3 IN-AISLE INFLUENCE latory penalties. The next 12-18 months will see TRENDS While it’s a bit premature to declare the the early availability of electronic paper (or “e- RETAILERS’ POS impending death of the Wednesday newspaper paper” for short), that in many situations will be EXPENDITURES TO REACH grocery advertisement, the real opportunity to the best solution yet for the eventual replacement $5.8 BILLION IN 2007 drive consumer behavior will happen when the of traditional shelf tags and promotional signs. IHL Consulting Group says customer is at or near the products in the store. Displayed in monochrome or color, e-paper can the PC-based point-of-sale Today, purpose-fit display technology can direct be powered by passive transmission; images can market in North America expe- targeted advertising and marketing messages to be stored for extended periods without any power. rienced an eight percent ship- merchandise categories or even unique SKUs as The advent of e-paper technology along with ment increase in 2006, and POS customers pass by. There is also growing consumer improving price and promotion optimization sys- expenditures are expected to acceptance of cart-based and handheld “shopping tems will allow grocers much more flexibility and reach $5.8 billion in 2007. The assistant” technologies that can give retailers much accuracy in their to-the-shelf execution. largest boost came from ship- more targeted opportunities to drive specific pro- ments for new stores for special- motions or specific customer actions. RFID ty retailers (in the apparel, home RFID will be slower to take hold than most improvement and auto after- CONTACTLESS PAYMENT people thought a few years ago. While RFID will market segments) and restaurants With dramatic changes in payment technolo- continue to see targeted uses and benefits in sup- (casual dining and coffee/donuts). gies and the ever-increasing cost to retailers to ply chain deployments that include inventory In other segments, such as accept electronic payments, merchants have the management between the back room and the sales grocery, touch-screen liquid- opportunity to leverage technologies that help floor, the concept of total item-level, embedded crystal-display (LCD) terminals drive down the cost of each transaction while tags on every product in grocery is a decade away. typically replaced aging hardware. enabling a greater interactive relationship with Grocers should proceed cautiously and evaluate SOURCE: IHL CONSULTING GROUP each consumer. New contactless programs specific benefits when considering the invest- CONTACTLESS from card issuers are simply ways to “pay ment value of any item-level RFID project. PAYMENT SYSTEMS ARE your merchant fees faster,” but don’t While each of these technology APPROACHING THE materially improve investments is benefi- TIPPING POINT the consumer cial in its own AberdeenGroup says contact- relationship. right, it is criti- less payment systems are fast Retailers should cal that grocers approaching the tipping point look for payment do not evaluate of adoption within retail. After solutions that they deploying such sys- numerous pilots and deploy- can brand and that tems in a vacuum. ments in the last three years, the combine less expensive Equal time and attention continued pressure to improve forms of payment (like ACH) with other customer should be paid to the underlying integration and the shopping experience is identification technologies such as stored value architecture requirements that will allow other- prompting retailers to adopt this and loyalty programs. This capability ensures that wise disparate systems to act as a single, cohesive technology. A recent survey the relationship with the customer is driven by the grocery selling platform. showed all contactless technolo- retailer, not the card issuers. When grocers work to implement improved gy standards will experience technology that supports and enables more proac- double-digit growth in 2007 ELECTRONIC PAPER tive merchandising and marketing strategies, they and 2008. More than 58 percent While most grocers have actively considered help create the kind of differentiated shopping of all respondents plan to im- electronic shelf labels (ESLs) for improved price experience many customers want. This is not just plement contactless payment accuracy and lower shelf-tagging labor costs, the a strategy of survival – but a powerful plan to gain solutions within the next 12-to- quick per-store cost calculations that combine tags profitable customers, increase loyalty, and drive 24 months. and infrastructure have driven most away from better sales and improved margins worthy of the SOURCE: ABERDEENGROUP broad deployments – even when faced with regu- brand value that has taken a long time to establish.

– 4 – “What About,” continued from page 1 “Loyalty,” continued from page 1 checkout. But in the end, they did not buy. This customer abandoned the indicated that 40 percent of retailers report that they collect checkout line just like the call center customer who hung up without being CRM data, but don’t use it in any way.1 served. But unlike in the call center, this customer was never really “seen.” Leveraging technology in the following ways can help put retailers on the path to successful loyalty marketing programs WHY DON’T WE SEE THEM? that build loyalty rather than erode margins: One answer is that most retail stores are not equipped to do the looking. Offer Tiered Reward Levels – Structuring a loyalty program Many personnel within the store are receiving inventory, stocking shelves, or that provides incentives for customers to spend more to reach performing other non-customer facing duties. In fact, it is estimated that higher levels that result in richer rewards will increase loyalty even floor associates see only 25 percent of all customers in the store. Unlike and sales more than a standard discount that is available to all call centers, retail outlets do not have the technology built into their infra- shoppers regardless of spending levels. structure to automatically capture the number of customers walking into the Personalize Promotions – Tailor communications to cus- store, measure wait times to checkout, and analyze these operations against tomers based on their purchase behavior or market segment labor demands. to make them feel special and appreciated. WHY IS IT IMPORTANT? According to a recent study by Aberdeen Group, loy- Retailers spend more than $100 billion alty programs deployed by best-in-class retailers annually on advertising and other forms of resulted in 40 percent sales lift when personalized to 2 promotion to drive traffic into the store. In unique shoppers' needs and preferences. response, customers invest personal time to Differentiate from the Competition – Rather than get to the store and do their shopping. When emulate loyalty programs that most competitors are the shopping experience doesn’t meet the offering, leverage ideas from other industries or cre- customer’s expectations because store person- ate a unique component that is different than the nel aren’t available to help, or the checkout retailer down the street. Give your customers a rea- line is too long, the customer becomes dis- son to be loyal to your store or chain. satisfied and may leave the store without Learn from Data Collected – While the volume making a purchase. The cost to the retailer is of data collected from loyalty programs may seem twofold – lost sales for the current items in daunting, it is wasted information if you don’t lever- the customer’s cart and lost future shopping opportunities from that customer. age this potentially rich source. One good place to start, for example, may be with market basket analysis of data HOW TO SEE ALL YOUR CUSTOMERS gathered at the point of sale. What are the affinities of vari- With recent advances in video cameras, sensor devices and analytics, retail- ous items in customers’ baskets? By analyzing data, retailers ers can capture their customers’ every move and convert 3-D customer images can identify trends in customer behavior and identify which into valuable data streams of quantifiable metrics. Just as call centers can track products most often sell together. Remember, every market call volume, hold times, personnel interaction time, and call abandonment, basket is a one-on-one interview with the customer. retailers can gather similar information on customers in their stores. Brick-and- Consider Rewards Other Than Discounts – Loyalty is not mortar retailers can now track and respond to metrics for store traffic, checkout all about monetary incentives. The best loyalty programs also wait times, cashier service time and cart abandonment. When fully implement- include enhanced customer service and exclusive informa- ed and integrated with the stores’ POS and labor scheduling systems, retailers tion or special events for your best customers. can now “see” the customer who used to leave without making a purchase and Measure the Results – Don’t stop at measuring sales develop processes that keep and serve customers before they walk out the door. results. Loyalty programs should also measure profitability With visibility to all consumer interactions, retailers have the tools to: by customer and the ROI of loyalty-based promotions. I Predict and publish wait times to reduce queue abandonment When done correctly, loyalty marketing programs can I Receive real-time alerts when pre-set thresholds are reached dramatically increase customer devotion and sales. I Plan marketing strategies that capitalize on shopping habits Differentiate your company and your loyalty program for I Improve near- and long-term decision making winning results! I Identify holes in scheduling or optimize current labor usage Editor’s Note: Peter Wolf is vice president of marketing at Fujitsu Transaction Solutions. With all that rich technology at their disposal, retailers can’t afford to ignore 1 “Searching for the True Multi-Channel Retailer Benchmark Report,” Retail Systems the customers they never see. Alert Group, January 2007 Editor’s Note: Jonathan Amsler is retail leader, Business Consulting Group 2 “The 21st Century Retailer: Managing Customers, Merchandise & Data,” Aberdeen Group, January 2007 at Brickstream.

– 5 – CREATING CONSUMER INFLUENCE, NOT INTRUSION

While ruthless attention to lowering costs and improving store ing data collection and customer segmentation into a seamless, closed- operations efficiencies is a critical mantra for retail executives, most loop workflow. This ensures that the offers being made to customers leading merchants know the keys to long-term success involve a sharp- are based on the right combination of promoted product and purchase er focus on initiatives that affect the top and bottom line – revenue behavior that will directly influence future buying behaviors. growth and margin improvement. Employee Empowerment – New in-store mobile technology and Retail executives have seen an increasing array of distributed store product intelligence give store personnel much better tools to help cus- system solutions emerge that complement traditional point-of-sale (POS) tomers with their research, product comparisons and final purchase systems and help to establish a differentiated consumer experience. decisions. The subtle blending of cross-sell and up-sell suggestions Unfortunately, there is a fine line with most consumers between what directly affects customers’ average transaction size. technology they view as truly helpful to their shopping experience and Channel Transparency – In today’s competitive environment, a what they consider to be intrusive to the way they normally like to shop. retailer’s Web site is no longer an advantage; it’s a fundamental prereq- Those retailing leaders that pay close attention to the combination uisite to survival. Customers expect to be able to blend their merchan- of technology and consumer psychology when implementing new in-store systems tend to have the best success influencing purchase behavior. To positively Unfortunately, there is a fine line with most consumers influence customers’ buying habits rather than just between what technology they view as truly helpful to their thrusting technology at them, leading retailers should shopping experience and what they consider to be intrusive adopt the following tenets: to the way they normally like to shop. Intuitive, Adaptive Usability – Customers can’t be influenced if they are intimidated by the learning curve of self-service applications, for example. If these applications can’t dise research and transactions across channels. They want to check adapt to different usage patterns and be instantly useful to the con- online for store inventory levels and complete transactions for on-site sumer – either by the information they receive or the offer they are pro- pick up. The Web has increasingly become the new medium for entic- vided – then they won’t successfully influence shopping behavior. No ing consumers into the traditional store, which means that retailers self-service store technology system should be deployed without com- must maintain common inventory, common pricing and common pro- prehensive usability testing and customer feedback. motions across all channels while allowing for trade area differences. Creating Demand at the Point of Decision – Merchants are slowly Online-savvy customers not only spend more on the Web, they also increasing investments in technology that influences purchase behav- spend more in the store when properly influenced. ior at the point when consumers are making their final decision – at For those retailers that successfully orient their store operations and the shelf. Shelf labels and electronic signage quickly reflect demand- technology investment plans toward true consumer influence, the driven promotions right at the product while eliminating the labor cost financial benefits are powerful – an average general merchandise retail- to execute price and promotion changes. In the next two years, the er can see between eight to 15 percent increases in average transaction availability of electronic paper (e-paper) will further broaden the retail- size with as much as a 3-5 percent bump in margin. This equates to ers’ ability to target specific products toward specific customers at spe- more than $100 million in incremental sales and more than $30 mil- cific times. lion in incremental gross margin for every $1 billion in sales. The over- Truly Personalized Offers – Many customers are less than arching objective for all store technology investments must start and impressed with typical retailer loyalty programs – either because they end with a critical strategic question: with this project, will we materi- generally perceive limited value, or they don’t think the rewards are ally influence consumer behavior, transaction size and margin growth? directly targeted at them. Retail leaders who have invested in next-gen- Those merchants that do so will thrive in an increasingly hyper-com- eration customer relationship management (CRM) systems are blend- petitive retail marketplace.

THE PERVASIVE RETAILING™ JOURNAL (PRJ), PUBLISHED BY FUJITSU TRANSACTION SOLUTIONS, IS A PUBLICATION FOCUSING ON TRENDS AND NEW DEVELOPMENTS THAT IMPACT THE PERVASIVE RETAILING ENVIRONMENT. FOR COMMENTS AND ARTICLE SUGGESTIONS, PLEASE CONTACT DAVID NAUMANN, EDITOR, AT [email protected]. us.fujitsu.com/retailing | 800.340.4425 ©2007 Fujitsu Transaction Solutions Inc. Pervasive Retailing is a trademark of Fujitsu Transaction Solutions Inc. All other registered trademarks and trademarks are the property of their respective owners.