Kobie Quarterly: Retail Services Edition January 2015

january 2015 • kobie.com

QUARTERLY REVIEW

con

ten

tsGO FOR LAUNCH

Don’t Make These 3 Mistakes When Launching a Retail Loyalty Program

02

TRENDING

Retail Trends & Insights: Q&A with Erica Thompson Moran

06

INVESTMENT

Retail Loyalty Readiness Worksheet

14

SALES

Measuring Loyalty ROI in Retail

10

ENGAGEMENT

iBeacon’s Potential to Merge Online and Offline Experience with Contextual Marketing

22

MOBILE

Will Apple Pay Finally Make Mobile Payments a Reality for Retail?

26

WELCOME

From the President, Michael Hemsey

01

BON APPÉTIT

Key Ingredients of a Successful Restaurant Loyalty Program

20

TECH

Augmented Reality for Loyalty Programs: Real Potential or Passing Fad?

24

02

24

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QUARTERLY REVIEW JANUARY 2015

KOBIE QUARTERLY REVIEW 3

In a world where the best deal is only a Google search away,

retailers are struggling to keep customers coming back. This

is especially true for brick-and-mortars that have taken a hit

from the rise of ecommerce and practices like showrooming.

And yet Amazon opened a physical store last year, along with

several other successful ecommerce brands like Warby Parker and

Birchbox. Would anyone be able to predict this just a few years ago

when ecommerce was hailed as the end of brick-and-mortars?

Online retailers moving toward offline stores tells us not only that

the in-store experience still matters, but more importantly retailers

are ditching the one-channel mindset for an omnichannel approach.

Retailers now recognize the need to connect with customers at all

touchpoints in relevant, meaningful ways.

We’re seeing brands experiment with how to deliver more contex-

tual, highly personalized customer experiences by using emerging

technology like beacons and augmented reality. Thanks to Apple

Pay’s launch last fall, mobile wallets may finally make a real impact

on retail. In this issue we explore how these technologies can be

integrated with loyalty.

We also look at defining and measuring loyalty ROI in retail, which

is key for getting buy in from your organization. We’ve included a

Retail Loyalty Readiness Worksheet to guide you through costing

out the initial capital investment and ongoing costs of launching a

loyalty program.

We hope the Kobie Quarterly: Retail Edition helps inspire and inform

your loyalty strategy for 2015 and beyond. No matter where the

retail industry is headed, our primary focus should remain the same:

rewarding customers in ways specific to their wants and needs. That

will always be in style.

fro

m t

he

pre

sid

ent

MICHAEL HEMSEY

President

1



Sadly, we are now many years into retail loyalty marketing programs and as a consumer, I still don’t see much that’s new, engaging

or innovative. However, as a retail loyalty marketing professional I can imagine the board room conversations that lead to these uninspired programs. From challenges in demonstrating clear ROI to lack of alignment with goals, there’s a reason the retail industry has so many lackluster loyalty programs.

DON’T MAKE THESE

3 MISTAKESWHEN LAUNCHING A RETAIL

LOYALTY PROGRAM

3


It doesn’t have to be this way. By creating strategies to avoid

common pitfalls either pre-launch

or as the program is phased

to the next level, retail brands can

make loyalty programs far more

compelling to consumers as well as

more profitable for the company. The

most common mistakes I see retail

marketing organizations make as they

enter into loyalty programs fall into

three buckets.

1 Treating loyalty as a marketing or IT initiative rather than an enterprise wide effort. This

approach limits the scope of

where customer data can be leveraged

and does not ensure true buy in with

key partners like store ops, IT, finance

and merchandising. Because loyalty

and CRM can require a significant

investment of energy and resources,

company-wide buy in is critical to

success. Successful programs are

a core company priority, not a side

project competing for attention.

2 Not having clearly defined and agreed upon success metrics. Don’t assume having

customer data and a tool will

automatically lead to success. Before

investing company resources into a

loyalty initiative, you need to agree

on a clear ROI that takes into account

time, money and opportunity costs.

3 Viewing loyalty as a project that can be completed in a short period of time.

Any good loyalty program

will constantly evolve and require

organizational patience. By its very

nature, customer data is iterative. The

more a company learns, the more they

tend to want to know. Early stage

loyalty/CRM programs can often feel

like drinking from a data fire hose. The

organization needs to think of loyalty

as a journey, not a destination.

SO HOW CAN BRANDS AVOID THESE PITFALLS?

1 Partner with key teams during the beginning stages of the program. The launch of a loyalty

program has an impact on every

facet of your brand. Store associates

will have to be genuinely engaged

and trained. POS and internal systems

will need significant modifications.

The IT department, which likely

already has too many projects, will

be stretched into new capabilities.

Merchants will have to think differently

about everything from pricing to

promotions. The finance team will

need to help with a P&L, KPIs, and

constantly proving the ROI of the

program. Once you consider how the

program depends on and affects other

teams, it’s obvious why their input

cannot happen at the end of the cycle.

Collaborating with these departments

from the beginning lets them develop

clear ownership and accountability for

the program’s success.

2 Make the finance team a co-owner on loyalty profitability. As much as

you believe in halo effects,

customer engagement and brand

loyalty, your finance team wants to

hear about the bottom line. Show

that you care about it, will commit

to it, and will help track against it

by establishing easily proved ways

to predict and measure profitability.

Examples of this include increases

in incremental sales from direct

marketing using newly acquired

customer data, average basket size

increase, and year over year customer

counts. The key is to keep it simple

and measurable.

3 Never stop communicating and re-communicating what the roadmap is and where you are on it. The Loyalty

Leader in marketing has to also be the

Customer Loyalty Evangelist charged

with educating the organization on

both new programs and ones that

have been around for a while. Keep

other teams in the loop by attending

departmental staff meetings,

presenting on outcomes at company-

wide meetings, and creating quarterly

updates for senior management.

As trust and engagement are

built around the loyalty program over

time, it will be far easier to continue

evolving the program and developing

more engaging consumer benefits.

4



NEVER STOP

AND WHERE YOU ARE ON IT

COMMUNICATINGAND RE-COMMUNICATING WHAT

THE ROADMAP IS

”

“

5



As a retail industry expert, what is your take on the current state of the marketplace?

Retail is definitely struggling

right now as an industry. According

to ShopperTrak, retail foot traffic

is significantly declining and most

retailers are contracting their store

footprints. The 80s and 90s brought an

oversaturation of big box retail square

footage and the consumer demand

simply isn’t there for that much space.

While there is plenty of talk about

an economic recovery, it’s not clear

that consumers are back to their pre-

recession spending ways. Retailers

find themselves in an increasingly

competitive and promotional

environment to get close to positive

comp sales which adds significant

margin pressure.

Lastly, consumers are shifting their

shopping behaviors from traditional

department stores and malls to the

Internet, discounters, and dollar stores.

It will likely be a challenging holiday

season for mall-based retailers.

What trends are you seeing in the retail industry from a customer loyalty, customer experience, and customer engagement perspective?

After years of more talk than

action, I feel that we are finally seeing

brick & mortar retailers embracing the

omnichannel experience. Traditional

retailers like Macy’s and Walmart have

significantly invested in integrating their

store, mobile, and online experiences.

Walmart’s Savings Catcher is a

really interesting new take on loyalty.

It’s basically a price matching tool

that compares prices in local markets

and returns savings to consumers. Of

course, the consumer has to share

their information to get the savings,

allowing Walmart to potentially create

an enormous database of customer

information. It remains to be seen what

they will do with all of that shopper

data, but it could be interesting.

We’re seeing more retailers looking

for tender neutral loyalty programs

versus just credit card driven ones to be

more inclusive and track more customer

behavior. Express and Bloomingdale’s

launched tender neutral programs in

2012 and Kohl’s introduced its Yes2You

program toward the end of 2014.

The recent high publicity retail data

breaches pose a challenge for loyalty

programs going forward. Retailers are

going to have to offer up much more

compelling benefits to get consumers

to share their personal information.

And they will likely need to invest

significantly more in keeping that

information safe.

Mobile wallets have been around

for a while but have yet to achieve

widespread consumer acceptance. Two

new products may change that. Apple

Pay launched in October and has the

support of major retailers and banks.

MCX is preparing to launch CurrentC, a

competing mobile wallet which has the

backing of major retailers like CVS and

Best Buy.

2015 should be an interesting year

for beacon technology as well, which

enables real-time targeting to mobile

devices. While Apple launched this

technology in 2013, it was too late to

impact holiday shopping. It is estimated

that half of the top 100 retailers in the

U.S. tested beacons in 2014. Retailers

will need to be careful with this

technology, however, as it can seem

“creepy” or invasive to consumers.

What are the biggest or most persistent challenges you see for retailers?

Consumers are becoming

increasingly fickle and are often just

looking for the best deal or promotion.

They have unlimited access to

Q&A WITH ERICA THOMPSON MORANErica recently joined Kobie Marketing as a Retail Advisory Consultant. We sat down with her to discuss her view of the current insights and trends in the retail loyalty space.


7

information wherever they are from their

mobile devices which is eroding brand

loyalty. This is particularly true with

Millennials who tend to be less brand

loyal and who are increasingly switching

to outlets, the web, and dollar stores.

Brick and mortar retailers need to

find ways to differentiate their shopping

experience outside of promotions.

Retailers like PetSmart can do this with

engaging in-store activities like pet

training, grooming or doggie daycare.

Bloomingdale’s Loyallist Program

engages top customers with exclusive

in-store events with designers. All of

these need to be consistently tied to the

online and mobile experience.

What are their biggest needs?

Brick and mortar retailers are

challenged to keep up with the

technology of the Amazons of the

world, but with low margins and

pressure to keep up with comparable

store sales and margins. Often, they

are dealing with antiquated POS and

store systems that cannot integrate

with the online, mobile or loyalty

experience. These retailers need better

tools to prove the ROI of technology

investments.

How would you characterize the evolution of technology in the marketplace and retailers using it correctly to drive engagement?

Mobile is becoming increasingly

more important for retail. The number

of tablets in use in the U.S. is expected

to reach 280 million by 2017. Today,

60% of the time consumers spend on

their phone is spent on mobile apps.

Retailers need to develop compelling

and integrated mobile experiences that

are channel agnostic. The customer

increasingly wants to make a purchase

wherever and whenever is convenient

for her. Retailers should be investing in

mobile apps, wallets and beacons.

What would be your advice to retailers who are trying to be customer-centric, but just haven’t been able to put all the correct pieces together internally and form a corporate culture standpoint?

Customer centricity needs to be

an enterprise wide endeavor. I always

cringe when I see titles like SVP of

Customer Experience. It’s a nice gesture,

but it implies that one person owns the

customer experience. Every facet of the

organization needs to own the customer

experience and feel responsible for

it. Measurements like net promoter

scores need to be put in place and

every department should be measured

against them. The most important three

feet in retail will always be the three

feet between your associates and your

customer. The organization only exists

to empower that relationship.

“BRICK & MORTAR RETAILERS NEED TO FIND WAYS TO DIFFERENTIATE THEIR SHOPPING EXPERIENCE OUTSIDE OF PROMOTIONS.”



With real-time and predictive analytics, we can help you understand how members are behaving, anticipate how they will behave and inspire more loyal behaviors. We’ll help you make smarter decisions about complex business problems faster than your competition. Simple.

Call 800-821-7892 or visit www.kobie.com to learn more.

Solve complex problems before they happen.

LOYALTY ROIMEASURING

IN RETAIL

Investing in retail loyalty is a major

decision for any company, no matter the

size. Loyalty impacts every facet of the

organization and requires a potentially

massive investment of time and resources.

It is not a one-time project, but an ongoing

commitment that requires constant

nurturing and care.

SalesIncremental

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KOBIE QUARTERLY REVIEW 13QUARTERLY REVIEW JANUARY 2015

11

More importantly, a loyalty

program is not something

that an organization can

come in and out of. Once

the commitment is made to a loyalty

program, it will be difficult and costly

to walk away from it. As a result, the

decision to launch and focus on a loyalty

program should not be made lightly.

Making a decision like this requires

significant due diligence, research, and

an organizational belief in a positive ROI

over time. Forecasting and measuring

that ROI is increasingly falling to the

marketing department, but it also must

be created and managed in partnership

with the finance team.

The ROI model needs to be simple,

clear, and measurable. There are three

basic, key components involved in

creating a retail loyalty ROI model:

1. INCREMENTAL SALES DRIVEN BY THE PROGRAM

2. INCREMENTAL BENEFIT FROM MORE TARGETED ACTIVITY (COST REDUCTIONS)

3. ONGOING COSTS OF DELIVERING THE PROGRAM

We’ll examine incremental sales for

the first part of this series and address

the two other components in the Retail

Loyalty Readiness Worksheet.

Incremental customer behaviors

driven by loyalty programs include

increased trips, bigger basket size,

increased cross-channel shopping, etc.

All of these behaviors drive towards

one key metric – incremental sales per

customer in the program versus those

not in the program.

Forecasting and measuring

incremental sales from retail loyalty

programs is perhaps the most

challenging and debated component

of calculating a loyalty program’s ROI.

Marketing folks tend to inherently

believe that loyalty programs drive long

term “customer engagement,” “brand

halo effects,” and “inherent value,” but

the finance team cringes at every one

of those expressions. Further, they are

acutely aware of any real costs in terms

of outlays of cash today and liability

in the future. They want to see a clear,

measurable way to calculate the direct

incremental sales driven from the

investment in loyalty. Simply being able

to demonstrate a break even can be

effective for getting everyone’s buy in.

The rest can be proved over time.

Methods of Pre-Launch Testing

In the ideal scenario, incremental

customer behaviors are carefully tested

and measured before a full chain-wide

launch. There are several ways to do

this, with pros and cons to each.

First, the program can be direct

marketed only to a sub-section of

customers and incremental sales can be

measured versus non-loyalty customers

who have similar profiles over a period

of time. This is somewhat limiting as

you are not able to easily measure the

potential incremental impact of mass

and store marketing. However, if you can

prove a break even without it – all the

easier to sell internally.

A second way to test incremental

sales pre-launch is by isolating a market

and only launching the program in that

market. Over a period of time, ideally

at least 6 months, you can measure

incremental sales against a “like” market.

The challenge here is in identifying

the like markets and truly isolating the

variable of the impact of the loyalty

Incremental

driven by loyalty programs include

increased cross-channel shopping, etc.

CUSTOMER BEHAVIORS

BIGGERbasket

size,INCREASED TRIPS,“

”


12


program. But again, if you can prove

enough incremental sales to at least

drive a break even, you stand a chance

of getting a full launch approved. Both

scenarios carry an inherent risk of

frustrating customers not included in

the test, but that can be managed.

Methods of Post-Launch Testing

What if you are trying to measure

the impact of a program that

has already launched without an

agreed upon ROI? Or what if senior

management does not have the time or

patience for a lengthy test to prove it

out? It gets a bit messier but there are a

few ways to approach this scenario.

The easiest way is to simply take the

number of new contactable customers

attributable to the loyalty program

and add up their incremental sales

directly measured from direct marketing

programs like email and direct mail. This

works well for retailers that already had

a solid CRM program in place before

loyalty.

For example, imagine a retailer

was sending 5 million direct mail

pieces and 50 million emails per year

before loyalty. Let’s say they were

measuring incremental sales per

customer contacted of $1 per direct

mail campaign and $0.20 per email

campaign (measured by test versus

control). The retailer then launched a

loyalty program and added 2 million

contactable direct mail households and

20 million emails. Assuming the new

names performed the same (and they

should, perhaps even better since they

self-selected), you can expect $2 million

more in incremental sales from direct

mail and $400,000 more from email

campaigns per year. Again, you know

there are significantly more financial

benefits to loyalty than this, but this

is a simple, quick way to convince the

finance team that you can at least break

even.

If CRM is not an already well-

developed function at the retailer,

another way to measure incremental

sales from loyalty is to “force” a control

group. Basically, you look back in time

for “like” customers before launching

loyalty. “Like” will be defined by

whatever you have in the database –

trips, sales, categories, basket, or even

demographics. You can then measure

pre versus post behavior of those who

joined the loyalty program and those

who did not, taking credit for any

incremental sales.

It’s not ideal as it doesn’t totally

isolate loyalty – customers who sign up

for the program might have been about

to become more loyal anyway – but

again, it provides directional incremental

sales. This methodology requires the

retailer to have a customer database

pre-loyalty launch, but these days most

do.

Keep in mind that all methodologies

for measuring incremental sales are

attempting to truly only attribute

revenue driven by the loyalty program

and therefore need some way to isolate

for that versus all other factors that

may drive sales. None of the above

approaches are perfect, but they can

provide a starting point to get to a

common ground for defining how to

measure incremental sales and getting

your finance team on board.

Lastly, forecasting incremental

sales is only the first step. Once the

forecast has been set, develop KPIs

against it and share results broadly and

regularly. Once the loyalty program is

up and running, many other incremental

behaviors can be reported on that will

increase support for the program (such

as engagement, net promoter scores,

cross-channel behaviors, etc.). However,

these metrics should never take away

from reporting on the core incremental

sales model that proved out the

investment in the first place.

“The easiest way is to simply take the number of new contactable customers attributable to the loyalty program and add up their incremental sales directly measured from direct marketing programs like email and direct mail.”


13

RETAIL

WORKSHEET

Loyalty Readiness

CAPITAL INVESTMENT

Ongoing Expenses


14


In the previous article, we discussed how to establish and measure KPIs for loyalty incremental sales. The next step is calculating how much you can spend to set up and maintain the program in order

to break even or achieve an agreed upon profitability goal. This worksheet can help guide you through costing out everything from the initial investment to the ongoing expenses.


15

The upfront capital investment in

loyalty can be significant, especially

from an IT perspective, depending

on the state of existing systems. The

depreciation cost of this investment can

be expensed against the program for a

number of years.

KEY CONSIDERATIONS:

1. Is there an existing customer

database that integrates all channels

into a 360 degree customer view that

could easily accommodate a loyalty

feed? If not, creating this will likely be

the costliest component of launching

loyalty.

2. Is there an existing CRM program

in place? If so, spend will be lower since

you can leverage existing campaign

management and reporting tools.

3. Are significant POS changes

required to accept loyalty at checkout

and close the loop back into reporting?

If so, this will likely require IT capital and

resources.

4. Are major changes in the

website’s online checkout necessary to

accept and track loyalty? If the website

is outsourced to a good vendor, this

may not be a big deal, but if hosted

internally it will require IT capital and

resources.

5. Will you need online account

management? Will it be within an

existing site or a new site? Online

account management is a great feature

for consumers, but it can be costly and

complex to sync with existing customer

data.

6. Are you planning to outsource the

development of the program or do you

have the capacity to take it on in house?

While outsourcing may initially look

expensive, it actually can save money in

the long run if you can leverage existing

loyalty experience and infrastructure.

Upfront Capital Investment


16


Expenses will start hitting the loyalty

program the day you start working on it.

Some costs will occur one time upfront

while others will be annual.

CONSIDERATIONS OF UPFRONT EXPENSE CALCULATIONS:

1. Do you need to hire industry

experts to assist in program

development? If there is limited loyalty

experience in-house, this is highly

recommended since it will actually save

costs by creating efficiencies in the long

run.

2. Do you need to hire contractors

for incremental IT work and project

management? Budgeting for

contractors can ensure you’ll have

dedicated resources instead of making

this someone’s part time job internally.

3. How much research needs to

be done either on loyalty programs in

general or competitor programs? Do

you have the resources for research or

do you need to outsource? This needs

to be included in your budget.

4. Do you need customer research

to test program concepts and benefits?

This is highly recommended as it

will help create incremental revenue

assumptions.

5. Are you going to test the loyalty

program in a pilot program or go

straight to full roll-out in all stores and

online? It is always ideal to test and pilot

to validate assumptions and get any

technical bugs out but is not always

feasible in the fast-paced world of retail.

6. How will we market the launch?

What materials are needed? Will

there be a physical card (this can get

expensive)? If so, how many do we need

at launch? Again, testing will help with

these decisions.

7. What is the plan for training

store associates and call center

reps on the program? Is the training

incremental or hooked into an existing

training program? While it can be very

expensive, dedicated training on loyalty

with materials and role play activities

helps ensure a successful launch.

8. How are we planning to take

loyalty data? Will there be a need for

data entry from printed forms? Ideally,

enrollment would happen at POS, but if

that’s not possible (and it isn’t at a lot of

retailers), paper forms may have to be

used. A data entry system and ongoing

resources will need to be included in the

budget.

Upfront & Ongoing Expenses


17

Ongoing Annual Espense Considerations

9. How quickly can we ramp up any

needed dedicated internal resources?

Will there be a loyalty team or can it be

absorbed into existing resources? Having

dedicated resources will better ensure

program success, but they don’t all need to

start pre-launch.

All of the business and IT decisions that

have been made to the point of launching

the loyalty program will impact ongoing

expenses.

KEY CONSIDERATIONS:

1. How much of the ongoing

management of the program is outsourced

versus managed in-house? Either option

can be costly depending on the complexity

of the program.

2. Are loyalty marketing campaigns

totally separate or is loyalty baked into

existing marketing plans? Ideally, it

should be done both ways as that creates

dedicated marketing but also leverages

existing campaigns.

3. How are we marketing loyalty for

acquisition and retention? Targeted?

Mass? In-store? What’s your annual

communication plan? This should be

clearly laid out and accounted for up-front,

but there should also be room for constant

testing and learning.

4. How many incremental new FTEs

are required in marketing and IT to run the

ongoing program? Some retailers treat

loyalty like a one-time project and don’t

properly nurture the program post-launch.

Successful loyalty programs plan the

necessary resources to take care of the

program in the future.

5. How often will we add new benefits

and make changes to the program? How

will those changes be communicated to

the customer and associates? It’s important

to have built-in costs to ensure keeping the

program fresh over time.

6. Who is managing the customer

reporting for the loyalty program? Existing

headcount or new? Marketing or finance?

Build a plan into the program to potentially

increase headcount over time – the more

loyalty customer data that is shared, the

more requests for information from the

organization will come in.

7. What enhancements are we planning

to add to the program that might require IT

work? When? Build future capital requests

into depreciation expense.

8. Will the program issue points? How

a program accrues for point liability can

vary widely from company to company

depending on accounting methodologies.

Public companies have much stricter rules

and the liability can cause the program a

lot of expense on the books that can’t be

spent on hard marketing dollars. This is

another reason why testing is important

so that points breakage can be estimated

upfront and liability can be limited.


18


And Finally, Measuring ROI

Once incremental sales and all upfront

and ongoing costs have been assessed, an

ROI model should be developed. This will

depend on culture and existing financial

practices, how many years the model

should go out, and what the hurdle rate is

to develop a project NPV and IRR. Ideally, it

is easiest to sell loyalty if the program can

at least get to break even NPV by end of

year three. It’s critical that post approval,

the ROI model is a living and breathing

document with regular reporting on results

against what was forecasted.

All of the business and IT decisions that have been made to the point of launching

the loyalty program will impactongoing expenses.”“


19

key ingredientsOF A SUCCESSFUL RESTAURANT LOYALTY PROGRAM

A

restaurants identify

and engage loyalty

patrons, drive purchase

behavior such as

INCREASED TICKET SIZE

strengthen

the relationship

with their

existing

customer

&

base.

programs help

WELL DESIGNED

loyalty program

is a source of competitive

differentiation and profit to the restraurant brand.LO

YALTY

20


By evaluating transactional data

from the loyalty program, restaurants

can segment users for offers and

promotions tailored to a customer’s

preferences, thus encouraging more

profitable behaviors.

What sets apart the very best

restaurant loyalty programs? Simplified,

personalized customer experiences

that deliver convenience.

Loyalty programs should also

positively impact customer lifetime

value. For example, in one client

program we found:

Members spent an average of 10% more

than non-members, with a 1% increase

upward per year.

Projected customer lifetime value as

a result of loyalty revenue was $500

million over a three-year span. We

were able to calculate this using our

lifetime value methodologies and other

proprietary algorithms.

LOYALTY PROGRAM BENEFITS FOR RESTAURANT PATRONS

Guests benefit from the enhanced

or customized experience that a loyalty

program enables before, during and

after the visit and across channels

and devices. For example, one of our

clients leverages their members’ profile

and preference data to enhance the

overall customer experience, starting

with the moment they walk up to the

hostess stand. Some restaurants award

currency (such as points or badges)

for social interactions. Mobile apps or

location proximity devices are being

leveraged in fun ways that enhance the

customer experience.

A loyalty program is also a great

source of ongoing engagement

between the restaurant and members.

As a reward member you may receive

additional perks like members-only

offers and coupons, recipes via social

media interactions, a special invite to a

chef demonstration, or advance access

to new menu items or seasonal items

before they are available to the public.

RESTAURANT LOYALTY INNOVATIONS: WHAT’S WORKING

Effective loyalty programs provide

lots of ongoing engagement with

members and create an omnichannel

experience by serving a consistent

message across multiple channels.

Some of the most effective

innovations we’ve seen in restaurant

loyalty in the last several years include:

1. Integrating the program across

multiple touch points, such as tablets,

mobile phones and kiosks. This type of

integration enhances the experience

and engages members while lifting

revenue.

2. Encouraging social behavior, such

as checking-in via Facebook, writing

a Yelp review or posting an Instagram

photo. Some brands do this by

rewarding certain social behaviors with

award currency, like badges or points.

3. Using mobile integration at the

POS to speed up the payment process,

collect feedback, deliver coupons, etc.

4. Leveraging digital channels to

tell the brand story, encourage repeat

visits, and test out new menu items.

THE FUTURE OF RESTAURANT LOYALTY

In the future we’ll see restaurant

brands become even more hyper-

focused on enhancing the customer

experience. New and existing

technology will enable more

personalized experiences even before

the member walks through the front

door.

RESTAURANTS WILL ENGENDER LOYALTY AND ENCOURAGE REPEAT BUSINESS BY:

Allowing new patrons to get a sense

of the ambience before entering the

establishment

Reducing wait times before and after

the meal (pre-order or post-meal

checkout via mobile phone)

Offering customized ordering or

options

Helping members discover new menu

items

Catering to a member’s dining or

seating preferences

Offering branded activities tailored to

families

Providing more information about the

food: whether it was sourced locally

and sustainably, how it was prepared,

and the nutritional content

Placing orders through tablet-enabled

service

Delivering even more relevant offers

Engaging the member in discussion or

in creating menu items

The experience and consistency

with which the program is delivered

coupled with all the ways a brand can

engage with members is the best way

to incentivize members and keep them

coming back for years to come.

21


IMMEDIATE

NEAR

FAR

iBeacon’s Potential to Merge Online and Offline Experience with

Welcome!

CONTEXTUALMARKETING

OpenClose

22


Loyal customers share a great

deal more with you. Because of this,

loyalty enables insights into customer

wants and needs that the average

customer database does not offer. Yet

a disconnect still exists between the

online and offline customer experience.

Despite having so much customer data

available, loyal customers are hard to

identify in the physical world.

Mobile combined with iBeacon

technology could help bridge this

gap. iBeacon uses a low frequency

Bluetooth signal to communicate

with mobile devices. It registers

devices based on a certain distance

or proximity in the physical world. As

long as location services are turned

on, iBeacons can communicate with

mobile apps even if they aren’t open.

While this sounds similar to other

location-based technologies, what’s

unique about iBeacon is its ability to

determine a device’s distance within a

matter of feet.

Why is iBeacon really worth getting

excited about? It can facilitate truly

contextual communication. If you had

the preferences of loyal consumers on

hand every time they were near or in

your business, you could speak to them

in terms of where they are, who they

are, and what they want.

iBeacon technology also holds a lot

of promise for helping fill in a missing

piece of the marketing puzzle – how

online communication drives real-world

behavior. Using iBeacons, brands could

better track if online marketing, like a

coupon sent via email, lead someone to

visit a brick-and-mortar store.

Below is a look at how iBeacons

can be leveraged to create geo-based,

highly relevant customer experiences

at the right time.

MORE PERSONALIZED IN-STORE EXPERIENCES

By placing iBeacons at strategic

points, retailers can track when

someone has entered the store and

even track movement through the

store. This presents endless ways to

engage with customers in real time,

both through their mobile devices

and during interactions with store

personnel.

There are many obvious ways to use

iBeacon in retail environments, but the

possibilities aren’t limited to sending a

push notification for a discount on TVs

when a customer walks by that section

of the store. Retailers could pair

someone’s location in the store with

their customer data to take it a step

further. For example:

• In an electronics store, a customer

near the TVs has a purchase history

of buying a lot of CDs. That customer

could be notified that a few aisles over

a new CD from an artist they like is on

sale.

• A high-end clothing boutique’s

store associate is alerted that a high-

value customer is in the store. The

associate can quickly get a sense for

the customer’s taste by looking at

preferences she’s shared on her mobile

app profile. From there she can suggest

clothing items that align with this

customer’s fashion sense.

MORE EXPERIENTIAL REWARDS IN THE TRAVEL INDUSTRY

iBeacons could enable travel brands

to reduce across-the-board rewards,

like discounts, and increase more

personalized experiential rewards –

which could also mean significant cost

reductions. With iBeacons, travelers

could be followed and engaged

throughout the travel experience: as

they move through the airport, when

they land in another city, when they

retrieve their bags, and when they

arrive at their hotel.

Frontline employees would no

longer need to rely on a check-in

to know that someone is on site.

Furthermore, iBeacons could arm

employees with information about

loyal customers that’s already in the

online database. Coordinating “wow”

experiences on the fly would be easier

since staff would have a wealth of

customer information on hand and

more lead time for preparation.

A few examples of how this could

work:

• Airline employees could be alerted

when a VIP customer is approaching

the gate. They could greet the

customer and offer expedited boarding

or an upgrade to their preferred

seating area. Additionally, they could

have access to more personalized

information, like knowing it’s the

passenger’s birthday or that on this

flight they’re hitting a milestone such

as a million miles traveled with the

airline.

• When someone walks in the

front door of a hotel, the front desk

staff could immediately know who

this person is and their preferences

as a loyal customer before they even

reach the desk. Room service could be

alerted to send a customer’s favorite

drink up to their room within 10

minutes of their arrival.

The cost of sending a drink to

someone’s hotel room is much less

than offering a discount on their

stay, but most people would be more

“wowed” by the former since it’s both

personalized and unique. Experiences

like these can transform a behavioral

loyalty-driven customer into an

emotional loyalty-driven customer,

while costing very little to implement

or execute from an operational

perspective. Experiential rewards

create the type of unbreakable bond

that ensures a customer repeatedly

chooses one brand over the rest.

Welcome!


23

With any emerging technology, it

takes a while to move beyond the fad

phase and show enough user adoption

and traction to drive development.

Augmented reality is an example of

this. Although augmented reality is still

“proving its worth” -- much like mobile

marketing had to do over the last 5

years -- brands are now experimenting

with how it can be leveraged beyond

the “wow” factor to influence

purchasing behavior.

In general, augmented reality

promotions could be an effective part

of loyalty as they allow consumers to

interact with a product in a unique and

personal way. Research proves there

is potential for augmented reality’s

success in terms of brand revenue

generation:

• IN 2013, THE TOTAL GENERATION OF REVENUE FROM AUGMENTED REALITY WAS AROUND $300 MILLION.

• NEARLY 30% OF MOBILE SUBSCRIBERS USED AUGMENTED REALITY AT LEAST ONE TIME PER WEEK IN 2014.

• IN 2014, AUGMENTED REALITY TECHNOLOGY WAS ENABLED IN OVER 864 MILLION SMARTPHONES.

• AUGMENTED REALITY REVENUE IS EXPECTED TO BE MORE THAN $600 BILLION IN THE NEXT TWO YEARS.

Time will tell how well augmented

reality can impact loyalty, but plenty

of brands are already banking on its

potential. The following are three

recent examples of augmented

reality’s application specific to loyalty

programs:

AUGMENTED REALITYFOR LOYALTY PROGRAMSReal Potential or Passing Fad?

$300 MILLION

1. Walgreens: Since

June 2014, Walgreens

has been testing an augmented

reality program using Google’s

indoor mapping technology, Project

Tango. Using the Walgreens mobile app,

customers receive help navigating the

store layout with relevant promotions

popping out along the way,

including offers tied to

rewards points. 2.

Century 21: The New York-based

retailer launched a pilot program

that leverages mobile technology

and augmented reality to increase

memberships. Customers use their

smartphones to scan shopping bags and

spin a virtual wheel full of offers. The

push toward a more immersive in-

store experience is part of Century

21’s goal to increase loyalty

program sign ups by up

to 34%.

3. Kraft: This past

summer, Kraft launched

an augmented reality campaign

encouraging Walmart shoppers to use

their mobile devices to scan campaign

signage and logos that link to digital

assets connected to a larger campaign and

sweepstakes. One example is “Paisley Points,”

which offers shoppers points redeemable for

autographed Brad Paisley merchandise

when they upload images of Walmart

receipts with proof of a Kraft

purchase.


24


We’re likely to see a lot of brick-

and-mortar retailers follow Walgreens’

lead this year. Most will share common

goals such as increasing frequency,

spend and engagement.

What’s Next for Augmented Reality and Loyalty

Wearable technology has sparked

renewed buzz around augmented

reality, with lots of potential around

Google Glass and the soon-to-

launch Apple Watch. This may open

up a completely new category for

augmented reality compared to what

we’re used to with respect to simple

smartphone interaction. Wearable

technology can tie consumers into the

real-time data stream where they can

reveal more about their preferences

and behaviors. From there, marketers

can gain more insight into what to

market to them, how to communicate

with them about the things that get

them excited, and filter out unwanted

or irrelevant content – all of which

could lead to greater personalization

and contextual relevance.

Augmented reality stands to

become an increasing component to

the loyalty marketing mix as brands

aim to create more memorable,

personalized experiences. Expect to

see augmented reality tied into more

loyalty strategies if marketers can

prove how it can engage consumers,

draw them into physical locations,

encourage frequency, and build brand

advocacy.

864 MILLION SMART

PHONES

In 2014, AR technology

was enabled in over

$300 MILLION

In 2013, the total

from AR was around

generation of revenue


25

Finally Make

Mobile Payments a Reality

for Retail?

Will


26

KOBIE QUARTERLY REVIEW 29QUARTERLY REVIEW JANUARY 2015

27

Unless you’ve been living under a rock, you’ve probably heard that Apple’s new mobile wallet, Apple

Pay, launched in October. Apple Pay is an online and mobile wallet that will allow consumers to

upload up to eight credit cards and make payments at both online and brick and mortar retailers.

While Apple Pay will likely have a long

term impact and gain consumer

acceptance over time, the race for

mobile wallet domination is not

over and there are several reasons why it will take a

while to gain widespread acceptance.

First, widespread adoption will be limited since

Apple Pay isn’t available on older iPhone models and

Android phones. Apple Pay will only be available on

the iPhone 6 at the time of its launch and then on

the Apple Watch in 2015 (the only Apple products

that use NFC technology). Plus, it will likely take time

for iPhone 6 and Apple Watch users to adapt to

Apple Pay.

Second, while many retailers are planning to

accept Apple Pay, some notable brands are holding

out for a different solution. Top-tier retailers like

Walmart, Best Buy, and 7-Eleven are putting their

faith in a solution by MCX which will launch this year

and work with debit cards. Lastly, local mom and

pop stores probably can’t afford to install the Apple

Pay software and won’t adopt it anytime soon.

Mobile wallets like Square and Google

Wallet have been around for years

but have never gained widespread

consumer acceptance. So why is there

so much hype around the launch of Apple Pay?

1. Apple Pay has solved some security concerns

that many consumers have around mobile payments

by using NFC technology and a one-time use

encrypted number.

2. Since Apple Pay is an open network that can

be accepted at any retailer that installs the software,

consumers can avoid signing up with multiple wallet

providers. Many of the successful mobile payment

solutions, such as the Starbucks app, only work in a

specific brand’s retail locations.

3. Transitioning to Apple Pay will likely be easy

due to the existing level of consumer trust in Apple.

iTunes already stores more than 800 million credit

cards, which proves that consumers are comfortable

sharing their payment information with Apple.

4. Major retailers have already signed

commitments to install the technology to accept

Apple Pay. Nike, McDonald’s, Target, Whole Foods,

Subway, Walgreens, and Macy’s are among the

retailers who have agreed to install the software and

start accepting Apple Pay starting this fall.

5. Apple Pay is being supported by the big three

credit issuers and major banks. Visa, MasterCard

and American Express have all signed on as have

Bank of America, Capital One, Citi, Chase, US Bank,

and Wells Fargo.

6. Apple Pay can close the loop in terms of

reporting to retailers with iBeacon software. Most

mobile wallets rely solely on Bluetooth, which means

that it needs to be turned on and it is difficult to

track which offer prompted what action. Apple

Pay will be the only wallet to combine Bluetooth,

NFC and iBeacon technology. iBeacon is a signal-

emitting technology that allows retailers to push

real-time, geo-centric offers to consumers in physical

stores. Retailers will be able to send geo-targeted

offers via iPhones and Apple Watches and then track

transactions through Apple Pay.

WHY WIDESPREAD ADOPTION WILL TAKE TIME

APPLY PAY IS POSITIONED TO SUCCEED WHERE OTHERS HAVE FAILED


28


Despite these obstacles, it is clear that

Apple has the marketing muscle to make

an impact and that in some way, shape or

form, mobile wallets are coming. So what

might this mean for retail loyalty programs? There

are some potential positives:

1. Mobile wallets may enable better tracking of

purchases for loyalty programs. Assuming loyalty

numbers can be loaded into the mobile wallet,

potentially all transactions could be linked to loyalty.

2. Mobile wallets may allow for better integration

between retail credit loyalty programs and tender

neutral programs by integrating them with one

number in the wallet.

3. Mobile wallets may make consumers more

comfortable with sharing their customer data,

knowing it is stored with a trusted third party versus

the retailer.

At this point there is uncertainty around mobile

wallets that could potentially be harmful to retail

loyalty programs. A few unanswered questions:

1. What will the business model look like? The

banks will be sharing the interchange fee with Apple,

but will mobile wallets like Apple Pay charge retailers

for loyalty integration? The answer is likely “yes,” but

time will tell when and how much.

2. How will Apple treat the customer data?

3. If a retailer refuses to pay certain fees, will

Apple push the customer to a competitor?

4. Will Apple choose to launch its own coalition

loyalty program and disenfranchise retailers from

their customers all together?

Despite all of the unknowns surrounding Apple

Pay, there’s a good sign Apple may be zeroing in on

loyalty -- a recent job posting at Apple is seeking a

program manager for loyalty tasked with “shaping

the future of loyalty programs.” I’m sure we’ll all be

keeping a close eye on this in the coming months

and years.

APPLE PAY’S POTENTIAL IMPACT ON RETAIL LOYALTY


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Kobie Marketing is a global leader in loyalty marketing and an industry pioneer, delivering end-to-end strategy, technology and program

management solutions. Kobie drives results and ROI through Kobie Alchemy®, a best-in-class loyalty marketing technology platform.

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Kobie Marketing, Inc. @Kobie_Marketing Kobie Marketing [email protected]