Leveraging Loyalty in a Multichannel Environment

The ideal of 21st century retailing is the multichannel retailer, a master of bricks, clicks and flips, with physical stores, online shopping and catalogs integrated into a seamless environment. This commercial paragon is bracing for a future that will include even more contact opportunities such as interactive kiosks, personal digital assistants, wireless phones and yet-to-be-invented technologies.

The multichannel model evolved from the ashes of the pure-play Internet retailers as well as from traditional retailers. The Internet, not too long ago projected to annihilate traditional retailing, has now become a team player, one of several contact channels available between merchant and customer.

The lesson is that there is only one customer — who may or may not be a multichannel shopper. And while the opportunities for multichannel retailers are endless and exciting, a host of nightmarish questions must be answered for retailers to prosper in this new environment. For instance:

• Do you maintain disparate data silos, organized by channel, that make it impossible to craft a clear view of the total customer relationship?

• Is it possible to go beyond merely measuring customer spending by channel and track the impact of marketing campaigns across multiple channels through increased customer value and return on investment?

• Are some of your best customers “invisible” if they choose to pay with cash or a bank credit card?

• Are you creating a trusting relationship with your customers and in the process initiating a dialogue that offers insight more valuable than any transactional data set?

Most retailers will struggle with answers to one or more of these questions. So, how does the multichannel retailer bridge the gap in this new environment?

A well-designed and executed loyalty marketing program can go a long way toward identifying a retailer’s best customers, regardless of the channel shopped, developing a stronger customer database and encouraging customers to spend more in any or all channels.

Right now, many retailers find it difficult to link a customer’s actions across multiple channels. Some retailers can identify a good customer when she logs on the Web site or makes a catalog purchase, but often have no way of knowing when that same shopper enters a physical store.

The unique blend of recognition and rewards offered by a well-crafted loyalty program will encourage customers to raise their hands and ask to be identified. Once they join, an individual identification number allows all customers to be recognized, regardless of their preferred method of payment. Such programs encourage cross-channel shopping with rewards that can accrue and be redeemed both online and offline.

By opting into a permission-based loyalty program, customers are more willing to share information. Savvy retailers can then begin to create a dialogue with their customers, learning a lot more than the tidbits available from transactional data. When programs build trust and customers see value in them, even the problems of online customers giving false information in the anonymity of cyberspace can be overcome.

But it takes some work.

First, it is critical for retailers to break the mind-set that has forced their retail channel strategy into separate silos, creating separate divisions, even subsidiaries, for physical stores, online retailing and catalog operations. It is time to change focus from the method of delivery to the customer.

Early adapters of multichannel retailing have learned some important lessons. Introducing new channels to customers just for the sake of technology does not work; the “cool” factor will not carry the day. The first priority must be understanding the customers and determining their preferences for browsing, purchasing and customer service.

To develop a loyalty program that builds bridges among retail channels, expands knowledge about customers to all channels and creates a dialogue in the process, retailers must first analyze what they expect to accomplish:

• Define measurable objectives. Is the aim to encourage cross-selling among channels or increase profitability in particular customer segments? What objectives can a loyalty program help with, and which ones call for another approach?

• Define the desired customer behavior. Is the focus to increase purchase frequency or average sale amount? Or perhaps the goal is to shift sales volume from one channel to another?

• Profile current customer behavior. Look at current customers and build a channel strategy around them. For example, it would be foolish for a retailer to spend money developing a Web site if its customer base has limited computer access.

Four keys to a successful multichannel loyalty program. Clearly, there is no “right” way to market through any one channel, but there is a right way to market to customers across several channels, and a loyalty marketing program can help.

A successful program assumes that all channels are included in the customer relationship, that measurable objectives have been established and that promises are kept. With this foundation in place, successful programs boast the following characteristics:

• Visibility. A loyalty program must be highly visible regardless of the channel. A Web site can show special offers for program members. A catalog can feature the program prominently. And shoppers in the store should be asked if they would like to join the program. Cross-promotional materials should be present and easily obtainable.

• Simplicity. A successful loyalty program must be easy to use in all channels. Minimize the fine print. The more the customers have to figure out, the less they like the program.

• Value. There must be a balance of reward and recognition to establish value in the minds of the customers and motivate incremental customer purchases. Program rewards should be attainable regardless of where the customers prefer to shop. And while the price of merchandise should be consistent across all channels, do not be afraid to offer incentives to encourage customers to try a new shopping experience, like offering double points for buying through the Web site.

• Trust. Keep the promises made by the loyalty program. Never violate customers’ trust. Do not promise a personalized, highly valued service and then bombard program participants with meaningless offers that obviously are available to everyone.

Recent studies indicate that customers who shop more than one of a retailer’s channels — perhaps looking online and buying in the store, or reading the catalog and buying online — spend more money with that retailer than single-channel shoppers.

The best way to coordinate marketing objectives across channels is to build a knowledge base of customer behaviors and preferences. Retailers cannot afford to let the existence of different database structures across channels or the inability to identify customers who pay with cash or bank cards to interfere with building this knowledge base. A well-conceived and executed loyalty program can be the key to turning invisible shoppers into hand-raising volunteers in a new army of profitable customers.

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