Personalizing Offers To Influence

To grow revenue and increase share of wallet, astute players in the retail and consumer goods sectors are turning to new personalization tools and processes. With overall spending shrinking, leading retail brands are working harder to maximize the potential of their existing customer base by delivering more targeted and relevant offers. The timing is good for this migration to more focused advertising and promotions as new software platforms make personalization possible in real-time while consumers are present in their stores.

Research reveals the need for personalization. For example, the recently released Retail Horizons report from the NRF Foundation and KPMG showed retailers are now focused on customer retention rather than customer acquisition. The report titled, “Benchmarks for 2009, Forecasts for 2010,” found only 49% percent of retailers planning to focus on customer acquisition in 2010, compared to 61% of respondents who said acquisition was a big part of their initiatives in 2009. “Looking ahead, retailers will continue to analyze customer shopping habits and industry trends to make the best decision possible for their company, employees, customers and their brand,” pointed out Kathy Mance, Executive Director, NRF Foundation.

Personalizing Offers To Influence Shopper Behavior & Drive Maximum MarginsHow Retailers Are Integrating Promotions Platforms With Existing POS Systems To Improve Rewards and Build 1:1 Relationships

AWhite Paper

2 • A RETAIL TOUCHPOINTS WHITE PAPER 2010

Personalization has been prevalent in the e-commerce channel for years and continues to be a competitive priority among online retailers. According to the latest Retail Horizons report, 49% of the retailers polled indicated personalization of their website will be a major investment priority for 2010.

To realize the same cross-sell and up-sell benefits within their physical stores that they are seeking in the online channel, there is growing consensus that new personalization tools and processes must be integrated directly at the Point of Sale. Supporting this rising interest in customer segmentation, the Retail Horizons report found that more than two-thirds (67%) of retailers cited customer database/data mining as a priority for 2010.

By tapping into new technologies that integrate real-time promotional capabilities into the POS, retailers are reporting results that show vastly improved offer targeting and redemption, tighter segmentation, revitalization of stagnant rewards programs, market share and traffic spikes, reduced spend on traditional media, and genuine gains in incremental revenue.

In the following white paper we will explore the latest trends in delivering personalized offers at POS through the perspective of leading industry analysts. The paper will also look at real-world scenarios of how these tools and processes can be successfully deployed at retail to create real-time offers and deliver nearly instantaneous campaign analytics.

The New Delivery Model

In the still turbulent waters of social and mobile marketing, as well as CRM-enabled selling, retailers and consumer goods marketers can find themselves adrift and, without the right tools, even shipwrecked. This is particularly true for the ranks of marketers trying to cross the ocean between traditional methods and the promised land of Web 2.0 capabilities. Consider these two closely linked facts, which on their face seem contradictory: coupon usage is up, while newspapers – with their freestanding inserts carrying coupons to millions – are experiencing a circulation free-fall.

In February 2010, consumer trend expert Robert Passikoff, Ph. D., Founder and President of Brand Keys, Inc., told Retail TouchPoints: “Shoppers have become ‘wise’ shoppers. Coupon redemption, for example, is up nearly 25%.” But even as Passikoff and others reported the rebirth of coupons, discounts, and the high redemption

Shoppers have become ‘wise’ shoppers. Coupon redemption, for example, is up nearly 25%.

“

” —Robert Passikoff, Ph. D., Brand Keys, Inc.


rate of ‘groupons’ and their ilk, traditional media that deliver them – namely newspapers and, to an extent, direct mail – were losing ground to mobile and web-based alternatives.

The Audit Bureau of Circulations (ABC) reported in April 2010 that circulation among U.S. newspapers continued a troubled slide. ABC’s figures revealed that average weekday circulation fell 8.7% in the six months ended March 31, 2010, compared to the same period in 2009. The circulation of coupon-laden Sunday editions fared slightly better, falling 6.5 percent. But despite some bright spots on the newspaper landscape, ABC said the nation’s top 25 newspapers are still logging massive circulation losses.

This effect has been well documented, as the 24/7 wired household emerged, followed by smart phone devotees who have abandoned paid content (like magazines and newspapers) in droves. Additionally, wired and wireless consumers increasingly

seek advice on what and where to buy from social networking sites, Twitter and other web and mobile communities. The instant gratification delivered by these Web 2.0 websites and devices has fundamentally altered the mindset of consumers. They want it now. As it pertains to product marketing and brand loyalty, these trends reveal a “buy my loyalty up-front” mentality. This is in stark contrast to traditional constructs of the reward/loyalty programs that acknowledge buying behavior on the back-end through point redemption, i.e., frequent flier programs.

But as one door closes, another opens. Traditional offer delivery is slowly getting wise to the wired and wireless worlds. The new paradigm makes possible a 1:1 relationship between seller and buyer that was inconceivable a few short years ago. The issue is now one of improved data capture, better interface with CRMs, and acquiring leading-edge systems that put this co-mingled consumer data on steroids, and make it work together seamlessly.

The emergence of mobile devices into the retail environment is potentially the biggest game-changer for realizing that personalized dialog. The recent Yankee Group survey titled “Anywhere Consumers” found 73% of consumers were interested in receiving coupons via SMS/MMS if they were free.


However, many retailers have struggled to deal with the infrastructure requirements at the POS to deal with SMS codes or other codes necessary to enable communication between moble devices and the POS.

Roadblocks to Effective Rewards Programs

In survey after survey, increasing customer loyalty consistently ranks as a top priority for retailers. However, the majority of retailers still struggle with underperforming rewards programs and the difficulty of measuring ROI on promotions due to long lag times.

“Companies that are doing in excess of five million to 10 million transactions, in that large Tier 1 bracket, have to deliver business results and return on marketing investment, as well as return on net asset,” says Sahir Anand, Senior Research Analyst for the Retail practice at Aberdeen Group. “This can make an even bigger impact in small to mid-market players. In

those two segments the selling mechanism is very, very tricky as to how to manage that volume versus margin issue.”

One of the biggest hurdles to managing segmented or personalized loyalty initiatives is that retailers and their partners must not only factor in the outcomes of previous campaigns, but also the likely sales impact of each type of media that’s being used for future campaigns.

Therefore, the ability to deliver targeted offers in “trigger fashion,” that factors in the scenarios of customer response on an individual basis at the point of impact based on predefined events, remains a significant challenge for even the largest consumer brands.

Given the complexity of personalized offers, industry experts insist that marketers must be able to measure impact before, during and after the offer is extended. In order to respond to fickle consumer trends, post promotion analysis must now be done in a matter of days or even hours, not months. As one leading analyst puts it, “What good is a campaign if you’re unable to almost instantaneously measure the outcome from an entire business workflow standpoint, from offer creation, to delivery, to execution and through the critical analysis phase?”

Given the complexity of personalized offers, industry experts insist that marketers must be able to measure impact before, during and after the offer is extended.


Next Gen POS-Based Platforms

In the recent Aberdeen Group study, POS to Profits: Reviving Best-in-Class Sales & Service in Retail Stores, Anand hardwired the next wave of data capture and usage to the POS terminal itself. “According to our surveys, 65% of companies are capturing consumer data at the point of service. But only about 33% actually end up using that data for segmentation to be able to identify those consumers they intend to market towards, or to identify their most profitable customers.”

Best Buy Marketing VP Matt Smith reinforced the importance of integrating data at the store level in a quote within the Aberdeen POS to Profits report: “Our focus is on providing a coordinated, customer-centric shopping experience in all channels. To get there, one of the crucial steps we needed to take was to have as much customer data flowing from our registers as possible. Increased data accessibility at the point of sale, increased data output from the point of sale to other business

management IT systems, and decreased wait times at registers during peak and off-peak selling periods are some of the key benefits,” Smith said.

Anand is an active advocate for a higher penetration of offer personalization, redeemed through a new generation of “smart” POS software that requires only configuration changes without new hardware investments. However, he is disappointed in the relatively low penetration of these devices and processes. “Currently, customizing promotions based on affinity and preferences is a capability that only 38% of retailers have,” Anand reports. “Almost 50% of the rest of retailers plan to use it, but are not in it yet. What’s even worse is the fact that out of this group, only 31% can execute more coordinated product promotions across all channels, while 58% of retailers want to be able to coordinate product promotions across all channels.”

The clear message, Anand maintains, is that companies want to improve the accuracy and targeted nature of store promotions through viral marketing, email marketing, mobile marketing, and extreme personalization of data. “Most of the retailers who invested millions in paper coupons, catalogs and traditional direct mail are realizing that they need to shift their strategy,” he says. “When they’re doing customer intelligence analysis, they may be seeing their wallet

Currently, customizing promotions based on affinity and preferences is a capability that only 38% of retailers have. Almost 50% of the rest of retailers plan to use it, but are not in it yet.

“

” —Sahir Anand, Aberdeen Group


share increasing, but they don’t know that to be precise.”

Among retailers who are currently running anything from promising pilot programs to full-blown offer personalization rollouts of tightly-targeted multi-channel offers are fashion icon Kenneth Cole (who Anand says increased their overall customer database by 21% in three months through enhanced POS data capture); grocery store chains such as Kroger, who Anand says, “…spend an exceeding amount of time on campaign analytics and coupon analytics that are used at the point of service, against those that are distributed prior to the sale,”; specialty young woman’s clothing retailer, The Wet Seal; Ralph Lauren; and New York & Company.

Next Generation Retail Marketing

Personalization pilots now in the field cut across a diverse collection of companies — from grocery and specialty apparel chains, to footwear and mixed-merchandise big box operators, to Quick Serve Restaurant (QSR) chains.

“The consumer is absolutely willing to sign up for [personalized loyalty and rewards programs] on the Web,” says Anand. “There will always be consumers who don’t like inclusive retail behavior. But today, Tier 1 retailers and best-in-class retailers are driving margin and loyalty through [highly personalized] loyalty programs and offers. You need that opt-in behavior from your customers, and the best way to do that is to show them value. Show them the value, and they’ll opt-in.”

One of the early pioneers of this delivering offer personalization and new directions in data manipulation is Atlanta-based Sparkfly. Founded 10 years ago as an employee discount provider, Sparkfly has emerged as a leader in the transformation of existing POS systems, smarter CRM data integration, and a vastly improved consumer experience.

Sparkfly’s CEO Catherine Tabor points out that the vision of real-time promotional offers is beginning to become a reality. “Imagine a world where you know exactly which of your products an individual consumer is purchasing; when and where they’re purchasing; and based on that behavioral purchase history, you can then communicate a very tailored and personalized offer to the individual consumer that will hopefully drive them back into the store, the restaurant, or to your product, at no incremental cost,” Tabor says.

There will always be consumers who don’t like inclusive retail behavior. But today, Tier 1 retailers and best-in-class retailers are driving margin and loyalty through [highly personalized] loyalty programs and offers.

“

” —Sahir Anand, Aberdeen Group


Using the retail example, Sparkfly’s patented platform

works as follows:

1. The retailer configures their POS terminals at the system level to communicate with Sparkfly’s data servers. With the Sparkfly solution, no additional equipment is necessary at the POS.

2. The retailer creates awareness of the new program via ads and in-store promotions and gets customers to sign up and register online, or by phone.

3. Once they’ve registered, Sparkfly communicates offers in a variety of ways including mobile apps, SMS text messages, email, or by driving users to a website or social media site.

4. Once notified that an offer has been loaded into the system, registered users go to a store to purchase the product.

5. Registered users identify themselves right before payment with a swipe card, mobile device, phone number, or other method, and the POS contacts the Sparkfly server to apply the offer.

“The information we get is the exact product the person is trying to purchase at this location at this time of day, and, based on that, Sparkfly determines if there are any offers available.” Tabor says. “If there are, we supply that back to the POS terminal, the discount is applied, the consumer pays with cash, credit, however they want, and they’re on their way. Our server receives one more update that says this is what was actually purchased by this person, at this location, at this time of day.” The existing POS terminal — now enabled with the Sparkfly solution — can also print any type of message the retailer might want

on the paper receipt to show that value was delivered.

Sparkfly’s platform goes a step further. “We can also extend offers to consumers even if they’re not aware an offer is available, in a kind of ‘surprise and delight’ fashion,” Tabor says. “That’s where we close the loop. We’ve captured all this data about what they’re purchasing and what offers they’re redeeming. The retailer can use that data to refine their offer strategy to continue to increase purchase frequency and change the customer’s behavior.”

Tabor’s point is easily understood by

Sparkfly’s Personalized Promotions Platform works as follows:


the beset marketing, merchandising or promotions executive. “This is different from a traditional loyalty program that gives you points after you’ve made a purchase. This is much more proactive, designed to drive people into stores and give them instant gratification.”

The idea of asking consumers to register and opt-in to discount programs wherein merchants and manufacturers will contact them regularly is still daunting to some, especially those who have seen past attempts stumble. But the trend now is towards opt-in behavior, as today’s consumers seek that 1:1 relationship.

Another seeming barrier — that may not really be a barrier at all — is how to tie manufacturer co-op dollars to the idea of extreme offer personalization and targeting. Anand adds, “Companies like Mall Network and others are doing a lot of merchant-funded campaigns and

coalition marketing. It’s the ability to identify the profile and combine that with customer demand predictive analytics that makes it work.”

Case In Point: Highly Personalized Offers Delivered at the POS

The slew of offer personalization pilots currently running at retail are proof that the technology is getting the attention of major players. Sparkfly’s President, Terry Bruehl, explains how their personalization platform can be fully integrated with a retailer’s existing rewards program, and how positive results can be delivered in the early going.

“Let’s say that one of the require-ments is to make personalization easy for consumers to use, and not to change their behavior at all with regard to existing loyalty programs, which are often years in the imple-menting and have large consumer bases,” begins Bruehl.

For example, a national retail chain may wish to use Sparkfly’s platform to make possible more upfront marketing and traffic building using their existing loyalty program as a base. This scenario assumes that the retailer is seeing a lot of points accrued, but insufficient action around redemption. The challenge is not only to improve that rewards program by way of usage, but more importantly, to impact frequency, particular items purchased, and the location of those purchases.

To this end, Sparkfly integrates its


platform with the retailer’s existing loyalty program at the system level. No new cards or other consumer identifiers are issued, making the upgrade invisible to the consumer.

In fact, physical rewards cards are ancillary, says Bruehl, as members can utilize any identifier — a phone number, for example — if it’s on file. The only new twist is having current loyalty program members self-select their preferred mode of contact; op-tions include SMS text messages, emails, or logging into their personal account on the company’s consum-er-facing website.

Program awareness can be achieved through special point-of-sale merchandising and emails where available, asking consumers to choose the types of offers they wish to receive, and how they want to receive them.

The retailer’s loyalty program database is then mapped to Sparkfly’s database, the process through which existing POS terminals become “smart,” and quickly begin to feed offers to consumers, and crucial behavioral data back into the system.

Ramp-up and install time is as brief as 60-90 days, after which the chain pulls the trigger on the first pilot.

Among key outcomes retailers can expect are the new ability to:

Better segment their customers based upon types of purchase (i.e., apparel, sportswear, other brands they prefer)

Drive increased traffic from their loyalty program customer base

Formulate very specific offers for these test consumers using that data

Test those offers not only by mea-suring increased frequency, but by being able to impact purchase behavior in certain regions where the geography itself is not efficient for traditional media buys

Realize market share increases in less than 60 days

Accumulate more granular consumer data

Fine-tune offer strategy, timeli-ness, and the number of offers it’s possible to run simultaneously

Slowly phase-out more costly general market promotions in favor of highly focused, targeted and personalized offers, at a high-er frequency

See a revenue lift on top of exist-ing general market promotions, proving incremental revenue gains coming from offer personalization

See greater interest in and usage of the existing rewards program

See real-time reporting of purchase location, SKU bought, the unique identifier of the shopper, and other data useful for offer creation


CONCLUSION

Targeting and segmentation are not new concepts at retail. The first commercial algorithms appeared in the mid 1990s. But powerful new applications advancing this science will prove to be major game changers in 2010 and beyond. This is especially true for those involved in merchandising and promotions, as well as companies whose existing loyalty and rewards programs need a shot of adrenaline to survive and thrive.

Just as Amazon revolutionized Internet retailing with product recommendations and personalization, a new generation of POS software that works on existing terminals is making special offers, discounts and couponing more relevant to individual shoppers in the bricks and mortar environment.

These targeted offers are helping to create incremental revenue and increased basket size without cannibalizing margin. Leading brands are removing the roadblocks and complexities of segmentation by integrating real-time promotional capabilities into the POS. And while still early in the rollout phase, retailers are reporting more effective, results-oriented promotions, significant payoffs in redemption rates, traffic spikes during slower day parts as well as a reduction in spend on traditional media channels.

Sponsored By


About Sparkfly

Founded in 1999, Atlanta-based Sparkfly is a leading provider of solutions that capture consumer purchase data and provide immediately redeemable consumer offers. Sparkfly's platform is designed to influence consumer-shopping behavior and drive store traffic by offering personalized promotions and offers to the consumer at the point-of-sale. It is the only solution that permits the creation and distribution of personalized offers via the web or mobile devices, and then allows immediate redemption at POS. The patented, cloud-based technology delivers highly efficient and sophisticated campaigns using existing POS systems without additional in-store hardware or software and is frequently used to extend the marketing capabilities of existing loyalty programs. To learn more about Sparkfly's Personalized Promotions Platform, visit www.sparkfly.com.

About Retail TouchPoints

Retail TouchPoints is an online publishing network for retail executives, with content focused on optimizing the customer experience across all channels. Tapping into the power of the Web 2.0 environment, the Retail TouchPoints network is made up of a weekly e-newsletter, category-specific blogs, twice-monthly Special Reports, Web seminars, benchmark research, virtual events, and a content-rich Web site at www.retailtouchpoints.com.

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Personalizing Offers To Influence