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will change the biggest threats may not even be on your radar yet but if you look through a wideangle lens at the entire retail industry you can see it the mobile transformation of the industry will have the biggest impact on acquiring retail customers and growing wallet share 24/7 interaction with your brand will drive consumers to expect custom offers and experiences tailored to their likes and habits aggregated data showing progress and potential will change the industry much as it has changed the dynamics marketing and customer loyalty dramatically over the next five years it has already started of the banking media and entertainment industries this new mobile landscape will touch every individual and every retail location it will be disruptive it is a threat or an opportunity depending on your perception and ability to act quickly.

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4 5 6 7 10 11 12 14 15 16 17 business challenges opportunities technology trends influences marketing players the transformation market segmentation loyalty opportunities loyalty strategies the future of loyalty mobile opportunities generation x and y opportunities the road ahead the competitive landscape authors brock bergman brock@loyaltree.com jake klinvex jake@loyaltree.com 3

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business challenges and opportunities 1 shift from targeting baby boomers to generations x and y a lot of attention has been focused on servicing the retiring baby boomer demographic but the 25-34 age group will be the largest by 2015 2 an increased focus is being placed on roi number of impressions and click-throughs are no longer acceptable metrics as the slow economy has cut into marketing budgets 3 customer data is difficult to collect and is overwhelming when it is available marketing channels continue to increase making a centralized data hub difficult to maintain and analyze 4 properly segmenting and targeting customers is becoming challenging as customers become more education and expect a more personalized experience deeper segmentation is needed beyond just spending levels 5 loyalty programs are not living up to expectations only 13 of marketers believe that they are maximizing the value of their loyalty initiatives 6 it is difficult to increase sales when household budgets are being tightened increasing wallet share is nearly impossible when the size of the wallet is shrinking bottom line the competitive landscape the greatest opportunities will occur for those who track all customer touchpoints and use the data that is collected to change customer behavior 4

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technological influences on trends 1 mobile devices will reinvent business and commerce over the next five years 77 million new smartphone users will enter the market by 2015 2 social media has changed customer attitudes from transaction-centric to relationship-centric consumers now want to do more than shop at retailers they want to interact with them 3 pricing data is now available and ubiquitous pcs mobility browsers and search engines make consumer price research ubiquitous customers can now access this information at any time from anywhere 4 information technology and consumer shopping literacy are continuously improving and lowering retail barriers to entry 85 of target customers are now on the internet and 60 have broadband in their homes this allows a whole new family of competitors to approach them 5 web-based self-service technologies are second nature to generations x and y they expect to do everything online including earning rewards 6 next-generation user interface simplifies everything the advances by google and apple and technology such as touch screens and voice recognition make everything dramatically simpler and change the rules of the game bottom line technology has tilted the shopping advantage to the consumer but there are way to take advantage of this change including providing the customer with better tools and easier access to your brand 5

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marketing players retail operations direct marketing old media funding and recognition new media direct operations merchandising the competitive landscape the marketing universe is large and fragmented marketing channels compete for resources and success recognition this competition and lack of centralized data across all mediums has led to silos organizations that have been able to eliminate these silos and play to the strengths of each channel achieve best-in-class results 6

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the transformation wave 1 online marketing segmented audience tailored message s-ch cros ann tion tegra el in what was happening the internet changed marketing by opening an entirely new channel for reaching customers most spending was allocated toward high volumes of generic banner advertisements and search keywords geared toward a specific audience much like television and radio 7

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the transformation cont wave 2 social media segmented audience tailored message s-ch cros ann n ratio nteg el i the competitive landscape 8 what is happening social media has given retailers the ability to learn more about their customers and has allowed them to send less but more tailored messages to specific segments of their customer base social media has been limited primarily to the online channel to this point.

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the transformation cont wave 3 mobile segmented audience tailored message s-ch cros ann n ratio nteg el i what will happen mobile devices will completely change the game the versatility and always-at-thefingertips nature of smartphones will allow retailers to interact with their customers across all marketing channels these interactions will result in a deeper understanding of customer behavior allowing the delivery of tailored messages to very specific segments of the population 9

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market segmentation population trends bottom line baby boomers have received attention because of the large numbers of their population about to enter retirement age however over the next five years the 25-34 year olds will be the most populus ten-year segment there is a large opportunity to capture these customers at a young age and hold onto them for life by focusing on the latest technologies and trends retailers can satisfy these consumers and gain significant wallet share the competitive landscape 10

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loyalty opportunities 80 61 of marketers believe that their loyalty program is their primary retention tool $4.7 billion dollars will be spent on loyalty programs in 2012 of marketers believe that their loyalty program customers are their best customers 44 of loyalty memberships are active 13 of marketers believe they maximize the value of their loyalty programs 11

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loyalty strategies when we examine the recent past and look to the future we see retailers pursuing four key strategies these strategies are not mutually exclusive and each incorporates elements to address cost and differentiation mobile device targeting the growth in mobile devices and intimate nature of this medium will soon make it the only loyalty platform worth pursuing cross-channel consolidation the new mobile nature of loyalty will unite all marketing channels across organizations and drive consumers to interact with varying touchpoints using their phones deep customer segmentation new analytics will measure advocacy opening entirely new ways to segment customers driving behavioral change better interactions and segmentation will drive incremental spend and push customers to make purchases beyond their normal habits the competitive landscape 12

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loyalty strategies cont mobile device targeting mobile loyalty favors retailers with strong cross-channel promotions and for the first time will create analytics drawn from every consumer touchpoint deep customer segmentation customer segmentation will no longer be derived solely from spending habits nextgeneration loyalty gaming technology will tie advocacy into loyalty spend past customer spending customer advocacy future customer spending 13

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the future of loyalty we believe the most successful retail firms will transform loyalty from a piece of the marketing puzzle into the firm s number one priority only initiatives that tie into the firm s loyalty program will be executed · · · · physical coupons punch cards newsletters catalogue rewards · · · · · · plastic loyalty cards email clubs instant coupons online rewards rich analytics advanced datamining · · · · · · · · mobile rewards custom rewards progress indicators infographic analytics automated segmentation cross-channel tracking loyalty aggregation loyalty gaming bottom line mobile rewards and creative graphical displays of rich data will have a dramatic impact on how retailers research evaluate plan and execute future loyalty stategies the competitive landscape 14

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mobile opportunities 77 million 27 new smartphone users will enter the market by 2015 88 71 of brand marketers will use mobile marketing in 2011 of smartphone users have a household income of over $100,000 of smartphone users are under the age of 45 56 of loyalty program members are female 58 of smartphone users are male 15

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