Retail Personalization and Customer Segmentation: Understanding the Rise of Customer Loyalty Programs in Retail

Historically, customer loyalty programs for retailers consisted of a store-branded credit card and occasional access to discounts. These programs were limited and revolved around physical interactions with customers. Now, in a post-recession market and a generation of millennials saddled by debt, these types of programs are a tougher sell than ever before.

loyalty cardThe retail industry has changed and so have customer loyalty programs. In today’s market, there are numerous opportunities for retailers to connect with customers. In fact, customer loyalty programs have been on the rise. According to a recent report from Gartner L2, 14.9% of department stores launched a new loyalty program in 2018. Macy’s, Nordstrom, Kohl’s, Target, DSW, and Lululemon have all recently launched customer loyalty programs or changed existing ones.

There are several reasons why retailers are revamping these programs – but most have the same end goal in mind.

The Motivation Behind the Launch of New Customer Loyalty Programs

New customer loyalty programs are far removed from the older programs. While they aren’t without their drawbacks, retailers benefit in many ways from achieving high levels of customer loyalty.

One of the primary goals of these programs, as a part of achieving loyalty, is to increase customer retention and decrease attrition. Retention helps ensure a steady stream of revenue – a highly valuable asset in the volatile retail industry – and helps reduce overall customer acquisition costs. Retailers that can establish brand loyalty will solidify their customer base for years to come.

Customer loyalty programs give retailers a great way to listen and engage with their best customers to build loyalty over time. These programs give retailers an opportunity to understand their best customers’ shopping habits, values, and lifestyle. This is important to note, because today’s customer loyalty programs are also focused on learning as much about a customer as possible.

Once a retailer understands a customer, or their core customer base, they can offer targeted product recommendations, well-timed promotions, and most importantly, personalized service and attention. When a consumer feels a personal connection to a retailer, a closer relationship is developed, and they are much more likely to be loyal to that retailer.

Increasing customer retention and learning more about the best customers are the two primary motivations behind the recent increase in customer loyalty programs in retail.

The Shortcomings of Modern Customer Loyalty Programs

Customer loyalty programs are great in theory, and there are some out there that work excellently, but there are shortcomings to these programs, particularly in a retailer’s ability to learn more about their customers.

too many questionsA recent study by Kobie Marketing found that 48% of consumers say that various hurdles deter their signing up for a loyalty program. That same study showed 26% of consumers won’t join a loyalty program if the retailer is asking for too much information about the shopper. It’s difficult to get customers to join a program in the first place, and even more difficult to get detailed information about these customers once they join.

Customer loyalty programs can tend to underdeliver, especially when robust customer segmentation is not possible through the data that’s collected. In fact, a recent survey by Oracle found that only 32% of shoppers find loyalty rewards relevant. Properly segmenting the customer base is essential for delivering relevant offers and products – if customers are shown offers they aren’t ready to purchase, can’t purchase, or aren’t interested in, it becomes more difficult to establish loyalty.

Customer retention becomes more difficult and less likely when customers don’t feel a personal connection or relationship with a retailer. A lack of personalization in services and offers stems from a fundamental lack of the appropriate customer data.

Data from customer loyalty programs can quickly become outdated, complicating the problem of personalization. Customers move to different locations, get new jobs and make more money, and become interested in different products over time. It’s rare for a customer loyalty program to capture this type of data, let alone leverage it for highly personalized offers and services.

In terms of collecting customer data, getting to know these customers, and offering more personalized offers and product selections, customer loyalty programs often fall short of these lofty goals.

Using Mobile Device Data for Deep Demographics

Leveraging deep demographic information based upon mobile device data is one of the best ways to analyze and track retail activity patterns in a given area. Where customer loyalty program data would become outdated when a customer moves or earns a higher salary, trade areas based on mobile data retain this information through constant updates for the most accurate data possible.

With more accurate data on customers surrounding a given retail location, retailers can offer products that align more closely with the needs and desires of these customers. Further, the information gathered from mobile device data can serve for the foundation of further analysis, including psychographic profiling, cannibalization studies, behavioral analysis, and strategy development.

To get to understand customers on a deeper level, mobile device data offers a more direct and more reliable path to the data that’s essential for understanding which products are desired, when they may be needed, and overall shopping behavior.

To learn more about mobile device data, read about DMM Retail Boundaries based on mobile device data from Directory of Major Malls | ShoppingCenters.com.