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KOBIE REVIEW Q2 2019 | KOBIE.COM

Retail Loyalty 6 14 24

THE NEXT BIG TREND: KNOW YOUR ADOPTION CURVE SALUTING THE NEW ROLE OF THE FLAGSHIP STORE BOOSTING CUSTOMER LOYALTY WITH AI


Contents Executive Summary

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RETAIL LOYALTY The Next Big Trend: Know Your Adoption Curve

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MARVEL-ing at the Latest Habit-Forming Trends in Retail

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Saluting the New Role of the Flagship Store

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Reward Credit Card Acquisition: Not as Easy as Asking, 18 "Would you Like Fries With That?" Building Emotional Loyalty: Know What Drives Your Customers

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Boosting Customer Loyalty With AI

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Executive Summary It has been exactly one year since the launch of our first Kobie Review! Ironically, it was our Retail Review. What was true then still holds true today. A booming economy creates new levels of challenge, competition, and change that would seem unimaginably chaotic to merchants twenty years ago. But, challenges demand solutions, competition spurs innovation, and change leads to evolution. Today’s churning environment is actually a dynamic, vibrant retail sector. Retailers invest highly in omnichannel delivery and require unique approaches to onboarding, acquisition, appreciation, and retention. Consumer choice is at an all-time high. In this dynamic, thrilling time of retail, how can one be successful when there are so many boxes to check and options to choose from? In this Review, we’ve broken down what feels overwhelming to share our insights so you can focus on what matters most, your customers. We identified several retail loyalty strategies and trends that are hot in the market right now (see page 6). We break down Artificial Intelligence (see page 24), so you know what to expect. We also take a look at how brands are adding multitender programs (see page 18) to its credit card programs and talk through their positives and negatives. We even dive into the recent buzz around flagship stores (page 14) – who can you learn from and who is turning the page on their Fifth Avenue storefront. We hope the Kobie Review: Retail Loyalty Programs help to shed light on some trends affecting the industry and inspire your loyalty approaches for the rest of the year. Of course, if you’re reading this, you’re most likely already committed to a customer-centric approach that will pay dividends to your brand. In that case, we hope you’ll find even more inspiration from our experts to help take your loyalty strategies to the next level. Best,

David Andreadakis Chief Strategy Officer

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THE NEXT

BIG TREND: KNOW YOUR ADOPTION CURVE Kate Hogenson • Senior Loyalty Consultant


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henever marketers get together, there will always be conversation about The Next Big Trend – it’s right up there with, “Where’s the open bar?” It’s in the job title – Marketers need to anticipate where the market is going and lead their companies to innovate. It’s even more important right now because of new technologies becoming available at the same time as the Boomer generation becomes a smaller percentage of the population with purchasing power. It feels like we are at a major inflection point for how customers research and buy products. As marketers, we tend to anticipate and run to keep up with the early adopters. The risk lies in not recognizing when we may have passed the pack where our customers still are, and gotten out ahead of them.

The most important big trend? Recognizing that you have customers at multiple places on the adoption curve… at the same time. Perhaps you were expecting The Next Big Trend to be artificial intelligence (AI), machine learning, blockchain technology, contactless stores, or digital assistants? Those are all vitally important right now, but how you adopt them and bring your customers along will be what differentiates you in the marketplace. Let’s go back to that feeling of being at an inflection point. Will the change be like when cars replaced horses in under 25 years? Or, will it be more like the advent of TV where consumers

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continued to listen to radio as well as watch TV— an additional way to connect rather than a replacement? That’s where the insight and skill of the marketer matters. Let’s start with some key examples that demonstrate what’s going on. • The penetration of online purchasing: Ask any marketer you meet for the percentage of retail purchases made online and most will tell you a number between 40 and 75 percent, which is the percentage of retail growth represented by e-commerce and not the actual percentage of retail sales from e-commerce – the real number is still hovering around 10 percent if you follow the official numbers from the US Department of Commerce1 which includes fuel and autos. Other sources calculate that without auto related purchases, e-commerce is more in the 13-14 percent range of all sales.2 Our own research3 conducted in 2018 indicates that over 86 percent of Millennials and even 76 percent of Gen Z still regularly shop in stores, even though they are buying a greater percentage of their total purchases online or via mobile. • Mobile phone use for research and purchase: Most marketers assume that all Boomers are techno-phobic. That is a dangerous assumption because what is really going on is that there is wide variation in tech adoption. The same Kobie research found that about half of Boomers SMARTPHONE: USE BY GENERATION 84%

87%

86%

89%

% OF PHONE USERS USING PHONE TO RESEARCH PURCHASES

52%

DON'T USE SMARTPHONE

24% 9% GEN Z

4%

MILLENNIALS

GEN X

BOOMERS

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> The Next Big Trend ...

don’t use a smartphone for researching or making a purchase. However, for the remaining half, 89 percent actively use their phone to research retail purchases, which is an even higher percentage than for younger generations.

Why these facts matter: Many retailers have been assuming that the brick and mortar experience is dead and that the digital experience, especially mobile apps, are the only wave of the future. In many cases, the in-store experience reflects that lack of love. With over eight out of 10 purchases still made in store, failure to focus on the in-store experience damages the brand overall. Sears is the poster child for this mistake – their digital experience had actually been among the most innovative for the past 10 years, but their stores have languished, as have their total sales. Why explore a brand online if the visible manifestation of that brand in your home town looks more shabby than chic? What has become apparent in the past year is that the fastest growing big retailers are pushing for innovation at the point of sale in the physical as well as the digital sphere - phygital. That is why you see Amazon announcing the launch of 3,000 automated stores by 2020, Walmart testing convenience store-sized “Fuel Stations,” and other retailers as varied as Target, Ikea and Nordstrom piloting small-format stores.4 This is just one of several important trends in leveraging technology and data within physical stores. From the perspective of loyalty programs in particular, the retailers and restaurants that implement their programs solely through a mobile app see their programs peak at well under 50 percent in revenue

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penetration according to earnings reports. The numbers are even lower for brands who have high value customers within the Boomer generation where phone use is a 50/50 proposition of using it not at all or using it all the time. Programs that enable members to interact in store and online, as well as in app, routinely achieve program penetrations in the 75 - 85 percent range. More examples of the gap between hype and the real world for major trends: • Mobile payment: Banks are rushing to update their apps to add mobile payment capabilities or integrate with Apple Pay, Google Pay and Samsung Pay, who actively market their payment capabilities. But it is worth noting that 40 percent of all mobile payments in the U.S. are made using the Starbucks mobile app – which makes Starbucks the leader in mobile payment over both Apple and Google.5 One of the implications from the success of Starbucks is that integrating a new technology with a loyalty program that recognizes use of that new technology can drive penetration for that technology. The airlines used their programs to similar effect to drive adoption of online booking in a previous generation. • Laptops: Similar to in-store shopping, Kobie’s research indicates that 75 percent of consumers across generations are still using laptops to research purchases and 68 percent use their laptops for purchases – this is even true for Gen Z where only 13 percent are NOT using a laptop at least some of the time. This means that it remains important to keep an interface for online purchase and loyalty account access that will display well on a laptop, as well as on a phone. • Digital assistants: A year ago, there were a lot of articles about how digital assistants would become the new retail marketplace and drive even more purchases online.6

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This year the research is more cautious – among active loyalty program members, our research found that 68 percent have still never used one. That percentage varies by generation but even for Millennials, almost 50 percent claim they’ve never used Alexa, Echo, Siri, or Google Home for researching or making a purchase.7 Playing music, setting reminders and reading the news are far more popular uses. For the moment – it may have changed by the time you read this but for the moment, it pays to know what your customer has and has not adopted.

Let’s get down to the practical tactical level for how to leverage emerging trends without jumping on a trend that doesn’t catch on. 1. Know what’s out there – Yes, you need to be learning everything you can about AI (more on that later in this Review), machine learning, blockchain technology, contactless stores, and digital assistants. They, and others, are among the important trends in the loyalty space today. They will remake the marketplace over time. 2. Fully imagine what each technology could do for your customers – Some of the greatest innovations are reimaginings of what existing technology can do when paired with newer technology. Hilton was able to increase enrollment, redemption, and member purchases with “Money + Points” rewards – the solution effectively consists of adding new web design to existing booking technology. 3. Know exactly where your customers are on each adoption curve – Never mistake trial for on-going adoption. Be sure to be clear on what each generation within your customer base is doing for each of the following: • What are they engaging with for fun or to stay current?

As for that question about whether the coming change in consumer purchasing behavior will be more like cars replacing horses or TV and radio continuing in parallel for a generation – our fearless forecast is that this world of parallel purchasing behaviors in store, online, in app, and via digital assistant will be a continuing reality for the next few years. The winners will make the experience easy and engaging no matter where the consumer walks into their physical or virtual marketplace.

1 “Quarterly Retail e-Commerce Sales 2nd Quarter 2018,” US Department of Commerce, (August 17, 2018) https://www.census.gov/retail/mrts/www/ data/pdf/ec_current.pdf 2 “US e-commerce sales grow 16% in 2017”, Stephany Zaroban, Digital Commerce 360, (February 16, 2018) https://www.digitalcommerce360. com/article/us-ecommerce-sales/ & (November 19, 2018) https://www. digitalcommerce360.com/article/quarterly-online-sales/ 3 “Loyalty in the Age of the Connected Consumer,” Kobie Marketing, (June 2018), http://www.kobie.com/wp-content/uploads/KobieMarketing_LoyaltyintheAgeoftheConnectedConsumer.pdf 4 “Are big box retailers going too small with new store concepts?,” Chris Petersen, PhD., Retail Wire, (September 24, 2018), https://www.retailwire. com/discussion/are-big-box-retailers-going-too-small-with-new-store-concepts/ 5 “Walmart and Dunkin’ Donuts Gaining on Apple Pay and Samsung Pay, But Starbucks Is Tops”, Aaron Pressman, Fortune, (May 22, 2018), http:// fortune.com/2018/05/22/walmart-starbucks-mobile-pay-apple/ 6 “Digital Assistant Users Say Their Shopping Habits Are Changing”, Rimma Kats, Retail e-Marketer, (May 11, 2017), https://retail.emarketer.com/article/digital-assistant-users-say-their-shopping-habits-changing/5915ff35ebd400097ccd5fb2?ecid=NL1014 7 “Most consumers prefer to research, rather than purchase, via voice assistants,” April Berthune, Digital Commerce 360, (April 20, 2081), https:// www.digitalcommerce360.com/2018/04/20/voice-assistants-are-more-popular-for-product-research-than-buying/ “79 percent of Americans now shop online, but it’s cost more than convenience that sways them,” Sarah Perez, TechCrunch (December 19, 2016), https://techcrunch.com/2016/12/19/79-percent-of-americans-now-shop-online-but-its-cost-more-than-convenience-that-sways-them/

• What are they using for research in their daily lives? • How are they really closing a purchase and paying for it?

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MARVEL ING AT THE LATEST HABIT-FORMING TRENDS IN RETAIL Alex Fisher • Loyalty Consultant

While most are likely to recognize J.A.R.V.I.S. from Marvel’s Iron Man and Avengers movies, the ultra-sophisticated AI character was first introduced to the comic book universe in the 60s. Tony Stark’s voice activated butler/personal assistant home computing system could control and run everything at the Stark Mansion. At the time, I imagine the concept seemed like complete fantasy. Flash forward several decades to voice activated in-home virtual assistants like Alexa and Google Home, listening carefully to answer questions, play music, control your home electronics, or turn

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on your home security system—as well as add and order groceries, clothes and anything else you may want or need to buy. A world where you can try on makeup or clothes using your mobile phone from anywhere, where you can walk into a store and pick-up what you want without a checkout or human to ring you up. Cash used to be king, but these days, you don’t even have to carry a credit card to grab your items and go. These technologies are springing up at stores around the country and what better way to tap into your customers’ loyalty than with these habit-forming trends?

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BOPIS…One of my faves before it was even an acronym I didn’t have to read that one of the biggest themes at this year’s National Retail Federation show (NRF) is BOPIS, the latest retail acronym for the service known as Buy-OnlinePickup-In-Store. Before becoming so widely adopted by retailers, coffee giant Starbucks, helped coffee fanatics skip the lines by offering loyalty members the option to order ahead via their mobile app. Many customers became members just to have access to this program benefit. Convenience and habit go hand-in-hand. Removing barriers and creating a more seamless and frictionless experience has a way of generating frequent and repeat business. It didn’t take too long before retailers saw the draw. According to a new case study from Adobe Analytics, the volume of BOPIS grew seventythree percent between Thanksgiving and Black Friday compared to the same period last holiday season1. It’s the convenience and speed of shopping from anywhere and having the entire contents of my shopping bag ready and waiting at the store, without having to meander around finding things. This is one of my favorite trends in retail with major brands including Old Navy, Home Depot, Target and Macy’s offering this to the general public during their check-out flow as a convenience even though it usually requires collecting contact information from non-members. Others like Nordstrom, as we mentioned in the previous article, see BOPIS as one of the benefits they offer exclusively to their Nordy Club members. While there’s a practical element of being able to leverage the member profile to facilitate the service and keep it

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easy to use, limiting the benefit to members increases the perceived value of membership and reinforces the sense of “joining the Club.”

Grab n’ go… If free shipping, streaming content, books on demand, Whole Foods and food home delivery weren’t enough, Amazon Prime members have access to another new service with the launch of Amazon Go. The Go convenience store concept launched in 2018 in densely populated, high traffic areas of Seattle, San Francisco and Chicago. Amazon has already announced plans to open up to 3,000 stores by 2021.2 The Amazon Go mobile app (separate from the Amazon Shopping app), like BOPIS, is another trend focused on customer convenience - drive habitual loyalty through convenience. Amazon refers to it as “Just Walk Out Technology,” which automatically detects when products are taken from or returned to the shelves and keeps track of them in a virtual cart. When you’re done, you just leave and the items are paid for by using the form of payment registered to your Amazon Prime account. The only catch is that in order to enter the store you must download the app. For some customers, the phrase “Just Walk Out” takes on a different meaning if there’s any delay in downloading the app. One of the major roles for the Amazon Go attendant at launch is to connect with new customers and help them through the initial learning curve. In a move to compete, Kroger and Microsoft announced a partnership earlier this year with two pilot stores in Ohio and Washington State, near each company's headquarters. The stores are designed to make it easier

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> Marvel-ing at the Latest...

for customers and workers to navigate; saving shoppers time and Kroger money. According to a recent CNN Business Report, customers can build a shopping list with Kroger's Scan, Bag, Go self-checkout app and once in store, the app works with cloudbased software and sensors to guide them around as they check off items on their list.3 The app directs them to the correct aisle and directs them to the right product. They scan the item with the app to check out, and the system routes them to the next item on their list. While this new method of shopping requires a significant technology investment, creating this as an additional member benefit is likely to drive acquisition and engagement.

If food Is the way to the heart, mobile apps might be the way to your wallet It’s time to Marie Kondo your mobile apps! From buying online and picking up in store, to grab n’ go convenience stores, new mobile apps are popping up everywhere. According to Shopgate, 50 percent of the retailers they surveyed for their new report, "The New Rules for Omnichannel Retailing” said a mobile shopping app is a top priority for their omnichannel strategies, while 45 percent listed mobile points of sale as another key to their plans.4 And another study, by PYMNTS.com, showed that 45 percent of consumers who shop online complete their purchases via mobile smartphone compared to 34 percent who use computers—it may have been slow to catch on, but mobile adoption is definitely on the rise.5 Make way for mobile as retailers develop apps

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that allow them to stay with you all the time— browsing, buying and connecting. of consumers who shop The trick is to help consumers online complete their learn how your purchases via mobile app works quickly smartphone so that it sparks compared to 34% joy and when they percent who use declutter their computers apps, yours will be the one they keep.

Augmented Reality A couple years ago, Neiman Marcus rolled out their Magic Mirror, created by MemoMi, designed to create a personal in store experience where the customer’s make-up application and tutorial is recorded and sent by text to the customer who can share it via social media. Around the same time Sephora began allowing customers to use the camera on their smartphones to try colors and looks on their own face, or watch custom tutorials virtually without ever setting foot in the store. The app allows customers to view, select and buy the products and even shows the potential Beauty Insider points members will earn in Sephora’s loyalty program based on the products in their shopping cart. Fast forward to this year’s CES, where Perfect Corp.’s founder, Alice Chang, hosted a panel about beauty and tech with Jessica Pels, the editorin-chief at Cosmopolitan. Perfect Corp. recently teamed up with Ulta Beauty and Cosmopolitan magazine for online and in store rollouts of its latest artificial intelligence (AI) and augmented reality (AR) technology,

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YouCam. Perfect's new "Beauty 3.0" suite includes product recommendations, makeup shade matcher, skin diagnostics and live hair multicolor effects. Cosmopolitan sees using YouCam as a way to make its pages more interactive with smartphone activated AR experiences. Ulta Beauty and other beauty brands tend to concentrate on in-store applications and the use of Perfect’s technology helps shoppers experiment with products and stylists with more compelling product demonstrations. Senior VP of Digital and E-commerce, Prama Bhatt, said, “virtual hair color try-ons are an example of merging physical, digital and emotional experiences for customers”—reinforcing the need to generate loyalty by creating and building an emotional connection with customers.

In today’s retail space it’s imperative to stay relevant and to create an emotional connection with customers it you want them to keep coming back. We may not all be genius, billionaire, superheroes like Tony Stark, but with today’s latest technology trends, we don’t have to have J.A.R.V.I.S. to connect and run our worlds, we can do it ourselves with apps from our favorite brands and our trusty mobile phones.

1 https://www.adweek.com/digital/bopis-retails-latest-acronym-makes-the-case-for-delayed-gratification/ 2 https://www.bloomberg.com/news/articles/2018-09-19/amazon-is-said-to-plan-up-to-3-000-cashierlessstores-by-2021 3 https://www.cnn.com/2019/01/07/business/kroger-microsoft-cashierless-stores/index.html 4 https://www.retaildive.com/news/50-of-retailers-list-a-mobile-shopping-app-as-a-top-priority/547774/ 5 https://www.retaildive.com/news/45-of-online-shoppers-complete-purchases-via-mobile/544378/

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Saluting the New Role of the Flagship Store

Howard Schneider • Vice President, Loyalty Strategy

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For years, the Flagship Store – stereotypically on New York City’s famous Fifth Avenue – has been the brightest star in the retail constellation. But like everything else in the dynamic world of commerce, the role of flagship stores is undergoing re-examination and re-invention. And while there may not be an explicit connection between a retailer’s flagship and programmatic customer loyalty, the flagship can have a halo effect that drives emotional loyalty.

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n recent months, Gap, Ralph Lauren, Calvin Klein and Lord & Taylor all have closed flagship locations in Manhattan. Discussing flagship stores recently in the fashion blog Glossy.com, journalist Danny Parisi posed the question:

“Why do they even exist?” At one time, giant, fully-stocked flagship stores were a destination for shoppers. But in recent years, flagships have become more of a tourist attraction than a place people go on everyday shopping missions. And as ecommerce has made virtually all brands, sizes, colors, and styles available everywhere, all the time, on every device, the relevance of flagship locations has decreased, and traffic has dropped dramatically. As a result, Maya Mikhailov, CMO of GPShopper, told Business Insider, “Many brands no longer find that having hundreds of thousands of square feet, in high-rent districts, is the best impression they can give customers of their brand.” Stores with a purpose In today’s disrupted retail world, brick and mortar stores, especially flagships, must have a raison d’etre. Physical retail locations must provide some unique value or experience not available online or at a discount outlet. For flagship stores to succeed, experience must take precedence over mere merchandise. Let’s look at several marketers who have re-invented the flagship in various ways. Customization In 2016, Converse opened their “Blank Canvas” workshop location, which in some ways might be viewed as the opposite of the traditional flagship. Instead of carrying everything, the store is focused on collaborating with customers to design unique sneakers – which are finished and ready for the customer in a day. Not only does that store fulfill consumers’ KOBIE REVIEW: RETAIL

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> Saluting the New Role...

desire for customization and instant gratification; it provides an experience very different from the classic retail store. And it delivers that experience and unique product in a much smaller, more efficient footprint than the old flagship model.

It is a fascinating realization of the tectonic shifts

In the same industry, Nike has opened a Manhattan flagship location, which they refer to as a “House of Innovation.” At 68,000 square feet it’s not small, but it immerses visitors in an app-enabled shopping experience that, like Converse, allows for endless customization. The app also does away with cash registers and the traditional checkout experience. To top it off, the location includes the largest collection of Nike products on earth, allowing sneakerheads to connect with the product they love in a museum-like atmosphere. The experience is as much an attraction as the merchandise.

aims to be the facilitator of human activities

Exclusivity Chanel is also bucking the trend, having opened a glitzy flagship on Manhattan’s 57th Street in 2018. The draw for Chanel: exclusive

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taking place in the way we live, shop and work, that the iconic Lord & Taylor building has been sold to The We Company. The parent of WeWork, WeGrow and WeLive is now the single largest occupant of office space in New York City, and including work, housing, education and more, in branded “third place” environments.

merchandise, unavailable anywhere else. The store offers one-of-a-kind accessories and fragrances, including unique creations and charms based on the New York City experience. This is a great strategy that makes the Chanel flagship a destination. Barneys New York is taking things to new heights with The High End, a store-within-a-store at their Beverly Hills flagship. Yep, it’s a “luxury cannabis lifestyle and wellness concept shop.” In an exclusive partnership with Beboe, an upscale cannabis company, Barneys will offer a range of accessories, jewelry, and health and wellness merchandise, including items

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made just for The High End. While select items will also be available online, the physical store will be a unique destination, extending the retailer’s luxe image into the newly de-stigmatized world of weed. Hands-on experience While technology has made merchandise accessible with a click or a tap, consumers still hunger to touch and experience products – especially new products. Samsung has announced the opening of three new “Samsung Experience Stores,” combining sales with repair services, live product demos, gaming lounges and other ways to experience the latest Galaxy smartphones, wearables, tablets, TVs and more. Y. H. Eom, CEO of Samsung Electronics America, calls it “a playground for Samsung fans.” Who doesn’t want to visit a playground? The new Levi’s store, occupying nearly 17,000 square feet in Times Square is a destination for tourists and local denim lovers. A unique merchandising scheme arranges styles by vibe, and emphasizes Levi’s classic heritage. A huge collection

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of vintage styles is arranged by year, along with the latest fashions. The first-floor entrance features New York-inspired gear for the tourist market; and the store includes a large Tailor Shop where visitors can reference design inspirations from around the world on an iPad, then huddle with designers and tailors to bring customized clothing to life. Everything old is new again? The old-school glamor of flagship department or brand stores that wowed customers with size, volume and choice may have faded. But, the flagship store can still be a vibrant destination. We see in these examples some of the many ways creative marketers and merchants are using technology and insight into the ways we shop in the digital age, to re-invent the flagship and keep it relevant. The flagship store represents bricks and mortar on steroids – to survive in our disruptive era, physical retailers must provide unique and differentiated in-store experiences, which reinforce emotional brand loyalty. Those who do so successfully will thrive, on Fifth Avenue or on Main Street.

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Reward Credit Card Acquisition: Not as Easy as Asking,

Alex Fisher • Loyalty Consultant

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In the past three years, there’s been a surge in major brands adding multi-tender programs to their existing credit card only programs, including Nordstrom, Kohl’s, Macy’s, and J. Crew. Clearly a multi-tender program increases the reach of a program which in turn enables the retailer to access more data for more of their customer base. When Seattle-based retailer Nordstrom extended its rewards program to include all shoppers, not just those who held its credit card, enrollment jumped from 4.1 million members to 7.8 million active members in the first year and by 2017, membership rose another 35 percent to 10.5 million members.

Gap Inc. has seen huge enrollments from its cross-brand multi-tender program currently being tested in several markets and Target is piloting its own multi-tender program, too. These programs enable all customers to reap benefits and rewards regardless of how they pay. Gap, Inc. sees offering their rewards program to all shoppers regardless of payment type “a way to give customers more reasons to love us” according to Claudia Angulo, Director of Loyalty Strategy. “We have a successful Gap, Inc. credit card program where cardmembers can earn points and redeem rewards across our portfolio of brands, with BRIGHT Rewards, we’re extending these benefits to customers who love shopping with us, but might not be ready for our credit card.”1 In the case of Gap, a multi-tender program facilitates a view of the customer across multiple brands in a way that is transparent to the customer – having a program explicitly lets the customer know they are being tracked as they shop at multiple brands. Conversely, brands like Starbucks and Amazon who have had

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thriving multi-tender programs, are now adding private label and co-branded credit cards to further monetize the success of their existing multi-tender programs. Below we’ll examine some of the factors a program needs to consider before asking, “Are you a member of our loyalty program?” or “Will you be putting that on your {Insert your brand here} card today?” Historically, retail credit came first… Long before the loyalty programs we know today, U.S. department stores and oil companies offered their own proprietary charge cards, the precursor to what we now call private label credit cards. These cards were introduced to encourage customer loyalty with improved service. So, it stands to reason when today’s retailers are building a loyalty program, many start with private label credit cards (PLCC) or co-branded credit cards (CBCC). These are the customers who already have an affinity for the brand and retailers enjoy a revenue stream from their issuing banks, so it is seemingly a winning proposition.

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> Reward Credit Card Acquisition:...

However even retailers with strong private label card portfolios find that cardholders will not use their private label card every time they shop – sometimes less than 50 percent of the time. Even though your credit card may offer a strong incentive to choose your card for every transaction, it can be counter-productive based on the customer’s credit profile. You don’t want your customers to feel less

The challenge for the programs who now offer both credit based and non-credit based programs is which to offer first? Do you lead with credit or loyalty? The short answer is, “It depends.”

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connected to your brand because they can’t earn points for the times they need to use another form of payment for entirely personal reasons. The New Age of Loyalty Credit may have once been the entry into loyalty and there’s no question that the credit card industry continues to be a booming business, but Millennials and Gen Z appear to be adding credit more deliberately than previous generations and there is significant anxiety about credit ratings, especially given the growth in student debt. In Kobie research about what keeps customers from joining a program, Millennials were twice as likely as Gen X and FOUR times as likely as Boomers to say, “I'm worried about hurting my credit score.” That means that brands can no longer assume that credit cards are the default form of payment. Instead of credit cards, customers are more likely to be using a mix of debit cards and reloadable cards. With concerns about credit, it makes sense to offer benefits regardless of payment type and use credit as an opportunity to create even more value for your best customers and return to the original idea of

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Millennials were twice as likely as Gen X and FOUR times as likely as Boomers to say, “I'm worried about hurting my credit score.” using credit to encourage customer loyalty and improve service.2 If Not Fries With That, What Should You Be Asking? A customer approaches the checkout counter, arms brimming with products, what’s your next move? “Will you be using your {Fill in the retailer} credit card today?” risks the customer refusing the credit offer up to 80 percent of the time and possibly shutting down the conversation entirely. The question, “Are you a member of our loyalty program?” is very likely to lead to a yes and an opportunity for conversation. This puts customer value ahead of payment preference. If a program has both a credit card and a multi-tender loyalty program, offering the multitender option ensures everyone who agrees to enroll is a winner. Multitender programs are usually free, allow the most frictionless capture of personal data to enroll without any dependency on credit-worthiness. Getting someone in the program opens the door to communicate and

drive program value, later offering the incentive to use credit for greater earn and access. Likewise, if a customer is a member, the associate has the opportunity to further educate them on the additional value or benefits they receive if they use the retail credit card over other forms of payment. Customers like to feel they have choices and are in control—this is a great way to “get your foot in the door” and reinforce choice and value. Likewise, for customers purchasing through EComm and mobile apps, showing them how much they could earn at checkout with multi-tender compared to retail credit is often a great motivator to apply for retailer’s credit card or choose the retailer’s credit card over other payment options. In the end, consider your audience, consider your end goal—always try to consider how to leave the door open, keep the communication flowing and finding the best way to encourage loyalty and make your customers feel like they’re receiving great service.

1 https://www.pymnts.com/news/retail/2018/gap-bright-loyalty-rewards-branded-cards/ 2 https://www.creditcards.com/credit-card-news/history-of-credit-cards.php

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BUILDING EM TIONAL L YALTY:

Know what drives YOUR customers Kate Hogenson • Senior Loyalty Consultant & Sarah Queller, Ph.D • Sr. Data Analyst

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In this world of price transparency and competition, why should customers choose you? They can easily pick up their phones and find the lowest price for sirloin steak, a car, or a vacation. Yet, some customers will consistently choose the same brand for a specific transaction even when their preferred provider doesn't have the lowest price. And they will defend their chosen brand with what can only be called emotional loyalty.

The more consumers for retail endorsed statements related to Status, Habit, and Reciprocity, the more likely they were to say that they:

The problem is, “What exactly IS emotional loyalty?” It feels like something you should already know. When you look at research from within the loyalty industry, one study of 28,000 consumers found the answer to be: “Meet their Needs.”1 That is eloquent in simplicity, but not terribly specific. How does the marketer make that actionable? What are the needs?

We even had some consumers motivated by reciprocity who said there are companies they buy from in order to help make sure the company stays around! Here is where it gets interesting. We promised to make it actionable. We developed Emotional Loyalty Scoring to tell you what will motivate your customers to feel emotional loyalty to your brand.

We knew we had to dig deeper. We reviewed numerous academic articles on building consumer loyalty. We focused on three motivations that academics have identified as drivers of emotional loyalty: Status, Habit and Reciprocity. If you hear a consumer say any of the following, you’ll begin to know what motivates them:

Benefits and positioning will address your customers’ needs when you match them to their emotional motivations.

Status

I feel more valued than other customers.

Habit

I often find myself on autopilot, buying what I’ve bought before.

Reciprocity

I feel grateful for treatment I’ve received from this company.

• Felt an emotional connection to a brand because of a loyalty program • Had purchased from a brand even when that brand didn’t have the lowest price • Tell people that they are a member of their favorite loyalty program

Often the positioning and how you frame your conversations with your customers is as important as the benefit itself. Our research found that the same benefit can

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be offered in different ways to suit different motivations. For example, a premium home delivery subscription service for meals such as Plated can be positioned for customers motivated by status as a way to be in the know about gourmet flavors. Being among the first with gourmet knowledge can satisfy their desire to feel special. The same meal service can appeal to a person motivated by reciprocity—tell them the recipes will help them please their family and friends. The person motivated by habit wants things to be easy and doesn’t want to do anything too unfamiliar—home delivery service takes away the effort of planning and shopping for ingredients. The same benefit may appeal to all, but you may need to talk about your benefit differently for someone motivated by status than you would if they are motivated by reciprocity or habit. Recently, we scored 1,200 customers of well-known specialty and mass retailers. We found that customers motivated by reciprocity were more likely to shop at REI which makes sense given REI’s support for the environment and reinforcement of lifetime membership. Understanding what motivates your customers pays off and a tool like Kobie’s Emotional Loyalty Scoring can help with that process. 1 “The Battle for Love and Loyalty: The Loyalty Report 2017,” Bond Brand Loyalty with Visa, (2017)

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BOOSTING CUSTOMER LOYALTY WITH A I

Terri Gaughan • Senior Loyalty Consultant

Artificial Intelligence (AI), blockchain, machine learning, bitcoin – these are all words that many consumers shy away from and are actually turned off by in many instances. But, the reality is so many brands are using these types of technology for good. AI in particular remains on shaky ground. Nearly four out of ten (39 percent) customers worry about the overall impact of AI, while 49 percent believe AI will lead to diminished privacy. Additionally, customers are often unclear about what AI even is. While 72 percent of customers across six countries say they understand AI, only 41 percent knew products like Google Home and Amazon Alexa rely on the technology.

AI has improved loyalty programs by leaps and bounds, enabling brands to create engaging, memorable and personal experiences for their most loyal shoppers. But, it’s important to be cautious when implementing AI so that catastrophes or perceived privacy infringements don’t occur and your customer’s continue to have the best overall experience.

Perfect AI tactics with machine learning and human oversight Most fraud-type instances can be prevented by better and smarter algorithms. Brands with AI strategies need to use machine learning technology to constantly


improve algorithms, so that mistakes can’t happen. Relying on human oversight to make smarter judgments can help catch potential mishaps AI technology might otherwise miss. For example, an algorithm could detect potentially fraudulent activity and flag your VIP members so that real employees could do further investigations before immediately shutting people out of their accounts. Any time AI is involved, the human touch is still critical for success.

Personalize, but don’t take away choice When is too much personalization a bad thing? When it takes away choices from your shoppers. Accurate product recommendations, promotional discounts based on past behavior and individualized rewards are always a good thing. However, brands that go too far in trying to craft personalized experiences for customers risk getting it all wrong.

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Instagram learned this the hard way after it changed its algorithms so that social posts no longer displayed chronologically. Users perceived this move as a controlling one from the platform, and felt they were missing the content they wanted to see. The brand has since responded by tweaking its algorithms to return to a more chronological approach. Understand that your loyal customers love your brand for what it is. While you should tailor your program to individuals, don’t go overboard or you’ll risk restricting how customers engage with your brand. Remember: AI is a tactic that allows you to craft better experiences for your customers, but it can’t take center stage. Personalize experiences to the best of your ability, while still allowing your customers to experience your brand organically and on their own terms.

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a loyalty marketing company that designs, enables, supports and optimizes customer experiences for many of the world’s most successful brands. Kobie believes in building

Kobie is

relationships by deepening the emotional and behavioral connections brands have with their customers. Our integrated and innovative loyalty solutions deliver the most impactful results for our clients’ bottom line. To learn more, visit kobie.com. 1-800-821-7892 info@kobie.com

100 2nd Ave South Suite 1000 St. Petersburg, FL 33701


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We help companies grow enterprise value through loyalty. Whatever your business issue may be, it’s likely we’ve addressed it and have a perspective. While industries may change, and trends come and go, insights can always inspire. Check out our expert advice from Kobie thought leaders on kobie.com.

Industries: Retail, Travel & Hospitality, Membership & Subscription Services, Financial Services, Telecom, Entertainment and more.

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Kobie Review: Retail, 2019  

Kobie Review: Retail, 2019  

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