Friday, October 31, 2008

Three Metrics for Retail Loyalty

Aberdeen Research conducted a survey of 231 retail enterprises between May and June 2008 to determine the state of loyalty technology in retail. The survey results indicated that 58% of best-in-class companies in retail found that lifetime customer value had great impact on loyalty. They defined lifetime customer value as the present value of future cash flows through long-term customer relationships. They also found that 93% of retailers execute loyalty programs as a standard offering for their web store or catalog customers.

A significant point made in the report is that lifetime customer value in retail is being overshadowed by loyalty programs which are more tactical in nature than the more strategic lifetime customer value strategy. The survey found the following three factors were the most significant for justifying spending on loyalty:
1. Repeat visits were used by 61% of the retailers,
2. Incremental sales were used by 58% of the retailers, and
3. Overall satisfaction were used by 57% of the retailers.

The retail business is somewhat unique in that it is dominated by the need to be current. Since many retailers generate much of their revenue in only a few seasons, missing one (or even worse more than one) can quickly put a retailer out of business.
For this reason alone, the three criteria noted above seem particularly relevant for the fast pace of retail.

The bottom line is that these three factors really represent complementary measures of loyalty. Some people would add share-of-pocket as another possible measure. If there is a recession (and it seems very likely, if it hasn't already begun), the retailers who manage their business with an eye toward building and maintaining customer loyalty will be better positioned to survive than those who ignore the value of a loyal customer.

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