Digital Intelligence Copyright ©2012 eMarketer, Inc. All rights reserved.

The Customer Experience Connection 2

How Marketers View Social Loyalty 4

Social Loyalty in Action 5

Challenges 8

Conclusion 11

eMarketer Interviews 11

Related eMarketer Reports 12

Related Links 12

About eMarketer 13

June 2012

Executive Summary: Even consumers too young to remember Green Stamps—one of the US’ !rst rewards programs—are likely to have a supermarket discounts key tag or a worn paper punch card promising a free tenth sandwich tucked somewhere in their wallet. In fact, according to COLLOQUY, the average American belongs to 18 loyalty programs.139752

Whether these members are active is another story. Points, coupons and freebies are great for grabbing initial attention, but in the long run these promotions can’t make up for a lackluster customer experience. Creating loyalty is about more than luring deal-seekers, even as rewards remain integral to most retention strategies. Customers can be frugal, and with more online tools to help them make buying decisions than ever before, they can afford to be !ckle.

Through the use of social media, though, retailers and brands can identify and interact with their most pro!table internet users. Loyalty can be won through encouraging word-of-mouth and creating advocates, by raising a user’s social status, by surprising and entertaining shoppers in unexpected ways, and also by listening to customers’ needs and suggestions and responding in a mutually bene!cial fashion.

Key Questions

■ How does the online customer experience relate to loyalty?

■ How are brands and retailers using social media to create customer loyalty?

■ What are the challenges brands and retailers are facing?

% of respondents

Best Ways Companies Can Build Consumer LoyaltyAccording to US Internet Users, March 2012

Providing exceptional 24/7 customer service34%

Rewarding me for purchases, feedback, referrals20%

Sending me exclusive and/or relevant offers and specials13%

Providing personalized products, services12%

Knowing me when I visit or call in10%

Other11%

Source: ClickFox, "2012 Brand Loyalty Survey," April 11, 2012139752 www.eMarketer.com

Krista Garcia kgarcia@emarketer.com Contributors Tobi Elkin, Stephanie Kucinskas

Social Loyalty: From Rewards to a Rewarding Customer Experience

Social Loyalty: From Rewards to a Rewarding Customer Experience Copyright ©2012 eMarketer, Inc. All rights reserved. 2

The Customer Experience Connection

Many variables can drive sales, but one thing is certain: Nice-to-haves like points and rewards aren’t necessarily top of mind when consumers are deciding what to buy or where to shop.

Loyalty programs ranked dead last in a recent PricewaterhouseCoopers survey about purchase decision in"uences. Price, unsurprisingly, played a major role, and past experience with a brand also colored perception.

% of respondents

Factor that Most Influenced Purchase DecisionsAccording to US Consumers, 2011

Price55%

Past experience21%

Brand14%

Convenience7%

Recommendations2%

Loyalty programs1%

Note: n=587Source: PricewaterhouseCoopers (PwC), "Experience Radar 2011: Insightsfor the US retail industry," Nov 17, 2011140263 www.eMarketer.com

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Price was similarly important in driving brand loyalty in a ClickFox survey; 50% of internet users chose that attribute. But quality ranked highest (88%), followed by customer service (72%). When asked how companies could build loyalty, the top answer, chosen by one-third of respondents, was providing “exceptional 24/7 customer service.”

The importance of a great customer experience can’t be understated. A Loyalty 360 poll found that 78% of customers believed a good experience led to loyalty. RightNow’s “Customer Experience Impact Report” went a step further and found that 86% of internet users would pay more for a better customer experience. Unhappy customers, though, were very likely to "ee: 89% would switch to a competitor after a shopping experience that failed to meet expectations.

According to ForeSee’s spring 2012 “E-Retail Satisfaction Index,” shoppers who were highly satis!ed with an ecommerce site were 72% more likely to buy online from that retailer, 56% more likely to buy of"ine from that retailer and 69% more likely to recommend the retailer than dissatis!ed online shoppers.

Customer satisfaction was a good predictor of customer loyalty. Highly satis!ed shoppers were also 67% more likely to return to the retailers where they had a satisfying experience,

were 66% more committed to the brand and 58% more likely to go back to that retailer’s website.

Satis!ed shoppers are more likely to act as brand advocates simply because they want to share a good experience, rather than doing so in hopes of receiving rewards. A survey by Zuberance showed that most (50%) shared about an experience for altruistic reasons, as opposed to the 1% motivated by incentives.

And the best word of mouth feels authentic, not forced. People can tell shills from the truly passionate for whom sharing comes naturally. Rob Fuggetta, CEO of Zuberance, told eMarketer, “You can’t really push somebody to become an advocate, but you can improve the customer experience, which will lead them to become an advocate.”

What Creates a Good Online Customer Experience?

ForeSee measures customer satisfaction based on four factors: price, merchandise, content and site functionality. With its breadth of products, competitive pricing and high degree of personalization, it’s not hard to see why Amazon ranked No. 1 in ForeSee’s most recent survey and usurped last year’s winner, Net"ix. The video-on-demand service’s 2011 rebranding !asco demonstrates how failing to take customers into account can have dire consequences.

Retailers can lower their risk by being diligent about transparency and by explicitly offering clear return policies, detailed product information, customer reviews and shipping that isn’t cost-prohibitive.

This is in line with !ndings from the Corporate Executive Board that suggest a streamlined decision-making process for shoppers is vital in increasing loyalty. Ultimately, brands that did things like provide product reviews and comparison guides were 86% more likely to be purchased and 115% more likely to be recommended to others.

Here are more ways that brands and retailers can build loyalty through customer experience:

Instant Grati!cation

Though shoppers are accustomed to them, promo codes can be frustrating because of their expiration dates and application to prede!ned products. Soap.com’s “My 5 Faves” are a part of the household product site’s loyalty scheme. Instead of granting points that accumulate over time, members get to choose !ve products in !ve categories for which they’ll receive a 10% discount every time.

Online menswear company Bonobos is experimenting with real-time discounts. Tracy Keim, vice president of integrated marketing, told eMarketer about a move away from digital couponing: “That real-time, instant grati!cation, very much like

Social Loyalty: From Rewards to a Rewarding Customer Experience Copyright ©2012 eMarketer, Inc. All rights reserved. 3

what foursquare does, where they offer you a special right away and you don’t have to worry about saving emails and codes, that’s part of keeping it simple.”

But retailers should consider the downside of making shopping simple to the point of unfamiliarity. JCPenney’s 2012 initiative that emphasizes everyday low prices instead of frequent sales and mark-downs has received a cool reception from shoppers reluctant to be weaned from promos.

Rede!ning Value

Low prices are just one form of currency. “Value doesn’t always mean offers or coupons. Value can come from special access to events, behind the scenes information like previews of new styles, and stylist picks,” said Jim Wright, senior vice president of marketing for apparel retailer Express, in an interview with eMarketer.

Thinking Omnichannel

Shoppers are increasingly multichannel—and, it turns out, more loyal because of it. Yon Feldman, vice president of mobile and global engineering at Gilt Groupe, told eMarketer: “Our most engaged customers are actually people who use both app and desktop. So if you split users into people who have only been with us on mobile, people who have only been with us on desktop, and people that have used both, those [who have used both] are extremely more loyal and engaged than either of the two other groups.”

And those channels can encompass online and of"ine, too. Retailers that exist in both worlds can use information gleaned through digital means in-store to better serve customers. “We do a lot here from an email or a social media perspective,” said Mike Hogan, CMO of GameStop, in an interview with eMarketer. “One of the things we’ve had a lot of success in is taking pieces of that data and funneling them back to the store, so that when you come in and you’re a PowerUp Rewards member, the person behind the counter knows enough about you to customize the experience.”

Getting Personal

Sephora has made the path to purchase simpler by categorizing and organizing its vast number of user reviews in ways that are meaningful for individual needs. Shoppers at the beauty products retailer’s site can !lter reviews by attributes like skin tone, age or eye color to get opinions only from users physically like themselves, and can pose and answer questions about topics like whether a moisturizer has a strong fragrance or how opaque a lipstick might be.

If customers provide their email address at The Container Store, their buying behavior becomes linked to their online shopping path and the product recommendations become more tailored. In an interview with eMarketer, Catherine Davis,

the retailer’s direct marketing director, detailed the difference that personalization has made. Since implementing a solution from MyBuys in 2010, Container Store has seen about three times the conversion rate and a 39% higher average ticket for customers who interact with recommended products.

Giving Guidance

Creating trustworthy information can be even more compelling when demonstrated on video. The Container Store also has multiple instructional videos showing how to assemble and install its Elfa shelving units; JCPenney has teamed up with teenage haulers to show off how real customers style out!ts; and cosmetics and skincare company Lancôme features online beauty tutorials by Michelle Phan, a popular makeup vlogger.

The Customer Experience Connection

Social Loyalty: From Rewards to a Rewarding Customer Experience Copyright ©2012 eMarketer, Inc. All rights reserved. 4

How Marketers View Social Loyalty

Social loyalty adoption is still in the early stages, and, consequently, it doesn’t make up a substantial part of social marketing budgets. However, when it comes to social as a percentage of online promotional spending, loyalty is on par with tactics like licensing, sampling and discounts that typically have higher social marketing spending.

Borrell Associates estimated that spending for national loyalty programs on social sites in the US in 2011 was $78.6 million, or less than 3% of total social media marketing spending. By comparison, discounts and deals made up 77% of all social spending.

At the same time, though, 12% of total online promotions spending on national loyalty programs went to social media, compared with the only 10% of online spending that went to tout discounts and deals within social media. So while the overall dollar size of the online loyalty spending pie may have been smaller than for discounts and deals, a higher percentage of it went toward social media.

millions and % of total

US Social Media and Online Promotions Spending, by Format, 2011

Discounts/deals—nationalDiscounts/deals—localSampling—nationalSampling—localLicensing—nationalLicensing—localLoyalty programs—national

Loyalty programs—localWhite paper marketing—national

White paper marketing—local

OtherTotalNote: numbers may not add up to total due to roundingSource: Borrell Associates, "Main Street Goes Social," Jan 4, 2012135692 www.eMarketer.com

Social site spending (millions)

Online promotions spending (millions)

Share of social site spending

Social % of total online promotions spending

-

$2,224.1$97.9

$349.0$7.8

$109.7$0.2

$78.6

$1.9$17.5

$0.4

$2,887.2

77.00%3.40%

12.10%0.30%3.80%0.01%2.70%

0.10%0.60%

0.01%

-100.00%

$22,030.2$923.7

$3,113.5$91.1

$772.5$2.9

$650.0

$19.8$178.1

$8.3

$2,151.1$29,941.3

10.1%10.6%11.2%

8.6%14.2%

5.3%12.1%

9.8%9.8%

5.1%

0.0%9.6%

135692

Nearly half (48%) of executives worldwide surveyed by StrongMail in November 2011 cited social media as valuable in building customer loyalty and retention, second to reigning champ email (67%). Likewise, providing better customer loyalty and service were the leading bene!ts of having a social media business strategy in place, according to US decision-makers surveyed by Jive in May 2011.

% of respondents

Benefits of a Social Media Business StrategyAccording to US Executives*, May 2011

Better customer loyalty and service levels62%

Increased revenue or sales57%

Increased profitability48%

Higher employee satisfaction46%

Increase in brand advocates46%

Increased productivity45%

Other1%

No benefit4%

Don't know2%

Note: *manager-level or VP and above with final say or significant input onsocial business strategySource: Jive, "The Jive Social Business Index Survey, 1H 2011" conductedby Penn, Schoen & Berland (PSB), June 29, 2011129653 www.eMarketer.com

129653

Social Loyalty: From Rewards to a Rewarding Customer Experience Copyright ©2012 eMarketer, Inc. All rights reserved. 5

The link between social media and loyalty seems to be on the minds of many, but user behavior on social networks is still misunderstood. Marketers in a CMO Council survey weren’t just being overly literal when they interpreted a “like” as an indicator of agreeableness, they were missing by a long shot how customers truly viewed social relationships with brands. Consumers thought they were proving their loyalty to a brand by clicking the “like” button, above all else.

% of respondents

Reasons that Facebook Users Worldwide "Like"Brands on Facebook vs. What Marketers Think the"Likes" Mean, Q4 2011

Content is agreeable57%

30%

Want to be heard41%

26%

Want to track news on the brand and products40%

46%

Looking for incentives or rewards for engaging with the brand33%

46%

Looking for special savings or events27%

43%

Loyal customer24%

49%

Want to engage with other customers24%

17%

Want to contribute and help customers14%

24%

Want to recommend or connect my friends to my favorite brands19%

What marketers think What Facebook users say

Source: CMO Council, "Variance in the Social Brand Experience" inpartnership with Lithium, Dec 8, 2011140039 www.eMarketer.com

140039

Social Loyalty in Action

Using social media as part of a loyalty strategy is still a relatively new practice. Many brands and retailers are testing the waters, attempting to add a social layer to an established program while building upon already proven principles of customer relationship management.

It makes sense, though, that marketers would want to be where internet users are spending so much of their time. “The prevalence of social media in people’s day-to-day lives gives brands the opportunity to offer a personal level of service to their customers beyond a one-dimensional points program,” Justin Yoshimura, CEO of social loyalty platform 500friends, told eMarketer.

Encouraging Sharing

Triggering word-of-mouth recommendations and creating brand advocates are valuable ways to build trust and increase loyalty. And there is a connection between these behaviors. COLLOQUY found that loyalty program members were three times as likely to be what they call “WOM Champions,” the type of consumer who’ll share experiences with others.

In turn, telling others about a brand was the leading way that internet users showed loyalty, according to ClickFox.

% of respondents

Ways in Which US Internet Users Show Their Loyaltyto Brands, March 2012

I spread the word and tell others78%

I buy more69%

I don't consider other competing products/companies54%

I join the brand's social media community15%

I visually support the brand (apparel, promotional items, bumperstickers)

11%

Other3%

Source: ClickFox, "2012 Brand Loyalty Survey," April 11, 2012139753 www.eMarketer.com

139753

For more information on behaviors like this, see eMarketer’s May 2012 report, “Brand Advocates: Scaling Social Media Word-of-Mouth.”

How Marketers View Social Loyalty

Social Loyalty: From Rewards to a Rewarding Customer Experience Copyright ©2012 eMarketer, Inc. All rights reserved. 6

Activating brand advocates and inspiring their social network is at the crux of more and more retailers’ strategies:

■ In April, Express revamped its rewards program, Express Next, and did away with the requirement for members to have a store credit card. Now customers earn points for following Express on Twitter, for checking in at physical stores and for reviewing items on the ecommerce site. “There is a lot of marketing power behind a passionate customer who takes to social media to tell all of her friends about the big reward she just earned and the sexy dress she’s going to purchase with those rewards. Next thing you know, all of her friends want to sign up and earn rewards too,” explained Express’ Wright.

■ Sears’ Shop Your Way Rewards is essentially its own social network combined with a highly visual ecommerce site. A cross between Facebook and Pinterest in design, the site allows members to create pro!les, follow other members, share photos, post status updates and are awarded badges for completing tasks like reviewing, rating or recommending a product. Badges correlate to points, so the more active users are, the more points they will earn to spend across Sears’ brands, including Lands’ End, Kmart and online grocer mygofer. Additionally, members can shop with friends using a chat box at the bottom of the screen, share image-heavy wish lists, and mark products in their feeds with “like it,” “want it” or “have it.”

■ Burger Life never had a loyalty program until it partnered with Punchh, a mobile social loyalty app for restaurants, in March. Now diners can use their smartphones as a punch card, earning “punchhs” on each visit toward a free burger (after the seventh) and for referring Facebook friends. Each time a user earns a “punchh” they are encouraged to share and comment on Facebook, and many do. Restaurant Management Group’s managing partner, Dan Godwin, explained how social media helps: “Eight out of every 10 referrals to our business are through word-of-mouth. That’s the reason why Facebook and businesses go together so well.” Though it is too soon to de!nitively measure success, Godwin has been pleased with the 35% repeat business he’s seen as a result of the loyalty app to date. As an engagement tool, participation levels have already surpassed better-known Yelp, he said.

Raising Social Status

Perks that transcend tradition can also go far in creating loyalty. 500friends’ Yoshimura told eMarketer, “A good loyalty program will exploit opportunities to be very relevant to precisely the customers who are most engaged. An exceptional loyalty program will go even further, creating unique brand experiences for the customers that matter most, such as VIP opportunities or advantages, or early access to very exclusive products.”

■ In March Gilt Groupe ran a promotion that granted tangible bene!ts based on hard-to-quantify social in"uence. Members of the "ash sales site were given discounts based on their Klout scores, which meant that, yes, a user with a score of 100 could hypothetically shop for free.

■ There’s nothing like skipping to the front of a line to induce envy (or, potentially, anger) among fellow diners hungrily waiting for a table. That’s just one bene!t of TGI Friday’s “Give Me More Stripes” rewards program. Customers who sign up get a one-time pass to jump the line and the chance to preview new menu items throughout the year.

■ Standard members of Sephora’s Beauty Insider rewards program earn points, are treated with an annual birthday gift and get personalized recommendations after !lling out a pro!le. But those who spend more than $350 per year get V.I.B. (Very Important Beauty Insider) status and are invited to events, receive special discount offers, can use a beauty hotline, and are able to buy select new products before the general public.

■ Used by brands like Smirnoff in the US and Tyrrell’s crisps in the UK, Fanzy is a Facebook app that awards badges when consumers share content, view videos and perform actions de!ned by the participating companies. The most active participants are singled out on an online leaderboard for everyone to see. According to Jeff Marois, CEO and co-founder of Fanzy, this approach “creates a lot of social status and visibility for those fans. Acknowledgement is something that you don’t get without that social layer.”

Entertaining and Delighting

Sometimes grabbing shoppers’ attention with a touch of the unexpected can add up to repeat customers—and increase the emotional connection between consumer and brand.

■ Best Buy surprised a select group of Reward Zone members by inviting them and their families to a special premier of “Twilight Eclipse.” Bob Soukup, senior director for loyalty at Best Buy, told Ad Age, “Loyalty is about !nancial rewards where you earn points and use points, and that’s great and valuable, but we want to capture customers’ hearts and minds.”

■ Belly is a loyalty startup that allows users to check into locations by scanning a mobile app or card at a point-of-sale iPad to gain points. And the rewards, which are custom tailored for each business, go well beyond freebies and shift into wackier territory. Past prizes have included getting to punch the owner of a comic book store in the stomach and being allowed a 10-minute, all-you-can-eat experience at a Chicago hot dog stand.

■ Outdoors out!tter Moosejaw is known for its humorous email marketing campaigns and promotions, like offering an e-gift card for up to 25% of a customer’s total order if they send a receipt proving they spent that amount on Chinese food. Engaging with customers in unusual ways and keeping

Social Loyalty in Action

Social Loyalty: From Rewards to a Rewarding Customer Experience Copyright ©2012 eMarketer, Inc. All rights reserved. 7

them coming back for more has also translated to social media. When a follower of Moosejaw’s Twitter account noticed a "ier on her college campus offering a reward for a stolen Moosejaw coat, she tweeted a picture. The retailer stepped in and offered to send the woman whose coat was stolen a new one by asking their followers to vote on three different jackets. Gary Wohlfeill, creative director of Moosejaw explained in an interview with eMarketer, “It was pretty simple, but it got them engaged, not only with us, but also with a customer who had gotten her jacket stolen. They got to be a part of choosing ultimately what jacket she got to replace that one, and overall was just a really great community experience.”

Listening and Responding

Social media platforms have become a place where some turn for customer service (either explicitly or to vent), which means they can be a rich source of consumer insights. Many companies monitor social media to get a general sense of customer needs as well as to resolve issues as they arise.

Bonobos’ Keim explained the importance of a dialogue: “If the consumer is sharing and recommending, pinning and contributing to reviews, they’re engaging with your brand, and it’s important for a company and for brands to understand that it’s not a one-way push strategy. It’s also a listening strategy.”

Social media’s importance among customer loyalty executives often surpasses call centers and a company’s own website. A SAS and Loyalty 360 survey found that while email was still tops for listening and responding, social media was on par with surveys as a listening tool, and was the second choice for responding to customers.

% of respondents

Channels Used to Listen and Respond to TheirCustomers According to US Customer Loyalty andRetention Executives, Dec 2011

Listen Respond

Email 84% 88%Surveys 77% 26%Social media communities 76% 64%Call center 67% 58%Company websites 64% 58%Blogs 47% 28%Advisory boards 35% 23%Discussion forums 33% 27%Source: SAS and Loyalty 360, "Facing the Challenges of Building Loyalty andRetention: The New Strategic Imperative," March 23, 2012139796 www.eMarketer.com

139796

The second part of the listening/responding equation could use some work, though. Consumers accustomed to the light-speed nature of the digital world expect a quick response via social media. In a global survey by Oracle, 30% of Twitter users expected a response within 30 minutes and 29% expected results within two hours on Facebook.

That is, assuming consumers receive a response at all. A survey by RightNow discovered that 79% of consumers who had posted to social media about a poor experience were ignored. Shying away from angry consumers can be a mistake when a simple response would have had a big impact. Among the 21% who did receive a response, 46% said they were “pleased” and nearly one-quarter ended up posting a positive comment in acknowledgment.

Social media has empowered customers, but it’s all for naught if they feel disrespected. Clay McDaniel, founder and managing partner of social media marketing agency Spring Creek Group, told eMarketer, “Twitter and Facebook have become the global union of the customer. It is the place where power in numbers and the visibility of that power of numbers has emerged and in some respects helped balance the relationship between customers and their companies.”

Express’ Wright noted that social loyalty also means facing disappointed customers, not just rewarding the star patrons: “You have to listen and respond to them. Even if it’s not always the answer they want to hear, they appreciate the fact that you took the time to at least respond.”

And social media can have real-time results. Burger Life’s Godwin recounted a time he noticed a negative Facebook comment and was able to contact the restaurant’s manager and !x the problem while the customer was still in the store. As a goodwill gesture, he has also awarded extra “punchhs” to dissatis!ed patrons in order to keep them coming back.

Listening to customers can go beyond simple damage control. The following brands and retailers have built loyalty by acting on customers’ needs, analyzing their behavior and tailoring promotions in targeted ways.

■ In February Bobbi Brown Cosmetics launched a Facebook campaign, “Bobbi Brings Back,” which recognized customers’ online pleas for discontinued products. Users in the six countries that sell the brand online were allowed to vote on 10 frequently requested lipstick colors to be revived. And in an innovative social commerce twist, the six winning shades will be available for purchase in October, exclusively through Facebook. Brand loyalists will be rewarded further in the future as the company plans to do something similar with more makeup categories.

■ Guess already had a CRM system linked to a loyalty program for the retailer’s three brands, Guess, Guess by Marciano and G by Guess. The more personal information a member would provide, the more rewards points they were given. But like most retailers today, Guess wanted to tap into the largest freely available customer insight resource: Facebook. In January Guess launched a mobile app that allows loyalty program members to track purchases and points, scan items in-store for product information, shop a “Look Book,” and

Social Loyalty in Action

Social Loyalty: From Rewards to a Rewarding Customer Experience Copyright ©2012 eMarketer, Inc. All rights reserved. 8

importantly, provides access to their Facebook pro!les and “likes” on an opt-in basis. Now the company can overlay Facebook behavior with the demographic data obtained through the loyalty program to target promotions and concentrate on the most valuable customers. Facebook’s social graph combined with loyalty program data and location activity is a triple threat for retailers.

Upping Their Game

Frozen dessert retailer Tasti D-Lite won accolades in 2010 for being one of the !rst brands to tie loyalty to location by using foursquare. When Tasti D-Lite rolled out this loyalty program, it began encouraging loyalty card holders to register their cards at MyTasti.com, a move that enabled the company to tie loyalty points to speci!c customers. By also integrating foursquare at the point of sale, store locations would be able to automatically check customers in, provide and redeem offers and then track consumer loyalty behavior on an ongoing basis.

Another—and perhaps the most important—aspect of the foursquare strategy was enabling customers to share their check-ins or loyalty card usage with friends. Tasti D-Lite encouraged the social sharing by rewarding customers with additional loyalty points when they posted their check-ins to Twitter and Facebook. The more they shared, the closer they got to earning a free treat.

Traditional discounting was not part of the plan. “We don’t want to coupon our brand to death,” BJ Emerson, Tasti D-Lite’s vice president of technology, explained. “We want to drive loyalty. We believe longer term it will be a better value for the brand.”

Understanding the medium is also important. “People don’t use foursquare or location-based services just for the deals,” Emerson said. “They’re using it for the interaction with their friends.”

Recently, countless startups have launched around the concept of loyalty and gami!cation, proving that it’s a niche to watch. Badgeville, Bunchball, CrowdTwist, Fanzy, Punchh and PunchTab are just a few trying to make a name in this space. If the convergence of social, mobile, location and loyalty catches on we’ll soon have a new mouthful of an acronym on our hands. Can you say SoMoLoLo?

Challenges

The challenges faced by retailers and brands tasked with creating loyalty are not radically different from the pressures felt by marketers everywhere. And while no solution is simple, these potential stumbling blocks are something to keep in mind when embarking on a social loyalty initiative.

IBM found that CMOs have not felt prepared for decreasing brand loyalty, and were even more unprepared for social media and the unmanageable amount of customer data now available.

% of respondents

Areas of Marketing that They Feel Unprepared forAccording to CMOs Worldwide, June 2011

Data explosion 71%

Social media 68%

Shifting consumer demographics 63%

Decreasing brand loyalty 57%

ROI accountability 56%

Customer collaboration and influence 56%

Privacy considerations 55%

Source: IBM, "From Stretched to Strengthened: Insights from the GlobalChief Marketing Officer Study," Oct 11, 2011133432 www.eMarketer.com

133432

Data Overload

With so many online registrations required and social pro!les created, the amount of customer data available to retailers is unprecedented. Yet being able to turn abstract information into meaningful results is easier said than done.

Integration was cited as the largest hurdle in using customer data to glean insights, according to 46% of attendees polled at a recent Loyalty 360 conference. Customer analysis followed at 24%. And in a joint survey between Loyalty 360 and SAS, only 30% of marketing executives were using customer data to in"uence loyalty campaigns, and just one-quarter considered their existing programs to be “very effective.”

Mark Johnson, president and CEO of Loyalty 360, told eMarketer, “There’s never a challenge with an organization having too little data; it’s being able to do something that is mutually bene!cial and creating insight out of it.”

For more information on harnessing data, see eMarketer’s May 2012 report, “How Retailers Are Leveraging ‘Big Data’ to Personalize Ecommerce.”

Social Loyalty in Action

Social Loyalty: From Rewards to a Rewarding Customer Experience Copyright ©2012 eMarketer, Inc. All rights reserved. 9

Customer Segmentation

This data onslaught is prompting companies to increase investment on software to manage customer relationships on social networks. Gartner forecasted that spending on social CRM software licenses and subscriptions would increase 40% in 2012 over the previous year to $2.1 billion. The sticking point was that only half of executives surveyed were seeing a “worthwhile” return on investment as a result of this spending.

Traditional loyalty programs are at the mercy of the information customers are willing to provide. With social media, marketers can tie Facebook and Twitter accounts to CRM databases and get a fuller picture of shoppers and aid in targeting and customer service. However, few retailers or brands are doing so in practice.

Moosejaw’s Wohlfeill explained one problem for his company, “It’s kind of a frustrating thing for us right now; we’re still learning the ropes. But down the line, we’d love to be able to better use everybody’s pro!le. When we want to award somebody points on Facebook right now, we have to get them to email us so we can pull up their account and award them. It’d be much easier if we just click a button, see the Facebook user and give their attached account the points.”

One barrier has been a lack of collaboration, both among different departments in an organization and between an organization and its clients. Making an effort to change this pays off, though. Aberdeen found that companies that were more collaborative saw a 15.4% increase in the number of positive social media mentions year-over-year compared to 4.8% by siloed companies and a 13.4% increase in annual revenue vs. 8.1%. Collaborative businesses were also more social overall; 84% were engaged in customer conversation through social media compared to only 42% of others.

Even if the social CRM systems exist, another roadblock can be deciding on the right strategy. “Facebook’s open graph has made a lot of this possible. Now it’s really us looking at it internally from an IT perspective. It’s not a lack of outside technology capabilities that are keeping us from doing it at this point. Now that we’ve realized the capability is there, we’re harnessing that and !guring out how to make it work for us,” said Ashley Sheetz, vice president of marketing and strategy at GameStop.

Measurement

The stats that are meaningful to management aren’t always the easiest to measure well. Customer retention, satisfaction and lifetime value were all the least quanti!able metrics according to marketers in a MarketingProfs and Lithium survey, yet retention in particular was important to more than half of those in management.

% of respondents

Metrics that US Social Media Marketers Are Able to Measure Effectively vs. Those that Are Important to Management, Feb 2012

Number of "likes," fans, followers,subscribers, etc.Direct traffic to brand websiteEngagement measures (comments, "likes," retweets)Search engine placement

Number of downloads (e.g., white paper, app)

Customer insightsNumber of sales leadsQuantity/quality of crowdsourced contentBrand awareness/recognition

Consumer sentimentCustomer service response timeReturn on marketing investment (ROI)

Topline salesShare of voiceCustomer retentionCustomer satisfaction/net promoter scoreCustomer lifetime value

Able tomeasure

effectively

78%

68%65%

55%

53%

38%34%33%

32%

31%31%28%

25%24%22%22%

15%

Important tomanagement

49%

71%54%

63%

35%

51%57%37%

78%

55%38%66%

48%36%55%45%

41%Note: n=256Source: MarketingProfs, "2012 State of Social Media Marketing"commissioned by Lithium, May 7, 2012140076 www.eMarketer.com

140076

“Likes” are one of the easier things to measure, though this study shows that number of fans isn’t the biggest priority among decision-makers. And it would be misguided to mistake a “like” for a relationship. 500friends’ Yoshimura told eMarketer, “The future of social loyalty is when marketers stop measuring success by the number of ‘likes’ or followers, and start to see this as a way to increase the value of existing relationships—whether it be from increased user-generated content, referrals or data.”

Satmetrix, the company that invented the Net Promoter Score to gauge how likely a customer would be to recommend a company to others, found that a large proportion of customer experience initiatives had unproven (39%), immeasurable or unknown ROI (27%).

500friends’ Yoshimura offered advice on improving measurement, “One important best practice in designing a social loyalty program is to assign clear values to the social actions you are planning to encourage. Since point values will be assigned to every action, real cost is created, and this will affect the program ROI. When you work with a clear set of assumptions about what the expected business value of each action will be, calculating a speci!c value for an action is possible, and you can then determine an acceptable cost. Finally, with smart ongoing optimization, you can vet these starting assumptions and adjust your point values to maximize ROI.”

Challenges

Social Loyalty: From Rewards to a Rewarding Customer Experience Copyright ©2012 eMarketer, Inc. All rights reserved. 10

Loyalty 360’s Johnson suggested that it was better to start small than do nothing: “Look at smaller programs, maybe regional programs versus a large-scale offering, and look at the incrementality of what that program may have done. You have to have some "exibility to try the programs, and be able to staff against them and see how they’re creating a potential ROI. If you don’t do them you’re never going to be able to measure them, so you have to be willing to commit to some sort of investment in them !rst.”

Privacy and Permissions

Even as social media becomes an integral part of consumers’ lives, there is still unease about how personal information is being used. And to some degree, there is confusion about what internet users are agreeing to when clicking buttons and downloading apps.

Gail Goodman, CEO of Constant Contact, explained the conundrum: “The method of permission is different, but the concept of permission stays the same. Essentially the ‘like’ is now the opt-in. But I don’t think consumers understand yet what they’re really opting in to on social sites.”

However, shoppers are willing to give up certain amounts of personal information if it bene!ts them. Seventy-!ve percent of consumers in a global IBM survey said they would share media usage with retailers, 73% would provide demographic info and 61% would offer their address and other identi!ers if it meant receiving a more personalized shopping experience.

RIS discovered that being tracked by a loyalty program number was the method shoppers were most willing to allow, likely because it is such an established practice and consumers understand the value exchange. It is also apparent that younger shoppers are more open to sharing personal information with retailers.

scale of 1-5*

Information Internet Users in North America AreWilling to Share in Order to Have a More PersonalizedShopping Experience, by Age, April 2012

Information tracked by loyalty number

Name, address, email for web accountEmail collected at POSPhone number collected at POSLocations you are at tracked using geolocation service on your phone

Have cookies placed on your computer to allow trackingInformation tracked by credit card number

18-33

3.2

2.92.92.52.2

2.1

2.1

34-45

3.3

3.02.92.52.2

2.2

2.1

46-64

2.7

2.62.42.11.6

1.7

1.6

65+

2.3

2.22.11.91.3

1.3

1.4Note: *where 1="least willing" and 5="most willing"Source: RIS News and Cognizant, "2012 Shopper Experience Study:Enabling Retail Without Boundaries," May 31, 2012141310 www.eMarketer.com

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But all age groups want some degree of control over their personal information. Nearly an equal number of those under

and over 30 in an Aimia survey wanted to know which of their data was being collected (84% vs. 86%).

“One of the reasons why we’re moving with deliberate speed is we want to do this in a high-permission environment,” explained GameStop’s Hogan. “We want to test our way into it and make sure that whatever we’re doing the consumer is saying, ‘We want to provide information in order to get a better, more customized experience.’ There’s nothing going on behind the curtain here.”

Challenges

Social Loyalty: From Rewards to a Rewarding Customer Experience Copyright ©2012 eMarketer, Inc. All rights reserved. 11

Conclusion

The ability to combine traditional loyalty programs with a social layer holds great promise for retailers and brands trying to strengthen retention. Starting with compelling customer experience lays the foundation, then responding in real time, anticipating and meeting needs and in"uencing a wider audience by creating sharable perks are part of the next generation of rewards.

This practice is still in its early stages, though, and the full potential of measuring in"uence and collecting, analyzing and turning customer data into dollars is not yet being realized. The technology exists; now it is a matter of taking !rst steps, de!ning strategy, getting enterprise-wide buy-in and ultimately integrating social into loyalty marketing plans.

eMarketer Interviews The Container Store Boosts Conversion with Personalized Product Recommendation

Catherine Davis Direct Marketing Director

The Container Store Interview conducted on March 27, 2012

Gilt’s Device-Agnostic Strategy Powers Mobile Growth

Yon Feldman Vice President, Mobile & Global Engineering

Gilt Groupe Interview conducted on November 29, 2011

GameStop ‘Powers Up’ Loyalty Across Marketing Channels

Mike Hogan CMO

GameStop

Jenn McMillen Vice President of Loyalty and CRM

GameStop Interview conducted on May 15, 2012

Bonobos: Inspiring People to Be Part of the Community

Tracy Keim Vice President of Integrated Marketing

Bonobos Interview conducted on May 23, 2012

The Evolution of Social Media Measurement: An Agency Perspective

Clay McDaniel Founder and Managing Partner

Spring Creek Group Interviews conducted on October 27 and November 29, 2011

Beyond CRM, Moosejaw Wants Customers to Invite Them for a Beer

Gary Wohlfeill Creative Director

Moosejaw Interview conducted on May 18, 2012

Social Loyalty: From Rewards to a Rewarding Customer Experience Copyright ©2012 eMarketer, Inc. All rights reserved. 12

Rob Fuggetta Founder and CEO

Zuberance Interview conducted on April 25, 2012

Dave Godwin Managing Partner

Restaurant Management Group Interview conducted on May 30, 2012

Gail Goodman CEO

Constant Contact Interview conducted on February 6, 2012

Jitendra Gupta CEO and Founder

Punchh Interview conducted on May 21, 2012

Mark Johnson President and CEO

Loyalty 360 Interview conducted on May 3, 2012

Jeff Marois CEO and Co-founder

Fanzy Interview conducted on May 16, 2012

Jim Wright Senior Vice President of Marketing

Express Interview conducted on May 30, 2012

Justin Yoshimura CEO and Co-founder

500Friends Interview conducted on May 18, 2012

Ashley Sheetz Vice President of Marketing

GameStop Interview conducted May 15, 2012

Molly Snyder Spokesperson

Target Interview conducted on May 22, 2012

Related eMarketer Reports Brand Advocates: Scaling Social Media Word-of-Mouth How Retailers Are Leveraging ‘Big Data’ to Personalize Ecommerce The Lessons of Email: Using Digital Touchpoints for Customer Loyalty

Related Links Aimia Borrell Associates ClickFox CMO Council Cognizant COLLOQUY Corporate Executive Board ForeSee IBM Jive Software Loyalty 360 Oracle PricewaterhouseCoopers RightNow RIS News SAS Satmetrix StrongMail Zuberance

eMarketer Interviews

Social Loyalty: From Rewards to a Rewarding Customer Experience Copyright ©2012 eMarketer, Inc. All rights reserved. 13

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