California Apparel News

Building loyalty between retailers and consumers was one of the main issues discussed at the recent National Retail Federation (NRF) Conference and Expo, held Jan. 15- 18 at the Jacob K. Javits Convention Center in New York. According to a new NRF study released at the show, customer loyalty is on the wane and retailers are looking to technology to help bring them back into customers’ good graces.

The NRF Foundation, a non-profit research and education arm of the NRF, cosponsored the report, along with Miamibased Adjoined Consulting and software giant SAP. According to the report’s findings, the number of shoppers considered to be “loyal” slipped to 77.2 percent in 2006 compared to 83.8 percent in 2005.

Retailers blame the dropping numbers on privacy issues. In this age of identity theft and spam, consumers are now less willing to share personal information such as income and shopping preferences with retailers for their loyalty programs, which are usually built on databases—thus requiring personal information for direct mail, marketing and other promotions.

“The more trust and goodwill a retailer builds, the more likely it is they will have a long-term loyal customer base,” said Kathy Mance, vice president of the NRF Foundation.

“Retailers looking to create loyalty will need to walk a fine line between specializing their services to customers and invading their privacy,” According to the survey, only 12 percent of those surveyed would divulge their job titles or income; 11 percent would reveal whom they work for and only 8.2 percent would disclose their net worth.

While personal interaction goes a long way in building customer loyalty, technology providers are trying to enhance their efforts through additional incentives.

At NRF, Irvine, Calif.–based The Return Exchange, unveiled Return Rewards, a software product aimed at increasing incremental sales and building customer loyalty at the point-of-sale. The system is built around returns and exchanges and uses information the customer provides during the process to create a coupon to provide incentives for further shopping.

“For years, retailers have been discouraging returns because they equate them with loss of revenue,” said Mark Hammond, Return Exchange’s chief executive officer.

“Having the customer physically in the store and making that customer feel good about the return process creates an often-overlooked opportunity for the retailer to sell more merchandise.”

“It’s like here’s 10 percent or $10 off right now. It’s the best time and place to reach the customer, much better than a coupon in the Sunday paper. The best way to get respect is with dollars,” added Mark Hilinski, senior vice president of marketing. “In addition, you’re creating an advantage for the retailer because the customer will be more loyal to a Gap or someone who offers such incentives against someone who doesn’t.”

Return Exchange’s system can customize coupon terms. For example it can give a discount on a product similar to one a customer returned or change terms depending on the day of the week or time of day. Retailers can also use Return Rewards by itself, as long as they have the ability to process coupons and gather customer information from a POS system.

It’s a way for the retailer to show appreciation, foster customer loyalty and create incremental sales with a large return on investment, said Hammond.

The company, citing various reports, said that more than 50 percent of customers who return merchandise generally don’t return to that store for at least 18 months.

“Even if only 5 to 10 percent of customers redeem their Return Rewards coupon, that adds up to millions of dollars in incremental sales for retailers,” added Hammond.

In general, consumers don’t use coupons very much. According to Hammond, Less than 1 percent redeem coupons. In 2004, more than 342 billion coupons were distributed nationwide but only 3.2 billion were redeemed.

Consumers usually forget about them, don’t want to travel to a store to redeem them or are confused with the terms of the coupons.

Hammond said that getting to the consumer on the spot overcomes a lot of those hurdles.

The Return Rewards system can be implemented within weeks as a standalone product or in less than three months when integrated with a POS system.

The company has a pay-for-performance pricing model rather than the traditional licensing fee most software companies ask for up front. Retailers pay Return Exchange a small percentage of the sales generated from redeemed coupons so there’s less risk.

In addition to coupons, retailers are also exploring emerging radio frequency identification (RFID) technology as a way of developing relationships with their customers. The wireless technology can store millions of bits of information on a tiny chip. Retailers are looking to developing everything from “smart cards” to shopping carts tagged with RFID to help in checkout, promotions and incentives.

So far, privacy concerns have kept RFID from reaching the sales floor in a customer-interaction scenario. It is, however, being used at the warehouse level to track incoming shipments for retailers.

From the NRF Foundation’s ’Retail Demand Insights 2006’

The most acceptable information shoppers were willing to give retailers include their name (89 percent), e-mail address (78.1 percent), street address (60.7 percent) and past transactions (46.8 percent).

The information consumers were least likely to allow retailers to track included weight (14.4 percent), income (12.5 percent), job title (12.1 percent), employer (10.9 percent) and net worth (8.2 percent).

When it comes to reaching new customers, television (31.7 percent) has replaced direct mail (21 percent) as the best way to influence their selection of a new retailer. Only 3.5 percent of consumers found Internet advertising effective.

Other ineffective advertising choices included advertising before a movie (2.3 percent) product placement (1.8 percent) and radio ads (0.4 percent). Consumers are rewarding retailers that employ a true integrated, multi-channel approach to the shopping experience. The majority of consumers (70.2 percent) use a combination of all three shopping channels compared to stores only (17.5 percent) or online only (2.9 percent).

—Robert McAllister