The Next Generation Consumer

In this forum I recently discussed the increasing sophistication of the consumer and how their changing communications behavior is affecting the next generation of the retail store. Those predictions are happening faster than I had expected. Now well over 80% of the consumers with Internet access are using the Web to decide what to buy and who to buy it from. The Web is not just for buying on line and having things shipped to your home, it is becoming as important a branding vehicle as the store front.


The factor that I left out last June was the importance of communities to this evolving new consumer. The "killer application" that caused the Internet to take off in the minds of the consumer was the ability to communicate for free. It was bulletin boards and forums. It was e-mail and messaging. It was communities of people with similar interests sharing. It was the ease with which people could participate in communities.

MySpace is a perfect example of how important communities are to the under 24 age group. An entire industry has grown up around MySpace with companies selling avatars, codes, backgrounds, graphics and editors. Checkout www.glittergraphics.us and www.pimpmyspace.org as examples. Search Google for MySpace and you will get 157 million hits. MySpace started in it’s current form in July of 2003 and was purchased twelve months ago by Rupert Murdoch’s media enterprise. According to @alexa) MySpace is now the fourth most popular English Web site behind Yahoo, MSN and Google. EBay is fifth.

MySpace is the preferred community of the consumers for the store you are designing now.

What will happen to Loyalty Programs?
Current retail loyalty programs were copied from the airline frequent flier programs long ago. Most retailers with loyalty programs have had them installed and integrated into the store and marketing for decades. During this time the consumer has changed constantly and the loyalty programs have not.

The consumer is not loyal to a retailer program if all retailers have the same type of program. It’s not enough to just give discounts to select customers. How can we evolve the Loyalty programs into communities that provide a sense of belonging and sharing? There are hundreds of things a retailer can do to make a customer feel accepted and part of the family. We need to look to the on-line communities to see what the consumer is responding to and adapt it to work in all retail channels - on-line, on the phone, in media and in the store.

How should retail communicate with the loyal customer?
We only need to look as far as our Cell phone. The Cell phone will be the primary contact point for the connected consumer. It will be the credit car, smart card, debit card, and loyalty card for the consumer. It is already able to do this in many parts of the world today. It communicates over Bluetooth. Many consumers have already dropped retailers who require an extra card to be carried. A Bluetooth application on the phone takes up no space and provides much more interaction while in the store as well as on line on the phone. This is already happening in Korea and Japan and will be common in the US within four years.

Bluetooth Loyalty will allow the retailer to recognize the customer walking into the store and communicate with them while they are in front of the merchandise trying to make a decision. I certainly don't want to make this sound easy. Imagine for a minute the infrastructure that will be required for a system to be able to recognize that the customer is in front of what merchandise and what they need to know to be able to make a decision. Imagine the job description of the merchant that will create this system.

Since the phone will also be online and able to read a barcode (This is already operational on phones in Japan and Korea), the customer will have near “perfect information” while making a decision.

How will this future loyalty program work?
According to Anne Johns of IBM’s National Retail Services Center (NRSC) the loyalty programs will need to have awareness of several aspects of the consumer behavior. It will need to know what inspires me as a shopper. It will need to be aware of what offers I have seen and which ones I have ignored and which ones I have acted upon. It will need to understand what my price threshold is for an offer – will I ignore a 50 cent offer and jump on a 75 cent offer? What type of lifestyle offers am I most likely to respond to? Anne has worked with dozens of retailers in customizing their loyalty offerings and stresses that the programs have to be retail enterprise wide and cover all channels that the consumer is involved in, even if the retailer does not play in all of those channels.

Forrester has just published an interesting study entitled "What Drives Retail Consumer Loyalty." They point out that size of the retailer does not matter and that the current loyalty programs don't really matter to the customer when it comes to real loyalty. They state "...most retailers have yet to show consumers value in personalization, especially in the bricks and mortar environment." The study shows that the classic factors still do matter – price, quality, trust.

I think that the Next Generation Consumer will be loyal to a particular retailer when that customer feels like they belong to a sharing community.

Real loyalty is when a customer drives past a competitor to visit their favorite store. It's when a customer brags about the retailer to their friends.

Important technologies for the future of Loyalty programs

Web transaction software
Search engine marketing
Biometrics
e-commerce platforms
Shopping Cart software
Order management software
Web analytics
Internet Security
Privacy
Data mining
Promotion modeling
Self balancing multi-core servers

Copyright © Daniel Hopping.

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