Retail is changing (big surprise). First, there was retail in all its traditional forms, from national chains to department stores to mass merchandise, along with local retailers. Then came big-box retail and large specialty retail. And since the turn of the millennium, we’ve seen the long expected powerful growth of online sales, including megalithic Amazon.com, eBay and others.
The migration to online shopping is in full swing, with the question of the hour being how much brick and mortar will be left. Or, will it even survive? It's almost certain that brick-and-mortar retailers won't survive in any traditional sense. They recognize what’s happening, but the scramble to redefine themselves clearly is an ongoing struggle.
However, what’s quite interesting is the behavior of consumers or end users when confronted with the opportunity to purchase goods from the same organizations online or in-store. Recent market research indicates that omnichannel retail purchases result in a spend of 2.5 times greater than online only. Certain market segments, such as the beauty segment exploited by Ulta, have seen 63 percent sales growth in the fourth quarter. As a result, Ulta's strategy includes opening another 100 locations specifically to exploit special offers available at their retail locations. Such blended offers have clearly reinforced the beauty retailer's strong sales growth.
Which brings us to an interesting question: Are there consumer-facing incentive strategies that can align well with this omnichannel phenomenon? With the availability of point-of-sale data as a unified whole, it's easy to envision opportunities abound.
The clearest opportunity lies not in replicating traditional retail strategies that revolve around independent advertising and in-store specials. For years, a more varied and powerful set of incentives have been directed at salespeople and channels. Would it make sense to leverage some of this thinking to redefine the loyalty equation at retail?
People in retail are so locked into traditional loyalty models that they haven’t considered the opportunity to think differently in this key area. Not only do they refuse to think differently, they're taking their existing models of point-based loyalty and instead of sweetening the pot, they're diluting the value of a point. American Express, for example, has in recent years taken the value of a point down by 30 percent to 40 percent. What I used to be able to buy for 600,000 points now costs me a million. American Airlines has done the same thing. It used to be possible to get a round-trip domestic flight for 25,000 miles. Now its 50,000. And I can’t get a seat! I must be missing something. Loyalty is supposed to get you excited. Now it only gets you aggravated.
It makes more sense to leverage targeted incentives based on several key drivers: aggregate volume purchases, support for families of products, support for new categories of products, and an underlying unified platform strategy that would consolidate rewards for all of these behaviors.
It should also be possible to structure the incentive balance to reinforce the most efficient delivery model, or maximize the average retail ticket and concurrently maximize margin.
However, in order to accomplish this new incentive model in the retail space, more advanced tools (and new thinking) are needed — the same tools already widely used in the sales and channel sales incentive sector. Automated sales incentive software can provide the platform necessary to execute and manage effective incentive initiatives that seamlessly translate into the omnichannel environment and change consumer behavior.
More importantly, it allows consumers the opportunity to get rewarded on an aggregate basis automatically, and in a very exciting way.
In addition to enhancing the consumer experience, sales incentive software solutions built for omnichannel retail has major implications for suppliers and manufacturers. Suppliers will welcome the platform and view it as a powerful promotional opportunity. Suppliers and manufacturers will gladly pay for the incentives. The ease of creating and managing all aspects of their promotions becomes a service retailers can sell them — earning them a welcomed additional revenue stream.
Automating incentive tools also allows suppliers and manufacturers to expand the possibilities of what sales incentive programs can accomplish. Suppliers are able to easily customize, execute and manage multiple, complex programs that target specific audiences at the same time, resulting in better outcomes and new levels of success. Incentive software also injects superior visibility and transparency into every aspect of the program life cycle to provide actionable insight and greater business intelligence.
This incentive model has driven hundreds of millions of dollars of rewards in the channel incentive space for the last 15 years. It's time this model sees the light of day in consumer markets.
George Kriza is the CEO of MTC Performance, a provider of incentive automation software and services.