The Future of Retail CX: Rethinking Customer Data Strategies in the GenAI Age
A collaboration with Nikki Baird, author of “The Retail Pulse Report” on Substack and VP Strategy + Product at Aptos
Phil Rubin is the founder and principal at Grey Space Matters and Nikki Baird is VP of strategy and product at Aptos (you can follow her here and on LinkedIn). We’ve both been arguing passionately that consumer loyalty in retail is mediocre at best, not because consumers don’t want to be loyal but because retailers do such a bad job of driving loyalty.
With growing regulations and data residency requirements by governments, and the threat of disintermediation via AI and the ways it is changing consumer behavior, it’s more urgent than ever that retailers rethink their approach to loyalty and CX.
This post started as a conversation. We decided to move it to the page – and to deliver a one-two punch. Part one, here, frames the problems that retailers face around the future of CX and what they need to do about it, and part 2, over at the Retail Pulse Report, takes what they need to do down a level into processes to think through.
Part I: Getting Retail CX and Loyalty Unstuck:
What do consumers really want? And why is it so hard for retailers to deliver?
Source: Adobe Stock
Retail has never been an easy business but for the last decade and more, it has been a challenge for all but the very best. This is particularly true for those merchants that still have a significant physical presence (i.e., stores).
The Underappreciated Retailer Struggle
Too many retailers have become little more than fulfillment centers with a mediocre customer experience at best. While Amazon if often lumped into this category, perhaps that is only because it has become such a habit for its Prime members?
The rise and size of Amazon, with its revolutionary obsession with customers and data, has set a bar well above most of retail. While technology and data can be related to “rocket science”, being focused on customers is hardly so. Indeed there is no monopoly on business strategies that prioritize customers, built on data, insights and delivering a relevant and excellent customer experience. Surveying most retail today, however, one might assume such a thing were true.
A lack of attention on customers concedes everything to competitors who do just the opposite. This focus, if done correctly, results in a better customer experience and that includes customers knowing -- and feeling -- that they are a primary focus for the merchant and that the merchant is loyal to them. This “feeling” creates and defines brand loyalty.
What Customers Want Is Straightforward, But Not Necessarily Simple to Do
What consumers really want, what all people want, is to be recognized and valued. To be kept informed and welcomed and not have their time wasted. And yes, at times, they also want to be rewarded. But rewards do not necessarily create the emotional payoff that being recognized, valued, informed and welcomed provides.
Amazon set an unprecedented high bar for loyalty with Prime. With nearly 200 million members paying $139 per year and a renewal rate of 90+%, its success is unquestionable and unparalleled. It hits on all the loyalty actions (drivers) above, though arguably least so on rewards. But equally important is that Amazon was, from “Day One”, customer-obsessed and by extension, committed to actioning on that obsession leveraging data. Bezos started as a quant trader so that’s not a surprise. What is a surprise is that more merchants haven’t followed in Amazon’s footsteps. Some retailers are good at some of those actions above, but very few are good at more than couple of them.
The challenge and opportunity for leading retailers and aspiring leaders is to know which customers value which of those experiences and deliver them accordingly.
Silver Bullets and Bright, Shiny Objects to the Rescue
Welcome, AI. Some in the loyalty industry have posited that AI will kill loyalty, as consumers effectively outsource shopping to agents like Google’s Gemini, which arguably is just another intermediary. If Gemini (and the like) improves the CX, it will succeed in killing or reducing loyalty for others who fail to do so. For retailers with an already suffering customer experience, it will take less than a Gemini to kill whatever loyalty they have left.
AI can help a retailer “pay attention to customers and treat them accordingly” better than humans. Most humans in retail leadership – and on the floor-- are failing to do. If you gauge the state of CX and loyalty based on Forrester’s CX Index, which sits at an all-time low for CX quality,, that failure is pervasive.
But It’s Not That Easy
As we all now know, AI requires data, and data is where much of the challenge lies. Data increasingly requires permission and that means that brands need to provide a reason, a “keepable promise”, for customers to trust and share their data with them. And it also means that brands have to know what to do with the data so that there is direct benefit to customers, ideally in their customer experience, not just transactionally.
Retailers need to know which customers want recognition over rewards, information over recognition and saving time over saving money. This goes beyond segmentation to translating (and collecting additional) data into the appropriate insights, which are often contextual. Retailers really struggle with this type of data leverage, particularly in terms of the CX. As retailers deliver a CX below consumer expectations,, loyalty is diminished.
There are two big gaps for retailers going forward. The first is the need to get their data organized and usable, not just for decision support but also for the enterprise more broadly. The second is to get all that done while also becoming capable with AI. Think of it like crossing a roaring river with one big rock in the middle: it takes not one but two successful jumps to get safely across.
The Ultimate Question (not NPS!): Profitability and Enterprise Value
If there is one reason for retailers to prioritize getting loyalty unstuck, consider the metric that matters most: enterprise value. Once highflying leaders like Nike, Gap, Starbucks and Target are all in various turnaround modes. Their stock prices are all lagging both the S&P 500 and Amazon (itself down relative to the S&P) over the last 24 months.
Too many retailers are lazy about loyalty. They mistakenly believe that a loyalty program featuring rewards – often a glorified discount program – will lead to sustainable profitable growth. Much like the fact that when asked, customers always prefer a lower price.
These same consumers also define “loyalty” as a willingness to pay a premium, or go out of their way, for a brand. They are willing to pay for a better experience. While 83% of consumers pre-COVID considered themselves loyal, that number is diminished, in part because the at best mediocre retail CX, anchored on undifferentiated loyalty propositions and brands.
As much as the glass is half-empty, flipping the switch to half-full starts with leadership. Sadly, leadership in many cases still needs convincing, much as they need understanding, along with a few other key things.
They need to reassert their brand value, as trust is essential and that’s what brands do, among other things.
Retailers need to show loyalty to their customers – this drives trust and loyalty to their brand – by “paying attention to them, showing them that they know them” and delivering value accordingly.
They need to measure as they go, to course correct and to validate the payoff from a better CX and more loyal customers.
How would you grade your organization? How well does your company know its customers? Know who values what? Who will pay more for speed? For access? For your brand? For your customer experience?
These answers are all inextricably linked. Customers pay more for a better experience, which is what better brands use for both differentiation and to provide value. Which drives margin, profits and enterprise value.
Assuming this is something you and your organization desire, make sure you continue to part 2, here.