Build vs Buy: Customer Loyalty Solutions for Retail
As software continues to “eat our world”, there is a regular dilemma that crops up in retail organizations. When faced with inefficient and manual processes, the immediate reaction is: “So… how can we automate this?”
Depending on the magnitude of the process, the next dilemma is whether a built in-house developed solution could solve the problem – or whether there’s a third-party vendor that can address it faster, painlessly and more cost-effectively.
For now, think of the build versus buy approach to software as being similar to one’s decision to build or buy a house:
There’s no doubt there are some people out there who will always choose to build their own home. But the majority of people are likely to just buy one. Just like some companies will want to build their own software solution (whatever the downside risks) – many will want to buy a proven commercial off-the-shelf (COTS) solution.
Build vs Buy? Customer Loyalty Platform
One key element of loyalty program success is using the right technology that will enable automation and optimization. Loyalty platform providers help retailers reward members for their purchases and engagement, and create personalized shopping experiences. However, the decision to build or buy such a platform can be a difficult one.
In this article, we’ll explore the PROs and CONs of both options to help retailers make an informed decision that best suits their business needs.
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Building a Customer Loyalty Platform
Building a customer loyalty platform from scratch is a daunting task, but it does have its advantages. For one, it allows retailers to create a platform that is tailored specifically to their needs, focusing development efforts on the most important features. Additionally, building a platform in-house gives retailers complete control over the development process, which can be especially important if they want to integrate the platform with other proprietary systems.
However, building a customer loyalty platform is a time-consuming and expensive endeavor.
Retailers will need to hire a full team of developers, designers, and other professionals to not only build but also maintain the platform. Additionally, building a platform from scratch can take months or even years, which can be a significant time investment. This is a costly upfront investment, not recommended for retailers with no previous experience in building technology in-house. Eventually, retailers often prefer to focus on best managing their retail operation, and rely on third-party vendors for technology.
Another potential downside to building a customer loyalty platform is that it may not be as robust or feature-rich as an off-the-shelf solution, and will most probably need constant development to incorporate innovation and adapt to market trends. While retailers can choose the features that are most important to them, they may not have access to the same level of functionality as they would with a pre-built solution. This limits the platform’s effectiveness and may make it less appealing to customers.
Buying a Customer Loyalty Platform
Alternatively, retailers can opt to purchase a customer loyalty platform from a vendor.
This approach has its advantages as well. For one, it provides the fastest payback period, meaning retailers can get up and running quickly without the need for extensive development work. Additionally, it allows retailers to leverage their vendor’s experience and expertise, helping them apply the most successful strategies to their program.
Furthermore, pre-built customer loyalty platforms tend to have a wide range of features and functionality that retailers may not be able to replicate if building in-house. This can include everything from retail intelligence, personalized offers and promotions to loyalty analytics and insights. With a pre-built solution, retailers can get access to these features right out of the box, allowing them to activate their customers with loyalty strategies immediately.
However, there are also potential downsides to buying a customer loyalty platform.
For one, retailers may not have as much control over the development process, which can limit their ability to customize the platform to their specific needs. Additionally, pre-built solutions may not be as flexible as a custom-built platform, which can limit their effectiveness in certain situations. For example, if a retailer has unique requirements that are not supported by the vendor’s platform, they may need to build custom integrations or find workarounds, which can be time-consuming and costly.
To summarize, these would be the reasons why to buy a customer loyalty platform
Reason #1: You’ll take advantage of the lessons learnt by others
In the context of buying a software solution, you should be benefiting from millions of dollars of someone else’s investment in code, and years of innovation for a comparatively low cost. The ongoing licensing cost provides you with continued incremental benefits from sharing the development resources with other organizations.
Reason #2: You’ll access industry experts
Let’s face it, we can’t all be good at everything. In the same way that retail organizations have their core competencies, software companies do too. Software products wouldn’t exist if they didn’t solve a problem. In essence, you are fast tracking the learning curve and sharing the cost of the expertise.
Reason #3: You’ll generate ROI faster
Any build project takes a long time to materialize any value. Whether it’s building a house or software application, it will always come down to how much budget, time and effort you’re willing to invest to achieve your desired outcome. The payback period for software development can be years – if at all. We estimate that it can take up to 2-3 years of work for major enterprise process challenges to be adequately addressed via a software solution. By outsourcing the solution you should budget to see a return within weeks or months rather than years.
“Only a fool learns from his own mistakes. The wise man learns from the mistakes of others.”Otto von Bismarck
10 key factors to consider in your decision:
|Building gives you full control over the features and functionality. You decide what you need and then you make it happen||Ready-made solutions are already built with features and functionality based on years of industry experience. In some cases, you can request bespoke features|
ASK YOURSELF THIS:
- What features do you need from your customer loyalty platform?
- Do you have clear specs defined?
|Consider how you will hire the right manager and team for this project, and how you will train them about your vision, values and objectives||Focus on what you do best and leverage a ready-made loyalty platform solution to help you boost revenue and retention|
ASK YOURSELF THIS:
- Do you have experts on staff that combine knowledge of retail loyalty and technology?
|Building a loyalty platform in-house has a lot of different costs associated with it||Depending on your budget, you’ll find long-term savings by buying a ready-made solution|
ASK YOURSELF THIS:
- What is your budget?
|Consider whether your team might already be tied up with other projects, and whether you’ll de-prioritize other commitments or hire a new team||Free up your team and technical resources for other parts of your business|
ASK YOURSELF THIS:
- Do you have the right technical resources to build a platform?
- Can you devote them to this project?
TIME TO MARKET
|A new solution will take two to three years to create, which might put you at a competitive disadvantage||By implementing an out-of-the-box loyalty solution, your program will be up and running in a fraction of the time|
ASK YOURSELF THIS:
- What is your desired date for loyalty program launch?
|You’ll need to consider the resources, support and time needed to provide ongoing maintenance throughout its lifetime||When you buy a loyalty platform from a vendor, you get a full team at your service to deal with all maintenance and support issues|
ASK YOURSELF THIS:
- Are you able to commit to maintaining your loyalty platform in the long term?
USER-FRIENDLY & INTUITIVE DESIGN
|More often than not, in-house build software that doesn’t have a commercial purpose is clunky, unless additional resources are allocated to design||Out-of-the-box solutions are made with the end-users in mind, and include UX/UI design teams in the development process from start to finish in order to make a user-friendly platform|
ASK YOURSELF THIS:
- Will the new platform require lots of specialized training, or is it intuitive and user-friendly?
|The market moves fast and you need to ensure your loyalty program stays relevant. You’ll need to think about updates, advancements and improvements that will be necessary over time||Ready-made solutions are maintained and updated on your behalf. That means you’ll always have industry-leading solutions, without any of the work|
ASK YOURSELF THIS:
- Do you have the resources to innovate and update your loyalty platform?
|You’ll need to consider adding additional layers of security for your platform and its data (i.e. compliant user data transfer and storage, multi-factor authentication and total protection of your clients’ data)||Out-of-the-box solutions must comply with industry regulations, and mitigate the risk of data breeches and fraudulent use|
ASK YOURSELF THIS:
- How do you meet all relevant security and data protection requirements? How is data preserved?
|If you build your own solution and theres a security breach or a system crash, you’re on your own. You’ll need to quickly allocate additional resources to solve the issue||Third party vendors mostly offer dedicated customer support teams not only during initial project implementation, but on an ongoing basis|
ASK YOURSELF THIS:
- If something goes wrong, who can help?
- How quickly can they solve the problem?
Making the Decision
Ultimately, the decision to build or buy a customer loyalty platform will depend on a range of factors, including the size of the business, its resources, and its unique requirements. Tier 1 retailers with established IT departments may choose to build a custom loyalty platform in-house, while smaller retailers with limited resources may find that purchasing a pre-built solution is the most cost-effective option.
It’s also worth considering the long-term implications of the decision. Buying a customer loyalty platform may both be cheaper in the short term and more cost-effective over the long term as it doesn’t require ongoing development and maintenance costs.
TIP #1: Define your needs
Before you even consider evaluating third-party loyalty solutions, you need to ask a few important questions to determine if going with a vendor is the right choice for the capabilities you want to gain.
Generally, capabilities can be organized into one of two groups:
- Commodity capabilities are required by your company but aren’t unique to you. Common examples include payment and payroll tools. These capabilities offer little to no competitive advantage, so it makes sense to follow established best practice and adopt the industry standard
- Differentiator capabilities are how your company differentiates itself in the market. In competitive markets, higher investments into these capabilities are justified, as they directly help a company stand out and operate in unique ways
When considering what is a differentiator or a commodity, it is important to have a clear idea of your own business context and what this means.
More often than not loyalty programs require similar core functionalities such as earn&burn mechanics, a rewards catalog, loyalty points management, gamification, loyalty analytics and so on. Most retailers will differentiate their programs within those categories, infusing their brand and values into each element.
TIP #2: Don’t fear replacing existing solutions
Retailer CMOs commonly re-evaluate the tech landscape to see if there is are new third-party solutions that will help them optimize and improve results.
The industry moves quickly.
An evaluation you did a year ago might have changed with new features and different competitors. Your company may have also changed or business priorities shifted, and that unique functionality you thought you had to build didn’t become a reality.
It also could be that pricing has changed, making it more appealing to use a third party.
When it comes to customer loyalty software, there is often a tendency to avoid replacing a vendor in favor of a more suitable solution because of the effort it takes to evaluate, integrate and deploy a new tool. In our experience though, retail businesses often appreciate the opportunity to fully revamp their loyalty program while they set it up with our platform, making sure they keep what worked and change what didn’t. As a result, their new loyalty program doesn’t only benefit from new functionality and better automation, but also from up-to-date strategies.
TIP #3: Plan a balanced 3rd party evaluation
Evaluating third-party solutions is a challenging task.
There’s far more to it than simply comparing offerings and weighing out benefits. In practice, a thorough evaluation requires retail CMOs to do 3 difficult things at once:
- Predict the future: You’re not just looking at how well a solution can meet your needs today. You must also consider how well it will meet your evolving demands over the next three to five years, and factor in the provider’s own roadmap for the solution
- Balance the needs of all relevant stakeholders: Chances are, a third-party solution will connect with or replace a few products that people across your team currently like using. Also, leaders within different departments might have different priorities that might take some effort to align.
- Forecast long-term costs & ROI: Acquiring new third-party solutions might involve getting tied into a long-term contract. The finance department will need to consider how the value delivered by a solution may shift over time and how that may impact your budgets and bottom line
TIP #4: Evaluate new software with a cross-functional approach
Once you’ve identified buying a third-party loyalty solution as the right path forward, it’s time to assemble your cross-functional evaluation team. Which stakeholders are involved in the loyalty platform evaluation will depend on the capability being evaluated. But cross-functional teams are typically comprised of stakeholders from the following groups:
- Marketing executives: Set the goals and OKRs for the loyalty program connected to the overall marketing objectives
- Loyalty managers: Give detailed input on the specific requirements for the tool
- Finance department: Ensures the cost of the tool aligns with budgets
- IT: Responsible for integrating, deploying and supporting the tool
- End users: Explain how they want to engage with the tool
- Customer service teams: The team who will have to give support to loyalty program members
- Compliance and security: Ensure the tool doesn’t expose the organization to increased risk
TIP #5: How to assess vendors
When you choose a third-party solution, you’re not just selecting new software, you’re picking a partner that you’ll hopefully work with for years to come. It’s just as important to evaluate vendors as it is to evaluate the software and capabilities they can offer.
During that assessment, it’s important to look beyond the typical list of 3 top players: often those software companies are huge industry-agnostic behemoths that might not give you the solution or the service you’re looking for.
It’s not just about who can offer you the most predictable, proven solution and consistent service. It’s also about identifying who’s innovating, whose capabilities are actively improving, and who has the strongest roadmap, both for their platform and as a company.
7 criteria for assessing software vendor alternatives:
|Industry-focus||Having a broad focus may be an asset in some situations. In other cases, a industry-specific partner may be preferable, as it will build its solution to handle the complex nature and specific needs of businesses like yours|
|Trajectory||Ideally, you want to pick a vendor that you can form a long relationship with. You want to pick a company that’s actively investing in their product, innovating and responding to changing market demands|
|Influence||Seek a partner that will listen to your feedback, where you can influence the future of their solutions and feed into their development roadmap. This is an area where it can be advantageous to work with smaller, growing vendors|
|Stability||You need to be sure that your partner will continue supporting the platform|
|Culture and tech alignment||Does the partner align with your core cultural values? Will working with them support or harm your brand? It’s a good idea to choose a partner that views and approaches technology the same way your business does. What are their QA processes? Are they committed to continuous improvement and continuous delivery?|
|Integration and delivery||Will they provide a technology partner or architect to help you access the services you need?|
|Quality of support||What is their support model, and what SLAs do they commit to upholding?|
TIP #6: Forecasting ROI and TCO
The final step in a comprehensive evaluation process is calculating projected costs to buy and implement the solution, and how quickly you expect your investment to return value.
Calculating both ROI and TCO can be complex, and is often based on incomplete information and best guesses.
Here are a few tips that can help ensure your analysis generates the most reliable outputs:
- Own the process: Vendors are usually happy to help you define the total cost of ownership for your new solution, and will help you calculate the ROI. However, be aware of hidden costs that might arise from the vendor’s package pricing practices.
- Consider how strategy may shift: The ROI model is predicated on the need for the specific capability for a period of time in alignment with the business model and strategy. It’s worth considering if your loyalty program may change, in line with emerging tech and market trends.
- Get a complete view of acquisition costs: License fees are usually the attention-grabbing headline, but they don’t represent the full acquisition costs. The ROI model should include any additional acquisition costs such as new software, hardware or expertise needed to implement the solution.
- Factor in ongoing support and maintenance: If significant changes are required to maintain the system over its lifetime, support costs can quickly add up, so it’s important to factor them into TCO calculations. Vendors and their implementation partners often provide extended support agreements.
Selecting the right third-party loyalty platform provider for your business is rarely a simple task. The capabilities you choose and deploy will impact and shape the future of your organization, your IT estate and the way your people work, so your evaluation process can’t be rushed.
The process itself will always vary depending on the capabilities you’re looking for and the gaps you’re trying to fill. But broadly, a thorough evaluation process should incorporate all of the major steps covered in this paper:
- Carefully map out your needs and establish whether a third-party solution is likely to be able to meet them or whether you need differentiated capabilities
- Work with diverse stakeholders to understand what they need and build a cross-functional team to help support your evaluation process, providing as many perspectives on potential solutions as possible
- Define your technical must-haves and ensure that your organization’s overall technical, security and compliance needs are factored into the loyalty platform provider evaluation process — helping you spot clear deal-breakers
- Conduct deep vendor assessments and look at their general roadmap, as well as the roadmap for the solution(s) you’re evaluating, to determine whether they’re the right long-term partner for your team
- Carefully forecast TCO and ROI to help you gain a complete picture of the costs associated with your shortlisted solutions, and determine how quickly they might be able to return value for your organization
By following those steps, you can ensure that the solutions you choose are right for your business, your developers and the customers you serve, and focus your development resources where they’re needed most.