Customer Benefit Program – More Than Just Loyalty
By Russ Ward
Loyalty programs have become more than a fad in America and our wallets and pocketbooks are fatter because of it. I rarely do shopping, but I have in my possession four loyalty cards. One for groceries, because my wife insists that I use it at our grocery store even if I am picking up a pack of gum, an auto parts card, a hotel card and a coffee club card. They are all jammed in various compartments of my wallet giving me a rather pronounced lump to sit on.
It seems that I better get used to sitting on that lump as this phenomenon is most likely to be around for quite some time because they seem to work. We can all remember our moms being thrilled to get double stamps at the local IGA decades ago and now a variation of that program has been translated into the card. A recent study pegged the retailers that have some kind of club or loyalty program to be at 65% or more in the United States and that number continues to climb. But not all customer benefit programs are created equal as some programs are successful and some are not. The successful programs have several attributes in common that we can learn from and use to improve existing programs or create new and better ones in our businesses.
This short article is not saying that you must have a benefit programs to be a successful retailer, but if you do not have one in place currently, you really need to take a serious look at having one for your store. Regardless of the size of the business an owner or manager should always be examining ways to increase revenue and a loyalty program may be a way to help the bottom line through new and retained customers as well as increasing the amount of the average receipt. Hand in hand with a loyalty program you need to make sure that you have the infrastructure to put one in place. For a customer benefit program to function you must have a point of sale system that is capable of easily managing the program and this program must be able to be tracked and able to clearly report on success or failure.
First things first, keep in mind that a customer benefit program has three general goals. Yes, it is to be a help and say “thank you” to your best customers but, in real terms these programs are all about increasing the total number of customers, customer retention and increasing the total spending per basket or cart. Any customer benefit program must be looked at through this prism. To accomplish these three goals a base line of customers must be acquired with a corresponding phone number and email address so they can be traceable. To accomplish this quite often it takes a significant give-a-way to entice new and regular customers to the store and to give up information.
A good question to ask yourself when determining the incentive is, “What would I want to get, in order to voluntarily give up my phone number and email address?” This net should be broad enough to catch old regular shoppers as well as new customers coming in. This effort must be promoted broadly through every means necessary including advertisements, special displays and signage. Once you have your base of shoppers, there are some benefit card basics that are often over looked by retailers.
1. Use a Simple System - Nothing is more frustrating to the shopper than to never know what the program is or how they can benefit from it. A general point system that easily functions automatically through your POS system that gives one point per one dollar spent is usually fairly easy. This is the most common loyalty program methodology. Frequent customers earn points, which translate into some type of reward.
Where many companies falter in this method, however, is making the relationship between points and tangible rewards convoluted and complex. Twelve points on Tuesday are double if redeemed on Saturday between the hours of noon and three. Spending one hundred dollars now is double points in October plus 25% off of your next visit’s purchase on Sundays. That’s not rewarding, that’s a headache. If you opt for a points-based loyalty program, keep the conversions simple and intuitive. If you are looking for failure, make the program difficult to track and understand.
2. Make the Redemption Obtainable and Give the Customer a Head Start - If a customer never cashes in the points earned, your program will lose the ability to communicate with that customer through the loyalty program. They will simply stop using the card. Often times when a customer stops using the program it is because the benefit or reward for collecting points is delayed and pushed too far out in the future. If it takes months of careful use to redeem points then your customers will not utilize the card. We live in an immediate gratification society. The consumer must see quick benefits from the program. Also, keep them informed of their progress. Your POS system should be able to print points earned on each receipt and the cashier should be trained to circle and point out the points earned to each member customer.
Also, it helps to find ways to give customers a perceived head start. In a paper entitled “The Endowed Progress Effect” in the Journal of Consumer Research, professors Joseph Nunes and Xavier Dreze determined that by giving even artificial advancement in a loyalty program, consumers remained more engaged. In the study the professors distributed loyalty cards to customers. The cards required a certain number of stamps or visits to a carwash to earn a free carwash.
One of the groups received cards that had eight slots to be marked before they earned a free carwash. The second group received cards that needed ten slots to be stamped, however two of the slots were already marked as if they had earned two free stamps making it seem as if they had received a head start. Despite that both groups had to earn equal amounts of stamps (a total of eight), the second group remained more loyal and had nearly double rate of loyalty card completion!
Only 19 percent of customers in the eight-stamp group (the first group) made enough visits to complete their card. However, 34 percent of the 10-stamp group (the ones given a perceived head start) came back enough times to finish their loyalty cards.
3. Use a Tier System to Reward Initial Loyalty and Encourage More Purchases - You want customers to use points. That is one of the goals of a loyalty program. So there should be a tiered system built into point usage. As the customer uses more points, the more advantages, benefits or bonuses they receive. This will lead them to shop more often or increase their basket size. But, finding a balance between attainable and desirable rewards at various levels can be quite a challenge.
This tiered system must be simple to understand and to utilize. To start off, offer small rewards as a base offering for being a part of the program. Encourage repeat customers by increasing the value of the rewards as the customer moves up the loyalty ladder. The first step can be a 1 point per dollar spent but when they redeem 1000 points they can be moved to the next tier at 1.25 points per dollar spent and so on.
4. Structure Non-Monetary Programs Around Your Customer's Values - Understanding your customer means understanding their values and sense of worth. And depending on your location and type of store, your customers may find more value in non-monetary or discounted rewards. Every company can offer promotional coupons and discount codes, but businesses that can provide value to the customer in ways other than dollars and cents have an opportunity to really connect with their audience. To do this you really have to have your finger on the pulse of the customers but also must be willing to fail and try some out of the box thinking.
5. Clubs Inside the Store - A typical grocery store is filled with departments and sub departments that can be used to increase loyalty throughout the store by way of specific clubs. The pharmacy, baby supplies, florist shop, bakery, coffee shop or deli could all be used as a vehicle to increase sales and loyalty. Could you imagine the loyalty that could be built if a ten dollar coupon off of any item in the baby isle could be used for new moms? Just that program alone could create customers for life. What about a free cup of coffee with any bakery purchase of ten dollars? These programs can be extremely effective for customer retention and company growth. The key, again, is to fully understand your customer’s every-day lives and their purchase process. This will help determine what type of club that would work best. Also, knowing the demographic breakdown of your customer base will be a great help.
6. Measuring the Effectiveness of Your Loyalty Program – Lastly, successful programs are measureable. Customer loyalty should increase customer happiness, retention and amount of overall purchase, if they don’t, the program is a failure. You are not in the business of warm feelings, rainbows and pixie dust unless that translates into more sales. Your POS system must be able to measure the metrics of the program.
Customer loyalty can be improved and built upon if the right approach is taken. As previously stated these programs are not going anywhere and they will be with us for quite some time. With the right point of sales system any store or chain of any size can offer loyalty programs that create more revenue and reach more customers.