Business and Operations
Questioning one’s loyalty
Learn the ins and outs of designing a loyalty program
I’ve come to believe that I need a separate wallet to house all the cards for the various loyalty programs I belong to.
Apparently, I’m in good company. According to Consumer Reports Online, the average American belongs to 22 loyalty programs. Marketing/Advertising Magazine reports that the average Canadian belongs to 8.5 loyalty programs. This statistic is worth pondering because, clearly, your customers are going to need a compelling reason to join any loyalty program you might offer. Everybody’s already swamped. If all of us are juggling so many programs as it is – what on Earth could compel someone to want one more?
All loyalty programs are ideally designed to accomplish one thing: to get more business from existing customers. Loyalty programs are designed to help businesses get more business from their existing customers, ideally by stealing share from competitors. They show you loyalty by forsaking all others and you show them the money. You must, however, “begin as you mean to go on” and make sure that the loyalty program you develop drives the right kind of business your way. There be dragons when it comes to designing your program. If it’s not crafted properly, you could end up incenting your customers to do what they would have done anyway, eroding your margins as a result. Vouchers and coupons are helpful to invite new customers to try your products. These tools are designed to attract new customers via sampling or discounts. If you simply leave it at that, you run the risk of giving away the farm without making your new fans “sticky.”
A good loyalty program will cement your bond with customers, but it must have several clear mandates.
Your loyalty program should be based on these four pillars: 1. Focus on the best customers that you already have; 2. Optimize the profit that can be made from them; 3. Increase the period in which they remain customers; 4. Ensure you can measure the program’s success. Here’s the curve ball though: it may not be your loyalty program itself that accomplishes these objectives – it may be the information it allows you to harvest. Your ability to collect data on your customers is a benefit of having a loyalty program; if that data can be used to identify and understand your best customers and then tailor offers that appeal to them, consider it a success.
A loyalty program allows you to connect names and contact information to customers. Transactions are no longer anonymous and you can start to track behaviour and truly understand who your best customers are. This means you should have some kind of customer relationship management (CRM) program. Take a look at your point-of-sale system: it may well have some means of creating and tracking a customer base already built in. When people sign up, make sure you at least get their postal code and email address with their express permission. To maximize the profitability of customers enrolled in your loyalty program, design it to reward them for spending more. When customers get to a certain dollar threshold, the benefits should expand. If the benefits are attractive enough, the customer will want to get to a higher level sooner and will spend more with you to do so. Your loyalty program can also direct daily traffic and give a lift to certain parts of the day or week. If Tuesday nights are slow, consider offering extra points for purchases made on that day of the week.
As for what sorts of rewards a customer might obtain with their points, the more straightforward the reward is to get and the easier it is to claim, the better. The grand-daddy of all loyalty programs, arguably, has been Canadian Tire money. It’s simple – you get money that can only be spent at Canadian Tire with each purchase. Created in 1958, the loyalty program has since its inception circulated more than $1 billion Canadian Tire “money” notes. Through its loyalty programs, Canadian Tire awards more than $100 million dollars to customers every year. Not all of it is spent back in the stores, as the mammoth stack on top of my microwave can attest. The company is attempting to migrate customers to their card-based loyalty program because, you see, the “funny money” doesn’t allow them to track their customers’ behaviour. The Canadian Tire money offers customers 0.4 per cent back while the new program will give people one to three per cent of their purchase total back.
Finally – measure, measure, measure. You need to know if it’s working and how to continue to develop the program to grow your business. Loblaws’ new and very smart loyalty program actually awards points based on shopping patterns. In other words, if I tend to buy lots of fruits and vegetables, then that’s what I’m incented to buy with extra points. Am I interested as a consumer? Does it make me loyal? You betcha. Canadian Grocer reports that Loblaws is experiencing a 50 per cent email open rate, three times the lift in sales (compared to printed flyers), a 12 per cent increase in visits and a five per cent increase in basket size.
The American Society for Quality reports that most customers are lost through neglect. In fact, 68 per cent of the time, neglect is why people take their business to a competitor. Only 14 per cent of customers list dissatisfaction of a product or service as their reason for leaving a retailer. It’s not enough to just not screw up anymore. You have to show some appreciation too. Loyalty works best when it works both ways.