In Touch With Retailing

Loyalty Marketing Done Right

By Peter Wolf, Vice President of Marketing, Fujitsu Transaction Solutions Inc.

Acquiring new customers is an expensive and difficult process; therefore, it is imperative that retailers focus on retaining existing customers and rewarding customer loyalty.

Retailers have long recognized the value of enhancing customer loyalty by offering them rewards based on their purchases. Gold Bond Stamps, launched in 1938, was the first large-scale loyalty program, which quickly became highly successful among grocers. It later expanded to other retail segments including gas stations, dry cleaners and movie theaters.

The basic premise of the Gold Bond Stamp program is still the foundation for most loyalty marketing programs today – keep customers loyal to a particular product or merchant by offering an incentive that encourages them to keep coming back – and spending more money. However, retailers in the 21st century have a distinct advantage over their predecessors, with advanced technologies that enable greater understanding of their customers’ purchase behaviors and one-to-one targeted marketing.

Unfortunately, many companies haven’t evolved their programs much beyond those available 60 years ago. Even companies that are considered industry leaders often issue “loyalty” cards that simply offer the same discount structure to all members in the program. Whether customers spend $10 a month or $1,000 a month, they receive the same discounted price at checkout. What is often positioned as a loyalty program is merely a standard discount program that reduces retailers’ gross margins.

With advanced technology to track purchases by customer, retailers are often collecting mountains of data that could provide valuable insight into purchase trends, customer segmentation and market basket dynamics. However, research has indicated that 40 percent of retailers report that they collect CRM data, but don’t use it in any way.¹ Leveraging technology in the following ways can help put retailers on the path to successful loyalty marketing programs that build loyalty rather than erode margins:

• Offer Tiered Reward Levels – Structuring a loyalty program that provides incentives for customers to spend more to reach higher levels that result in richer rewards will increase loyalty and sales more than a standard discount that is available to all shoppers regardless of spending levels.
• Personalize Promotions – Tailor communications to customers based on their purchase behavior or market segment to make them feel special and appreciated. According to a recent study by Aberdeen Group, loyalty programs deployed by best-in-class retailers resulted in 40 percent sales lift when personalized to unique shoppers' needs and preferences.²
• Differentiate from the Competition – Rather than emulate loyalty programs that most competitors are offering, leverage ideas from other industries or create a unique component that is different than the retailer down the street. Give your customers a reason to be loyal to your store or chain.
• Learn from Data Collected – While the volume of data collected from loyalty programs may seem daunting, it is wasted information if you don’t leverage this potentially rich source. One good place to start, for example, may be with market basket analysis of data gathered at the point of sale. What are the affinities of various items in customers’ baskets? By analyzing data, retailers can identify trends in customer behavior and identify which products most often sell together. Remember, every market basket is a one-on-one interview with the customer.
• Consider Rewards Other Than Discounts – Loyalty is not all about monetary incentives. The best loyalty programs also include enhanced customer service and exclusive information or special events for your best customers.
• Measure the Results – Don’t stop at measuring sales results. Loyalty programs should also measure profitability by customer and the ROI of loyalty-based promotions.

When done correctly, loyalty marketing programs can dramatically increase customer devotion and sales. Differentiate your company and your loyalty program for winning results!