The Rewards of Loyalty
By George Anderson
The moral of this story is loyalty costs and pays.
Retailers continue to spend huge amounts of money on loyalty programs and, according to Christine Chen, a research analyst at Pacific Growth Equities, a few such as Chico’s are finding the investment well worth it.
The best programs, she told the San Francisco Business Times, “get people into your stores on a regular basis and incentivize them to spend money.” For those that do it right, “the rewards are so great.”
Chico’s, according to Ms. Chen and others, is the gold standard of loyalty programs.
The apparel retailer’s Passport program, launched in 1991, rewards shoppers that have spent $500 in its stores with a five percent discount on all purchases made after that figure has been attained. It also offers free alterations and shipping. An added bonus is that Passport members receive invitations to special events and member-only sales.
According to Chico’s, 70 percent of its shoppers are Passport members. The chain, which caters to women 35 and up, operates 710 stores in 47 states.
“Look at the results of (Chico’s) same-store sales,” said Christine Chen, a research analyst at Pacific Growth Equities. “They keep posting incredible numbers year after year. Passport keeps growing and it gets people coming into stores.”
Forth & Towne, Gap Inc.’s new concept targeting the same 35+ female demographic as Chico’s, is offering its own loyalty program known as Indulge. The new concept’s loyalty program (www.forthandtowne.com/indulge.html) reads like a carbon copy of the Passport program.
Moderator’s Comment: Of the retailers offering card programs, which have the most loyal shoppers? What is behind the loyalty of those shoppers?
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George Anderson – Moderator
I love Chico’s. I return not only because it is a great product but I also get great service and special attention along with loyalty program discounts. 5% at Chico’s can add up, and in this months catalog (and every catalog) there are coupons for 50% off one item and 25% off online items. When something comes into the store that the sales staff know would be of interest to me, they call me to advise. This doesn’t just go for Chico’s, I get this same type of service and drive out of my way to get my oil changes.
I feel that, in at least some cases, loyalty programs may in fact do exactly the opposite. I see a danger with two different classes of customers:
1. The bargain or deal hunter. This type of customer will use whatever discounts, special deals or other loyalty incentives only as long as that company has the best program or best deals. The minute another company offering similar or the same products offers a better program or incentive, they’re gone. These customers are the coupon clippers that display very little product or company loyalty.
2. As has been noted here, there is a class of customer that says don’t make me jump through hoops. They don’t want to have to remember to carry a card, remember a number, clip a coupon, etc. I am an example of this type of customer. I was a member of the Staples reward club and, when I signed up, thought it was a good idea. Just swipe a card and then get a “rebate” check in the mail that could be used as cash on future purchases. I got the checks in the mail, probably over 100 dollars worth, and never used a single one. I would forget to take it with me to the store and then it would expire. I finally grew resentful of Staples because I was not using the discounts. As a result, however illogical it might be, I quit doing business with them.
I think more retailers should focus on building their brand and giving customers reasons to shop there that transcend just because there’s a good deal today.
Too many retailers are followers and they continually chase others’ good ideas instead of creating their own. Just because it works for Chico’s does not mean it is a must for all stores. Most stores are best off offering all customers the best possible prices every day rather than putting it in their heads that there is enough fat in pricing to allow special discounts. Events and promotions do not need to be done around cards, and showing loyalty to best customers can and should take many forms that do not involve cards. Loyalty cards are now in the “same old, same old” category, which is exactly where winners do not want to be.
Interesting that the travel rewards programs have crept into the discussion here. One of the primary reasons “loyalty programs” work to incrementally (key word!) cause patrons to return, above and beyond service, selection, value, etc., is the perceived value (second key word!) of the reward offered. A free plane ticket is still a pretty big perceived value reward, and it was huge when the programs were introduced. Free vacation stays in desirable resorts (which is what we all think we are going to use those Marriott points for — right?) are also high perceived value. That’s why they work.
5% discounts at Chico’s would rank as a “mid-tier” perceived value on my hypothetical scale — and thus a good program by retailer standards.
Knowing that I have to carry both a Jewel card and a Dominick’s card in order to get the normal sale prices on groceries that I have to buy anyway is more of an aggravation than a reward.
Loyalty is what it is. A program in itself doesn’t make the difference although the content of the program may. Loyalty is basically trust earned by the retailer during the business relationship that causes customers to return to shop there again above other choices. All things being the same, convenience, design, style, affordability, and citizenship are the merits on which customers choose. If some specific actions of the retailer provide over-riding reasons to choose them over the competition then they will win the business, as long as they maintain that edge. Isn’t it easier just to do what you should do in the first place? Is the loyalty program causing the retailer to feel comfort and content in the absence of paying attention to the things that matter to their customers?
I give kudos to Hampton Inn for again earning my loyalty. Many years ago I stayed at Hampton frequently. They offered good value and convenience. As other chains in their segment built out I stayed frequently at Marriott Fairfield Inn and Holiday Inn Express because I could earn points in their loyalty programs. Once Hampton joined Hilton’s Hhonors program the field again leveled. Now Hampton is leading again with an aggressive upgrading of amenities that resonate with frequent travelers.
Interesting that Hampton began inside the hotels where it was visible only to their customers, and they did it in advance of advertising the fact. They now have real loyalty again, and oh, yes of course I get Hhonors points. My point is that they began providing a service level I wanted and that they previously weren’t, and that is what made the difference.
The primary factor behind retail loyalty is value. Always has been, always will be! Chico’s has done some innovative things for their customers, but their primary feature is that they target their customer very well and provide “comfort clothing.” Their styles, while not stale, are basically conservative. My 85 year old mother loves Chico’s for the clothes, the value and the fact that she doesn’t have to experience “ghetto fashion or culture” when she is in their store. The card, the discounts, and all else are secondary to the product and the service. Right now, Chico’s doesn’t really have any direct competitor. They are, however, using this advantage to reinforce their value with their customers. The “word of mouth” that is generated is priceless. Don’t attribute Chico’s success to smoke and mirrors Loyalty cards (think – you have to spend $500 to get one!). Give this retailer their due by praising their quality product and for having the sense to target a market that most others were ignoring. Loyalty cards never made a company great and no quick fix mentality ever will.
I believe that the word “Indulge” has a very ‘guilty pleasures’ type of self-centered connotation, and does not speak to an upbeat type of extra benefits program.
Possible alternatives include:
1. Exclusive Benefits Program
2. Thank You Rewards Program
3. Recognize Rewards Program
4. VIP Rewards Program
5. etc.
Great comments here by Mark, salespro, Sid and Ben. I haven’t yet seen a card program that has created loyalty. Rewarding a consumer for spending certain money levels isn’t a ‘loyalty program.’ Card companies, software providers and other vendors have convinced retailers otherwise, however it’s hardly true. Chico’s customers don’t shop there for a 5% discount. They shop there because of the clothes. They love the clothes, they like the experience and they perceive a value. The value they perceive, however, is not solely the measly 5% on $500.
Loyalty is the conscious choice of a consumer to return to your store consistently when they have alternative choices. If you see the word card in that definition, I’ll need to proof read again. Retailers don’t build loyalty through a program as it is defined in the trade…unless, that is, the program is defined as all things considered such as service, selection, pricing, delivery, execution, environment, etc.
The minute Chico’s doesn’t meet the needs of its customers with the right clothes – a card won’t make a bit of difference. At that point, even a 50% discount doesn’t mean anything if it’s something you won’t wear in the first place.
All in all, there are some folks here that are beginning to understand the components that make up consumer loyalty. The biggest thing to keep in mind is that consumers own loyalty, not retailers.
How does a retailer define “loyalty program”? If the retailer gives double miles for buying private label items, is that a loyalty program, or just a special discount? If the retailer runs special sales for its proprietary charge card holders, is that a loyalty program? If the retailer sells memberships in a discount club, is that a loyalty program? If the retailer solicits publicly featured feedback ratings for every transaction, is that a loyalty program? If the retailer tries to suggest related items a customer might like if he/she shops around, is that a loyalty program? Which loyalty programs undermine the trust relationship between store and customer? I believe that many loyalty programs are simply training customers to stop shopping when no bribe is offered. The best loyalty programs build trust, not cynicism.
Retailers that are successful in creating a compelling and differentiated shopping experience will inevitably build their brand and establish a loyal customer base. The critical success factor for the retailer then becomes increasing the shopping frequency of their loyal customers.
Loyalty programs are the means by which retailers optimize the effectiveness of their marketing campaigns. Signing up for the program enables the retailer to capture accurate, actionable customer data for more effective advertising. The discounts, sales and incentives become the retailers’ reason for reaching out to their loyal customers and encouraging them to visit the store.
I want to give more merit to the thoughts/ comments submitted by mac 6195, he wrote…
“I think more retailers should focus on building their brand and giving customers reasons to shop there that transcend just because there’s a good deal today.”
After being in the customer service industry for approximately fifteen years, before joining the ranks of employment in an Architectural firm, I noticed that the typical trend was to rush to the ‘regular’ customer, sometimes skipping the new customer because we want to give superb, rewarding service to the customer that is in everyday — so as not to lose that steady sale. Whereby in reality the ‘regular’ customer will come merely because of the great product. Conversely the customer often times being sidelined, is not going to be content with either the product or the service — if the service seems to be discriminatory on the ‘regular’ or the “I’ve never seen you before” customer.
Providing great customer service to all customers, pushing/selling a superb product… without the notion of ‘stamp cards’ or savings cards… will go along way; don’t make customers earn better service… just give it to them.