What Price Loyalty?
By John Hennessy
Forbes.com staff writer Tom Van Riper collects some interesting information and opinion on reward and loyalty programs.
A recent Jupiter Research study concludes that, with so many in the industry caught up in the arms race of who can give out more rewards, no one has stopped to notice that most rewards programs aren’t particularly effective at building customer loyalty or returning profits. There was no discernible difference in investment returns between companies that put resources into a formal reward program and those that don’t.
RetailWire Braintrust member Mark Goldstein, president of Loyalty Lab, comments that, “Shoppers are spoiled.” Mark continues, “If I give you my business, what will you give me?”
Another issue with loyalty card programs according to Jupiter analyst Patti Freeman Evans is, “Too much sameness.”
As an example of programs that work, Freeman Evans cites Neiman Marcus’s InCircle program. This program gives favored customers unique goodies, such as invitations to private parties and free wrapping.
Ms. Freeman Evans also cites Harrah’s Entertainment as winning high marks. Harrah’s responded to customer surveys to offer free food and shorter lines for casino guests.
Common between both is a response to customer preferences while being unique to the particular retailer that’s offering them.
Moderator’s Comment: How can retailers breathe new life into existing loyalty programs?
If you pay shoppers to shop with you, it should be no surprise that they’ll shop with someone else who will pay more or leave you when you stop paying.
If you reward with discounts only, it should be no surprise that shoppers leave for bigger discounts.
Why not try for something completely different?
The successful programs cited offer unique value, not more of the same. They also stand out for not just listening but responding to the requests of their
customers.
Consider what you can do to let shoppers know they are important to your business. How about reminding shoppers of products they need to replenish? What
about a thoughtful, surprising and relevant reward for your most valued customers?
Acknowledging personal preferences combined with a little creativity will help you stand out among all the sameness. –
John Hennessy – Moderator
Shoppers are spoiled? WARNING, step away from this assertion! Mark Goldstein, a highly respected acquaintance, is off-base here. This is not a statement with which top merchants would agree.
Consult your list of top retailers, ask them about spoiling shoppers, and they’ll always endorse the practice and confess that they’re looking for ways to do it better.
The issue of refreshing loyalty card programs has been around for more than a decade, pegged to retailer realizations that their ROI wasn’t R-ing. But, they were stuck and couldn’t rescind their programs. Brian Woolf is the acknowledged expert on this topic, and as a devoted acolyte I can only provide what I’ve observed:
1.) Take steps to incorporate CMM (Customer Managed Marketing) into your program rather than CRM (Customer Relationship Management). Revelation – customers don’t like being “managed.”
2.) Inject a little fun into your card program. There are some very successful, no-cost, legal, lottery-type promotions out there to resuscitate your investment. Try them, and learn from McDonald’s.
3.) Expand your card benefits to neighboring businesses. You’ve already spent beaucoup (“boo koo” for those in Rio Linda) bucks for your system. Why not expand it?
There are dozens of ways to breathe new life into existing loyalty programs. One only has to look around.
From the RetailWire discussion last week on loyalty programs, I thought David Livingston and John Hennessy had simple, easy-to-implement suggestions. David’s suggestion: the personal touch. Call your best customers and talk with them. John’s suggestion: offer incentives for items the customer isn’t buying, on an individual basis. Neither is tough to implement and both respect customers as people.
I think Marriott does a great job with their rewards program. I get access to the concierge lounge — free food and drink! Talk about real value to a weary traveler. Also, I know this is an oft-repeated observation: the Marriott brand is *insanely* consistent. From Cincinnati, Ohio, to LA, to Athens, Greece (to name a few I have stayed at in the last 3 months) — it’s always reliable: my concierge lounge, my cup of tea in the morning…This is further incentive to remain loyal — you know your benefits will remain the same hotel to hotel.
In addition, I can use my Marriott rewards points on their site to buy stuff from SkyMall.
Hertz is another one with unique value — I don’t have to stand on a line to rent a car? I gladly fork over $50/year.
The problem with these programs is they do nothing to promote loyalty, they promote retention and repeat purchase, and the concepts are not interchangeable. A loyal customer continues to buy products and services because they want to, because they have a relationship with the organization that encourages loyalty, because they have good interactions with the company’s employees. If you set up a system that is intended to only increase re-purchase, why would it surprise business that repeat purchase is all they “bought”? The reason you want loyal engaged customers is that they not only continue to buy your core product, but they also buy more of your product line, recommend the organization to their friends and colleagues, doubt negative information they hear about the firm in the press, and will even help out during difficult financial times. RETENTION IS NOT THE CAUSE OF LOYALTY, IT IS THE EFFECT.
The ego-centric approach employed by most retailers with “loyalty” programs is almost beyond conceptualization. The consumer is not stupid. They are observant, discriminating, and absolutely will act in their own perceived self interest….NOT that of the retailer.
Loyalty. Is that what these programs reward? Or are they all too often simply another way of promoting?
Frequent flyer miles and hotel point programs work. They reward the consumer based on frequency of brand choice. And the rewards escalate with increased frequency. Wow. Simply paradigm. And the “reward” is perfect. Most high frequency travelers are doing so for business. While THEY have often little interest in travel of vacation, their FAMILIES have a great deal. So despite mismanagement of redemption, availability of seats and nights, etc….the basic design works.
What if my Safeway card tracked my spending, and based on reaching pre-set levels, I could graduate into silver and gold member levels? What if those levels gave me automatic coupons, or added to the discount level on weekly promotions, or were redeemable for things like DVD’s or general merchandise or stuff I don’t usually buy from Safeway?
The point here is to actually REWARD using the loyalty program. Let’s get the fundamental basics down before venturing into the high tech world of personal marketing. This means shifting corporate perceptions of these programs. They are REWARDS for frequent brand choice. They are the retail version of golden hand cuffs. How many business travelers choose airlines of hotels based on their loyalty status with a given program? Why COULDN’T that be a viable model for supermarkets, mass merchants, and even coffee outlets?
At some point we will get sophisticated and use all that data accumulating to create personalized offers, promotional market baskets tailored to the shopping preferences and patterns of the individual. We’ll use that wealth of data to identify infrequent purchases to provide discounts and incentives around. We’ll start to think in terms of what that data will allow us to do for the consumer. How we can use all that information to make their lives easier, more enjoyable, and then link all that good will back to our brands.
If the only benefit from using a loyalty card is a price break, then it is a sales tool not a loyalty card. Loyalty comes from providing the consumer with something they want, as evidenced in the Marriott comment above. Loyalty cards tied to price encourages consumers to have more than one loyalty card and then shop stores to see which has the best price break. Isn’t that the same as shopping the store to see which one has the best price or the best sale price? This type of loyalty card use is no different than competing on price; it has nothing to do with consumer loyalty.
From my point of view, the main issue is the execution step of creativity & personalization. Usually retailers spend a lot in data mining, marketing surveys… and limit their investments in IT architecture required to roll out in real time personalized rewards. Harrah’s success is based on the right mix: intelligence on customer needs and ability to roll out in real time a unique loyalty offer designed by the casino’s team and monitored by corporate people.
Try using the cards to actually manage a loyalty program instead of using them as a qualifier for normal pass through discounts. I would encourage the grocers to hire someone from CVS Drugstores. They don’t use their cards to gateway discounts. They collect information on purchasing patterns and purchasing volume. They send me coupons and rebates via mail based on my purchases in their stores. They seem to have the ability to tie purchases at different stores back to one consumer. I recently had film developed in a different state and received a discount at the register because I had exceeded a threshold (that I wasn’t aware of) in this category. Can you see why this program might encourage me to shop in this store as opposed to the grocers program but offer me discounts that I am denied if I forget my card! Grocers never seem to follow through on anything. The spend millions on a program and then misuse it further alienate customers.
My quick two cents worth: I hate the term loyalty program. Real loyalty is not something that can be purchased. It is earned. Current programs SHOULD be referred to as data-driven marketing programs where (hopefully) the knowledge of the consumer that was once in the hands of the shop-owner is transferred to large organizations as discreet marketing activities. These should be referred to in some way as tailor-made marketing programs. Too often, FAR too often, the programs are expensive additions to a basic discounting tactic, which is ludicrous. If all a retailer is going to do is give away money, it is not necessary to invest in expensive software and hardware. If a retailer IS going to reap the potential that data driven marketing offers, then it MUST invest in the people who understand these programs and in the change management required to get the organization aligned behind a new business model.
After you’ve mastered the basic blocking and tackling tasks of retailing, engendering client loyalty has great potential to impact the bottom line.
Hosting events to hear client feedback and create a setting for client networking is a very powerful loyalty builder. People crave connection.
Would top purchasers of home electronics come together at a flagship store to discuss their hobby and provide feedback to management? How about fashion-conscious clothes shoppers? Would your manufacturers or distributors be willing to cost-share the minimal expense of hosting such an event?
My clients are financial services manufacturers, distributors and retailers. It is generally conceded that financial products are commodities. “Loyalty via product specification” lives only until another manufacturer clones – or trumps – the current killer product.
Some manufacturers (e.g. mutual fund or insurance companies) recognize top clients (sellers) with due diligence meetings. These typically take place at the home office of the manufacturer. There was a time when the attendees were force fed hours of PowerPoint slides by portfolio managers and other technical product experts. The attendees were left to jockey for time and attention to promote their own agendas (often to staffers who can’t really act on the suggestions anyway).
Now the more savvy manufacturers minimize the dog and pony aspects and build in one-on-one feedback sessions, service clinics and attendee roundtable discussions. The participants often have brilliant insights that add value to their fellow attendees. You should hear them share their own best practices.
Similarly, some of the top retail reps bring their own clients (the investors) together for seminar and discussion opportunities. Loyalty is best engendered when product selling is absent, value-added information is available and there is plenty of opportunity for informal networking and two-way communication.
I’d love to know your thoughts.
A couple of really quick comments. To tack on to what Doc has to say…”Customers don’t like to be managed.” Its really a revelation that the loyalty marketing marketers haven’t understood from the start.
Loyalty is owned by the customer – period. Nothing you to with a rewards or so called loyalty program will create it or retain it in mass. It will be earned by your performance not your rewards. It will be earned by customers consistently making the choice to enter your door when they have equal or better alternatives. Why? Because you’ve earned their loyalty and not bought it. (Humming in the background are the famous words of Lennon & McCartney…”Can’t buy me love…everybody tells me so”)
For me, the best loyalty program is when a clerk or manager remembers me. Don’t give me a prearranged discount; show me the value of my regular visits here by treating me with respect. Show me you’re glad I’m back.