May 14, 2007
Chain Store Age: Online Loyalty
By Samantha Murphy
Through a special arrangement, what follows is an excerpt of a current article from Chain Store Age Magazine, presented here for discussion.
As shoppers rely on the web to research merchandise and make purchases, they are also demanding that the medium support store-level services, including loyalty programs. But traditional point-based, or clipless coupon-style programs, just won’t do. Instead, shoppers are demanding immediate, specific and individualized attention that fits their needs and behaviors. So retailers are looking beyond basic store-level methods as they shift their loyalty efforts online.
Some companies are unsure of where to start their online loyalty journeys. Others are already using new programs to collect shopper data, and learn how to attract and cater to each shopper.
“If you are interested in changing your loyalty program or starting a new one, take a step back. Avoid doing so just because the other guys are doing it,” said Lisa Bradner, senior analyst for Cambridge, Mass.-based Forrester Research.
“Think about how you are differentiating yourself from competitors and what you’re doing to drive loyalty, vs. the others,” she said. “And once a program is in place, make sure you leverage it.”
But the bigger challenge is getting started, according to Rick Fernandes, CEO, Webloyalty. Here are a few of his hints on where to begin:
1) Understand your goals: For example, some want to increase the margin of transactions; others want to drive new business. “Once you identify exactly what you want, it’s easier to generate a goal-specific program,” said Mr. Fernandes.
2) Try before you buy: Before embarking on a program, retailers should pretend they are customers to test the service. Said Mr. Fernandes, “If you run into any major issues or if it’s not the way you envisioned it, re-think the process or switch services.”
3) Check references: When picking a Web-based loyalty program, getting company references is key. Also, talk to competing companies as well.
4) Map back: Make sure the loyalty program links back to the company brand and retailing strategy. “Be sure to stress a strong link between your retail channels,” said Mr. Fernandes.
5) Determine the cost of loyalty: Different goals may cost different prices. In the end, however, the benefits may outweigh the financial negatives.
6) Establish a marketing strategy: [Market] through a variety of customer touchpoints. These can include sending marketing messages via order confirmation and status e-mails, and on a variety of places within a retailer’s Web site.
By homing in on the objective, and then complementing that point with the right marketing strategy, retailers can warrant strong results.
Discussion Questions: What would you recommend as criteria for setting up an online loyalty program? Should they differ in any way from store loyalty programs?
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Online loyalty programs for consumers create the opportunity to perform unconstrained customer specific programs. Unconstrained in that they do not have limitations to location or purchase behavior. Traditional programs will take information like a defined geographic based store cluster and provide incentives based upon purchase behavior. For example, a consumer purchasing a 12-pack of cola at a grocery store in Memphis, TN will have a coupon dispense at the register for a $1.00 off their next soft drink purchase.
But what if we wanted to provide incentives to a consumer regardless of what they have purchased but through a tailored demand profile with incentives provided on line. All consumers in a under indexed market that meet the under indexed profile could receive incentives to make purchases more closely aligned with how they should be purchasing. This creates an environment that allows for efficient share driving marketing programs that lead to more effective trip management.
For traditional retailers that do business in the store and also online, they should consolidate their store-loyalty programs into one; this means one loyalty account number that consumers can use in-the-store, or online, as they choose. The ongoing notion of separating these two channels is antiquated and repelling to the retailer’s best consumers that frequent the store, and also purchase online. Retailers need to stop thinking that online is a different planet with an entirely different group of consumers. In most cases these days, its one of the same.
The best loyalty programs maximize margins. For example, some charge a membership fee or require multiple purchases or both. They have a real hurdle for customers to join. The worst ones surrender their margins to their best customers and/or have minimal hurdles (just give them your contact info and anyone can join). One other tip the article omitted: online marketers can test the impact of different loyalty programs. They don’t have to offer the same program to everyone. They can run controlled testing to determine the most profitable tactics. The best idea: Lisa Bradner’s warning “…to avoid embarking on loyalty programs just for the sake of doing it…Avoid doing so just because the other guys are doing it.”
Online loyalty programs will help drive business to your brand. If the consumer has researched the product and your site might have it a little more expensive, but you have a loyalty program, odds are you will get the business.
There should be only one loyalty program. It should be easy, reporting should be informative with the next message of “spend idea,” it should be accurate (nothing is worse than inaccuracies; they will turn off a loyal fan), it should offer suggestions (you bought this and this new product will go with it, just thought you would like to know), and it should give benefits (secret sale, 10% off, new product buy one, get one, etc.) to keep the consumer engaged!
I’d start with making sure there’s some perceived value to the consumer. Without that, the rest of the strategy doesn’t really matter.
I think it’s highly ironic that consumers expect an online loyalty program to be targeted to their individual preferences. Retailers, heed the warning: consumers understand that you’re collecting a lot more detailed information about online shopping behavior (or at least, they understand that it’s easily possible to do this). They expect you to use it for their benefit too. And, it’s a narrow gap to go from expecting that online to expecting it in-store. I think the industry has about 18 months to figure out seamless multi-channel, highly targeted loyalty, before consumers just start to expect you to have it.
The moment I hear the word “shopper loyalty” associated with any kind of retail or marketing program, my red flag goes up. So at the risk of making eyes roll again amongst the RW community, let me reiterate my view that frequent shopper cards have very little to do with evoking loyal feelings among customers and very much to do with the convenience of marketers who require a way to track customer behavior and deliver targeted offers.
Repeat purchase behavior–desirable as it may be–is not loyalty. Trapping customers through points programs, two-tiered pricing and switching barriers evokes not loyal feelings, but cynical ones.
If you think this is splitting hairs, I’m prepared to debate this until all are persuaded that the mere use of “shopper loyalty” as a construct in our business leads inevitably to poor strategic reasoning and misallocation of resources.
Frequent shopper marketing programs, online or offline, will succeed to the extent that they bring discernible value to shoppers. You may “buy” certain shopper behaviors, such as card registration and presentation, with price incentives, for example, but this teaches a mercenary attitude, not a loyal one.
One of my “laws of retailing” holds that “a service standard attainable anywhere will be expected everywhere.” For multi-channel retailers especially, this means frequent shopper program features must be consistent across all points of customer contact.
The best thing about online loyalty programs is that they are generally an “opt-in,” welcomed part of a consumer’s shopping experience. Done properly they are more like being a member of a club than being “sold to.” They are also offered in an environment that is inherently service oriented. As a consumer, I choose to use a website or to receive the weekly special email or holiday exclusives offers. I have already decided these things have value to me, so the “loyalty” portion of the site/experience literally becomes a bonus. That’s a far cry from having someone shove coupons at me at a cash register.
Start by identifying your best customers and asking them what they want in a loyalty program. Every year you spend enormous amounts of money on markdowns. Your loyalty program can help forestall the deep clearance markdowns with a more promotional approach. In so doing, you can pay for the program.
Speaking of paying for the program, talk to your vendors. With a well-designed loyalty program, you’ll be in a position to tall your vendors the attributes of your mutual customers. How frequently do they shop? How much per visit? What companion purchases? They thirst for this information and will pay you for it.
Identifying best customers can be tricky. It isn’t just the ones with the most volume. You want the highest margin, consistently, over years. And you also want to ask your best customer wannabees. These are the good folks that have recently discovered you, visited a few times over the past 12 months. You also want the gift givers, the multi-channels purchasers, the ones that buy broadly, not just in a few categories. Be careful you don’t design a loyalty program for the high volume customers who only visit you during clearance sales.
An important operational decision is how to recognized a customer. You don’t want a program that smacks of customer intrusion. Make sure your customers opt in and tell you how they want to be recognized. If possible, make sure the customer recognition step is consistent between your web site and your physical store. And by all means, ensure privacy.
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Online loyalty programs for consumers create the opportunity to perform unconstrained customer specific programs. Unconstrained in that they do not have limitations to location or purchase behavior. Traditional programs will take information like a defined geographic based store cluster and provide incentives based upon purchase behavior. For example, a consumer purchasing a 12-pack of cola at a grocery store in Memphis, TN will have a coupon dispense at the register for a $1.00 off their next soft drink purchase.
But what if we wanted to provide incentives to a consumer regardless of what they have purchased but through a tailored demand profile with incentives provided on line. All consumers in a under indexed market that meet the under indexed profile could receive incentives to make purchases more closely aligned with how they should be purchasing. This creates an environment that allows for efficient share driving marketing programs that lead to more effective trip management.
For traditional retailers that do business in the store and also online, they should consolidate their store-loyalty programs into one; this means one loyalty account number that consumers can use in-the-store, or online, as they choose. The ongoing notion of separating these two channels is antiquated and repelling to the retailer’s best consumers that frequent the store, and also purchase online. Retailers need to stop thinking that online is a different planet with an entirely different group of consumers. In most cases these days, its one of the same.
The best loyalty programs maximize margins. For example, some charge a membership fee or require multiple purchases or both. They have a real hurdle for customers to join. The worst ones surrender their margins to their best customers and/or have minimal hurdles (just give them your contact info and anyone can join). One other tip the article omitted: online marketers can test the impact of different loyalty programs. They don’t have to offer the same program to everyone. They can run controlled testing to determine the most profitable tactics. The best idea: Lisa Bradner’s warning “…to avoid embarking on loyalty programs just for the sake of doing it…Avoid doing so just because the other guys are doing it.”
Online loyalty programs will help drive business to your brand. If the consumer has researched the product and your site might have it a little more expensive, but you have a loyalty program, odds are you will get the business.
There should be only one loyalty program. It should be easy, reporting should be informative with the next message of “spend idea,” it should be accurate (nothing is worse than inaccuracies; they will turn off a loyal fan), it should offer suggestions (you bought this and this new product will go with it, just thought you would like to know), and it should give benefits (secret sale, 10% off, new product buy one, get one, etc.) to keep the consumer engaged!
I’d start with making sure there’s some perceived value to the consumer. Without that, the rest of the strategy doesn’t really matter.
I think it’s highly ironic that consumers expect an online loyalty program to be targeted to their individual preferences. Retailers, heed the warning: consumers understand that you’re collecting a lot more detailed information about online shopping behavior (or at least, they understand that it’s easily possible to do this). They expect you to use it for their benefit too. And, it’s a narrow gap to go from expecting that online to expecting it in-store. I think the industry has about 18 months to figure out seamless multi-channel, highly targeted loyalty, before consumers just start to expect you to have it.
The moment I hear the word “shopper loyalty” associated with any kind of retail or marketing program, my red flag goes up. So at the risk of making eyes roll again amongst the RW community, let me reiterate my view that frequent shopper cards have very little to do with evoking loyal feelings among customers and very much to do with the convenience of marketers who require a way to track customer behavior and deliver targeted offers.
Repeat purchase behavior–desirable as it may be–is not loyalty. Trapping customers through points programs, two-tiered pricing and switching barriers evokes not loyal feelings, but cynical ones.
If you think this is splitting hairs, I’m prepared to debate this until all are persuaded that the mere use of “shopper loyalty” as a construct in our business leads inevitably to poor strategic reasoning and misallocation of resources.
Frequent shopper marketing programs, online or offline, will succeed to the extent that they bring discernible value to shoppers. You may “buy” certain shopper behaviors, such as card registration and presentation, with price incentives, for example, but this teaches a mercenary attitude, not a loyal one.
One of my “laws of retailing” holds that “a service standard attainable anywhere will be expected everywhere.” For multi-channel retailers especially, this means frequent shopper program features must be consistent across all points of customer contact.
The best thing about online loyalty programs is that they are generally an “opt-in,” welcomed part of a consumer’s shopping experience. Done properly they are more like being a member of a club than being “sold to.” They are also offered in an environment that is inherently service oriented. As a consumer, I choose to use a website or to receive the weekly special email or holiday exclusives offers. I have already decided these things have value to me, so the “loyalty” portion of the site/experience literally becomes a bonus. That’s a far cry from having someone shove coupons at me at a cash register.
Start by identifying your best customers and asking them what they want in a loyalty program. Every year you spend enormous amounts of money on markdowns. Your loyalty program can help forestall the deep clearance markdowns with a more promotional approach. In so doing, you can pay for the program.
Speaking of paying for the program, talk to your vendors. With a well-designed loyalty program, you’ll be in a position to tall your vendors the attributes of your mutual customers. How frequently do they shop? How much per visit? What companion purchases? They thirst for this information and will pay you for it.
Identifying best customers can be tricky. It isn’t just the ones with the most volume. You want the highest margin, consistently, over years. And you also want to ask your best customer wannabees. These are the good folks that have recently discovered you, visited a few times over the past 12 months. You also want the gift givers, the multi-channels purchasers, the ones that buy broadly, not just in a few categories. Be careful you don’t design a loyalty program for the high volume customers who only visit you during clearance sales.
An important operational decision is how to recognized a customer. You don’t want a program that smacks of customer intrusion. Make sure your customers opt in and tell you how they want to be recognized. If possible, make sure the customer recognition step is consistent between your web site and your physical store. And by all means, ensure privacy.